Spartan Capital is a private equity firm headquartered in Denver Colorado that manages an investment portfolio valued at approximately $8.5 billion with a heavy emphasis in the energy sector.

Spartan Capital has made lots of money investing in this area especially with one publicly traded company called Bogue Street Producers, Inc. in which they have a fairly sizable investment.

Bogue Street Producers has done very well financially by buying up thousands of old nonproducing oil wells throughout the country at extremely attractive prices and then bringing those wells back into production using a relatively new technological advancement called fracking.

Bogue Streets capital structure enables it to produce oil at a fully absorbed cost of approximately $35/barrel and thereafter sells the oil into the marketplace at an average selling price of $50/barrel.

Bogue Street Producers balance sheet as of February 29, 2020 is summarized as follows:

Cash $ 85,500,000 Accounts Payable $ 75,766,000

Accounts receivable 759,800,000 Bonds payable 2,500,000,000

Notes receivable 345,890,000 Long-term debt 127,876,000

Inventory (LIFO) 750,567,000 Total liabilities 2,703,642,000

PPE (oil wells @ BV) 5,772,890,000

Other assets 345,000,000 Shareholders Equity 5,356,005,000

Total assets $ 8,059,647,000 Total liabilities & equity $ 8,059,647,000

Other explanatory notes as respects the year-end balance sheet include the following:

1. Accounts receivable and notes receivable are from a variety of companies and are considered fully collectible at the balances stated in the financial statements.
2. Inventory consists of unrefined crude oil stored at various locations pending sale around the country with one overall significant LIFO layer valued at $750,000,000 or $35/barrel.
3. The property plant and equipment consist primarily of purchased oil wells throughout the country net of accumulated depreciation. The fair market value of these oil wells is approximately $2.5 billion based primarily on the ongoing price for the foreseeable future of $20/barrel for crude oil.

From an income perspective, Bogue Street Producers has been averaging approximately $180/million net income per quarter over the last several years during a time when they sold their oil into the marketplace at an average of $50/barrel.

Spartan Capital is run by a gentleman named Bill Boyce who is a Michigan State graduate and a longtime snow skiing friend of Shaun Coulson who you report to at Spartan Aviation in Seattle. Shaun has told his friend Bill about how you've become a critically valuable component of their management team at Spartan Aviation by among other things, recognizing megatrends in the marketplace and then using GAAP to quantify the economic reality of those things for use by management in making strategic decisions.

As a favor to Bill Boyce, Shaun has asked that you to take the corporate jet down to Aspen and meet with Bill at his Aspen chalet. Specifically, Bill would like your perspective on their investment in Bogue Street Producers as he struggles with what they might do with this investment in the near term and going forward now that Bill is completely convinced that oil will remain at $20/barrell for the foreseeable future.

Specifically, Bill Boyce has asked for your opinion on the following:

1) What financial statement adjustments will Bogue Street Producers need to make to their March 31 balance sheet and income statement now that oil is forecasted by the experts to remain at $20/barrel for the foreseeable future (please identify and quantify these items with the GAAP conceptual reference)?

2) Please also briefly share with Bill your perspective on how each of the following might factor in to the ability of Bogue Street Producers to continue on as a going concern: i) resolution of the Saudi Arabia/Russian oil price war, and ii) Congress potentially designating the US oil production business as a distressed industry worthy of grants and/or a capital infusion in an effort to save the industry.

Bill has asked you to prepare a one-page business memo to him addressing these items and for his usage as he prepares for an investment committee meeting of Spartan Capital on April 10.