At its next meeting, the board will belatedly consider the FY2021 financial statements. Will it follow the rules or conceal the fact that the $884,607 Well #7 “asset” in fact has no value. It is appalling that this question has to be asked, but the board’s record of flouting the rules make it an even-money bet that it will opt for concealment once again.
As readers know, Crestview tried for years to get a permit to drill Well #7 at 191 Alviso. It failed to get the approval of the County Planning Director, and the Planning Commission voted 5-0 against it in June 2020. The appeal to the Board of Supervisors was rejected 5-0 in September 2021. That was the official end of any possibility of putting a well at that location, and the board gave up on it and started looking for other well sites. The documents on Crestview’s website describing the Well #7 project have been removed, and Well #7 has disappeared from the general manager’s monthly reports.
The last trace of Well #7 is the balance sheet account for accumulated professional fees and expenses of trying to get the permit. Shockingly, that total was $879,198 as of November 30, 2021 and increased to $884,607 in the next few months. (In contrast, we estimate the opponents of that permit spent less than $20,000.)
State law requires Crestview to produce financial statements that comply with generally accepted accounting principles (“GAAP”), and GAAP requires that worthless assets be “written off” by a matching charge to the income statement. Perhaps some members of the board would be embarrassed to vote for this “clean up on Aisle 7,” but the consequences of not doing the right thing could be much worse.
Issuing incorrect financial statements can have serious consequences for the company and responsible officials. This report will go to existing lenders and to any new lender or grant-maker whose money we will need for any new well or other capital project. That could be a crime. Existing lenders are accustomed to restructuring debt when the borrower runs into trouble, but they will not tolerate being lied to. Issuing non-compliant financial statements for FY2021 could seriously impact Crestview’s future access to loans and grants.
Writing off Well #7 would not impair Crestview’s viability, solvency, or creditworthiness. It would have enough cash to repay the loan if it were called (which it won’t be). Most shareholders would not notice the million dollar “loss” in FY2021–or even look at the financial statements. The loss would be on paper only, and there would be no change in the company’s cash position.
We hope common sense on these issues will prevail over the board’s instinct for secrecy. Write off Well #7. And, while you are cleaning things up, disclose in a footnote the multimillion-dollar risks that Crestview has taken on in the Calleguas contract for Well #8.