Business context and reporting period
The supplied filing is Houston American Energy Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023—not a filing identified as Abundia Global Impact Group, Inc. The company produces oil and gas from U.S. properties and holds an equity investment in Hupecol Meta LLC, which operates in Colombia. U.S. production and revenue are consolidated; Hupecol Meta’s results are generally reflected through distributions and the equity investment.
Financial performance and condition
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Oil and gas revenue | $112,994 | $427,256 | $547,408 | $1,314,065 |
| Operating loss | $(402,684) | $(402,068) | $(1,322,000) | $(565,752) |
| Net income (loss) | $223,368 | $(391,280) | $27,162 | $(552,475) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $211,463 | $(202,900) |
- Nine-month revenue fell 58%; Q3 revenue fell 74%. Management attributed the declines to lower oil and gas production and lower realized prices. Nine-month oil production declined 30% and gas production 25%; average oil and gas prices fell 26% and 77%, respectively.
- Operating expenses were $515,678 in Q3 and $1,869,408 for nine months. The filing does not provide a stated operating-margin figure. Lower revenue left operating losses broadly unchanged in Q3 and increased the nine-month operating loss.
- Net income included significant other income: $626,052 in Q3 and $1,349,162 for nine months, principally Hupecol distributions ($586,626 and $1,235,101, respectively) plus interest income. Thus reported net income did not represent profitable consolidated oil and gas operations.
- Cash was $4,456,158 at September 30, 2023, versus $4,547,210 at year-end 2022. Working capital was $4,314,969, down from $4,601,168. Cash declined $91,052 over the nine-month period after $1,954,515 of investing outflows and $1,652,000 of net ATM proceeds.
- Total liabilities were $746,702, including $163,631 of present-value operating lease liabilities; the filing reports no borrowings. Long-term liabilities were $152,904. Total assets were $13,955,720 and shareholders’ equity was $13,209,018.
- Hupecol Meta equity investment was $4,390,467, up from $2,102,139 at year-end. The company contributed $2,288,328 to Hupecol Meta during the nine months. The filing reports no income tax expense.
Material changes and developments
- Hupecol Meta drilled and brought two horizontal Colombia wells into production during the period; it had three wells producing and one shut in at September 30. The company’s estimated share of costs for the two new wells was approximately $900,000.
- The company ended its interests in the Picachos and Macaya blocks, following the earlier release of the Serrania block. Related costs are to be reclassified and evaluated for impairment.
- The company sold 578,707 shares through its ATM offering, receiving $1,652,000 net. Shares outstanding were 10,906,353 at September 30, versus 10,327,646 at December 31, 2022.
- General and administrative expense, excluding stock compensation, rose 18% for the nine months to $1,196,463, which management attributed to higher professional fees. The company also paid its CEO a $200,000 cash bonus and raised annual base salary from $180,000 to $240,000 effective July 1, 2023.
Outlook, risks and contingencies
- Management said cash on hand should fund operating costs and anticipated drilling operations for at least the 12 months following issuance. The company has an accumulated deficit of approximately $74 million and a history of continuing losses.
- Management expects reported production and revenue to continue declining for the foreseeable future because U.S. production is naturally declining and there are no current plans to drill domestic replacement wells. Hupecol is evaluating potential monetization of Colombian assets; timing and outcome are uncertain. The filing says there are no planned Colombia drilling operations pending that evaluation, while existing wells are expected to continue operating.
- Further acquisitions or expanded drilling could require additional financing. The company has no committed additional funding, limited authorized shares available for capital raising, and cannot assure financing on acceptable terms. Failure to fund drilling obligations could result in penalties, loss of acreage interests, or curtailed operations.
- Oil and gas prices are volatile; the company says it has not historically hedged this exposure. Inflation could raise costs, although management said it had not significantly affected operations to date.
- Disclosure controls and procedures were deemed ineffective at September 30, 2023. The filing identifies inadequate technical accounting expertise and lack of segregation of duties as material weaknesses; the company relies on outside consultants while seeking to remedy them.
- Cash deposits included $4.2 million above the FDIC insurance limit, plus $3,882 in Colombian banks not insured by the FDIC. The filing reports no material impact from adopting the current expected credit loss standard.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing names Houston American Energy Corp. (NYSE American: HUSA), not Abundia Global Impact Group, Inc.
- Review the source and sustainability of Hupecol distributions, which materially supported reported net income and are not described by management as a measure of Hupecol’s operating results for the period.
- Track Hupecol’s asset-monetization evaluation, future drilling plans, well performance, and the company’s related capital obligations.
- Assess the effect of continued U.S. production declines, commodity prices, and potential financing needs on liquidity and future results.
- Monitor remediation of the disclosed material weaknesses in disclosure controls and financial reporting.