Houston American Energy Corp. (HUSA) — Q2 2023 Form 10-Q
Filing identity: The supplied filing is for Houston American Energy Corp., not Abundia Global Impact Group, Inc. It covers the quarter and six months ended June 30, 2023; filed August 14, 2023. Financial statements are unaudited.
Business context and reporting period
Houston American is an oil and gas company with producing U.S. properties and an equity-method investment in Hupecol Meta LLC, which operates in Colombia. The company says its current focus is development of its Colombia CPO-11 assets. No drilling took place on its U.S. properties in the first half of 2023. Hupecol Meta drilled and began production from the Venus 1-H well during the half-year.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Oil and gas revenue | $204,390 | $462,989 | $434,414 | $886,809 |
| Operating income (loss) | ($658,880) | $2,107 | ($919,316) | ($163,684) |
| Net income (loss) | ($300,381) | $4,365 | ($196,206) | ($161,195) |
| Basic loss per share | ($0.03) | $0.00 | ($0.02) | ($0.02) |
- Q2 total operating expenses were $863,270, including $716,615 of general and administrative expense. The filing does not report a gross margin.
- Six-month operating cash flow was negative $217,467, versus negative $29,361 in the prior-year period. Investing used $448,909; financing provided $1,652,000, principally from the ATM stock offering. Cash increased by $985,624 to $5,532,834.
- At June 30, cash was $5,532,834 and working capital was $5,825,671. Current assets were $5,992,886 against current liabilities of $167,215. Total liabilities were $337,769, including lease liabilities; the filing reports no debt borrowing balance.
- Total assets were $13,272,752 and shareholders’ equity was $12,934,983. The accumulated deficit was approximately $74.0 million.
- Hupecol Meta distributions of $648,475 were reported as other income for the first half; interest income was $74,635. The company also contributed $481,947 to the investment.
Material changes versus the prior comparable period
- Revenue declined 56% in Q2 and 51% for the first half. Management attributed the decline to lower production and realized prices: first-half net oil production fell 20%, average oil price fell 28%, natural gas production fell 6%, and average gas price fell 77%.
- First-half net loss increased to $196,206 from $161,195, while Q2 shifted from modest net income to a $300,381 loss. Lower operating revenue and higher G&A contributed; Hupecol distributions and higher interest income partly offset operating losses.
- First-half G&A excluding stock compensation rose 71% to $884,119. Management cited a $200,000 CEO bonus and approximately $150,000 of increased professional fees. Stock-based compensation was $162,315, up from $111,005.
- Cash increased compared with year-end 2022, supported by $1.652 million of net ATM proceeds from 578,707 shares sold. Shares outstanding increased to 10,906,353 at June 30 from 10,327,646 at December 31, 2022.
Outlook, risks and notable items
- Management said cash on hand should fund operating costs and anticipated drilling for at least the next 12 months, including planned 2023 wells. It expects U.S. production and reported revenue to continue declining for the foreseeable future because it has no present plan to drill domestic replacement wells.
- Hupecol spud and sidetracked the Venus 2-H well in July 2023; it was completed and placed on production in August. The company’s estimated share of its cost is stated as approximately $600,000 in one section and approximately $490,000 in another.
- Additional acreage or expanded drilling could require new capital. The company has no funding commitments, says available authorized shares for equity raises are limited, and warns that inability to fund drilling obligations could result in penalties, loss of interests, or curtailed activity.
- The company has incurred continuing losses since 2011. Management nevertheless concluded it could meet anticipated needs for the coming twelve months. Results depend on operator decisions, commodity prices, well performance, financing availability, and drilling costs. The company reports no historical hedging program and warns of oil and gas price volatility.
- Disclosure controls and procedures were deemed ineffective as of June 30, 2023, due to lack of segregation of duties following the CFO’s 2013 departure and the CEO’s assumption of principal financial officer duties. The company relies on outside consultants for financial reporting; no material control change occurred during the quarter.
- The CEO received a $200,000 cash bonus during the first half, and annual base salary increased from $180,000 to $240,000 effective July 1, 2023.
- Cash deposits included approximately $5.1 million above the FDIC insurance limit, plus $5,500 in Colombian banks not insured by the FDIC.
Important facts for investors to verify
- Confirm the filing is for Houston American Energy Corp. (HUSA), given the request metadata identifies a different company.
- Reconcile the Venus 2-H ST1 estimated company cost: approximately $600,000 in the recent developments discussion versus approximately $490,000 in MD&A.
- Review the expected timing, costs, and funding obligations for Hupecol’s drilling program, and whether the stated cash runway remains sufficient.
- Assess continued U.S. production and revenue declines, dependence on commodity prices, and the nature and repeatability of Hupecol distributions recorded as other income.
- Evaluate dilution from ATM sales and outstanding options and warrants, and monitor remediation of the disclosed ineffective controls.