Filing Summary
Issuer identification: The supplied filing is Houston American Energy Corp.’s Form 10-K, not a filing identified as Abundia Global Impact Group, Inc. It reports the fiscal year ended December 31, 2020; the filing was signed March 31, 2021.
Business context and reporting period
Houston American is a non-operating oil and gas company focused mainly on the Permian Basin, with additional Gulf Coast and Colombian interests. It relies on third-party operators to manage drilling and production. U.S. operations generated all oil and gas revenue in 2020; Colombian interests had no production or revenue.
Financial and operating results
| Metric | 2020 | 2019 |
|---|---|---|
| Oil and gas revenue | $552,345 | $997,992 |
| Operating loss | $4,182,769 | $2,333,683 |
| Net loss | $4,037,074 | $2,515,694 |
| Net loss attributable to common shareholders | $4,268,974 | $2,746,094 |
| Basic and diluted loss per share | $0.62 | $0.52 |
| Cash from (used in) operations | $(864,787) | $(725,019) |
| Cash at year-end | $1,242,560 | $97,915 |
| Working capital | $1,142,512 | $(748,426) |
Revenue fell 45%, reflecting lower production, lower realized prices and reduced royalties. Oil production declined to 11,385 barrels from 13,674; gas production declined to 69,433 Mcf from 116,629. Average realized oil price was $35.63 per barrel versus $55.73; gas was $1.14 per Mcf versus $2.02. Lease operating expense fell 49% to $403,974, while impairment expense rose to $2,519,032 from $745,691. General and administrative expense was $1,447,298, including $434,581 of stock-based compensation.
Net cash used in investing activities was $1,571,785, principally for property acquisition and development. Financing activities provided $3,581,217, primarily from common-stock sales, partly offset by repayment of the bridge loan and preferred dividends. The $621,052 bridge loan was repaid in January 2020. Year-end liabilities were $403,447, consisting mainly of lease liabilities and plugging obligations; no notes payable remained. Operating lease obligations totaled $245,638.
Year-end proved reserves were 96,513 barrels of oil and 764,274 Mcf of gas, or 223,892 BOE, all proved developed; there were no proved undeveloped reserves. The standardized measure of discounted future net cash flows was $1,174,132, down from $3,566,093 in 2019. The company recorded no income tax expense or benefit.
Material changes and unusual items
- Results worsened as revenue declined and impairment expense increased. The filing attributes the impairment primarily to lower energy prices and downward revisions to expected production.
- All 282,123 BOE of beginning proved undeveloped reserves were removed through reassessment, principally related to Reeves County acreage.
- Three wells were drilled in 2020: Frost #2H began production; Lou Brock #1-H was shut in after fracking problems; and Colombia’s Montuno-1 was a dry hole. The O’Brien #3-H was shut in for repairs at year-end.
- The company recognized $164,706 of non-recurring other income from recovery of previously written-off escrow funds.
- In July 2020, the company effected a 1-for-12.5 reverse stock split. It raised approximately $4.4 million net through its 2019 ATM offering during 2020. January and February 2021 ATM offerings raised approximately $6.5 million net; the company also redeemed its remaining Series A and Series B preferred stock for approximately $1.97 million plus accrued dividends. Common shares outstanding were 6,977,718 at year-end and 9,923,338 at March 29, 2021.
Outlook, risks and controls
Management said cash on hand, including subsequent 2021 equity proceeds, was expected to fund operating costs and anticipated 2021 drilling for at least the next twelve months. It cautioned that expanded drilling or acquisitions could require additional capital, for which there were no commitments. Drilling schedules depend substantially on operators and commodity prices, financing, well performance and service availability. The company provided no specific production or earnings guidance.
Key risks include continued operating losses, volatile oil and gas prices, COVID-19 effects, limited access to capital, dependence on a small number of wells and third-party operators, drilling and completion failures, and Colombian permitting, political and security uncertainty. Colombian concessions face prolonged permitting disputes; activity on several prospects is on hold. The company reported no material pending litigation as of March 29, 2021.
Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2020, citing a material weakness arising from the CEO also serving as principal financial officer and the resulting lack of segregation of duties. The company relies on outside consultants to assist with financial reporting. The financial statement audit opinion was unqualified; the auditor did not express an opinion on internal control effectiveness.
Important facts for investors to verify
- Confirm the issuer: this filing is for Houston American Energy Corp. (NYSE American: HUSA), not Abundia Global Impact Group, Inc.
- Review the severity and assumptions behind the $2.52 million impairment and the substantial reduction in proved reserves and reserve value.
- Assess cash runway against operating cash burn, planned drilling and the use of 2021 ATM proceeds, including preferred-stock redemption.
- Track remediation of the disclosed internal-control material weakness and any subsequent changes to management’s reporting responsibilities.
- Monitor resolution of the Lou Brock fracking issues, well performance, Colombian permit disputes and operator decisions affecting development plans.