Houston American Energy Corp. (NYSE American: HUSA) — 2021 Form 10-K
Entity note: The request metadata names Abundia Global Impact Group, Inc., but the supplied filing is for Houston American Energy Corp. This summary reflects the filing provided. Fiscal year ended December 31, 2021; filed March 31, 2022. Comparative period: year ended December 31, 2020.
Business context
Houston American is a small, non-operating oil and gas company focused on U.S. Permian Basin properties, with additional Gulf Coast interests and exploration acreage in Colombia. Third-party operators control its drilling and operating activity. In 2021, it held four gross U.S. producing wells, equivalent to 0.68 net wells, and reported no Colombian production. It drilled no wells during the year; a Hockley County well was plugged and abandoned after a failed fracturing operation.
Financial and operating results
| Metric | 2021 | 2020 |
|---|---|---|
| Oil and gas revenue | $1.330 million | $0.552 million |
| Operating loss | $1.034 million | $4.183 million |
| Net loss | $1.022 million | $4.037 million |
| Net loss attributable to common shareholders | $1.059 million | $4.269 million |
| Operating cash flow | $(0.681) million | $(0.865) million |
| Cash at year-end | $4.895 million | $1.243 million |
| Working capital | $5.053 million | $1.143 million |
| Total liabilities | $0.422 million | $0.403 million |
- Revenue rose 141%, driven by higher realized prices and increased oil volumes, partly offset by lower gas volumes. Oil production increased 26% to 14,367 barrels; gas production declined 13% to 60,069 Mcf.
- Average realized prices increased to $63.60 per barrel of oil from $35.63 and $4.13 per Mcf of gas from $1.14. Average production cost rose to $33.67 per BOE from $16.59.
- The 2021 operating loss improved substantially, mainly because 2020 included a $2.519 million impairment charge. No impairment was recorded in 2021. The company has reported operating losses each year since 2011 and had an accumulated deficit of $73.043 million.
- Operating expenses included $626,210 of lease operating expense and severance tax, $1.493 million of general and administrative expense, and $245,606 of depreciation and depletion. The filing’s MD&A separately describes lease operating expenses as $606,210, an apparent inconsistency to verify.
- Financing provided $4.571 million of net cash in 2021. ATM stock sales generated $6.576 million net; the company used $1.968 million to redeem all remaining Series A and Series B preferred stock and paid $37,201 in preferred dividends. Shares outstanding increased from 6,977,718 to 9,928,338.
- There was no material conventional borrowing disclosed at year-end. Liabilities included $268,918 of operating lease obligations (current and long-term) and a $68,209 plugging and abandonment reserve.
- Proved reserves were 94,551 barrels of oil and 906,918 Mcf of gas, or approximately 245,704 BOE; there were no proved undeveloped reserves. The standardized measure of discounted future net cash flows was $3.381 million, versus $1.174 million in 2020. These estimates are price- and assumption-sensitive and are not a measure of current market value.
Material changes, outlook and risks
- The company increased its indirect interest in Colombia’s CPO-11 block through a $99,716 additional contribution to Hupecol Meta; its reported ownership in Hupecol Meta rose to 7.85%. Total 2021 investment in Hupecol Meta was $195,374.
- Management expected CPO-11 drilling to begin in mid-2022, subject to industry conditions and operator decisions. No additional U.S. drilling was then planned. The filing says cash on hand should cover operating costs and anticipated 2022 drilling for at least the next 12 months after issuance, but additional acquisitions or expanded drilling could require new financing.
- Financing flexibility is constrained: the company reported only about 987,096 authorized common shares available for issuance after outstanding shares and reservations, and a proposed increase in authorized shares did not receive sufficient shareholder approval. No committed debt or equity financing was in place.
- Three of four Colombian concessions face extended permitting delays and local opposition; activity on Serrania, Los Picachos and Macaya was on hold. The operator was pursuing permits or compensation, and the company could lose some or all of its investment if development cannot proceed. Colombia also presents political, security, partner-control and foreign-corruption compliance risks.
- Other key risks include volatile commodity prices, dependence on a small number of wells and third-party operators, lease expiration risk (some U.S. undeveloped acreage was due to expire in October 2022 absent production), service-cost and supply constraints, environmental and hydraulic-fracturing regulation, and limited insurance for certain losses. The company had no commodity hedges and sold production on spot markets.
- Management reported that disclosure controls and internal control over financial reporting were ineffective at year-end, citing lack of segregation of duties because the CEO also served as principal financial officer. The company relied on outside consultants; no auditor attestation on internal controls was provided.
- As a subsequent event, the company agreed in principle in March 2022 to pay $35,000 for its share of plugging costs on a well after another participant defaulted. Management reported no known pending litigation as of March 22, 2022 that it believed could materially affect results or financial condition.
Investor verification priorities
- Confirm that this HUSA filing is the intended company filing, given the different company named in the request metadata.
- Reconcile the $606,210 versus $626,210 lease operating expense disclosure and check the reserve table’s inconsistent oil-volume figures; the filing’s principal reserve table reports 94,551 barrels.
- Verify the status, timing, economics and funding requirements of the anticipated CPO-11 drilling and the unresolved Colombian permitting matters.
- Assess liquidity against continuing operating cash outflows, the company’s limited remaining authorized shares, and its ability to finance activity beyond the stated 2022 plan.
- Review the material weakness in financial reporting controls, the small management team, and progress toward improving controls and segregation of duties.