Business Context and Reporting Period
The supplied filing is Houston American Energy Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2018; this does not match the request metadata naming Abundia Global Impact Group, Inc. The company reports oil and gas exploration and production operations in the United States and Colombia. First-quarter production and revenue came from U.S. properties; Colombia generated no revenue.
Financial Performance and Position
- Revenue: $754,157, versus $57,633 in Q1 2017, an increase of 1,209%. Management attributed the increase to production from two Reeves County wells and higher realized prices. Reported product revenue was oil $485,532 and natural gas $268,625; no natural gas liquids revenue.
- Expenses and profit: Operating expenses were $807,068, including $263,285 of lease operating expense and severance tax, $421,724 of general and administrative expense, $25,349 of stock-based compensation, and $96,710 of depreciation and depletion. Operating and net loss were both $52,911, compared with a $502,514 operating loss and $502,399 net loss in Q1 2017. Operating margin was approximately negative 7% of revenue.
- Cash flow: Operating activities used $110,376, investing activities used $7,277, and financing activities used $62,850, resulting in a $180,503 decrease in cash. The cash-flow statement reports quarter-end cash of $211,559.
- Liquidity and debt: Current assets were $687,791 and current liabilities $100,612, yielding working capital of $587,179. Total liabilities were $184,970, including $84,358 of long-term liabilities; the balance sheet shows no conventional borrowings. Cash was $211,559 on the balance sheet, versus $392,062 at December 31, 2017.
- Assets and equity: Total assets were $7,418,316, including net oil and gas property and equipment of $6,724,358. Shareholders’ equity was $7,233,346. The company had 59,510,101 common shares outstanding at March 31, 2018.
Changes Versus the Prior Comparable Period
- Net oil production rose to 7,978 barrels from 876; net gas production rose to 63,409 Mcf from 4,590. Average realized oil and gas prices increased to $60.85 per barrel and $4.24 per Mcf, respectively, from $47.91 and $3.42.
- Lease operating expense increased substantially with operation of the Reeves County wells; depreciation and depletion also increased. General and administrative expense declined 6%, and stock-based compensation declined 64%.
- Operating cash use improved from $361,938 in Q1 2017. Investing cash use fell from $997,985, when the company acquired Reeves County acreage. Financing cash flow changed from $1.2 million provided by preferred-stock issuance in 2017 to $62,850 used for preferred dividends in 2018.
Outlook, Risks, and Unusual Items
- Management planned additional drilling on Reeves County acreage in 2018, but had no established drilling budget; timing and well count depended principally on the operator and other factors. Cash and current well revenues were expected to support operations but not the company’s share of drilling and completion costs. Management said additional capital would be required and that there was no assurance it could be obtained on acceptable terms or at all.
- The operator in Colombia continued discussions with officials to obtain permits to drill on the Serrania concession or compensation for the concession and related investment. No Colombian drilling was then contemplated; the company said failure to fund acreage commitments could result in penalties or loss of interests.
- The company had no oil or gas hedges and identified commodity-price volatility as a significant risk. The filing also discusses dependence on the Reeves County operator and uncertainty around future drilling, financing, and acquisitions.
- Disclosure controls and procedures were reported ineffective as of March 31, 2018, reflecting a material weakness in segregation of duties after the CFO’s departure. Management relied on third-party consultants and its accounting firm for financial reporting assistance.
- The company adopted Topic 606 revenue accounting on January 1, 2018; it reported no significant opening-balance adjustment or significant change to revenue timing or valuation. It reported $594,187 of future office lease payments through 2022.
- During the quarter, 50 Series A preferred shares converted into 250,000 common shares; the company paid $62,850 in preferred dividends. It also granted options to purchase 1.5 million common shares.
Important Facts to Verify
- Confirm the issuer: the filing identifies Houston American Energy Corp., not Abundia Global Impact Group, Inc.
- Resolve numerical inconsistencies in the supplied filing text: MD&A reports cash of $208,559 versus $211,559 in the balance sheet and cash-flow statement; MD&A reports oil sales of $485,432 versus $485,532 in the financial statements; and MD&A reports lease operating expense of $263,585 versus $263,285 in the statement of operations.
- Verify available funding and the operator’s proposed timing, number, and cost of Reeves County wells, given management’s stated need for additional capital.
- Monitor resolution of Colombian permitting or compensation discussions and remediation of the disclosed material weakness in disclosure controls.