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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
☒ |
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the quarterly period ended
September 30,
2022
OR
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the transition period from ___________ to
______________.
Commission
File Number
1-32955
HOUSTON AMERICAN ENERGY CORP.
(Exact
name of registrant as specified in its charter)
Delaware |
|
76-0675953 |
(State
or other jurisdiction
of
incorporation or organization)
|
|
(IRS
Employer
Identification
No.)
|
801 Travis Street,
Suite 1425,
Houston,
Texas
77002 |
(Address
of principal executive offices)(Zip Code) |
(713)
222-6966 |
(Registrant’s
telephone number, including area code) |
|
(Former
name, former address and former fiscal year, if changed since last
report) |
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common Stock, $0.001 par value per share |
|
HUSA |
|
NYSE American |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definition of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated filer |
☒ |
Smaller
reporting company |
☒ |
Emerging
growth company |
☐ |
|
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).Yes ☐
No ☒
As of
November 14, 2022, we had
9,928,338 shares of $0.001 par value common stock
outstanding.
HOUSTON AMERICAN ENERGY CORP.
FORM
10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM
1 |
Financial Statements |
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND
2021
(Unaudited)
The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND
2021
(Unaudited)
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Preferred
Stock |
|
|
Common
Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– December 31, 2020 |
|
|
1920 |
|
|
$ |
2 |
|
|
|
6,977,718 |
|
|
$ |
6,977 |
|
|
$ |
78,453,906 |
|
|
$ |
(72,021,911 |
) |
|
$ |
6,438,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, net |
|
|
— |
|
|
|
— |
|
|
|
2,921,620 |
|
|
|
2,922 |
|
|
|
6,572,967 |
|
|
|
— |
|
|
|
6,575,889 |
|
Stock-based
compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,109 |
|
|
|
— |
|
|
|
15,109 |
|
Conversion
of Series A Preferred Stock to common stock |
|
|
(60 |
) |
|
|
— |
|
|
|
24,000 |
|
|
|
24 |
|
|
|
(24 |
) |
|
|
— |
|
|
|
— |
|
Redemption
of Series A and Series B Preferred Stock |
|
|
(1,860 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,967,798 |
) |
|
|
— |
|
|
|
(1,967,800 |
) |
Series
A and Series B Preferred Stock dividends paid |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(37,201 |
) |
|
|
— |
|
|
|
(37,201 |
) |
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(268,476 |
) |
|
|
(268,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– March 31, 2021 |
|
|
— |
|
|
|
— |
|
|
|
9,923,338 |
|
|
|
9,923 |
|
|
|
83,036,959 |
|
|
|
(72,290,387 |
) |
|
|
10,756,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(45,344 |
) |
|
|
(45,344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– June 30, 2021 |
|
|
— |
|
|
|
— |
|
|
|
9,923,338 |
|
|
|
9,923 |
|
|
|
83,036,959 |
|
|
|
(72,335,731 |
) |
|
|
10,711,151 |
|
Beginning
balance |
|
|
— |
|
|
|
— |
|
|
|
9,923,338 |
|
|
|
9,923 |
|
|
|
83,036,959 |
|
|
|
(72,335,731 |
) |
|
|
10,711,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
|
— |
|
|
|
— |
|
|
|
5,000 |
|
|
|
5 |
|
|
|
167,035 |
|
|
|
— |
|
|
|
167,040 |
|
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(350,875 |
) |
|
|
(350,875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– September 30, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
9,928,338 |
|
|
$ |
9,928 |
|
|
$ |
83,203,994 |
|
|
$ |
(72,686,606 |
) |
|
$ |
10,527,316 |
|
Ending
balance |
|
|
— |
|
|
$ |
— |
|
|
|
9,928,338 |
|
|
$ |
9,928 |
|
|
$ |
83,203,994 |
|
|
$ |
(72,686,606 |
) |
|
$ |
10,527,316 |
|
The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
HOUSTON AMERICAN ENERGY CORP.
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
1 – BASIS OF
PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
The
accompanying unaudited consolidated financial statements of Houston
American Energy Corp., a Delaware corporation (the “Company”), have
been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q. They do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for a
complete financial presentation. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation, have been included in
the accompanying unaudited consolidated financial statements.
Operating results for the periods presented are not necessarily
indicative of the results that may be expected for the full
year.
These
unaudited consolidated financial statements should be read in
conjunction with the Company’s audited consolidated financial
statements and footnotes, which are included as part of the
Company’s Form 10-K for the year ended December 31,
2021.
Consolidation
The
accompanying consolidated financial statements include all accounts
of the Company and its subsidiaries (HAEC Louisiana E&P, Inc.,
HAEC Oklahoma E&P, Inc., and HAEC Caddo Lake E&P, Inc.).
All significant inter-company balances and transactions have been
eliminated in consolidation.
Liquidity and Capital Requirements
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business for the twelve-month
period following the issuance date of these consolidated financial
statements. The Company has incurred continuing losses since 2011,
including a loss of $552,475 for the nine months ended September
30, 2022.
The
Company believes that it has the ability to fund, from cash on
hand, its operating costs and anticipated drilling operations for
at least the next twelve months following the issuance of these
financial statements.
The
actual timing and number of wells drilled during 2022 and beyond
will be principally controlled by the operators of the Company’s
acreage, based on a number of factors, including but not limited to
availability of financing, performance of existing wells on the
subject acreage, energy prices and industry condition and outlook,
costs of drilling and completion services and equipment and other
factors beyond the Company’s control or that of its
operators.
In
the event that the Company pursues additional acreage acquisitions
or expands its drilling plans, the Company may be required to
secure additional funding beyond our resources on hand. While the
Company may, among other efforts, seek additional funding from
“at-the-market” sales of common stock, and private sales of equity
and debt securities, it presently does not have any commitments to
provide additional funding, has less than 1
million shares of common stock available to support capital raising
efforts and there can be no assurance that the Company can secure
the necessary capital to fund its share of drilling, acquisition or
other costs on acceptable terms or at all. If, for any reason, the
Company is unable to fund its share of drilling and completion
costs, it would forego participation in one or more of such wells.
In such event, the Company may be subject to penalties or to the
possible loss of some of its rights and interests in prospects with
respect to which it fails to satisfy funding obligations and it may
be required to curtail operations and forego
opportunities.
Accounting Principles and Use of Estimates
The
consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States
of America. In preparing financial statements, management makes
informed judgments and estimates that affect the reported amounts
of assets and liabilities as of the date of the financial
statements and affect the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management
reviews its estimates, including those related to such potential
matters as litigation, environmental liabilities, income taxes and
the related valuation allowance, determination of proved reserves
of oil and gas and asset retirement obligations. Changes in facts
and circumstances may result in revised estimates and actual
results may differ from these estimates.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to a concentration
of credit risk include cash, cash equivalents and any marketable
securities (if any). The Company had cash deposits of $3,603,319 in excess of the FDIC’s
current insured limit on interest bearing accounts of $250,000
as of September 30, 2022. The Company also had cash deposits of
$3,722 in Colombian banks at September
30, 2022 that are not insured by the FDIC. The Company has not
experienced any losses on its deposits of cash and cash
equivalents.
Earnings (Loss) per Share
Basic
earnings (loss) per share is computed by dividing net loss
available to common shareholders by the weighted average common
shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common shares were exercised or converted
in common shares that then shared in the earnings of the Company.
In periods in which the Company reports a net loss, dilutive
securities are excluded from the calculation of diluted net loss
per share amounts as the effect would be anti-dilutive.
Recently Issued Accounting Pronouncements
The
Company does not expect the adoption of any recently issued
accounting pronouncements to have a significant impact on its
financial position, results of operations, or cash
flows.
Subsequent Events
The
Company has evaluated all transactions from September 30, 2022
through the financial statement issuance date for subsequent event
disclosure consideration.
NOTE
2 – REVENUE FROM
CONTRACTS WITH CUSTOMERS
Disaggregation
of Revenue from Contracts with Customers
The
following table disaggregates revenue by significant product type
for the three and nine-month periods ended September 30, 2022 and
2021:
SCHEDULE OF DISAGGREGATES REVENUE BY SIGNIFICANT
PRODUCT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended
September
30,
2022
|
|
|
Three
Months
Ended
September
30,
2021
|
|
|
Nine
Months
Ended
September
30,
2022
|
|
|
Nine
Months
Ended
September
30,
2021
|
|
Oil
sales |
|
$ |
245,714 |
|
|
$ |
213,503 |
|
|
$ |
788,619 |
|
|
$ |
689,296 |
|
Natural
gas sales |
|
|
119,644 |
|
|
|
51,984 |
|
|
|
310,850 |
|
|
|
151,808 |
|
Natural
gas liquids sales |
|
|
61,898 |
|
|
|
24,888 |
|
|
|
214,596 |
|
|
|
81,758 |
|
Total
revenue from customers |
|
$ |
427,256 |
|
|
$ |
290,375 |
|
|
$ |
1,314,065 |
|
|
$ |
922,862 |
|
There
were no
significant contract liabilities or transaction price allocations
to any remaining performance obligations as of September 30, 2022
or 2021.
NOTE
3 – OIL AND GAS
PROPERTIES
During
the nine months ended September 30, 2022, the Company invested
$14,160,
net, for the acquisition and development of oil and gas properties,
consisting of cost of development of U.S. properties, net,
principally attributable to final expenses related to the plugging
and abandonment of the Lou Brock well. The full amount invested was
capitalized to oil and gas properties subject to
amortization.
The
Company also invested $781,155
in Hupecol Meta relating to capital contributions for drilling
operations in Colombia and acquisition of additional interest in
Hupecol Meta, reflected in the cost method investment
asset.
During
the three and nine months ended September 30, 2022, the Company
recorded depletion expense of $50,755 and $160,495, respectively. During the three
and nine months ended September 30, 2021, the Company recorded
depletion expense of $21,045 and $79,680, respectively.
Geographical
Information
The
Company currently has properties in two geographical areas, the
United States and Colombia. Revenues for the nine months ended
September 30, 2022 and long lived assets (net of depletion,
amortization, and impairments) as of September 30, 2022
attributable to each geographical area are presented
below:
SCHEDULE OF REVENUES AND LONG LIVED ASSETS
ATTRIBUTABLE TO GEOGRAPHICAL AREA
|
|
Nine
Months Ended September 30, 2022 |
|
|
As of
September 30, 2022 |
|
|
|
|
Revenues |
|
|
|
Long
Lived Assets, Net |
|
United
States |
|
$ |
1,314,065 |
|
|
$ |
2,318,297 |
|
Colombia |
|
|
— |
|
|
|
2,343,126 |
|
Total |
|
$ |
1,314,065 |
|
|
$ |
4,661,423 |
|
NOTE
4 – STOCK-BASED
COMPENSATION EXPENSE
In
2008, the Company adopted the Houston American Energy Corp. 2008
Equity Incentive Plan (the “2008 Plan”). The terms of the 2008
Plan, as amended in 2012 and 2013, allow for the issuance of up to
480,000
shares of the Company’s common stock pursuant to the grant of stock
options and restricted stock.
In
2017, the Company adopted the Houston American Energy Corp. 2017
Equity Incentive Plan (the “2017 Plan”). The terms of the 2017
Plan, allow for the issuance of up to 400,000
shares of the Company’s common stock pursuant to the grant of stock
options and restricted stock.
In
2021, the Company adopted the Houston American Energy 2021 Equity
Incentive Plan (the “2021 Plan” and, together with the 2008 Plan
and the 2017 Plan, the “Plans”). The terms of the 2021 Plan allow
for the issuance of up to 500,000
shares of the Company’s common stock pursuant to the grant of stock
options and restricted stock.
Persons
eligible to participate in the Plans are key employees, consultants
and directors of the Company.
The
Company periodically grants options to employees, directors and
consultants under the Plans and is required to make estimates of
the fair value of the related instruments and recognize expense
over the period benefited, usually the vesting period.
Stock
Option Activity
A
summary of stock option activity and related information for the
nine months ended September 30, 2022 is presented below:
SUMMARY OF STOCK OPTION
ACTIVITY
|
|
Options |
|
|
Weighted-
Average
Exercise
Price |
|
|
Aggregate
Intrinsic Value |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January
1, 2022 |
|
|
990,173 |
|
|
$ |
3.38 |
|
|
|
|
|
Granted |
|
|
60,000 |
|
|
|
3.91 |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeited
/ expired |
|
|
(50,696 |
) |
|
|
20.63 |
|
|
|
|
|
Outstanding at
September 30, 2022 |
|
|
999,477 |
|
|
$ |
2.55 |
|
|
$ |
2,052,817 |
|
Exercisable at
September 30, 2022 |
|
|
939,481 |
|
|
$ |
2.47 |
|
|
$ |
1,629,817 |
|
During the nine months ended September 30, 2022, options to
purchase an aggregate of
60,000 shares of the Company’s common stock were granted to
the Company’s directors. The options have a
ten-year
life, are exercisable at $3.91 per
share, vest 20% on the
date of grant and 80% nine months from the date of grant.
The grant date fair value of these stock options was $216,326 based on the
Black-Scholes Option Pricing model based on the following
assumptions: market value of common stock on grant date –
$3.82; risk free interest
rate based on the applicable US Treasury bill rate – 0%; dividend yield –
0%; volatility factor based
on the trading history of the Company – 121%; weighted
average expected life in years – 10; and expected
forfeiture rate – 0%.
During
the three and nine months ended September 30, 2022 and 2021, the
Company recognized $95,205 and $206,210, and $167,040 and $182,149 respectively, of
stock-based compensation expense attributable to the amortization
of stock options all included in general and administrative
expenses. As of September 30, 2022, total unrecognized stock-based
compensation expense related to non-vested stock options was
approximately $163,735.
The unrecognized expense is expected to be recognized over a
weighted average period of
0.61 years and the weighted average remaining contractual
term of the outstanding options and exercisable options at
September 30, 2022 is
6.32 years and0
years, respectively.
As of
September 30, 2022, there were 181,333 shares of
common stock available for issuance pursuant to future stock or
option grants under the Plans.
NOTE
5 – CAPITAL
STOCK
Warrants
A
summary of warrant activity and related information for 2022 is
presented below:
SUMMARY OF WARRANT
ACTIVITY
|
|
Warrants |
|
|
Weighted-Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2022 |
|
|
98,400 |
|
|
$ |
2.63 |
|
|
|
|
|
Issued |
|
|
— |
|
|
|
— |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
Expired |
|
|
(4,000 |
) |
|
|
6.88 |
|
|
|
|
|
Outstanding
at September 30, 2022 |
|
|
94,400 |
|
|
$ |
2.46 |
|
|
$ |
94,400 |
|
Exercisable
at September 30, 2022 |
|
|
94,400 |
|
|
$ |
2.46 |
|
|
$ |
94,400 |
|
NOTE
6 – EARNINGS PER
COMMON SHARE
Earnings
(loss) per common share-basic is calculated by dividing net income
(loss) by the weighted average number of shares of common stock
outstanding during the period. Net income (loss) per common
share-diluted assumes the conversion of all potentially dilutive
securities and is calculated by dividing net (loss) income by the
sum of the weighted average number of shares of common stock, as
defined above, outstanding plus potentially dilutive securities.
Net (loss) income per common share-diluted considers the impact of
potentially dilutive securities except in periods in which there is
a loss because the inclusion of the potential common shares, as
defined above, would have an anti-dilutive effect.
For
the three and nine months ended September 30, 2022 and 2021, the
following and warrants and options to purchase shares of common
stock were excluded from the computation of diluted net loss per
share, as the inclusion of such shares would be
anti-dilutive:
SCHEDULE OF COMPUTATION OF DILUTED NET LOSS
PER SHARE
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
Three
Months Ended September 30, |
|
|
Nine
Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Stock
warrants |
|
|
94,400 |
|
|
|
98,400 |
|
|
|
94,400 |
|
|
|
98,400 |
|
Stock
options |
|
|
999,477 |
|
|
|
990,173 |
|
|
|
999,477 |
|
|
|
990,173 |
|
Total |
|
|
1,093,877 |
|
|
|
1,088,573 |
|
|
|
1,093,877 |
|
|
|
1,088,573 |
|
NOTE
7 - COMMITMENTS AND
CONTINGENCIES
Lease
Commitment
The
Company leases office facilities under an operating lease agreement
that expires October 31,
2025. During the three and nine months ended September 30,
2022, the operating cash outflows related to operating lease
liabilities totaled $21,560
and $42,136,
respectively, and the expense for the right of use asset for
operating leases totaled $13,769 and
$43,938,
respectively. As of September 30, 2022, the Company’s operating
lease had a weighted-average remaining term of 3
years and a weighted average discount rate of 12%. As of September
30, 2022, the lease agreement requires future payments as
follows:
SCHEDULE OF FUTURE PAYMENTS UNDER LEASE
AGREEMENT
Year |
|
Amount |
|
2022 |
|
|
21,693 |
|
2023 |
|
|
87,288 |
|
2024 |
|
|
88,801 |
|
2025 |
|
|
75,051 |
|
Total
future lease payments |
|
|
272,833 |
|
Less:
imputed interest |
|
|
46,051 |
|
Present
value of future operating lease payments |
|
|
226,782 |
|
Less:
current portion of operating lease liabilities |
|
|
63,150 |
|
Operating
lease liabilities, net of current portion |
|
$ |
163,632 |
|
Right of
use assets |
|
$ |
227,270 |
|
Total
base rental expense was $19,647 and $22,161 for the three months ended
September 30, 2022 and 2021, respectively, and $66,483 and $58,837
for the nine months ended September 30, 2022 and 2021,
respectively. The Company does not have any capital leases or other
operating lease commitments.
ITEM 2 |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
Forward-Looking
Information
This
Form 10-Q quarterly report of Houston American Energy Corp. (the
“Company”) for the nine months ended September 30, 2022, contains
certain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, which are intended
to be covered by the safe harbors created thereby. To the extent
that there are statements that are not recitations of historical
fact, such statements constitute forward-looking statements that,
by definition, involve risks and uncertainties. In any
forward-looking statement, where we express an expectation or
belief as to future results or events, such expectation or belief
is expressed in good faith and believed to have a reasonable basis,
but there can be no assurance that the statement of expectation or
belief will be achieved or accomplished.
The
actual results or events may differ materially from those
anticipated and as reflected in forward-looking statements included
herein. Factors that may cause actual results or events to differ
from those anticipated in the forward-looking statements included
herein include the Risk Factors described in Item 1A herein and in
our Form 10-K for the year ended December 31, 2021.
Readers
are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date
hereof. We believe the information contained in this Form 10-Q to
be accurate as of the date hereof. Changes may occur after that
date, and we will not update that information except as required by
law in the normal course of our public disclosure
practices.
Additionally,
the following discussion regarding our financial condition and
results of operations should be read in conjunction with the
financial statements and related notes contained in Item 1 of Part
1 of this Form 10-Q, as well as the Risk Factors in Item 1A and the
financial statements in Item 7 of Part II of our Form 10-K for the
fiscal year ended December 31, 2021.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America. We believe
certain critical accounting policies affect the more significant
judgments and estimates used in the preparation of our financial
statements. A description of our critical accounting policies is
set forth in our Form 10-K for the year ended December 31, 2021. As
of, and for the nine months ended, September 30, 2022, there have
been no material changes or updates to our critical accounting
policies.
Unevaluated
Oil and Gas Properties
Unevaluated
oil and gas properties not subject to amortization, include the
following at September 30, 2022:
|
|
September
30, 2022 |
|
Acquisition
costs |
|
$ |
143,847 |
|
Development and
evaluation costs |
|
|
2,199,279 |
|
Total |
|
$ |
2,343,126 |
|
The
carrying value of unevaluated oil and gas prospects above was
primarily attributable to properties in the South American country
of Colombia. We are maintaining our interest in these
properties.
Recent
Developments
Equity
Investment
In
2019, we acquired a 2% interest in Hupecol Meta, LLC (“Hupecol
Meta”) (the “Hupecol Meta Acquisition”), which interest was
subsequently increased on multiple occasions, including the
acquisition, during the nine months ended September 30, 2022, of an
additional interest (1%) in Hupecol Meta for $100,000.
Hupecol
Meta holds a working interest in the 639,405 gross acre CPO-11
block in the Llanos Basin in Colombia, comprised of the 69,128 acre
Venus Exploration Area and 570,277 acres, which was 50% farmed out
by Hupecol Meta. As of September 30, 2022, through our ownership
interest in Hupecol Meta, we held an approximately 11% interest in
the Venus Exploration Area and approximately 5.5% interest in the
remainder of the block.
Drilling
Activity
During
the nine months ended September 30, 2022, Hupecol Meta drilled and
completed two wells, the Bugalu 1 and the Saturno ST1, in the Venus
Exploration Area of the CPO-11 block in Colombia. A third well, the
Caonabo, commenced drilling in late September 2022.
The Saturno ST1, was briefly put on production and then shut-in
pending receipt of a permit to inject produced water in an old
well. A water injection permit was issued in November 2022. With
the permit issued, we anticipate bringing the Saturno ST1 well, and
the legacy Venus 2A well, on production during November 2022. The
Bugalu 1 is awaiting testing. The Caonabo was determined to be a
dry hole.
No
drilling operations were conducted on our U.S. properties during
the nine months ended September 30, 2022.
During
the nine months ended September, 30, 2022, our capital investment
expenditures totaled $795,311, principally relating to final
expenses associated with the plugging and abandonment of the Lou
Brock well ($14,160) and investments in our cost method investment
in Hupecol Meta ($681,155) (excluding $100,000 investment to
increase our equity interest in Hupecol Meta).
Colombian
Elections
In
June 2022, Colombia elected as its President, leftist candidate,
Gustavo Petro. President-elect Petro has publicly vowed to wind
down fossil fuel production in Colombia and end fracking in
Colombia as part of a plan to transition to renewable green energy.
While the President-elect’s proclamations are openly hostile to the
oil and gas industry and appear to bar grants of future oil and gas
contracts, those proclamations appear to honor existing oil and gas
contracts. Moreover, the President-elect’s proclamations do not
appear to be supported by the Colombian lawmakers which may make it
difficult for the President-elect to effectively carry out his
proclamations. Nonetheless, hostility from the executive branch may
make the climate for drilling wells on existing acreage more
challenging than is already the case.
Results
of Operations
Oil
and Gas Revenues. Total oil and gas revenues increased 47% in
the three months ended September 30, 2022, compared to $290,375 in
the three months ended September 30, 2021. Oil and gas revenues
increased 42% in the nine months ended September 30, 2022, compared
to $922,862 in the nine months ended September 30, 2021.
The
increase in revenue was due to (i) increased natural gas production
volumes, up 150% and 34% for the three and nine-month periods,
respectively, partially offset by a change in oil production,
increased by 84% and decreased 29% for the three and nine-month
periods, respectively, and (ii) improved commodity pricing,
including 33% and 47% increases in crude oil prices and natural gas
prices, respectively, realized during the three-month period and
60% and 53% increases in crude oil prices and natural gas prices,
respectively, realized during the nine-month period.
The
following table sets forth the gross and net producing wells, net
oil and gas production volumes and average hydrocarbon sales prices
for the quarter and nine months ended September 30, 2022 and
2021:
|
|
Nine
Months Ended
September
30
|
|
|
Three
Months Ended
September
30,
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Gross
producing wells |
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
Net
producing wells |
|
|
0.68 |
|
|
|
0.68 |
|
|
|
0.68 |
|
|
|
0.68 |
|
Net oil
production (Bbl) |
|
|
8,140 |
|
|
|
11,391 |
|
|
|
5,702 |
|
|
|
3,096 |
|
Net gas
production (Mcf) |
|
|
53,339 |
|
|
|
39,765 |
|
|
|
35,089 |
|
|
|
14,027 |
|
Average sales price –
oil (per barrel) |
|
$ |
96.88 |
|
|
$ |
60.51 |
|
|
$ |
91,97 |
|
|
$ |
68.96 |
|
Average sales price –
natural gas (per Mcf) |
|
$ |
5.83 |
|
|
$ |
3.82 |
|
|
$ |
5.44 |
|
|
$ |
3.71 |
|
The
change in production volumes was primarily due to natural declines
in production, partially offset by our Reeves County wells being
put on gas lift in late 2021. With the issuance of a water
injection permit relating to the CPO-11 block, well counts and
production are anticipated to increase with the resumption of
production of the Saturno ST1 and Venus 2A wells in
Colombia.
The
change in average oil sales price realized reflects a spike in
global energy prices attributable to global supply uncertainty
arising from the Russian invasion of Ukraine.
Oil
and gas sales revenues by region for the nine months ended
September 30, 2022 were as follows:
|
|
Colombia |
|
|
U.S. |
|
|
Total |
|
2022 First Nine
Months |
|
|
|
|
|
|
|
|
|
|
|
|
Oil
sales |
|
$ |
— |
|
|
$ |
788,619 |
|
|
$ |
788,619 |
|
Natural
gas sales |
|
|
— |
|
|
|
310,850 |
|
|
|
310,850 |
|
Natural
gas liquid sales |
|
|
— |
|
|
|
214,596 |
|
|
|
214,596 |
|
2021 First
Nine Months |
|
|
|
|
|
|
|
|
|
|
|
|
Oil
sales |
|
$ |
— |
|
|
$ |
689,296 |
|
|
$ |
689,296 |
|
Natural
gas sales |
|
|
— |
|
|
|
151,808 |
|
|
|
151,808 |
|
Natural
gas liquid sales |
|
|
— |
|
|
|
81,758 |
|
|
|
81,758 |
|
Lease
Operating Expenses. Lease operating expenses increased 0% to
$184,488 during the three months ended September 30, 2022, from
$184,869 during the three months ended September 30, 2021. Lease
operating expenses increased 12% to $496,245 during the nine months
ended September 30, 2022, from $443,614 during the nine months
ended September 30, 2021.
The
change in lease operating expenses was principally attributable to
increased severance taxes associated with the increase in revenues,
non-recurring water disposal and operating costs incurred on the
Lou Brock well during.
Depreciation
and Depletion Expense. Depreciation and depletion expense was
$50,755 and $21,045 for the three months ended September 30, 2022
and 2021, respectively, and $160,495 and $79,680 for the nine
months ended September, 30, 2022 and 2021, respectively. The change
in depreciation and depletion was due to an increase in the
depletable base during 2022.
General
and Administrative Expenses (excluding stock-based
compensation). General and administrative expense increased by
85% to $498,876 during the three months ended September 30, 2022
from $269,264 during the three months ended September 30, 2021, and
increased by 14% to $1,016,867 during the nine months ended
September 30, 2022 from $894,243 during the nine months ended
September 30, 2021. The increase in general and administrative
expense for the three and nine-month periods was primarily
attributable to payment of a bonus to our CEO in the amount of
$200,000 during the 2022 three-month period. Future general and
administrative expenses are expected to increase to reflect an
increase in the base salary of our CEO from $120,000 to $180,000
annually.
Stock-Based
Compensation. Stock-based compensation decreased to $95,205
during the three months ended September 30, 2022 from $167,040
during the three months ended September 30, 2021, and increased 13%
to $206,210 during the nine months ended September 30, 2022 from
$182,149 during the nine months ended September 30, 2021. The
change was attributable to the amortization of stock options
granted during 2022 and 2021.
Other
Income (Expense). Other income/expense, net, totaled $10,788 of
income during the three months ended September 30, 2022, compared
to $968 of income during the three months ended September 30, 2021,
and totaled $13,277 of income during the nine months ended
September 30, 2022, compared to $12,129 of income during the nine
months ended September 30, 2021. Other income for all periods
consisted of interest earned on cash balances.
Financial
Condition
Liquidity
and Capital Resources. At September 30, 2022, we had a cash
balance of $3,896,362 and working capital of $4,072,422, compared
to a cash balance of $4,894,577 and working capital of $5,052,685
at December 31, 2021.
Cash
Flows. Operating activities used $202,900 during the nine
months ended September 30, 2022, compared to $648,816 used during
the nine months ended September 30, 2021. The change in operating
cash flow was primarily attributable to increased revenues and a resulting
decrease in net loss during the nine-months ended September 30,
2022.
Investing
activities used $795,315 during the nine months ended September 30,
2022, compared to $221,451 used during the nine months ended
September 30, 2021. The change in funds used by investing
activities is principally attributable to higher investments in Hupecol Meta LLC
and investments in plugging and abandonment of our Lou Brock
well.
Financing
activities provided $0 during the nine months ended September 30,
2022, compared to $4,570,888 provided during the nine months ended
September 30, 2021. Cash provided by financing activities during
the nine months ended September 30, 2021 was attributable to funds
received from two at-the-market common stock offerings
($6,575,889), partially offset by cash used to pay dividends on
preferred stock ($37,201) and to redeem all remaining outstanding
shares of preferred stock ($1,967,800)
Long-Term
Liabilities. At September 30, 2022, we had long-term
liabilities of $235,538, compared to $279,953 at December 31, 2021.
Long-term liabilities at September 30, 2022 and December 31, 2021,
consisted of a reserve for plugging costs and the long-term lease
liability.
Capital
and Exploration Expenditures and Commitments. Our principal
capital and exploration expenditures relate to ongoing efforts to
acquire, drill and complete prospects, in particular our Permian
Basin acreage and our CPO-11 Colombian acreage. Hupecol Meta
drilled two vertical wells in the Venus Exploration Area on the
CPO-11 block, and commenced drilling on a non-Venus CPO-11 well,
during the nine months ended September 30, 2022. The actual timing
and number of well operations undertaken during 2022, in Colombia
and the Permian Basin, will be principally controlled by the
operators of our acreage, based on a number of factors, including
but not limited to availability of financing, performance of
existing wells on the subject acreage, energy prices and industry
condition and outlook, costs of drilling and completion services
and equipment, ability to secure necessary permits and other
factors beyond our control or that of our operators.
In
addition to possible operations on our existing acreage holdings,
we continue to evaluate drilling prospects in which may acquire an
interest and participate.
During
the nine months ended September 30, 2022, we invested $795,315 for
the acquisition and development of oil and gas properties,
consisting of drilling and development operations in the U.S
($14,160), principally relating to final expenses related to the
plugging and abandonment of the Lou Brock well, and investments in
Hupecol Meta ($781,155), including $100,000 paid to increase our
ownership interest in Hupecol Meta. The $14,160 invested in U.S.
operations was capitalized to oil and gas properties subject to
amortization. The $781,155 invested in Hupecol Meta was capitalized
to our investment in Hupecol Meta.
As
our allocable share of well costs will vary depending on the timing
and number of wells drilled as well as our working interest in each
such well and the level of participation of other interest owners,
we have not established a drilling budget but will budget on a
well-by-well basis as our operators propose wells.
We
believe that we have the ability, through our cash on-hand, to fund
operations and our cost for all planned wells expected to be
drilled during the twelve months following this report.
In
the event that we pursue additional acreage acquisitions or expand
our drilling plans, we may be required to secure additional funding
beyond our resources on hand. While we may, among other efforts,
seek additional funding from “at-the-market” sales of common stock,
and private sales of equity and debt securities, we presently have
less than 1 million authorized shares of common stock available for
issuance to support equity capital raises and we have no
commitments to provide additional funding, and there can be no
assurance that we can secure the necessary capital to fund our
share of drilling, acquisition or other costs on acceptable terms
or at all. If, for any reason, we are unable to fund our share of
drilling and completion costs and fail to satisfy commitments
relative to our interest in our acreage, we may be subject to
penalties or to the possible loss of some of our rights and
interests in prospects with respect to which we fail to satisfy
funding commitments and we may be required to curtail operations
and forego opportunities.
Off-Balance
Sheet Arrangements
We
had no off-balance sheet arrangements or guarantees of third party
obligations at September 30, 2022.
Inflation
We
believe that inflation has not had a significant impact on
operations since inception.
ITEM 3 |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Commodity
Price Risk
The
price we receive for our oil and gas production heavily influences
our revenue, profitability, access to capital and future rate of
growth. Crude oil and natural gas are commodities and, therefore,
their prices are subject to wide fluctuations in response to
relatively minor changes in supply and demand. Historically, the
markets for oil and gas have been volatile, and these markets will
likely continue to be volatile in the future. The price we receive
for production depends on numerous factors beyond our
control.
We
have not historically entered into any hedges or other transactions
designed to manage, or limit, exposure to oil and gas price
volatility.
ITEM 4 |
CONTROLS
AND PROCEDURES |
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and the participation of our management, including
our principal executive officer and principal financial officer, we
conducted an evaluation as of September 30, 2022 of the
effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined under Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based on this evaluation, our principal executive officer
and our principal financial officer concluded that our disclosure
controls and procedures were not effective as of September 30,
2022. Such conclusion reflects the 2013 departure of our chief
financial officer and assumption of duties of principal financial
officer by our chief executive officer and the resulting lack of
segregation of duties. Until we are able to remedy these material
weaknesses, we are relying on third party consultants and our SEC
consultant to assist with financial reporting.
Changes
in Internal Control over Financial Reporting
No
change in our internal control over financial reporting (as defined
in Rule 13a-15(f) under the Securities Exchange Act of 1934)
occurred during the quarter ended September 30, 2022 that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by
the undersigned thereunto duly authorized.
|
HOUSTON
AMERICAN ENERGY CORP. |
Date:
November 14, 2022 |
|
|
|
By: |
/s/
John Terwilliger |
|
|
John
Terwilliger |
|
|
CEO
and President (Principal Executive Officer and Principal Financial
Officer) |
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