Houston American Energy Corp. (HUSA) is a Houston-based independent exploration and production company that has been operating in the oil and gas industry for over a decade. The company's focus has primarily been on the acquisition and development of oil and gas properties in the United States, with a particular emphasis on the Permian Basin and Colombia.

Company Background

Founded in 2008, Houston American Energy Corp. is an independent energy company focused on the exploration, development, and production of natural gas, crude oil, and natural gas liquids. The company has faced significant challenges throughout its history, including a net loss of over $4 million in 2020, largely due to a $2.5 million impairment charge related to its capital assets. This loss came amid the broader industry downturn and volatility in oil and gas prices. To address these headwinds, the company focused on managing costs and preserving capital.

Recent Developments

In 2021, Houston American Energy worked to rebuild its financial position by raising $6.58 million through a common stock offering, which strengthened its balance sheet. However, the company continued to report net losses in 2021 and 2022 as it navigated the uncertain market environment. Despite these past difficulties, Houston American Energy maintained its operations in the U.S. Permian Basin. As of September 2024, the company was producing from 4 wells in the region.

Financials

In the most recent fiscal year (2023), Houston American Energy reported annual revenue of $794,030, a significant decline from the previous year's $1,640,640. Net income for the period was -$3,211,277, reflecting the ongoing operational and market pressures facing the company. The operating cash flow and free cash flow for 2023 were both $263,190.

For the most recent quarter (Q3 2024), the company reported revenue of $130,240, representing a 15% increase compared to Q3 2023. However, the net income for Q3 2024 was -$144,768, a slight improvement from -$223,370 in Q3 2023. The operating cash flow and free cash flow for Q3 2024 were both negative at -$227,325 and -$227,322, respectively.

Houston American Energy's operations can be divided into two main product segments: Oil and Gas, and Equity Investment in Colombia. The Oil and Gas segment, focused primarily in the Permian Basin, generated total revenue of $130,240 and $393,730 for the three and nine months ended September 30, 2024, respectively. This represented a 15% increase in revenue for the three-month period compared to the same period in 2023, but a 28% decrease in revenue for the nine-month period. The change in revenue was due to decreases in average sales prices and production volumes of oil and natural gas.

Lease operating expenses for the oil and gas segment increased 78% to $229,210 and 55% to $534,440 for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. This was attributable to additional severance tax expense and higher production expenses.

Liquidity

Houston American Energy's focus on cost containment and portfolio optimization has helped it maintain a relatively strong liquidity position. As of September 30, 2024, the company had $2.85 million in cash and cash equivalents. The company's debt-to-equity ratio stands at 0.009, indicating a low level of debt. The current ratio and quick ratio are both 10.47, suggesting strong short-term liquidity.

Strategic Investments

One of the key drivers of Houston American Energy's performance has been its investment in Hupecol Meta LLC, a Colombian-based exploration and production venture. The company holds an approximately 18% equity interest in Hupecol Meta, which operates oil and gas properties in Colombia. During the three and nine months ended September 30, 2024, Houston American Energy received distributions of $268,820 and $922,960, respectively, from Hupecol Meta, representing its share of the venture's distributable net income. This income, coupled with the company's efforts to streamline its U.S. operations, has helped offset the impact of declining production and lower commodity prices in its domestic portfolio.

As of September 30, 2024, Hupecol Meta operated 4 wells in the Venus Exploration Area of the CPO-11 block in Colombia. However, operations in Colombia were impacted by a dispute with local residents regarding maintenance of the road serving the wells, which led to the wells being shut-in for a period.

Future Outlook

Looking ahead, Houston American Energy is poised to navigate a challenging market environment with a renewed focus on capital discipline and strategic growth. In November 2024, the company announced the appointment of a new CEO, Peter Longo, who has been tasked with driving the company's transformation and unlocking its full potential. This change in leadership came in conjunction with the sale of 2.18 million shares of common stock to an investor for gross proceeds of approximately $2.5 million.

One of the key initiatives under Longo's leadership is the evaluation and potential divestiture of Hupecol Meta's assets in Colombia. Hupecol Meta has indicated that it intends to evaluate potential monetization or divestiture of its Colombian assets in the fourth quarter of 2024, which could impact Houston American Energy's future operations and cash flows from this equity investment.

Additionally, the company has continued to explore opportunities to optimize its existing asset base, including the recent participation in a joint venture with EOG Resources to develop six wells in the Permian Basin. While the challenges facing the oil and gas industry remain significant, Houston American Energy's focus on operational efficiency, strategic partnerships, and prudent capital allocation has positioned the company to weather the storm and emerge as a stronger, more resilient player in the years to come.

Conclusion

Despite the headwinds, Houston American Energy has demonstrated its ability to adapt and evolve in the face of adversity. With a seasoned management team, a diversified asset portfolio, and a renewed focus on value creation, the company is poised to capitalize on the opportunities that lie ahead in the ever-changing energy landscape. The company's ability to navigate the challenging market conditions, maintain a strong liquidity position, and pursue strategic initiatives will be crucial in determining its future success in the competitive oil and gas industry.