Business Overview and History
Houston American Energy Corp. (HUSA) is an independent oil and gas company with a diverse portfolio of assets spanning the United States and South America. Headquartered in Houston, Texas, the company has a long history of exploring, developing, and producing natural gas and crude oil. As the energy industry continues to undergo significant transformation, HUSA is positioning itself to capitalize on emerging opportunities while navigating the challenges presented by the evolving landscape.
HUSA was incorporated in 2001 and has since established a presence in the Permian Basin of Texas, the Llanos Basin of Colombia, South America, and the Louisiana Gulf Coast region of the United States. The company's strategy has been to focus on early identification and opportunistic entrance into existing and emerging resource plays. HUSA does not operate wells directly but instead seeks to partner with larger operators, leveraging their expertise and resources to develop and monetize its assets.
Over the years, HUSA has faced numerous challenges common in the oil and gas industry. In the early 2010s, the company experienced recurring operating losses, accumulating an $85.2 million deficit by the end of 2024. This was largely due to fluctuations in energy prices, with steep declines in oil and gas prices negatively impacting the company's revenues and profitability.
To address these challenges, HUSA implemented cost control initiatives that helped bring down overhead in recent years. The company also sought to diversify its holdings, acquiring interests in properties in Colombia in 2019 through its investment in Hupecol Meta, LLC. However, the performance of the company's Colombian assets has been mixed, with Hupecol Meta facing some operational and financial difficulties.
In 2023, HUSA experienced the expiration of leases in its Yoakum County, Texas acreage, reducing its U.S. footprint. The company also faced an impairment charge of $6.39 million on its Hupecol Meta investment in 2024 due to the deteriorating earnings performance of that asset. These setbacks have continued to weigh on the company's financial position and profitability.
HUSA's portfolio consists of a mix of proved developed, proved non-producing, and unproved properties. As of December 31, 2024, the company's net proved reserves totaled approximately 150.90K barrels of oil equivalent (boe), with the majority located in the United States. The company's proved developed reserves accounted for 108.76K boe, while its proved non-producing reserves stood at 42.14K boe. HUSA had no proved undeveloped reserves as of that date.
Financials and Liquidity
Financials
HUSA's financial performance has been mixed in recent years, with the company reporting net losses in 2024 and 2023. In 2024, the company recorded a net loss of $8.22 million, compared to a net loss of $3.21 million in 2023. The company's revenue declined from $794.03 thousand in 2023 to $560.18 thousand in 2024, primarily due to decreases in oil and gas production and lower average sales prices.
For the most recent quarter, HUSA reported revenue of $166.45 thousand and a net loss of $7.97 million. The company's annual operating cash flow and free cash flow for 2024 were both negative $1.54 million.
Liquidity
The company's liquidity position has remained relatively stable. As of December 31, 2024, HUSA had $2.96 million in cash and cash equivalents, with working capital of $3.07 million. The company's total debt stood at $71.08 thousand, consisting of lease liabilities. HUSA's debt-to-equity ratio was a low 0.016, indicating a strong balance sheet and limited leverage.
HUSA's current ratio and quick ratio were both 23.22 as of December 31, 2024, suggesting a strong ability to meet short-term obligations. The company had no available credit lines or other credit facilities as of the most recent quarter end.
Operational Highlights and Challenges
HUSA's operations have been focused on its properties in the Permian Basin and the Llanos Basin in Colombia. In the Permian Basin, the company holds interests in several leases, including the Johnson Lease and the O'Brien Lease, where it has drilled and completed wells targeting the Wolfcamp, Bone Spring, and Avalon formations.
In the United States, HUSA holds an average 18.1% working interest in 320 gross acres in the Permian Basin, consisting of the 160-acre Johnson Lease (25% working interest) and the 160-acre O'Brien Lease (average 11.2% working interest). The company's initial wells on these lease blocks, the Johnson State 1H well and the O'Brien 3H well, were both horizontally drilled and hydraulically fractured in the Wolfcamp A formation. These wells were placed on gas lift during 2021 and were producing as of December 31, 2024.
In Yoakum County, Texas, HUSA holds a 15.9% average working interest, subject to a 10% back-in after payout, in an approximately 360-gross acre block. The company drilled the Frost 1H well in 2019 and the Frost 2H well in 2020, both horizontally drilled and hydraulically fractured in the San Andres formation.
In Colombia, HUSA's sole interest is its investment in Hupecol Meta, LLC, which holds the 639.40K gross acre CPO-11 block in the Llanos Basin. Through this investment, HUSA holds an approximately 16% interest in the Venus Exploration Area and an 8% interest in the remainder of the CPO-11 block. In 2023, Hupecol Meta drilled and completed the Venus 1H horizontal well and the Venus 2H ST1 horizontal well in the Venus Exploration Area, which were producing as of the end of 2024.
One of the key operational challenges faced by HUSA has been the performance of its Colombian assets. In late 2023, Hupecol advised that it intends to evaluate potential monetization of its assets in Colombia, including the CPO-11 block. As a result, HUSA has no planned drilling operations or other planned activities in Colombia, and the company has taken a full impairment charge of $6.39 million on its investment in Hupecol Meta.
In the United States, HUSA's operations have been impacted by declines in energy prices and production, leading to a $275.76 thousand impairment charge on its Reeves County properties in 2024. However, the company recently participated in the drilling of six new wells on the Finkle State Unit in Reeves County, with production from these wells expected to commence in the second quarter of 2025.
Strategic Initiatives and Diversification
To navigate the evolving energy landscape and drive shareholder value, HUSA has taken steps to diversify its business and explore new opportunities. In December 2024, the company announced the signing of non-binding letters of intent to acquire Abundia Global Impact Group, LLC (AGIG) and RPD Technologies, LLC (RPD).
The proposed acquisition of AGIG, a company specializing in converting waste into high-value fuels and chemicals, aligns with HUSA's strategy to expand into the renewable energy sector. The RPD acquisition, on the other hand, aims to bolster the company's capabilities in the energy transition space.
These strategic initiatives, if successfully executed, would mark a significant transformation for HUSA, shifting its focus beyond traditional oil and gas exploration and production to include renewable fuels, chemicals, and energy technology. The company believes this diversification will position it for long-term growth and help navigate the challenges presented by the evolving energy landscape.
In November 2024, HUSA entered into an agreement with its then CEO John Terwilliger to pay him $800 thousand in exchange for terminating his change of control agreement with the company. Mr. Terwilliger retired as a director on December 31, 2024 and remains an advisor to the company. This move appears to be part of HUSA's broader strategic shift and efforts to streamline its management structure.
Risks and Challenges
HUSA faces several risks and challenges that could impact its future performance. The company operates in a highly competitive industry, competing with major integrated oil and gas companies, as well as numerous independent players, for acquisition opportunities and access to capital.
The company's financial performance is heavily influenced by commodity prices, particularly oil and natural gas. Significant and prolonged declines in these prices could adversely affect HUSA's revenues, profitability, and ability to fund its operations and development activities.
Additionally, the company's reliance on third-party operators for its operations in the United States and Colombia introduces risks related to decision-making, cost control, and project execution. Any underperformance or missteps by these operators could have a direct impact on HUSA's financial and operational results.
The regulatory environment, particularly with respect to environmental regulations and the evolving landscape of renewable energy policies, also poses a risk to the company's operations and future plans. Compliance with these regulations and adapting to industry changes can be costly and create uncertainty for HUSA's business model.
HUSA's small size and geographic concentration of assets in the Permian Basin and Colombia make it particularly vulnerable to regional economic and operational challenges. The company's ability to increase production, revenues, and profitability is critical to its future success, especially given its recent financial performance and the competitive nature of the industry.
Conclusion
Houston American Energy Corp. (HUSA) is navigating a period of transformation as the energy industry continues to evolve. The company's diversification strategy, which includes the proposed acquisitions of AGIG and RPD, represents a significant shift in its focus, aiming to capitalize on emerging opportunities in the renewable energy and energy transition sectors.
While HUSA's recent financial performance has been challenged by operational and market headwinds, the company's strong balance sheet and liquidity position provide a solid foundation for its strategic initiatives. As the company executes on its diversification plans and continues to optimize its existing assets, it will be crucial for HUSA to effectively manage the risks and challenges inherent in the evolving energy landscape.
The company's performance in 2024, characterized by declining revenues and significant net losses, underscores the urgency of its strategic pivot. HUSA's ability to successfully integrate its proposed acquisitions, improve the performance of its existing operations, and adapt to changing industry dynamics will be key determinants of its long-term value proposition.
Investors should closely monitor HUSA's progress in implementing its diversification strategy, the performance of its U.S. and Colombian assets, and its ability to generate positive cash flows. The success of HUSA's strategic initiatives will be critical in determining whether the company can overcome its current challenges and deliver sustainable growth and shareholder returns in the years to come.