Abundia Global Impact Group, Inc.: Form 10-Q for the period ended Sep 30, 2023

Forward-Looking Information

This Form 10-Q quarterly report of Houston American Energy Corp. (the “Company”) for the nine months ended September 30, 2023, 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, 2022.

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, 2022.

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, 2022. As of, and for the nine months ended, September 30, 2023, 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, 2023:

The carrying value of unevaluated oil and gas prospects above was primarily attributable to legacy properties in the South American country of Colombia, substantially all of which is expected to be reclassified to “costs subject to amortization” and evaluated for impairment.

Recent Developments

Drilling and Oil and Gas Property Activity

During the nine months ended September 30, 2023:

• no drilling activities were conducted on our U.S. properties;
• our capital investment expenditures totaled $2,288,328, principally attributable to investments in our equity investment in Hupecol Meta LLC (“Hupecol Meta”);
• Hupecol Meta LLC (i) drilled and completed, and production commenced on, two wells in Colombia, the Venus 1-H horizontal well and the Venus 2-H ST1 horizontal well; and (ii) shut-in the Saturno 1ST – 1 well during the three months ended September 30, 2023 (Hupecol has advised that the Saturno 1ST – 1 well is expected to be brought back on production); and (iii) as of September 30, 2023, had three wells on production and one well shut-in; and
• we released our interest in the last of our legacy non-Hupecol Meta properties in Colombia, formally terminating our interests in the Picachos and Macaya blocks, in addition to our previously released Serrania block.

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Our estimated share of cost associated with the Venus 1H and Venus 2-H ST1 wells totals $900,000 as of September 30, 2023.

With the formal termination of our interest in the Picachos, Macaya and Serrania blocks, all costs associated with the blocks will be reclassified to “costs subject to amortization” and evaluated for impairment.

Plans in Colombia

Hupecol has advised that it intends to evaluate potential monetization of its assets in Colombia, including the interest in the CPO-11 block held by Hupecol Meta. Pending the outcome of Hupecol’s evaluation of, and potential efforts regarding, monetization of the CPO-11 block, we have no planned drilling operations, or other planned operations, in Colombia and we expect to continue to operate our existing wells on the CPO-11 block. There is no assurance as to the timing or outcome of Hupecol’s potential monetization of assets.

Distributions from Equity Investment

During the nine months ended September 30, 2023, we received distributions, totaling $1,235,101, from Hupecol Meta, representing our share of distributable net income and reflected as “Other Income” on our Statement of Operations.

Financing – At-the Market Offering

In November 2022, we entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with Univest Securities, LLC (“Univest”) pursuant to which we could sell (the “2022 ATM Offering”), at our option, up to an aggregate of $3.5 million in shares of common stock through Univest, as sales agent. Sales of shares under the Sales Agreement (the “2022 ATM Offering”) were made, in accordance with placement notices delivered to Univest, which notices set parameters under which shares could be sold. The 2022 ATM Offering was made pursuant to a shelf registration statement by methods deemed to be “at the market,” as defined in Rule 415 promulgated under the Securities Act of 1933. We pay Univest a commission in cash equal to 3% of the gross proceeds from the sale of shares in the 2022 ATM Offering. We reimbursed Univest for $25,000 of expenses incurred in connection with the 2022 ATM Offering.

During the nine months ended September 30, 2023, we sold an aggregate of 578,707 shares in connection with the 2022 ATM Offering and received proceeds, net of commissions and expenses, of $1,652,000.

Executive Compensation Changes

During the nine months ended September 30, 2023, our compensation committee approved, and we paid, a cash bonus of $200,000 to our Chief Executive Officer and increased, effective July 1, 2023, our Chief Executive Officer’s annual base salary from $180,000 to $240,000.

Results of Operations

Oil and Gas Revenues. Total oil and gas revenues decreased 74% to $112,994, in the three months ended September 30, 2023, compared to $427,256 in the three months ended September 30, 2022. Oil and gas revenues decreased 58% to $547,408 in the nine months ended September 30, 2023, compared to $1,314,065 in the nine months ended September 30, 2022.

The change in revenue was due to (i) a decline in oil production, down 77% and 30% for the three and nine month periods, respectively; (ii) a decline in average sales price of oil, down 21% and 26% for the three and nine month periods, respectively; (iii) a decline in natural gas production, down, 81% and 25% for the three and nine month periods, respectively; and (iv) a decrease in average sales price of natural gas, down 68% and 77% for the three and nine month periods, respectively.

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, 2023 and 2022:

(1) All well, production and price information excludes wells operated by Hupecol Meta.

The change in production volumes was primarily attributable to the natural decline in production. The change in average oil and natural gas sales price realized reflects movements in global energy prices.

Our current focus is on development of our CPO-11 assets in Colombia, which are accounted for as equity investments and, therefore, excluded from consolidation and from inclusion in operations in our Statement of Operations (See “Other Income” below for discussion of equity investment results relating to the CPO-11 block). As our investments in oil and gas projects are focused in Colombia, and we have no present plans to drill domestic wells to replace and grow U.S. production, we expect production and revenues reported in our Statement of Operations to continue to decline for the foreseeable future.

Oil and gas sales revenues are entirely attributable to our U.S. properties.

Lease Operating Expenses. Lease operating expenses decreased 30% to $128,918 for the three months ended September 30, 2023, from $184,488 during the three months ended September 30, 2022. Lease operating expenses decreased 31% to $344,318 for the nine months ended September 30, 2023, from $496,245 during the nine months ended September 30, 2022.

The change in lease operating expenses was principally attributable to the decline in oil production volumes.

All lease operating expenses are attributable to U.S. operations and exclude lease operating expenses associated with our investment in, and operation of, Hupecol Meta properties in Colombia.

Depreciation and Depletion Expense. Depreciation and depletion expense was $23,749 and $50,756 for the three months ended September 30, 2023 and 2022, respectively, and $115,645 and $160,496 for the nine months ended September, 30, 2023 and 2022, respectively. The change in depreciation and depletion was due to the decrease in production volumes.

General and Administrative Expenses (excluding stock-based compensation). General and administrative expense decreased by 37% to $312,344 for the three months ended September 30, 2023, from $498,876 during the three months ended September 30, 2022, and increased by 18% to $1,196,463 for the nine months ended September 30, 2023, from $1,016,867 during the nine months ended September 30, 2022. The change in general and administrative expenses was attributable to an increase in professional fees.

Stock-Based Compensation. Stock-based compensation decreased to $50,667 during the three months ended September 30, 2023, from $95,205 during the three months ended September 30, 2022, and increased 3% to $212,982 during the nine months ended September 30, 2023, from $206,210 during the nine months ended September 30, 2022.

Other Income. Other income totaled $626,052 during the three months ended September 30, 2023, compared to $10,788 during the three months ended September 30, 2022, and totaled $1,349,162 during the nine months ended September 30, 2023, compared to $13,277 during the nine months ended September 30, 2022. Other income consisted of (i) equity investment distributions from Hupecol Meta, totaling $586,626 during the three months ended September 30, 2023 and $1,235,101 during the nine months ended September 30, 2023, compared to no distributions during 2022; and (ii) interest income earned on cash balances, totaling $39,426 during the three months ended September 30, 2023, compared to $10,788 during the three months ended September 30, 2022, and $114,061 during the nine months ended September 30, 2023, compared to $13,277 during the nine months ended September 30, 2022.

Distributions from Hupecol Meta reflect, generally, our share of distributable net income of Hupecol Meta. Distributions should not be viewed as a measure of actual operating results of Hupecol Meta for the period of such distributions or any other periods. Distributions merely reflect determinations by the managers of Hupecol Meta to make distributions in accordance with contractual rights of the various members of Hupecol Meta within the discretion of the managers as permitted under the contracts governing Hupecol Meta. We report distributions from Hupecol Meta as “Other Income” to the extent that the character of the distributions is in the nature of income and not a return of capital. The distributions received during 2023 are, generally, attributable to operations of Hupecol Meta’s initial wells, the Saturno ST1 vertical well, the Venus 2A vertical well, a legacy well that had been shut-in, the Venus 1-H well, Hupecol Meta’s first horizontal well, which began production in May 2023, and the Venue 2-H ST1 well, which began production in August 2023.

The increase in interest income from 2022 to 2023 was attributable to the increase in our cash balances, resulting from sales of common stock during 2023, and substantial increases in interests due to trends in the broad debt market.

Financial Condition

Liquidity and Capital Resources. At September 30, 2023, we had a cash balance of $4,456,158 and working capital of $4,314,969, compared to a cash balance of $4,547,210 and working capital of $4,601,168 at December 31, 2022.

Cash Flows. Operating activities provided $211,463 during the nine months ended September 30, 2023, compared to $202,900 used during the nine months ended September 30, 2022. The change in operating cash flow was primarily attributable to the decrease in depletion expense and accounts receivable, offset by an increase in accrued earnings distributions from Hupecol Meta.

Investing activities used $1,954,515 during the nine months ended September 30, 2023, compared $795,315 used during the nine months ended September 30, 2022. The change in funds used by investing activities is principally attributable to the commencement of, and acceleration, during 2023, of a drilling program on our CPO-11 assets in Colombia.

Financing activities provided $1,652,000 during the nine months ended September 30, 2023, compared to $0 provided during the nine months ended September 30, 2022. Cash provided by financing activities during the nine months ended September 30, 2023 was attributable to funds received from the 2022 ATM offering.

Long-Term Liabilities. At September 30, 2023, we had long-term liabilities of $152,904, compared to $219,148 at December 31, 2022. Long-term liabilities at September 30, 2023 and December 31, 2022, 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 capital contribution obligations associated with our equity investment in Hupecol Meta, costs associated with the operation of our Permian Basin acreage and ongoing efforts to acquire, drill and complete prospects. The Venus 1-H well and Venus 2-H ST1 well, the first horizontal wells of Hupecol Meta in the Venus Exploration Area of the CPO-11 block in Colombia were drilled during the first nine months of 2023. Our allocable share of costs associated with the Venus 1-H and Venus 2-H ST1 wells was approximately $900,000. The well cost, and the timing and number of well operations undertaken during 2023 and beyond, 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 the outcome of Hupecol’s evaluation of the potential monetization of the CPO-11 block, 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 our control or that of our operators. We presently have no planned operations in Colombia or in the U.S.

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, 2023, we invested $2,288,328 for the acquisition and development of oil and gas properties, consisting of capital contributions to Hupecol Meta ($2,288,328). The $2,288,328 invested in Hupecol Meta was capitalized to our equity 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, including well operations, for the remainder of 2023 and for the upcoming twelve-month period.

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 limited 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.

Inflation

We believe that inflation has not had a significant impact on operations since inception. However, persistent inflation may increase our operating costs broadly, adversely affecting our operating results.

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.

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, 2023 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, 2023. 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 an appropriate level of accounting knowledge and experience commensurate with the financial reporting requirements for a public company, in particular with respect to technical accounting knowledge regarding accounting for certain transactions, and a related 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, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.