Abundia Global Impact Group, Inc.: Form 10-Q for the period ended Jun 30, 2024

Forward-Looking Information

This Form 10-Q quarterly report of Houston American Energy Corp. (the “Company”) for the three months ended June 30, 2024, 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, 2023.

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, 2023.

Critical Accounting Estimates

Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our critical accounting estimates include use of the full cost method of accounting for oil and gas activities, revenue recognition, unevaluated oil and gas properties, and stock-based compensation. There were no material changes in our critical accounting estimates from those reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

A description of our critical accounting policies, including estimates, was provided in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Recent Developments

Drilling and Operating Activity

During the three months ended June 30, 2024, no drilling activities were conducted on properties of Hupecol Meta. At June 30, 2024, we had 4 wells on production in the U.S. Permian Basin.

In June 2024, the Company entered into a joint venture agreement with EOG Resources, Inc. (“EOG”) with respect to the drilling of six wells on the State Finkle Unit in the Wolfcamp formation in Reeves County, Texas. During June 2024, the Company elected to participate in all six wells.

Pursuant to the joint venture agreement, EOG will act as operator of the unit and is the principal working interest owner in the unit. The unit includes acreage subject to our existing O’Brien lease. We will hold an approximately 0.0078 working interest in the unit. The first well was scheduled to spud June 23, 2024 with all six wells anticipated to be spud by September 1, 2024. Houston American’s cost of participating in the drilling program is estimated at $550,000.

Operations, Planned Drilling and Divestiture in Colombia

At June 30, 2024, Hupecol Meta operated four wells in the Venus Exploration Area of the CPO-11 block in Colombia. Each of the four wells operated by Hupecol Meta were shut-in from February 20 to March 18, 2024 as a result of a dispute with local residents regarding maintenance of the road serving the wells.

We own an approximately 18% interest in Hupecol Meta, representing an approximately 16% interest in the wells operated in the Venus Exploration Area. We do not report results of Hupecol Meta in our consolidated operating results but include our investment in Hupecol Meta on our balance sheet as “Equity Investment – Hupecol Meta” with distributions from Hupecol Meta reported as “Other Income” on our Statement of Operations.

Hupecol Meta has advised that it intends to evaluate potential monetization or some form of divestiture of its assets in Colombia, including the interest in the CPO-11 block held by Hupecol Meta. Pending the outcome of Hupecol Meta’s evaluation of, and potential efforts regarding, divestiture or monetization of the CPO-11 block Hupecol Meta plans to drill one vertical well in the third quarter of 2024 on the CPO-11 block. We expect to continue to operate our existing wells in the CPO-11 block. There is no assurance as to the timing or outcome of Hupecol Meta’s potential monetization or divestiture of assets.

Capital Investments

During the quarter ended June 30, 2024, our capital investment expenditures totaled $766,216, attributable to investments in our equity investment in Hupecol Meta LLC (“Hupecol Meta”).

Distributions from Equity Investment

During the three and six months ended June 30, 2024, we received distributions, totaling $292,926 and $654,142, respectively, from Hupecol Meta, representing our share of distributable net income and reflected as “Other Income” on our Statement of Operations.

Results of Operations

Oil and Gas Revenues. Total oil and gas revenues decreased 43% to $115,805 in the three months ended June 30, 2024, compared to $204,390 in the three months ended June 30, 2023. Oil and gas revenues declined 39% to $263,490 in the six months ended June 30, 2024, compared to $434,414 for the six months ended June 30, 2023. The decrease in revenue was due to decreases in average sales price of natural gas (down 72%), oil production (down 37%), and natural gas production (down 38%), partially offset by an increase in average sales price of oil (up 7%).

The following table sets forth the gross and net producing wells, net oil and gas production volumes and average hydrocarbon sales prices for the quarters ended June 30, 2024 and 2023:

(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 global energy trends.

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

Lease Operating Expenses. Lease operating expenses increased 40% to $142,203 during the three months ended June 30, 2024, from $101,714 during the three months ended June 30, 2023. Lease operating expenses increased 42% to $305,233 during the six months ended June 30, 2024, from $215,400 during the six months ended June 30, 2023. The increase in lease operating expenses was attributable to additional severance tax expense from prior periods and increase in production expenses during the three months ended June 30, 2024.

Lease operating expenses are entirely attributable to our U.S. properties and exclude lease operating expenses of Hupecol Meta.

Depreciation and Depletion Expense. Depreciation and depletion expense was $28,107 and $44,941 for the three months ended June 30, 2024 and 2023, respectively, and $63,085 and $91,896 for the six months ended June 30, 2024 and 2023, respectively. The change in depreciation and depletion was principally due to the decline in oil production during the six months ended June 30, 2024.

General and Administrative Expenses (excluding stock-based compensation). General and administrative expense decreased by 52% to $343,001 during the three months ended June 30, 2024 from $716,615 during the three months ended June 30, 2023, and decreased 33% to $650,141 during the six months ended June 30, 2024, from $1,046,434 during the six months ended June 30, 2023. The decrease in general and administrative expense was primarily attributable to a bonus of $200,000 paid to our CEO in the second quarter of 2023, which was not repeated this quarter.

Stock-Based Compensation. Stock-based compensation decreased to 12,746 during the three months ended June 30, 2024 and $60,413 during six months ended June 30, 2024 from $77,780 during the three months ended June 30, 2023 and $162,315 during the six months ended June 30, 2023.

Other Income (Expense). Other income/expense, net, totaled $321,167 of income during the three months ended June 30, 2024, compared to $358,499 of income during the three months ended June 30, 2023, and totaled $713,597 during the six months ended June 30, 2024, compared to $723,110 during the six months ended June 30, 2023. The change in income for the three month period was primarily attributable to the decline in oil production. Other income consisted of equity investment distributions totaling $654,142 and $648,475, respectively, from Hupecol Meta, representing our share of distributable net income for the six months ended June 30, 2024 and 2023, respectively, and interest income on cash balances during the six months ended June 30, 2024 and 2023.

Financial Condition

Liquidity and Capital Resources. At June 30, 2024, we had a cash balance of $3,380,769 and working capital of $3,167,316, compared to a cash balance of $4,059,182 and working capital of $3,917,231 at December 31, 2023.

Cash Flows. Operating activities provided $87,803 of cash during the six months ended June 30, 2024, compared to cash outflows of $217,467 during the six months ended June 30, 2023. The change in operating cash flow was attributable to a bonus of $200,000 paid to our CEO in the second quarter of 2023, which was not repeated this quarter.

Investing activities used cash of $766,216 during the six months ended June 30, 2024, compared to $448,909 used during the six months ended June 30, 2023. Cash used in investing activities for both periods was attributable to investments in Hupecol Meta to support our share of costs in Colombia.

Financing activities provided $0 during the six months ended June 30, 2024, compared to $1,652,000 provided during the six months ended June 30, 2023. Cash provided by financing activities during the six months ended June 30, 2023 was attributable to funds received from the sale of common stock in the company’s 2022 ATM offering.

Long-Term Liabilities. At June 30, 2024, we had long-term liabilities of $93,475, compared to $134,167 at December 31, 2023. Long-term liabilities at June 30, 2024 and December 31, 2023, 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. During 2023, capital expenditures relating to Hupecol Meta increased with our investments in Hupecol Meta to fund our share of costs associated with the initial wells drilled on the CPO-11 block. Based on discussions with Hupecol Meta, we anticipate that one additional vertical well will be drilled on the CPO-11 block by mid-2024 pending efforts by Hupecol Meta to monetize its interest in the CPO-11 block. Our costs relating to the drilling of such well is estimated at approximately $550,000. There are no present plans to conduct additional drilling operations on our U.S. properties. The actual timing and number of well operations undertaken, if any, 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 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 three months ended June 30, 2024, we invested $766,216 for the acquisition and development of oil and gas properties, consisting of capital contributions to Hupecol Meta. The $766,216 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 and our cost for all planned wells expected to be drilled during 2024.

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.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or guarantees of third party obligations at June 30, 2024.

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 June 30, 2024 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 June 30, 2024. 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 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 June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.