UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM10-Q
(Mark One)
For the quarterly period ended June 30, 2024
OR
For the transition period from ___________ to ______________.
Commission File Number 1-32955
HOUSTON AMERICAN ENERGY CORP.
(Exact name of registrant as specified in its charter)
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:
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):
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 August 14, 2024, we had 10,906,353 shares of $0.001 par value common stock outstanding.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
June 30, 2024
The accompanying notes are an integral part of these unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
For the Six Months Ended June 30,
1,105
Notes to Consolidated Financial Statements
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, 2023.
Consolidation
The accompanying consolidated financial statements include all accounts of the Company and its subsidiary (HAEC Louisiana 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, with an accumulated deficit of $77.1 million as of June 30, 2024.
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 2024 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 limited 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 (if any) and any marketable securities (if any). The Company had cash deposits of $3,130,769 in excess of the FDIC’s current insured limit on interest bearing accounts of $250,000 as of June 30, 2024. The Company also had cash deposits of $284 in Colombian banks at June 30, 2024 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.
Subsequent Events
The Company has evaluated all transactions from June 30, 2024 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 six-month periods ended June 30, 2024 and 2023:
SCHEDULE OF DISAGGREGATES REVENUE BY SIGNIFICANT PRODUCT
Three Months Ended June 30,
Six Months Ended June 30,
There were no significant contract liabilities or transaction price allocations to any remaining performance obligations as of June 30, 2024 or 2023.
NOTE 3 – OIL AND GAS PROPERTIES
During the three and six months ended June 30, 2024, the Company recorded depletion expense of $28,107 and $63,085, respectively. During the three and six months ended June 30, 2023, the Company recorded depletion expense of $44,941 and $79,640, respectively
Geographical Information
The Company currently has properties in the United States. Revenues for the six months ended June 30, 2024 and long-lived assets (net of depletion, amortization, and impairments) as of June 30, 2024 are presented below:
SCHEDULE OF REVENUES AND LONG LIVED ASSETS ATTRIBUTABLE TO GEOGRAPHICAL AREA
Six Months Ended June 30, 2024
As of June 30, 2024
Revenues and long-lived assets attributable to the Company’s investments in Hupecol Meta LLC (“Hupecol Meta”), and its underlying assets and operations in Colombia, are excluded from the above table.
NOTE 4 – EQUITY INVESTMENT
The Company’s carrying value of its holdings in Hupecol Meta is reflected in the line item “equity investment – Hupecol Meta LLC” on the Company’s Consolidated Balance Sheet.
During the three months ended June 30, 2024, the Company made capital contributions totaling $766,216, to Hupecol Meta to cover its share of required capital contributions. During the three months ended June 30, 2024, the Company received distributions, totaling $654,142, from Hupecol Meta representing the Company’s share of distributable net profits of Hupecol Meta.
NOTE 5 – 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 three months ended June 30, 2024 is presented below:
SCHEDULE OF STOCK OPTION ACTIVITY
Weighted-Average
Exercise Price
Aggregate
Intrinsic Value
During the six months ended June 30, 2024, 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 $1.21 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 $63,730 based on the Black-Scholes Option Pricing model based on the following assumptions: market value of common stock on grant date – $1.21; 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 – 97.8%; weighted average expected life in years – 10; and expected forfeiture rate – 0%.
During the three and six-months ended June 30, 2024, the Company recognized $12,746 and $63,413, respectively, of stock-based compensation expense attributable to the amortization of stock options. As of June 30, 2024, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $50,988. The unrecognized expense is expected to be recognized over a weighted average period of 0.72years and the weighted average remaining contractual term of the outstanding options and exercisable options at June 30, 2024 is 6.44years and 6.22years, respectively.
As of June 30, 2024, there were 61,333 shares of common stock available for issuance pursuant to future stock or option grants under the Plans.
Stock-Based Compensation Expense
The following table reflects total stock-based compensation recorded by the Company for the three and six months ended June 30, 2024 and 2023:
SCHEDULE OF STOCK-BASED COMPENSATION
NOTE 6 – CAPITAL STOCK
Warrants
A summary of warrant activity and related information for 2024 is presented below:
SCHEDULE OF WARRANT ACTIVITY
NOTE 7 – 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 income (loss) 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.
The calculation of earnings (loss) per common share for the periods indicated below were as follows:
SCHEDULE OF EARNINGS (LOSS) PER COMMON SHARE
For the six months ended June 30, 2024 and 2023, the following warrants and options to purchase shares of common stock were excluded from the computation of diluted net income (loss) per common share, as the inclusion of such shares would be anti-dilutive:
SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF DILUTED NET INCOME LOSS
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Lease Commitment
The Company leases office facilities under an operating lease agreement that expires October 31, 2025. During the three and six months ended June 30, 2024, the operating cash outflows related to operating lease liabilities of $22,137 and $44,274, respectively, and the expense for the right of use asset for operating leases totaled $18,492 and $36,440, respectively. As of June 30, 2024, the Company’s operating lease had a weighted-average remaining term of 1.58 years and a weighted average discount rate of 12%. As of June 30, 2024, the lease agreement requires future payments as follows:
SCHEDULE OF FUTURE PAYMENTS UNDER LEASE AGREEMENT
Total base rental expense was $22,161 and $22,570 for the three months ended June 30, 2024 and 2023, respectively, and $44,322 and $45,731 for the six months ended June 30, 2024 and 2023, respectively. The Company does not have any capital leases or other operating lease commitments.
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:
Six Months Ended June 30,(1)
Three Months Ended June 30,(1)
(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.
PART II
Exhibit
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.