Small Texas company promotes big South American oil venture

Both of the oil companies that John F. Terwilliger ran before he became founder, chairman and chief executive of Houston American Energy Corp. (Nasdaq: HUSA) wound up in bankruptcy.

An oilfield services company headed by one of Houston American’s directors, John P. Boylan, also went under, in part because he took hundreds of thousands of dollars in loans from the business without the knowledge or consent of his partners.

A third member of Houston American’s five-person board, Edwin C. Broun III, was described in court documents last year as suffering from alcohol-related brain damage that could affect his ability to “process information and make sound decisions.” The filing, submitted in his defense, characterized him as a recluse who slept all day, drank all night and hadn’t opened his mail in two years.

A fourth Houston American director, Orrie Lee Tawes, is a longtime friend and financier of Terwilliger’s, and was involved with Terwilliger’s most recent bankrupt company, Moose Oil and Gas Co.  As head of investment banking for Northeast Securities Inc., Tawes also helped raise $34 million for Xethanol Corp., a dubious biofuels company that was the subject of a previous Sharesleuth investigation.

Houston American’s stock rose tenfold from July to April, climbing from less than $2 a share to more than $20. At its peak, the company had a market capitalization of nearly $633 million.

Although Houston American’s stock has fallen since then, it still is trading for more than $12 a share.


The gains are linked largely to Houston American’s deal last October for a 25 percent interest in a Colombian oil prospect controlled by SK Energy Co., one of Asia’s biggest producers, refiners and marketers.

Houston American said in an investor presentation and subsequent Securities and Exchange Commission filing that the prospect was estimated to hold anywhere from 1 billion to 4 billion barrels of “recoverable reserves.”

The latter figure exceeds the official proved and probable reserves for all of Colombia, and stands as one of the most audacious claims by any of the energy companies operating in that country.

Houston American did not cite a consultant’s report or any other independent study as the source of its estimate. Nor did the company offer any qualifiers, such as the percentage of those reserves it has a reasonable certainty of producing.

Houston American also said that the new Colombian prospect, known as CPO 4, was next to another field that is estimated to have 610 million barrels of recoverable oil.

But Ecopetrol, the state-controlled company that operates the field, called Apiay, told Sharesleuth that it had no knowledge of Houston American’s figure. It added that it does not break down its reserves by individual site. (for more information on how oil companies typically report reserves, go here and here.  The SEC also has rules for how publicly held companies calculate and value their reserves).


David G. Snow, who describes himself as an independent energy analyst, has suggested that Houston American’s stake in the claimed reserves at the CPO 4 prospect could be worth as much as $269 a share.

That alone would value the company at more than $8 billion. Snow said in a report in February that Houston American’s 12.5 percent stake in another undeveloped Colombian tract could be worth as much as $36 a share, adding $1.1 billion in market value.

Snow, president of Energy Equities Inc. in Wayne, N.J., has a history of making lofty claims about the reserves held by small energy and mining companies. He previously faced SEC charges in connection with favorable reports on a pair of Canadian companies that were later found to have engaged in fraud.

Houston American said in an SEC filing that its financial commitment to the SK Energy venture will total just $15 million over the next three years, with $10.2 million of that amount budgeted for 2010. It plans to spend $2 million this year on seismic work and drilling at the other new prospect, called Serrania.

In other words, the company is committed to spending less than $20 million on two projects that have helped add more than $300 million to its market capitalization.

To believe that Houston American is worth hundreds of millions of dollars – or even billions — is to believe that an obscure company run by people with less-than-stellar track records made a truly spectacular deal, acquiring a lucrative prospect for a fraction of its true worth, from a partner rich enough to go it alone.

Houston American did not respond to a list of questions submitted by Sharesleuth.

(Editor’s Note: Mark Cuban, the majority owner of LLC, has a short position in Houston American’s shares, Chris Carey, the editor of Sharesleuth, does not invest in individual stocks and has no position in Houston American’s shares).


Although Houston American executives have been talking up the CPO 4 prospect, their counterparts at SK Energy have said little about the site’s potential. In a financial presentation in April, the South Korea-based company did not even list the 345,452-acre tract among its main exploration and development projects for 2010.

SK Energy is a multinational conglomerate with more than $28 billion in annual revenue. It has 10 oil and gas production fields around the world, as well as 23 exploration prospects, including blocks of land in Colombia, Peru, Brazil, the Ivory Coast, Madagascar, Kazakhstan, Vietnam and Australia.

According to Snow’s report, Houston American acquired its stake in the CPO 4 prospect simply by cold-calling SK Energy and asking if it could invest in the venture

A second Houston-based oil company, Gulf United Energy Corp. (OTCBB: GLFE.OB) said in several recent SEC filings that it entered into a “tentative letter of intent” with SK Energy last October for a 25 percent stake in the same prospect.

Gulf United said in its quarterly filing on April 14 that the deal was subject to the completion of a definitive agreement, which was being negotiated. That disclosure raises further questions about why SK Energy would be partnering with such small players on the Columbian venture if it held the sort of promise that Houston American and its supporters claim.

Don Wilson, Gulf United’s president and chief executive, did not return several calls from Sharesleuth. SK Energy did not respond to a list of questions about the Colombian prospect, Houston American and Gulf United.

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Houston American bills itself as an oil and gas exploration and production company. But it typically does not drill or operate any wells on its own. Instead, it uses its capital to buy into projects being developed by other energy companies.

Houston American had only three employees as of late March – Terwilliger, Chief Financial Officer James J. Jacobs and an assistant.

In addition to its share of the CPO 4 prospect (see red area of map for location) Houston American has interests in 30 producing oil and gas wells in the United States and Columbia, and has stakes ranging from 12.5 percent to 25 percent in several other undeveloped Colombian tracts.

Houston American’s net production from Colombia, however, equates to full ownership of a single well yielding less than 650 barrels a day, based on statistics for the first quarter.

Houston American had $8.12 million in revenue for 2009, and $4.2 million for the first quarter of 2010, according to an SEC filing . Although it posted a loss of $669,448 last year, it turned a profit of $808,716 for the first three months of this year, thanks mainly to higher production and higher oil prices.

Houston American ended the first quarter with a little more than $12 million in cash, much of it raised through a December share placement. Columbia Wanger Asset Management L.P., a Chicago-based investment advisor that has backed several other oil companies operating in the same region as Houston American, was the biggest purchaser of shares.


Two investment newsletters have been touting Houston American’s shares., run by former stockbroker Kevin T. McKnight, listed the company as one of its top 10 stock picks for both 2009 and 2010. A disclaimer on its site says that it has been paid by Houston American to provide investor relations services.

Another, more recent, addition is Maedel’s Equity Market Analyst, written by Neil H. Maedel, who once worked as a trader on the Vancouver Stock Exchange and now bills himself as an international financier.

Sharesleuth noted that Maedel and Snow once issued similarly bullish claims about a small public company called Eden Energy Corp. (OTCBB: EDNE.OB), whose shares shot from $2 to just under $10 in the first nine months of 2005.

Maedel was director of corporate and investor communications at Eden, which claimed that the acreage it had assembled in Nevada held as many as 6 billion barrels of oil. Snow, in a separate report, put the figure as high as 24 billion barrels.

SEC filings show that after the stock began surging, the company’s insiders and early investors sold, or filed to sell, more than $20 million of stock. Eden never produced a drop of oil in Nevada, and now is exploring elsewhere. Its shares are currently trading for around 10 cents.

Sharesleuth found that Maedel has close ties to many of the European and Canadian investors who profited the most from the sharp increase in Eden’s share price.

We also noted a connection between Maedel and, which is based Boca Raton, Fla. Its list of top stock picks for the past two years included a little known company called Manas Petroleum Corp. (OTCBB: MNAP.OB), which previously employed Maedel as executive director and head of business development.

(watch Maedel discuss Manas Petroleum)

Like Houston American, Manas has paid for investor relations services. The Switzerland-based company’s stock traded for more than $6 in the summer of 2007, but now is around 60 cents a share.

Manas and have claimed that the company’s prospects, spread over five countries, hold the equivalent of more than 4 billion barrels of recoverable oil. However, a May SEC filing that required Manas to follow stricter definitions said it had no known reserves on any of its properties.

SEC filings show that Manas has, or had, at least 15 of the same shareholders as Eden.

Although Houston American’s filings do not list Maedel or any of his European associates among its shareholders, we think that anyone considering an investment in the company might want to make note of its promoters’ history and connections.

Neither Maedel nor McKnight responded to questions submitted by Sharesleuth.


All of Houston American’s producing wells in Colombia are controlled by Hupecol LLC, based in Beeville, Texas. It recently solicited bids for most of its holdings in Colombia. If it sells out, Houston American would get a cash windfall – one estimate puts the figure at $25 million to $50 million. However, it also would lose nearly 90 percent of its current revenue. The company says it could use its share of the proceeds to help pay for the development of the new fields.

The company has noted in investor presentations that it has no debt. Thus, it does not face the short-term financial pressures that many other small producers face, allowing it to be patient in its search for opportunities.

Houston American also has a high percentage of insider ownership. According to its latest proxy filing, Terwilliger holds 8.92 million shares, giving him a 28.4 percent stake in the company. Tawes, who once worked with Terwilliger at the investment firm of Oppenheimer & Co. in New York, has 3.4 million shares, equal to a 10.9 percent stake.

Broun has just over 1 million shares, or roughly 3 percent of the company. Houston American announced Friday that he had resigned from its board of directors, effectively immediately, citing personal and health reasons.


Houston American’s shares got a boost earlier this year because of the success that another oil company, Petrominerales Ltd. (TSX: PMG.TO), reported with three wells it drilled on a block of land adjoining the northern border of the CPO 4 prospect.

Those wells – the Candelilla-1, Candelilla-2 and Candelilla-3 – all have come on line since December, with initial production rates totaling 43,900 barrels a day. The combined output from those wells was averaging 31,500 barrels a day as of May 5, a rate that would translate to hundreds of millions in revenue on an annualized basis.

Houston American and the newsletter writers who have recommended the company’s shares note that two of those wells are within three miles of the northeast border of the CPO 4 property.

But other people who are involved in the Colombian petroleum industry told Sharesleuth that the so-called “closology” approach to locating oil is no guarantee of drilling success or well output. 

Snow said in February that Houston American’s interest in the CPO 4 block could be worth $67 a share to $269 a share. Those figures assume that the reserves indeed total 1 billion to 4 billion barrels, and that the oil is worth $20 to $25 a barrel in the ground – an estimate he attributed to the company. Snow’s calculations also incorporate the 70 percent success rate of the wells that Houston American has participated in with Hupecol, even though Hupecol is not involved in CPO 4.

Although Petrominerales has completed three fairly prodigious wells on its adjoining prospect, known as Guatiquia, it still lists its total proven and probable reserves there at a modest 10.4 million barrels.

Snow said Houston American’s stake in the undeveloped Serrania prospect could be worth $18 to $36 a share. He based that partly on the valuation of a neighboring parcel that produced a number of successful wells.

Snow told Sharesleuth that Houston American’s management cooperated with him in the preparation of the report, but that the company did not compensate him for the work.

We spoke with several petroleum geologists who have worked in Colombia. One said it was entirely possible that Houston American could be sitting on a big find, given the previous discoveries in the region. But others who reviewed the investment letters said they contained more hype than substance.

Sharesleuth also talked to an executive of another oil company that operates in Colombia and bid on the CPO 4 prospect. He said his company did not see as much potential as Houston American and its partner do. He added that the geology of the area makes it unlikely that anyone will find a giant reservoir of oil there, like the ones that have produced billion-barrel fields elsewhere in the country. 

The potential reserves that Houston American’s promoters are citing for the CPO 4 prospect would dwarf its existing reserves. The company said in a recent SEC filing that it had roughly 308,000 barrels of proven, developed reserves in Colombia at the end of 2009 and just over 894,000 barrels of proven, but undeveloped reserves.

Those reserves represent its interest in the Hupecol properties, most of which are on the market.


Houston American’s shares reached a high of $20.36 on April 6, when oil prices were nearing their recent peak. But the next day, they fell nearly 30 percent, to $14.51, after investors took notice of two unfavorable articles that appeared on, an investment website.

Both raised questions about the valuation of Houston American and its Colombian prospects. One of them also looked into Terwilliger’s actions at his previous company, Moose Oil, as it slid toward bankruptcy.

The two articles were submitted by anonymous contributors. One, headlined “Houston American Energy Priced for Perfection” was posted April 5 by someone using the name Shareholders Unite. Another, titled “Houston American Energy Corp. Set Up for Collapse” was posted April 7 by someone using the alias Shareholder Watchdog.

Sharesleuth began investigating Houston American in March, after noting the sharp rise in the company’s shares and studying its SEC filings. We have had no contact with the writers of the other articles, and do not know their identities.


Houston American responded to the Seeking Alpha postings with a press release, dismissing the assertions about the company as unsubstantiated and the questions about the integrity of its management as ”scurrilous at best.”

“We have reviewed the Internet postings in question and believe they mischaracterize our company, our management team and the very nature of our operations,” Terwilliger said in the statement.

Houston American did not respond to a request by Sharesleuth to elaborate on what information it believed was false or misleading.

Terwilliger noted in the press release that neither he nor Houston American’s other officers and directors had sold any of their shares, even as the market value soared. But according to the proxy statement for the company’s annual meeting, more than 8.6 million of Terwilliger’s shares are pledged as collateral for some unidentified financial obligation.

That notation did not appear in previous proxy statements.

More than 3.1 million of Tawes’ shares also were said to be pledged as collateral. That notation has appeared in three prior proxy filings, dating back to 2007.

The fact that those shares are locked up could be viewed as a positive for other Houston American investors, because the executives cannot readily sell them, giving management a long-term interest in the success of the company.

The exception would be if the stock was pledged as collateral for a margin loan, or some other type of loan that allows for the liquidation of shares if the price falls below a certain threshold.


Colombia has emerged as a hotspot for oil exploration in Latin America because of its pro-business political regime, its progress in combating anti-government guerillas, and its willingness to grant concessions to producers at attractive royalty rates.

Several companies have reported promising finds, leading to buyouts or big increases in their share prices. Petrominerales is the latest success story.

Its shares rose from $18 to $35 as its successes at Guatiquia mounted. In March, the company had a market value of nearly $3.5 billion. However, its stock has fallen more than 20 percent from that high.

The Colombian government last month increased its official figure for the proved oil reserves in the country to 2.05 billion barrels, up from 1.79 billion a year ago. When probable and possible reserves are included, the total rises to 3.1 billion barrels.

Ecopetrol, the biggest energy producer in Colombia, listed its proved oil reserves at 1.34 billion barrels at the end of 2009.  It said its combined oil and natural gas reserves were equal to 1.88 billion barrels.

Pacific Rubiales Energy Corp., the second largest producer in Colombia, said in February that it had 280.6 million barrels of proved and probable reserves in that country.

Pacific Rubiales’ 40 percent stake in the well-established Rubiales field accounted for much of that total. The company said that field had roughly 500 million barrels of proved, probable and possible reserves.

It said the original reservoir had 4.2 billion barrels, not all of which was physically or economically recoverable. That figure put it just beyond the upper end of Houston American’s estimate for the CPO 4 prospect.

The Rubiales field is currently producing more than 120,000 barrels of oil day, and is targeted for expansion to 170,000 barrels.


Houston American signed a partnership agreement for the Serrania prospect last June.  Its deal with Shona Energy Co. of Houston gives it a 12.5 percent interest in the venture. Houston American agreed to pay 25 percent of the geologic and seismic costs in advance of drilling there.

Houston American said in an investor presentation that the Serrania prospect is adjacent to another field, called Ombu, that had an estimated 1.1 billion barrels of oil in place. It attributed that figure to Canacol Energy Ltd., a Canadian company with a 10 percent interest in Ombu.

Houston American also pointed out that Sinochem Corp., which owns the other 90 percent of the Ombu field, was told by its consultant last year that the property had 122 million barrels of potentially recoverable oil.

Maedel noted in his May newsletter that Sinochem bought its 90 percent interest in the Ombu field by acquiring Emerald Energy Plc for $836 million. That price, however, included other valuable assets, including Emerald’s additional holdings in Colombia and exploration and production rights in Syria.


Snow’s report asserted that the reservoir of oil below the Ombu field extended into the Serrania field, indicating that Houston American’s shared prospect there could hold as many as 500 million to 1 billion barrels of oil.


The reports by Snow, Maedel and McKnight all create the impression that Houston American could be acquired at valuations similar to the other companies that have made big finds in Colombia.



Terwilliger started Houston American in April 2001. At that time, he also headed Moose Oil, a small, privately held company that operated primarily in Texas and Oklahoma.

Moose filed for protection from creditors the following year, leading to charges by its bankruptcy trustee that Terwilliger and Tawes improperly shifted assets out of the company and used its cash to set up Houston American.

Moose listed roughly $238,000 in assets and $2.6 million in liabilities in the financial schedules it submitted with its bankruptcy petition.

According to court filings, Terwilliger used hundreds of thousands of dollars from Moose’s bank accounts — starting in February or March of 2001 — to pay legal fees, accounting fees and other costs incurred in creating Houston American.

The complaint by Moose’s bankruptcy trustee noted that agreements that were said have taken effect in April 2001 transferred certain oil and gas interests to Houston American for less than $250,000. The trustee alleged that Moose was insolvent, or nearly insolvent, at the time of the transfers, which would mean that the deals could be voided under federal bankruptcy law.

The complaint also said that, between October and December 2000, Terwilliger and Tawes provided roughly $649,000 in cash to Moose, and that those contributions were classified as loans.

In June 2001, Moose issued promissory notes for those debts to another of Terwilliger’s companies, Marlin Data Research Inc., and to Tawes. According to court filings, the notes were secured by most, if not all, of Moose’s remaining oil and gas holdings.

By December of that year, Moose had defaulted on the notes, and in early February 2002, the company turned over multiple oil and gas interests to Marlin Data Research and Tawes.

Moose filed for bankruptcy on April 9, 2002, the same day as a scheduled court hearing on a suit filed by property owners who claimed that the company had failed to pay them more than $300,000 in royalties.

The bankruptcy trustee presiding over Moose’s estate accused Terwilliger of breaching his fiduciary duty, engaging in self dealing and transferring assets “with actual intent to hinder, delay or defraud creditors.”

Terwilliger settled the case with an agreement that called for him and Marlin Data Research to pay  $100,000 to Moose’s estate and for Marlin to return certain royalty assignments.  A judge dismissed the trustee’s case against Tawes, ruling that he wasn’t a company insider and could not be held responsible for any diversion of assets.

The trustee also sought the return of more than $310,000 in payments that Moose made in the year before its bankruptcy filing to the law firm that set up Houston American, to American Express Corp., and to a handful of other parties. He argued that Moose was insolvent, or nearly insolvent, at the time the payments were made, and that most of the expenses were unrelated to its business.

One of the companies on that list was S.P. Hartzell Inc., headed by petroleum geologist Stephen P. Hartzell. He currently is a member of Houston American’s board, and SEC filings show that he also was one of its early shareholders.

Court records show that the trustee settled with the law firm, American Express and several other defendants, recovering about half of the total amount sought from them.


John Boylan, an accountant with a master of business administration degree, has been a Houston American director since 2006.  He heads the board’s audit and compensation committees.

Boylan previously was the chief executive of an oilfield services company called Birdwell Partners L.P., and for a time managed one of its units, Five Star Transportation L.P.

Five Star Transportation shut down in 2003 after falling behind on its bills and finding itself unable to keep up payments on a line of credit with a balance of roughly $1.25 million.

According to court filings, Boylan was ousted by Birdwell’s other partners that year, after one of them discovered that between $350,000 and $400,000 was missing from the checking accounts of Five Star and a related business, American Pipe Inspection.

The court filings show that Boylan’s partners forced him to resign, but decided not to seek criminal charges against him. Boylan never repaid the money, and Five Star defaulted on its line of credit.

When that lender went after the members of Birdwell Partners who had personally guaranteed the debt, Boylan declared bankruptcy. The lender fought his efforts to have the debt discharged, claiming among other things that he sought the line of credit with the intention of diverting some of the money.

According to court filings, another member of Birdwell Partners named Rick Lawrence testified that Boylan not only advanced himself money from Five Star, but also sent out $189,000 in checks in August 2003 without any money in the bank, and failed to remit $280,000 in employment and other taxes to the Internal Revenue Service.

Boylan said in his own filing that the loans were an accepted practice at the company as an alternative to profit distributions. He said that others at Birdwell were aware of them, and that the allegations of impropriety were part of a plan by Lawrence to force him out as chief executive.

However, an investigator for the court-appointed receiver in the case said his inquiry showed that Lawrence’s account of the events was accurate.

Boylan listed $516,000 in debts to Five Star Transportation in his bankruptcy filing. They were described as shareholder loans.

After being removed from his position at Birdwell, Boylan worked as a manager or consultant for three different oil companies, all of which have filed for bankruptcy.

Houston American’s SEC filings say that Boylan was a manager at Atasca Resources, another Houston-based oil and gas company, from 2003 through 2007. It filed for bankruptcy last year.

Boylan’s resume on says he was a financial consultant for Saratoga Resources Inc. from December 2007 to February 2009. That company filed for bankruptcy on March 31, 2009. It successfully reorganized, however, and emerged from court protection last month.

Boyland’s resume says he has been a financial consultant for Pisces Energy LLC since December 2008. Pisces filed for protection from creditors in September.


Edwin Broun, better known as Ted, is part of a family that has been in the oil business in Texas for at least two generations. He worked for a number of major energy companies before striking out on his own.

Broun and a partner formed Sierra Mineral Development L.C. in 1994 to find and develop oil and gas properties. The company sold three of its natural gas fields in South Texas for $123 million in 2001 and dissolved a few years later.

SEC filings show that Broun has been a Houston American shareholder since 2001, and became a director in 2005.

In December 2008, Broun was charged with a misdemeanor criminal offense. The charges were unrelated to Houston American and were eventually dismissed, so we are not going to recount the details here.

But the description of Broun in a filing submitted in his defense included information that could be considered pertinent for Houston American investors.

The filing said that Broun suffered from cognitive difficulties – possibly alcohol dementia – as a result of years of heavy drinking. It said that, because of that drinking, he sometimes did not know what day of the week it was, or even whether it was day or night. It also said that he was estranged from family and  friends, seldom left the house and relied on others to make appointments for him.

Houston American’s board met 10 times last year, according to a recent SEC filing. Broun was the only one of the company’s five directors who failed to attend at least 75 percent of those meetings.


Orrie Tawes, who goes by his middle name, Lee, spent much of his career at Oppenheimer & Co. in New York, rising to director of equity research. Terwilliger also worked at Oppenheimer before launching his first energy company, Cambridge Oil Co., in the 1980s.

Tawes has been executive vice president and director of investment banking for Northeast Securities since 2004.

In addition to finding capital for Houston American, Tawes helped raise money for Xethanol Corp., a New York-based company that claimed it had technology to convert wood chips, grass clippings and other biomass to ethanol.

Xethanol’s stock rose sevenfold, to a high of $16.18 a share, in the first four months of 2006. Sharesleuth published its investigation of the company in August of that year, calling into question its claims that its technology was commercially viable.

Within a year, Xethanol’s shares were back where they started, at around $2. The company eventually abandoned its original strategy and switched to other pursuits, but ran short of money and filed for bankruptcy last November.

SEC filings show that nearly two dozen of the investors who bought shares in Xethanol’s private placement in 2006 also participated in Houston American’s $2.12 convertible note placement in May 2005.

Tawes joined Houston American’s board of directors after that financing, along with Broun and Hartzell.

The notes were convertible to stock at $1 a share, the approximate market price at the time of the placement. Within four months, Houston American’s stock was above $3, aided by announcements of well investments in Louisiana and Texas.

Houston American raised an additional $16.6 million the following year, in a share placement handled by Sanders Morris Harris Inc., a Houston-based investment firm. Houston American’s current chief financial officer, James J. Jacobs, was an investment banker at Sanders Morris and worked on that placement.


Houston American’s shares declined after the financing, in part because an institutional investor sold 1 million shares in a single day. But in the final three months of 2006, the stock more than tripled, topping $8.

At the time, the company’s shares were being spotlighted by a number of stock-promotion services, including,, Stock Market Alerts LLC and Wall Street News Alert and Wall Street Capital Funding LLC.

Houston American’s stock ended that year at $7.36 a share. By the end of 2007, the shares had drifted back to the $3 range, the price investors paid in the private placement. Houston American had another surge in 2008, climbing to $11.98 in early July with the help of rising oil prices and a gain on the sale of a successful Colombian field in which it held a minority stake.

Houston American collected $11.5 million for its 1.6 percent share of a Colombian prospect called Caracara, which was controlled by Hupecol and sold for $920 million.


The company’s board of directors awarded Terwilliger a bonus of $675,000, saying it was in recognition of that sale and the value it created for shareholders. An SEC filing shows that he also got stock awards and stock options that the company valued at nearly $750,000, bringing his total compensation for 2008 to $1.74 million.

Houston American had $10.6 million in revenue and $464,945 in profits that year.  And although its shares traded above $8 a share from mid-June through August, they ended 2008 at $3.38.

Houston American’s recent proxy filing listed Terwilliger’s cash compensation last year at $315,000. That filing also recalculated his 2008 compensation to reflect the impact of the company’s significantly higher stock price on option grants. The new total was $5.86 million.

In looking into Terwilliger’s business history, we noted his previous role as chairman and president of Cambridge Oil Co., a Texas-based company that filed for bankruptcy in 1988 and was dismantled.  Terwilliger’s biographies in Houston American’s SEC filings and on the company’s website make no mention of that bankruptcy.

Cambridge sought protection after the partners in one of its ventures won a $1.6 million judgment in a suit that alleged the company breached a farmout and lease agreement and fraudulently withheld money owed under that agreement.


Snow, the analyst who projected that Houston American’s interest in the CPO 4 prospect could be worth hundreds of millions, or even billions, of dollars, has run into trouble before with his projections.

As reported in April, Snow once set a price target of $1,000 on the shares of Solv-Ex Corp., an oil sands company with operations in Alberta, Canada.

Solve-Ex had a market capitalization of more than $850 million before its collapse. Solv-Ex and two top executives were later hit with a civil action by the SEC, which alleged that they made fraudulent statements about the company’s products and technology.

A federal judge ruled that the executives, John S. Rendall and Herbert M. Campbell, violated securities laws, and fined each of them $5,000. Solv-Ex’s stock was delisted and the company filed for bankruptcy.

Snow himself settled SEC charges stemming from his promotion of Solv-Ex and a second company, Naxos Resources Ltd. The SEC alleged that Snow recommended those companies to his newsletter clients and other investors without disclosing that he had a position in their securities or stood to receive other economic benefits.

Snow settled with the agency without admitting or denying guilt and was ordered to pay a $15,000 fine.

The chief executive of Naxos Resources was barred for 10 years by securities regulators in British Colombia and Alberta, who found that he issued misleading press releases about the company’s prospects and activities.


McKnight’s biography says he spent eight years as a retail broker, before moving into investment banking and financial public relations.

Regulatory records show that he started his career in 1995 at Stratton Oakmont Inc., a New York-based brokerage that was shut down by regulators in 1996. It later was found to have manipulated the public offerings of nearly three dozen companies.

McKnight  also worked briefly in 1995 at Kensington Wells Inc., another brokerage that bilked investors through fraudulent sales practices. The National Association of Securities Dealers charged that its employees made baseless or improper price predictions about the shares of small, speculative companies, engaged in unauthorized trading, falsely guaranteed investors against losses and in some cases refused to execute customer orders to sell shares.

McKnight spent a few months in 1996 at a third corrupt brokerage, Meyers Pollock Robbins Inc. At least 40 people who were associated with that firm pleaded guilty to participating in various fraud schemes between 1992 and 1997.

McKnight was never charged civilly or criminally in connection with any of those firms’ activities.

He did not respond to Sharesleuth’s questions about his brokerage career.


Maedel wrote investment newsletters from 1987 to 2001, first under the title The ProTrader and then Maedel’s Mini-Cap Analyst. He resumed publishing last fall, using the name Maedel’s Equity Market Analyst.

His first issue, in November, recommended the shares of Mexoro Minerals Ltd. (OTCBB: MXOM.OB). An SEC filing from the following month listed Maedel as the manager of Andean Invest Ltd., which owned 1.62 million Mexoro shares and was offering 1.55 million of them for sale through a registration statement filed by the company.

Maedel wrote about Houston American in his March issue, noting that he had added its shares to his portfolio in early January at $6.50. In that article, he also drew a connection to Mexoro, saying they shared the same favorable “fundamentals, technicals and market tone.”

Not long after the negative postings about Houston American appeared on Seeking Alpha, Maedel used his newsletter to issue a rebuttal.

Maedel acknowledged in his May issue that a correction in the company’s share price had been overdue. But he questioned the motives and accuracy of the posters on Seeking Alpha, and added that any success with either the CPO 4 or Serrania prospects could send Houston American’s stock sharply higher.

“All fingers will be crossed for an InterOil like performance,” Maedel wrote, referring to another Houston-based company, InterOil Inc., which recently claimed to have discovered one of the biggest natural gas wells in the world. “If it happens it will not be the first Maedel’s pick to go into the stratosphere and we hope it won’t be the last.”

Maedel said in the article that he had previously rated InterOil (NYSE: IOC) a “buy,” and added that he was introduced to Houston American’s management by someone who had been involved with InterOil.

McKnight also has recommended InterOil, whose stock surged because of the reports of its big find, in Papua New Guinea.

InterOil has been the subject of several recent in-depth reports by iBusiness Reporting, another site that seeks to expose companies it believes are engaged in fraud or deception.


Until last year, Maedel was an executive director of Manas Petroleum – the Switzerland-based company that currently is one of the featured stocks at

An SEC filing from April showed that Clarion Finanz AG, headed by Swiss financier Carlo Civelli, held common stock or warrants equal to 1.02 million Manas shares, making it one of the company’s 20 biggest investors at that time.

Clarion Finanz also is one of the biggest financial backers of InterOil. And it was among the Eden Energy investors whose shares were registered for resale just before the promotional campaign about the   Nevada reserves lifted that company’s share price.

The Investment Industry Regulatory Organization of Canada alleged last year that a brokerage firm in that country had been paying undisclosed commissions to Civelli for placing what appeared to be tens of millions of dollars of stock trades on behalf of seven banks in Switzerland and Liechtenstein.

Because of bank secrecy laws in those countries, it was impossible to determine whether the trades were made on behalf of the banks, or on behalf of investors who were customers of the banks.

In a separate case, the British Columbia Securities Commission issued a cease trade order on Manas’ shares in 2007, then modified that to a partial ban in 2008. The revised order applied only to stock held by Clarion Finanz and six other offshore entities.  Regulators said they could not determine the beneficial owners of the shares.


SEC filings show that Maedel worked as a research consultant for a company called GM Capital Partners Ltd. from October 2003 to August 2004 . GM Capital Partners is domiciled in the British Virgin Islands. It had headquarters in Zurich, Switzerland and a satellite office in Port Coquitlam, British Columbia.

GM Capital and a number of other entities based in Switzerland and Liechtenstein were shareholders in Eden Energy. Many of those same entities later invested in Manas and Mexoro, the companies that Maedel is currently recommending.

The home page of GM Capital’s website lists Manas and Mexoro as its “portfolio companies.”

Igor M. Olenicoff, a wealthy California real estate developer, filed a lawsuit in 2008 against GM Capital Partners, its managing director James Alexander Michie, British Columbia stock promoter Jason Sundar and others, alleging that they participated in a scheme to defraud him of millions of dollars held in overseas banks.

Sundar also was involved in the promotion of Eden Energy.

Olenicoff claimed, among other things, that his banker at Switzerland-based UBS, Bradley C. Birkenfeld, took kickbacks in return for investing Olenicoff’s money without his knowledge in a handful of obscure penny stocks.

According to the suit, those companies were: Mexoro (OTCBB: MXOM.OB); Synthesis Energy Systems Inc. (Nasdaq: SYMX), of Houston; , Synova Healthcare Group Inc. (Pink Sheets: SNVHQ.PK); and VECTr Systems Inc. (Pink Sheets: VECT.PK), formerly known as Navitrak International Corp.

Mexoro recently changed its name to Pan American Goldfields Ltd. Its shares are trading for around 25 cents.

Olenicoff was caught up in the U.S. government’s investigation of Americans suspected of evading income taxes by concealing money in foreign bank accounts. He pleaded guilty in December 2007 to a felony charge of filing a false tax return and failing to disclose foreign bank accounts.

He was sentenced to two years of probation and 120 hours of community service, after contending that he did not intend to defraud the government and was relying on the advice of bankers, lawyers and accountants. He also agreed to pay $52 million in back taxes.

Birkenfeld, who cooperated with authorities in their investigation of suspected tax evaders, also pleaded guilty and was sentenced to more than three years in prison.

According to Olenicoff’s complaint, Swiss authorities are investigating GM Capital and Michie, who hails from British Columbia..

The Swiss Federal Banking Commission looked into allegations that the Zurich branch of GM Capital was operating as a securities dealer without the proper authorization, said Tobias Lux, a spokesman for that agency. Regulators found that those allegations were true, and also concluded that the Swiss arm of GM Capital was insolvent, he said.

The Zurich branch is currently in liquidation, Lux said.

Sharesleuth noted one more recent development regarding the companies mentioned in this story. In late May, a company called Petromanas Energy Inc. — created through the transfer of Manas’ Albanian petroleum assets — raised $75 million through the sale of stock and warrants.

Quantum Partners Ltd., a private investment fund run by Soros Fund Management LLC, paid $29 million for 72.5 million of the units, which were priced at 40 cents each. The units consisted of a share of common stock and half of a warrant for an addtional share of common stock.

Soros Fund Management, founded by billionaire George Soros, is one of the biggest investors in InterOil.

Columbia Wanger Asset Management, the company that bought shares in Houston American via its December placement, also bought $26 million of Petromanas’ units in last month’s placement.

Manas holds 200 million shares of Petromanas, equal to a 32.4 percent stake. It has the right to acquire an additional 50 million shares, which if exercised would push its interest to 34.7 percent.

Sharesleuth will continue to follow Houston American and its promoters and report on what we find.


Rick Feldman and Dominique Donaho provided fact checking services for this story

One thought on “Small Texas company promotes big South American oil venture

  1. Pingback: Colombia: Houston American keeps on sliding | Setty's notebook

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