Houston American Energy Corp. — the subject of a recent Sharesleuth.com investigation – is boosting its stake in a Colombian oil prospect that it claims has 1 billion to 4 billion barrels of recoverable oil.
Houston American (AMEX: HUSA) said in a Securities and Exchange Commission filing that it agreed to take an additional 12.5 percent interest in the prospect, known as CPO-4, from SK Energy Group Ltd. of South Korea. That would give it 37.5 percent of the venture.
Another small, publicly traded company, Gulf United Energy Inc. (OTCBB: GLFE.OB), also announced a deal with SK Energy for a 12.5 percent stake in the Colombian venture.
The transfers would cut SK Energy’s interest in the CPO-4 prospect to 50 percent, from 75 percent.
As Sharesleuth previously reported, the numbers at the upper end of Houston American’s reserve estimate for the 345,452-acre prospect exceed the official proved and probable reserves for all of Colombia. SK Energy has never offered its own estimate of the site’s potential.
Houston American also disclosed last week that Hupecol LLC, the majority owner of its 24 producing wells in Colombia, had agreed to sell most of them, along with the surrounding acreage, for roughly $281 million.
Houston American said it would get 12.5 percent of the proceeds, minus commissions and other expenses. Although the sales would likely bring the company a windfall of more than $30 million, they also would take away its share of the output from 19 wells, which account for the bulk of its revenue.
Houston American’s stock closed Thursday at $8.75, giving the company a market capitalization of $272 million.
(Disclosure: Mark Cuban, majority owner of Sharesleuth.com LLC, has a short position in Houston American’s shares. Chris Carey, editor of Sharesleuth, does not invest in individual stocks and has no position in Houston American’s shares.)
Houston American and Gulf United did not put dollar values on their new 12.5 percent interests in the CP0-4 prospect. But it is clear from their respective SEC filings (here and here) that neither agreement required the buyer to pay SK Energy a substantial premium for its stake.
That strikes us as unusual, given that Houston American’s backers have said that the reserves under the land could send the company’s revenue and market capitalization into the billions of dollars.
Both of the farmout deals are scheduled to be completed by Oct. 29.
Houston American said that its agreement called for it to pay its proportionate share of future operating costs at the site, as well as 12.5 percent of certain past costs and 25 percent of all seismic expenses incurred between June 18, 2009 and July 19, 2012.
Gulf United’s deal carried the same terms. Gulf United added that, in return for Houston American waiving its right of first refusal on the interest in CPO-4 that Gulf United is acquiring, it agreed to pay Houston American 12.5 percent of its past costs and 25 percent of its seismic costs through July 31.Houston American said in its quarterly SEC filing that the expansion of its interest would add around $1 million to its spending at CPO-4 this year. The company said that, as of June 30, its projected acquisition and drilling budget for the remainder of 2010 would be $8.16 million.
Gulf United, which has headquarters in Houston, is a development-stage company that has been acquiring interests in oil and gas properties.
SEC filings show that it had just $92,219 in cash at the end of its most recent quarter, but subsequently received an additional $550,000 through the issuance of a promissory note. The company said it would have to raise more money to pay for its end of the CPO-4 venture, as well as several other partnership agreements.
Houston American acquired its initial 25 percent stake in the Colombian prospect in October 2009. At about that same time, Gulf United signed a letter of intent with SK Energy to acquire its own stake in the venture.
Houston American’s public comments late last year and early this year about the property’s potential contributed to a sharp rise in its stock, which went from around $4 a share in November to a high of $20.36 on April 6.
Gulf United’s deal for a piece of the same prospect has produced no such gains for its stock. The company’s shares closed Thursday at 18 cents, down more than 30 percent from the day the acquisition was announced.
Gulf United has more than 233 million shares outstanding. At the current price, it has a market capitalization of $42 million.
EARNINGS AND BONUSES
Houston American announced last week that it turned a profit of $990,134 in the second quarter, on revenue of $7.63 million. That compares with earnings of $112,107 and revenue of $1.13 million in the same period last year.
Houston American attributed the increase to higher energy prices and higher production at the existing oil wells in Columbia, which it owns in partnership with Hupecol.
Houston American earnings said its general and administrative expenses were up $1.76 million from the same period last year, reflecting $637,500 in bonuses for executives and $1 million in expenses for options the company granted to its directors during the quarter.
Houston American also noted that it increased the base salaries of its executives by 10 percent, effective June 15. SEC filings show that John F. Terwilliger Jr., chairman and chief executive, had a base salary of $315,000 in 2009.
Terwilliger got a $675,000 bonus in 2008, after the sale of some other Hupecol-Houston American wells in Colombia. He also got stock awards and options that brought his total compensation to $1.74 million. The company later revised the figure to $5.86 million, to reflect the increase in its share price.