Item 1A. Risk Factors
Our
business activities and the value of our securities are subject to significant hazards and risks, including those described below. If
any of such events should occur, our business, financial condition, liquidity and/or results of operations could be materially harmed,
and holders and purchasers of our securities could lose part or all of their investments.
Company
and Organization Risks
We
have experienced recurring operating losses and may not attain profitability; attainment of profitability will require successful drilling
and development operations to support substantial increases in production and revenues.
We
have incurred losses from operations in each year since 2011 and, at December 31, 2024, had an accumulated deficit of $85,215,109. While
we have implemented cost control initiatives that have brought down our overhead in recent years and distributions of our share of profits
from Hupecol Meta have improved overall profitability, our ability to attain profitability is substantially dependent upon our other
oil and gas assets. In order to increase production and revenues, we will need to successfully drill new wells on our existing acreage
at a pace, and with results, significantly greater than in recent years. If, for any reason, we are unable to substantially increase
our production and revenues and sustain or grow our profitability, while controlling drilling costs and overhead, we may never attain,
or sustain, profitability. Our ability to so increase production and revenues and attain profitability is subject to all of the other
risks of oil and gas operations as well as our ability to fund our share of drilling and development operations.
Our
ability to operate profitably and our financial condition are highly dependent on energy prices. A substantial or extended decline in
oil and natural gas prices may adversely affect our business, financial condition or results of operations and our ability to meet our
capital expenditure obligations and financial commitments.
The
price we receive for our oil and natural gas production heavily influences our revenue, profitability, access to capital and future rate
of growth. 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 natural gas have been volatile. These markets will likely continue
to be volatile in the future. The prices we receive for our production depend on numerous factors beyond our control. These factors include,
but are not limited to, the following:
● the actions of the Organization of Petroleum Exporting Countries, or OPEC;
● the price and quantity of imports of foreign oil and natural gas;
● the level of global oil and natural gas exploration and production activity;
● the level of global oil and natural gas inventories;
● weather conditions;
● the price and availability of alternative fuels.
Global
economic growth drives demand for energy from all sources, including fossil fuels. Should the U.S. and global economies experience weakness,
demand for energy may decline. Similarly, should growth in global energy production outstrip demand, excess supplies may arise. Declines
in demand and excess supplies may result in accompanying declines in commodity prices and deterioration of our financial position along
with our ability to operate profitably and our ability to obtain financing to support operations.
With
respect to our business, we have experienced periodic declines in demand thought to be associated with slowing economic growth in certain
markets, including the effects of the COVID-19 pandemic, coupled with new oil and gas supplies coming on line and other circumstances
beyond our control that resulted in oil and gas supply exceeding global demand which, in turn, resulted in steep declines in prices of
oil and natural gas.
Past
declines in prices reduced, and any declines that may occur in the future can be expected to reduce, our revenues and profitability as
well as the value of our reserves. Such declines adversely affect well and reserve economics and may reduce the amount of oil and natural
gas that we can produce economically, resulting in deferral or cancellation of planned drilling and related activities until such time,
if ever, as economic conditions improve sufficiently to support such operations. Any extended decline in oil or natural gas prices may
materially and adversely affect our future business, financial condition, results of operations, liquidity or ability to finance planned
capital expenditures.
Supply
chain challenges, such as those arising in the wake of the COVID-19 pandemic, may adversely affect our operations.
Supply
and demand imbalances, such as those arising from the COVID-19 pandemic, have resulted, and may result, in shortages, backlogs and delayed
deliveries of a wide array of products and services, including products and services critical to oil and gas operations. Any future outbreaks
of infectious disease, or other development, may result in supply chain challenges, in which case we may experience unavailability, or
delay in delivery, of products and services that are critical to our well operations. Any such delays may result in deferral or reduction
of revenues and increased costs, any of which could materially adversely affect our profitability.
Competition
in the oil and natural gas industry is intense, which may adversely affect our ability to compete.
We
operate in a highly competitive environment for acquiring properties, marketing oil and natural gas and securing trained personnel. Many
of our competitors possess and employ financial, technical and personnel resources substantially greater than ours, which can be particularly
important in the areas in which we operate. Those companies may be able to pay more for productive oil and natural gas properties and
exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel
resources permit. Our ability to acquire additional prospects and to find and develop reserves in the future will depend on our ability
to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Also, there is substantial
competition for capital available for investment in the oil and natural gas industry. We may not be able to compete successfully in the
future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and
raising additional capital.
Our
ability to acquire additional mineral acreage and to drill and develop our existing acreage as well as other acreage that may be acquired
is subject to availability of financing on satisfactory terms.
Our
financial resources are limited and may not be adequate to fully drill and develop our acreage or to consummate any meaningful
acquisition. Our available funds as of February 2025 are expected to be adequate to fund our share of current existing well
expenses. However, our funds on hand are not expected to be adequate to support a long-term drilling and development plan with
respect to our existing acreage holdings, should such a plan be implemented.
We
may continue to seek to access the capital markets to support planned drilling operations or acquisitions through sales of equity securities
or may seek debt financing to support such capital requirements. We do not presently have any commitments to provide equity or debt financing
to support any future drilling operations or acquisitions and there can be no assurance that such financing will be available if and
when needed on acceptable terms or at all. If we are unable to fund our share of drilling and completion costs of future wells, we may
experience flat and declining production and revenues and decreased profitability and may be subject to penalties with respect to our
interest in acreage.
Our
ability to utilize our common stock to finance future capital needs, or for other purposes, is limited by our authorized shares available
for issuance.
As
of February 2025, we had authority to issue a total of 20 million shares of common stock, of which approximately 16 million shares had
been issued and 1 million shares were reserved for issuance pursuant to outstanding stock options and warrants.
We
have historically utilized “at-the-market” sales of our common stock to provide financing to support growth and operations.
With the limited shares of common stock presently available for issuance, our ability to secure additional funding through the sale of
common stock is limited. Absent an increase in the shares of common stock authorized to be issued, we will be limited to other financing
structures in the event additional financing is required. Such alternative structures may be less favorable or unavailable in which case
we may be forced to forego opportunities or required to downsize operations due to lack of funding.
We
may be unable to make attractive acquisitions and any acquisitions may be subject to substantial risks that could adversely affects our
business.
Acquisitions
of additional mineral acreage at favorable prices is part of our strategy to increase and diversify our holdings and grow our production
and revenues. We expect to focus our acquisition efforts in the Permian Basin with an emphasis on partnering with proven
operators in the area to acquire positions at favorable prices. Competition for mineral acreage in the Permian Basin is intense. Other
operators, particularly large operators, have historically paid substantially higher prices for Permian Basin acreage than we have paid.
There can be no assurance that we will be able to successfully acquire additional acreage in the Permian Basin, or elsewhere
at favorable prices or at all. Even if we are successful in acquiring additional acreage on favorable terms, it is possible that such
acreage (i) will be more speculative than higher priced acreage, (ii) may face challenges or limitations in drilling and operations such
as lack of, or limited access to, critical infrastructure, or (iii) may prove uneconomical.
Our
success depends on our staff, which is small in size and limited in technical capabilities, and third party consultants, the loss of
any of whom could disrupt our business operations.
Our
success will depend on our ability to attract and retain key staff members. Our staff is extremely small in size and possesses limited
technical capabilities. We do not presently maintain any significant internal technical capabilities but rely on the engineering, geological
and other technical skills of our board and third party consultants. If members of our staff should resign or we
are unable to attract the necessary personnel, our business operations could be adversely affected.
Our
charter and bylaws, as well as provisions of Delaware law, could make it difficult for a third party to acquire our company and also
could limit the price that investors are willing to pay in the future for shares of our common stock.
Delaware
corporate law and our charter and bylaws contain provisions that could delay, deter or prevent a change in control of our Company or
our management. These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors
and take other corporate actions without the concurrence of our management or board of directors. These provisions:
● provide that directors may be removed only for cause; and
We
are also subject to anti-takeover provisions under Delaware law, which could also delay or prevent a change of control. Taken together,
these provisions of our charter, bylaws, and Delaware law may discourage transactions that otherwise could provide for the payment of
a premium over prevailing market prices of our common stock and also could limit the price that investors are willing to pay in the future
for shares of our common stock.
Oil
and Gas Operating Risks
Drilling
for and producing oil and natural gas are high risk activities with many uncertainties that could adversely affect our business, financial
condition or results of operations.
Our
future success will depend on the success of our exploitation, exploration, development and production activities. Our oil and natural
gas exploration and production activities are subject to numerous risks beyond our control, including the risk that drilling will not
result in commercially viable oil or natural gas production. Our decisions to purchase, explore, develop or otherwise exploit prospects
or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and
engineering studies, the results of which are often inconclusive or subject to varying interpretations. Please read “Reserve estimates
depend on many assumptions that may turn out to be inaccurate” (below) for a discussion of the uncertainty involved in these processes.
Our cost of drilling, completing and operating wells is often uncertain before drilling commences. Overruns in budgeted expenditures
are common risks that can make a particular project uneconomical. Further, many factors may curtail, delay or cancel drilling, including
the following:
● delays imposed by or resulting from compliance with regulatory requirements;
● pressure or irregularities in geological formations;
● shortages of or delays in obtaining equipment and qualified personnel;
● equipment failures or accidents;
● adverse weather conditions;
● reductions in oil and natural gas prices;
● title problems; and
● limitations in the market for oil and natural gas.
Cost
overruns, curtailments, delays and cancellations of operations as a result of the above factors and other factors common in our industry
may materially adversely affect our operating results and financial position and our ability to maintain our interests in prospects.
We
are dependent upon third party operators of our oil and gas properties.
Under
the terms of the operating agreements related to our oil and gas properties, third parties act as the operator of each of our oil and
gas wells and control the drilling and operating activities to be conducted on our properties. Therefore, we have limited control over
certain decisions related to activities on our properties, which could affect our results of operations. Decisions over which we have
limited control include:
● the timing and amount of capital expenditures;
● the timing of initiating the drilling and recompleting of wells;
● the extent of operating costs; and
● the level of ongoing production.
Decisions
made by our operators may be different than those we would make reflecting priorities different than our priorities and may materially
adversely affect our operating results and financial position, including potential declines in production and revenues from properties,
declines in value of properties and lease expirations, among other potential consequences.
Prospects
that we decide to drill may not yield oil or natural gas in commercially viable quantities.
Our
prospects are properties on which we have identified what we believe, based on available seismic and geological information, to be indications
of oil or natural gas potential. Our prospects are in various stages of evaluation, ranging from a prospect that is ready to drill to
a prospect that will require substantial seismic data processing and interpretation. There is no way to predict in advance of drilling
and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion
costs or to be economically viable. The use of seismic data and other technologies and the study of producing fields in the same area
will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural
gas will be present in commercial quantities. We cannot assure that the analogies we draw from available data from other wells, more
fully explored prospects or producing fields will be applicable to our drilling prospects.
Our
operations are expected to involve use of horizontal drilling and completion techniques, which involve risks and uncertainties in their
application.
Our
operations, in most instances, are expected to involve utilizing some of the latest drilling and completion techniques as developed by
our service providers, including horizontal drilling and completion techniques. Risks that we face while drilling horizontal wells include,
but are not limited to, the following:
● landing the wellbore in the desired drilling zone;
● running casing the entire length of the wellbore; and
Risks
that we face while completing wells include, but are not limited to, the following:
● the ability to fracture stimulate the planned number of stages;
Horizontal
drilling in emerging areas with little or no history of use of such techniques is more uncertain than drilling in areas that are more
developed and have a longer history of established horizontal drilling operations. If our horizontal drilling fails to adequately address
the risks described, we may incur costs overruns, underperformance by wells or non-productive wells.
The
unavailability or high cost of drilling rigs, equipment, supplies, personnel, water disposal and oil field services could adversely affect
our ability to execute on a timely basis our exploration and development plans within our budget and operate profitably.
Shortages
or the high cost of drilling rigs, equipment, supplies or personnel, including shortages or unavailability of personnel, supplies and
equipment, could delay or adversely affect our development and exploration operations. If the price of oil and natural gas increases,
the demand for production equipment and personnel will likely also increase, potentially resulting, at least in the near-term, in shortages
of equipment and personnel. In addition, larger producers may be more likely to secure access to such equipment by virtue of offering
drilling companies more lucrative terms. In particular, high levels of horizontal drilling and hydraulic fracturing operations in the
Permian Basin have, from time to time, created increased demand, and higher costs, for associated drilling and completion services, water
supply, handling and disposal and access to production handling and transportation infrastructure, each of which have resulted in higher
than anticipated prices with respect to our initial Reeves County wells. If we are unable to acquire access to such resources, or can
obtain access only at higher prices, not only would this potentially delay our ability to convert our reserves into cash flow but could
also significantly increase the cost of producing those reserves, thereby negatively impacting anticipated net income.
We
may not be able to obtain access on commercially reasonable terms or otherwise to pipelines and storage facilities, gathering systems
and other transportation, processing, fractionation and refining facilities to market our oil and gas production; we rely on a limited
number of purchasers of our products.
The
marketing of oil and gas production depends in large part on the availability, proximity and capacity of pipelines and storage facilities,
gathering systems and other transportation, processing, fractionation and refining facilities, as well as the existence of adequate markets.
If there were insufficient capacity available on these systems, if these systems were unavailable to us, or if access to these systems
were to become commercially unreasonable, the price offered for our production could be significantly depressed, or we could be forced
to shut in some production or delay or discontinue drilling plans and commercial production following a discovery of hydrocarbons while
we construct our own facility or await the availability of third party facilities. We rely on facilities developed and owned by third
parties in order to store, process, transport, fractionate and sell our oil and gas production. Our plans to develop and sell our oil
and gas reserves could be materially and adversely affected by the inability or unwillingness of third parties to provide sufficient
transportation, storage or processing and fractionation facilities to us, especially in areas of planned expansion where such facilities
do not currently exist.
The
amount of oil and gas that can be produced is subject to limitations in certain circumstances, such as pipeline interruptions due to
scheduled and unscheduled maintenance, excessive pressure, physical damage to the gathering, transportation, refining or processing facilities,
or lack of capacity on such facilities. Curtailments arising from these and similar circumstances may last from a few days to several
months, resulting in lost or curtailed production and revenues.
We
may operate in areas with limited or no access to pipelines, thereby necessitating delivery by other means, such as trucking, or requiring
compression facilities. This may be particularly true with respect to our Colombian acreage where infrastructure is limited or, in some
cases, non-existent. Such restrictions on our ability to sell our oil or natural gas could have several adverse effects, including higher
transportation costs, fewer potential purchasers (thereby potentially resulting in a lower selling price) or, in the event we were unable
to market and sustain production from a particular lease for an extended time, possibly causing us to lose a lease due to lack of production.
To
the extent that we enter into transportation contracts with pipelines that are subject to FERC regulation, we are subject to FERC requirements
related to use of such capacity. Any failure on our part to comply with FERC’s regulations and policies or with an interstate pipeline’s
tariff could result in the imposition of civil and criminal penalties.
A
limited number of companies purchase a majority of our production. The loss of a significant purchaser could have a material adverse
effect on our ability to sell production.
Our
oil and gas holdings and operations are concentrated, and we are dependent upon the results of drilling and production operations on
a small number of prospects and wells. If those properties and wells perform below expectations, we may experience production, revenues
and profitability below expectations.
We
have historically been focused on development of a small number of geographically concentrated prospects. Accordingly, we lack diversification
with respect to the nature and geographic location of our holdings. As a result, we are exposed to higher dependence on individual resource
plays and may experience substantial losses should a single individual prospect prove unsuccessful. At December 31, 2024, we owned interests
in 3,040 net acres and 98 net wells in the United States and, through properties owned and/or operated by Hupecol entities, 572 net acres
and 0.64 net wells in Colombia. While we continually evaluate potential prospects in operations in diverse regions, our production, revenues
and profitability for the foreseeable future are expected to be highly dependent upon the results of existing and future wells we may
drill in the Permian Basin. In order to grow our revenues and improve profitability, we must continue to drill productive wells. If existing
wells, or future wells we may drill, perform below expectations, we may experience flat or declining production and revenues and may
be unable to attain profitability.
Unless
we replace our oil and natural gas reserves, our reserves and production will decline, which would adversely affect our cash flows and
income.
Unless
we conduct successful development, exploitation and exploration activities or acquire properties containing proved reserves, our proved
reserves will decline as those reserves are produced. Producing oil and natural gas reservoirs generally are characterized by declining
production rates that vary depending upon reservoir characteristics and other factors. Our future oil and natural gas reserves and production,
and, therefore our cash flow and income, are highly dependent on our success in efficiently developing and exploiting our current reserves
and economically finding or acquiring additional recoverable reserves. If we are unable to develop, exploit, find or acquire additional
reserves to replace our current and future production, our cash flow and income will decline as production declines, until our existing
properties would be incapable of sustaining commercial production.
A
substantial percentage of our properties are unproven and undeveloped; therefore, the cost of proving and developing our properties and
risk associated with our success is greater than would be the case if the majority of our properties were categorized as proved developed
producing.
Because
a substantial percentage of our properties are unproven and/or undeveloped, we require significant capital to prove and develop such
properties before they may become productive. Because of the inherent uncertainties associated with drilling for oil and gas, some of
these properties may never be successfully drilled and developed to the extent that they result in positive cash flow. Even if we are
successful in our drilling and development efforts, it could take several years for a significant portion of our unproven properties
to be converted to positive cash flow.
We
may incur substantial uninsured losses and be subject to substantial liability claims as a result of our oil and natural gas operations.
We
are not insured against all risks. Losses and liabilities arising from uninsured and underinsured events could materially and adversely
affect our business, financial condition or results of operations. Our oil and natural gas exploration and production activities are
subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of:
● abnormally pressured formations;
● fires and explosions;
● personal injuries and death; and
● natural disasters.
Any
of these risks could adversely affect our ability to conduct operations or result in substantial losses to our company. We may elect
not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. In addition,
pollution and environmental risks generally are not fully insurable. The occurrence of a significant accident or other event that is
not fully covered by insurance could have a material adverse effect on our business, results of operations or financial condition.
If
oil and natural gas prices decrease, we may be required to take write-downs of the carrying values of our oil and natural gas properties.
Accounting
rules require that we review periodically the carrying value of our oil and natural gas properties for possible impairment. Based on
specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development
plans, production data, economics and other factors, we have written down the carrying value of our oil and natural gas properties periodically
and may be required to further write down the carrying value of oil and gas properties in the future. A write-down would constitute a
non-cash charge to earnings. It is likely the cumulative effect of a write-down could also negatively impact the trading price of our
securities.
Reserve
estimates depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in these reserve estimates or underlying
assumptions will materially affect the quantities and present value of our reserves.
The
process of estimating oil and natural gas reserves is complex, requiring interpretations of available technical data and many assumptions,
including assumptions relating to economic factors. Any significant inaccuracies in these interpretations or assumptions could materially
affect the estimated quantities and present value of reserves reported.
In
order to prepare our estimates, we must project production rates and timing of development expenditures. We must also analyze available
geological, geophysical, production and engineering data. The extent, quality and reliability of this data can vary. The process also
requires economic assumptions about matters such as oil and natural gas prices, drilling and operating expenses, capital expenditures,
taxes and availability of funds. Therefore, estimates of oil and natural gas reserves are inherently imprecise.
Actual
future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable
oil and natural gas reserves most likely will vary from our estimates. Any significant variance could materially affect the estimated
quantities and present value of our reserves. In addition, we may adjust estimates of proved reserves to reflect production history,
results of exploration and development activities, prevailing oil and natural gas prices and other factors, many of which are beyond
our control.
The
present value of future net revenues from our proved reserves, as reported from time to time, should not be assumed to be the current
market value of our estimated oil and natural gas reserves. In accordance with SEC requirements, we generally base the estimated discounted
future net cash flows from our proved reserves on costs on the date of the estimate and average prices over the preceding twelve months.
Actual future prices and costs may differ materially from those used in the present value estimate. If future prices decline or costs
increase it could negatively impact our ability to finance operations, and individual properties could cease being commercially viable,
affecting our decision to continue operations on producing properties or to attempt to develop properties. All of these factors would
have a negative impact on earnings and net income, and most likely the trading price of our securities.
Our
operations will be subject to environmental and other government laws, regulations and policies that are costly, could potentially subject
us to substantial liabilities and potentially result in decreased demand for products.
Crude
oil and natural gas exploration and production operations in the United States and in Colombia are subject to extensive federal, state
and local laws and regulations. Oil and gas companies are subject to laws and regulations addressing, among others, land use and lease
permit restrictions, bonding and other financial assurance related to drilling and production activities, spacing of wells, unitization
and pooling of properties, environmental and safety matters, plugging and abandonment of wells and associated infrastructure after production
has ceased, operational reporting and taxation. Failure to comply with such laws and regulations can subject us to governmental sanctions,
such as fines and penalties, as well as potential liability for personal injuries and property and natural resources damages. We may
be required to make significant expenditures to comply with the requirements of these laws and regulations, and future laws or regulations,
or any adverse change in the interpretation of existing laws and regulations, could increase such compliance costs. Regulatory requirements
and restrictions could also delay or curtail our operations and could have a significant impact on our financial condition or results
of operations.
Our
oil and gas operations are subject to stringent laws and regulations relating to the release or disposal of materials into the environment
or otherwise relating to environmental protection. These laws and regulations:
● require the acquisition of a permit before drilling commences;
● impose substantial liabilities for pollution resulting from operations.
Failure
to comply with these laws and regulations may result in:
● the imposition of administrative, civil and/or criminal penalties;
● incurring investigatory or remedial obligations; and
● the imposition of injunctive relief.
Changes
in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage,
transport, disposal or cleanup requirements could require us to make significant expenditures to attain and maintain compliance and may
otherwise have a material adverse effect on our industry in general and on our own results of operations, competitive position or financial
condition. Although we intend to be in compliance in all material respects with all applicable environmental laws and regulations, we
cannot assure you that we will be able to comply with existing or new regulations. In addition, the risk of accidental spills, leakages
or other circumstances could expose us to extensive liability.
We
are unable to predict the effect of additional environmental laws and regulations that may be adopted in the future, including whether
any such laws or regulations would materially adversely increase our cost of doing business or affect operations in any area.
Under
certain environmental laws that impose strict, joint and several liability, we may be required to remediate our contaminated properties
regardless of whether such contamination resulted from the conduct of others or from consequences of our own actions that were or were
not in compliance with all applicable laws at the time those actions were taken. In addition, claims for damages to persons or property
may result from environmental and other impacts of our operations. Moreover, new or modified environmental, health or safety laws, regulations
or enforcement policies could be more stringent and impose unforeseen liabilities or significantly increase compliance costs. Therefore,
the costs to comply with environmental, health or safety laws or regulations or the liabilities incurred in connection with them could
significantly and adversely affect our business, financial condition or results of operations.
In
addition, many countries as well as several states and regions of the U.S. have agreed to regulate emissions of “greenhouse gases”
and have adopted policies to actively promote alternative energy “green energy” sources that are specifically designed to
replace fossil fuels. Methane, a primary component of natural gas, and carbon dioxide, a byproduct of burning of natural gas and oil,
are greenhouse gases. Regulation of greenhouse gases could adversely impact some of our operations and “green energy” initiatives
could substantially reduce demand for our products in the future.
Increased
regulation, or limitations on the use, of hydraulic fracturing could increase our cost of operations and reduce profitability.
Our
existing Permian Basin wells have been hydraulically fractured and future wells that we may drill in the Permian Basin are expected to
be economically viable only if hydraulic fracturing is utilized to increase flows of oil and natural gas, particularly in shale formations.
The use of hydraulic fracturing has been the subject of much scrutiny and debate in recent years with many activists and state and federal
legislators and regulators actively pushing for most stringent regulation of such operations or even the ban of such operations.
In
the event that state or federal regulation of hydraulic fracturing is increased or hydraulic fracturing is substantially curtailed or
prohibited through law or regulation, our cost of drilling and operating wells may increase substantially. In some cases, increased costs
associated with increased regulation of hydraulic fracturing, or the prohibition of hydraulic fracturing, may result in wells being uneconomical
to drill and operate that would otherwise be economical to drill and operate in the absence of such regulations or prohibitions. Should
wells be determined to be uneconomical as a result of increasing regulation of hydraulic fracturing, we may be required to write-down
or abandon oil and gas properties that are determined to be uneconomical to drill and develop. Additionally, potential litigation arising
from alleged harm resulting from hydraulic fracturing may materially adversely affect our financial results and position regardless of
whether we prevail on the merits of such litigation.
International
Operations Risks
Our
operations in Colombia are controlled by operators which may carry out transactions affecting our Colombian assets and operations without
our consent.
Our
operations in Colombia are subject to a substantial degree of control by the operators of the properties in which we hold indirect interests
in Colombia. We have been an investor in a number of ventures operated by Hupecol, including our current holdings in the CPO-11 block,
which represents all of our current assets in Colombia. In the past, Hupecol sold its interest in multiple concessions and entities holding
multiple concessions each representing, at the time, the largest prospect(s) in terms of reserves and revenues in which we then held
an interest. Additionally, Hupecol has, on occasion, temporarily shut-in production from our Colombian properties. Hupecol advised us,
in late 2023, that it intends to evaluate monetization of the CPO-11 block. Our management intends to closely monitor the nature and
progress of Hupecol’s efforts to monetize the block in order to protect our interests. However, we have no effective ability to
alter or prevent a transaction and are unable to predict whether or not any such transactions will in fact occur or the nature or timing
of any such transaction.
As
of December 31, 2024, the Company determined it was necessary to take an impairment charge for our investment in Hupecol Meta due to
indications that its earnings performance has deteriorated, and the investment is no longer viewed as viable. We determined that we are
unlikely to receive any substantial amount of proceeds upon the sale of Hupecol Meta, rendering the value of the investment fully impaired.
We
may be exposed to additional expenses and losses arising from the financial position of our joint interest partners in Colombia.
Our
Colombian properties are developed under financial arrangements with various joint interest partners. In 2022, we acquired a portion
of a joint interest partner’s interest in Hupecol Meta, which operates the CPO-11 block, when the joint interest partner was unable
to fund its portion of development costs. As a result of such acquisition, while we did increase our ownership interest in the prospect,
we assumed an increased portion of the prospect’s development costs. If other joint interest partners are unable, or unwilling,
to satisfy their various obligations relating to prospects, we may be required to pay a proportionately higher share of development costs
on those prospects or the prospect may be inadequately capitalized to achieve optimal results.
We
may be exposed to substantial fines and penalties if we or our partners fail to comply with laws and regulations associated with our
activities in foreign countries, including Colombia, regarding U.S. laws such as the Foreign Corrupt Practices Act and local laws prohibiting
corrupt payments to governmental officials and other corrupt practices.
Third
parties act as the operator of each of our oil and gas wells and control all drilling and operating activities conducted with respect
to our Colombian properties. Therefore, we have limited control over decisions related to activities on our properties, and we cannot
provide assurance that our partners or their employees, contractors or agents will not take actions in violation of applicable anti-corruption
laws and regulations. In the course of conducting business in Colombia, we have relied primarily on the representations and warranties
made by our operating and non-operating partners in the farmout and joint operating agreements which govern our respective project interests
to the effect that:
While
we periodically inquire as to the continuing accuracy of these representations, as a minority non-operator, we are limited in our ability
to assure compliance. Consequently, we cannot provide assurance that the procedural safeguards, if any, adopted by our partners or the
representations and warranties contained in these agreements and our reliance on them will protect us from liability should a violation
occur. Any violations of the anti-bribery, accounting controls or books and records provisions of the Foreign Corrupt Practices Act by
us or our partners could subject us and, where deemed appropriate, individuals, in certain cases, to a broad range of civil and criminal
penalties, including but not limited to, imprisonment, injunctive relief, disgorgement, substantial fines or penalties, prohibitions
on our ability to offer our products in one or more countries, imposed modifications to business practices and compliance programs, including
retention of an independent monitor to oversee compliance, and could also materially damage our reputation, our business and our operating
results.
Stock
Related Risks
The
price of our common stock may fluctuate significantly, and this may make it difficult to resell common stock when, or at prices, desired.
The
price of our common stock constantly changes. We expect that the market price of our common stock will continue to fluctuate.
Our
stock price may fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include:
● quarterly variations in our operating results;
● changes in expectations as to our future financial performance;
● future sales of our equity or equity-related securities;
● fluctuations in oil and gas prices;
● departures of key personnel; and
● regulatory considerations.
The
stock market periodically experiences extreme price and volume fluctuations. This volatility has had a significant effect on the market
price of securities issued by many companies for reasons often unrelated to their operating performance. These broad market fluctuations
may adversely affect our stock price, regardless of our operating results.
The
sale of a substantial number of shares of our common stock may affect our stock price.
We
may require additional capital to support our future drilling plans and may issue additional shares of our common stock or equity-related
securities to secure such capital. Future sales of substantial amounts of our common stock or equity-related securities in the public
market or privately, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock
and could impair our ability to raise capital through future offerings of equity or equity-related securities. No prediction can be made
as to the effect, if any, that future sales of shares of common stock or the availability of shares of common stock for future sale will
have on the trading price of our common stock.
Item 1B. Unresolved Staff Comments
Not
applicable.
Item 1C. Cybersecurity
We do not presently maintain any formal processes for assessing, identifying and managing material risks from cybersecurity threats.
We
engage a consultant to maintain our website, email, financial record keeping and related internet capabilities, including, as necessary,
addressing any cybersecurity incidents. To date we have not experienced any material cybersecurity incidents. Given the nature of our
operations (single location, minimal customer interface, no gathering of customer digital data, etc.), we do not believe that we are
reasonably likely to face any material cybersecurity risks.
Our
audit committee is tasked with oversight of risks from cybersecurity threats. Our audit committee interfaces with our consultant periodically
to assess vulnerability to cybersecurity threats and determine actions to be taken in response to such threats.In the event risks are identified and actions are recommended by our consultant, our audit committee will communicate the same to our chief executive officer
who is charged with interfacing with our consultant in addressing any identified cybersecurity threats.Similarly, if our officers become
aware of material cybersecurity threats, they are charged with communicating the same to our audit committee.
Item 2. Properties
We
currently lease approximately 3,080 square feet of office space in Houston, Texas as our executive offices. Management anticipates that
our space will be sufficient for the foreseeable future. The average monthly rental under the lease, which expires on October 31, 2025,
is approximately $7,200. A description of our interests in oil and gas properties is included in “Item 1. Business.”
Item 3. Legal Proceedings
We
may from time to time be a party to lawsuits incidental to our business. As of February 20, 2025, we were not aware of any current, pending
or threatened litigation or proceedings that could have a material adverse effect on our results of operations, cash flows or financial
condition.
Item 4. Mine Safety Disclosures
Not
applicable.
PART
II
Market
Information
Our
common stock is listed on the NYSE American under the symbol “HUSA.”
Holders
As of February 21, 2025, there were approximately 873 shareholders of record
of our common stock.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides information as of December 31, 2024 with respect to the shares of our common stock that may be issued under
our existing equity compensation plans.
Equity compensation plans approved by security holders (1) 916,987 $ 2.09 87,680
Equity compensation plans not approved by security holders — — —
Item 6. Selected Financial Data
Not
applicable.
General
We
are an independent energy company focused on the development, exploration, exploitation, acquisition, and production of natural gas and
crude oil properties with principal holdings in the U.S. Permian Basin, the South American country of Colombia and additional holdings
in the U.S. Gulf Coast region.
Our
mission is to deliver outstanding net asset value per share growth to our investors via attractive oil and gas investments. Our strategy
is to focus on early identification of, and opportunistic entrance into, existing and emerging resource plays. We do not operate wells
but typically seek to partner with larger operators in development of resources or retain interests, with or without contribution on
our part, in prospects identified, packaged and promoted to larger operators. By entering these plays earlier, identifying stranded blocks
and partnering with, or promoting to, larger operators, we believe we can capture larger resource potential at lower cost and minimize
our exposure to drilling risks and costs and ongoing operating costs.
We,
along with our partners, actively manage our resources through opportunistic acquisitions and divestitures where reserves can be identified,
developed, monetized and financial resources redeployed with the objective of growing reserves, production and shareholder value.
Generally,
we generate nearly all our revenues and cash flows from the sale of produced natural gas and crude oil, whether through royalty interests,
working interests or other arrangements. We may also realize gains and additional cash flows from the periodic divestiture of assets.
Recent
Developments
Lease
Activity
Colombia.
In 2023, we released our interest in the last of our legacy non-Hupecol Meta properties in Colombia, formally terminating our interests
in the Picachos and Macaya blocks. We recognized a loss on disposal of oil and gas properties of $2,343,126
as a result of this transaction.
At
December 31, 2024, our sole holdings in Colombia consisted of our interest in Hupecol Meta which holds a working interest in the 639,405
gross acre CPO-11 block in the Llanos Basin in Colombia, comprised of the 69,128 acre Venus Exploration Area and 570,277 acres, which
was 50% farmed out by Hupecol Meta. Through our ownership interest in Hupecol Meta, we hold an approximately 16% interest in the Venus
Exploration Area and an approximately 8% interest in the remainder of the block.
Hupecol
Meta has (i) proposed to relinquish approximately 62,139 gross acres within the Venus Exploration Area, decreasing its holding within
that area to approximately 7,157 gross, and 1,145 net, acres; and (ii) agreed to acquire the 50% interest in the CPO-11 block farmed
out to Parex Resources, which would increase Hupecol Meta’s net acreage position in the block to 91,244 acres. The relinquishment
of such acreage and acquisition of the Parex interest are both subject to approval of the Colombian hydrocarbons agency, or ANH.
As of December 31, 2024, the company
determined it was necessary to take an impairment charge for our investment in Hupecol Meta due to indications that its earnings performance
has deteriorated, and the investment is no longer viewed as viable. We determined that we are unlikely to receive any substantial amount
of proceeds upon the sale of Hupecol Meta, rendering the value of the investment fully impaired.
United
States. During 2023, we experienced lease expirations in Yoakum County, Texas (46 net acres).
Drilling
Activity and Well Operations
Colombia.
During 2023, Hupecol Meta drilled and completed, and production commenced on, two wells in Colombia, the Venus 1-H horizontal well
and the Venus 2-H ST1 horizontal well. The Saturno 1ST-1 vertical well, drilled in 2022, was shut-in during the third quarter
of 2023 and brought back onto production in late 2023. The legacy well Venus 2A was in production through 2023. At December 31, 2024,
Hupecol Meta had 4 wells on production.
United
States. During 2023, we drilled no wells on our U.S. properties. During 2024, the operator of the O’Brien Lease, EOG, decided
to drill six new wells on the Finkle State Unit. We decided to participate in the drilling of those wells. We anticipate production from
those wells to begin in the second quarter of 2025.
At
December 31, 2024, we had 4 wells on production in the U.S. Permian Basin.
Capital
Investments
During
2024, our capital investment expenditures for acreage acquisitions, drilling, completion and related operations, as well as investments
relating to Hupecol Meta, totaled $1,887,516, all of which was attributable to direct investments in Hupecol Meta to fund our share of
drilling and operating costs.
Distributions
from Equity Investment
During
2024, we received distributions, totaling $922,719, from Hupecol Meta, representing our share of distributable net income and reflected
as “Other Income” on our Statement of Operations.
Impairment
of Hupecol Meta Investment
Hupecol
has advised that it intends to evaluate potential monetization of its assets in Colombia, including the interest in the CPO-11 block
held by Hupecol Meta. Pending the outcome of Hupecol’s evaluation of, and potential efforts regarding, monetization of the CPO-11
block, we have no planned drilling operations, or other planned operations, in Colombia and we expect to continue to operate our existing
wells on the CPO-11 block. There is no assurance as to the timing or outcome of Hupecol’s potential monetization of assets.
As of December 31, 2024, the Company
determined it was necessary to take an impairment charge for our investment in Hupecol Meta due to indications that its earnings performance
has deteriorated, and the investment is no longer viewed as viable. We determined that we are unlikely to receive any substantial amount
of proceeds upon the sale of Hupecol Meta, rendering the value of the investment fully impaired.
Financing
Activities
In
November 2022, we entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with Univest Securities, LLC (“Univest”)