Houston American Energy Corp (HUSA)

[finesand]

4Q17 Estimates / Evaluation

Price per BOE: $30 (see table below)
- Oil $60/bbl
- Natgas $2.90/mcf
- Energy (!) conversion 5.8 mcf/bbl
- Gas/Oil Revenue 57%

Net Revenue for 2 wells in 2 month: $338k (see table below)
- 14496 BOE total
- F&D costs $6.70/boe

Let's assume a positive $400k revenue
Assumed Operational Costs: $400k
Resulting Assume Income: Around $0

Sequential revenue increase of 576%
However, still hardly at break even point
especially due to required new well to stay sustainable.
Note: Exponential decline of flow per well in first years.

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Multiple Evaluation on Revenue

OS approximately 61M

Knowing that new drilling is postponed for now
we can only assume the current revenue stream.
Adding a 21% decline in the current wells due
to the natural exponential flow decline, we have:
$0.4M + 3 * $0.32M = $1.36M annual revenue roughly.

Using $1.4M optimistic annual revenue:
- P/S 1 $0.02295/sh
- P/S 10 $0.22950/sh
- P/S 20 $0.45900/sh

What is the appropriate multiple, given that existing wells
won't get any better?

IMO a multiple positive can only be given on future
production increase and not decrease without growth.
Since one well set-up would cost around $1.3M for HUSA's
current net-revenue interest, they need financing
to cover their vision.

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Evaluation Based on HUSA's Future Plans

It has been signaled by HUSA's PR that they are about to
increase land leases and pushing back their well drilling
program. Therefor company is falling back into the
pure development stage, disregarding the 'production play'
of becoming a super growth company.

All this uncertainty is probably the reason of the stock decline, heading back towards its previous 20c price line.

Yes, sequential revenue growth looks dramatic on a percentage base, but it is insignificant compared to the required capital costs for growth.

It will all boil down what their real future plans are and especially how they will realize it.

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(charts courtesy of 01 @ ST)





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Disclosure: I have no position in HUSA as of now.
I may start a position below 20c or when company gives clarity about their future prospects, i.e financing for growth.