Replies to post #2330 on Houston American Energy Corp (HUSA)

[finesand]

Future Net Oil Sales Update

had a long convo, and the long term F&D costs number seems to be king for accumulated revenue calculation.
The later being used for forward P/S multiple and stock price appreciation.
Note the 500% growth in 2018 and then half each followup year while doubling the well count, ending up in $207M net oil revenue per year with 60 wells!

01 also included a Worst-Case Scenario, resulting in about 54% of the proposed plan - which still is highly profitable.

What would be a fair bottom price today, appreciating the growth?
We think of a 2.5 year fwd accumulated net revenue, here this would result using end of 2019 results and an OS of fully diluted 73M. Around $45M $0.61/sh fair bottom for the projected plan or $25M $0.33/sh fair bottom for the worst case scenario, as a future fair bottom price soon.
The future ceiling should overcome previous spikes, hence we could simply take the 3.5 year range: $127M $1.73/sh top - or $69M $0.95/sh top for the worst case.

Edit: I personally hope it stays at low 50c for a little while, allowing us to accumulate here a little more.

However market appreciates the developing growth, having the first two wells starting producing end of this month, the CEO surely earned investor's trust. They accomplished compliance right on time yesterday AH, as being PR'ed today.
Company also only utilized dilution in a very disciplined manner, only used up the ATM as required - saving SH value. I personally wouldn't mind if they raise more money to accelerate the 60+ well goal much quicker - but that doesn't matter here.

[finesand]

Update on revenue model

the build in production flow decline, as widely known and also stated by company via their cumulative MBO in presentation:



(See also this data source)

Knowing the royalty interest about to be 25% and using the low average working interest of 18.6% we end up with around 14% net revenue interest.
Adding above hyperbolic decline bottoming out in the 3rd year and giving 80%+ within the first months we end up with the following conservative estimate.



Note that 2017 has the 2 soon to be connected and producing wells already payed off, hence the remaining new 2 wells for 2017 as mentioned in October presentation are left open.

Note that D&C costs are being payed in three tranches, upfront, at drilling completion and one month afterwards.

The D&C deficit up-until 2018 of around $5M is covered by the remaining cash, ATM and Warrants - used up until end of 2018 at higher stock prices. Cash flow positive is expected 2018 and profits 2019.

Evaluation is usually based on cash flow, BOE production numbers etc, depending on development stage, credibility of projection a multiple of 5-20 shall apply on the gross-sales. This should allow a stock price support of $1.20/sh in early 2018 fully diluted. Surely market needs to give company the credibility executing their plan.

Company is debt free.

Addition bonus: Currently worthless Columbia assets might be monetized as soon as the political environment allows.

Next very short term catalyst: Connection and production of the 2 completed wells.

Company may elaborate on the model of their plans and disclose more details having the 2 wells producing.

KUDOS as usual goes to 01 for mining and preparing the data as well to talking with company officials, incl the CEO