The Securities and Exchange Commission on Monday charged a Houston exploration and production company with misleading investors by exaggerating the extent of its oil reserves in Colombia and downplaying the risks.
An SEC investigation found Houston American Energy Corp. and CEO John Terwilliger falsely claimed a Colombian oil concession in which the company held an interest contained 1 billion to 4 billion barrels of oil reserves. The company estimated its interest in the 345,542 acres in the Llanos basin was worth $3 billion, a value of $100 per share for Houston American Energy stockholders, the federal financial regulator alleged in a civil cease and desist order.
As it played up its Colombian reserves, Houston American raised about $13 million in a public offering, with its stock price quadrupling to more than $20 per share between November 2009 and April 2010, according to the agency.
After the company’s operator drilled three dry wells from 2010 to 2012, Houston American withdrew from the play in early 2013 without recovering any oil, the SEC said. It alleged Houston American’s estimates of the oil potential lacked any reasonable basis and were falsely attributed to the concession’s operator, whose estimates were much lower.
Terwilliger said in sworn testimony he knew the block had no reserves, according to the SEC’s order. He could not be reached for comment. The company disclosed in April 2012 that it was under investigation by the SEC.
The company’s stock price has since collapsed. Houston American shares closed down 1 cent at 34 cents Monday on the NYSE MKT Exchange.
If found in violation of the Securities and Exchange Act, Houston American and Terwilliger face substantial fines and debarment — a prohibition from working in the industry, said Philip Hilder, a Houston criminal defense attorney and former federal prosecutor. Given the shaky stock price, the SEC investigation could shutter Houston American, he said.
“Depending on the way they are operating, it could be a death blow,” he said.
The SEC also alleged that stock promoter Kevin T. McKnight and his firm, Undiscovered Equities Inc., were paid by Houston American to disseminate the false claims.
The cease-and-desist order sets into a motion civil proceedings, including a hearing before an administrative law judge within 60 days.