Hemisphere Energy Update - June 11

[dan_s]

These days I can produce a list of dozens of upstream companies trading at less than 4X operating cash flow per share. Our Sweet 16 is no trading (as a group) for less than 4X operating cash flow.

When I find a small-cap trading for less than 1X operating cash flow per share I definitely want to take a hard look. A multiple that low is usually an indication that the company has no remaining drilling inventory and is just depleting out its oil & gas assets or that it is heading for Chapter 11. Or... it is just off the radar screen of the investment community.

Hemisphere Energy (HME.V) is a micro-cap with a lot of running room. In 2018 they increased production by 68.5% year-over-year and this year's 16 well development drilling program is designed to increase production by another ~45%. This growth in production and proved reserves should draw more interest from investors and make the company a strong takeover target heading into 2020.

Last year a respected Houston based firm ( https://www.ciboloenergy.com/ ) committed $35 million to fund development of Hemisphere's low-risk projects. By the end of this year, Hemisphere should have ~2,350 Boepd of production (~97% crude oil) and more than enough cash flow from operations to fund all future growth programs.

I have posted an updated profile on Hemisphere to the EPG website, under the Small-Caps tab.

[drewsgpa]

This update shows common shares of 89.8M whereas prior profiles listed fully diluted shares of 112.0M.
Earnings and cash flow should decrease from those listed, however HME still a very promising situation.

[dan_s]

I talked to Don Simmons about the share count and I think outstanding shares is a more accurate valuation. The fully diluted share count would bring in over $4 million of cash from the warrant holders, so I think o/s shares is a more accurate valuation.

Unless the share price goes over $0.20, I don't think those shares will be coming in.

I have a HIGH level of confidence in the HME forecast model. I went over it line by line with the CEO and CFO.

If you prefer using fully diluted shares, just download the model to Excel and put in whatever share count that you prefer. All of the models are macro-driven, so everything will automatically change.