Hemisphere Energy Update - Jan 15

Hemisphere Energy Update - Jan 15

Postby dan_s » Fri Jan 15, 2021 12:19 pm

HMENF is trading at $0.185 today, a 23% increase since our 12-29-2020 newsletter.
I have updated my forecast/valuation model for Hemisphere and posted it to the EPG website.
My current valuation increases by $0.30US to $0.85US per share, primarily because of higher oil prices.

Hemisphere is planning to convert one of their two water floods at Altee Buffalo to a ploymer flood this summer. The conversion should cost approximately $5 million. Adding another $2 million of capex for 6 to 8 additional producing wells at Altee Buffalo takes 2021 capital expenditures to $7 million. This compares to over $9 million of free cash flow in 2020 and my forecast of $23 million of cash flow from operations in 2021. If my forecast is accurate, Hemisphere is on-track to be debt free within 18 months.

Hemisphere's net debt as of 9-30-2020 was $27.4Cdn million and should be reduced to less than $20Cdn million before they start their capex program this summer. The entire program (June to November 2021) should be funded by operating cash flow. Based on my forecast model, Hemisphere should generate over $20Cdn million of free cash flow using $60Cdn/bbl realized oil price during the nine months ending 6/30/2022. < Assuming they don't make a large acquisition, the Company should be able to payoff all of their Term Loan by 6/30/2022.

Based on their 2019 year-end reserve report, Hemisphere's proved reserves had a PV10 of $2.23Cdn per share or $1.72US per share. If the polymer flood at Altee Buffalo gets the results the Company expects, the PV10 of their proved reserves should increase to more than $2.50US by 12-31-2021. See Hemipshere's most recent presentation on their website.

Another way to look at it: A debt free upstream company with additional development upside should trade for AT LEAST 6X operating cash flow per share. My 2022 forecast is for $38.8Cdn million of operating cash flow, $0.445/share. $0.445 x 6 = $2.67Cdn per share or ~$2.05US per share.

If you are not familiar with Hemisphere, I recommend that you spend 30 minutes to read our 12/3/2020 profile on the company and then watch the replay of our 9/18/2020 webinar that was hosted by Hemisphere. During the webinar, Don Simmons explains the significant upside they have with the polymer flood being put in place this year.
Dan Steffens
Energy Prospectus Group
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