Hemisphere Energy (HMENF) Clarification - Feb 1

[dan_s]

I was asked about several small-caps on this morning's webinar. The replay is now up on our website. I want to clarify some comments about Hemisphere Energy (HMENF).

> In response to the pandemic, Hemisphere did not drill any new wells in 2020. Their capex spending was approximately $1 million, which compares to operating cash flow of $10.2 million.

> All free cash flow in 2020 was used to pay down debt, so their balance sheet is in great shape.

> The Company plans a 2021 Capex program that s/b approximately $6 million. They will drill 3-5 new wells at Buffalo Atlee and convert one of the two waterfloods to a polymer flood.

> The Company future growth can be funded entirely by operating cash flow. Take a look at my forecast model (under our Small-Cap Tab) and you will see that with average realized oil prices of $52.50Cdn/bbl in 2021 and $60.00/bbl in 2022 they should generate $22.7Cdn million of operating cash flow in 2021 and $39.6Cdn million in 2022.

> If my model is accurate, Hemisphere will be able to payoff 100% of their debt within 18 months.

The ploymer flood in not some far out tertiary recovery process. It is being used by several other operating companies in Alberta. All they do is add polymers to the injected water, which causes more oil to be released from the producing zone. The project is expected to increase Hemisphere's production in 2H 2021 by 1,000 to 1,500 Boe per day. Hemisphere's Q4 2020 production was ~1,650 Boe per day, so this year's program has significant upside for a profitable small-cap like this. If the price of oil does go to $60/Cdn, a price target of $2.00 per share is reasonable for this company.