Hemisphere Energy Update - March 31

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Hemisphere Energy Update - March 31

Post by dan_s »

Vancouver, British Columbia--(Newsfile Corp. - March 31, 2021) - Hemisphere Energy Corporation (TSXV: HME) (OTCQB: HMENF) ("Hemisphere" or the "Company") is pleased to announce an update on its operations and provide corporate guidance for 2021 and 2022.

Operations Update and Development Plans

During the first quarter of 2021 Hemisphere has seen an overall increase in production from its fourth quarter injector conversions. Month-to-date production has averaged 1,850 boe/d (99% heavy oil, based on field estimates between March 1-28, 2021).

Hemisphere is excited to announce that its G pool polymer flood is anticipated to commence by the end of the second quarter with site preparation underway and additional equipment delivery and installation ongoing over the next few months. The Hemisphere team has also started polymer flood evaluation work on the Atlee Buffalo F pool to assess its economic viability for conversion in 2022.

Polymer flood is an Enhanced Oil Recovery technique that is used by companies worldwide to increase overall recovery factors from oil pools. Reservoir modelling indicates the potential for an incremental 10% recovery from the G pool on polymer flood as compared to recovery from water flood, as well as a considerable increase in oil rates from the pool. As such, Hemisphere intends to upsize its treating facilities at the G pool battery later this summer. Should oil prices stay at current levels, Hemisphere is also planning a three well development drilling program in the fall from a previously built and tied-in pad.

Corporate Guidance

While 2020 was full of trials and tribulations, Hemisphere was able to act nimbly through the year by cutting capital, reducing costs, and paying down almost a quarter of its previously outstanding year-end debt. This has helped position the Company to take advantage of the improved pricing environment in 2021.

Management believes that over the next two years it can significantly lower or eliminate debt while growing production and funds flow, which should allow the Company to accelerate internal projects, make strategic acquisitions, and increase return of capital to shareholders through share buybacks and/or dividends.

In 2021, Hemisphere plans to execute a capital program of approximately $6 million on polymer flood implementation, facilities upgrades, and a small drilling program. In 2022, Hemisphere has allowed for a capital drilling program of $7 million. With the execution of its $13 million 2-year capital program and a successful G pool polymer flood conversion, the Company anticipates being debt-free by the end of 2022 in the following pricing and production scenario.
Dan Steffens
Energy Prospectus Group
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Hemisphere Energy Update - March 31

Post by dan_s »

Based on the fresh guidance and additional information that Don Simmons provided on our webinar this morning, I have updated my forecast/valuation model.

Big increase in production from 1,503 Boepd in Q4 to 1,850 Boepd in March (99% oil) is great news and tells me that the upside for this summer's polymer flood is much higher than their guidance. I have updated my production forecast to Hemisphere's detailed guidance and I have raised the multiple of operating cash flow that I use to value it. The PV10 value (net of debt) for their 2P reserves based on $60WTI oil price for all future periods / outstanding shares is more than double my valuation of $1.20US/share. See Slide 12 of the presentation, which you can find on Hemisphere's website.

Talking to Don before the webinar started, it is clear to me that he is focused on paying off the company's debt within 18 months. A debt free company with 2,500 BOPD of low decline rate production is going to be worth a heck of a lot more than where this stock is trading for today.
Dan Steffens
Energy Prospectus Group
Roadster
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Joined: Tue Dec 14, 2010 7:34 pm

Re: Hemisphere Energy Update - March 31

Post by Roadster »

Dan

Thank you for the presentation today by Hemisphere. As a heavy oil producer what is their oil breakeven price?
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Hemisphere Energy Update - March 31

Post by dan_s »

In 2020, Hemisphere's realized oil price was $35.57Cdn/bbl and they generated $0.02Cdn net income per share and $0.111Cdn operating cash flow per share.

For 2021, my forecast/valuation model for Hemisphere is based on full year realized oil price of $59.75Cdn/bbl for their heavy oil, net of the cash settlements on their hedges. Their hedges significantly reduce the oil price risk.

To answer your question directly, at $35Cdn/bbl their capex program for 2021 will payout in less than a year. To "break even" in 3 years they only need an oil price of around $25Cdn/bbl ($20/bbl WTI). Atlee Buffalo has an extremely low breakeven price.

Even if oil goes to $10/bbl, Hemisphere's hedge settlements will pay for most of this year's capex program.

All of my forecast/valuation models on the EPG website are "macro driven" Excel spreadsheets. You can download them to Excel on your computer and change the forecast period oil, gas and NGL prices at the bottom to see how lower or higher commodity prices impact net income, operating cash flow and my stock valuation.
Dan Steffens
Energy Prospectus Group
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