Hemisphere Energy (HMENF) Q3 Results - Nov 21

Hemisphere Energy (HMENF) Q3 Results - Nov 21

Postby dan_s » Mon Nov 22, 2021 11:07 am

Q3 2021 HIGHLIGHTS with my comments in blue
 Generated record revenue of $10.4 million, a 77% improvement over the third quarter of 2020.
 Maintained production at 1,671 boe/d (99% heavy crude oil and 1% conventional natural gas), relatively flat
compared to the third quarter of last year, despite the conversion of several oil producer wells to water
injectors and minimal capital spending over the past year. < Q3 production came in slightly below my forecast and I am reducing my Q4 production forecast by 100 bopd to 2,125 boepd. 3 new wells and first impact of the polymer flood should ramp production to 2021 exit rate of ~2,200 boepd.
 Achieved an operating field netback before hedges of $39.25/boe for a total of $6.0 million, a 56% increase
over the third quarter of 2020.
 Increased adjusted funds flow (AFF) from operations by 19% to $4.0 million, when compared to the third quarter of 2020. < Below my forecast of $4.4 million for Q3.
 Lowered net debt to $18.2 million, a 33% reduction from the third quarter of 2020. < IMO this is the KEY number. Over the next 3 quarters, Hemisphere should generate ~$20 million of operating cash flow. Capex over that same period should be less than $2 million, so Hemisphere is heading rapidly to a debt free balance sheet although I doubt they will use all free cash flow to pay off debt. Stock repurchases and bolt-on acquisitions are likely.
 Reduced net debt to AFF ratio to 1.1.

CORPORATE UPDATE
During the third quarter, Hemisphere invested just over $3.3 million in its Atlee Buffalo field operations. The majority
of capital expenditures included a successful three well drilling program in the Atlee G Pool. The Company also acquired
a Free Water Knockout (FWKO) vessel in anticipation of production growth at the G pool facility during the fourth
quarter. < Each year Hemisphere spends most of its CapEx from June to November in order to avoid higher D&C costs during periods of bad weather.
Hemisphere’s new G pool wells are the first drilled by the Company since 2019 due to severe market volatility during
2020 and early 2021. After being brought online in late October, total oil production from the new wells has averaged
approximately 300 bbl/d during the first two weeks of November. With the addition of these new wells and the
continued success of Hemisphere’s enhanced oil recovery projects, corporate production has increased to
approximately 2,100 boe/d (99% heavy crude oil and 1% conventional natural gas), based on field estimates between
November 1‐15th. < In addition to the polymer flood, there are over a dozen more horizontal well locations that could be drilled and completed within Atlee Buffalo and those wells can be fully paid for out of operating cash cash flow.

Hemisphere’s third quarter also marked two very important milestones for the Company, in both its field operations
and financial structure.
At the start of the third quarter, the Company announced the implementation of its first polymer flood project in the
Atlee G Pool in southeast Alberta. Reservoir simulation and analogue analysis indicate both increased production rates
and higher recovery factors are predicted for the oil pool.
Subsequent to that, the Company announced the replacement of its previous five‐year term loan with a new $35
million extendible two‐year committed term facility with ATB Financial in July. The new facility provides Hemisphere
with increased financial flexibility, a significant reduction in interest costs, and lower foreign exchange risk. < This is EXTREMELY important for a company of this size. Very few Canadian Juniors have the liquidity that InPlay Oil and Hemisphere have.
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I have updated my forecast/valuation model for Hemisphere Energy and posted it to the EPG website. My valuation for HMENF is now $1.95US/share. There is upside to the valuation as debt goes down and production goes up. Don Simmons, Hemisphere's CEO will be speaking at our Houston luncheon on November 30th. SEATING IS LIMITED, SO YOU MUCH REGISTER TO ATTEND.
Dan Steffens
Energy Prospectus Group
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Re: Hemisphere Energy (HMENF) Q3 Results - Nov 21

Postby CreativeEquity » Mon Nov 22, 2021 11:42 am

Thanks Dan very helpful. Can you define the term "corporate production" for me. Does it exclude certain barrels of production ? I have seen the phrase used many times but I could not find the definition. thanks.
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Re: Hemisphere Energy (HMENF) Q3 Results - Nov 21

Postby dan_s » Mon Nov 22, 2021 4:04 pm

As it is being used above, Hemisphere is talking about production net to the their interests. Alberta has a big royalty ownership in their producing assets.

In the upstream oil & gas business there are many owners in the properties that each company operates and the company may have non-operating interests in other wells. There are royalty owners in almost every well that get a cut of production. When I worked at Hess we had over 18,000 JV owners and royalty owners we paid each month.

Companies often report gross and net production or gross and net leasehold.

Canadian companies show revenues before royalties paid to the government on line one and royalties on line two.

US companies report production and revenues net to their interests.
Dan Steffens
Energy Prospectus Group
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Re: Hemisphere Energy (HMENF) Q3 Results - Nov 21

Postby CreativeEquity » Mon Nov 22, 2021 5:51 pm

Thanks I have noticed in Canada royalties can potentially be quite high as the rate is tied to the oil/gas price. And just to be clear when a Canadian producer lists corporate production is this after the royalties are removed from the gross production or just third party interests netted out ?
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Re: Hemisphere Energy (HMENF) Q3 Results - Nov 21

Postby dan_s » Mon Nov 22, 2021 7:45 pm

It is just when 3rd party interests are removed. Hemisphere holds 100% working interest in their producing assets in Alberta, so no minority interests. See my forecast/valuation model for HME.
Dan Steffens
Energy Prospectus Group
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Posts: 27309
Joined: Fri Apr 23, 2010 8:22 am

Re: Hemisphere Energy (HMENF) Q3 Results - Nov 21

Postby CreativeEquity » Mon Nov 22, 2021 7:49 pm

Great thanks !
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