Hemisphere Energy (HMENF) Q1 Results - May 18

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Hemisphere Energy (HMENF) Q1 Results - May 18

Post by dan_s »

Vancouver, British Columbia--(Newsfile Corp. - May 18, 2022) - Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) ("Hemisphere" or the "Company") provides its financial and operating results for the first quarter ended March 31, 2022.

Q1 2022 Highlights

Produced a record quarterly average of 2,648 boe/d, a 60% increase over the first quarter of 2021. < Beat my forecast of 2,600 Boe per day.

Attained record quarterly revenue of $22.9 million, a 190% increase over the first quarter of 2021. < Beat my revenue forecast of $17.9 million because of much higher realized oil prices.

Delivered an operating field netback of $64.89/boe, 80% higher than the first quarter of 2021.

Achieved operating and transportation costs of $11.22/boe, only 7% higher than the first quarter of 2021 despite the addition of polymer flooding at the Upper Mannville G pool. < Below the $12.70/boe used in my forecast.

Realized record quarterly adjusted funds flow from operations (AFF) of $11.0 million ($0.11 per diluted share), a 173% increase over the comparable period in 2021. < Beat my forecast of $10.0 million adjusted operating cash flow.

Achieved free funds flow of $9.2 million, a 212% increase over the comparable period in 2021, after capital expenditures1 of $1.8 million. < If WTI stays over $100/bbl, Hemisphere is on pace to generate over $45Cdn million of free cash flow this year and they should have zero net debt by the end of June.

Generated net income of $4.6 million, a 161% increase over the comparable period in 2021.

Lowered net debt at the end of the quarter to $8.7 million from $21.1 million at the end of March 2021, representing a 59% reduction year-over-year.

Exited the quarter with a net debt to annualized AFF ratio of 0.2.

Corporate Update and Outlook

In the first quarter of 2022, Hemisphere achieved record production levels due to the continued operational success of the Company's enhanced oil recovery projects and the additional production from four new wells drilled in late 2021. Production through the first quarter averaged 22% higher than during the prior quarter, and 60% higher than the same period last year. Based on field estimates, production for the month of April has increased again by almost 10% over the first quarter to 2,900 boe/d (99% heavy oil). < Compares to my Q2 forecast of 2,650 Boe per day. The polymer flood is now generating steady production growth.

During the first quarter Hemisphere realized several other record milestones with revenue of $22.9 million, AFF of $11.0 million, and free funds flow of $9.2 million. With strong cash flow and limited capital expenditures, Hemisphere lowered its net debt to $8.7 million and exited the quarter with a net debt to annualized AFF ratio of only 0.2.

Hemisphere is committed to the prudent management of its long life, low decline, high netback enhanced oil projects, with the purpose of maximizing value per share from the Company's assets. With a combination of strong oil prices, production performance, balance sheet strength, and continued field execution, management believes that Hemisphere is in a favourable position to both accelerate high return projects and deliver significantly enhanced return of capital to shareholders.

The Company is currently in the process of renewing and extending its credit facility, and expects to be in a position within the next few weeks to update both its 2022 guidance and return of capital plan once the bank review is complete.
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I will post my updated forecast/valuation model this afternoon. My pre-release valuation was $3.87Cdn for HME.V and $3.10US for HMENF. Since Hemisphere will be net debt free earlier than expected, my valuation multiple will be going up.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Hemisphere Energy (HMENF) Q1 Results - May 18

Post by dan_s »

At the beginning of the year, when he did not know how well the polymer flood would work, Don Simmon's production guidance was 2,600 boepd for 2022.

We now know that the polymer flood is working and probably better than expected.

Note in their press release that Hemisphere's production averaged ~2,900 boepd in April, therefore I have raised my full-year 2022 production estimate to 2,950 boepd, which I believe is still conservative. The polymer flood is working and Hemisphere is going to drill and complete more wells in 2H 2022. I expect the company's production heading into 2023 will be 3,300 to 3,500 boepd, not including additional wells being added to this year's D&C program.

My forecast assumes that WTI averages $100US in Q2, $110US in Q3, $100US in Q4 and $90US in 2023. < The NYMEX strip is in backwardation, but I think we could see much higher oil prices in 2H 2022.
Hemisphere's Adjusted Cash Flow from Operations (they call it AFF) in Q1 was $11,039,080 or $0.103/share.
My full-year AFF forecast is now $65,755,333 or $0.615/share, which compares to Hemisphere's full-year capex budget of $9Cdn million. < This is a stunning increase from Hemisphere's full-year AFF of $9,294,933 in 2020 and $18,487,970 in 2021.

I do anticipate that they will increase the capex budget for increasing D&C costs and I expect them to add 2 or 3 more wells to the 2H 2022 drilling program since they will have reached their debt reduction goals several months earlier than expected. < My updated forecast is not based on more wells being completed before year-end than the original budget.

Hempshere's board based the 2022 capex budget on WTI averaging $75/bbl and full-year AFF of $37Cdn million. Based on the current NYMEX strip for WTI, the benchmark should average over $100/bbl, which will push Hemispheres AFF over $60Cdn million.

My valuation (based on fully diluted shares of 107,000,000) of HME.V increases to $4.19Cdn and HMENF increases to $3.35US per share.

I have posted my updated forecast/valuation model for Hemisphere Energy to the EPG website.
Dan Steffens
Energy Prospectus Group
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