Hemisphere Energy (HMENF) Q3 Results - Nov 21

[dan_s]

I will post my updated forecast/valuation model for Hemisphere to the EPG website this afternoon.

Hemisphere will be hosting our next Houston luncheon on December 8th at The Ballroom at Tanglewood. YOU MUST REGISTER ON THE EPG WEBSITE TO ATTEND THIS EVENT.

Vancouver, British Columbia--(Newsfile Corp. - November 21, 2023) - Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) ("Hemisphere" or the "Company") is pleased to provide its financial and operating results for the three and nine months ended September 30, 2023, announce the declaration of a quarterly dividend payment to shareholders, and provide an operations update.

Q3 2023 Highlights

Second best quarter in corporate history for production, revenue, operating field netback, and adjusted funds flow from operations ("AFF").

Produced an average of 3,056 boe/d for the third quarter of 2023, a 6% increase over the same quarter last year. < Compares to my forecast of 3,125 Boepd

Attained third quarter revenue of $24.3 million, a 3% increase over the third quarter last year. < Beat my forecast of $22.6Cdn million. All $ in this report are Canadian dollars.

Delivered an operating field netback of $15.9 million or $56.40/boe for the quarter. < Outstanding!

Realized quarterly adjusted funds flow from operations (AFF) of $11.7 million or $41.70/boe. < Beat my Operating Cash Flow forecast of $10.2Cdn million.

Announced Hemisphere's first ever special dividend to shareholders of $0.03 per common share ($3.0 million), paid on November 1, 2023. < I expect more Special Dividends, since the Company has zero debt issues.

Distributed $0.025 per common share ($2.5 million) in quarterly dividends to shareholders in accordance with the Company's dividend policy.

Exited the third quarter of 2023 with a positive working capital position of $2.2 million, compared to net debt of $0.7 million at September 30, 2022.

Renewed the Company's Normal Course Issuer Bid ("NCIB").

Purchased and cancelled 519,400 shares under the Company's NCIB during the third quarter (at an average price of $1.23 per common share).

With $13.1 million distributed through quarterly and special dividends by year-end and $3.7 million spent on NCIB year-to-date, a minimum of $16.8 million is anticipated to have been returned to shareholders in 2023. Based on the Company's current market capitalization of $128 million (99.7 million shares issued and outstanding at market close price of $1.28 per share on November 20, 2023), this represents an annualized yield of 13% to Hemisphere's shareholders.

(1) Operating field netback, adjusted funds flow from operations (AFF), free funds flow, working capital, and net debt are non-IFRS measures that do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Non-IFRS financial ratios are not standardized financial measures under IFRS and may not be comparable to similar financial measures disclosed by other issuers.

[dan_s]

Operations Update

During the third quarter, Hemisphere completed the majority of its planned 2023 capital expenditure program. By the end of September, the Company had brought on 7 new wells and completed one new well as an injector in the Atlee Buffalo area. Subsequent to quarter-end, the Company also shut one producing well in to convert it to an injector.

Current corporate production sits at approximately 3,350 boe/d (99% heavy oil, based on field estimates between October 1 - November 15, 2023). The Company's assets continue to perform well under Enhanced Oil Recovery ("EOR") with current corporate production almost 20% higher than full-year 2022 production, which was just over 2,800 boe/d. Operating and transportation costs during the first nine months of 2023 total just $13.68/boe, and are fully reflective of the chemical costs required for the Company's two EOR projects. This makes Hemisphere one of the lowest cost operators of heavy oil in the Canadian oil industry.

Looking ahead into 2024, Hemisphere is actively preparing for a new pilot polymer flood on its recently acquired land base. Management anticipates that a test pad could be drilled and on production with a polymer skid installed by as early as July 2024. The Company expects to release more details on its 2024 guidance in January. < Per my discussions with Don Simmons, this new polymer flood has the potential to double the Company's production. The two polymer floods at Atlee Buffalo should ramp up production to ~4,000 Bopd by the end of 2024 and remain at that level for at least five years.

[dan_s]

Upcoming Events in addition to the EPG Luncheon in Houston on December 8.

NobleCon19, Noble Capital Markets
Boca Raton, Florida
December 3-5, 2023

World Outlook Conference
Vancouver, British Columbia
February 2-3, 2024

[dan_s]

HME is trading at less than 50% of their PV10 Net Asset Value based on just their Proved Reserves (1P), which was $2.99Cdn/share at the end of 2022.

Hemisphere should report more 1P reserves at the end of 2023, their debt is going down and so is their outstanding shares.

My current valuation is just $3.06Cdn/share ($2.25US/share), based on 6X annualized operating cash flow per share.
> This company is a "going concern" with annual production growth of ~10% locked in by Atlee Buffalo.
> It is virtually debt free and generating a lot of free cash flow; ~$15Cdn million in 2H 2023.
> It pays "Fixed + Special" dividends. $0.13Cdn/per share in 2023 (10% annualize yield) and likely to increase in 2024.
> It is ramping up its stock buybacks.
> Their new polymer flood has the potential to double the company's production. < We will get more details on this project when they announce Q4 results and their 2024 capex program.

Hemisphere is hosting our next Houston luncheon on December 8th. I want a large crowd for Hemisphere, so we are allowing each EPG member to invite up to 2 guests FREE. All you need to do is register yourself and send your guests' names to Sabrina at energyprospectus@gmail.com