Hemisphere Energy (HMENF) Updates - Dec 4

[dan_s]

I am preparing for the luncheon on Friday in Houston. Here are updates from two analysts that cover Hemisphere.
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Noble Capital Markets, Inc.

Hemisphere Energy Corporation
Hemisphere Energy Corporation (HMENF) | Current Price: $0.95 | Outperform | Nov 22, 2023

Results beat expectations on higher pricing and lower costs
2023-2Q production rose as expected with new wells coming online. A robust summer of
drilling resulted in higher production. Post-quarter flow rates allow us to bump up future
production estimates.

Realized prices came in better than expected. The basin discount was reduced adding to
the rise in oil index prices. Management added swaps at attractive prices in response to higher
oil prices.

Production costs per unit were lower. Management cited reduced power, repairs and
maintenance, and workovers. Costs were spread out over a larger production base.

Free cash flow allowed Hemisphere to invest internally and return funds to shareholders.
Free cash flow will accelerate next quarter (Q4 2023). Operating cash flow will increase
with higher production while capital investments will decrease. The company has already
retired all debt, paid a special dividend, and is buying back shares.
> Increased share buyback or another special dividend is possible.
> Keep an eye on a test drilling program on recently acquired property in 2024.

We are introducing 2024 quarterly estimates and reiterating our Outperform rating and
$2.25US per share price target.

Equity Research
Michael Heim, Senior Vice President, Equity Research Analyst, Energy & Transportation
(314) 308-9711, mheim@noblefcm.com
Noble Capital Markets, Inc.
Trading: (561) 998-5489 Sales: (561) 998-5491
www.noblecapitalmarkets.com

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ATB Institutional Equity Research

Hemisphere Energy Corp. Rating: Outperform with One Year Target: $2.00Cdn
Positive Production Response Continues From Active Summer Drilling Program; New Acreage Test in Mid 2024 Event:

Before market open on November 21, 2023, HME announced quarterly results that
continued to show a positive production response from the active summer drilling program.

Current production levels of 3,350 boe/d help derisk our 2024 outlook of 3,551 boe/d. Based
on our 2024 estimates and strip prices, HME trades at 2.8x 2024 EV/DACF, which is an
attractive valuation for a company where production is still inclining from the polymer floods
with an RLI of 7.2x PDP and 10.7x 1P. At the same time, the Company will be in a position to
test its new acreage position in the summer of 2024. Allowing time for production response,
initial results on the new pilot could be available by late 2024. Depending on results, this
could add a third EOR asset for the Company at a very low entry cost.

On the return-of-capital front
The Company maintained its variable quarterly dividend of $0.025/sh and bought back
519.4k shares in the quarter, bringing YTD buybacks to 1.6mm shares (or 1.6% of shares out
at the start of the year). With production response continuing from the floods, a net cash
position, 8% dividend yield, and a test of a third EOR asset on the newly acquired sections by
July 2024, HME remains a name with an attractive risk/reward profile in its market-cap range.

Highlights:

▪ Quarterly Results in Line: HME reported Q3/23 production of 3,056 boe/d, in line with
ATBe of 3,100 boe/d and consensus of 3,112 boe/d. CFPS of $0.11 was in line with both
ATBe and consensus. Q3/23 capex of $8.7mm was slightly above ATBe and consensus
estimates of $7.0mm, in part because of $1.2mm in development spending on the 2024
drilling program and $1mm in investment towards new mineral land rights.

▪ Operational Update: Field estimates from Oct. 1 to Nov. 15 show current production of
3,350 boe/d, up from Q3/23 production levels of 3,056 boe/d and Q2/23 production of
2,883 boe/d. The Company is looking to drill and bring on stream a new polymer flood
test pad on its new acreage position, with a polymer skid expected to be installed in July
2024. HME brought seven wells online during Q3/23 in the Atlee Buffalo F and G Pools.
One well was completed as an injector in the Atlee Buffalo area and, shortly after
September, one well was shut in for conversion to an injector well.

▪ 2024 Guidance Expected Early Next Year: The Company plans to release 2024 guidance
in January 2024.

▪ Return of Capital: HME maintained its $0.025 quarterly dividend and paid out its special
dividend of $0.03/sh on Nov 1. HME repurchased 519.4k shares in Q3/23 and, after the
end of the quarter, repurchased an additional 1.3mm shares under its NCIB program.
Maintaining $2.00 TP and Outperform Rating: Our $2.00 target price reflects a 0.6x
multiple of our risked NAV.

[cmm3rd]

Thanks for posting these analyst notes. Not mentioned is the effect of the TM pipeline proceeding to completion (after recent legal victory, expected in 2024?), which to my understanding is expected to take a little pressure off of WCS differential for the foreseeable future. Might want to confirm with Don at 12/8 presentation.

I am holding expecting $70+ WTI, continued significant FCF generation, continued 7+% yield, continued buybacks, and increased production, which, if all occur, should support a higher valuation in 2024.

[dan_s]

The TM pipeline will definitely help all Canadian oil producers. Don, Surge and InPlay have confirmed it.