Hemisphere Energy (HMENF) Valuation Update - Aug 18

[dan_s]

Hemisphere's Q2 results were outstanding as we expected, but I am lowering my valuation by $0.45 to $3.40US for HMENF.

Why?
> Albert's royalty rate was higher than my forecast.
> Hemisphere is now making enough net income to pay current income taxes.
> I also lowered the oil prices that I am assuming for Q3 and Q4 2022, which I still believe will go much higher in Q4.
> 99% of their revenue are from oil sales, adding a bit of commodity price risk.
> Very little oil is hedged after August, so there is oil price risk that can go either way. If WTI goes down and stays at $80/bbl, my valuation would still be over $3.00US per share because their cash operating expenses (including G&A and interest expense) are only $13Cdn per boe.

Production is on pace to add 250 to 300 bpd from Q2 to Q3, which is according to plan and free cash flow is on pace to exceed $40Cdn million. Next year FCF could be over $50Cdn million. With very little capex required, Hemisphere will keep growing their production thanks to the polymer floods.

They are keeping the dividend at $0.025 per quarter. If they don't make an acquisition, which I hope they do, stockholders should get a nice "special dividend" early in 2023.

The balance sheet is in GREAT SHAPE and they have a clear path to 5,000 Boepd if the polymer floods work at both G Pool and F Pool in Atlee Buffalo.

We will publish an updated profile in September.