Hemisphere Energy (HMENF) Operations Update - Jan 24

[dan_s]

I have "tweaked" my forecast/valuation model for the information in the press release below.
My valuation stays at $4.00Cdn and $3.00USD for HMENF.
> Strong Balance Sheet with zero bank debt
> Funding 17% annual production growth with just ~30% of operating cash flow.
> Clear path to 4,000 Boepd by end of 2024
> I expect dividends to remain the same with possible "Special Dividend" at year-end.
> Stock buybacks will continue, so per share results should continue to grow.
> PV10 Net Asset Value at 12-31-2022 should be above by valuation.
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Vancouver, British Columbia--(Newsfile Corp. - January 24, 2023) - Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) ("Hemisphere" or the "Company") is pleased to announce an update on its operations and provide corporate guidance for 2023.

Corporate Update

Over the past year Hemisphere has achieved a number of significant corporate milestones, including the elimination of bank debt, initiation of a quarterly dividend, start-up of a tertiary enhanced oil recovery scheme, and new record production levels. These financial and operational accomplishments in 2022 have set the Company on firm footing for continued growth and success in 2023.

Last year, Hemisphere's annual production increased by 55% over that of 2021 to a record 2,825 boe/d (99% Heavy Oil). This was below guidance by 6% due to a number of factors that included unplanned facility outages in August and October, and extreme weather-related production downtime in December. Production was also lost from two producers that were shut-in for injector conversion during the latter half of the year.

Since the start of the new year Hemisphere's production has averaged approximately 3,200 boe/d (99% Heavy Oil, based on field estimates between Jan 1st - Jan 22nd). This number includes one week of production from two new Atlee F pool wells that Hemisphere drilled in December. Initial production from the new wells is encouraging and will continue to be optimized over the coming weeks. During the year it is expected that one of these wells will be converted to an injector for the pool.

In the field, Hemisphere is currently commissioning a new treater at its Atlee F pool which is anticipated to increase production capacity and limit downtime as new wells are drilled and put on production this year. At the Atlee G pool, the Company has just recently started up polymer injection into the second of its 2022 injector conversions. This injector is considered key to pressure maintenance in the northwestern area of the pool and is expected to increase pressure and production at the offsetting wells.

2023 Corporate Guidance

Hemisphere's Board of Directors has approved a 2023 capital expenditure2 program of $14 million, which is planned to be entirely funded by Hemisphere's estimated 2023 Adjusted Funds Flow2 (AFF) of $45 million, and is expected to grow annual production by 17%. The majority of capital will be allocated to 9 drilling locations and additional facility upgrades at the Company's Atlee F and G oil batteries. Hemisphere will also tie-in a single well battery that was used to test production capability from one of its fall drilling locations, which stepped out into a reservoir extension to the southwest of its Atlee F pool.

After capital expenditures, free funds flow2 is budgeted to be $31 million, of which approximately 30% is planned to be paid in quarterly dividends as shown in the table below. The balance of cash will be used for discretionary purposes, which may include potential acceleration of other development or exploration projects, acquisitions, and additional return of capital to shareholders through Hemisphere's Normal Course Issuer Bid (NCIB) program and/or special dividends.

Highlights and assumptions of Hemisphere's guidance are as follows:

Annual average production of 3,300 boe/d (99% heavy crude oil), a 17% increase over 2022

WTI average price of US$85/bbl WTI, with sensitivities shown at US$70/bbl and US$100/bbl

WCS differential of US$20.00/bbl and quality adjustment of $5.50/bbl

CAD/US FX of 1.35

Operating and transportation costs of $15.00/boe

Royalties and GORRs of 20% of gross revenue

Net G&A of $3.40/boe and Interest & other fees of $0.40/boe

Return of Capital

Hemisphere is committed to protecting its existing return of capital program, while ensuring long-term sustainable growth from its low-risk, low-cost, and high free funds flow yielding asset base. The Company's dividend policy was instated in June 2022 and targets a payout of approximately 30% of annual free funds flow to shareholders through quarterly variable dividends. Additional funds may be allocated to strategic share buybacks and special dividends.

About Hemisphere Energy Corporation

Hemisphere is a Canadian oil company focused on sustainable growth of its high netback, low decline conventional heavy oil assets through water and polymer flood enhanced recovery methods. Hemisphere trades on the TSX Venture Exchange as a Tier 1 issuer under the symbol "HME" and on the OTCQX Venture Marketplace under the symbol "HMENF".

For further information, please visit the Company's website at www.hemisphereenergy.ca to view its corporate presentation or contact:

Don Simmons, President & Chief Executive Officer
Telephone: (604) 685-9255
Email: info@hemisphereenergy.ca

Website: www.hemisphereenergy.ca

[dan_s]

I expect WTI to rise to $100/bbl this summer. If so, I expect Hemisphere to accelerate their drilling program with the goal of pushing production up to 4,000 barrels per day by year-end.
The only negative for this stock is lack of "running room" beyond Atlee Buffalo.