Hemisphere Energy (HMENF) Valuation Update - Oct 12

[dan_s]

Based on today's webinar that was hosted by Don Simmons, CEO of Hemisphere Energy, I have made some adjustments to my HME.V forecast/valuation.

Here is what I like the most.
> Safety rating is A++ since the Company has no debt (current assets exceed total debt)
> Steady production growth: Q4 2021 production of 2,164 Boepd, to 2,884 Boepd in Q2 2022 and on-track to 3,300 Boepd by year-end 2022.
> Free cash flow of $30 to $35 million (Canadian dollars) this year paid off all interest-bearing debt, funding stock buybacks and paying regular quarterly dividends. I expect a "Special Dividend" to be paid if they don't make an accretive acquisition.
> Don is very conservative, and he won't be making an expensive acquisition just to acquire a lot of drilling locations.

Key Stat is very good operating cash flow growth
2020A = $ 9.3Cdn million ($0.107/share)
2021A = $18.5Cdn million ($0.203/share)
2022E = $51.7Cdn million ($0.505/share)
2023E = $64.2Cdn million ($0.655/share) < Based on production averaging 3,500 bopd & $100Cdn/bbl oil price
2024E = $73.5Cdn million ($0.774/share) < Based on production averaging 4,000 bopd & $100Cdn/bbl oil price

Lots of free cash flow from operations because Hemisphere can reach the production targets above by drilling just 7-8 new horizontal wells within Atlee Buffalo per year. Annual CapEx programs will be just $16 to $20 Cdn million.

The 12-31-2022 year-end reserve report should show a PV10 Net Asset Value of more than $4.50Cdn per share for just the P1 reserves.

My CURRENT valuation for HMENF is $3.38US per share, but if 2023 and 2024 results match my forecast a much higher valuation is likely.

[mkarpoff]

Your last line made me wonder; are you saying that we must wait until Q4 2024 to see if your guidance should go up? If yes, that seems a bit unusual.

[dan_s]

All I'm saying is that my CURRENT VALUATION is $3.38US.

I have a high level of confidence in the Hemisphere model because Don goes over it line-by-line with me and he gives accurate production guidance. The wildcard is the price of oil. If Hemisphere's heavy oil sells for $100Cdn/bbl in 2023 and 2024 there is significantly more upside for this stock.

Plus, this company is a "Screaming Takeover Target": Steady production growth with no debt.

[willvanam]

Hemisphere is my call option with no theta degradation that pays a dividend. Great find Dan. My first purchases were in .25-30 range and have continued to average up in small increments