Hemisphere Energy (HMENF) Q1 Results - May 25

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Hemisphere Energy (HMENF) Q1 Results - May 25

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Vancouver, British Columbia--(Newsfile Corp. - May 25, 2023) - Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) ("Hemisphere" or the "Company") provides its financial and operating results for the first quarter ended March 31, 2023, declares a quarterly dividend payment to shareholders, renews credit facility, and provides operations update.

Q1 2023 Highlights

Produced a record quarterly average of 3,171 boe/d, a 20% increase over the first quarter of 2022. < Beat my forecast of 3,150 Boepd.

Attained quarterly revenue of $18.7 million. < Beat my forecast of $18.3 million.

Delivered an operating field netback1 of $11.3 million or $39.75/boe.

Realized quarterly adjusted funds flow from operations ("AFF")1 of $8.3 million or $29.01/boe. < Beat my operating cash flow forecast of $7.9 million.

Achieved free funds flow of $6.8 million or $0.07 per share.

Exited the first quarter with a positive working capital position of $3.0 million, compared to $8.7 million net debt at the end of March 2022. < The Company is virtually debt free, all companies will have trade payables on the balance sheet at any point in time, but getting the interest bearing debt paid off is great news.

Distributed $2.5 million, or $0.025 per share, in dividends to shareholders during the quarter.

Purchased and cancelled 202,300 shares under the Company's Normal Course Issuer Bid ("NCIB").

(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. Refer to the section "Non-IFRS and Other Specified Financial Measures".

Q1 2023 Overview

In the first quarter of 2023, Hemisphere's production increased by 20% over the first quarter of 2022, achieving a record average rate of 3,171 boe/d (99% heavy oil). This was due in part to the production from two new Atlee Buffalo F pool wells that were placed on production early in the quarter.

Average sales price in the first quarter of 2023 was 32% lower than the first quarter of the previous year. This was due to a 19% decrease in the West Texas Intermediate ("WTI") crude oil price, combined with a 70% higher Western Canadian Select ("WCS") differential, which averaged US$76.13 and US$24.77, respectively, for the first quarter of 2023. Fortunately, WCS differentials have narrowed significantly and are trending closer to an average of US$15.50 for the second quarter of 2023 to date. < This means that Hemisphere's realized oil prices will be higher in Q2 even if WTI prices are the same quarter-to-quarter.

Despite the lower oil pricing environment, Hemisphere delivered solid financial results for the quarter with $8.3 million in adjusted funds flow from operations and a positive working capital position of $3.0 million at quarter-end. This marks the first time the Company has been in a positive working capital position in many years. Based on current commodity price and production forecasts, management expects the Company's balance sheet to further improve throughout the year while continuing to develop its core assets, deliver shareholder returns through its dividend and NCIB programs, and look for new growth and acquisition opportunities.

Selected financial and operational highlights should be read in conjunction with Hemisphere's Financial Statements and related Management's Discussion and Analysis for the quarter ended March 31, 2023. These reports for the quarter ended March 31, 2023, are available on SEDAR at www.sedar.com and on Hemisphere's website at www.hemisphereenergy.ca. All amounts are expressed in Canadian dollars unless otherwise noted.

Quarterly Dividend

Hemisphere is pleased to announce that its Board of Directors has approved a quarterly cash dividend of $0.025 per common share in accordance with the Company's dividend policy. The dividend will be paid on June 15, 2023 to shareholders of record as of the close of business on June 1, 2023. The dividend is designated as an eligible dividend for income tax purposes.

Future quarterly payments of this variable dividend will continue to be subject to board approval, and are conditional on production performance, commodity price environment, and compliance with the terms of the Company's credit facility. Board approved dividend declarations will be disclosed in the Company's news releases highlighting the financial and operating results for the applicable quarter except for the first quarter, where timing is adjusted due to the year-end third-party financial audit.

Credit Facility

The Company has completed its annual bank review and renewed its $35 million two-year extendible credit facility, with the next annual review date set for May 31, 2024. < Hemisphere has the liquidity to make an accretive acquisition if something good becomes available.

Operations update

At this time, the Company is preparing its summer drilling program of up to nine wells, with drilling operations anticipated to commence in July and to be complete by the end of the third quarter. All new producing wells will be brought online after being completed and tied-in to existing facilities. Of the Company's nine planned wells, six are development production wells, two are injection wells, and one is an exploration well.

Corporate production to-date in the second quarter has averaged approximately 2,900 boe/d (99% heavy oil, based on field estimates between April 1st - May 23rd, 2023). Increased downtime at various wells, generators, and both batteries have impacted production. Additionally, overall injection rates at the G pool have decreased in the past few months due to surface injection pressure constraints at the facility. The Company has recently installed a second injection pump and subsequently increased injection rates back to previous levels. The Company is also modifying its source water piping in the G pool facility in order to increase and optimize injection rates even further over the coming months.

With its debt-free position and the anticipated free funds flow generated from its stable asset base of enhanced oil recovery operations, Hemisphere's balance sheet is capable of providing the Company with the ability to aggressively seek out and transact on meaningful new growth and development acquisition opportunities, as well as continued exploration programs.

Annual General and Special Meeting of Shareholders

Hemisphere's Annual General and Special Meeting of Shareholders will be held at 11:00 am (Pacific Daylight Time) on June 1, 2023 in the Ferguson Room of the Terminal City Club located at 837 West Hastings Street, Vancouver, British Columbia.

About Hemisphere Energy Corporation

Hemisphere is a dividend-paying Canadian oil company focused on maximizing value per share growth with the sustainable development of its high netback, low decline conventional heavy oil assets through 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".
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34962
Joined: Fri Apr 23, 2010 8:22 am

Re: Hemisphere Energy (HMENF) Q1 Results - May 25

Post by dan_s »

My forecast for Hemisphere has been updated and posted to the EPG website.
> I have lowered Q2 oil production by 100 bpd and added 100 bpd to Q4 2023 and for the year 2024 (now estimated at 3,800 bpd). Hemisphere's summer drilling program (9 wells) should boost production up to more than 3,600 bpd average for Q4.
> I have lowered the Alberta royalty rate, which goes up and down with oil prices: Was 17.5% in Q1, to 18% in Q2, 19% in Q3, 20% in 4, 24% in 2024 < which will only go that high if WTI goes to $100/bbl.
> I have raised the current income tax rate to 22%.

The numbers move around a bit but my valuation of HMENF stays the same at $2.25US per share.

My expectation is that Hemisphere will either make an accretive acquisition this year or pay out a nice special dividend at year end.

The only negative for this company is lack of running room beyond 2025. That said, production at Atlee Buffalo should ramp up to 4,000 barrels of oil per day in mid-2024 and Hemisphere should be able to keep it at that level for many years because their polymer floods are working and they will continue to push more oil to the producing wells. A conservative estimate of Altee Buffalo's reserve life is 12 years. See slides 9-11 in Hemisphere's May presentation.

HME.V was trading at $1.22Cdn when this was posted.
The PV10 Net Asset Value of Hemisphere's proved reserves is approximately $3.00Cdn per share.
Dan Steffens
Energy Prospectus Group
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