Hemisphere Energy (HMENF) Update - March 13

[dan_s]

This stock is trading below the PV10 Net Asset Value of just its Proved Developed Producing (PDP) reserves. That is crazy for a company that is extremely profitable, pays nice dividends and is funding a stock buyback. It has a PRISTINE BALANCE SHEET. Plus, this summer they are going to begin drilling on a new area that could DOUBLE PRODUCTION in a few years.
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Hemisphere Energy Grows Proved Reserve Value to $325 Million and Proved Net Asset Value to $3.18Cdn per Fully Diluted Share

Vancouver, British Columbia--(Newsfile Corp. - March 12, 2024) - Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) ("Hemisphere" or the "Company") is pleased to announce highlights from its independent reserves evaluation (the "Reserve Report"), prepared by McDaniel & Associates Consultants Ltd. ("McDaniel") and effective as at December 31, 2023.

In 2023, Hemisphere invested $16 million to drill eight successful Atlee Buffalo wells, upgrade facilities in Atlee Buffalo, purchase land and seismic, and pre-purchase some of the materials for its 2024 development program. With the Company's capital additions, corporate production in 2023 increased by more than 10% year-over-year, to 3,124 boe/d (99% heavy oil). Production is currently trending over 3,450 boe/d (99% heavy oil, based on field estimates between February 10 - March 10, 2024), after significant downtime experienced in January and early February due to extreme cold weather and equipment failure.

During the year, Hemisphere also distributed $13.1 million in base and special dividends, purchased 3.2 million shares under its normal course issuer bid ("NCIB") for a total price of $4.0 million (at an average price of $1.25/share), and exited the year in a cash position with working capital1 of over $3 million.

The Company's continued success in the development of its enhanced oil recovery projects was recognized again by McDaniel in the Reserve Report. In the Proved Developed Producing ("PDP") category, Hemisphere replaced 104% of 2023 production and increased reserve value by 9% to $248 million NPV10 BT. Hemisphere also grew Proved ("1P") reserve value to $325 million NPV10 BT and Proved plus Probable ("2P") reserve value to $416 million NPV10 BT.

The Company's new Saskatchewan lands currently account for only 5% of 1P and 7% of 2P reserves, while making up only 3% of 1P and 5% of 2P NPV10 BT valuations of Hemisphere's reserves. Significant reserve upside remains on Hemisphere lands if the play proves successful over the course of 2024 and beyond.

Consistent with McDaniel's 2022 year-end evaluation, the Reserve Report incorporates full corporate abandonment, decommissioning, and reclamation costs ("ADR") in the PDP category. Hemisphere has always been cautious of acquiring additional wellbore and facility liabilities. A direct result of this strategy is that Hemisphere's reserves retain more comparative value per barrel than companies with additional ADR liabilities that must be deducted from their base valuations. Management estimates that total undiscounted and uninflated existing ADR is $8.3 million ($2.3 million NPV10 BT, with costs inflated at 2%/yr), which includes all ADR associated with both active and inactive wells, pipelines, and facilities regardless of whether such wells, pipelines, and facilities had any attributed reserves. Based on public information, Hemisphere stands out among its industry peers as being within the top 8% of Alberta oil and gas operators for its industry-leading liability management ratio ("LMR") of 17, resulting in Hemisphere having less than 1% of its PDP net present value impaired by ADR.

Hemisphere's low decline, long life, and high value reserves are a sign of the tremendous resource the Company has been developing over the past number of years. These valuable assets are the backbone of Hemisphere and are expected to generate significant free cash flow as they continue to grow with planned additional development and optimization of enhanced oil recovery techniques.

2023 Reserve Highlights

Proved Developed Producing ("PDP") Reserves

NPV10 BT of $248 million, an increase of 9% over year-end 2022 and equivalent to $2.49 per basic share.
Replaced 104% of 2023 production through organic development.
Maintained reserve volumes year-over-year at 8.2 MMboe (99.6% heavy crude oil).
Achieved a 2-year FD&A cost of $9.30/boe (including changes in future development capital ("FDC")) for a recycle ratio of 5.4.
RLI of 7.2 years based on 2023 production.
Proved ("1P") Reserves

NPV10 BT of $325 million, an increase of 5% over year-end 2022 and equivalent to $3.27 per basic share.
Replaced 90% of 2023 production through organic development.
Maintained reserve volumes year-over-year at 12.1 MMboe (99.4% heavy crude oil).
Achieved a 2-year FD&A cost of $14.82/boe (including changes in FDC) for a recycle ratio of 3.4.
RLI of 10.6 years based on 2023 production.
NAV of $3.18 per fully diluted share based on Reserve Report pricing assumptions.
NAV of $3.28 and $4.27 per fully diluted share based on Reserve Report run internally at McDaniel's pricing sensitivities of US$80 and US$100 WTI flat pricing.
Proved plus Probable ("2P") Reserves

NPV10 BT of $416 million, an increase of 5% over year-end 2022 and equivalent to $4.19 per basic share.
Replaced 125% of 2023 production through organic development.
Maintained reserve volumes at 16.3 MMboe (99.4% heavy crude oil).
Achieved a 2-year FD&A cost of $14.91/boe (including changes in FDC) for a recycle ratio of 3.4.
RLI of 14.3 years based on 2023 production.
NAV of $4.03 per fully diluted share based on Reserve Report pricing assumptions.
NAV of $4.12 and $5.36 per fully diluted share based on Reserve Report run internally at McDaniel's pricing sensitivities of US$80 and US$100 WTI flat pricing.