Tran Mountain Pipeline Update - July 1

[dan_s]

This is a good start. The TMX opening is why oil price differentials in Western Canada have significantly improved. All of our Canadian upstream companies benefit from this, especially Hemisphere Energy (HME.V and HMENF) because it is a pure play on heavy oil. Hemisphere should report an $8/bbl increase in their realized oil price from Q1 to Q2. The revenue boost is why the company was able to declare a Special Dividend that will be paid on July 26, 2024 to shareholders of record on July 12, 2024.

Don Simmons will be speaking the EnerCom conference in August, which should generate more analysts' coverage.

HOUSTON (Reuters) - About 20 ships loaded crude oil on Canada's West Coast in the first full month of operation on the newly expanded Trans Mountain pipeline, according to vessel-tracking data on Sunday, slightly below the operator's forecast.

Loadings from the pipeline expansion are closely watched because the Canadian government wants to sell the $24.84 billion (C$34 billion) line. Questions about oil quality, pipeline economics and loading challenges have swirled since its startup, spurring concerns over demand and exports of the crude.

The 20 vessels loaded were less than the 22 ships that Trans Mountain had initially expected to load for the month.

Total crude exports from Vancouver were around 350,000 barrels per day with the last two vessels for June-loading at the Westridge Marine terminal, as of Sunday.

"This first month is just shy of the 350,000-400,000 bpd we expected ahead of the startup. We are still in the discovery phase, with kinks being ironed out ... but in the grand scheme of things, this has been a solid start," said Matt Smith, lead analyst at Kpler.

The vessels, partially loaded Aframaxes able to carry about 550,000 barrels each, mostly sailed to the U.S. West Coast and Asia. Some cargoes were loaded onto larger ships for delivery to India and China, according to data providers LSEG, Kpler and Vortexa.

Reliance Industries bought 2 million barrels of Canadian crude for July delivery, a deal that involved four ship-to-ship transfers to load the oil onto a very large crude carrier offshore California. The oil is destined for Sikka, India, where the company operates the world's biggest refining complex.

Phillips 66 acquired a cargo for its Ferndale, Washington, refinery, Marathon Petroleum Corp for its Los Angeles refinery, and Valero Energy Corp for its Benicia, California, refinery.

TMX did not immediately respond ahead of a long weekend in Canada. Phillips 66 and Marathon Petroleum declined to comment, while Valero did not reply to a request for comments.

The market was expecting about 17 to 18 loadings, said Rohit Rathod, market analyst at energy researcher Vortexa.

"Chinese demand has been below expectations, and if not for Reliance most of the barrels in June would have remained within the (West Coast) region," Rathod added.

Trans Mountain this month revised standards for accepting crude oil on its recently expanded system, alleviating worries about the acidity and vapor pressure of the line's crude oil.

Logistical constraints in a busy, narrow shipping channel after leaving the Westridge dock in Vancouver were also expected to impact loadings. To manage high traffic in the channel, the Port of Vancouver has restrictions on transit times.

The expanded Trans Mountain pipeline is running around 80% full with some spot capacity used. Trans Mountain forecasts 96% utilization from next year. It has capacity to load 34 Aframax ships a month.

[dan_s]

If WTI oil price averages $80US/bbl in 2H 2024, Hemisphere should generate close to $30Cdn million of free cash flow from operations this year. Since the Company has a pristine balance sheet, I expect Hemisphere to pay another Special dividend late this year.

This is why HMENF was moved to our High Yield Income Portfolio. It is a classic "Growth & Income" stock because double digit production growth is expected for many years to come. Success of the Company's new polymer flood at Marsden could double Hemisphere's production within three years.

From Q1 Press Release:

In the first quarter of 2024, the Company received EOR project approval from the Ministry of Energy and Resources for a polymer flood pilot in its recently acquired Marsden acreage in Saskatchewan. Subsequently, Hemisphere executed a $5.6 million capital expenditure program, which included drilling five Marsden wells (three producers and two injectors). The Company has recently brought one well on primary production to a single well battery in order to gather initial test data required for EOR project planning. Hemisphere expects to commission a new polymer injection skid and oil treating battery for its Marsden project during the third quarter.

Hemisphere’s Atlee Buffalo polymer injection projects both continue to perform well, contributing to slight overall corporate production growth. Current production is approximately 3,500 boe/d (99% heavy oil, field estimates between April 1 – May 25, 2024), 3% higher than the fourth quarter of 2023 despite no new wells having been brought online since last September.

Hemisphere's guidance is for 2024 production to average 3,400 Boepd; an 8.8% year-over-year increase.