Hemisphere Energy (HMENF) Update - Feb 24

[dan_s]

HMENF was up 21% today to close at $0.328US/share. In my January 28 newsletter I valued the stock at $0.85US/share.

Today I was able to spend some time on the Hemisphere model and talk to the company to clarify all of my assumptions.
> Hemisphere's oil is heavy, so it trades at a discount to Canadian light oil. If WTI averages $60US/bbl, Hemisphere's realized oil price s/b approximately $55Cdn/bbl.
> Net of royalties and all cash expenses, including G&A and interest expense, Hemisphere's netbacks (or cash flow from operations) s/b approximately $34Cdn/bbl, $0.24Cdn/share.
> I'm also assuming 2021 Capex of $7.5Cdn million, which is probably too high.
> Net of capital expenditures their, "Free Adjusted Funds Flow" (FAFF) should be over $13Cdn million
> My model is now based on the low end of their production guidance, 1,800 BOPD for the year with an exit rate of 2,500 BOPD.
> Hemisphere is going to report approximately $8.2Cdn million of free cash flow from operations in 2020.
> In March they will announce detailed guidance for 2021 and progress on getting the stock up-listed
> The valuation in my next newsletter will be $1.05US/share for HMENF

I have posted my updated forecast/valuation model to the EPG website.

[sl6886]

Dan,

I'm wondering about the # of shares outstanding for Hemisphere. I see where they were busy buying back shares in 2020, however, the table of stock options from Q3 2020 shows 8.5 million stock option (shares) with an exercise price below current market. Based on this, should we consider the exercise imminent and part of the forecast?

Thanks
SOtto

[dan_s]

Yes, if the share price keeps going up the warrants will be exercised. Cibola, the debt holder, holds most of those warrants. Hemisphere will receive money when the warrants are exercised.