Hemisphere Energy (HMENF) Valuation Update - June 7
Posted: Tue Jun 07, 2022 10:40 am
I have updated my forecast/valuation model for Hemisphere using my higher oil & gas price deck that was highlighted in my Saturday podcast.
My valuations increase from $4.19Cdn to $4.88 Cdn for HME.V and $3.35US to $3.90US for HMENF
This is VERY GOOD NEWS My comments are in blue.
Hemisphere Energy Announces Inaugural Variable Dividend, Renewed Credit Facility, Increased Guidance, and Operations Update
Tue, June 7, 2022, 7:00 AM
Vancouver, British Columbia--(Newsfile Corp. - June 7, 2022) - Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) ("Hemisphere" or the "Company") is pleased to provide an update on its renewed credit facility, operations, revised annual guidance, and return to shareholder plan.
Credit Facility
Hemisphere has completed the renewal of its extendible two year committed term facility with ATB Financial, providing for borrowings of up to $35,000,000 (the "Credit Facility"). As was announced with the latest quarterly financials, the Company exited the first quarter with a net debt of just $8.7 million, and net debt to adjusted funds flow (AFF) of 0.2. This marks a significant milestone for Hemisphere and allows the Company flexibility to move forward with additional return of capital to shareholders through a variable dividend, which complements the current Normal Course Issuer Bid (NCIB) program. Even with enhanced shareholder return, Hemisphere anticipates being debt free by the fourth quarter, based on the updated guidance described below.
Operations and Guidance Update
Hemisphere is pleased to announce an increase to its 2022 capital program and resulting annual guidance due to exceptionally strong commodity pricing and excellent production results in the field year-to-date. The Company is now planning to drill up to eight wells in 2022, including three that will be re-drilled from current wellbores in order to use existing equipment, minimize costs, and lower abandonment liabilities. Hemisphere recently spudded the first well of this drilling program and anticipates production to start coming onstream from the wells through July.
With continued success at Hemisphere's Atlee Buffalo G pool polymer project, the Company has also accelerated its polymer injection project at the Atlee Buffalo F pool into the summer of 2022. Preparations are already underway in the field to expand treating facilities and tie-in polymer injection equipment. While production response is expected to be slower than in the G pool, management is highly encouraged by reservoir simulation predictions and analogue performance in the area and expects to see production gains through 2023 from the project. Hemisphere views this as a strategic investment that will add long-term value to shareholders. < The impact of the polymer flood (a very simple and cheap method to increase oil recovery) is a Game Changer for a company of this size.
Hemisphere's updated guidance set out below includes an increase in capital spending of $7 million for the year. In addition to drilling four new wells and accelerating the F pool polymer project into 2022, the Company is investing in new technologies, continuing an exploration program, improving injection, upgrading facilities and power, increasing net abandonment expenditures, and allocating capital to account for overall inflation of costs through the remainder of the year. These additional investments are anticipated to increase average production to 3,000 boe/d for the year and boost Hemisphere's estimated exit production rate to 3,300 boe/d. Run at the following pricing parameters for the remainder of the year, the Company expects to achieve record cash flows in 2022 at this updated production guidance.
Commencement of Quarterly Variable Dividend
The Board of Directors has approved a variable dividend policy targeting approximately 30% of Hemisphere's annual free funds flow to be paid quarterly. Accordingly, the first ever quarterly cash dividend paid to Hemisphere shareholders will be $0.025/share on June 30, 2022, to shareholders of record as of the close of business on June 15, 2022. The dividend is designated as an "eligible dividend" for income tax purposes. Using the mid-point of guidance, this would return an annualized 6% dividend yield to shareholders on Hemisphere's current market capitalization of approximately $180 million.
Further quarterly payments of this variable dividend will be subject to board approval, and be conditional on continued production performance, commodity price environment, and compliance with the terms of the Company's credit facility. The remaining 70% of free funds flow may be used for additional spending on Hemisphere's Normal Course Issuer Bid (NCIB) and/or other special dividends, in addition to possible strategic acquisitions and accelerated investments in the Company's long-term development program.
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My updated forecast valuation model for Hemisphere will be posted to the EPG website by 11AM CT
My valuations increase from $4.19Cdn to $4.88 Cdn for HME.V and $3.35US to $3.90US for HMENF
This is VERY GOOD NEWS My comments are in blue.
Hemisphere Energy Announces Inaugural Variable Dividend, Renewed Credit Facility, Increased Guidance, and Operations Update
Tue, June 7, 2022, 7:00 AM
Vancouver, British Columbia--(Newsfile Corp. - June 7, 2022) - Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) ("Hemisphere" or the "Company") is pleased to provide an update on its renewed credit facility, operations, revised annual guidance, and return to shareholder plan.
Credit Facility
Hemisphere has completed the renewal of its extendible two year committed term facility with ATB Financial, providing for borrowings of up to $35,000,000 (the "Credit Facility"). As was announced with the latest quarterly financials, the Company exited the first quarter with a net debt of just $8.7 million, and net debt to adjusted funds flow (AFF) of 0.2. This marks a significant milestone for Hemisphere and allows the Company flexibility to move forward with additional return of capital to shareholders through a variable dividend, which complements the current Normal Course Issuer Bid (NCIB) program. Even with enhanced shareholder return, Hemisphere anticipates being debt free by the fourth quarter, based on the updated guidance described below.
Operations and Guidance Update
Hemisphere is pleased to announce an increase to its 2022 capital program and resulting annual guidance due to exceptionally strong commodity pricing and excellent production results in the field year-to-date. The Company is now planning to drill up to eight wells in 2022, including three that will be re-drilled from current wellbores in order to use existing equipment, minimize costs, and lower abandonment liabilities. Hemisphere recently spudded the first well of this drilling program and anticipates production to start coming onstream from the wells through July.
With continued success at Hemisphere's Atlee Buffalo G pool polymer project, the Company has also accelerated its polymer injection project at the Atlee Buffalo F pool into the summer of 2022. Preparations are already underway in the field to expand treating facilities and tie-in polymer injection equipment. While production response is expected to be slower than in the G pool, management is highly encouraged by reservoir simulation predictions and analogue performance in the area and expects to see production gains through 2023 from the project. Hemisphere views this as a strategic investment that will add long-term value to shareholders. < The impact of the polymer flood (a very simple and cheap method to increase oil recovery) is a Game Changer for a company of this size.
Hemisphere's updated guidance set out below includes an increase in capital spending of $7 million for the year. In addition to drilling four new wells and accelerating the F pool polymer project into 2022, the Company is investing in new technologies, continuing an exploration program, improving injection, upgrading facilities and power, increasing net abandonment expenditures, and allocating capital to account for overall inflation of costs through the remainder of the year. These additional investments are anticipated to increase average production to 3,000 boe/d for the year and boost Hemisphere's estimated exit production rate to 3,300 boe/d. Run at the following pricing parameters for the remainder of the year, the Company expects to achieve record cash flows in 2022 at this updated production guidance.
Commencement of Quarterly Variable Dividend
The Board of Directors has approved a variable dividend policy targeting approximately 30% of Hemisphere's annual free funds flow to be paid quarterly. Accordingly, the first ever quarterly cash dividend paid to Hemisphere shareholders will be $0.025/share on June 30, 2022, to shareholders of record as of the close of business on June 15, 2022. The dividend is designated as an "eligible dividend" for income tax purposes. Using the mid-point of guidance, this would return an annualized 6% dividend yield to shareholders on Hemisphere's current market capitalization of approximately $180 million.
Further quarterly payments of this variable dividend will be subject to board approval, and be conditional on continued production performance, commodity price environment, and compliance with the terms of the Company's credit facility. The remaining 70% of free funds flow may be used for additional spending on Hemisphere's Normal Course Issuer Bid (NCIB) and/or other special dividends, in addition to possible strategic acquisitions and accelerated investments in the Company's long-term development program.
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My updated forecast valuation model for Hemisphere will be posted to the EPG website by 11AM CT