Hemisphere Energy (HMENF) Q4 Results - April 20

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

Hemisphere Energy (HMENF) Q4 Results - April 20

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Vancouver, British Columbia--(Newsfile Corp. - April 20, 2023) - Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) ("Hemisphere" or the "Company") is pleased to provide its financial and operating results for the fourth quarter and year ended December 31, 2022.

2022 Highlights

Increased annual production to 2,828 boe/d (99% heavy oil), a 55% increase over 2021. < Compares to my forecast of 2,825 boe/d

Achieved record annual revenue of $96.7 million, a 124% increase over 2021.

Realized record annual adjusted funds flow from operations ("AFF") of $46.7 million, a 152% increase over 2021. < Beat my forecast of $44.7 million.

Executed a successful $18.3 million capital expenditure program that included implementing a new polymer flood at the F pool, expanding and upgrading facilities, purchasing land and seismic, and drilling eight development, two (one net) exploration, and three re-entry wells.

Generated $28.4 million of free funds flow ("FFF") after all capital expenditures, a 337% increase over the previous year.

Decreased year-end net debt by 95% to just under $1.0 million. < Now that Hemisphere is virtually debt free, they should be able to increase their dividends.

Implemented Hemisphere's first ever quarterly dividend in June, and dispersed total returns of $7.7 million to shareholders during the year at $0.025/share.

Re-purchased and cancelled 2.3 million shares, returning $3.4 million to shareholders.

Increased Proved Developed Producing (PDP) NPV10 BT reserve value to $228 million and volumes to 8.2 MMboe (99.7% heavy crude oil). < Over $2.20Cdn PV10 Net Asset Value per share and the stock is trading today at $1.34Cdn. There is nothing to justify this stock trading below the PV10 of just their PDP reserves.

Increased Proved (1P) NPV10 BT reserve value to $309 million and volumes to 12.1 MMboe (99.7% heavy crude oil).

Increased Proved plus Probable (2P) NPV10 BT reserve value to $395 million and volumes to 16.0 MMboe (99.3% heavy oil).

I will be posting my updated forecast/valuation model for Hemisphere to the EPG website later today.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Hemisphere Energy (HMENF) Q4 Results - April 20

Post by dan_s »

From Don Simmons, CEO
"2022 was a highly successful year for Hemisphere with record revenue of $97 million generating nearly 50% returns of $47 million in adjusted funds flow. Hemisphere reinvested $18 million to grow production by 55% to record levels, reduced net debt to $1 million, and returned $11 million to shareholders through a newly initiated high-yield quarterly dividend program and its existing Normal Course Issuer Bid ("NCIB").

Hemisphere's robust balance sheet, significant base of free funds flow, high value reserves, and low decline production positions the Company to continue to return substantial value to shareholders through dividends and share buybacks in the coming years, while also aggressively exploring for new growth areas through acquisitions and organic development of new assets."
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Hemisphere Energy (HMENF) Q4 Results - April 20

Post by dan_s »

I have updated my forecast/valuation model for Hemisphere, breaking out 2023 by quarter and extending it through 2025.

Based on what I think are conservative production forecasts for 2024 and 2025, my valuation is $4.00Cdn or approximately $3.00US for HMENF.

Hemisphere's production guidance for 2023 is 3,300 Boepd, which now looks very conservative since current production is already ~3,200 Boepd per slide 3 of their updated presentation. Based on my previous discussions with Don Simmons, I believe that his goal is to take production up to 4,000 Boepd and then do just enough maintenance to hold production at Atlee Buffalo at that rate. There are two oil pool within Atlee Buffalo that are both responding well to a polymer flood. < 4,000 bopd of production should be achievable by Q3 2025.

Free cash flow should be maintained at $7 to $8 million per quarter (if WTI averages $75 to $85), since annual capex to ramp up production to what I'm modeling is only $14Cdn million per year. Most of the capex will be spent in the summer months. They plan to drill and complete nine new horizontal wells in this summer's drilling program, so production should ramp up to over 3,500 Boepd in Q4.

As of December 31, 2022 the PV10 Net Asset Value based only on Hemisphere's P1 reserves is over $3.00Cdn per share. As Atlee Buffalo is fully developed the Company's P2 reserves should all be moved into P1. As the two polymer floods mature, it will be easy to hold production at 4,000 Boepd for many years. Polymer floods have long lives.

Hemisphere is close to a pure play on oil. If you believe WTI is going to $100/bbl, you definitely want to own this stock. It pays a nice dividend and it is virtually debt free. They will make an accretive acquisition this year or start paying higher dividends. Plus, they are funding a stock buyback that continues to increase per share valuations.
Dan Steffens
Energy Prospectus Group
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