My largest gains have come from investing in very profitable Canadian Juniors.
Hemisphere is a pure play on Heavy Oil.
> Q2 production will be down a bit (always the case in Alberta due to Spring Breakup).
> This world is short heavy oil.
> Hemisphere is virtually debt free and pays a nice dividend.
> Production and free cash flow is going way up in Q3 and Q4.
What about lack of running room? At their recent luncheon didn't sound like they had much left to develop. I am in those cited by Fraser and though they pay dividends (Gear just cut in half) they are all down and have been down all year. Yikes, I don't like red numbers!
Despite Canada's Marxist leader, he seems to be more oil & gas friendly than our Marxist occupants of the DC executive branch.
My guess after talking to Don Simmons is that Hemisphere is going to make an acquisition to add "running room" or they are going to significantly increase dividends. The company is debt free.
They do have near-term running room. Altee Buffalo production can be increase to ~4,000 BOPD and it should be easy to maintain that level of production for many years. The polymer floods are working in both pools and there is still a lot of oil to be recovered.
Don is a very conservative guy, which is why I own a lot of this stock. He knows that Atlee Buffalo is a "Cash Machine".
I've held my peace on this company as long as I can.
Hemisphere was a 15 bagger from nearly $.10 to $1.50, but then has come all the way back to $.90 and has been stuck in a range for about 18 months. Yes, you're correct that with the current assets they hold they're capped. While they have two properties, only one appears to have any value and they're getting close to being fully built out. The problem for Management, by their own admission, is they can't replicate the performance/profitability of their one productive asset (Altee Buffaloe) and they were unwilling to buy something else and dilute the profitability figures.
They've had their debt paid off for several quarters now, and they decided to buy back shares at a time when most of us were begging them to pay out more in the form of dividends. Hemisphere did finally start paying a dividend, but they were late in doing so because as soon as they did interest rates went up and their 6% dividend had to compete with 5% yields in a money market without all the risk. Further, they qualify their dividend payment as a variable 30% of operating cash flow, so they don't really commit to anything quarter over quarter. Considering the company had/has no where else to go with the CF, it was what I consider to be a fairly stingy position vis-a-vis shareholders. However, they didn't seem to mind giving 50,000 shares FOR FREE to a vendor in 2022 for reasons that were never explained, and it rubbed me the wrong way since Mgmt was already getting their own stock allocation as part of compensation. I don't think anyone minds incentivizing Mgmt but when you're not passing on 50% plus to shareholders who have to pay for their shares, paying out vendors rubbed me the wrong way. Hemisphere's Mgmt. has described the company as a "cash cow" and the allure was always that they would operate as a pass-through of that cash flow, but it hasn't materialized and the it's because of the company's dividend policy. Dan always says "size matters", which everyone surely agrees with. So, it's reasonable to expect that if you invest in a smaller company that you'll get paid out more as an incentive to take the additional risk of affiliation with a small enterprise/less liquidity. In my opinion, about 18 months ago we stopped getting properly rewarded for this risk when holding Hemisphere after they went from a growth story to a yield play.
How do I know this? Because Hemisphere WAS my largest holding as I awaited a large dividend payout. Do you think anyone would have sold if they were paying a 15%-20% variable dividend (and yes, the dividend is variable even though they don't advertise it that way). The answer is "NO". You would hold the stock and be part of the cash cow team. It's hard to be a yield play when you're not paying out enough to adequately compensate investors. For the last 18-24 months, the market has decided that Hemisphere wasn't paying enough- when Mgmt figures that out is anyone's guess, but don't hold your breath.
Next time the CEO comes to Houston, maybe ask him why he can commit free shares to vendors but can't commit to fairly compensating shareholders for holding an illiquid stock.
If debt is paid off, why not payout 90% of cash flow to shareholders. If Don wants to do an acquisition let him raise the capital on its own merits, not let the free cash flow burn a hole in our pocket. I am down 10% on the shares i bought based upon accolades here. Any junior activists out there? Elect Fraser to the BOD?
Don knows that he needs to close an accretive deal or pay a special dividend at year end. I vote for the special dividend.
Hemisphere's production will be down ~200 bopd from Q1 to Q2 because they shut down D&C activity each year in Q2 (Spring Breakup). Production will ramp up in Q3 and Q4 to a 2023 exit rate of ~3,600 bopd. Lots of FCF over during Q3 and Q4.
Atlee Buffalo production should ramp up to 4,000 bopd by the end of 2024. Free cash flow should be over $40Cdn million in 2024.
Hemisphere is not "sexy", but it makes a lot of money.
Hemisphere's Q4 and Q1 results are always late just because they are small and low on the priority list of the public accounting firm that audits them.
Q2 production should be ~2,950 Bopd, down ~200 Bopd from Q1 just because of weather. D&C activities stop during Spring Breakup.
Wildfires had minimal impact on Hemisphere.
Revenues and operating cash flow should be up because of higher realized oil prices of ~$8/bbl to ~$73/bbl in Q2, thanks to smaller differentials on heavy oil.
Operating cash flow of ~$8.8 million should more than cover Q2 capex spending.
Field work ramped up in June after "Spring Breakup" and production should increase ~300 Bopd in Q3 and another ~400 Bopd in Q4 to an exit rate of ~3,700 Bopd.
All of Hemisphere's production is heavy oil. Most of the natural gas produced is used for power generation in Atlee Buffalo field to lower operating expenses.
Rising heavy oil prices and production should increase operating flow to close to $25 million in 2H 2023.
Minimal D&C expenditures will be needed in 2024 to push production over 4,000 within the next 12-15 months.
