Hemisphere - 2025 guidance

[Petroleum economist]

Vancouver, British Columbia--(Newsfile Corp. - January 29, 2025) - Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) ("Hemisphere" or the "Company") is pleased to provide a corporate update, announce the declaration of a quarterly dividend payment to shareholders, and deliver guidance for 2025.

Corporate Update
In 2024, Hemisphere achieved annual production growth of 10%, executed a $22 million capital expenditure program, and increased its positive year-end working capital position. The Company also returned over $0.22/share ($21.2 million) to shareholders in the form of dividends ($15.7 million) and share buybacks ($5.5 million), which represents an annualized 11.9% yield to shareholders based on Hemisphere's market capitalization at December 31, 2024.

Hemisphere's 2024 capital expenditure program grew production, added required infrastructure, and commenced testing a new resource play with an enhanced oil recovery ("EOR") polymer pilot project. These investments were funded entirely by cash flow from the Company's long-life reserve base and ultra-low production decline rates in the Atlee Buffalo oil assets,and have set up Hemisphere for continued growth in 2025.

Based on field estimates, production over the past two months (December 1, 2024 - January 27, 2025) has averaged approximately 3,800 boe/d (99% heavy oil) as new Atlee Buffalo wells were brought online through the fourth quarter of last year. With the addition of a new treater late in the quarter and upcoming injector conversions, these and other wells are expected to continue to be optimized during the first quarter of 2025 in Hemisphere's flagship EOR polymer flood projects.

Balance sheet strength in 2024 allowed Hemisphere to invest in its pilot EOR project in the Marsden area of western Saskatchewan. The Company drilled 5 wells (3 production wells and 2 injection wells) and built facilities required to produce oil and inject polymer back into a known accumulation of oil that had been previously produced with vertical wells and abandoned, with the plans of rebuilding reservoir pressure and increasing the recovery factor of the oil-in-place from the pool. First injection commenced late in the third quarter of 2024 and Hemisphere is anticipating to see potential EOR response in mid-to-late 2025.

Quarterly Dividend
Hemisphere is pleased to announce that its Board of Directors has approved a quarterly cash dividend of $0.025 per common share in accordance with the Company's dividend policy. The dividend will be paid on February 26, 2025 to shareholders of record as of the close of business on February 12, 2025. The dividend is designated as an eligible dividend for income tax purposes.

2025 Corporate Guidance
Hemisphere's Board of Directors has approved a 2025 capital expenditure program of approximately $17 million, which is planned to be entirely funded by Hemisphere's estimated 2025 adjusted funds flow1 ("AFF") of $51 million and is anticipated to provide 15% annual production growth. The majority of capital will be allocated to drilling, optimization, and facility work, with approximately 10% allotted to exploration and land acquisition. Most of the planned capital expenditures are scheduled for the third quarter of 2025, providing Hemisphere with the flexibility to adjust plans subject to the commodity price environment.

After capital expenditures and asset retirement obligations ("ARO"), 2025 free funds flow1 ("FFF") is estimated to be $34 million, of which approximately 30% is budgeted to be paid in quarterly base dividends as shown in the table below. The balance of cash will be used for discretionary purposes, which may include potential acceleration of other development or exploration projects, acquisitions, and additional return of capital to shareholders through Hemisphere's normal course issuer bid ("NCIB") program and/or special dividends. In 2024, two special dividends totaling $0.06/share ($5.7 million) were paid to shareholders in addition to Hemisphere's base quarterly dividends of $0.10/share ($10 million), and share buybacks amounted to $0.06/share ($5.5 million), bringing total shareholder returns to $0.22/share ($21.2 million).

Management believes that the 2025 development plan provides stable production growth and consistent shareholder returns, with significant flexibility built in to allow for necessary adjustments based on changing political and commodity environments.
Highlights and assumptions of Hemisphere's guidance at US$75/bbl WTI are as follows:
• Average annual production of 3,900 boe/d (99% heavy oil), a 15% increase as compared to 2024
• Average WTI price of US$75/bbl, with sensitivities shown at US$65/bbl and US$85/bbl
• WCS differential of US$14.00/bbl and quality adjustment of $7.00/bbl
• CAD/US FX of 1.43
• Operating and transportation costs of $15.25/boe
• Royalties and GORRs on gross revenue of 21% at US$75/bbl WTI, 19% at US$65/bbl WTI, and 23% at US$85/bbl WTI
• Net G&A of $3.66/boe
• Tax Costs of $8.10/boe at US$75/bbl WTI, $5.64/boe at US$65/bbl WTI, and $10.37/boe at

About Hemisphere Energy Corporation
Hemisphere is a dividend-paying Canadian oil company focused on maximizing value-per-share growth with the sustainable development of its high netback, ultra-low decline conventional heavy oil assets through polymer flood enhanced recovery methods. Hemisphere trades on the TSX Venture Exchange as a Tier 1 issuer under the symbol "HME" and on the OTCQX Venture Marketplace under the symbol "HMENF".

For further information, please visit the Company's website at www.hemisphereenergy.ca to view its corporate presentation or contact:
Don Simmons, President & Chief Executive Officer
Telephone: (604) 685-9255
Email: info@hemisphereenergy.ca

Website: www.hemisphereenergy.ca

[dan_s]

Hemisphere's 2025 production guidance agrees with my forecast. I do believe that 2H 2025 production will exceed my forecast, and I do believe that they will pay special dividends or make an accretive acquisition.

[Petroleum economist]

Hemisphere 2025 guidance is both encouraging and mysterious.

Production
• Production levels in Dec 2024/Jan 2025 of 3.8 K BoE/d are well above the 3.6 K BoE/d in Q2 and Q3 and indicates that the polymer flood at Buffalo Atlee continues to work.
• Average Q4 production levels are as yet uncertain as the first half of Q4 production has been affected by maintenance activities at G-pool facilities.
• I expect we will see next month an average Q4 production of 3.6 K BoE/d.
• The 2025 outlook of 3.9 K BoE/d is above my expectation of 3.75 K BoE/d. As it is above Jan levels it must means that production during 2025 will continue to grow.

Capex and FCF
• The 2025 indicated Capex (C$ 17 M) is well below 2024 (C$ 22 M), meaning that the FCF will increase.
• It is intriguing that most of the capex is targeted for Q3.
• This means that the initial results of the Marsden polymer pilot will be available before committing to the capex and that Hemisphere can decide whether the capex will be spent at Buffalo Atlee or possibly at Marsen.
• The estimated 2025 FCF of C$ 31 M is far more than the C$ 21.2 M returned to shareholders in 2024. This was already equivalent to a high 11.2% yield.
• Either the yield in 2025 may go up, or Hemisphere has cash available to develop the Marsden area, provided the polymer pilot is successful.

Marsden polymer pilot
• Hemisphere is tight lipped about the Marsden polymer pilot. First results will not be shared until mid-2025.
• A successful pilot can be a game changer for Hemisphere.
• It is good to see that funds are available if the Marsen pilot would be successful.

Conclusions
Purely based on Buffalo Atlee production only, Hemisphere is a very attractive investment. Marsen can be the icing on the cake. With WTI= $ 70-75/bbl, the 2025 eps (no Marsden) can be C$ 0.34-0.40 (low PE= 4.5-5.3). As indicated above, returns in 2025 can be more than the 11.2% in 2024.

Hemisphere ranks a very high 2nd out of 84 in my oil and gas ranking.

[mrbill]

Great analysis as always Harry. The dividends are quite nice. Any thoughts on if there will be any rise in the share
price and when?

[dan_s]

Hemisphere's 2024 reserve report should justify a much higher share price. Don's production guidance is very conservative.

At our December luncheon Don told us that they are looking at several other accretive acquisition opportunities.

This year's capex program will complete the development of Atlee Buffalo. Hopefully, the Marsden pilot program will be successful, and they have a lot of Running Room there. If not, I do expect them to make an acquisition.

[Petroleum economist]

Sorry Bill.
I do not know if/when the share price will react. My crystal ball is the repair shop.

[mrbill]

Thanks Harry, my main concern is any guess how high this could go. But I realize there are swirling factors such as
"Trump tariffs", etc. out there no one can predict. Was wondering how good this could be, or should I re deploy to some other EPG opportunities. Gathering food for thought.

[Petroleum economist]

Bill, the size and the potential Marsden intrigue me as well.

I have tried below to second guess what production from Marsden could look like. Hemisphere is limited with details on Marsden, so I had to rely on lots of assumptions and educated guesses to come up with a production profile. My best guess is that Marden could produce at a plateau of 5.0 K bbl/d. That is not huge, but it would more then double the size of Hemisphere.

What is Marsden?
• It is a not very clear what is meant with “Marsden”.
• There are three Marsden fields in the relevant area: (1) Marsden North Sparky Sand Pool, (2) Marsden South Sparky Sand Pool and (3) Marsden Sparky Sand Pool.
• As the first and the last fields are rather small and have a thin oil column, I have assumed that Marsden South Sparky Sand Pool is the area under consideration by Hemisphere.

Marsden South Sparky Sand Pool
Googling on the area, I came up with the following data:
• Discovery year - 1979
• Oil in place – 160.27 M bbl
• Oil produced – 28.71 M bbl
• Net pay - 4.50 m -9.58 m
• Porosity – 30%
• Oil density – 946 - 965 kg/m3

Marsden potential production
• The recovery factor after depletion was 28.71/160.27 = 17.9%.
• Polymer flooding can increase the recovery factor
• With no real data at hand, I have assumed the recovery factor can increase to 30%.
• This means that an extra (30-17.9)*160.27 = 19.4 M bbl/ of oil can be recovered.
• To create a match with the recoverable volume, I assume that production will build up in three to four years to plateau. then keep a plateau for 7-8 years, after which decline will set in.
• If I do this, I get a plateau rate of 5.0 K bbl/d. It is not huge, but sizeable for Hemisphere.

Above are just some guesses. If I am wrong, let me know.