Summary
Hemisphere reported solid Q1 results. Production was as per expectation. No details were shared on the Marsden pilot. The balance sheet is very sound. Hemisphere is very prohibitable. Q1 profit was slightly higher than expected. Shareholder returns are high. Hemisphere is robust under low oil prices.
In my 84 oil and gas companies ranking system, Hemisphere ranks in the top 10 at a high 6th position. If the Marsden pilot is successful, Hemisphere can move up into the top 3.
Production
• Over the last six years Hemisphere production has doubled from 1,665 BoE/d (2019) to 3.463 BoE/d (2024).
• Q1 production (3.833 BoE/d) was in line my expectation (3,800 BoE/d). Hemisphere did not provide an outlook although its shared at production in Jan/Feb was at the 3,800 BoE/d level.
• Q1 (3.833 BoE/d) was 14% above Q4 (3,359 BoE/d). Q4 was affected by planned maintenance activities at the G-pool facilities. All Q1 production came from Atlee Buffalo.
• For Q2 I expect a production of 3,850 BoE/d. Hemisphere did not provide an outlook.
• Hemisphere reiterated it 2025 outlook of 3.9 K BoE/d.
• Proven reserves are limited. Production should peak at 4.0 K BoE/d in early 2026 after which Atlee Buffalo should go into a steady decline. Due to the polymer flooding the production decline rate is low.
• Without any Marsden contributions, I expect production to decline to 3.8 K BoE/d in 2028/2029.
- Hemisphere Q1 production.jpg (54.35 KiB) Viewed 212 times
Marsden
• The Marsden polymer flood pilot commenced in Q1 2024 with five wells were drilled (two injectors and three producers). Polymer injection started in late Q3 2024.
• First pressure response and production from Marsden is anticipated mid/late 2025.
• Marsden represents just 5% of the 2P NPV10 BT valuation of the 2024 reserves
• In the Q1 results, as almost usual, Hemisphere was tightlipped about the Marsden results. No details on the Marsden progress were shared other than that pressurization of the reservoir can take until late 2025. In view of the rather large spacing between the wells (140-150 m) this seems logical.
• Marsden could add significant production to Hemisphere (if successful).
Balance sheet
• The balance sheet is very healthy.
• Q1 equity ratio (=equity/balance sheet total) at 67.5% was excellent, slightly above the 66.8% in late 2024
• Similar to late 2024, Hemisphere in Q1 has no long-term debt of any note. As such a debt/EBITDA ration is without meaning.
• The balance sheet allows generous shareholder returns.
Profitability
• Hemisphere is a very profitable company, also under low oil prices.
• Q1 eps (C$ 0.09) was above Q4 (C$ 0.07) and above my expectation of C$ 0.08 with the realized oil price (C$ 79.58/bbl being higher and operating and transportation costs being lower than expected.
• Royalties were 18.5%, typical for a Canadian heavy oil producer.
• Unit costs (including depreciation, interest, and overheads) are a low US$ 20.46/BoE
• With WTI =$ 60-65/bbl and incorporating an extra 5% oil price discount ($ 3.00/bbl) due to US oil import tariffs, I expect a 2025 eps of C$ 0.26-0.30 (PE=5.7-6.7).
• Over time with a shrinking production without Marsden, the eps can fall to C$ 0.21-0.27 in 2028/2029 (PE=6.4-8.2). See charts below.
- Hemisphere Q1 profit.jpg (49.33 KiB) Viewed 212 times
Shareholder returns
• Shareholder returns are high.
• Hemisphere pays a regular quarterly dividend of C$ 0.025.
• In April Hemisphere announced a special dividend of C$ 0.30. In 2024 two special dividends were paid. I expect a repeat in 2025.
• In Q1 Hemisphere bought back 710 K shares in Q1 for C$ 1.3 M.
• Based on such policies, I expect shareholder 2025 returns of 9%.
• Despite a declining production, shareholder returns after 2025 can stay at 2025 levels as a higher share of the FCF can be returned to shareholders.
- Hemisphere Q1 returns.jpg (30.25 KiB) Viewed 212 times
Hemisphere reported solid Q1 results. Production was as per expectation. No details were shared on the Marsden pilot. The balance sheet is very sound. Hemisphere is very prohibitable. Q1 profit was slightly higher than expected. Shareholder returns are high. Hemisphere is robust under low oil prices.
In my 84 oil and gas companies ranking system, Hemisphere ranks in the top 10 at a high 6th position. If the Marsden pilot is successful, Hemisphere can move up into the top 3.