Hemisphere Energy Announces Q3 2018 Financial And Operating Results

November 22, 2018

Vancouver, British Columbia, November 21, 2018 – Hemisphere Energy Corporation (TSX-V: HME) ("Hemisphere" or the  "Company") announces its financial and operating results for the three and nine months ended September 30, 2018. 

Q3 2018 HIGHLIGHTS

  • Achieved record quarterly average production of 1150 boe/d (96% oil), a 69% increase over the third quarter of 2017.
  • Increased revenue by 114% to a record $5.9 million, compared to $2.7 million for the third quarter of 2017.
  • Generated operating field netback of $3.2 million ($0.04/share), an increase of 175% over the third quarter of 2017.
  • Generated funds flow from operations of $1.4 million ($0.02/share), an increase of 111% over the third quarter of 2017.
  • Increased operating netbacks, including losses on commodity contracts, to $23.43/boe, an increase of 22% over the third quarter of 2017.
  • Completed successful eleven-well summer drilling program and finished battery upgrades at the Atlee Buffalo F pool facility.
  • Achieved a Corporate Liability Management Ratio ("LMR") with the Alberta Energy Regulator ("AER") of 7.05 at the end of the third quarter 2018, which is within the top 12% of all licensees evaluated.

CORPORATE UPDATE

Since securing a five year term loan in September 2017, Hemisphere has drilled 20 new wells in the Atlee Buffalo area including 14 wells drilled in 2018. Of these, five wells have been converted to water injectors, and are either now injecting or have recently obtained injection approval from the AER. Based on field estimates, production over the first half of November was approximately 1500 boe/d (97% oil), which is more than double the production as compared to Hemisphere's average daily production during the third quarter of 2017.

With the price of Canadian crude oil dropping dramatically in recent weeks, Hemisphere is heavily focused on reducing operating costs, including those associated with optimization projects that could increase production further. Hemisphere will instead focus in the near-term on augmenting water injection in order to continue to re-energize the reservoirs and minimizing costs associated with winter weather conditions.

Hemisphere remains financially flexible with additional room to borrow within its US$35 million term loan limit. However, at this time management has delayed any further capital activity until commodity prices improve. Additionally, in response to historically wide Canadian crude oil differentials, the Company has proactively entered into an agreement with its lender to temporarily waive the application of and compliance with its two financial covenants (being the interest coverage ratio and total leverage ratio covenants) and two reserve-based covenants (being the PDP coverage ratio and total proved reserve coverage ratio covenants) that are included in the credit agreement with the lender, in each case for the fiscal quarter ending December 31, 2018.

With continued success of its waterflood projects, the Company expects to see sustained increases in production and reserves as water is continually swept through these reservoirs, even without any additional capital spending at this time. Management believes the Company has considerable growth upside through development of its exceptional oil assets and will plan accordingly through 2019 as Canadian crude prices are projected to improve.

Q3 2018 FINANCIAL AND OPERATING HIGHLIGHTS

 

Three Months Ended September 30

Nine Months Ended September 30

 

2018

2017

 

2018

 

2017

             

OPERATING

 

 

 

 

 

 

Average daily production

 

 

 

 

 

 

 

 

   Oil (bbl/d)

 

1,106

 

644

 

977

 

574

   Natural gas (Mcf/d)

 

255

 

217

 

257

 

274

   NGL (bbl/d)

 

1

 

1

 

2

 

2

   Combined (boe/d)

 

1,150

 

681

 

1,021

 

622

   Oil and NGL weighting

 

96%

 

95%

 

96%

 

93%

Average sales prices

 

 

 

 

 

 

 

 

   Oil ($/bbl)

$

57.19

$

45.58

$

55.26

$

46.20

   Natural gas ($/Mcf)

 

1.31

 

1.48

 

1.55

 

2.42

   NGL ($/bbl)

 

56.09

 

42.62

 

57.55

 

45.41

   Combined ($/boe)

$

55.36

$

43.62

$

53.33

$

43.87

Operating netback ($/boe)

 

 

 

 

 

 

 

 

   Petroleum and natural gas revenue

$

55.36

$

43.62

$

53.33

$

43.87

   Royalties

 

11.22

 

9.36

 

9.67

 

7.53

   Operating costs

 

11.06

 

12.78

 

12.17

 

15.31

   Transportation costs

 

2.47

 

2.71

 

2.67

 

2.85

   Operating field netback(1)

 

30.62

 

18.77

 

28.83

 

18.18

   Realized commodity hedging (gain) loss

 

7.19

 

0.51

 

8.15

 

1.05

   Operating netback(2)

$

23.43

$

19.28

$

20.67

$

19.22

FINANCIAL

 

 

 

 

 

 

 

 

Petroleum and natural gas revenue

$

5,856,762

$

2,733,656

$

14,869,598

$

7,446,068

Operating field netback(1)

 

3,239,215

 

1,176,203

 

8,037,032

 

3,084,709

Operating netback(2)

 

2,478,636

 

1,208,106

 

5,763,569

 

3,262,794

Funds flow from operations(3)

 

1,387,469

 

657,840

 

2,738,280

 

1,761,249

   Per share, basic and diluted

 

0.02

 

0.01

 

0.03

 

0.02

Net income (loss)

 

(236,344)

 

(142,254)

 

(4,878,900)

 

(487,655)

   Per share, basic and diluted

 

(0.00)

 

(0.00)

 

(0.05)

 

(0.01)

Capital expenditures

 

9,185,092

 

3,107,979

 

14,588,033

 

4,025,800

Net debt(4)

 

31,207,369

 

14,426,091

 

31,207,369

 

14,426,091

Term Loan(5)

$

28,241,400

$

11,589,132

$

28,241,400

$

11,589,132

Notes:

  1. Operating field netback is a non-IFRS measure calculated as the Company’s oil and gas sales, less royalties, operating expenses and transportation costs on an absolute and per barrel of oil equivalent basis.
  2. Operating netback is a non-IFRS measure calculated as the operating field netback plus the Company’s realized commodity hedging gain (loss) on an absolute and per barrel of oil equivalent basis.
  3. Funds flow from operations is a non-IFRS measure that represents cash generated by operating activities, before changes in non-cash working capital and may not be comparable to measures used by other companies.
  4. Net debt is a non-IFRS measure calculated as current assets minus current liabilities including term loan or bank indebtedness and excluding fair value of financial instruments and any flow-through share premium.
  5. Gross term loan amount including foreign exchange

 

About Hemisphere Energy Corporation

Hemisphere Energy Corporation is a producing oil and gas company focused on developing low risk conventional oil assets for minimal capital exposure through developing known pools of oil and optimizing waterflood projects. Hemisphere plans continual growth in production, reserves, and cash flow by drilling existing projects and executing strategic acquisitions.  Hemisphere trades on the TSX Venture Exchange as a Tier 1 issuer under the symbol "HME".

 

 

For further information, please visit our website at www.hemisphereenergy.ca to see our corporate presentation or contact:
 

Don Simmons, President & Chief Executive Officer
Telephone: (604) 685-9255
Email: info@hemisphereenergy.ca

Scott Koyich, Investor Relations
Telephone: (403) 619-2200
Email: scott@briscocapital.com

Forward-looking Statements

Certain statements included in this news release constitute forward-looking statements or forward-looking information (collectively, "forward-looking statements") within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In particular, but without limiting the generality of the foregoing, this news release includes forward-looking statements regarding Hemisphere's outlook for our future operations, plans, and timing for the commencement or advancement of exploration and development activities on our properties; Hemisphere's intention to focus in the near-term on augmenting water injection in order to continue to re-energize the reservoirs and minimizing costs associated with winter weather conditions; Hemisphere's expectation that the Company will see sustained increases in production and reserves as water is continually swept through its reservoirs with no additional capital spending; Management’s belief that the Company has considerable growth upside through development of its exceptional assets; Hemisphere's plans for continual growth in production, reserves, and cash flow by drilling existing projects and executing strategic acquisitions and other expectations, intentions, and plans that are not historical fact.  In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future

 Forward‐looking statements are based on a number of material factors, expectations, or assumptions of Hemisphere which have been used to develop such statements and information but which may prove to be incorrect. Although Hemisphere believes that the expectations reflected in such forward‐looking statements or information are reasonable, undue reliance should not be placed on forward‐looking statements because Hemisphere can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: that Hemisphere will continue to conduct its operations in a manner consistent with past operations; results from drilling and development activities are consistent with past operations; the quality of the reservoirs in which Hemisphere operates and continued performance from existing wells; the continued and timely development of infrastructure in areas of new production; the accuracy of the estimates of Hemisphere's reserve volumes; certain commodity price and other cost assumptions; continued availability of debt and equity financing and cash flow to fund Hemisphere's current and future plans and expenditures; the impact of increasing competition; the general stability of the economic and political environment in which Hemisphere operates; the general continuance of current industry conditions; the timely receipt of any required regulatory approvals; the ability of Hemisphere to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which Hemisphere has an interest in to operate the field in a safe, efficient and effective manner; the ability of Hemisphere to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and cost of pipeline, storage and facility construction and expansion and the ability of Hemisphere to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Hemisphere operates; and the ability of Hemisphere to successfully market its oil and natural gas products.

The forward‐looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to defer materially from those anticipated in such forward‐looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of Hemisphere's products, the early stage of development of some of the evaluated areas and zones; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Hemisphere or by third party operators of Hemisphere's properties, increased debt levels or debt service requirements; inaccurate estimation of Hemisphere's oil and gas reserve volumes; limited, unfavourable or a lack of access to capital

markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time‐to‐time in Hemisphere's public disclosure documents, (including, without limitation, those risks identified in this news release and in Hemisphere's Annual Information Form). 

The forward‐looking statements contained in this news release speak only as of the date of this news release, and Hemisphere does not assume any obligation to publicly update or revise any of the included forward‐looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Non-IFRS Measures

The press release contains terms that are non-IFRS measures and commonly used in the oil and gas industry which are not defined by or calculated in accordance with International Financial Reporting Standards ("IFRS"), such as: (i) funds flow from operations; (ii) net debt; and (iii) operating netback, operating netback per boe, operating field netback and operating field netback per boe. These terms should not be considered an alternative to, or more meaningful than the comparable IFRS measures (as determined in accordance with IFRS) which in the case of funds flow from operations is cash provided by operating activities and cash flow from operating activities and in the case of operating field netback and operating netback are net income or net loss.  There is no IFRS measure that is reasonably comparable to net debt.  These measures are commonly used in the oil and gas industry and by Hemisphere to provide shareholders and potential investors with additional information regarding: (i) in the case of funds flow from operations, the Company's ability to generate the funds necessary to support future growth through capital investment and to repay any debt; (ii) in the case of operating netback, operating netback per boe, operating field netback and operating field netback per boe the indication of the Company's profitability relative to current commodity prices; and (iii) in the case of net debt, the capital structure of the Company. 

 

Hemisphere's determination of these measures may not be comparable to that reported by other companies. Funds flow from operations is calculated as cash generated by operating activities, before changes in non-cash working capital; operating field netback is calculated as the Company’s oil and gas sales, less royalties, operating expenses, and transportation costs; operating field netback per boe is calculated as operating field netback divided by production for the applicable period on a per barrel of oil equivalent basis; operating netback and operating netback per boe adjusts operating field netback and operating field netback per boe, respectively, for any realized gains or losses on commodity hedges and net debt is calculated as current assets minus current liabilities including bank indebtedness and excluding fair value of financial instruments and any flow-through share premium.  The Company has provided additional information on how these measures are calculated in the Management’s Discussion and Analysis for the year ended December 31, 2017, which is available under the Company’s SEDAR profile at www.sedar.com

 

Oil and Gas Advisories

A barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.  In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.  

 

Short-term production rates disclosed herein are not determinative of the rates at which the wells will continue to produce and decline thereafter and may not necessarily be indicative of the long term performance or estimated ultimate recovery.

 

 

Definitions and Abbreviations

 

bbl

barrel

Mcf

thousand cubic feet

bbl/d

barrels per day

Mcf/d

thousand cubic feet per day

$/bbl

dollar per barrel

$/Mcf

dollar per thousand cubic feet

boe

barrel of oil equivalent

NGL

natural gas liquids

boe/d

barrel of oil equivalent per day

IFRS

International Financial Reporting Standards

$/boe

dollar per barrel of oil equivalent

WTI

West Texas Intermediate Oil price

WCS

Western Canada Select Oil Price

 

 

 

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.