Hemisphere Energy Announces 2021 First Quarter Financial and Operating Results

Vancouver, British Columbia, May 19, 2021 – Hemisphere Energy Corporation ("Hemisphere" or the "Company") is pleased to provide its financial and operating results for the first quarter ended March 31, 2021.

The first quarter of 2021 yielded excellent results for Hemisphere. Production averaged 9% higher than the fourth quarter, as wells started to respond to injector conversions done late in 2020. Production has since climbed even further, averaging over 1,800 boe/d to date in the second quarter (99% heavy crude oil and 1% conventional natural gas), based on field estimates between April 1st to May 16th, 2021 and including an April turnaround and some downtime during facilities and pipeline work.

The Company invested $1.1 million in capital expenditures during the first three months of the year, which included facility upgrades to allow for polymer injection start-up at the Atlee Buffalo G pool by the end of June. With strong oil pricing through the quarter, Hemisphere generated adjusted funds flow from operations (AFF) of $4 million ($27.15/boe), and attained nearly $3 million in free cash flow which was utilized to pay down debt. This brings Hemisphere’s current ratio of net debt to annualized AFF to 1.3. Management anticipates that with an AFF of $27.15/boe, Hemisphere’s bottom line during the first quarter is amongst the highest of all its peers.

Highlights

  • Recorded a 9% increase in production over the previous quarter, at 1,654 boe/d (99% heavy crude oil and 1% conventional natural gas).
  • Generated revenue of $7.9 million, a 59% increase from the first quarter of 2020.
  • Achieved low operating and transportation costs of $10.51/boe.
  • Attained $5.3 million ($0.06/basic share) in operating netback, or $35.59/boe, which includes $0.67/boe in hedging losses.
  • Realized $4 million ($0.05/basic share) in adjusted funds flow from operations, or $27.15/boe.
  • Lowered net debt by 36% when compared to the first quarter of 2020, to $21.1 million.
  • Lowered Net Debt to AFF by 66% from the first quarter of 2020, to 1.3.

Outlook

With continued strength in oil prices this year, Hemisphere plans to implement the Atlee Buffalo G pool polymer flood conversion, complete a late summer 3-well drilling program, move forward the F pool polymer conversion project for 2022 implementation, and continue to reduce debt and lower financing costs. The Company believes that substantial untapped value still exists in further developing its exceptional quality, low decline, and high free cash flow assets.

Selected financial and operational highlights should be read in conjunction with Hemisphere’s audited annual financial statements and related Management’s Discussion and Analysis for the year ended December 31, 2020. These reports, including the Company’s Annual Information Form for the year ended December 31, 2020, are available on SEDAR at www.sedar.com and on Hemisphere’s website at www.hemisphereenergy.ca. All amounts are expressed in Canadian dollars unless otherwise noted.

Financial and Operating Summary          

 

 

 

 

Three Months Ended March 31

  2021 2020

FINANCIAL

 

 

 

 

Petroleum and natural gas revenue

$

7,889,016

$

4,963,201

Operating field netback(1)

 

5,397,952

 

2,690,809

Operating netback(2)

 

5,297,855

 

3,524,639

Cash flow provided by operating activities

 

3,202,500

 

3,357,363

Adjusted funds flow from operations (AFF) (3)

 

4,041,562

 

2,154,594

   Per share, basic(3)

 

0.05

 

0.02

   Per share, diluted(3)

 

0.04

 

0.02

Net income

 

1,767,336

 

1,210,299

   Per share, basic and         diluted

 

0.02

 

0.01

Capital expenditures

 

1,081,584

 

434,787

Net debt(4)

 

21,096,033

 

33,196,190

Net debt to annualized AFF(3)(4)

 

1.3

 

3.9

Gross term loan(5)

$

24,174,150

$

35,855,550

Average daily production

 

 

 

 

   Heavy oil (bbl/d)

 

1,638

 

1,941

   Natural gas (Mcf/d)

 

     92

 

192

   Combined (boe/d)

 

1,654

 

1,973

   Oil weighting

 

99%

 

98%

Average sales prices

 

 

 

 

   Heavy oil ($/bbl)

$

53.34

$

27.90

   Natural gas ($/Mcf)

 

2.85

 

1.97

   Combined ($/boe)

$

53.00

$

27.64

Operating netback ($/boe)

 

 

 

 

   Petroleum and natural gas revenue

$

53.00

$

27.64

   Royalties

 

(6.23)

 

(2.65)

   Operating costs

 

(8.20)

 

(7.36)

   Transportation costs

 

(2.31)

 

(2.64)

   Operating field netback(1)

 

36.26

 

14.99

   Realized commodity hedging gain (loss)

 

(0.67)

 

4.64

   Operating netback(2)

$

35.59

$

19.63


Adjusted funds flow from operations(3) ($/boe)

$

27.15

$

12.00

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. Adjusted funds flow from operations (AFF), is a non-IFRS measure that represents cash generated by operating activities, before changes in non-cash working capital and adjusted for any decommissioning expenditures, 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, excluding fair value of financial instruments, lease and warrant liabilities, plus gross term loan.
  5. Gross term loan is calculated as the total USD draws, less any payments, on the term loan translated to Canadian Dollars at the period end exchange rate.

About Hemisphere Energy Corporation

Hemisphere is a Canadian oil company focused on sustainable growth of its high netback, low decline conventional heavy oil assets through water and 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 updated corporate presentation or contact:

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

Website: www.hemisphereenergy.ca

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 anticipation that the Company's bottom line during the first quarter is amongst the highest of all its peers; the Company’s plans to implement the Atlee Buffalo G pool polymer flood conversion, complete a late summer 3-well drilling program, move forward the F pool polymer conversion project for 2022 implementation, and continue to reduce debt and lower financing costs; and the Company’s belief that substantial untapped value still exists in further developing its exceptional quality, low decline, and high free cash flow assets.

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: Hemisphere's peer group and the information available in respect thereof; the length of time that oil and gas operations will be impaired by the outbreak of Covid-19; the current and go-forward oil price environment; that Hemisphere will continue to conduct its operations in a manner consistent with past operations; that 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 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 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

This news 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) adjusted funds flow from operations; (ii) net debt; and (iii) operating netback\. 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 adjusted 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, 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. Adjusted 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 netback adjusts operating field netback afor 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, 2020 and the interim period ended March 31, 2021, which are available under the Company’s SEDAR profile at www.sedar.com

Oil and Gas Advisories

Any references in this news release to recent production rates (including as a result of recent waterflood activities) which may be considered to be initial rates and are useful in confirming the presence of hydrocarbons; however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter and are not necessarily indicative of long-term performance or ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Such rates are based on field estimates and may be based on limited data available at this time.

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.  

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

 

 

boe/d

barrel of oil equivalent per day

NPV10 BT

Net Present Value discounted at 10%, before tax

$/boe

dollar per barrel of oil equivalent

IFRS

International Financial Reporting Standards

WCS

US$

Western Canadian Select

United States Dollar

G&A

General and Administrative Costs

 

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.