VANCOUVER, Feb. 14, 2017 /CNW/ – Hemisphere Energy Corporation (TSX-V: HME) (“Hemisphere” or the “Company”) is pleased to announce highlights from its independent reserves evaluation as at December 31, 2016 prepared by McDaniel & Associates Consultants Ltd. (“McDaniel”).
In 2016, Hemisphere’s estimated average corporate production rate was 526 boe/d (86% oil). Throughout the year the Company invested $2.4 million of development capital with specific focus on drilling its first producing oil well in the Atlee Buffalo G Pool and building a water handling and reinjection facility at its Atlee Buffalo F Pool. With very little capital spent in a year of depressed commodity pricing, Hemisphere achieved another year of significant reserve growth adding 823 Mboe of Proved plus Probable reserves at a finding and development cost (“F&D”) of $7.49/boe, including changes in future development costs (“FDC”). This year-over-year growth was primarily due to waterflood performance recognition in the Atlee Buffalo F & G Pools despite only having drilled one well this year.
2016 Reserve Highlights
- Increased Proved plus Probable reserves by 16% to 4,564.3 Mboe (96% oil) and net present value by 36% to $65.9 million (NPV10 BT).
- Added 823 Mboe of Proved plus Probable reserves, replacing 427% of estimated 2016 production at an F&D cost of $7.49/boe, including changes in FDC.
- Added 353 Mboe of Proved plus Probable Developed Producing reserves, increasing the net present value by 20% to $37.9 million (NPV10 BT) and replacing 183% of estimated 2016 production.
- Increased Proved reserves by 13% to 3,141.1 Mboe (96% oil) and net present value by 33% to $45.7 million (NPV10 BT).
- Added 549 Mboe of Proved reserves, replacing 285% of estimated 2016 production at an F&D cost of $8.96/boe, including changes in FDC.
- Added 268 Mboe of Proved Developed Producing reserves, increasing the net present value by 20% to $30.0 million (NPV10 BT) and replacing 139% of estimated 2016 production.
- Achieved a 2 year average F&D of $2.45/boe on a Proved plus Probable basis and $3.86/boe on a Proved basis, including changes in FDC, for recycle ratios of 6.7 and 4.2 respectively.
- Proved plus Probable reserves net present value (NPV10 BT) increased by 20% to $0.77/share on a per basic share basis.
- Hemisphere’s December 31, 2016 net asset value is internally calculated at $0.67/share on a per basic share basis.
- Proved plus Probable reserve life index is 23.7 years based on Hemisphere’s estimated 2016 average production.
Year-end 2016 Reserves
The reserves data set forth below is based upon an independent reserves evaluation prepared by McDaniel with an effective date of December 31, 2016 and is in accordance with definitions, standards, and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Additional reserve information as required under NI 51-101 will be included in Hemisphere’s Annual Information Form which will be filed on SEDAR on or before April 28, 2017. Due to rounding, certain totals in the columns may not add in the following tables.
Summary of Reserves(1)
Heavy Oil |
Natural Gas |
Total |
||
Reserves Category |
(Mbbl) |
(MMcf) |
(Mboe) |
|
Proved |
||||
Developed Producing |
1,597.8 |
657.9 |
1,707.5 |
|
Developed Non-Producing |
100.8 |
32.3 |
106.2 |
|
Undeveloped |
1,306.6 |
124.5 |
1,327.4 |
|
Total Proved |
3,005.3 |
814.8 |
3,141.1 |
|
Probable |
1,359.6 |
381.8 |
1,423.2 |
|
Total Proved Plus Probable |
4,364.8 |
1,196.6 |
4,564.3 |
Notes: |
|
(1) |
Reserves are presented as “gross reserves” which are the Company’s working interest reserves before royalty deductions. |
Summary of Net Present Value of Future Net Revenue(1)(2)
Net Present Value of Future Net Revenue, Before Tax (M$, except per share amount) |
||||
Discounted at (% per Year) |
||||
Reserves Category |
0% |
5% |
10% |
|
Proved |
||||
Developed Producing |
47,112.8 |
36,766.6 |
30,026.3 |
|
Developed Non-Producing |
1,829.0 |
1,575.2 |
1,350.5 |
|
Undeveloped |
24,632.5 |
18,736.3 |
14,304.6 |
|
Total Proved |
73,574.3 |
57,078.1 |
45,681.4 |
|
Probable |
46,968.4 |
29,399.0 |
20,221.0 |
|
Total Proved Plus Probable |
120,542.7 |
86,477.1 |
65,902.4 |
|
Per basic share(3) |
$1.41 |
$1.01 |
$0.77 |
Notes: |
|
(1) |
Based on McDaniel December 31, 2016 forecast prices. |
(2) |
The net present value of future net revenue does not represent the fair market value of Hemisphere’s reserves. |
(3) |
Based on there being 85,745,102 issued and outstanding shares as of December 31, 2016. |
Future Development Costs (“FDC”)
The following summarizes the development costs deducted in the estimation of the net present value of the future net revenue attributable to Proved reserves and Proved plus Probable reserves (using forecast prices and costs only).
Forecast Prices and Costs |
||
Year |
Proved Reserves (M$) |
Proved plus |
2017 |
12,755.0 |
14,555.0 |
2018 |
5,573.8 |
5,573.8 |
2019 |
795.6 |
1,920.8 |
Total Undiscounted |
19,124.4 |
22,049.6 |
Total Discounted at 10% |
17,636 |
20,228 |
2016 Finding and Development Costs and Recycle Ratios(1)
2016 |
2015 and 2016 2-Year Average |
|||
Proved |
Proved Plus |
Proved |
Proved Plus |
|
F&D Costs |
||||
Exploration and development capital (M$)(2)(3) |
2,378.2 |
2,378.2 |
5,150.6 |
5,150.6 |
Total change in FDC (M$) |
2,534.4 |
3,785.6 |
293.4 |
-1,033.4 |
Total F&D capital, including change in FDC (M$) |
4,912.6 |
6,163.8 |
5,444.0 |
4,117.2 |
Reserve additions, including revisions (Mboe) |
548.5 |
822.9 |
1,408.7 |
1,680.7 |
F&D costs, including FDC ($/boe) |
8.96 |
7.49 |
3.86 |
2.45 |
Recycle Ratio(4) |
1.4 |
1.7 |
4.2 |
6.7 |
Notes: |
|
(1) |
All financial information is per Hemisphere’s preliminary unaudited financial statements for the year ended December 31, 2016 which have not yet been approved by the Company’s audit committee or board of directors and therefore represents management’s estimates. Readers are advised that these financial estimates may be subject to change as a result of the completion of the independent audit on Hemisphere’s financial statements for the year ended December 31, 2016 and the review and approval of same with the Company’s audit committee and board of directors. |
(2) |
The aggregate of the exploration and development (or exploration, development, and acquisition if applicable) costs incurred in the financial year and change during that year in estimated future development costs generally will not reflect total finding and development (or exploration, development, and acquisition if applicable) costs related to reserve additions for that year. |
(3) |
The capital expenditures also exclude capitalized administration costs. See “Oil and Gas Advisories”. |
(4) |
Recycle ratio is calculated as operating netback divided by F&D (or FD&A if applicable) costs. Operating netback is calculated as revenue minus royalties, operating expenses, and transportation expenses. The Company‘s estimated operating netback in 2016 was $12.62/boe (unaudited) and the combined two-year average for 2015 and 2016 was $16.32/boe (unaudited). |
Summary of McDaniel Pricing as of January 1, 2017
The following table is McDaniel’s forecast pricing and foreign exchange rates as at January 1, 2017 which were used in the preparation of McDaniel’s reserve evaluation. Overall, McDaniel’s forecast of WTI and WCS pricing is down approximately 7% from the January 1, 2016 outlook over the same 15 year period.
Oil |
Natural Gas |
|||||
Year |
WTI Crude Oil |
Edmonton Light |
Western Crude Oil |
Alberta AECO Spot Price |
Inflation |
US/Cdn Exchange Rate |
($US/bbl) |
($Cdn/bbl) |
($Cdn/bbl) |
($Cdn/MMBtu) |
(%) |
($US/$Cdn) |
|
2017 |
55.00 |
69.80 |
53.70 |
3.40 |
0 |
0.750 |
2018 |
58.70 |
72.70 |
58.20 |
3.15 |
2.0 |
0.775 |
2019 |
62.40 |
75.50 |
61.90 |
3.30 |
2.0 |
0.800 |
2020 |
69.00 |
81.10 |
66.50 |
3.60 |
2.0 |
0.825 |
2021 |
75.80 |
86.60 |
71.00 |
3.90 |
2.0 |
0.850 |
2022 |
77.30 |
88.30 |
72.40 |
3.95 |
2.0 |
0.850 |
2023 |
78.80 |
90.00 |
73.80 |
4.10 |
2.0 |
0.850 |
2024 |
80.40 |
91.80 |
75.30 |
4.25 |
2.0 |
0.850 |
2025 |
82.00 |
93.70 |
76.80 |
4.30 |
2.0 |
0.850 |
2026 |
83.70 |
95.60 |
78.40 |
4.40 |
2.0 |
0.850 |
2027 |
85.30 |
97.40 |
79.90 |
4.50 |
2.0 |
0.850 |
2028 |
87.00 |
99.40 |
81.50 |
4.60 |
2.0 |
0.850 |
2029 |
88.80 |
101.40 |
83.10 |
4.65 |
2.0 |
0.850 |
2030 |
90.60 |
103.50 |
84.90 |
4.75 |
2.0 |
0.850 |
2031 |
92.40 |
105.50 |
86.50 |
4.85 |
2.0 |
0.850 |
Thereafter |
Escalation Rate of 2%/year |
2.0 |
0.850 |
|||
Reserve Life Index (“RLI”)
As at December 31 |
||
2016(1) |
2015(2) |
|
Proved Developed Producing |
8.9 |
5.8 |
Proved |
16.3 |
9.8 |
Proved plus Probable |
23.7 |
13.9 |
Notes: |
|
(1) |
Based on Hemisphere’s estimated 2016 average production of 526 boe/d. |
(2) |
Based on Hemisphere’s 2015 average production of 776 boe/d. |
Net Asset Value (“NAV”)
Based on McDaniel January 1, 2017 forecast pricing, Hemisphere’s net asset value as of December 31, 2016 is estimated to be $0.67 per share, calculated as follows:
(M$ except per share amounts) |
2016 |
|
Proved plus Probable Reserves (NPV10 BT) |
65,902 |
|
Undeveloped Land & Seismic(1) |
2,850 |
|
Estimated Net Debt (unaudited)(2) |
(11,600) |
|
Shares Outstanding (basic) |
85,745 |
|
Estimated Net Asset Value per share (basic) |
$0.67 |
Notes: |
|
(1) |
Based on an internal evaluation by management of Hemisphere as of December 31, 2016 with an average value of $50 per acre for 46,000 undeveloped net acres, and $0.55 MM for seismic. |
(2) |
All financial information is per Hemisphere’s preliminary unaudited financial statements for the year ended December 31, 2016 which have not yet been approved by the Company’s audit committee or board of directors and therefore represents management’s estimates. Readers are advised that these financial estimates may be subject to changes as a result of the completion of the independent audit on Hemisphere’s financial statements for the year ended December 31, 2016 and the review and approval of same with the Company’s audit committee and board of directors. |
Corporate Outlook
Additions to Proved reserves were achieved this year due to recognition of waterflood response in both the Atlee Buffalo F and G Upper Mannville Pools, despite having drilled only one well in 2016.
- Reserves have been booked in the Atlee Buffalo F Pool at a total pool recovery factor of approximately 10% (Proved) to 12% (Proved plus Probable) of McDaniel’s mapped 28 MMbbl original oil in place. There are eight total producing wells in the pool, with none drilled in 2016.
- Reserves have been booked in the Atlee Buffalo G Pool at a total pool recovery factor of approximately 4% (Proved) to 5% (Proved plus Probable) of McDaniel’s mapped 38 MMbbl original oil in place. There is currently only one producing well in the pool, which was placed on production in mid-2016.
- Analogues to Hemisphere’s Atlee Buffalo pools include the nearby Upper Mannville N2N and YYY pools. These pools have been producing under waterflood since the late 1990’s and have already recovered 13% and 23%, respectively, of Alberta Energy mapped oil in place. Both pools are still producing and management expects that recovery factors will continue to increase with further production.
- Based on analysis of analogue performance in combination with internal reservoir simulation models, management anticipates that there is significant potential for Hemisphere to achieve greater ultimate recovery factors than those currently booked in both Atlee Buffalo pools.
- 10 Proved and 2 Probable Atlee Buffalo drilling locations have been attributed reserves as at December 31, 2016. Management believes that up to 42 additional locations exist (which are currently unbooked) across these pools in order to achieve recovery factors similar to those already seen at analogues.
In 2017, Hemisphere’s corporate strategy is to begin active development in Atlee Buffalo now that the concepts of horizontal drilling, liners to control sand production, and waterflood when applied to these pools have been demonstrated as a commercial method of development. The Company expects to see meaningful growth in production and reserves through the year with continued success during the development of its core properties.
About Hemisphere Energy Corporation
Hemisphere Energy Corporation is a producing oil and gas company focused on developing conventional oil assets with low risk drilling opportunities. 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”.