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”.