During 2018, Hemisphere achieved record operational success with significant reserve, production, and revenue growth. The Company executed a $16.1 million capital expenditure program to drill 14 wells and expand both its Atlee Buffalo facilities. This development activity led to a 55% increase in reserves year over year in the Proved (1P) category, created substantial growth in corporate production, and has set the Company up for a considerable capital program in 2019.
2018 Highlights
- Achieved annual average production rate of 1,111 boe/d (96% oil), a 69% increase over 2017.
- Realized fourth quarter average rate of 1,378 boe/d (95% oil).
- Generated $17.8 million in annual revenue, a 62% increase from the previous year.
- Increased operating netback by 31% to $6.4 million.
- Reduced operating and transportation costs by 21% over 2017 to $13.85 per boe.
- Generated $2.0 million of funds flow from operations.
- Increased Proved plus Probable (2P) net present value before tax of future net revenue (discounted at 10%) by 71% to $197.9 million.
- Increased 2P reserve volumes by 48% to 10.6 MMboe (98% oil).
- Increased 2P net asset value by 63% to $1.83 per basic share.
Hemisphere remains financially flexible for continued growth in 2019 with its planned expenditures of approximately $15 million being funded by cashflow and additional debt within the currently approved limit of its term loan. During the fourth quarter of 2018, in response to historically wide Canadian crude oil differentials experienced in November and December 2018, the Company announced that it had proactively entered into an agreement with its lender to temporarily waive the application of and compliance of certain covenants for the fiscal quarter ended December 31, 2018. This included 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.
Hemisphere is committed to the goal of strengthening its balance sheet while further growing production, reserves, and free cash flow to generate greater shareholder value in the coming year. The Hemisphere team looks forward to a busy year ahead in response to its tremendous technical success proving up asset value through 2018.
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, 2018. These reports, including the Company’s Annual Information Form for the year ended December 31, 2018, 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 December 31 |
Year Ended December 31 |
|||||||
2018 |
2017 |
2018 |
2017 |
|||||
FINANCIAL |
||||||||
Petroleum and natural gas revenue |
$ |
2,886,840 |
$ |
3,528,565 |
$ |
17,756,439 |
$ |
10,974,634 |
Operating netback(1) |
651,962 |
1,650,446 |
6,415,532 |
4,913,240 |
||||
Cash flow provided by operating activities |
231,079 |
166,400 |
2,230,071 |
1,915,248 |
||||
Funds flow from operations(2) |
(725,431) |
714,801 |
2,012,847 |
2,476,049 |
||||
Per share, basic and diluted |
(0.01) |
0.01 |
0.02 |
0.03 |
||||
Net loss |
25,334 |
(3,308,520) |
(4,853,569) |
(3,796,175) |
||||
Per share, basic and diluted |
0.00 |
(0.04) |
(0.05) |
(0.04) |
||||
Capital expenditures |
1,469,284 |
4,663,442 |
16,057,316 |
8,689,240 |
||||
Net debt(3) |
35,446,384 |
18,558,361 |
35,446,384 |
18,558,361 |
||||
Term loan |
$ |
35,458,800 |
$ |
18,868,500 |
$ |
35,458,800 |
$ |
18,868,500 |
Operating |
||||||||
Average daily production |
||||||||
Oil (bbl/d) |
1,313 |
725 |
1,062 |
612 |
||||
Natural gas (Mcf/d) |
377 |
259 |
287 |
270 |
||||
NGL (bbl/d) |
2 |
2 |
2 |
2 |
||||
Combined (boe/d) |
1,378 |
770 |
1,111 |
659 |
||||
Oil and NGL weighting |
95% |
94% |
96% |
93% |
||||
Average sales prices |
||||||||
Oil ($/bbl) |
$ |
23.20 |
52.02 |
45.26 |
47.94 |
|||
Natural gas ($/Mcf) |
2.19 |
2.05 |
1.76 |
2.33 |
||||
NGL ($/bbl) |
47.65 |
53.01 |
54.75 |
47.69 |
||||
Combined ($/boe) |
$ |
22.78 |
$ |
49.80 |
$ |
43.78 |
$ |
45.62 |
Operating netback ($/boe) |
||||||||
Petroleum and natural gas revenue |
$ |
22.78 |
$ |
49.80 |
$ |
43.78 |
$ |
45.62 |
Royalties |
3.03 |
7.61 |
7.60 |
7.56 |
||||
Operating costs |
8.91 |
13.10 |
11.15 |
14.66 |
||||
Transportation costs |
2.76 |
3.02 |
2.70 |
2.90 |
||||
Operating field netback(4) |
8.07 |
26.07 |
22.34 |
20.50 |
||||
Realized commodity hedging loss |
2.93 |
2.78 |
6.52 |
0.08 |
||||
Operating netback(1) |
$ |
5.14 |
$ |
23.29 |
$ |
15.82 |
$ |
20.42 |
Notes: |
|
(1) |
Operating netback is a non-IFRS measure calculated as the operating field netback plus the Company’s realized commodity hedging gain (loss) per barrel of oil |
(2) |
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 |
(3) |
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 |
(4) |
Operating field netback per boe is a non-IFRS measure calculated as the Company’s oil and gas sales, less royalties, operating expenses and transportation costs per |
As at December 31 |
||
2018 |
2017 |
|
Share Information |
||
Common shares outstanding |
89,793,302 |
89,793,302 |
Stock options outstanding |
8,419,000 |
8,169,000 |
Warrants outstanding |
13,750,000 |
13,750,000 |
Fully diluted shares outstanding |
111,962,302 |
111,712,302 |
Weighted-average shares outstanding – basic and diluted |
89,793,302 |
88,495,660 |
Outlook
The first quarter of 2019 has seen continued improvements in WTI price with consistent WCS differentials. The Company is planning an extensive drilling program through the summer of 2019 aimed specifically at increasing production and cash flow, while proving up significant additional unbooked reserves.
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 has the oil weighted assets to develop, the team to deliver results, and the access to capital required to move projects forward while providing top tier economics. Hemisphere trades on the TSX Venture Exchange as a Tier 1 issuer under the symbol “HME”.