Vancouver, British Columbia – Hemisphere Energy Corporation (TSXV: HME) (“Hemisphere” or the “Company”) is pleased to provide a corporate update and announce its financial and operating results for the fourth quarter and year ended December 31, 2019.
Corporate Update and Outlook
In recent months, COVID-19 has had an unprecedented impact on the global economy as countries have locked down their citizens in an attempt to stop the spread of the virus. This instantaneous loss in demand for oil and its byproducts, coupled with an oil price war between Saudi Arabia and Russia, has resulted in historic lows in the price of oil. Although there is uncertainty around the duration and severity of the impact of these events, Hemisphere has taken numerous steps to protect its balance sheet, assets, staff, contractors, and community.
Hemisphere has completed a detailed review of its operating costs in all producing areas and has shut-in approximately 180 boe/d (93% heavy crude oil and 7% conventional natural gas) of uneconomic production, representing just under 10% of corporate first quarter production of approximately 1970 boe/d (99% heavy crude oil and 1% conventional natural gas). The Company continues to monitor oil prices and will act to shut-in further volumes if required. In the first quarter of 2020, the Company incurred approximately $400,000 in capital expenditures, but has since deferred all other non-essential capital spending until the oil price environment improves. Hemisphere has the ability to quickly restart production from its shut-in wells when oil prices and demand outlook improve.
Hemisphere also has an extensive risk management program with hedges in place until June 30, 2021, and the current mark-to-market value of these hedges is approximately $8.9 million (as of market close April 22, 2020). In early April, Hemisphere opted to protect its assets by adding significant hedge volumes through the second quarter of 2020. This has allowed the Company greater flexibility in decisions to avoid shutting in certain production and risking damage to its reservoirs and wellbores, while mitigating the downside scenario of a possible negative oil price environment, which has since been experienced for the first time in history. These hedges included a 750 bbl/d WTI swap at $23.80 and a 750 bbl/d WCS differential at $17.55. A full list of the Company’s current hedge book is tabled below:
|Crude oil||Swap||425 bbl/d||US$55.85||WTI-NYMEX||April 1, 2020 – June 30, 2020|
|Crude oil||Swap||750 bbl/d||US$23.80||WTI-NYMEX||April 1, 2020 – June 30, 2020|
|Crude oil||Swap||100 bbl/d||US$16.95||WCS||April 1, 2020 – June 30, 2020|
|Crude oil||Swap||100 bbl/d||US$15.25||WCS||April 1, 2020 – June 30, 2020|
|Crude oil||Swap||100 bbl/d||US$14.35||WCS||April 1, 2020 – June 30, 2020|
|Crude oil||Swap||750 bbl/d||US$17.55||WCS||May 1, 2020 – June 30, 2020|
|Crude oil||Swap||200 bbl/d||US$50.67||WTI-NYMEX||January 1, 2020 – August 31, 2020|
|Crude oil||Swap||425 bbl/d||US$55.85||WTI-NYMEX||July 1, 2020 – September 30, 2020|
|Crude oil||Swap||100 bbl/d||US$15.30||WCS||July 1, 2020 – September 30, 2020|
|Crude oil||Collar||120 bbl/d||US$40.00-US$68.25||WTI-NYMEX||January 1, 2020 – December 31, 2020|
|Crude oil||Collar||200 bbl/d||US$40.00-US$67.05||WTI-NYMEX||September 1, 2020 – December 31, 2020|
|Crude oil||Swap||425 bbl/d||US$54.85||WTI-NYMEX||October 1, 2020 – December 30, 2020|
|Crude oil||Collar||275 bbl/d||US$40.00-US$65.50||WTI-NYMEX||January 1, 2021 – March 31, 2021|
|Crude oil||Collar||350 bbl/d||US$40.00(put)/US$48.60(put)/US$60(call)||WTI-NYMEX||January 1, 2021 – March 31, 2021|
|Crude oil||3-Way Collar||625 bbl/d||US$40.00(put)/US$48.00(put)/US$60(call)||WTI-NYMEX||April 1, 2021 – June 30, 2021|
Hemisphere has a supportive relationship with its lender, Cibolo Energy Partners, which is based in Houston, Texas and is focused exclusively on alternative financing in small to mid-sized upstream energy companies. In response to the current oil commodity outlook, Hemisphere 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), two reserve-based covenants (being the PDP coverage ratio and total proved reserve coverage ratio covenants), and its production covenant that are included in the credit agreement with the lender, in each case for the fiscal quarter ending June 30, 2020.
In response to the COVID-19 pandemic, Hemisphere has also taken various steps to mitigate the spread of the virus including having office staff work remotely and field operation staff follow government advice for social distancing. The Company’s priority is to protect the health and safety of staff and their families while working to ensure reliable supply of an essential resource to market. Hemisphere will continue to monitor the situation and follow all health authority guidance as it evolves moving forward.
Over the past number of years Hemisphere has organically grown its production and reserve value significantly from its low decline, long life oil assets in southern Alberta. With low operating costs and efficient operations both in the field and office, Hemisphere is positioned to weather the current oil price environment until global oil demand returns with the easing of COVID-19 related lockdowns, and will be ready to quickly restart operations and development as soon as conditions allow.
2019 Financial and Operating Results
In 2019, Hemisphere achieved record operational success with significant reserve, production, and revenue growth. The Company executed a $10.9 million capital expenditure program to drill 11 development oil wells. This development activity led to tremendous technical success resulting in a 50% production increase year over year, substantial reserve and valuation growth, and the Company becoming big enough to weather the current market volatility.
- Achieved annual average production rate of 1,665 boe/d (97% heavy crude oil and 3% conventional natural gas), a 50% increase over 2018.
- Realized fourth quarter average production rate of 2,166 boe/d (97% heavy crude oil and 3% conventional natural gas).
- Generated record annual revenue of $31.5 million, a 77% increase over 2018.
- Increased operating netback year over year by 192% to $18.7 million.
- Generated $13.1 million of funds flow from operations, an increase of 550% from 2018.
- Reduced operating and transportation costs by 11% over 2018 to $12.36 per boe.
- Increased Proved Developed Producing (PDP) net present value of future net revenue, discounted at 10%, before tax (NPV10 BT) by 69% to $115.7 million, and reserve volumes by 50% to 4.9 MMboe (98% heavy crude oil and 2% conventional natural gas).
- Increased Proved (1P) NPV10 BT by 39% to $198.2 million and reserve volumes by 30% to 9.9 MMboe (98% heavy crude oil and 2% conventional natural gas).
- Increased Proved plus Probable (2P) NVP10 BT by 18% to $234.5 million and reserve volumes by 15% to 12.2 MMboe (98% heavy crude oil and 2% conventional natural gas).
Selected financial and operational highlights should be read in conjunction with Hemisphere’s audited annual financial statements and related Management’s Discussion and Analysis for the year ended December 31, 2019. These reports, including the Company’s Annual Information Form for the year ended December 31, 2019, are available on SEDAR at www.sedar.com and on Hemisphere’s website at www.hemisphereenergy.ca. All amounts are expressed in Canadian dollars unless otherwise noted.
Financial and Operating Summary
|Three Months Ended December 31||Year Ended December 31|
|Petroleum and natural gas revenue||$||9,472,078||$||2,886,840||$||31,511,084||$||17,756,439|
|Cash flow provided by operating activities||3,530,061||231,079||10,496,875||2,230,071|
|Adjusted funds flow from operations(2)||4,334,995||(725,431||)||13,088,551||2,012,847|
|Per share, basic and diluted||0.05||(0.01||)||0.14||0.02|
|Net income (loss)||(2,542,542||)||25,334||2,234,430||(4,853,569||)|
|Per share, basic and diluted||(0.03||)||0.00||0.02||(0.05||)|
|Gross Term loan(5)||$||34,418,200||$||35,458,800||$||34,418,200||$||35,458,800|
|Average daily production|
|Natural gas (Mcf/d)||381||377||342||287|
|Oil and NGL weighting||97%||95%||97%||96%|
|Average sales prices|
|Natural gas ($/Mcf)||2.21||2.19||1.87||1.76|
|Operating netback ($/boe)|
|Petroleum and natural gas revenue||$||47.53||$||22.78||$||51.85||$||43.78|
|Operating field netback(4)||31.53||8.07||33.11||22.34|
|Realized commodity hedging loss||0.83||2.93||2.31||6.52|
(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 equivalent. Operating netback per boe is a non-IFRS measure calculated as the operating field netback plus the Company’s realized commodity hedging gain (loss) per barrel of oil equivalent.
(2) Adjusted funds flow from operations 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.
(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 instruments and lease liabilities.
(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 barrel of oil equivalent.
(5) Gross term loan is calculated as the total USD draws on the term loan translated to Canadian Dollars at the period end exchange rate.
|As at December 31|
|Common shares outstanding||88,902,302||89,793,302|
|Stock options outstanding||8,184,000||8,419,000|
|Fully diluted shares outstanding||110,836,302||111,962,302|
|Weighted-average shares outstanding – basic||89,662,316||89,793,302|
|Weighted-average shares outstanding – fully diluted||90,362,590||89,793,302|
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. At this time, the Company plans to limit capital spending and pay down debt where possible. Once markets allow, the Company will return to its plans of 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”.