Q1 2020 Highlights
- Achieved revenue of $5.0 million.
- Realized an operating netback of $3.5 million.
- Attained quarterly adjusted funds flow from operations of $2.2 million.
- Increased quarterly production by 43% to 1,973 boe/d (99% heavy crude oil and 1% conventional natural gas), as compared to the first quarter of 2019.
- Reduced operating and transportation expenses to $10.00/boe, a 17% decrease from the first quarter of 2019.
- Increased corporate Liability Management Ratio (LMR) with the Alberta Energy Regulator to 11.54 as of the end of the first quarter of 2020.
During the first quarter of 2020, the world began to respond to the COVID-19 pandemic with economic lockdowns and severe travel restrictions. In March 2020, oil prices collapsed due to a price war between Russia and Saudi Arabia. The combined effect of these two events has brought oil prices to levels never seen before, including into negative territory.
Hemisphere responded to these market challenges by layering in additional hedges at the start of April that allowed the Company to continue to produce at approximately 85% of its capacity through the second quarter, while avoiding potential reservoir and equipment damage that could have arisen from temporary shut-ins during winter operating conditions.
As countries attempt to reopen their economies, demand for oil is returning and pricing is slowly recovering back to economic levels for producers. Significant volatility remains in the pricing of both the WTI benchmark and WCS differential as demand, supply, storage, government policies, and behaviours change in unpredicted ways.
Given the commodity outlook and in order to maintain operational flexibility, Hemisphere proactively entered an agreement with its lender in April 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.
The Company will continue to produce at slightly restricted rates and limited operating costs until it feels that stability has returned to the markets as the world moves through the required phases of economic recovery. With low operating costs and efficient operations both in the field and office, Hemisphere is expected to be ready to restart its shut-in production and begin further optimization work when conditions allow.
Annual General and Special Meeting of Shareholders
Hemisphere’s Annual General and Special Meeting of Shareholders is being held in the offices of Harper Grey LLP, 3200 – 650 West Georgia Street, Vancouver, British Columbia on Wednesday, June 17, 2020 at 9:00 a.m. (Pacific Daylight Time).
Financial and Operating Summary
|Three Months Ended March 31|
|Natural gas (Mcf/d)||192||287|
|Oil and NGL weighting||98%||97%|
|Average sales prices|
|Natural gas ($/Mcf)||1.97||7.14|
|Operating netback ($/boe)|
|Petroleum and natural gas revenue||$||27.64||$||51.85|
|Operating field netback(1)||14.98||34.45|
|Realized commodity hedging gain (loss)||4.64||(3.56||)|
|Petroleum and natural gas revenue||$||4,963,201||$||6,435,252|
|Operating field netback(1)||2,690,807||4,274,261|
|Cash flow provided by operating activities||3,367,261||626,659|
|Adjusted funds flow from operations(3)||2,164,492||2,634,984|
|Per share, basic and diluted||0.02||0.03|
|Net income (loss)||2,152,995||(889,224||)|
|Per share, basic and diluted||0.02||(0.01||)|
|Gross term Loan(5)||$||35,855,550||$||34,707,400|
|(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 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 including gross term loan and excluding fair value of financial instruments and any flow-through share premium.|
|(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.|
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”.
For further information, visit our website at www.hemisphereenergy.ca to see our corporate presentation or contact: