Vancouver, British Columbia – Hemisphere Energy Corporation (TSXV: HME) (OTCQB: HMENF) (“Hemisphere” or the “Company”) is pleased to announce highlights from its independent reserves evaluation (the “Reserve Report”), prepared by McDaniel & Associates Consultants Ltd. (“McDaniel”) and effective as at December 31, 2020.
During 2020 Hemisphere incurred capital expenditures of $1.7 million and maintained average production year-over-year at approximately 1,700 boe/d (99% heavy crude oil). The Company’s main focus in 2020 was to reduce debt and position itself for growth in 2021. Hemisphere successfully lowered its year-end net debt by 23% to approximately $24.5 million, invested in preliminary work required to implement a polymer flood at its Atlee Buffalo property, and expanded its existing water flood with the conversion of three oil producing wells to water injectors. With this water flood optimization, corporate production has increased to approximately 1,815 boe/d (99% heavy oil, based on field estimates between Feb 16th – Mar 9th, 2021).
McDaniel recognized significant reserve additions in both the Proved and Proved plus Probable categories for Hemisphere’s polymer flood implementation at the Atlee Buffalo Upper Mannville G pool. Management anticipates polymer injection start-up into the pool by the third quarter of 2021, and intends to move forward polymer flood development plans at its Atlee Buffalo Upper Mannville F pool this year.
Consistent with the 2019 year-end evaluation, McDaniel’s Reserve Report incorporates full corporate abandonment, decommissioning, and reclamation costs (“ADR”) in the Proved Developed Producing (“PDP”) category. ADR is estimated by management to be $8 million unescalated ($1.9 million NPV10, with costs escalated at 2%/yr), including all ADR associated with both active and inactive wells, pipelines, and facilities regardless of whether such wells, pipelines, and facilities had any attributed reserves.
2020 Reserve Highlights
Proved (“1P”) Reserves
- NPV10 BT of $170 million.
- Increased reserve volumes by 18% to 11.7 Mboe (99.8% heavy crude oil).
- Replaced 384% of estimated 2020 production through organic development.
- Achieved a two-year average F&D Cost of $2.32/boe (including changes in FDC) for a recycle ratio of 11.6.
- NAV of $1.39 per fully diluted share, including internal valuation of undeveloped land and seismic, corporate ADR, estimated net debt as at year-end, and proceeds of option and warrant exercises.
- RLI of 19 years based on estimated 2020 production.
Proved plus Probable (“2P”) Reserves
- NPV10 BT of $211 million.
- Increased reserve volumes by 22% to 14.9 Mboe (99.8% heavy crude oil).
- Replaced 538% of estimated 2020 production through organic development.
- Achieved a two-year average F&D cost of $0.67/boe (including changes in FDC) for a recycle ratio of 40.3.
- NAV of $1.78 per fully diluted share, including internal valuation of undeveloped land and seismic, corporate ADR, estimated net debt as at year-end, and proceeds of option and warrant exercises.
- RLI of 24 years based on estimated 2020 production.
McDaniel’s independent evaluation was based on the average of the published price forecasts for McDaniel, GLJ Petroleum Consultants Ltd., and Sproule Associates Ltd. (the “Consultant Average Price Forecast”) at January 1, 2021, with the following table detailing pricing and foreign exchange rate assumptions. Hemisphere’s corporate production typically averages a discount of approximately $4.50 to WCS pricing. When compared to last year’s Consultant Average Price Forecast dated January 1, 2020, the current WCS pricing outlook is down approximately 28% in 2021, and 22% over the next 15 year period. This has led to significant reductions in net present values of future net revenues across the industry when compared to those from last year.
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The reserves data set forth below is based upon an independent reserves evaluation prepared by McDaniel dated March 5, 2021 with an effective date of December 31, 2020, and is in accordance with definitions, standards, and procedures contained within COGEH and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Additional reserve information as required under NI 51-101 will be included in Hemisphere’s Annual Information Form which will be filed on SEDAR on or before April 30, 2021. Due to rounding, certain totals in the columns may not add in the following tables. All dollar values are in Canadian dollars, unless otherwise noted.
Summary of Reserves(1)
|Total Proved plus Probable||14,886.5||205.2||14,920.7|
(1) Reserves are presented as “gross reserves” which are the Company’s working interest reserves before royalty deductions and without including any royalty interests.
Summary of Net Present Value of Future Net Revenue, Before Tax(1)(2)
(M$, except per share amount)
|Discounted at (% per Year)|
|Total Proved plus Probable||418,587.9||287,586.3||211,288.2|
|Per basic share(3)|
|Proved plus Probable||$4.82||$3.31||$2.43|
(2) Based on the average of the published price forecasts for McDaniel, GLJ Petroleum Consultants Ltd., and Sproule Associates Ltd. at January 1, 2021, as outlined in the table herein entitled “Pricing Assumptions”.
(3) The net present value of future net revenue does not represent the fair market value of Hemisphere’s reserves.
(4) Based on there being 86,782,302 issued and outstanding shares of the Company as of December 31, 2020.
Future Development Costs
The following summarizes the development costs deducted in the estimation of the net present value of the future net revenue attributable to 1P and 2P reserves.
|Proved plus Probable
|Total Discounted at 10%||30,023||32,647|
2020 Finding and Development Costs and Recycle Ratios(1)(2)
|2020||2020 and 2019
|Proved||Proved plus Probable||Proved||Proved plus Probable|
|Exploration and development capital (M$)(4)(5)||1,028||1,028||11,395||11,395|
|Total change in FDC (M$)||5,619||4,374||877||-7,693|
|Total F&D capital, including change in FDC (M$)||6,647||5,402||12,272||3,702|
|Reserve additions, including revisions (Mboe)||2,390||3,348||5,298||5,535|
|F&D costs, including FDC ($/boe)||2.78||1.61||2.32||0.67|
(1) All financial information included in this news release is per Hemisphere’s preliminary unaudited financial statements for the year ended December 31, 2020 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, 2020 and the review and approval of same with the Company’s audit committee and board of directors.
(2) See “Oil and Gas Advisories” and “Oil and Gas Metrics”.
(3) F&D costs are calculated as the sum of development capital plus the change in future development capital for the period divided by the change in reserves that are characterized as development for the period. Finding and development costs take into account reserves revisions during the year on a per boe basis and estimated 2020 production of 1,706 boe/d.
(4) The aggregate of the exploration and development costs incurred in the financial year and change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year.
(5) The capital expenditures also exclude capitalized administration costs.
(6) Recycle ratio is calculated as operating netback divided by F&D costs. Operating netback is calculated as the operating field netback plus the Company’s realized commodity hedging gain (loss) per barrel of oil equivalent. Operating field netback is calculated as the Company’s oil and gas sales, less royalties, operating expenses and transportation costs per barrel of oil equivalent. The Company‘s estimated operating netback in 2020 was $23.22/boe (unaudited) and the combined two-year average for 2020 and 2019 was $26.96/boe (unaudited).
Reserve Life Index
|As at December 31|
|Proved Developed Producing||6.9||8.1|
|Proved plus Probable||24.0||20.1|
(1) Calculated as the applicable reserves volume divided by Hemisphere’s average 2020 production of 1,706 boe/d.
(2) Calculated as the applicable reserves volume divided by Hemisphere’s average 2019 production of 1,665 boe/d.
Net Asset Value(1)
|As at December 31|
|(MM$ except share amounts)||Proved||Proved plus Probable||Proved||Proved plus Probable|
|Undeveloped Land & Seismic||1.1(3)||1.1(4)|
|Proceeds from Warrants and Stock Options||5.6||5.6|
|ADR not included in Reserve Report (NPV10 BT)(2)||–||–|
|Million Shares Outstanding (basic)||86.8||88.9|
|Million Shares Outstanding (fully diluted)||109.0||110.8|
|NAV per share (basic)||$1.69||$2.17||$1.88||$2.29|
|NAV per share (fully diluted)||$1.39||$1.78||$1.56||$1.89|
(1) Based on the Consultant Average Price Forecasts used in the McDaniel Reserve Report of the respective years.
(2) 100% of corporate ADR has been included in the McDaniel Reserve Reports of the respective years. Total corporate ADR accounted for in the 2020 reserve report amounts to $2.3 million NPV10 BT in each of the Proved and Proved plus Probable categories, respectively. Total corporate ADR accounted for in the 2019 reserve report amounts to $2.3 million and $2.2 million NPV10 BT in each of the Proved and Proved plus Probable categories, respectively.
(3) Based on an internal evaluation by management of Hemisphere as of December 31, 2020 with an average value of $50 per acre for 11,037 undeveloped net acres, and $0.55 million for seismic.
(4) Based on an internal evaluation by management of Hemisphere as of December 31, 2019 with an average value of $50 per acre for 11,197 undeveloped net acres, and $0.55 million for seismic.
(5) All financial information as at December 31, 2020 is per Hemisphere’s preliminary unaudited financial statements for the year ended December 31, 2020 which has 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, 2020 and the review and approval of same with the Company’s audit committee and board of directors.
About Hemisphere Energy Corporation
Hemisphere is a Canadian oil company focused on sustainable growth of its high netback, low decline conventional heavy oil assets through water and polymer flood enhanced recovery methods. Hemisphere trades on the TSX Venture Exchange as a Tier 1 issuer under the symbol “HME” and on the OTCQB Venture Marketplace under the symbol “HMENF”.