Vancouver, British Columbia – Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) (“Hemisphere” or the “Company”) is pleased to provide an operations update and its financial and operating results for the third quarter ended September 30, 2021.
Third Quarter 2021 Financial and Operating Highlights
During the third quarter, Hemisphere invested just over $3.3 million in its Atlee Buffalo field operations. The majority of capital expenditures included a successful three well drilling program in the Atlee G Pool. The Company also acquired a Free Water Knockout (FWKO) vessel in anticipation of production growth at the G pool facility during the fourth quarter.
Hemisphere’s new G pool wells are the first drilled by the Company since 2019 due to severe market volatility during 2020 and early 2021. After being brought online in late October, total oil production from the new wells has averaged approximately 300 bbl/d during the first two weeks of November. With the addition of these new wells and the continued success of Hemisphere’s enhanced oil recovery projects, corporate production has increased to approximately 2,100 boe/d (99% heavy crude oil and 1% conventional natural gas), based on field estimates between November 1-15th.
Hemisphere’s third quarter also marked two very important milestones for the Company, in both its field operations and financial structure.
At the start of the third quarter, the Company announced the implementation of its first polymer flood project in the Atlee G Pool in southeast Alberta. Reservoir simulation and analogue analysis indicate both increased production rates and higher recovery factors are predicted for the oil pool.
Subsequent to that, the Company announced the replacement of its previous five-year term loan with a new $35 million extendible two-year committed term facility with ATB Financial in July. The new facility provides Hemisphere with increased financial flexibility, a significant reduction in interest costs, and lower foreign exchange risk.
Further highlights of the third quarter include:
- Generated record revenue of $10.4 million, a 77% improvement over the third quarter of 2020.
- Maintained production at 1,671 boe/d (99% heavy crude oil and 1% conventional natural gas), relatively flat compared to the third quarter of last year, despite the conversion of several oil producer wells to water injectors and minimal capital spending over the past year.
- Achieved an operating field netback before hedges of $39.25/boe for a total of $6.0 million, a 56% increase over the third quarter of 2020.
- Increased adjusted funds flow (AFF) from operations by 19% to $4.0 million, when compared to the third quarter of 2020.
- Lowered net debt to $18.2 million, a 33% reduction from the third quarter of 2020.
- Reduced net debt to AFF ratio to 1.1.
Selected financial and operational highlights should be read in conjunction with Hemisphere’s audited annual financial statements and related Management’s Discussion and Analysis for the year ended December 31, 2020. These reports, including the Company’s Annual Information Form for the year ended December 31, 2020, are available on SEDAR at www.sedar.com and on Hemisphere’s website at www.hemisphereenergy.ca. All amounts are expressed in Canadian dollars unless otherwise noted.
2021 FINANCIAL AND OPERATING HIGHLIGHTS
|Three Months Ended Sept. 30||Nine Months Ended Sept. 30|
|Petroleum and natural gas revenue||$||10,431,678||$||5,889,668||$||28,407,919||$||13,305,661|
|Operating field netback(1)||6,032,734||3,862,969||17,805,554||7,813,633|
|Cash flow provided by operating activities||5,472,918||3,087,951||13,417,137||7,262,068|
|Adjusted funds flow from operations (AFF)(3)||4,047,805||3,406,613||12,319,791||6,914,887|
|Per share, basic(3)||0.05||0.04||0.14||0.08|
|Per share, diluted(3)||0.04||0.04||0.13||0.08|
|Per share, basic||0.03||0.02||0.01||(0.00||)|
|Per share, diluted||0.02||0.01||0.01||(0.00||)|
|Net debt to annualized AFF(3)(4)||1.1||2.0||1.1||3.0|
|Gross term loan(5)||$||–||$||29,967,750||$||–||$||29,967,750|
|Average daily production|
|Heavy oil (bbl/d)||1,652||1,675||1,683||1,754|
|Natural gas (Mcf/d)||110||70||124||87|
|Average sales prices|
|Heavy oil ($/bbl)||$||68.39||$||38.14||$||61.60||$||27.59|
|Natural gas ($/Mcf)||3.47||2.13||3.07||2.01|
|Operating netback ($/boe)|
|Petroleum and natural gas revenue||$||67.87||$||37.96||$||61.08||$||27.47|
|Operating field netback(1)||39.25||24.90||38.28||16.13|
|Realized commodity hedging gain (loss)||(6.11||)||5.51||(3.94||)||6.37|
|Adjusted funds flow from operations(3) ($/boe)||$||26.33||$||21.96||$||26.49||$||14.27|
- 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.
- 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.
- 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.
- Net debt is a non-IFRS measure calculated as current assets minus current liabilities, excluding fair value of financial instruments, lease and warrant liabilities, plus bank debt or gross term loan.
- Gross term loan is calculated as the total USD draws, less any payments, on the term loan translated to Canadian Dollars at the period end exchange rate.
Strengthening the balance sheet through continually lowering debt over the past two years has been a top priority for Hemisphere, and refinancing this year with a reserve based loan from a Canadian bank was a major step forward in financial flexibility for the Company. As Hemisphere moves into 2022, it will continue to balance production and reserve growth with financial strength, with the goal of optimizing return to shareholders through continued share buybacks and/or dividends as debt levels fall.
“This is a very dynamic and exciting time for Hemisphere,” stated Don Simmons, President and CEO. “Meaningful production growth is occurring in parallel with considerable improvements in commodity prices. With growing free funds flow and declining debt ratios, the Company is in a very strong position to focus on shareholder return in the coming years.”