Vancouver, British Columbia – Hemisphere Energy Corporation (TSXV: HME) (OTCQX: 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, 2021.
In 2021, Hemisphere invested $12 million in its Atlee Buffalo core area, including drilling seven wells, implementing a polymer flood in the Upper Mannville G oil pool (“G pool”), and upgrading facilities to accommodate additional oil production. With Hemisphere’s capital expenditures, corporate production grew by approximately 80% during the year, from 1,340 boe/d in January 2021 to an exit rate of 2,400 boe/d in December 2021. Production has since increased even further to approximately 2,700 boe/d in February 2022 with continued success at Hemisphere’s enhanced oil recovery projects. Meanwhile Hemisphere allocated its remaining funds flow to debt repayment, resulting in a 27% reduction in year-end net debt1 to $17.9 million.
Hemisphere’s successful drilling program and implementation of the G pool polymer flood was recognized by McDaniel in the Reserve Report, resulting in considerable increases to reserves and reserve values in all categories. Hemisphere’s most significant increases came in the Proved Developed Producing (“PDP”) category, where the Company achieved an increase in reserve value of 144% to $197 million NPV10 BT, and a 70% increase in reserves when compared to year-end 2020. These outstanding results provide exceptional industry metrics including a 2-year average F&D cost (including changes in FDC) of $4.26/boe, robust recycle ratio of 6.9, and reserve replacement of 553% of 2021 production in the PDP category.
Consistent with the 2020 year-end evaluation, McDaniel’s Reserve Report incorporates full corporate abandonment, decommissioning, and reclamation costs (“ADR”) in the PDP category. Hemisphere has always been cautious of acquiring additional wellbore and facility liabilities. A direct result of this strategy is that Hemisphere’s reserves retain more value per barrel than other companies who must deduct higher ADR from their base valuations to account for their existing liabilities. Current ADR is estimated by management to be $8 million unescalated ($1.9 million NPV10, with costs escalated at 2%/yr), and includes all ADR associated with both active and inactive wells, pipelines, and facilities regardless of whether such wells, pipelines, and facilities had any attributed reserves. Hemisphere stands out among its industry peers as being within the top 7% of Alberta oil and gas operators for its industry-leading 11+ liability management ratio (“LMR”), resulting in Hemisphere having less than 1% of its PDP asset value impaired by ADR.
Hemisphere’s low decline, long life, and high value reserves are an indication of the tremendous resources the Company has been developing over the past number of years. These valuable assets are the backbone of Hemisphere and are expected to generate notable free funds flow as they continue to mature and respond to optimization and development of enhanced oil recovery techniques.
2021 Reserve Highlights
Proved Developed Producing (“PDP”) Reserves
- NPV10 BT of $197 million, an increase of 144% over year-end 2020.
- Increased reserve volumes by 70% to 7.3 MMboe (99.8% heavy crude oil).
- Replaced 553% of 2021 production through organic development.
- Achieved a two-year average F&D cost of $4.26/boe (including changes in FDC) for a recycle ratio of 6.9.
- RLI of 11 years based on 2021 production.
Proved (“1P”) Reserves
- NPV10 BT of $276 million, an increase of 63% over year-end 2020.
- Increased reserve volumes by 2% to 12.0 MMboe (99.9% heavy crude oil).
- Replaced 141% of 2021 production through organic development.
- Achieved a two-year average F&D cost of $6.69/boe (including changes in FDC) for a recycle ratio of 4.4.
- RLI of 18 years based on 2021 production.
- NAV of $2.43 per fully diluted share based on Reserve Report pricing assumptions.
- NAV of $2.90 and $3.68 per fully diluted share based on Reserve Report run internally at McDaniel’s pricing sensitivities of $80 and $100 WTI flat pricing.
Proved plus Probable (“2P”) Reserves
- NPV10 BT of $351 million, an increase of 66% over year-end 2020.
- Increased reserve volumes by 5% to 15.7 MMboe (99.9% heavy crude oil).
- Replaced 219% of 2021 production through organic development.
- Achieved a two-year average F&D cost of $5.04/boe (including changes in FDC) for a recycle ratio of 5.9.
- RLI of 24 years based on 2021 production.
- NAV of $3.13 per fully diluted share based on Reserve Report pricing assumptions.
- NAV of $3.78 and $4.76 per fully diluted share based on Reserve Report run internally at McDaniel’s pricing sensitivities of $80 and $100 WTI flat pricing.
2021 Independent Qualified Reserve Evaluation
The reserves data set forth below is based upon an independent reserves evaluation prepared by McDaniel dated March 8, 2022 with an effective date of December 31, 2021, 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, 2022. 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.
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, 2022, with the following table detailing pricing and foreign exchange rate assumptions. Hemisphere’s corporate production typically averages a discount of approximately $4.00 to WCS pricing. When compared to last year’s Consultant Average Price Forecast dated January 1, 2021, the current WCS pricing outlook is up approximately 55% in 2022, 33% in 2023, and 23% thereafter over the next 15-year period, contributing to higher net present values being reported across the board in this year’s Reserve Report. Even still, the 2022 Consultant Average Price Forecast uses a 5-year 2022-26 WTI price of US$69.18/bbl and WCS price of Cdn$69.45/bbl, which are significantly lower than actual 2022 market pricing to date and forward strip pricing.
|Consultant Average Price Forecast January 1, 2021||Consultant Average Price Forecast January 1, 2022|
Summary of Reserves(1)
|Total Proved plus Probable||15,691.9||117.9||15,711.6|
(1) Reserves are presented as “gross reserves” which are the Company’s working interest reserves before royalty deductions and without including any royalty interests.
Summary of Net Present Value of Future Net Revenue, Before Tax (“NPV BT”) (1)(2)
(M$, except per share amount)
|Discounted at (% per Year)|
|Total Proved plus Probable||580,366.4||441,664.0||351,450.3|
|Per basic share(3)|
|Proved plus Probable||$||6.36||$||4.84||$||3.85|
(1) Based on the average of the published price forecasts for McDaniel, GLJ Petroleum Consultants Ltd., and Sproule Associates Ltd. at January 1, 2022, as outlined in the table herein entitled “Pricing Assumptions”.
(2) The net present value of future net revenue does not represent the fair market value of Hemisphere’s reserves.
(3) Based on there being 91,289,653 issued and outstanding shares of the Company as of December 31, 2021.
Future Development Costs (“FDC”)
The following summarizes the development costs deducted in the estimation of the net present value of the future net revenue attributable to 1P and 2P reserves.
|Forecast Costs (M$)|
|Total Discounted at 10%||39,924||42,017|
Finding and Development (“F&D”) Costs and Recycle Ratios(1)(2)
|2021||2021 and 2020
|Reserve additions, including revisions (Mboe)||3,670||941||1,443||3,623||3,331||4,791|
|Development capital (M$)(4)(5)||11,169||11,169||11,169||12,225||12,225||12,225|
|Total changes in FDC (M$)||3,541||8,966||8,511||3,222||10,043||11,969|
|Total F&D Capital, including changes in FDC (M$)||14,710||20,135||19,681||15,448||22,268||24,195|
|F&D costs(3), including changes in FDC ($/boe)||4.01||21.50||13.53||4.26||6.69||5.04|
(1) All financial information included in this news release is per Hemisphere’s preliminary unaudited financial statements for the year ended December 31, 2021, 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, 2021, 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 exploration and 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, 2021 production of 1,816 boe/d, and 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 a non-IFRS measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the section “Non-IFRS and Other Specified Financial Measures”. The Company‘s estimated Operating netback in 2021 was $35.51/boe (unaudited) and the combined two-year average for 2021 and 2020 was $29.57/boe (unaudited).
Reserve Life Index (“RLI”)
|As at December 31|
(1) Calculated as the applicable reserves volume divided by Hemisphere’s average 2021 production of 1,816 boe/d.
(2) Calculated as the applicable reserves volume divided by Hemisphere’s average 2020 production of 1,706 boe/d.
Net Asset Value (“NAV”)(1)
|(MM$ except share amounts)||As at December 31, 2021|
|$80 WTI||$100 WTI|
|1P NPV10 BT(2)||276||327||423|
|2P NPV10 BT(2)||352||412||529|
|Undeveloped Land and Seismic(3)||1.4|
|Proceeds from Warrants and Stock Options||5.7|
|Million Shares Outstanding (fully diluted)||109|
|1P NAV per share (fully diluted)||$2.43||$2.90||$3.78|
|2P NAV per share (fully diluted)||$3.13||$3.68||$4.76|
(1) Calculated using the respective net present values of 1P and 2P reserves, before tax and discounted at 10%, plus internally valued undeveloped land & seismic and proceeds from warrants and stock options, less net debt(4), and divided by fully diluted outstanding shares. Net present values are shown at various price forecasts including the Consultant Average Price Forecasts used in the McDaniel Reserve Report, as well as sensitivities run internally at McDaniel’s flat WTI price forecasts of US$80 and US$100 WTI paired with US$16.54 and US$19.84 WCS differentials respectively, and 0.8 USD/CAD FX.
(2) 100% of existing and future corporate ADR has been included in the McDaniel Reserve Report. Total corporate ADR accounted for in the 2021 reserve report amounts to $2.5 million and $2.4 million NPV10 BT in each of the 1P and 2P categories, respectively.
(3) Based on an internal evaluation by management of Hemisphere as of December 31, 2021, with an average value of $50 per acre for 17,289 undeveloped net acres, and $0.55 million for seismic.
(4) Net debt is a non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the section “Non-GAAP and Other Specified Financial Measures”. All financial information as at December 31, 2021 is per Hemisphere’s preliminary unaudited financial statements for the year ended December 31, 2021, which has not yet been approved by the Company’s audit committee or board of directors and therefore represents management’s estimates. Readers are advised that these financial estimates may be subject to changes as a result of the completion of the independent audit on Hemisphere’s financial statements for the year ended December 31, 2021, and the review and approval of same with the Company’s audit committee and board of directors.
About Hemisphere Energy Corporation
Hemisphere is a Canadian oil company focused on sustainable growth of its high netback, low decline conventional heavy oil assets through water and polymer flood enhanced recovery methods. Hemisphere trades on the TSX Venture Exchange as a Tier 1 issuer under the symbol “HME” and on the OTCQB Venture Marketplace under the symbol “HMENF”.
For further information, please visit the Company’s website at www.hemisphereenergy.ca to view its corporate presentation or contact:
Don Simmons, President & Chief Executive Officer
Telephone: (604) 685-9255
Definitions and Abbreviations
|bbl||barrel||$US||United States dollar|
|Mbbl||thousands of barrels||$Cdn||Canadian dollar|
|MMbbl||millions of barrels||M$||thousand dollars|
|boe||barrel of oil equivalent||MM||million|
|boe/d||barrel of oil equivalent per day||NPV BT||Net Present Value of future net revenue, before tax|
|Mboe||thousands of barrels of oil equivalent||NPV10 BT||NPV BT, discounted at 10%|
|MMboe||millions of barrels of oil equivalent||FX||Foreign Exchange|
|MMcf||million cubic feet||FDC||Future Development Costs|
|MMbtu||million British Thermal Unit||F&D Cost||Finding and Development Costs|
|AECO||Alberta Energy Company||NAV||Net Asset Value|
|WCS||Western Canadian Select||RLI||Reserve Life Index|
|WTI||West Texas Intermediate|