Vancouver, British Columbia – Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) (“Hemisphere” or the “Company”) is pleased to provide its financial and operating results for the fourth quarter and year ended December 31, 2021.
- Increased annual production to record levels of 1,820 boe/d, and exited 2021 with a December production average of 2,400 boe/d.
- Attained record annual revenue of $43.1 million, a 131% increase over 2020.
- Realized record annual adjusted funds flow from operations (AFF) of $18.5 million, a 99% increase over 2020.
- Executed a successful $12 million capital expenditure program with seven new wells, facility expansion, and polymer skid installation.
- Achieved operating and transportation costs of $12.43/boe.
- Increased Proved Developed Producing (PDP) NPV10 BT reserve value to $197 million and volumes to 7.3 MMboe (99.8% heavy crude oil).
- Increased Proved (1P) NPV10 BT reserve value to $276 million and volumes to 12.0 MMboe (99.8% heavy crude oil).
- Increased Proved plus Probable (2P) NPV10 BT reserve value to $351 million and volumes to 14.9 MMboe (99.8% heavy oil).
- Repaid 5-year term loan with a new reserve based credit facility with a Canadian bank.
- Commenced polymer injection at the Upper Manville G pool in Atlee Buffalo.
Message to Shareholders
Over the past year Hemisphere has achieved several corporate milestones, both operationally and financially. With higher oil pricing through 2021, we realized record accomplishments in multiple categories including revenue of over $43 million, adjusted funds flow from operations of $18.5 million, and annual production of 1,820 boe/d.
Our ability to maneuver quickly allowed us to capture a window of drilling rig availability before costs increased appreciably into 2022. In November, we accelerated part of our 2022 program and drilled four additional wells, bringing total wells drilled in 2021 to seven. Despite these four wells not being on production until January, Hemisphere exited the year with December average production at new record levels of 2,400 boe/d.
In March 2022, Hemisphere’s average production climbed to new highs of 2,900 boe/d. Our production increases are in large part attributable to success with our enhanced oil recovery projects in the Atlee Buffalo pools. In July of 2021 Hemisphere implemented an exciting new project with the conversion of our Upper Mannville G pool from waterflood to polymer flood. This project is anticipated to increase both oil production rates and overall oil recovery from the pool. Response has already begun with water cuts decreasing and oil rates increasing at many of our wells. Today we are producing over 80% more from the pool than we were before polymer injection, including the impact of drilling three new wells into the pool in late summer of 2021. Meanwhile, we are already busy moving forward our second polymer conversion project in Atlee Buffalo.
Over the past few years, Hemisphere has worked hard to unlock substantial reserve value from our assets and grow production meaningfully, while still reducing debt considerably. Last summer we repaid our 5-year term loan with a US lender over a year ahead of schedule and returned to a reserve based credit facility with our Canadian bank, which has increased our financial flexibility and lowered our interest costs.
Combined with continued strong oil pricing from supportive supply and demand fundamentals, Hemisphere’s robust balance sheet, long life assets, low decline wells, and high value reserve base have put Hemisphere in a position to continue to sustainably grow production, accelerate projects, participate in strategic acquisitions, and increase return of capital to shareholders. We anticipate our capital programs to be funded within cash flow, our current debt to be minimal within a few months, and our free cash flow generation to be significant over the coming years.
Financial and Operating Summary
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, 2021. These reports, including the Company’s Annual Information Form for the year ended December 31, 2021, 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.
|Three Months Ended December 31||Year Ended December 31|
|Petroleum and natural gas revenue||$||14,731,395||$||5,354,596||43,139,314||$||18,660,257|
|Operating field netback(1)||9,244,645||2,931,464||27,050,197||10,745,098|
|Cash flow provided by operating activities||4,954,474||2,127,640||18,371,611||9,389,702|
|Adjusted funds flow from operations (AFF)(1)||6,168,179||2,380,051||18,487,970||9,294,933|
|Per share, basic(1)||0.07||0.03||0.21||0.11|
|Per share, diluted(1)||0.06||0.03||0.18||0.11|
|Net income (loss)||5,435,297||(1,501,079||)||5,917,722||(415,908||)|
|Per share, basic||0.06||(0.02||)||0.07||(0.00||)|
|Per share, diluted||0.06||(0.02||)||0.06||(0.00||)|
|Net debt to annualized AFF(1)||1.0||2.6|
|Gross Term loan(2)||–||$||26,096,500|
|Average daily production|
|Heavy oil (bbl/d)||2,144||1,507||1,799||1,692|
|Natural gas (Mcf/d)||120||88||123||88|
|Average sales prices|
|Heavy oil ($/bbl)||$||74.43||38.47||65.46||30.03|
|Natural gas ($/Mcf)||4.48||2.51||3.42||2.14|
|Operating netback ($/boe)|
|Petroleum and natural gas revenue||$||73.99||38.24||64.95||29.88|
|Operating field netback(1)||46.43||20.94||40.72||17.21|
|Realized commodity hedging gain (loss)||(8.19||)||4.49||(5.22||)||5.95|
|Adjusted funds flow from operations(1) ($/boe)||$||30.98||17.00||27.84||14.88|
(1) Non-IFRS and other financial measure. Refer to “Non-IFRS and Other Financial Measures” section below.
(2) 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|
|Proved plus Probable (Mboe) (1)||15,711.6||14,921.2|
|Common shares outstanding||91,289,653||86,782,302|
|Stock options outstanding||7,424,000||8,429,000|
|Fully diluted shares outstanding||109,026,153||108,961,302|
|Weighted-average shares outstanding – basic||88,551,287||88,161,583|
|Weighted-average shares outstanding – diluted||92,391,126||88,161,583|
(1) Reserves as attributed by the Company’s independent reserves evaluator, McDaniel & Associates Consultants Ltd., in its report dated March 8, 2022 and effective as of December 31, 2021, prepared in accordance with the COGE Handbook and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.