Vancouver, British Columbia – Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) (“Hemisphere” or the “Company”) is pleased to provide an update on its renewed credit facility, operations, revised annual guidance, and return to shareholder plan.
Credit Facility
Hemisphere has completed the renewal of its extendible two year committed term facility with ATB Financial, providing for borrowings of up to $35,000,000 (the “Credit Facility”). As was announced with the latest quarterly financials, the Company exited the first quarter with a net debt1 of just $8.7 million, and net debt to adjusted funds flow (AFF)1 of 0.2. This marks a significant milestone for Hemisphere and allows the Company flexibility to move forward with additional return of capital to shareholders through a variable dividend, which complements the current Normal Course Issuer Bid (NCIB) program. Even with enhanced shareholder return, Hemisphere anticipates being debt free by the fourth quarter, based on the updated guidance described below.
1 See “Non-IFRS and Other Financial Measures”.
Operations and Guidance Update
Hemisphere is pleased to announce an increase to its 2022 capital program and resulting annual guidance due to exceptionally strong commodity pricing and excellent production results in the field year-to-date. The Company is now planning to drill up to eight wells in 2022, including three that will be re-drilled from current wellbores in order to use existing equipment, minimize costs, and lower abandonment liabilities. Hemisphere recently spudded the first well of this drilling program and anticipates production to start coming onstream from the wells through July.
With continued success at Hemisphere’s Atlee Buffalo G pool polymer project, the Company has also accelerated its polymer injection project at the Atlee Buffalo F pool into the summer of 2022. Preparations are already underway in the field to expand treating facilities and tie-in polymer injection equipment. While production response is expected to be slower than in the G pool, management is highly encouraged by reservoir simulation predictions and analogue performance in the area and expects to see production gains through 2023 from the project. Hemisphere views this as a strategic investment that will add long-term value to shareholders.
Hemisphere’s updated guidance set out below includes an increase in capital spending of $7 million for the year. In addition to drilling four new wells and accelerating the F pool polymer project into 2022, the Company is investing in new technologies, continuing an exploration program, improving injection, upgrading facilities and power, increasing net abandonment expenditures, and allocating capital to account for overall inflation of costs through the remainder of the year. These additional investments are anticipated to increase average production to 3,000 boe/d for the year and boost Hemisphere’s estimated exit production rate to 3,300 boe/d. Run at the following pricing parameters for the remainder of the year, the Company expects to achieve record cash flows in 2022 at this updated production guidance.
2022 Corporate Guidance(1) | Previous 2022 Guidance | Revised 2022 Guidance | |
Pricing (WTI / WCS differential) | US$ | 75 / 12.50 | 100 / 17 |
CAD / US Fx | x | 1.25 | 1.26 |
Average Annual Production | boe/d | 2,600 | 3,000 |
Exit Production | boe/d | 3,000 | 3,300 |
Adjusted Funds Flow (AFF)(2) | $ million | 37 | 52 |
AFF per Basic Share(2) | $/share | 0.39(3) | 0.53(4) |
Capital Expenditures(2) | $ million | 9 | 16 |
Free Funds Flow(2) | $ million | 28 | 36 |
Year-end Net Working Capital(2) (pre-dividends) |
$ million | 11 | 19 |
Notes:
(1) See additional assumptions listed under “2022 Corporate Guidance Assumptions”.
(2) See “Non-IFRS and Other Financial Measures”.
(3) Using a 2022 weighted average of 94.9 million basic shares issued and outstanding, which assumed the exercise of 10.3 million remaining warrants, on a “cash-less” exercise basis, at $1.40/share, and the exercise of 3.9 million stock options expiring in September 2022.
(4) Using a 2022 weighted average of 97.8 million basic shares issued and outstanding, which includes the actual exercise of 8.3 million warrants in April and 1.2 million stock options up to the end of May, as well as assuming the June exercise of all 3.0 million remaining stock options set to expire in September 2022.
2022 Revised Corporate Guidance with Pricing Sensitivities(1) |
$85 | $100 | $115 | |
Adjusted Funds Flow (AFF)(2) | $ million | 50 | 52 | 54 |
AFF per Basic Share(2,3) | $/share | 0.50 | 0.53 | 0.55 |
Free Funds Flow(2) | $ million | 33 | 36 | 38 |
Year-end Net Working Capital(2) (pre-dividends) |
$ million | 16 | 19 | 20 |
Notes:
(1) See additional assumptions listed under “2022 Corporate Guidance Assumptions”.
(2) See “Non-IFRS and Other Financial Measures”.
(3) Using a 2022 weighted average of 97.8 million basic shares issued and outstanding, which includes the actual exercise of 8.3 million warrants in April and 1.2 million stock options up to the end of May, as well as assuming the June exercise of all 3.0 million remaining stock options set to expire in September 2022.
Commencement of Quarterly Variable Dividend
The Board of Directors has approved a variable dividend policy targeting approximately 30% of Hemisphere’s annual free funds flow2 to be paid quarterly. Accordingly, the first ever quarterly cash dividend paid to Hemisphere shareholders will be $0.025/share on June 30, 2022, to shareholders of record as of the close of business on June 15, 2022. The dividend is designated as an “eligible dividend” for income tax purposes. Using the mid-point of guidance, this would return an annualized 6% dividend yield to shareholders on Hemisphere’s current market capitalization of approximately $180 million3.
Further quarterly payments of this variable dividend will be subject to board approval, and be conditional on continued production performance, commodity price environment, and compliance with the terms of the Company’s credit facility. The remaining 70% of free funds flow may be used for additional spending on Hemisphere’s Normal Course Issuer Bid (NCIB) and/or other special dividends, in addition to possible strategic acquisitions and accelerated investments in the Company’s long-term development program.
2 See “Non-IFRS and Other Financial Measures”.
3 Using 101.4 million current outstanding shares and June 6, 2022 share price of $1.77/share.
Annual General and Special Meeting
Hemisphere Energy Corporation’s Annual General and Special Meeting of Shareholders will be held at 9:00 am (Vancouver Time) June 9, 2022 in the Walker Room at the Terminal City Club. The address is 837 West Hastings St, Vancouver, British Columbia.