Vancouver, British Columbia – Hemisphere Energy Corporation (TSXV: HME) (OTCQX: HMENF) (“Hemisphere” or the “Company”) is pleased to announce an update on its operations and provide corporate guidance for 2023.
Over the past year Hemisphere has achieved a number of significant corporate milestones, including the elimination of bank debt, initiation of a quarterly dividend, start-up of a tertiary enhanced oil recovery scheme, and new record production levels. These financial and operational accomplishments in 2022 have set the Company on firm footing for continued growth and success in 2023.
Last year, Hemisphere’s annual production increased by 55% over that of 2021 to a record 2,825 boe/d (99% Heavy Oil). This was below guidance by 6% due to a number of factors that included unplanned facility outages in August and October, and extreme weather-related production downtime in December. Production was also lost from two producers that were shut-in for injector conversion during the latter half of the year.
Since the start of the new year Hemisphere’s production has averaged approximately 3,200 boe/d (99% Heavy Oil, based on field estimates between Jan 1st – Jan 22nd). This number includes one week of production from two new Atlee F pool wells that Hemisphere drilled in December. Initial production from the new wells is encouraging and will continue to be optimized over the coming weeks. During the year it is expected that one of these wells will be converted to an injector for the pool.
In the field, Hemisphere is currently commissioning a new treater at its Atlee F pool which is anticipated to increase production capacity and limit downtime as new wells are drilled and put on production this year. At the Atlee G pool, the Company has just recently started up polymer injection into the second of its 2022 injector conversions. This injector is considered key to pressure maintenance in the northwestern area of the pool and is expected to increase pressure and production at the offsetting wells.
2023 Corporate Guidance
Hemisphere’s Board of Directors has approved a 2023 capital expenditure2 program of $14 million, which is planned to be entirely funded by Hemisphere’s estimated 2023 Adjusted Funds Flow2 (AFF) of $45 million, and is expected to grow annual production by 17%. The majority of capital will be allocated to 9 drilling locations and additional facility upgrades at the Company’s Atlee F and G oil batteries. Hemisphere will also tie-in a single well battery that was used to test production capability from one of its fall drilling locations, which stepped out into a reservoir extension to the southwest of its Atlee F pool.
After capital expenditures, free funds flow2 is budgeted to be $31 million, of which approximately 30% is planned to be paid in quarterly dividends as shown in the table below. The balance of cash will be used for discretionary purposes, which may include potential acceleration of other development or exploration projects, acquisitions, and additional return of capital to shareholders through Hemisphere’s Normal Course Issuer Bid (NCIB) program and/or special dividends.
Highlights and assumptions of Hemisphere’s guidance are as follows:
- Annual average production of 3,300 boe/d (99% heavy crude oil), a 17% increase over 2022
- WTI average price of US$85/bbl WTI, with sensitivities shown at US$70/bbl and US$100/bbl
- WCS differential of US$20.00/bbl and quality adjustment of $5.50/bbl
- CAD/US FX of 1.35
- Operating and transportation costs of $15.00/boe
- Royalties and GORRs of 20% of gross revenue
- Net G&A of $3.40/boe and Interest & other fees of $0.40/boe
|2023 Corporate Guidance(1)||$70 WTI||$85 WTI||$100 WTI|
|Adjusted Funds Flow (AFF)(2)||$ million||33||45||56|
|AFF per Basic Share(2,3)||$/share||0.32||0.44||0.55|
|Capital & ARO Expenditures(2)||$ million||14||14||14|
|Free Funds Flow(2)||$ million||19||31||42|
|Working Capital – exit||$ million||9||21||32|
(1) See assumptions noted above within “2023 Corporate Guidance”.
(2) Adjusted Funds flow, Capital Expenditures, and Free Funds Flow are non-IFRS financial measures that are forward looking and do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. AFF per basic share is a non-IFRS financial ratio that is forward looking and does not have any standardized meaning under IFRS and therefore may not be comparable to similar ratios presented by other entities and includes a non-IFRS financial measure component of adjusted funds flow. See “Non-IFRS Measures“.
(3) Using a 2023 weighted average of 102 million basic shares issued and outstanding.
(4) The amounts above do not include potential future purchases through the Company’s NCIB program.
Return of Capital
Hemisphere is committed to protecting its existing return of capital program, while ensuring long-term sustainable growth from its low-risk, low-cost, and high free funds flow2 yielding asset base. The Company’s dividend policy was instated in June 2022 and targets a payout of approximately 30% of annual free funds flow2 to shareholders through quarterly variable dividends. Additional funds may be allocated to strategic share buybacks and special dividends.