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, 2022.
In 2022, Hemisphere invested $18.4 million to drill 13 wells, implement a polymer-surfactant flood in the Upper Mannville F oil pool (“F pool“), upgrade facilities in Atlee Buffalo, purchase land and seismic, and pre-purchase some of the materials for its 2023 drilling program. With Hemisphere’s capital additions, corporate production increased by approximately 55% year-over-year, from 1,820 boe/d in 2021 to 2,827 boe/d in 2022. Production has since grown further to just over 3,200 boe/d (99% heavy oil, based on field estimates between Jan 13th – Feb 13th 2023) with two additional wells that were placed on production in mid-January.
Over the year, Hemisphere also reduced its year-end net debt1 by 93% to $1.2 million, distributed nearly $8 million in dividends, and purchased 2.3 million shares under its normal course issuer bid (“NCIB“) for a total price of $3.4 million (at an average price of $1.47/share).
Hemisphere’s continued success in the development of its enhanced oil recovery projects was recognized by McDaniel in the Reserve Report. In the Proved Developed Producing (“PDP“) category, Hemisphere replaced 188% of 2022 production and increased reserve value by 16% to $228 million NPV10 BT ($2.23 per basic share). Hemisphere also grew Proved (“1P“) reserve value to $309 million NPV10 BT ($3.03 per basic share) and Proved plus Probable (“2P“) reserve value to $395 million NPV10 BT ($3.88 per basic share).
Consistent with the 2021 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 comparative value per barrel than companies with additional ADR liabilities that must be deducted from their base valuations. Management estimates that total undiscounted and uninflated existing ADR is $8.1 million ($2.4 million NPV10 BT, with costs inflated at 2.3% in 2024 and 2%/yr thereafter), which 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. Based on public information, Hemisphere stands out among its industry peers as being within the top 8% of Alberta oil and gas operators for its industry-leading liability management ratio (“LMR“) of 17, resulting in Hemisphere having less than 1% of its PDP net present value impaired by ADR.
Hemisphere’s low decline, long life, and high value reserves are a sign of the tremendous resource the Company has been developing over the past number of years. These valuable assets are the backbone of Hemisphere and are expected to generate significant free cash flow as they continue to grow with planned additional development and optimization of enhanced oil recovery techniques.
2022 Reserve Highlights
Proved Developed Producing (“PDP”) Reserves
- NPV10 BT of $228 million, an increase of 16% over year-end 2021 and equivalent to $2.23 per basic share.
- Replaced 188% of 2022 production through organic development.
- Increased reserve volumes year-over-year by 13% to 8.2 MMboe (99.7% heavy crude oil).
- Achieved an F&D cost of $7.81/boe (including changes in FDC) for a recycle ratio of 7.3.
- RLI of 7.9 years based on 2022 production.
Proved (“1P”) Reserves
- NPV10 BT of $309 million, an increase of 12% over year-end 2021 and equivalent to $3.03 per basic share.
- Replaced 121% of 2022 production through organic development.
- Increased reserve volumes year-over-year by 2% to 12.2 MMboe (99.3% heavy crude oil).
- Achieved an F&D cost of $11.59/boe (including changes in FDC) for a recycle ratio of 4.9.
- RLI of 12 years based on 2022 production.
- NAV of $2.92 per fully diluted share based on Reserve Report pricing assumptions.
- NAV of $3.00 and $3.96 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 $395 million, an increase of 12% over year-end 2021 and equivalent to $3.88 per basic share.
- Replaced 131% of 2022 production through organic development.
- Increased reserve volumes year-over-year by 2% to 16.0 MMboe (99.3% heavy crude oil).
- Achieved an F&D cost of $12.52/boe (including changes in FDC) for a recycle ratio of 4.5.
- RLI of 16 years based on 2022 production.
- NAV of $3.72 per fully diluted share based on Reserve Report pricing assumptions.
- NAV of $3.80 and $4.98 per fully diluted share based on Reserve Report run internally at McDaniel’s pricing sensitivities of $80 and $100 WTI flat pricing.
2022 Independent Qualified Reserve Evaluation
The reserves data set forth below is based upon an independent reserves evaluation prepared by McDaniel dated February 15, 2023 with an effective date of December 31, 2022, 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, 2023. 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 “3-Consultant Average Price Forecast”) at January 1, 2023, with the following table detailing pricing and foreign exchange rate assumptions. Hemisphere’s corporate production historically averages a discount of approximately $4.50 to WCS pricing. When compared to last year’s 3-Consultant Average Price Forecast dated January 1, 2022, the current WCS pricing outlook is up approximately 11% in 2022, and 17% thereafter over the next 15-year period, contributing to higher net present values being reported across the board in this year’s Reserve Report. The 2023 3-Consultant Average Price Forecast uses a 5-year 2023-27 WTI price of US$78.51/bbl and WCS price of Cdn$78.76/bbl.
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Summary of Reserves(1)
|Total Proved plus Probable||15,928||644||16,035|
(1) Reserves are presented as “gross reserves” which are the Company’s working interest reserves before royalty deductions and without including any royalty interests.
Summary of Net Present Value of Future Net Revenue, Before Tax (“NPV BT”) (1)(2)
(M$, except per share amount)
|Discounted at (% per Year)|
|Total Proved plus Probable||628,362||489,095||395,348|
|Per basic share(3)|
|Proved Developed Producing||3.18||2.63||2.23|
|Proved plus Probable||6.16||4.80||3.88|
(1) Based on the average of the published price forecasts for McDaniel, GLJ Petroleum Consultants Ltd., and Sproule Associates Ltd. at January 1, 2023, as outlined in the table herein entitled “Pricing Assumptions”.
(2) It should not be assumed that the estimates of net present value of future net revenues presented in this table represent the fair market value of Hemisphere’s reserves.
(3) Based on there being 101,978,939 issued and outstanding shares of the Company as of December 31, 2022.
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$)|
|Total Discounted at 10%||38,264||42,092|
Finding and Development (“F&D”) Costs and Recycle Ratios(1)(2)
|Exploration and development capital (M$)(3)(4)||17,174||17,174||17,174|
|Total changes in FDC (M$)||-1,999||-2,678||-206|
|Total F&D Capital, including changes in FDC (M$)||15,175||14,496||16,968|
|Reserve additions, including revisions (Mboe)||1,942||1,251||1,355|
|F&D costs(5), including changes in FDC ($/boe)||7.81||11.59||12.52|
(1) All financial information included in this news release is per Hemisphere’s preliminary unaudited financial statements for the year ended December 31, 2022, 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, 2022, 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) Exploration and development capital excludes capitalized administration costs.
(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) F&D costs are calculated as the sum of exploration and development capital plus the change in future development capital (FDC) for the period divided by the change in reserves for the period. Finding and development costs take into account reserves revisions during the year on a per boe basis, and 2022 production of 2,827 boe/d.
(6) Recycle ratio is calculated as Operating field netback divided by F&D costs. Operating field 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 field netback in 2022 was $56.66/boe (unaudited).
Reserve Life Index (“RLI”)
|As of December 31, 2022(1)|
(1) Calculated as the applicable reserves volume divided by Hemisphere’s average 2022 production of 2,827 boe/d.
Net Asset Value (“NAV”)(1)
|As at December 31, 2022|
|(MM$ except share amounts)||Consultant Average
|$80 WTI||$100 WTI|
|1P NPV10 BT(2)||309||318||422|
|2P NPV10 BT(2)||395||404||532|
|Undeveloped Land and Seismic(3)||2|
|Proceeds from Stock Options||6|
|Million Shares Outstanding (fully diluted)||108|
|1P NAV per share (fully diluted)||$2.92||$3.00||$3.96|
|2P NAV per share (fully diluted)||$3.72||$3.80||$4.98|
(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 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 3-Consultant Average Price Forecast 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$19.96 and US$24.16 WCS differentials respectively, and 1.33 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 2022 reserve report, including that for future development, amounts to $3.0 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, 2022, with an average value of $50 per acre for 22,439 undeveloped net acres, and $0.55 million for seismic.
(4) Net debt 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”. All financial information as at December 31, 2022 is per Hemisphere’s preliminary unaudited financial statements for the year ended December 31, 2022, 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, 2022, and the review and approval of same with the Company’s audit committee and board of directors.