TSX-V: HME
VANCOUVER, Nov. 21, 2018 /CNW/ - Hemisphere Energy
Corporation (TSX-V: HME) ("Hemisphere" or the "Company")
announces its financial and operating results for the three and
nine months ended September 30,
2018.
Q3 2018 HIGHLIGHTS
- Achieved record quarterly average production of 1150 boe/d (96%
oil), a 69% increase over the third quarter of 2017.
- Increased revenue by 114% to a record $5.9 million, compared to $2.7 million for the third quarter of 2017.
- Generated operating field netback of $3.2 million ($0.04/share), an increase of 175% over the third
quarter of 2017.
- Generated funds flow from operations of $1.4 million ($0.02/share), an increase of 111% over the third
quarter of 2017.
- Increased operating netbacks, including losses on commodity
contracts, to $23.43/boe, an increase
of 22% over the third quarter of 2017.
- Completed successful eleven-well summer drilling program and
finished battery upgrades at the Atlee Buffalo F pool
facility.
- Achieved a Corporate Liability Management Ratio ("LMR") with
the Alberta Energy Regulator ("AER") of 7.05 at the end of the
third quarter 2018, which is within the top 12% of all licensees
evaluated.
CORPORATE UPDATE
Since securing a five year term loan in September 2017, Hemisphere has drilled 20 new
wells in the Atlee Buffalo area including 14 wells drilled in 2018.
Of these, five wells have been converted to water injectors, and
are either now injecting or have recently obtained injection
approval from the AER. Based on field estimates, production over
the first half of November was approximately 1500 boe/d (97% oil),
which is more than double the production as compared to
Hemisphere's average daily production during the third quarter of
2017.
With the price of Canadian crude oil dropping dramatically in
recent weeks, Hemisphere is heavily focused on reducing operating
costs, including those associated with optimization projects that
could increase production further. Hemisphere will instead focus in
the near-term on augmenting water injection in order to continue to
re-energize the reservoirs and minimizing costs associated with
winter weather conditions.
Hemisphere remains financially flexible with additional room to
borrow within its US$35 million term
loan limit. However, at this time management has delayed any
further capital activity until commodity prices improve.
Additionally, in response to historically wide Canadian crude oil
differentials, the Company has proactively entered into an
agreement with its lender to temporarily waive the application of
and compliance with its two financial covenants (being the interest
coverage ratio and total leverage ratio covenants) and two
reserve-based covenants (being the PDP coverage ratio and total
proved reserve coverage ratio covenants) that are included in the
credit agreement with the lender, in each case for the fiscal
quarter ending December 31, 2018.
With continued success of its waterflood projects, the Company
expects to see sustained increases in production and reserves as
water is continually swept through these reservoirs, even without
any additional capital spending at this time. Management believes
the Company has considerable growth upside through development of
its exceptional oil assets and will plan accordingly through 2019
as Canadian crude prices are projected to improve.
Q3 2018 FINANCIAL AND OPERATING HIGHLIGHTS
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
OPERATING
|
|
|
|
|
|
|
|
|
Average daily
production
|
|
|
|
|
|
|
|
|
Oil
(bbl/d)
|
|
1,106
|
|
644
|
|
977
|
|
574
|
Natural
gas (Mcf/d)
|
|
255
|
|
217
|
|
257
|
|
274
|
NGL
(bbl/d)
|
|
1
|
|
1
|
|
2
|
|
2
|
Combined
(boe/d)
|
|
1,150
|
|
681
|
|
1,021
|
|
622
|
Oil and
NGL weighting
|
|
96%
|
|
95%
|
|
96%
|
|
93%
|
Average sales
prices
|
|
|
|
|
|
|
|
|
Oil
($/bbl)
|
$
|
57.19
|
$
|
45.58
|
$
|
55.26
|
$
|
46.20
|
Natural
gas ($/Mcf)
|
|
1.31
|
|
1.48
|
|
1.55
|
|
2.42
|
NGL
($/bbl)
|
|
56.09
|
|
42.62
|
|
57.55
|
|
45.41
|
Combined
($/boe)
|
$
|
55.36
|
$
|
43.62
|
$
|
53.33
|
$
|
43.87
|
Operating netback
($/boe)
|
|
|
|
|
|
|
|
|
Petroleum and natural gas revenue
|
$
|
55.36
|
$
|
43.62
|
$
|
53.33
|
$
|
43.87
|
Royalties
|
|
11.22
|
|
9.36
|
|
9.67
|
|
7.53
|
Operating costs
|
|
11.06
|
|
12.78
|
|
12.17
|
|
15.31
|
Transportation costs
|
|
2.47
|
|
2.71
|
|
2.67
|
|
2.85
|
Operating field netback(1)
|
|
30.62
|
|
18.77
|
|
28.83
|
|
18.18
|
Realized
commodity hedging (gain) loss
|
|
7.19
|
|
0.51
|
|
8.15
|
|
1.05
|
Operating netback(2)
|
$
|
23.43
|
$
|
19.28
|
$
|
20.67
|
$
|
19.22
|
FINANCIAL
|
|
|
|
|
|
|
|
|
Petroleum and natural
gas revenue
|
$
|
5,856,762
|
$
|
2,733,656
|
$
|
14,869,598
|
$
|
7,446,068
|
Operating field
netback(1)
|
|
3,239,215
|
|
1,176,203
|
|
8,037,032
|
|
3,084,709
|
Operating
netback(2)
|
|
2,478,636
|
|
1,208,106
|
|
5,763,569
|
|
3,262,794
|
Funds flow from
operations(3)
|
|
1,387,469
|
|
657,840
|
|
2,738,280
|
|
1,761,249
|
Per
share, basic and diluted
|
|
0.02
|
|
0.01
|
|
0.03
|
|
0.02
|
Net income
(loss)
|
|
(236,344)
|
|
(142,254)
|
|
(4,878,900)
|
|
(487,655)
|
Per
share, basic and diluted
|
|
(0.00)
|
|
(0.00)
|
|
(0.05)
|
|
(0.01)
|
Capital
expenditures
|
|
9,185,092
|
|
3,107,979
|
|
14,588,033
|
|
4,025,800
|
Net
debt(4)
|
|
31,207,369
|
|
14,426,091
|
|
31,207,369
|
|
14,426,091
|
Term
Loan(5)
|
$
|
28,241,400
|
$
|
11,589,132
|
$
|
28,241,400
|
$
|
11,589,132
|
|
|
Notes:
|
|
(1)
|
Operating field
netback is a non-IFRS measure calculated as the Company's oil and
gas sales, less royalties, operating expenses and transportation
costs on an absolute and per barrel of oil equivalent
basis.
|
(2)
|
Operating netback
is a non-IFRS measure calculated as the operating field netback
plus the Company's realized commodity hedging gain (loss) on an
absolute and per barrel of oil equivalent basis.
|
(3)
|
Funds flow from
operations is a non-IFRS measure that represents cash generated by
operating activities, before changes in non-cash working capital
and may not be comparable to measures used by other
companies.
|
(4)
|
Net debt is a
non-IFRS measure calculated as current assets minus current
liabilities including term loan or bank indebtedness and excluding
fair value of financial instruments and any flow-through share
premium.
|
(5)
|
Gross term loan
amount including foreign exchange
|
About Hemisphere Energy Corporation
Hemisphere Energy Corporation is a producing oil and gas company
focused on developing low risk conventional oil assets for minimal
capital exposure through developing known pools of oil and
optimizing waterflood projects. Hemisphere plans continual growth
in production, reserves, and cash flow by drilling existing
projects and executing strategic acquisitions. Hemisphere
trades on the TSX Venture Exchange as a Tier 1 issuer under the
symbol "HME".
Forward-looking Statements
Certain statements included in this news release constitute
forward-looking statements or forward-looking information
(collectively, "forward-looking statements") within the meaning of
applicable securities legislation. Forward-looking statements are
typically identified by words such as "anticipate", "continue",
"estimate", "expect", "forecast", "may", "will", "project",
"could", "plan", "intend", "should", "believe", "outlook",
"potential", "target" and similar words suggesting future events or
future performance. In particular, but without limiting the
generality of the foregoing, this news release includes
forward-looking statements regarding Hemisphere's outlook for our
future operations, plans, and timing for the commencement or
advancement of exploration and development activities on our
properties; Hemisphere's intention to focus in the near-term on
augmenting water injection in order to continue to re-energize the
reservoirs and minimizing costs associated with winter weather
conditions; Hemisphere's expectation that the Company will see
sustained increases in production and reserves as water is
continually swept through its reservoirs with no additional capital
spending; Management's belief that the Company has considerable
growth upside through development of its exceptional assets;
Hemisphere's plans for continual growth in production, reserves,
and cash flow by drilling existing projects and executing strategic
acquisitions and other expectations, intentions, and plans that are
not historical fact. In addition, statements relating to
"reserves" are deemed to be forward-looking statements as they
involve the implied assessment, based on certain estimates and
assumptions, that the reserves described exist in the quantities
predicted or estimated and can be profitably produced in the
future
Forward‐looking statements are based on a number of
material factors, expectations, or assumptions of Hemisphere which
have been used to develop such statements and information but which
may prove to be incorrect. Although Hemisphere believes that the
expectations reflected in such forward‐looking statements or
information are reasonable, undue reliance should not be placed on
forward‐looking statements because Hemisphere can give no assurance
that such expectations will prove to be correct. In addition to
other factors and assumptions which may be identified herein,
assumptions have been made regarding, among other things: that
Hemisphere will continue to conduct its operations in a manner
consistent with past operations; results from drilling and
development activities are consistent with past operations; the
quality of the reservoirs in which Hemisphere operates and
continued performance from existing wells; the continued and timely
development of infrastructure in areas of new production; the
accuracy of the estimates of Hemisphere's reserve volumes; certain
commodity price and other cost assumptions; continued availability
of debt and equity financing and cash flow to fund Hemisphere's
current and future plans and expenditures; the impact of increasing
competition; the general stability of the economic and political
environment in which Hemisphere operates; the general continuance
of current industry conditions; the timely receipt of any required
regulatory approvals; the ability of Hemisphere to obtain qualified
staff, equipment and services in a timely and cost efficient
manner; drilling results; the ability of the operator of the
projects in which Hemisphere has an interest in to operate the
field in a safe, efficient and effective manner; the ability of
Hemisphere to obtain financing on acceptable terms; field
production rates and decline rates; the ability to replace and
expand oil and natural gas reserves through acquisition,
development and exploration; the timing and cost of pipeline,
storage and facility construction and expansion and the ability of
Hemisphere to secure adequate product transportation; future
commodity prices; currency, exchange and interest rates; regulatory
framework regarding royalties, taxes and environmental matters in
the jurisdictions in which Hemisphere operates; and the ability of
Hemisphere to successfully market its oil and natural gas
products.
The forward‐looking information and statements included in
this news release are not guarantees of future performance and
should not be unduly relied upon. Such information and statements,
including the assumptions made in respect thereof, involve known
and unknown risks, uncertainties and other factors that may cause
actual results or events to defer materially from those anticipated
in such forward‐looking information or statements including,
without limitation: changes in commodity prices; changes in the
demand for or supply of Hemisphere's products, the early stage of
development of some of the evaluated areas and zones; unanticipated
operating results or production declines; changes in tax or
environmental laws, royalty rates or other regulatory matters;
changes in development plans of Hemisphere or by third party
operators of Hemisphere's properties, increased debt levels or debt
service requirements; inaccurate estimation of Hemisphere's oil and
gas reserve volumes; limited, unfavourable or a lack of access to
capital
markets; increased costs; a lack of adequate insurance
coverage; the impact of competitors; and certain other risks
detailed from time‐to‐time in Hemisphere's public disclosure
documents, (including, without limitation, those risks identified
in this news release and in Hemisphere's Annual Information
Form).
The forward‐looking statements contained in this news release
speak only as of the date of this news release, and Hemisphere does
not assume any obligation to publicly update or revise any of the
included forward‐looking statements, whether as a result of new
information, future events or otherwise, except as may be required
by applicable securities laws.
Non-IFRS Measures
The press release contains terms that are non-IFRS measures
and commonly used in the oil and gas industry which are not defined
by or calculated in accordance with International Financial
Reporting Standards ("IFRS"), such as: (i) funds flow from
operations; (ii) net debt; and (iii) operating netback, operating
netback per boe, operating field netback and operating field
netback per boe. These terms should not be considered an
alternative to, or more meaningful than the comparable IFRS
measures (as determined in accordance with IFRS) which in the case
of funds flow from operations is cash provided by operating
activities and cash flow from operating activities and in the case
of operating field netback and operating netback are net income or
net loss. There is no IFRS measure that is reasonably
comparable to net debt. These measures are commonly used in
the oil and gas industry and by Hemisphere to provide shareholders
and potential investors with additional information regarding: (i)
in the case of funds flow from operations, the Company's ability to
generate the funds necessary to support future growth through
capital investment and to repay any debt; (ii) in the case of
operating netback, operating netback per boe, operating field
netback and operating field netback per boe the indication of the
Company's profitability relative to current commodity prices; and
(iii) in the case of net debt, the capital structure of the
Company.
Hemisphere's determination of these measures may not be
comparable to that reported by other companies. Funds flow from
operations is calculated as cash generated by operating activities,
before changes in non-cash working capital; operating field netback
is calculated as the Company's oil and gas sales, less royalties,
operating expenses, and transportation costs; operating field
netback per boe is calculated as operating field netback divided by
production for the applicable period on a per barrel of oil
equivalent basis; operating netback and operating netback per boe
adjusts operating field netback and operating field netback per
boe, respectively, for any realized gains or losses on commodity
hedges and net debt is calculated as current assets minus current
liabilities including bank indebtedness and excluding fair value of
financial instruments and any flow-through share premium. The
Company has provided additional information on how these measures
are calculated in the Management's Discussion and Analysis for the
year ended December 31, 2017, which
is available under the Company's SEDAR profile at
www.sedar.com.
Oil and Gas Advisories
A barrel of oil equivalent ("boe") may be misleading,
particularly if used in isolation. A boe conversion ratio of 6
Mcf:1 Bbl is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead. In addition, given that
the value ratio based on the current price of crude oil as compared
to natural gas is significantly different from the energy
equivalency of 6:1, utilizing a conversion on a 6:1 basis may be
misleading as an indication of value.
Short-term production rates disclosed herein are not
determinative of the rates at which the wells will continue to
produce and decline thereafter and may not necessarily be
indicative of the long term performance or estimated ultimate
recovery.
Definitions and Abbreviations
bbl
|
barrel
|
Mcf
|
thousand cubic
feet
|
bbl/d
|
barrels per
day
|
Mcf/d
|
thousand cubic
feet per day
|
$/bbl
|
dollar per
barrel
|
$/Mcf
|
dollar per
thousand cubic feet
|
boe
|
barrel of oil
equivalent
|
NGL
|
natural gas
liquids
|
boe/d
|
barrel of oil
equivalent per day
|
IFRS
|
International
Financial Reporting Standards
|
$/boe
|
dollar per barrel
of oil equivalent
|
WTI
|
West Texas
Intermediate Oil price
|
WCS
|
Western Canada
Select Oil Price
|
|
|
Neither the TSX Venture Exchange nor its Regulation
Services Provider (as that term is defined in the policies of the
TSX Venture Exchange) accepts responsibility for the adequacy or
accuracy of this news release.
SOURCE Hemisphere Energy Corporation