HEMISPHERE ENERGY CORPORATION Q1 2023 HIGHLIGHTS
- Produced a record quarterly average of 3,171 boe/d, a 20% increase over the first quarter of 2022.
- Attained quarterly revenue of $18.7 million.
- Delivered an operating field netback1 of $11.3 million or $39.75/boe.
- Realized quarterly adjusted funds flow from operations ("AFF")1 of $8.3 million or $29.01/boe.
- Achieved free funds flow1 of $6.8 million or $0.07 per share.
- Exited the first quarter with a positive working capital1 position of $3.0 million, compared to $8.7 million net debt1 at the end of March 2022.
- Distributed $2.5 million, or $0.025 per share, in dividends to shareholders during the quarter.
- Purchased and cancelled 202,300 shares under the Company's Normal Course Issuer Bid ("NCIB").
- Operating field netback, adjusted funds flow from operations (AFF), free funds flow, working capital, and net debt are non-IFRS measures that do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Non-IFRS financial ratios are not standardized financial measures under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Refer to the section "Non-IFRS and Other Specified Financial Measures".
Q1 2023 OVERVIEW
In the first quarter of 2023, Hemisphere's production increased by 20% over the first quarter of 2022, achieving a record average rate of 3,171 boe/d (99% heavy oil). This was due in part to the production from two new Atlee Buffalo F pool wells that were placed on production early in the quarter.
Average sales price in the first quarter of 2023 was 32% lower than the first quarter of the previous year. This was due to a 19% decrease in the West Texas Intermediate ("WTI") crude oil price, combined with a 70% higher Western Canadian Select ("WCS") differential, which averaged US$76.13 and US$24.77, respectively, for the first quarter of 2023. Fortunately, WCS differentials have narrowed significantly and are trending closer to an average of US$15.50 for the second quarter of 2023 to date.
Despite the lower oil pricing environment, Hemisphere delivered solid financial results for the quarter with $8.3 million in adjusted funds flow from operations and a positive working capital position of $3.0 million at quarter-end. This marks the first time the Company has been in a positive working capital position in many years. Based on current commodity price and production forecasts, management expects the Company's balance sheet to further improve throughout the year while continuing to develop its core assets, deliver shareholder returns through its dividend and NCIB programs, and look for new growth and acquisition opportunities.
Annual General and Special Meeting of Shareholders
Hemisphere's Annual General and Special Meeting of Shareholders will be held at 11:00 am (Pacific Daylight Time) on June 1, 2023 in the Ferguson Room of the Terminal City Club located at 837 West Hastings Street, Vancouver, British Columbia.
2 Q1 2023 HIGHLIGHTS
Q1 2023 FINANCIAL AND OPERATING HIGHLIGHTS
Three Months Ended March 31
($000s except per unit and share amounts) | 2023 | 2022 | ||
FINANCIAL | ||||
Petroleum and natural gas revenue | $ | 18,694 | $ | 22,856 |
Operating field netback(1) | 11,342 | 15,462 | ||
Operating netback(1) | 11,114 | 11,998 | ||
Cash flow provided by operating activities | 9,034 | 8,212 | ||
Adjusted funds flow from operations (AFF)(1) | 8,280 | 11,039 | ||
Per share, basic(1) | 0.08 | 0.12 | ||
Per share, diluted(1) | 0.08 | 0.11 | ||
Free funds flow(1) | 6,815 | 9,245 | ||
Net income | 5,958 | 4,618 | ||
Per share, basic and diluted | 0.06 | 0.05 | ||
Dividends | 2,545 | - | ||
Per share, basic | 0.025 | - | ||
Capital expenditures(1) | 1,465 | 1,794 | ||
Working capital (Net debt)(1) | 3,008 | (8,681) | ||
Bank debt | $ | - | $ | (12,514) |
OPERATING | ||||
Average daily production | ||||
Heavy oil (bbl/d) | 3,143 | 2,624 | ||
Natural gas (Mcf/d) | 169 | 141 | ||
Combined (boe/d) | 3,171 | 2,648 | ||
Oil weighting | 99% | 99% | ||
Average sales prices | ||||
Heavy oil ($/bbl) | $ | 65.93 | $ | 96.53 |
Natural gas ($/Mcf) | 3.08 | 4.49 | ||
Combined ($/boe) | $ | 65.51 | $ | 95.92 |
Operating netback ($/boe) | ||||
Petroleum and natural gas revenue | $ | 65.51 | $ | 95.92 |
Royalties | (11.47) | (19.80) | ||
Operating costs | (11.08) | (8.95) | ||
Transportation costs | (3.21) | (2.27) | ||
Operating field netback(1) | 39.75 | 64.89 | ||
Realized commodity hedging gain (loss) | (0.80) | (14.54) | ||
Operating netback(1) | $ | 38.95 | $ | 50.35 |
General and administrative expense | (2.88) | (2.76) | ||
Interest expense and foreign exchange loss | (0.67) | (1.26) | ||
Current tax expense | (6.39) | - | ||
Adjusted funds flow from operations(1) ($/boe) | $ | 29.01 | $ | 46.33 |
- Non-IFRSfinancial measure that is not a standardized financial measure under International Financial Reporting Standards ("IFRS") and may not be comparable to similar financial measures disclosed by other issuers. Refer to "Non-IFRS and Other Financial Measures" section of the MD&A.
SHARE CAPITAL | ||
Common shares outstanding | 101,776,639 | 92,370,653 |
Stock options outstanding | 6,075,000 | 6,314,000 |
Warrants outstanding | - | 10,312,500 |
Fully diluted shares outstanding | 107,851,639 | 108,997,153 |
Weighted-average shares outstanding - basic | 101,835,965 | 91,867,009 |
Weighted-average shares outstanding - diluted | 104,202,387 | 96,116,048 |
Hemisphere Energy Corporation
Q1 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS | 3 |
MANAGEMENT'S DISCUSSION AND ANALYSIS
Dated as at May 24, 2022
The following Management's Discussion and Analysis ("MD&A") is a review of the operations and current financial position for the three months ended March 31, 2023 for Hemisphere Energy Corporation ("Hemisphere" or the "Company") and should be read in conjunction with the unaudited condensed interim financial statements and related notes for the three months ended March 31, 2023, and the audited annual financial statements and related notes for the year ended December 31, 2022. These documents and additional information relating to the Company, including the Company's Annual Information Form, are available on SEDAR at www.sedar.comor the Company's website at www.hemisphereenergy.ca.
The information in this MD&A is based on the unaudited condensed interim financial statements which were prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to the preparation of unaudited condensed interim financial statements including IAS 34 "Interim Financial Reporting", as issued by the International Accounting Standards Board ("IASB").
This MD&A contains non-IFRS measures, additional IFRS measures and forward-looking statements. Readers are cautioned that this document should be read in conjunction with Hemisphere's disclosure under "Non-IFRS and Other Financial Measures" and "Forward-Looking Statements" included at the end of this MD&A. All figures are in Canadian dollars unless otherwise noted.
Business Overview
Hemisphere produces oil and natural gas from its Atlee Buffalo and Jenner properties in southeast Alberta. The Company is headquartered in Vancouver, British Columbia and is traded on the TSX Venture Exchange under the symbol "HME" and on the OTCQX Best Market under the symbol "HMENF".
Atlee Buffalo, Alberta
Atlee Buffalo is Hemisphere's core area, located approximately 85 kilometers north of Medicine Hat. Hemisphere made its first acquisition in the area in late 2013 and owns 15,560 gross acres (15,560 net acres) as of March 31, 2023. The property has two oil pools delineated by vertical wells and defined by 3D seismic.
Jenner, Alberta
Jenner is located 25 kilometers southwest of Atlee Buffalo. Hemisphere first entered the area in 2010 and owns 11,810 gross acres (10,799 net acres) as of March 31, 2023. The property has eight oil pools defined by 3D seismic. There is one Hemisphere-owned-and-operated oil processing and water disposal facility in Jenner with the capability for expansion.
Hemisphere Energy Corporation
4 Q1 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
The Company generated adjusted funds flow from operations1 ("AFF") of $8.3 million ($0.08/share, basic and diluted) for the three months ended March 31, 2023, as compared to $11.0 million ($0.12/basic share and $0.11/diluted share) for the three months ended March 31, 2022. The decrease in AFF from operations for the three months ended March 31, 2023 is primarily due to the 32% decrease in realized commodity pricing, offset somewhat by a 20% increase in production over the comparable three months in 2022, as discussed below under "Production" and "Average Benchmark and Realized Prices".
The Company reported net income of $5.9 million ($0.06/share, basic and diluted) for the three months ended March 31, 2023, compared to $4.6 million ($0.05/share, basic and diluted) for the comparable quarter in 2022. This $1.3 million increase in the first quarter of 2023 is primarily the result of a $5.5 million decrease in realized and unrealized commodity hedging losses and a $2.4 million decrease in finance expenses, offset by decreases of $4.1 million in operating field netbacks and $1.9 million of current and deferred tax expenses.
Production
Three Months Ended March 31 | ||
By product: | 2023 | 2022 |
Oil (bbl/d) | 3,143 | 2,624 |
Natural gas (Mcf/d) | 169 | 141 |
Total (boe/d) | 3,171 | 2,648 |
Oil weighting | 99% | 99% |
In the first quarter of 2023, the Company's average daily production was 3,171 boe/d (99% oil), representing a 20% increase over the comparable quarter in 2022. This increase is mainly attributed to the success of Hemisphere's enhanced oil recovery projects, as well as the capital drilling program completed in 2022, and two new wells brought on production in the Atlee F pool during the first quarter of 2023.
Average Benchmark and Realized Prices
Three Months Ended March 31 | ||||
2023 | 2022 | |||
Benchmark prices | ||||
WTI ($US/bbl)(1) | $ | 76.35 | $ | 94.29 |
WCS Diff ($US/bbl)(2) | (24.85) | (14.53) | ||
Exchange rate (1 $US/$C) | 1.3514 | 1.2666 | ||
WTI ($C/bbl) | 103.18 | 119.43 | ||
WCS Diff ($C/bbl) | (33.58) | (18.40) | ||
WCS ($C/bbl) | 69.60 | 101.03 | ||
AECO natural gas ($/Mcf)(3) | 4.35 | 4.77 | ||
Average realized prices | ||||
Crude oil ($/bbl) | 65.93 | 96.53 | ||
Natural gas ($/Mcf) | 3.08 | 4.49 | ||
Combined ($/boe) | $ | 65.51 | $ | 95.92 |
Notes:
- Represents posting prices of West Texas Intermediate Oil ("WTI").
- Represents posting prices of Western Canadian Select ("WCS").
- Represents the Alberta 30-day spot AECO posting prices.
1
Non-IFRS financial measure. Refer to "Non-IFRS and Other Financial Measures" section of the MD&A.
Hemisphere Energy Corporation
Q1 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS | 5 |
The Company's oil and natural gas revenue and financial results are significantly influenced by changes in commodity prices. The West Texas Intermediate pricing ("WTI") at Cushing, Oklahoma is the benchmark reference price for North American crude oil prices. Canadian oil prices, including Hemisphere's heavy crude oil, are based on price postings, which is WTI-adjusted for transportation, quality and the currency conversion rates from United States dollar ("US$") to Canadian dollar ("C$").
The Company's combined average realized price during the three months ended March 31, 2023 decreased by 32% to $65.51/boe from $95.92/boe during the comparable period in 2022. This decrease is primarily the result of a decrease in realized WTI pricing of US$17.94/bbl and an increase of US$10.32/bbl in the differential between WCS and WTI pricing for the three months ended March 31, 2023 over the comparable period in 2022.
As at the date of this MD&A, the Company held derivative commodity contracts as follows:
Product | Type | Volume | Price | Index | Term |
Crude oil | Put Spread | 500 bbl/d | US$50.00(put sell)/US$60.00(put | WTI-NYMEX | Apr. 1, 2023 - Jun. 30, 2023 |
buy), net cost US$2.95/bbl | |||||
Crude oil | Put Spread | 500 bbl/d | US$50.00(put sell)/US$60.00(put | WTI-NYMEX | Jul. 1, 2023 - Sep. 30, 2023 |
buy), net cost US$3.70/bbl | |||||
Crude oil | Put Spread | 500 bbl/d | US$50.00(put sell)/US$60.00(put | WTI-NYMEX | Oct. 1, 2023 - Dec. 31, 2023 |
buy), net cost US$2.55/bbl | |||||
Crude oil | Swap | 300 bbl/d | US$50.00(put sell) /US$60.00(put | WTI-NYMEX | Jan. 1, 2024 - Mar. 31, 2024 |
buy), net cost US$3.10/bbl |
At March 31, 2023, the commodity contracts were fair valued as a liability of $0.3 million recorded on the statement of financial position and an unrealized gain of $0.1 million for the three-month period (March 31, 2022 - unrealized loss of $2.2 million).
Revenue
Three Months Ended March 31 | ||||
($000s) | 2023 | 2022 | ||
Oil | $ | 18,647 | $ | 22,799 |
Natural gas | 47 | 57 | ||
Total | $ | 18,694 | $ | 22,856 |
Revenue for the three months ended March 31, 2023 decreased by 18% from the comparable period in 2022. This decrease is primarily due to the $30.41/boe decrease in the Company's combined average realized price, offset somewhat by the 20% increase in production over the comparable three-month period in 2022.
Hemisphere Energy Corporation
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Hemisphere Energy Corporation published this content on 25 May 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 May 2023 12:55:05 UTC.
