Q3 2022 HIGHLIGHTS
- Paid off all bank debt.
- Produced an average of 2,870 boe/d (99% heavy oil), a 72% increase over the third quarter of 2021.
- Attained quarterly revenue of $23.7 million, a 127% increase over the third quarter of 2021.
- Delivered an operating field netback1 of $49.95/boe, 27% higher than in the third quarter of 2021.
- Realized adjusted funds flow from operations (AFF)1 of $10.6 million ($0.10 per diluted share), a 162% increase over the comparable period in 2021.
- Achieved free funds flow1 of $6 million ($0.06 per diluted share), representing a 725% increase over the comparable period in 2021.
- Lowered net debt1 at the end of the quarter to $0.7 million from $18.2 million at the end of September 2021, representing a 96% reduction year-over-year.
- Paid Hemisphere's quarterly variable dividend of $0.025 per share on September 7, 2022 for an annualized yield based on market price at the time of 6.5%.
- Acquired and cancelled 393,800 Hemisphere shares as part of the corporate NCIB at an average price of $1.55.
CORPORATE UPDATE
During the third quarter of 2022, Hemisphere recorded almost $24 million in revenue and its third highest ever adjusted funds flow from operations (AFF)1 of $10.6 million. Hemisphere also spent $4.6 million on drilling operations and facility improvements, paid off its bank debt, and distributed $2.6 million of dividends to its shareholders.
In September, Hemisphere commenced a drilling program to test potential new pools, pool extensions, and new production technologies. Successful wells are being brought online through the fourth quarter. Additionally, two wells have been converted to injectors in the Atlee G pool to help repressurize the northwestern portion of the reservoir. The Company is also finalizing the construction of its field battery expansion at the Atlee F pool following the start-up of its polymer flood in August.
QUARTERLY DIVIDEND
With the Company realizing free funds flow1 of $6 million in the quarter, Hemisphere's board of directors has approved a quarterly dividend of $0.025 per share, to be paid November 30, 2022 to shareholders of record as of the close of business on November 23, 2022. The dividend is designated as an eligible dividend for income tax purposes.
1 See "Non-IFRS and Other Financial Measures".
2 Q3 2022 HIGHLIGHTS
2022 FINANCIAL AND OPERATING HIGHLIGHTS
Three Months Ended | Nine Months Ended | |||||||
2022 | September 30 | 2022 | September 30 | |||||
($000s except per unit and share amounts) | 2021 | 2021 | ||||||
FINANCIAL | $ | 23,672 | $ | 77,135 | ||||
Petroleum and natural gas revenue | $ | 10,432 | $ | 28,408 | ||||
Operating field netback(1) | 13,188 | 6,033 | 47,345 | 17,806 | ||||
Operating netback(1) | 12,454 | 5,094 | 40,601 | 15,971 | ||||
Cash flow provided by operating activities | 12,959 | 5,473 | 36,096 | 13,417 | ||||
Adjusted funds flow from operations (AFF)(1) | 10,604 | 4,048 | 35,675 | 12,320 | ||||
Per share, basic(1) | 0.10 | 0.05 | 0.36 | 0.14 | ||||
Per share, diluted(1) | 0.10 | 0.04 | 0.36 | 0.13 | ||||
Free funds flow(1) | 6,006 | 727 | 23,500 | 6,044 | ||||
Net income (loss) | 9,315 | 2,309 | 18,064 | 482 | ||||
Per share, basic ($/share) | 0.09 | 0.03 | 0.18 | 0.01 | ||||
Per share, diluted ($/share) | 0.09 | 0.02 | 0.18 | 0.01 | ||||
Capital expenditures(1) | 4,598 | 3,320 | 12,175 | 6,276 | ||||
Net debt(1) | 721 | 18,231 | 721 | 18,231 | ||||
Net debt to annualized AFF(1) | 0.0 | 1.1 | 0.0 | 1.1 | ||||
Bank Debt | - | 16,234 | - | 16,234 | ||||
Average daily production | 2,838 | 2,774 | ||||||
Heavy oil (bbl/d) | 1,652 | 1,683 | ||||||
Natural gas (Mcf/d) | 189 | 110 | 165 | 124 | ||||
Combined (boe/d) | 2,870 | 1,671 | 2,801 | 1,704 | ||||
Oil weighting | 99% | 99% | 99% | 99% | ||||
Average sales prices | $ | 90.39 | $ | 101.57 | ||||
Heavy oil ($/bbl) | $ | 68.39 | $ | 61.60 | ||||
Natural gas ($/Mcf) | 3.98 | 3.47 | 5.10 | 3.07 | ||||
Combined ($/boe) | $ | 89.66 | $ | 67.87 | $ | 100.87 | $ | 61.08 |
Operating netback ($/boe) | $ | 89.66 | $ | 100.87 | ||||
Petroleum and natural gas revenue | $ | 67.87 | $ | 61.08 | ||||
Royalties | (24.19) | (13.66) | (26.23) | (10.26) | ||||
Operating costs | (13.12) | (12.66) | (10.37) | (10.11) | ||||
Transportation costs | (2.40) | (2.30) | (2.36) | (2.42) | ||||
Operating field netback(1) | 49.95 | 39.25 | 61.91 | 38.28 | ||||
Realized commodity hedging gain loss | (2.78) | (6.11) | (8.82) | (3.94) | ||||
Operating netback(1) | $ | 47.17 | $ | 33.14 | $ | 53.09 | $ | 34.34 |
Adjusted funds flow from operations(1) ($/boe) | $ | 40.17 | $ | 26.33 | $ | 46.65 | $ | 26.49 |
Notes:
- 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.
Nine months ended September 30 | ||
2022 | 2021 | |
SHARE CAPITAL | 103,110,139 | |
Common shares outstanding | 88,229,802 | |
Stock options outstanding | 3,000,000 | 6,444,000 |
Warrants outstanding | - | 13,750,000 |
Fully Diluted | 106,110,139 | 108,423,802 |
Weighted-average shares outstanding - basic | 98,236,537 | 87,892,439 |
Weighted-average shares outstanding - diluted | 99,912,083 | 93,050,371 |
Q3 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS | 3 |
MANAGEMENT'S DISCUSSION AND ANALYSIS
Dated as at November 17, 2022
The following Management's Discussion and Analysis ("MD&A") is a review of the operations and current financial position for the three and nine months ended September 30, 2022 for Hemisphere Energy Corporation ("Hemisphere" or the "Company") and should be read in conjunction with the unaudited interim condensed financial statements and related notes for the three and nine months ended September 30, 2022, and the audited annual financial statements and related notes for the year ended December 31, 2021. 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 interim condensed financial statements which were prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to the preparation of unaudited interim condensed 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 additional IFRS 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
The Company owns and operates all of its wells in the Atlee Buffalo area. The property is accessible year- round and is located north of Medicine Hat in southeastern Alberta. Hemisphere has a 100% working interest in 9,480 net acres.
Jenner, Alberta
Hemisphere owns and operates all of its wells and has a land position of 7,649 net acres in the Jenner area. The property is accessible year-round and is located 25 kilometers west of the Company's Atlee Buffalo property in southeastern Alberta.
Operating Results
The Company generated adjusted funds flow from operations1 (AFF) of $10.6 million ($0.10/share) during the third quarter of 2022, as compared to $4.0 million ($0.04/diluted share) during the third quarter of 2021. AFF for the nine months ended September 30, 2022 increased to $35.7 million ($0.36/share) from
1 Non-IFRS and other financial measure. Refer to "Non-IFRS and Other Financial Measures" section of the MD&A.
Hemisphere Energy Corporation
4 Q3 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS
$12.3 million ($0.13/diluted share) for the same period in 2021. The increase in AFF from operations for three months and nine months ended September 30, 2021 is due primarily to a respective 32% and 65% increase in the combined average realized sales price, and a 72% and 64% increase in production, over the respective comparable periods in 2021.
For the three and nine months ended September 30, 2022, the Company reported net income of $9.3 million ($0.09/share) and $18.1 million ($0.18/share), respectively, compared to net income of $2.3 million ($0.03/basic share and $0.02/diluted share) and $0.5 million ($0.01/share) for the three and nine months ended September 30, 2021. This increase of $17.6 million in the first nine months of 2022 is generally the result of an increase in operating field netback of $29.5 million, offset by an increase in depletion of $2.7 million and current and deferred tax expenses of $1.3 million and $6.1 million.
Production
Three Months Ended September 30 | Nine Months Ended September 30 | |||
By product: | 2022 | 2021 | 2022 | 2021 |
Oil (bbl/d) | 2,838 | 1,652 | 2,774 | 1,683 |
Natural gas (Mcf/d) | 189 | 110 | 165 | 124 |
Total (boe/d) | 2,870 | 1,671 | 2,801 | 1,704 |
Oil weighting | 99% | 99% | 99% | 99% |
In the third quarter of 2022, the Company's average daily production was 2,870 boe/d (99% oil) representing a 72% increase from 1,671 boe/d (99% oil) over the comparable quarter in 2021. For the nine months ended September 30, 2022, the Company's average daily production was 2,801 boe/d (99% oil), representing a 64% increase from 1,704 boe/d (99% oil) for the same period in 2021. This increase is mainly attributed to the success of Hemisphere's enhanced oil recovery projects, as well as the addition of three new wells in the Atlee G pool in the fourth quarter of 2021 and four new wells brought on production in the Atlee F pool during the first quarter of 2022, plus 3 new G wells and two well reentries in the F pool this summer.
Average Benchmark and Realized Prices
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||
2022 | 2021 | 2022 | 2021 | |||||
Benchmark prices | $ | 91.56 | $ | 98.09 | ||||
WTI ($US/bbl)(1) | $ | 70.56 | $ | 64.81 | ||||
Exchange rate (1 $US/$C) | 1.3058 | 1.2595 | 1.2827 | 1.2509 | ||||
WTI ($C/bbl) | 119.55 | 88.88 | 125.82 | 81.07 | ||||
WCS Diff ($C/bbl) | 26.02 | 17.10 | 20.27 | 15.68 | ||||
WCS ($C/bbl)(2) | 93.53 | 71.77 | 105.55 | 65.39 | ||||
AECO natural gas ($US/Mcf)(3) | 4.46 | 3.58 | 5.49 | 3.27 | ||||
Average realized prices | 90.39 | 101.57 | ||||||
Crude oil ($C/bbl) | 68.39 | 61.60 | ||||||
Natural gas ($C/Mcf) | 3.98 | 3.47 | 5.10 | 3.07 | ||||
Combined ($C/boe) | $ | 89.66 | $ | 67.87 | $ | 100.87 | $ | 61.08 |
Notes:
- Represents posting prices of West Texas Intermediate Oil.
- Represents posting prices of Western Canadian Select.
- Represents the Alberta 30 day spot AECO posting prices.
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
Q3 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS | 5 |
crude oil, are based on price postings, which is WTI-adjusted for transportation, quality and the currency conversion rates from United States dollar ("USD") to Canadian dollar.
The Company's combined average realized price increased by 32% to $89.66/boe from $67.87/boe during the comparable three months ended September 30, 2021. The Company's combined average realized price increased by 65% from $61.08/boe to $100.87/boe during the nine months ended September 30, 2022. This increase is the result of a higher realized WTI price, offset by increases of $8.92/bbl and $4.59/bbl respectively in the differential between the WCS and WTI pricing for the three and nine month ended September 30, 2022 over the comparable periods in 2021.
As at the date of this MD&A, the Company held derivative commodity contracts as follows:
Product | Type | Volume | Price | Index | Term |
Crude oil | Swap | 200 bbl/d | US$13.80 | WCS Differential | Jun. 1, 2022 - Dec. 31, 2022 |
Crude oil | Swap | 200 bbl/d | US$21.00 | WCS Differential | Aug. 1, 2022 - Dec. 31, 2022 |
Crude oil | Swap | 200 bbl/d | US$21.00 | WCS Differential | Aug. 1, 2022 - Dec. 31, 2022 |
Crude oil | Put Spread | 125 bbl/d | US$50.00(put sell)/US$60.00(put | WTI-NYMEX | Sep. 1, 2022 - Dec. 31, 2022 |
buy), net cost US$2.15/bbl | |||||
Crude oil | Put Spread | 275 bbl/d | US$50.00(put sell)/US$60.00(put | WTI-NYMEX | Oct. 1, 2022 - Dec. 31, 2022 |
buy), net cost US$3.75/bbl | |||||
Crude oil | Sold Call | 275 bbl/d | US$100.00(call sell), net premium | WTI-NYMEX | Oct. 1, 2022 - Dec. 31, 2022 |
US$3.75/bbl | |||||
Crude oil | 3-Way | 300 bbl/d | US$50.00(put)/US$60.00(put)/US | WTI-NYMEX | Oct. 1, 2022 - Dec. 31, 2022 |
$85(call) | |||||
Crude oil | Put Spread | 750 bbl/d | US$50.00(put sell)/US$60.00(put | WTI-NYMEX | Jan. 1, 2023 - Mar. 31, 2023 |
buy), net cost US$2.50/bbl | |||||
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 |
At September 30, 2022, the commodity contracts were fair valued as a liability of $34 thousand recorded on the balance sheet, and an unrealized gain of $3.1 million for the three month period and $1.3 million for the nine month period ended September 30, 2022, respectively (September 30, 2021 - gain of $0.3 million and loss of $3.0 million respectively).
Revenue
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||
($000s) | 2022 | 2021 | 2022 | 2021 | ||||
Oil | $ | 23,603 | $ | 10,397 | $ | 76,905 | $ | 28,304 |
Natural gas | 69 | 35 | 230 | 104 | ||||
Total | $ | 23,672 | $ | 10,432 | $ | 77,135 | $ | 28,408 |
Revenue for the three months ended September 30, 2022 increased by 127% from the comparable period in 2021. For the nine months, revenue increased by 172% over the comparable period in 2021. These increases are primarily due to the respective $21.79/boe and $39.79/boe increases in the Company's combined average realized price, combined with 72% and 64% increases in production over the comparable, respective three and nine month periods in 2022.
Hemisphere Energy Corporation
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Hemisphere Energy Corporation published this content on 17 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 November 2022 15:38:01 UTC.