Hemisphere Energy Corporation
TSX VENTURE : HME

Hemisphere Energy Corporation

June 26, 2012 09:00 ET

Hemisphere Energy Corporation Announces Year-End Financial and Reserves Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - June 26, 2012) - Hemisphere Energy Corporation ("Hemisphere" or the "Company") (TSX VENTURE:HME) is pleased to announce its financial and operating results for the fourth quarter and year ended February 29, 2012. Selected financial and operational highlights are shown below and should be read in conjunction with the Company's annual financial statements and related management's discussion and analysis.

Hemisphere has also filed its reports under section 2.1 of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") for the year ended February 29, 2012.

Reports are available on SEDAR at www.sedar.com and on Hemisphere's website at www.hemisphereenergy.ca. All amounts are expressed in Canadian dollars.

Fourth Quarter 2012 Achievements

  • Placed two horizontal oil wells on production in the Jenner property in Alberta.
  • Increased average production by 97% over the previous quarter to 410 barrels of oil equivalent per day ("boe/d") with an 88% oil and natural gas liquids ("NGL") weighting, representing the fifth consecutive quarter of production growth.
  • Executed a farm-in agreement to earn lands in Jenner further expanding Hemisphere's core area.
  • Completed a brokered private placement for aggregate subscription proceeds of $8.6 million at a price of $0.70 per share.
  • Closed the Company's second strategic acquisition in Jenner for $6.0 million, which included 8.5 sections of land, 3D seismic, production facilities and approximately 100 barrels of oil per day ("bopd") of production and associated reserves.
  • Expanded the Company's financial flexibility by increasing its existing credit facilities with Canadian Western Bank from $950,000 to $5,000,000. The credit facilities remain undrawn to-date.

Fourth Quarter and Year-End 2012 Highlights

  • Increased petroleum and natural gas revenues to $4,590,608 for the year from $289,426 for the prior year.
  • Increased funds flow from operating activities to $1,963,505 or $0.06 per share for the year as compared to a shortfall of $516,574 or $0.03 per share for the prior year.
  • Increased operating netbacks for the quarter to $48.13 per barrel of oil equivalent ("boe") from $47.12 per boe in the third quarter.
  • Increased working capital for the year by 37% to $2,363,944 from $1,729,423 for the prior year.
  • Increased Proved Plus Probable reserves by 206% to 790.9 thousand barrels of oil equivalent ("Mboe") for the year from 258.5 Mboe for the prior year.
  • Drilled and placed on production 3 successful horizontal oil wells during the year.

Financial and Operating Summary

Highlights - Financial Three months ended Year ended
February 29, 2012 February 28, 2011 February 29, 2012 February 28, 2011
Petroleum and natural gas revenue $ 2,763,564 $ 80,467 $ 4,590,608 $ 289,426
Petroleum and natural gas netback $ 1,796,188 $ 11,089 $ 2,942,544 $ 60,877
Funds flow from operating activities $ 1,355,098 $ (187,104 ) $ 1,963,505 $ (516,574 )
Per share, basic $ 0.03 $ (0.01 ) $ 0.06 $ (0.03 )
Per share, diluted $ 0.03 $ (0.01 ) $ 0.06 $ (0.03 )
Income / (loss) before tax $ (664,041 ) $ (717,137 ) $ (451,879 ) $ (1,486,455 )
Per share, basic and diluted $ (0.02 ) $ (0.03 ) $ (0.01 ) $ (0.07 )
Net income / (loss) after tax $ 730,504 $ (717,137 ) $ 942,665 $ (1,486,455 )
Per share, basic and diluted $ 0.02 $ (0.03 ) $ 0.03 $ (0.07 )
Capital expenditures - Total $ 8,608,084 $ 48,836 $ 13,075,574 $ 527,522
Property development $ 2,477,103 $ 48,836 $ 5,671,501 $ 221,615
Acquisitions and dispositions $ 6,130,981 $ - $ 7,404,073 $ 305,907
Working capital $ 2,363,844 $ 1,729,423 $ 2,363,944 $ 1,729,423
Highlights - Operating Three months ended Year ended
February 29, 2012 February 28, 2011 February 29, 2012 February 28, 2011
Average daily production
Crude oil (bbl/d) 363 - 144 -
Natural gas (mcf/d) 261 234 246 198
NGL (bbl/d) 4 3 3 2
Barrels of oil equivalent (boe/d, 6:1) 410 42 188 35
Crude oil production (%) 88 % 0 % 77 % 0 %
Average sales prices
Crude oil ($/bbl) $ 81.28 $ - $ 80.08 $ -
Natural gas ($/mcf) $ 2.49 $ 3.09 $ 3.28 $ 3.49
NGL ($/bbl) $ 62.42 $ 61.84 $ 67.49 $ 45.24
Barrels of oil equivalent (boe/d, 6:1) $ 74.05 $ 21.47 $ 66.71 $ 22.66
Operating netback ($/boe)
Petroleum and natural gas revenue $ 74.05 $ 21.47 $ 66.71 $ 22.66
Royalties $ 11.99 $ 2.45 $ 10.21 $ 2.50
Production and operating expenses $ 13.93 $ 16.06 $ 13.74 $ 15.39
Operating netback $ 48.13 $ 2.96 $ 42.76 $ 4.77
Common shares
Common shares outstanding, end of period 50,374,701 26,071,682 50,374,701 26,071,682
Warrants outstanding, end of period 9,351,976 5,337,950 9,351,976 5,337,950
Stock options outstanding, end of period 4,250,000 2,285,000 4,250,000 2,285,000
Weighted average basic shares outstanding 42,378,560 25,427,793 34,211,904 20,067,162
Weighted average diluted shares outstanding 43,863,784 26,137,425 34,947,858 20,067,162

Year-End 2012 Reserves

Hemisphere also reports its 2012 year-end reserves as prepared by the independent reserves evaluation firm of Sproule Associates Limited ("Sproule") in accordance with NI 51-101 for the year ended February 29, 2012.

Summary of Reserves

Reserves
Heavy oil & NGL
Natural Gas
Combined Total
Gross1
(Mbbl)
Gross1
(MMcf)
Gross1
(Mboe)
Proved
Developed Producing 207.4 480 287.4
Developed Non-Producing 49.4 - 49.4
Undeveloped 90.0 - 90.0
Total Proved 346.8 480 426.8
Probable 301.5 375 364.0
Total Proved Plus Probable 648.3 856 790.9
Notes:
1. "Gross Reserves" are the Company's working interest share of remaining reserves before deduction of royalties.
2. Numbers may not add due to rounding.

Before Tax Net Present Value Summary

NET PRESENT VALUE (NPV) OF FUTURE NET REVENUE (FNR)
Before Income Taxes
Discounted at (%/Year)
Reserve Category 0 5 10
(M$) (M$) (M$)
Proved
Developed Producing 9,235 8,396 7,742
Developed Non-Producing 1,527 1,367 1,233
Undeveloped 2,655 2,255 1,935
Total Proved 13,416 12,019 10,910
Probable 11,956 9,507 7,787
Total Proved Plus Probable 25,372 21,526 18,697
Notes: NPV of FNR include all resource income: Income Taxes:
Sale of oil, gas, by-product reserves Includes all resource income
Processing third party reserves Apply appropriate income tax calculations
Other income Include prior tax pools
Unit Values are based on net reserve volumes

Subsequent Achievements

  • Drilled, completed and placed on production a farm-in well in Jenner, which had an initial production rate of 206 bopd over a three-day period in April 2012. Hemisphere is currently evaluating its option to drill a second well to earn additional lands.
  • Upgraded existing facilities at Jenner property by adding a new water disposal pump and a heated free-water-knockout separator for greater fluid handling capacity and reduction of operating costs.
  • Executed seismic option and farm-in agreement in Jenner with potential to earn a maximum of 6.5 sections.

Annual General and Special Meeting of Shareholders

Hemisphere's Annual General and Special Meeting of Shareholders is being held at 10:00 am Pacific Daylight Time on August 17, 2012 in the third floor boardroom of Computershare Investor Services Inc., 510 Burrard Street, Vancouver, British Columbia.

About Hemisphere Energy Corporation

Hemisphere Energy Corporation is a junior exploration and production company focused on developing core areas that provide low to medium risk drilling opportunities to increase production, reserves and cash flow. Hemisphere's continued growth plan is through drilling existing prospects and executing strategic acquisitions and farm-ins. Hemisphere trades on the TSX Venture Exchange under the symbol "HME".

Forward-looking Statements

This news release contains "forward-looking statements" that are based on Hemisphere's current expectations, estimates, forecasts and projections. These forward-looking statements include 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, and other expectations, intention and plans that are not historical fact. The words "estimates", "projects", "expects", "intends", "believes", "plans", or their negatives or other comparable words and phrases are intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Many of these factors are beyond the control of Hemisphere. Consequently, all forward-looking statements made in this news release are qualified by this cautionary statement and there can be no assurance that actual results or developments anticipated by Hemisphere will be realized. For the reasons set forth above, investors should not place undue reliance on such forward-looking statements. Hemisphere disclaims any intention or obligation to update or revise forward-looking information, whether as a result of new information, future events or otherwise.

Barrels of oil equivalent ("boes") 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.

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.

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