| Hemisphere Energy is a Canadian Junior in our High Yield Income Portfolio that is a pure play on heavy oil.
On April 10th HME.V closed at $1.69Cdn. The combination of rising global oil prices and declining oil price differentials in Western Canada have increased my valuation of HME.V to $3.25Cdn ($2.40US for HMENF). Completion of the Trans Mountain Pipeline (TMX) is the reason why oil prices in Western Canada have increased recently. This will help all of the Canadian upstream companies in our three model portfolios. My stock valuations are based on reasonable multiples of operating cash flow per share. For the last six months ending March 31, 2024 Hemisphere sold their oil for a realized price of approximately $73Cdn/bbl; down from a realized price of $86.33Cdn/bbl in Q3 2023. The Company was still free cash flow positive during the last six months. If WTI does average over $85US/bbl., the Company’s realized oil price should increase by approximately $15Cdn/bbl. to $88Cdn/bbl. starting in April, significantly increasing operating cash flow. The Company’s production growth and stock buyback program are also improving per share results. Hemisphere has a strong balance sheet, pays a nice dividend and annual production growth of more than 10% that is being funded entirely with operating cash flow. The only negative has been a lack of “Running Room” beyond their core area of Altee Buffalo. Included in this year’s capital program is a new project in southern Saskatchewan called the Manito Lake Project. Hemisphere believes that the leasehold they have acquired has the right rock qualities to be another successful polymer flood; potentially doubling the Company’s oil production within a few years. THIS ARTICLE does a good job of explaining the potential upside to my current valuation that Manito Lake brings to Hemisphere Energy. Hemisphere will release Q4 and full year audited financial results on April 19th.
Daniel M. Steffens, President |
