Hemisphere Energy increases Proved plus Probable reserve value by 77% to $116.6 million (discounted at 10%), and net asset value by 68% to $1.12 per share

TSX-V: HME – VANCOUVER, March 20, 2018 /CNW/ – Hemisphere Energy Corporation (TSX-V: HME) (“Hemisphere” or the “Company”) is pleased to announce highlights from its independent reserves evaluation effective as at December 31, 2017 prepared by McDaniel & Associates Consultants Ltd. (“McDaniel”).

In September 2017, Hemisphere entered into a five-year term loan with a borrowing base of up to US$35.0 million. This has allowed Hemisphere to actively move forward with development of its Atlee Buffalo assets in the Upper Mannville F and G pools. During 2017, Hemisphere spent $8.3 million which included capital to drill six wells, expand its F pool facility, and construct a new facility for G pool production. Reserve growth through 2017 is a direct result of the recognized waterflood success in Atlee Buffalo, with Hemisphere’s Proved reserve volumes exceeding Hemisphere’s year-end 2016 Proved plus Probable reserve volumes.

2017 Reserve Highlights

Proved plus Probable Reserves (“2P“)

• Increased net present value of future net revenue, discounted at 10%, before tax (“NPV10 BT”) by 77% to $116.6 million.
• Increased reserve volumes by 57% to 7.2 MMboe (97% oil).
• Replaced 1,185% of estimated 2017 production.
• Added 2.9 Mboe of reserve volumes, at a finding and development cost (“F&D cost”) of $7.25/boe (including changes in future development capital (“FDC”)), for a recycle ratio of 2.8.
• Achieved a two-year average F&D cost of $7.54/boe (including changes in FDC) for a recycle ratio of 2.2.
• Increased NPV10 BT per basic share by 69% to $1.30.
• Improved net asset value (“NAV”) by 68% to $1.12 per basic share.
• Increased reserve life index (“RLI”) by 26% to 29.8 years based on estimated 2017 average production, representing a low decline, long life asset base in early stages of development.

Proved Reserves (“1P“)

• Increased NPV10 BT by 76% to $80.4 million.
• Increased reserve volumes by 57% to 4.9 Mboe (97% oil).
• Replaced 841% of estimated 2017 production.
• Added 2.0 Mboe of reserve volumes, at an F&D cost of $8.93/boe (including changes in FDC), for a recycle ratio of 2.3.
• Achieved a two-year average F&D cost of $9.22/boe (including changes in FDC) for a recycle ratio of 1.8.
• Increased NPV10 BT per basic share by 70% to $0.90.
• Improved NAV by 67% to $0.71 per basic share.
• Increased RLI by 26% to 20.5 years.

The reserves data set forth below is based upon an independent reserves evaluation prepared by McDaniel dated March 9, 2018 with an effective date of December 31, 2017 and is in accordance with definitions, standards, and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Additional reserve information as required under NI 51-101 will be included in Hemisphere’s Annual Information Form which will be filed on SEDAR on or before April 30, 2018.  Due to rounding, certain totals in the columns may not add in the following tables.  All dollar values are in Canadian dollars, unless otherwise noted.

Summary of Reserves⁽¹⁾

Summary of Net Present Value of Future Net Revenue⁽¹⁾⁽²⁾

Future Development Costs (“FDC”)

The following summarizes the development costs deducted in the estimation of the net present value of the future net revenue attributable to 1P and 2P reserves (using forecast prices and costs only).

2017 Finding and Development Costs and Recycle Ratios⁽¹⁾⁽²⁾

Summary of McDaniel Pricing as of January 1, 2018

The following table is McDaniel’s forecast pricing and foreign exchange rates as at January 1, 2018 which were used in the preparation of McDaniel’s reserve evaluation. Overall, McDaniel’s forecast of WTI and WCS pricing is down an average of approximately 6% and 7%, respectively, from the January 1, 2017 outlook over the same 15 year period.

Reserve Life Index (“RLI”)

Net Asset Value (“NAV”)⁽¹⁾

Corporate Outlook

Additions to the Company’s reserves were achieved in 2017 due to significant development activity in the Atlee Buffalo area leading to further recognition of successful waterflood response in both the Atlee Buffalo Upper Mannville F and G pools. Of the 66 MMbbl OOIP mapped by McDaniel across both of these pools, overall aggregate recovery factors of 10% (1P) to 12% (2P) are reflected in McDaniel’s reserve report as at December 31, 2017. Last year, as at December 31, 2016,  recovery factors of just 7% (1P) to 8% (2P) were reflected in McDaniel’s reserve report. Based on analysis of analogue performance in combination with internal reservoir simulation models, management anticipates significant potential for Hemisphere to achieve greater ultimate recovery factors than those currently booked in both Atlee Buffalo pools.

• Analogues to Hemisphere’s Atlee Buffalo pools include the nearby Upper Mannville N2N and YYY pools. These pools have been producing under waterflood since the late 1990’s and have already recovered 14% and 23%, respectively, of Alberta Energy mapped oil in place. After 20 years of waterflood, these pools produced through the fourth quarter of 2017 at approximately 66% and 35% of peak pool oil rates, respectively, and have maintained relatively flat production over the past five years. Management expects these analogue pools to reach recovery factors much higher than those already attained.
• Reserves have been booked in the Atlee Buffalo F pool at a total pool recovery factor of approximately 12% (1P) to 15% (2P) of McDaniel’s mapped 28 MMbbl OOIP. There are currently nine total producing wells in the pool, including two producers drilled in 2017.
• Reserves have been booked in the Atlee Buffalo G pool at a total pool recovery factor of approximately 8% (1P) to 10% (2P) of McDaniel’s mapped 38 MMbbl OOIP. There are currently two producing wells in the pool, including one producer drilled in 2017.
• 18 Proved and four Probable Atlee Buffalo drilling locations have been attributed reserves in McDaniel’s reserve report as at December 31, 2017.

In 2018, Hemisphere has already drilled three wells and is preparing for a significant drilling program through the remainder of the year in order to build on the momentum of recent production, injection, and facility additions across both Atlee Buffalo pools. Horizontal drilling, slotted liners, and waterflood has proved to be successful in these pools to date, and the Company expects to see meaningful growth in production and reserves through the year with continued development of its core properties.

About Hemisphere Energy Corporation

Hemisphere Energy Corporation is a producing oil and gas company focused on developing conventional oil assets with low risk drilling opportunities. Hemisphere plans continual growth in production, reserves, and cash flow by focusing on existing assets with significant growth potential and executing strategic acquisitions.  Hemisphere trades on the TSX Venture Exchange as a Tier 1 issuer under the symbol “HME”.