Corporate Presentation
November 2014
FORWARD-LOOKING STATEMENTS
This presentation contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of
any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar
expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this
presentation contains forward-looking information and statements pertaining to the following: business strategy and objectives of
Hemisphere Energy Corporation ("Hemisphere"), the volumes and estimated value of Hemisphere’s oil and gas reserves; the volume of
Hemisphere’s oil and gas production; future production estimates; future oil and natural gas prices; future liquidity and financial capacity;
future results from operations and operating metrics; future costs, expenses and royalty rates; future cash flows; future interest costs;
the exchange rate between the $US and $Cdn; future development, exploration, acquisition and development activities and related capital
expenditures and forecasts; the amount and timing of capital projects; operating costs; and the total future capital associated with
development of reserves and resources.
The recovery, reserve and resource estimates of Hemisphere’s reserves and resources provided herein are estimates only and there is no
guarantee that the estimated reserves or resources will be recovered. Throughout this presentation various references are made to
"potential" and "targeted" resource and recoveries which have been prepared by management of Hemisphere and are not estimates of
reserves or resources. Accordingly, undue reliance should not be placed on same. Such information has been prepared by management
for the purposes of making capital investment decisions and for internal budget preparation only. In addition, forward looking statements
or information are based on a number of material factors, expectations or assumptions of Hemisphere which have been used to develop
such statements and information but which may prove to be incorrect. Although Hemisphere believes that the expectations reflected in
such forward looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements
because Hemisphere can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions
which may be identified herein, assumptions have been made regarding, among other things: the impact of increasing competition; the
general stability of the economic and political environment in which Hemisphere operates; the timely receipt of any required regulatory
approvals; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition,
development and exploration; risks associated with the degree of certainty in resource assessments; future commodity prices; currency,
exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which
Hemisphere operates; and the ability of Hemisphere to successfully market its oil and natural gas products.
The forward-looking information and statements contained in this presentation speak only as of the date of this presentation, and
Hemisphere does not assume any obligation to publicly update or revise any of the included forward looking statements or information,
whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
2
HEMISPHERE'S OPPORTUNITY
What We Have Done
•
•
Assembled Geographically Focused Foundation Assets in Southeast Alberta
-
Jenner: 8 oil pools defined by 3D seismic with 30+ low-risk drilling locations
-
Atlee Buffalo: 50-60 MMbbl OOIP across 2 Glauconitic pools with <5% recovery to-date(1)
Leveraged extensive management experience in Greater Jenner / Atlee Buffalo areas
-
•

Management has drilled >200 horizontal wells in southern and central Alberta and Saskatchewan
Built a Portfolio of 50+ Drill-Ready Development Locations with Ability to Increase Inventory 2x
-
$1.0-$1.15 MM all-in drill, complete, equip and tie-in costs
-
NPV10 of $1.6-$2.4 MM with 9-14 month paybacks and >100% IRR(2)
Recently Completed Two Development Drilling Programs
-
Summer drilling program of 5 horizontal wells was successfully executed on schedule and ~10% below budget
-
Fall drilling program of 4 horizontal wells and 1 vertical well was successfully executed on schedule
Next Steps…
•
•
1)
2)
Repeat Success within Foundation Assets
-
Jenner: Build off extensive track record of drilling and operating execution
-
Atlee Buffalo: Continue aggressive development and production growth with next drill program
Drill-focused capital program
-
Complete and tie-in operations of fall drilling program (4 Hz wells and 1 Vt test well; 13 total in 2014)
-
Planning and finalizing Q1 2015 drill program
Internal Management estimate.
Based on Management estimates, see slides 7 & 9 for additional disclosures.
3
HEMISPHERE’S PROFILE
TSX Venture Exchange
Share Price (October 23, 2014)
52 Week High / Low
HME
$0.60
$0.85 / $0.45
Capital Structure
Common Shares Outstanding
75.4 MM
Stock Options ($0.52 Avg. Exercise Price)
6.0 MM
Warrants ($0.75 Exercise Price, Dec.10, 2014 Expiry)
2.1 MM
Fully Diluted Shares Outstanding
Insider Ownership
Market Capitalization
83.4 MM
~11%
$45.2 MM
Current Production (1st three weeks of October, field est)
900 boe/d (90% oil)
Production (Q2 2014)
553 boe/d (82% oil)
Operating Netback (Q2 2014)
Credit Facility (ATB)
Net Debt (June 30, 2014)
Debt to Annualized Cash Flow
$39.98/boe
$10.5 MM
$1.9 MM
0.3x
4
SOUTHERN ALBERTA &
SASKATCHEWAN
Result of Low Cost Operations, High Netbacks, Quick Payouts & High Rates of Return
NORTHERN
BLIZZARD
ROCK
HEMISPHERE
Jenner
JOURNEY
CARDINAL
Brooks
Atlee
Buffalo
Hemisphere Land
Hemisphere Wells
Cardinal Energy Wells
Journey Energy Wells
Rock Energy Wells
Northern Blizzard
Resources Wells
5
FOCUSED LANDBASE
Focus on Horizontal Development of Established, Well Delineated Oil Pools
HME Land
Drilling Focus
Mannville Group
Pekisko Formation
Land Base
ATLEE
BUFFALO
JENNER
~35,000 net acres
92% average working interest
SUFFIELD MILITARY BASE
2014 Operational Activity
Q1: Drilled, completed & tied-in 2 wells in Jenner & 1 well in Atlee Buffalo
Q2: Commenced 5 well drilling program in Atlee Buffalo
Q3: 5 new wells came on production and drilled 5 additional wells
Q4: Complete and tie-in 4 Hz wells, evaluate 1 Vt test well, shoot 2 new 3D seismic surveys
6
ATLEE BUFFALO, ALBERTA
Summary
•
92% avg WI in 11,360 net acres with exposure to 2
vertically delineated Glauconitic oil pools
•
50-60 MMbbl OOIP and current recovery of <5%(1)
•
•
Shallow drilling at 900 to 1,000 metres vertical depth
02/6-13-21-6w4
• First well drilled by HME
(Q1-2014)
• IP90 of 90 boe/d (93% oil)
• Cumulative production of
>17,300 bbl
$1.15 MM all-in drill, complete, equip & tie-in costs
-
Conventional, high permeability reservoir does not
require fracture stimulation
•
Analog pool in the area has recovered >20% to-date
•
•
To-date in 2014, HME has drilled 10 horizontal wells
Currently completing 4 wells drilled in the fall program
Infrastructure
•
Multi-well batteries with tank treating
•
Upon further success, HME will look to add a central
facility
1-14-21-6w4
• Drilled by Crestar in 1998
• Cumulative production of
~119,000 bbl
Reservoir Characteristics
2014
Drilling
Future
Drilling
Total
2013 Reserve Report
4
0
4
Unbooked Development
6
10
16
Oil Gravity
Unbooked Contingent
0
55
55
Oil Viscosity
10
65
75
Drilling Inventory
Total
(1)
(2)
Porosity
Permeability
27%
1000 – 2000 mD
13o – 14o API
2500 cp
HME Land
HME First Drilled Hz
HME Summer Drill Program
HME Fall Drill Program
Recent Industry Hz
Internal management estimate.
Cenovus YYY Suffield Pool - Based on Alberta Energy Regulator disclosures.
7
ATLEE BUFFALO
GLAUCONITIC HORIZONTAL WELL ECONOMICS
120
HME TYPE CURVE ECONOMICS
100
Average IP30 of 5 new wells: 95 bbl/d
All-In Well Cost
$1.15 MM
Recoverable Reserves
100 Mboe
1st Month IP
95 boe/d
Daily Oil Rate bbl/d
Oil Weighting
6-13: First well drilled by Hemisphere in Q1 2014
- IP90 of 90 boe/d (93% oil)
- Cumulative Production: >17 Mbbl
80
Full-Life Netback
1-14: Original Horizontal well drilled in 1998
- Current Production: 40 boe/d
- Cumulative Production: 119 Mbbl
- Estimated EUR (2P Reserve Report): 150 Mbbl
60
90%
$48.75/boe
NPV 10% Before Tax
$2.4 MM
Payout
9 months
F&D Costs
$11.50/boe
Recycle Ratio
4.3x
IRR
40
175%
20
0
0
12
24
36
48
60
72
84
96
108
120
132
144
156
168
180
192
Months on production
Economics Forecast
(1)
(2)
(3)
Original Budget
1-14 Hz
6-13 Hz (1st HME Well)
IP 30 5 New wells
McDaniel’s 2014 Q3 price forecast for Alberta Bow River Hardisty 25⁰ API (2014: $85.10/bbl, 2015: $86.00/bbl, 2016: $86.40/bbl) with a $5.00/bbl quality adjustment.
Operating Costs ~ $15/boe (full life cycle).
Crown Royalties blended with average of other encumbrances ~ $14.50/boe (full life cycle).
8
ATLEE BUFFALO ANALOGS
Net
Pay
Ha
Metres
%
YYY
Suffield
440
3.0
27%
Mantario
500
6.0
30%
A.Buffalo F
500
3.5
27%
A.Buffalo G
352
6.0
27%
Recovery to
Date
OOIP
API
Viscosity
MMbbl
Degree
cp
MMbbl
%
Bbl/d
14.7
13o
500-1000
3.3
~22%
300
38.0
12o-14o
1.0
<3%
3,300
1000
21.7
13o-14o
1.0
<5%
120
2000
34.7
13o-14o
1.2
<5%
0
mD
10003000
20004000
10002000
10002000
10002000
Alberta
Name
Porosity Perm.
HME Land
HME
Atlee Buffalo
F Pool
G Pool
Cenovus:
YYY Suffield Pool
Q2 Prod
Rock Energy:
Mantario
Sask.
Area
Pool
• YYY Suffield was developed by some of HME management
•
•
•
while at AEC
Determined that the pool was different & independent
from other regional production
Resulted in full horizontal development – ramped-up from
almost nil to 900 bbl/d over 18 months (circa 2003)
• 11 years later, still producing at 300 bbl/d
Application for a polymer flood in 2010 with strategy to
increase recovery to 30%+
Note: Figures based on public disclosures and Alberta Energy Regulator disclosures for YYY
Suffield & Mantario and internal Management estimates for Atlee Buffalo.
9
ATLEE BUFFALO DEVELOPMENT PLAN
Significant Development Project
Using Hemisphere’s Proven Expertise
•
Focus on horizontal development to
maximize oil recovery per well
-
•
Multi-well pads and central facilities
can reduce drilling and facility costs
HME Land
Drilled & Prod Hz Well
Fall Drill Program
Future Hz Wells
Calculated step-out from successful wells
will provide efficient primary
development with proper waterflood
layout
•
Implement water / polymer flood to
increase recovery factor of oil in place
•
Atlee Buffalo F & G Pools implied
recovery potential of 10 – 12 MMbbl
based on Cenovus YYY Suffield Pool
recovery factor of >20% to-date(1)
Current Well Status
- 6 Drilled and Producing
- 12 Surveyed to License
(1) Based on internal Management OOIP estimates of 21.7 MMbbl for Pool F and 34.0 MMbbl for Pool G.
10
JENNER, ALBERTA
HME Land
Summary
•
B Battery
S Satellite
92% avg WI in 23,488 net acres with exposure to 8
vertically delineated, 3D seismically defined oil pools
•
Shallow drilling at 900 to 1,100 metres vertical depth
•
$1.0 MM all-in drill, complete, equip & tie-in costs
-
Pipeline
Conventional, high permeability reservoir does not
require fracture stimulation
B
Infrastructure
•
B
Operate 2, 100% owned, oil processing and water disposal
facilities at Jenner
-
Excess facility capacity with expansion capability
-
Access to third party facilities, where required
Drilling Inventory
2014
Drilling
Future
Drilling
Total
2013 Reserve Report
3
8
11
Unbooked Development
0
19
3
27
Total
S
Reservoir Characteristics
Porosity
24% – 30%
Permeability
50 – 250 mD
19
Oil Gravity
13o – 25o API
30
Oil Viscosity
650 cp
SUFFIELD MILITARY
BASE
11
JENNER
GLAUCONITIC HORIZONTAL WELL ECONOMICS
HME Type Curve Economics
160
140
Type curve based on average
production of 12 HME Jenner horizontal wells drilled to date
120
All-In Well Cost
$1.0 MM
Recoverable Reserves
74 Mbbl
1st Month IP
100 bbl/d
Full-Life Netback
$52.82 / boe
Daily Oil Rate bbl/d
NPV 10% Before Tax
$1.6 MM
Payout
100
F&D Costs
Facility De‐Bottlenecking Effect
80
14 months
$13.51 / boe
Recycle Ratio
3.9x
IRR
100%
60
40
20
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Months on production
HME Average ‐ 74 Mbbl
(1)
(2)
(3)
(4)
High ‐ 103 Mbbl
Low ‐ 43 Mbbl
McDaniel’s 2014 Q3 price forecast for Alberta Bow River Hardisty 25⁰ API (2014: $85.10/bbl, 2015: $86.00/bbl, 2016: $86.40/bbl) with a $5.00/bbl quality adjustment.
Operating Costs of ~16.50/boe (average over full life cycle, escalating costs with water handling).
Crown Royalties blended with average of other encumbrances ~ $15/boe (full life cycle).
High and Low case curves are based on 284 Jenner Hz analog wells.
12
GROWTH PLAN
Leverage Management Experience to Ramp Up Atlee Buffalo Production
•
•
•
•
•
Continue to increase production with tie-in of 4 Hz well fall drilling program
Finalize winter drilling program
Shooting additional 3D seismic
Production growth coupled with de-risking/location inventory expansion
Continue reservoir modeling to develop most efficient exploitation plan
Steady Growth at Jenner
•
•
•
Maintain production base and pursue growth through infill and step-out development drilling
Continue to acquire and interpret 3D seismic to build out inventory
Optimize current producing wells through increased fluid handling capacity
Pursue Additional Strategic Acquisitions
•
•
•
•
Opportunities, similar to Atlee Buffalo, that expand HME’s core foundation
Operatorship
Large OOIP
Horizontal exploitation potential
13
HEMISPHERE
DIRECTORS
MANAGEMENT
Don Simmons,
•
•
P.Geol.,
Dorlyn Evancic, CPA,
•
•
Chief Financial Officer
P.Eng.,
Chief Operating Officer
Over 10 years experience – Talisman and Solaris MCI (consulting firm)
Solaris - provided engineering services to EnCana in the Horn River Shale
Talisman - drilling and facility operations in Bakken oil and Marcellus gas
Andrew Arthur,
•
CGA,
Over 25 years experience in corporate finance and management
Formerly held senior executive positions at a number of public companies, including
Guyana Frontier, Northern Continental Resources and Gemco Minerals
Ian Duncan,
•
•
•
President & CEO
Over 14 years experience - AEC, EnCana and Sebring Energy
AEC and EnCana – development team in southeast Alberta
(Jenner / Suffield Military Base area) and Ecuador
P.Geol.,
Vice President, Exploration
Over 24 years of domestic and international oil and gas industry experience, including the
drilling of several hundred wells across the Western Canadian Sedimentary Basin
Ashley Ramsden-Wood, P.Eng., Vice President, Engineering
•
•
Over 12 years of Experience – NAL, Petro-Canada
Experience in planning and implementing capital projects and development plans,
preparing economic valuations, and evaluating acquisitions
Charlie O’Sullivan,
•
•
B.Sc.,
Chairman
Founder & former President of Hemisphere
Founder & former Director of Northern Continental
Don Simmons,
P.Geol.,
Bruce McIntyre,
President & CEO
P.Geol.
•
Over 32 years of oil & gas experience including Sebring, BXL, Sommer,
TriQuest, Gascan, New Zealand Energy
•
Former President of the Canadian Society of Petroleum Geologists (2002)
Frank Borowicz,
•
Gregg Vernon,
•
P.Eng.
Over 30 years of international oil & gas experience including
PetroMagdalena and Petro Andina
Richard Wyman,
•
•
QC, CA (Hon)
Over 35 years experience in corporate governance and regulatory
compliance including as partner of Davis LLP and as a Governor of the
Vancouver Board of Trade
B.Sc., MBA
Over 30 years experience starting as an engineer and moving into capital
market roles
Currently President and a Director of Northern Cross (Yukon) Ltd.
CONSULTANTS
James Muraro,
•
•
•
Dave Savage,
•
•
P.Geoph.,
Geophysics
Over 26 years domestic and international oil and gas
Experience – Sebring, Pan Canadian
Consultant Experience – Total E&P, Sherritt International, Anderson Exploration
P.Land.,
Business Development
Over 35 years experience as a professional Landman in the Canadian petroleum industry
Experience – Sebring, BXL Energy, Westar Petroleum, Triquest, Sommer
14
ADVISORY STATEMENTS
Certain information in this document may constitute "analogous information" as defined in National Instrument 51-101 - Standards of Disclosure for Oil and
Gas Activities ("NI-51-101"), including but not limited to, information relating to the areas in geographical proximity to lands that are or may be held by
Hemisphere. Such information has been obtained from government sources, regulatory agencies or other industry participants. Hemisphere believes the
information is relevant as it helps to define the reservoir characteristics in which Hemisphere may hold an interest. Hemisphere is unable to confirm that
the analogous information was prepared by a qualified reserves evaluator or auditor. Such information is not an estimate of the reserves or resources
attributable to lands held or potentially to be held by Hemisphere and there is no certainty that the reservoir data and economics information for the lands
held or potentially to be held by Hemisphere will be similar to the information presented herein. The reader is cautioned that the data relied upon by
Hemisphere may be in error and/or may not be analogous to such lands to be held by Hemisphere. Any references in this presentation to initial, early
and/or test or production performance rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinate of the rates at
which such wells will produce or continue production and to decline thereafter. Readers are cautioned not to place reliance on such rates in calculating the
aggregate production for Hemisphere. The initial production rate may be estimated based on other third party estimates or limited data available at this
time. In all cases in this presentation, initial production or tests are not necessarily indicative of long term performance of the relevant well or fields or of
ultimate recovery of hydrocarbons.
The information contained in this corporate presentation does not purport to be all inclusive or to contain all information that a prospective investor may
require. Prospective investors are encouraged to conduct their own analysis and reviews of Hemisphere and of the information contained in this corporate
presentation. Without limitation, prospective investors should consider the advice of their financial, legal, accounting, tax and other advisors and such other
factors they consider appropriate in investigating and analyzing Hemisphere.
Any financial outlook or future oriented financial information, as defined by applicable securities legislation, has been approved by management of
Hemisphere. Such financial outlook or future oriented financial information is provided for the purpose of providing information about management’s
current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes.
In this presentation, certain terms that are not specifically defined in International Financial Reporting Standards ("IFRS") are used to analyze the
Company’s future operating results. Management believes that certain measures not recognized under IFRS assist management and the reader in assessing
the Company’s expected performance and understanding the Company’s outlook. These measures provide the reader with additional insight into the
Company’s performance. However, these terms do not have any standardized meanings prescribed by IFRS and therefore may not be comparable with the
calculations of similar measures for other entities.
Note: A boe means barrel-of-oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe may be misleading, particularly if used in isolation.
A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead.
All dollar amounts are expressed in Canadian dollars unless otherwise stated.
Original Oil In Place (OOIP) is equivalent to Discovered Petroleum Initially-In-Place (DPIIP). DPIIP, as defined in the Canadian Oil and Gas Evaluations
Handbook (COGEH), is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The
recoverable portion of DPIIP includes production, reserves and contingent resources; the remainder is unrecoverable.
OOIP/DPIIP estimates are based on current accepted technology and prepared by Hemisphere’s qualified reservoir engineers and geologists.
15
CONTACT INFORMATION
ADVISORS
Don Simmons
President & Chief Executive Officer
Phone: (604) 685-9255
Email: [email protected]
Scott Koyich
Investor Relations
Phone: (403) 619-2200
Email: [email protected]
Independent Engineer
McDaniel Associates & Consultants Ltd.
Banker
Alberta Treasury Bank
Auditor
Smythe Ratcliffe LLP
Legal Counsel
Fasken Martineau DeMoulin LLP
Transfer Agent
Computershare Investor Services Inc.
ANALYST COVERAGE
Industrial Alliance
Michael Charlton
403.705.4978
Canaccord Genuity
403.508.3884
Integral Capital Markets
403.536.5457
[email protected]
Hemisphere Energy Corporation
Suite 2000, 1055 West Hastings Street
Vancouver, British Columbia V6E 2E9
www.hemisphereenergy.ca | TSX-V: HME