Mr. Don Simmons reports

HEMISPHERE ENERGY PROVIDES CORPORATE UPDATE, DECLARES QUARTERLY DIVIDEND, AND ANNOUNCES 2024 GUIDANCE

Hemisphere Energy Corp. has provided a corporate update, declared a quarterly dividend payment to shareholders and delivered guidance for 2024.

Corporate update

Hemisphere realized another successful year in 2023, balancing production growth with balance sheet strength and shareholder return. During the year, $17.5-million was returned to shareholders in the form of dividends ($13.1-million) and share buybacks ($4.4-million), representing an approximate 14-per-cent yield to shareholders based on the market capitalization of Hemisphere at year-end.

The company achieved record average production in the fourth quarter of 3,375 barrels of oil equivalent/day (99 per cent heavy oil), which represents a 16-per-cent increase over the same period in 2022. This growth in production year-over-year is the combined result of Hemisphere's successful third quarter drilling program with the company's effective enhanced oil recovery (EOR) polymer flood projects. Hemisphere's annual average production for 2023 was approximately 3,100 boe/d (99 per cent heavy oil), representing 10-per-cent growth as compared with 2022.

Balance sheet strength continued to be a priority in 2023, with Hemisphere exiting the year in a cash position. Hemisphere financed all of its shareholder returns and entire $16-million capital expenditure program on 2023 cash flow. In addition to drilling eight successful Atlee Buffalo wells and upgrading some of its facilities, the company acquired over 2,500 hectares of new land in Saskatchewan and Alberta. Hemisphere has plans to drill a new prospect on some of these Saskatchewan lands in the first half of 2024, and believes it to be prospective for EOR polymer flooding.

Given the significant free cash flow generated by Hemisphere's ultralow production decline and long-life reserve asset base, the company was able to complement its 2.5-cent-per-share quarterly base dividend with a three-cent-per-share special dividend paid in the fourth quarter of 2023. This brought total shareholder returns last year to 13 cents per share in dividends. Hemisphere also invested $4.4-million into its normal course issuer bid (NCIB) share buyback program to purchase and cancel 3.5 million shares in 2023.

Quarterly dividend

Hemisphere is pleased to announce that its board of directors has approved a quarterly cash dividend of 2.5 cents per common share in accordance with the company's dividend policy. The dividend will be paid on Feb. 23, 2024, to shareholders of record as of the close of business on Feb. 9, 2024. The dividend is designated as an eligible dividend for income tax purposes.

2024 corporate guidance

Hemisphere's board of directors has approved a 2024 capital expenditure program of $21-million, which is planned to be entirely financed by Hemisphere's estimated 2024 adjusted funds flow (AFF) of $40-million and is anticipated to provide 10-per-cent annual production growth. The majority of capital will be allocated to drilling and facility work, with approximately 10 per cent allotted to exploration and land acquisition. Over half of the planned capital expenditures are scheduled for the third quarter, providing Hemisphere with the flexibility to adjust plans subject to the commodity price environment.

The start of 2024 brought with it some extreme cold weather which has substantially affected corporate production during the month of January. The failure of an electrical panel at Hemisphere's G pool facility resulted in the loss of power to its operations. Subsequent sustained minus-40-degree weather led to freezing of most of the G pool wells and facility, which experienced five days of complete downtime and an additional few days of lower production as equipment was repaired and wells were brought back on-line. All impacts of this production disruption have been accounted for in the guidance set out below, and the team has now restored operations back to normal levels.

After capital expenditures and asset retirement obligations (ARO), 2024 free funds flow1 (FFF) is estimated to be $19-million, of which approximately 50 per cent is planned to be paid in quarterly dividends as shown in the attached table. The balance of cash will be used for discretionary purposes, which may include potential acceleration of other development or exploration projects, acquisitions, and additional return of capital to shareholders through Hemisphere's NCIB program and/or special dividends.

Management believes that the 2024 development plan provides stable production growth and consistent shareholder returns, while still allowing for modest investment in a new EOR play with exciting growth potential for the company.

Highlights and assumptions of Hemisphere's guidance at $75 (U.S.)/barrel West Texas Intermediate (WTI) are as follows:

• Average annual production of 3,400 boe/d (99 per cent heavy oil), a 10-per-cent increase as compared with 2023;
• Average WTI price of $75 (U.S.)/bbl, with sensitivities shown at $65 (U.S.)/bbl and $85 (U.S.)/bbl;
• Western Canadian Select (WCS) differential of $15.50 (U.S.)/bbl and quality adjustment of $7.50/bbl;
• Canadian-dollar/U.S.-dollar foreign exchange of 1.35;
• Operating and transportation costs of $14.85/boe;
• Royalties and gross overriding royalties on gross revenue of 20 per cent at $75 (U.S.)/bbl WTI, 18 per cent at $65 (U.S.)/bbl WTI and 22 per cent at $85 (U.S.)/bbl WTI;
• Net general and administrative of $3.65/boe;
• Tax costs of $7.29/boe at $75 (U.S.)/bbl WTI, $4.91/boe at $65 (U.S.)/bbl WTI and $9.53/boe at $85 (U.S.)/bbl WTI.

About Hemisphere Energy Corp.

Hemisphere is a dividend-paying Canadian oil company focused on maximizing value-per-share growth with the sustainable development of its high-netback, ultralow-decline conventional heavy oil assets through EOR polymer flood projects. Hemisphere trades on the TSX Venture Exchange as a Tier 1 issuer under the symbol HME and on the OTCQX Venture Marketplace under the symbol HMENF.

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