Hemisphere Energy : Q1 2024 Report

Q1 2024 HIGHLIGHTS

1. • Produced a quarterly average of 3,133 boe/d (99% heavy oil), including significant downtime in January and early February due to extreme cold weather.
   • Attained quarterly revenue of $21.0 million.
   • Maintained low operating and transportation costs of $14.24/boe despite reduced quarterly production.
   • Delivered an operating netback1 of $13.1 million, or $46.04/boe.
   • Realized quarterly adjusted funds flow from operations ("AFF")1 of $10.1 million, or $35.38/boe.
   • Achieved free funds flow1 of $4.4 million, or $0.04 per share.
   • Executed a $5.6 million capital expenditure1 program, including drilling five horizontal wells (three producers, two injectors) in the Company's new Marsden, Saskatchewan oil play.
   • Received Enhanced Oil Recovery ("EOR") project approval from the Ministry of Energy and Resources for a pilot polymer flood in Marsden.
   • Distributed $2.5 million, or $0.025 per share, in dividends to shareholders during the quarter.
   • Purchased and cancelled 869,100 shares for $1.2 million under the Company's Normal Course Issuer Bid ("NCIB").
   • Exited the first quarter with positive working capital1 of $4.2 million, compared to $3.0 million at the end of March 2023.
2. Operating netback, adjusted funds flow from operations (AFF), free funds flow, capital expenditure, and working capital are n on-IFRS measures, or when expressed on a per share or boe basis, non-IFRS ratio, that do not have any standardized meaning under IF RS and therefore may not be comparable to similar measures presented by other entities. Non -IFRS financial measures and ratios are not standardized financial measures under IFRS and may not be comparable to similar financial measure s disclosed by other issuers. Refer to the section "Non -IFRS and Other Specified Financial Measures".

Q1 2024 OPERATIONS UPDATE

Hemisphere's Atlee Buffalo polymer injection projects both continue to perform well, contributing to slight overall corporate production growth. Current production is approximately 3,500 boe/d (99% heavy oil, field estimates between April 1 - May 25, 2024), 3% higher than the fourth quarter of 2023 despite no new wells having been brought online since last September.

In the first quarter of 2024, the Company received EOR project approval from the Ministry of Energy and Resources for a polymer flood pilot in its recently acquired Marsden acreage in Saskatchewan. Subsequently, Hemisphere executed a $5.6 million capital expenditure program, which included drilling five Marsden wells (three producers and two injectors). The Company has recently brought one well on primary production to a single well battery in order to gather initial test data required for EOR project planning. Hemisphere expects to commission a new polymer injection skid and oil treating battery for its Marsden project during the third quarter.

Preparation is also underway for the remainder of Hemisphere's 2024 capital expenditure program, which includes up to nine new wells in the Atlee Buffalo area being drilled and brought on production to existing facilities later this summer.

Annual General and Special Meeting of Shareholders

Hemisphere's Annual General and Special Meeting of Shareholders will be held at 10:00 am (Pacific Daylight Time) on May 30, 2024 in the Walker Room of the Terminal City Club located at 837 West Hastings Street, Vancouver, British Columbia.

2 Q1 2024 HIGHLIGHTS

Q1 2024

FINANCIAL AND OPERATING HIGHLIGHTS

Three Months Ended March 31

($000s except per unit and share amounts)		2024		2023
FINANCIAL
Petroleum and natural gas revenue	$	20,961	$	18,694
Operating field netback(1)		12,958		11,342
Operating netback(1)		13,125		11,114
Cash flow provided by operating activities		2,684		9,034
Adjusted funds flow from operations (AFF)(1)		10,087		8,280
Per share, basic and diluted(1)		0.10		0.08
Free funds flow(1)		4,438		6,815
Net income		6,778		5,958
Per share, basic and diluted		0.07		0.06
Dividends		2,471		2,545
Per share, basic		0.025		0.025
NCIB share repurchases		1,166		264
Capital expenditures(1)		5,649		1,465
Working capital(1)		4,210		3,008
OPERATING
Average daily production
Heavy oil (bbl/d)		3,110		3,143
Natural gas (Mcf/d)		135		169
Combined (boe/d)		3,133		3,171
Oil weighting		99%		99%
Average sales prices
Heavy oil ($/bbl)	$	73.96	$	65.93
Natural gas ($/Mcf)		2.26		3.08
Combined ($/boe)	$	73.53	$	65.51
Operating netback ($/boe)
Petroleum and natural gas revenue	$	73.53	$	65.51
Royalties		(13.83)		(11.47)
Operating costs		(11.14)		(11.08)
Transportation costs		(3.10)		(3.21)
Operating field netback(1)		45.46		39.75
Realized commodity hedging gain (loss)		0.58		(0.80)
Operating netback(1)	$	46.04	$	38.95
General and administrative expense		(3.57)		(2.88)
Interest expense and foreign exchange loss		(0.46)		(0.67)
Tax expense provision		(6.63)		(6.39)
Adjusted funds flow from operations(1) ($/boe)	$	35.38	$	29.01

1. Non-IFRSfinancial measure that is not a standardized financial measure under IFRS Accounting Standards ("IFRS") and may not be comparable to similar financial measures disclosed by other issuers. Refer to "Non-IFRS and Other Financial Measures" section of the MD&A.

COMMON SHARES	May 28, 2024	March 31, 2024	December 31, 2023
Common shares outstanding	97,705,839	98,471,239	99,340,339
Stock options outstanding	7,563,000	7,563,000	7,563,000
Total fully diluted shares outstanding	105,268,839	106,034,239	106,903,339

Hemisphere Energy Corporation

Q1 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS

3

MANAGEMENT'S DISCUSSION AND ANALYSIS

Dated as at May 28, 2024

The following Management's Discussion and Analysis ("MD&A") is a review of the operations and current financial position for the three months ended March 31, 2024 for Hemisphere Energy Corporation ("Hemisphere" or the "Company") and should be read in conjunction with the unaudited consolidated interim financial statements and related notes for the three months ended March 31, 2024, and the audited annual financial statements and related notes for the year ended December 31, 2023. These documents and additional information relating to the Company, including the Company's Annual Information Form, are available on SEDAR+ at www.sedarplus.caor the Company's website at www.hemisphereenergy.ca.

The information in this MD&A is based on the unaudited consolidated interim financial statements which were prepared in accordance with IFRS Accounting Standards ("IFRS") applicable to the preparation of unaudited consolidated interim financial statements including IAS 34 "Interim Financial Reporting", as issued by the International Accounting Standards Board ("IASB").

This MD&A contains non-IFRS measures, additional IFRS measures and forward-looking statements. Readers are cautioned that this document should be read in conjunction with Hemisphere's disclosure under "Non-IFRS and Other Financial Measures" and "Forward-Looking Statements" included at the end of this MD&A. All figures are in Canadian dollars unless otherwise noted.

Business Overview

Hemisphere Energy Corporation ("HEC") was incorporated under the laws of British Columbia on March 6, 1978. On January 2, 2024, HEC formed a wholly-owned subsidiary, Hemi Energy Inc. ("HEI"). On January 2, 2024, HEC and HEI formed two general partnerships under the laws of Alberta; Hemi Energy Partnership, which owns substantially all of the Company's producing assets, and Hemi Energy Partnership II, which may be used to hold other assets of the Company in the future. Unless the context otherwise requires, references to Hemisphere or the Company include all subsidiaries of HEC.

The Company's principal business is the acquisition, exploration, development and production of petroleum and natural gas interests in Canada. It is a publicly traded company listed on the TSX Venture Exchange under the symbol "HME" and on the OTCQX Best Market under the symbol "HMENF". The Company's head office is located at Suite 501, 905 Pender Street West, Vancouver, British Columbia, Canada V6C 1L6.

Atlee Buffalo, Alberta

Atlee Buffalo is Hemisphere's core area, located approximately 85 kilometers north of Medicine Hat. Hemisphere made its first acquisition in the area in late 2013 and owns 17,120 gross acres (17,120 net acres) as of March 31, 2024. The property has three oil pools delineated by vertical wells and defined by 3D seismic.

Hemisphere Energy Corporation

4 Q1 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS

Operating Results

The Company generated adjusted funds flow from operations1 ("AFF") of $10.1 million ($0.10/share, basic and diluted) for the three months ended March 31, 2024, as compared to $8.3 million ($0.08/share, basic and diluted) for the three months ended March 31, 2023. The $1.8 million increase in AFF from operations for the three months ended March 31, 2024 is primarily due to the 18% increase in netbacks over the comparable three months in 2023.

The Company reported net income of $6.8 million ($0.07/share, basic and diluted) for the three months ended March 31, 2024, compared to $5.9 million ($0.06/share, basic and diluted) for the comparable quarter in 2023. This $0.9 million increase in the first quarter of 2024 is primarily the result of a $1.3 million increase in oil and natural gas revenues, offset slightly by a $0.3 million decrease in current and deferred tax expenses for the quarter.

Production

	Three Months Ended March 31
By product:	2024	2023
Oil (bbl/d)	3,110	3,143
Natural gas (Mcf/d)	135	169
Total (boe/d)	3,133	3,171
Oil weighting	99%	99%

In the first quarter of 2024, the Company's average daily production was 3,133 boe/d (99% oil), representing a 1% decrease over the comparable quarter in 2023. Corporate production during the month of January was substantially impacted by extremely cold weather. The failure of an electrical panel at Hemisphere's G pool facility resulted in the loss of power to its operations. Subsequent sustained -40°C weather led to freezing of most of the G pool wells and facility, which experienced 5 days of complete downtime and an additional few days of lower production as equipment was repaired and wells were brought back online.

Average Benchmark and Realized Prices

		Three Months Ended March 31
		2024		2023
Benchmark prices
WTI ($US/bbl)(1)	$	77.45	$	76.35
WCS Diff ($US/bbl)(2)		(19.92)		(24.85)
Exchange rate (1 $US/$C)		1.3514		1.3514
WTI ($C/bbl)		104.66		103.18
WCS Diff ($C/bbl)		(26.91)		(33.58)
WCS ($C/bbl)		77.75		69.60
AECO natural gas ($/Mcf)(3)		2.05		4.35
Average realized prices
Crude oil ($/bbl)		73.96		65.93
Natural gas ($/Mcf)		2.26		3.08
Combined ($/boe)	$	73.53	$	65.51

Notes:

1. Represents posting prices of West Texas Intermediate Oil ("WTI").
2. Represents posting prices of Western Canadian Select ("WCS").
3. Represents the Alberta 30-day spot AECO posting prices.

1

Non-IFRS financial measure. Refer to "Non-IFRS and Other Financial Measures" section of the MD&A.

Hemisphere Energy Corporation

Q1 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS

5

The Company's oil and natural gas revenue and financial results are significantly influenced by changes in commodity prices. The West Texas Intermediate pricing ("WTI") at Cushing, Oklahoma is the benchmark reference price for North American crude oil prices. Canadian oil prices, including Hemisphere's heavy crude oil, are based on price postings, which is WTI-adjusted for transportation, quality and the currency conversion rates from United States dollar ("US$") to Canadian dollar ("C$").

The Company's combined average realized price during the three months ended March 31, 2024 increased by 12% to $73.53/boe from $65.51/boe during the comparable period in 2023. This increase is primarily the result of a US$4.93 decrease in the differential between Western Canadian Select ("WCS") and WTI pricing, combined with a slight increase in realized WTI pricing of US$1.10/bbl for the three months ended March 31, 2024 over the comparable period in 2023.

As at the date of this MD&A, the Company held derivative commodity contracts as follows:

Product	Type	Volume	Price	Index	Term
Crude oil	Put Spread	300 bbl/d	US$50.00(put sell)/US$60.00(put	WTI-NYMEX	Apr. 1, 2024 - Jun. 30, 2024
			buy), net cost US$1.95/bbl
Crude oil	Swap	500 bbl/d	US$15.00	WCS Differential	Mar. 1, 2024 - Sep. 30, 2024
Crude oil	Put Spread	300 bbl/d	US$50.00(put sell)/US$60.00(put	WTI-NYMEX	Jul. 1, 2024 - Sep. 30, 2024
			buy), net cost US$2.25/bbl
Contracts entered after March 31, 2024:
Product	Type	Volume	Price	Index	Term
Crude oil	Put Spread	350 bbl/d	US$50.00(put sell)/US$60.00(put	WTI-NYMEX	Oct. 1, 2024 - Dec. 31, 2024
			buy), net cost US$1.95/bbl
Crude oil	Put Spread	350 bbl/d	US$50.00(put sell)/US$60.00(put	WTI-NYMEX	Jan. 1, 2025 - Mar. 31, 2025
			buy), net cost US$2.15/bbl

At March 31, 2024, the commodity contracts were fair valued as a liability of $0.4 million recorded on the statement of financial position and an unrealized loss of $0.6 million for the three-month period (March 31, 2023 - unrealized gain of $0.1 million).

Revenue

		Three Months Ended March 31
($000s)		2024		2023
Oil	$	20,933	$	18,647
Natural gas		28		47
Total	$	20,961	$	18,694

Revenue for the three months ended March 31, 2024 increased by 12% from the comparable period in 2023. This increase is primarily due to the $8.02/boe increase in the Company's combined average realized price, over the comparable three-month period in 2023.

Hemisphere Energy Corporation

6 Q1 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS

Operating Netback

		Three Months Ended March 31
($000s, except per unit amounts)		2024		2023
Operating netback
Revenue	$	20,961	$	18,694
Royalties		(3,943)		(3,273)
Operating costs		(3,176)		(3,161)
Transportation costs		(884)		(918)
Operating field netback(1)	$	12,958	$	11,342
Realized commodity hedging gain (loss)		167		(228)
Operating netback(1)	$	13,125	$	11,114
Operating netback ($/boe)
Revenue	$	73.53	$	65.51
Royalties		(13.83)		(11.47)
Operating costs		(11.14)		(11.08)
Transportation costs		(3.10)		(3.21)
Operating field netback(1)	$	45.46	$	39.75
Realized commodity hedging gain (loss)		0.58		(0.80)
Operating netback(1)	$	46.04	$	38.95

1. Non-IFRSfinancial measure that is not a standardized financial measure under IFRS Accounting Standards ("IFRS") and may not be comparable to similar financial measures disclosed by other issuers. Refer to "Non-IFRS and Other Financial Measures" section of the MD&A.

Royalties paid in the first quarter of 2024 totaled $3.9 million, of which $3.6 million and $0.3 million were paid to Alberta Crown and Over-Riding Royalty ("ORR") holders, respectively. Royalties for the three months ended March 31, 2024 were $13.83/boe (19% of revenue), as compared to $11.47/boe (18% of revenue) during the same period of 2023. This represents a 7% increase in royalty rate, primarily due to the higher realized commodity prices in the first quarter of 2024, combined with the end of royalty holiday on most producing G pool wells.

Operating costs include all costs for gathering, processing, dehydration, compression, water processing and marketing of the oil and natural gas, as well as additional costs incurred periodically for maintenance and repairs. Operating costs for the three months ended March 31, 2024 were $11.14/boe. This represented a 1% increase of just $0.06/boe from the same period in 2023, despite production outages during the quarter.

Transportation costs include all costs incurred to transport emulsion, oil, and gas sales to processing and distribution facilities. Transportation costs were $3.10/boe during the first quarter of 2024, which is an $0.11/boe or 3% decrease over the comparable quarter in 2023.

Operating netback for the three months ended March 31, 2024 was $46.04/boe, which is $7.09/boe or 18% higher than the comparable period in 2023. This is mainly due to the 12% increase in the Company's combined average realized price, combined with a gain of 173% from realized commodity hedging, over the comparable three months of 2023.

Exploration and Evaluation

Exploration and evaluation expense generally consists of certain geological and geophysical costs, expiry of undeveloped lands, and costs of uneconomic exploratory wells. Exploration and evaluation expenses for the three months ended March 31, 2024 and 2023 were $37 thousand and $29 thousand, respectively.

Hemisphere Energy Corporation

		Q1 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS	7
Depletion and Depreciation
			Three Months Ended March 31
	($000s, except per boe)		2024		2023
	Depletion expense	$	2,061	$	2,014
	Depreciation expense		212		198
	Total	$	2,273	$	2,212
	$ per boe	$	7.97	$	7.75

The depletion rate is calculated using the unit-of-production method on Proved and Probable oil and gas reserves, taking into account the future development costs ("FDC") to develop and produce undeveloped and non-producing reserves.

Depletion and depreciation expenses for the three months ended March 31, 2024 increased to $7.97/boe from $7.75/boe for the same period in 2023. The slight increase in depletion expense for the three months ended March 31, 2024 over the comparable quarter in 2023 is due to allocating the slight 1% decrease in production over the larger reserve base from the Company's December 31, 2023 independent engineer's evaluation report as prepared by McDaniel and Associates Consultants Ltd.

Impairment

At March 31, 2024, the Company performed an assessment of potential impairment or reversal indicators on each of its Cash Generating Units, and management determined that there were no indicators of impairment or reversal identified. As such no impairment test on its petroleum and natural gas assets was required (March 31, 2023 - $nil impairment).

Capital Expenditures

		Three Months Ended March 31
($000s)		2024		2023
Land and lease	$	23	$	25
Geological and geophysical		196		215
Drilling and completions		5,194		154
Facilities and infrastructure		236		1,071
Total capital expenditures(1)	$	5,649	$	1,465

1. Non-IFRSfinancial measure that is not a standardized financial measure under IFRS Accounting Standards ("IFRS") and may not be comparable to similar financial measures disclosed by other issuers. Refer to "Non-IFRS and Other Financial Measures" section of the MD&A.

The capital spent during the three months ended March 31, 2024, included the drilling of five wells in Marsden, Saskatchewan, as well as initial preparatory spending for a summer drilling program in the Atlee Buffalo, Alberta area.

General and Administrative

		Three Months Ended March 31
($000s, except per boe)		2024		2023
Gross general and administrative	$	1,186	$	977
Capitalized general and administrative		(168)		(155)
Total	$	1,018	$	822
$ per boe	$	3.57	$	2.88

General and administrative ("G&A") expenses increased on an absolute basis and per boe basis by 24% over the comparable three months in 2023. These increases in G&A expenses are due to additional

Hemisphere Energy Corporation

8 Q1 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS

investor relations activities, higher overall costs associated with the Company's year-over-year growth, and inflation.

The Company capitalizes some G&A expenses which can be attributed to any costs incurred during the period relating to its development and exploration activities. For the three months ended March 31, 2024, capitalized G&A expenses increased by $13 thousand over the comparable period in 2023. This change relates to an increase in capital activity carried out by the Company during the first quarter of 2024.

Share-based Payments

Share-based payments are non-cash expenses which reflect the estimated value of stock options issued to directors, employees, and consultants of the Company.

During the first quarter of 2024, the Company did not grant any stock options to employees. However, a tranche of 25% of the options granted to an investor relations consultant during the fourth quarter of 2023 vested in the first quarter of 2024. The total valuation of the options that vested in the first quarter of 2024 was $6 thousand, which was expensed as stock-based compensation.

	Three Months Ended March 31
($000s)	2024			2023
Share-based payments (recovery)	$	6	$	22
Total share-based payments (recovery)	$	6	$	22

Finance Expense

		Three Months Ended March 31
($000s, except per boe)		2024		2023
Loan interest	$	133	$	115
Lease interest		54		60
Interest income		(67)		-
Accretion of decommissioning liabilities		50		49
Total finance expense	$	170	$	224
$ per boe - Total	$	0.60	$	0.78
$ per boe - Bank, loan & lease interest	$	0.42	$	0.61

Loan interest, including standby and facility fees, less interest income, for the three months ended March 31, 2024 reduced by $49 thousand or 42%, over the comparable period in 2023. This decrease is primarily the result of an additional $67 thousand of interest income generated on cash balances over the previous year. The Company also recorded $54 thousand of lease interest on right-of-use assets liability under IFRS 16 for the three months ended March 31, 2024. The finance expense per boe for loan and lease interest has decreased by $0.19/boe or 24% over the comparable quarter of 2023 due primarily to the aforementioned interest income from the Company's maintained cash balances.

Accretion of decommissioning liabilities represents the adjusted present value of the Company's decommissioning obligations which include the abandonment and reclamation costs associated with wells and facilities. During the three months ended March 31, 2024, accretion expenses increased marginally by 1% over the comparable periods in 2023.

Hemisphere Energy Corporation

Q1 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS

9

Taxes

The Company has approximately $29 million of tax pools available to be applied against future income for tax purposes, as per its tax assessments at December 31, 2023 (December 31, 2022 - $28 million). Based on the Company's revised corporate structure as of January 2, 2024, the Company has recorded current tax expense of $nil and deferred tax expense of $2.2 million for the three months ended March 31, 2024 (March 31, 2023 - $1.8 million current tax and $0.1 million deferred tax). The Company expects to incur additional deferred taxes in 2024 and any taxes payable beyond this will primarily be a function of commodity prices, capital expenditures and production volumes.

Tax Pools

($000s)	Base Deduction Rate	December 31, 2023	December 31, 2022
Canadian development expense (CDE)	30%	$	20,461	$	22,620
Canadian oil and gas property expense (COGPE)	10%		4,402		3,720
Undepreciated capital cost (UCC)	20-55%		3,494		760
Share issuance costs and other	Various		657		660
Total		$	29,014	$	27,760

Summary of Quarterly Results

	2024		2023			2022
	Mar. 31	Dec. 31	Sep. 30	Jun. 30	Mar. 31	Dec. 31	Sep. 30	Jun. 30
($000s, except per share and unit amounts)	Q1(1)	Q4(2)	Q3(3)	Q2(4)	Q1(5)	Q4(6)	Q3(7)	Q2(8)
Average daily production (boe/d)	3,133	3,386	3,056	2,883	3,171	2,907	2,870	2,883
Heavy oil and natural gas revenue	20,961	22,423	24,342	19,013	18,694	19,564	23,672	30,608
Cash provided by operating activities	2,684	13,496	12,340	9,371	9,034	8,995	12,959	14,926
Net income	6,778	3,981	8,465	5,790	5,958	3,253	9,315	4,131
Per share, basic and diluted	0.07	0.04	0.08	0.06	0.06	0.03	0.09	0.04
Combined average realized price ($/boe)	73.53	71.97	86.57	72.48	65.51	73.16	89.66	116.65

Notes:

1. The decrease in revenue is due primarily to a slight decrease in production. The increase in net income is due primarily to a reduction in operating expenses. Cash provided by operating activities reduced significantly due to changes in non-cash working capital resulting from payments made to income taxes payable.
2. The decrease in revenue is due primarily to a decrease in realized commodity price. The increase in cash provided by operating activities is due primarily to an increase in production. Net income decreased due to a decrease in revenues, plus additional expenses recorded for production and operating, taxes, impairment, share based payments.
3. The increases in revenue and cash provided by operating activities are due primarily to an increase in production. Net income increased primarily due to the increase in revenue.
4. The increases in revenue and cash provided by operating activities are due primarily to an increase in realized commodity price.
5. The increases in revenue and cash provided by operating activities are due primarily to an increase in production. Net income increased due to an increase in revenue plus a reduction in expenses for impairment and share based payments.
6. The decreases in revenue and cash provided by operating activities are due primarily to a decrease in realized commodity price. Net income reduced due to a decrease in revenues and unrealized gains on financial instruments, plus additional expenses recorded for impairment, share based payments and year-end tax adjustments.
7. The decreases in revenue and cash provided by operating activities are due primarily to a decrease in production and realized commodity prices. Net income increased due to an increase in unrealized gains on financial instruments and a gain on fair value of the warrant liability.
8. The increases in revenue and cash provided by operating activities are due primarily to an increase in production and realized commodity prices.

Outstanding Share Capital

	May 28, 2024	March 31, 2024	December 31, 2023
Fully diluted share capital
Common shares issued and outstanding	97,705,839	98,471,239	99,340,339
Stock options	7,563,000	7,563,000	7,563,000
Total fully diluted shares outstanding	105,268,839	106,034,239	106,903,339

On July 14, 2023, the Company renewed its normal course issuer bid ("NCIB"), to purchase and cancel, from time to time, up to 8,670,636 common shares of the Company until July 13, 2024. In the three

Hemisphere Energy Corporation

10 Q1 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS

months ended March 31, 2024, the Company purchased and cancelled 869,100 shares under the NCIB for $1.2 million at an average cost of $1.34 per share.

Subsequent to the quarter ended March 31, 2024, the Company has purchased and cancelled 765,400 shares under the NCIB at an average cost of $1.62 per share.

The Company has the following stock options that are outstanding and exercisable as at March 31, 2024 and May 28, 2024:

Exercise Price	Grant Date	Expiry Date	Balance Outstanding	Balance Exercisable
$0.12	June 17, 2020	June 17, 2025	485,000	485,000
$0.91	December 17, 2021	December 17, 2031	1,690,000	1,690,000
$1.41	March 17, 2022	March 17, 2032	50,000	50,000
$1.27	May 10, 2022	May 10, 2032	150,000	150,000
$1.30	December 14, 2022	December 14, 2032	3,150,000	3,150,000
$1.25	September 11, 2023	September 11, 2033	50,000	50,000
$1.27	December 15, 2023	December 15, 2028	1,988,000	1,952,000
			7,563,000	7,527,000
Weighted-average exercise price		$1.13	$1.13

Dividends

On June 7, 2022, the Company's Board of Directors approved a variable dividend policy targeting approximately 30% of Hemisphere's annual free funds flow to be paid quarterly. During 2022, the Company paid three quarterly dividends at $0.025 per share for total distributions of $7.6 million. During 2023, the Company paid four quarterly base dividends at $0.025 per share and one special dividend at $0.03 per share for total distributions of $13.1 million.

On January 25, 2024, the Company announced a variable dividend totaling $2.47 million to Hemisphere's shareholders at $0.025 per share which was paid on February 23, 2024. Based on the Company's market capitalization of $146.3 million (98.8 million shares issued and outstanding on February 9, 2024 at the market close price of $1.48 per share) at payment date, the dividend returned an annualized yield of 6.8% ($2.47 million dividend payment times four and divided by the $146.3 million market capitalization) to Hemisphere's shareholders.

Further quarterly payments of variable dividends will be subject to board approval, and be conditional on continued production performance, commodity price environment, and compliance with the terms of the Company's credit facility.

Liquidity and Capital Management

The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they become due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company.

The Company prepares annual capital expenditure budgets, which are regularly monitored and updated as considered necessary. Further, the Company utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditures. The Company also attempts to match its payment cycle with collection of crude oil and natural gas revenues on the 25th of each month.

Hemisphere Energy Corporation