TIDMI3E
RNS Number : 3614E
i3 Energy PLC
29 June 2023
29 June 2023
i3 Energy plc
("i3", "i3 Energy", or the "Company")
Q1 2023 Operational and Financial Update, Revised 2023 Capital
and Dividend Programme
Investor Webinar via Investor Meet Company
i3 Energy plc (AIM:I3E) (TSX:ITE), an independent oil and gas
company with assets and operations in the UK and Canada, announces
the following Q1 2023 operational and financial update, along with
its revised 2023 capital and dividend programme.
The Company will hold an investor webinar on Wednesday 5 July
2023 at 3:00 pm BST including a Q&A session (details of which
can be found below).
Q1 Highlights:
-- Av erage Q1 2023 production of approximately 22,773 barrels
of oil equivalent per day ("boepd"), representing a 24% increase
from Q1 2022.
-- Capitalizing on the availability of services, i3 commenced
its Q1 2023 capital programme in late Q4 2022 with a total of 8
gross wells (5.5 net) successfully drilled by the end of Q1 2023 in
its core Central Alberta, Wapiti and Clearwater assets.
-- CO2e emission reduction initiatives continued with
electrification of 12 well sites in Carmangay and Retlaw.
-- As part of i3's commitment to its total shareholder return
model, dividends of GBP6.12 million (USD 7.71 million) were paid in
Q1 2023.
-- Post quarter-end strengthened the Company's balance sheet
with the refinancing of its outstanding loan notes of circa CAD 50
million with a new CAD 100 million facility.
Outlook:
-- Given prevailing and forecast commodity pricing for 2023, i3
has adjusted its full-year 2023 capital and dividend programme.
o Approved capital programme of USD 25 million plus USD 6
million, subject to board approval, for a revised drilling
programme targeting the Company's Clearwater acreage. The approved
and contingent drilling programme in Canada is currently forecast
to deliver 14 gross (8.5 net) oil focussed wells, down from the
previously expected 23 (net 15.2) wells.
o i3 approved capital programme to deliver average annual
production of 20,000 to 21,000 boepd, representing an increase of
up to 3% over 2022 production.
o The Company's adjusted dividend programme is forecast to
return GBP15.4 million in dividends during the first nine months of
2023.
Majid Shafiq, CEO of i3 Energy plc, commented :
"Q1 2023 was another busy quarter for i3 as we commenced our
planned 2023 drilling programme in Canada, drilling production
wells in Central Alberta, Wapiti and key Clearwater wells in our
Dawson and Marten Creek acreage. Average production in Q1 resulted
in another consecutive quarter of growth, dating back to Q2 2021,
which is a testament to the quality of our asset base and
operations staff. Since commencement of our Canadian operations, i3
has invested circa USD 80 million in drilling operations; grown
production from zero to over 24,000 boepd and has returned GBP31.0
million in dividend payments to shareholders.
Given prevailing commodity prices and in line with our
disciplined approach to capital allocation and prudent amortisation
and management of the Company's debt, we have revised down our 2023
capital and dividend programme, protecting the value of the assets
and providing us with the flexibility to ramp up operations should
commodity prices improve. We remain confident that our asset base,
with a 2PDP NPV10 per share of GBP0.36 and P+P NPV10 per share of
GBP0.81 as at 1 January 2023, i3's total shareholder return model
and business strategy which, subject to market conditions,
optimises growth through drilling or alternatively M&A if
commodity prices remain low, will allow us to continue to deliver
strong returns to shareholders."
Production Update
Production in Q1 2023 averaged 22,773 boepd, comprised of 69.6
million standard cubic feet of natural gas per day ("mmcf/d"),
5,569 barrels per day ("bbl/d") of natural gas liquids ("NGLs"),
5,238 bbl/d of oil & condensate and 373 boepd of royalty
interest production. The strong quarterly production represents an
increase of approximately 24% over Q1 2022. Production growth in Q1
2023 was achieved despite the impact of gathering system pressure
constraints and curtailments relating to the ongoing capacity
restrictions in the Pembina Peace Pipeline liquid line in the
Company's Wapiti area, which necessitated selling a higher
proportion of hot gas rather than NGLs, and a reduction in over 500
boepd of production over the quarter. i3 expects these restrictions
will be minimized or resolved by mid Q3 2023 with the commissioning
of Keyera's Key Access Pipeline System ("KAPS"). Despite these
recent constraints, solid performance in Q1 has resulted in i3
realising consecutive quarter-on-quarter increases in production
since Q2 2021, which reflects both the predictable low-decline
nature of the Company's base assets and the quality of its
inventory of development drilling locations.
Period Average Production Comparison: Last
Five Quarters
-------------------- ---------------------------------------------------
Q1 2023 Q4 2022 Q3 2022 Q2 2022 Q1 2022
Production (boepd) 22,773 22,757 20,571 19,502 18,391
Oil & Condensate
(bbl/d) 5,238 5,119 4,396 3,886 3,945
NGLs (bbl/d) 5,569 5,106 5,038 5,099 4,942
Gas (mcf/d) 69,555 72,442 64,180 60,785 54,689
Royalty Interest
(boepd) 373 458 440 385 389
Corporate field production estimates averaged 20,729 boepd, for
the seven-day period ending 31 May 2023, comprised of approximately
63.6 mmcf/d of natural gas, 4,990 bbl/d of NGLs, 4,741 bbl/d of oil
and condensate and an estimated 400 boepd of gross overriding
royalty interest production. Throughout May and into June,
production has been affected by planned facility turnarounds, at
operated and third-party area gas plants. Production over this
period has been further impacted by the ongoing Alberta wildfires,
which have curtailed production in the Company's Lodgepole, Wapiti
and Simonette areas. No more than 15% of corporate production has
been temporarily shut-in at any one time throughout these
events.
Hedging Programme
i3's risk management strategy currently protects USD 45.6
million(1) (CAD 60.7 million) of net operating income for 2023 with
current hedges in place to cover 38.9%, 22.6%, 18.4% and 16.9% of
the Company's projected Q1, Q2, Q3 and Q4 2023 production volumes,
respectively. i3's hedges are as follows:
Swaps Costless Collars Basis Swaps
GAS Volume Price Volume Avg Avg Ceiling Volume Price ($US/mmbtu)
(GJ) (C$/GJ) (GJ) Floor Price (mmbtu)
Price (C$/GJ)
(C$/GJ)
Q1
2023 2,397,500 4.41 1,125,000 5.80 10.09
Q2
2023 960,101 (1.46)
Q3
2023 610,000 2.76 970,652 (1.46)
Q4
2023 920,000 2.76 327,067 (1.46)
Participation Swaps(2)
OIL Volume Price Volume Avg Avg Ceiling Volume Avg Floor
(bbl) (C$/bbl) (bbl) Floor Price (bbl) Price (C$/bbl)
Price (C$/bbl)
(C$/bbl)
Q1
2023 58,500 106.85 162,000 100.00 124.22
Q2
2023 36,400 112.83 113,650 100.00 127.35 91,000 90.00
Q3
2023 138,000 101.10
Q4
2023 138,000 101.10
PROPANE Volume Price Volume Avg Avg Ceiling
(bbl) (C$/bbl) (bbl) Floor Price
Price (C$/bbl)
(C$/bbl)
Q1
2023 45,000 42.00 51.61
Q1 2023 Operational Results
With the success of i3's 2022 drilling programme, the Company
capitalized on the availability of services and accelerated a
portion of its Q1 2023 programme in late Q4 2022. The drilling
programme focussed on operated oil and liquids rich gas wells in
Central Alberta (Cardium), Wapiti (Cardium, Dunvegan), and
Clearwater (operated and non-operated) assets. As part of the 2023
programme, the Company participated in 8 gross (5.5 net) wells
across its drilling portfolio, including 7 gross (5.0 net) operated
wells and 1 gross (0.5 net) non-operated well.
Wapiti
In Q1, i3 and its working interest partner completed the
drilling of 4 gross (2.0 net) horizontal wells in the Wapiti area.
The wells included 3 gross (1.8 net) operated 1.5-mile Cardium
wells and 1 gross (0.2 net) operated 2-mile Dunvegan well. The
Cardium wells were efficiently drilled off a common pad and tied-in
to existing production facilities, in which i3 holds a working
interest, while the Dunvegan well was drilled off an existing pad
and tied-in to the same production facilities.
Production associated with the Q1 programme at Wapiti was
impacted due to high gathering system pressures, which restricted
the Company's ability to optimize the productive capacity of the
new wells. The relevant third-party area operator is scheduled to
debottleneck the gathering system in late Q2 through an upgrade of
existing infrastructure, which is expected to alleviate line
pressure constraints, thereby eliminating restrictions on well
performance, and allowing the Company to optimize production from
its new Wapiti wells.
Additionally, the Wapiti area has experienced unanticipated
apportionment issues associated with the Pembina Peace Pipeline
liquids line, which has resulted in reduced liquids yields realized
by area operators. i3 expects the apportionment issues to be
resolved with the upcoming commissioning of KAPS.
Central Alberta
i3's Q1 capital programme in Central Alberta was focussed
primarily in the greater Lodgepole area, where the Company expanded
its extensive infrastructure network and drilled 1 gross (1.0 net)
well. The Company's infrastructure improvements include a 2.3 km
pipeline to reroute production away from third-party
infrastructure, reducing the fee structure and improving run-time
efficiencies. The rerouting project was executed on-time and below
budget.
i3 drilled 1 gross (1.0 net) horizontal Cardium oil well in the
Lodgepole area of Central Alberta. The well was drilled off an
existing pad-site and tied into its new pipeline system. The well
was drilled on-budget and placed on stream in late Q1. The
performance of the new well has been impacted by disruptions
associated with wildfires in the area. As proximal wildfires
continue, or are brought under control, the Company will remain
focussed on optimizing its production output while maintaining
personnel safety as its highest priority.
Clearwater
In Q1, i3 drilled 3 gross (2.5 net) multilateral horizontal
Clearwater wells at Dawson and Marten Creek as part of its ongoing
exploration and development portfolio of 144 gross sections (109
net sections, equivalent to 280 km2) of prospective Clearwater
lands.
At Dawson, i3 and its 50% partner, drilled the 05-16-081-16W5
six-leg (7,500 m of total lateral length) multilateral horizontal
Clearwater well. The well was drilled with oil-based mud ("OBM")
and placed on production in late January. After recovering the OBM
drilling fluid, the well had an initial 30 days' production
averaging 81 barrels of oil per day ("bopd") before being shut-in
late March due to road bans associated with spring breakup. Scaling
the well performance for an industry standard eight-leg
multilateral horizontal well configuration (10,000 m) translates,
encouragingly, to an estimated 110 bopd rate. With the success of
this initial earning well, i3 and its 50% partner have elected to
drill the second and final earning well at Dawson, which the
Company anticipates will be drilled and on production prior to
year-end.
At Marten Creek, i3 followed up on its 2022 recompletion
activity with 2 gross (2.0 net) exploratory three-leg multilateral
horizontal wells (retrieving a vertical core from one well). The
two exploratory wells were drilled in January, targeting two
separate Clearwater sequences. The core indicated two thick, oil
saturated sands with encouraging porosity and permeability levels
and free oil was detected in the rig process system during drilling
operations. The wells were equipped with temporary production
facilities and placed on production in late January and early
February, respectively. Due to unseasonably warm weather in the
area and early breakup of ice-roads, production equipment had to be
removed from the well-sites before all the associated OBM was
recovered. i3 intends to return this coming winter to complete
testing of the wells to determine deliverability.
Additionally, the Company is pleased to disclose the location of
its 15 section Clearwater land acquisitions, previously announced
on 2 November 2022. These 15 gross (15 net) sections are situated
in the Cadotte and Walrus areas, offsetting i3's existing land
positions, and are proximal to active development and delineation
by industry peers. With these acquisitions, the Company has
increased its position at Cadotte to 18 gross (15 net) sections and
10 gross (10 net) sections at Walrus.
Serenity
i3 continues to work with its partner Europa Oil and Gas to
advance a field development plan for a one-well development for the
Serenity field.
Environmental, Social and Governance ("ESG")
i3 is committed to conducting its operations responsibly and in
accordance with industry best practices. The Company's commitment
to high ESG standards is central to maintaining our social licence
to operate, creating value for all stakeholders, and ensuring
long-term commercial success.
In Q1 2023, i3 invested USD 1.20 million net, before any
government grants, to complete 20 well abandonments and further
advance site reclamations across its portfolio. Incorporating the
results of the Q1 2023 programme, i3 has successfully reduced its
inactive well count by 20% since the beginning of 2022. In 2023, i3
will continue its abandonment and reclamation programme, with
approximately USD 3.91 million being directed to pipeline and
wellbore abandonments, pipeline and facility decommissioning, along
with well site reclamation.
Additionally, i3 continues to reduce its emissions footprint
through its ongoing electrification projects. In Q1 2023, the
Company c ompleted the electrification of 12 gross (10.5 net) well
sites in Carmangay and Retlaw to eliminate the use of propane and
natural gas for power generation.
Return of Capital & Change of 2023 Guidance
The Company is revising its capital and dividend programme for
the remainder of 2023.
The 2023 budget announced in December 2022 was based on
consensus estimates for 2023 oil and gas prices of USD 80/bbl for
WTI and CAD 4.50/GJ for AECO gas. Due to slower than expected
global demand growth and resilient supply dynamics, commodity
prices have subsequently fallen significantly. In particular, the
AECO gas strip forecast for 2023 has fallen to approximately CAD
2.60/GJ while the WTI strip forecast for 2023 has fallen to
approximately USD 72.00/bbl. This reduction in commodity pricing
has impacted the Company's forecasted cash flows for 2023 in line
with the sensitivity guidance i3 released in December 2022,
alongside its original 2023 capital budget.
At the end of May the Company refinanced its outstanding debt of
circa CAD 50 million with a new CAD 100 million facility; of which,
CAD 75 million was drawn to settle the Company's outstanding loan
notes and an additional CAD 25 million provided for general working
capital purposes. To align with the Company's conservative approach
to debt management, the new facility amortises on a straight-line
monthly basis (unlike the debt it replaced, which was
non-amortising). This amortisation schedule will repay the loan
over its three-year term, beginning with USD 16.1 million in
amortisation, interest commitments and associated set-up costs to
be paid throughout the remainder of 2023.
The Company remains committed to its total shareholder return
model, consisting of production growth through drilling and
accretive M&A activity, and shareholder cash returns via
dividends, whilst prudently maintaining capital discipline. i3 is
therefore revising its capital budget for the year to an approved
USD 25 million, and an additional amount of circa USD 6 million,
subject to board approval, for a revised drilling programme
targeting locations in the Company's Clearwater acreage, which in
aggregate is expected to result in the drilling of 14 gross (8.5
net) wells (previously 23 gross (15.2 net) wells). Due to a steady
decline in 2023 gas prices, i3's capital focus will shift from its
large inventory of high-rate liquids rich gas Glauconite and
Cardium locations, to the efficient development and delineation of
its oil focussed Clearwater opportunities at Dawson and its
expanded position in Cadotte, as surface locations are secured and
prepared for operations in mid-to-late Q4. Should the outlook for
commodity prices strengthen in the second half of 2023, the Company
will refresh its capital plans to accelerate its drill ready
low-risk high-impact Glauconite / Falher, Cardium and Dunvegan /
Wilrich inventory in Central Alberta, Wapiti, and Simonette
respectively. By year-end, the Company's revised capital programme
will deliver 4 gross (2 net) wells in Wapiti, 1 gross (1 net) well
in Central Alberta and, subject to board approval of the revised
drilling programme, 9 gross (5.5 net) wells in the Clearwater, with
production for the year forecast to average 20,000 to 21,000 boepd,
pre-drilling of the Clearwater wells. This forecast accounts for
the downtime associated with i3's, and third-party operators,
planned summer turnaround maintenance programmes, which are
currently underway, and some lesser downtime related to
precautionary shutdowns to mitigate risks associated with wildfires
in Alberta. Despite the downtime, the Company's approved capital
programme is forecast to deliver production growth of up to 3% on a
year over year basis (adjusting for planned turnarounds,
curtailments and downtime associated with the wildfires, i3's 2023
revised production forecast would have been expected to deliver
approximately 7% year-over-year growth).
Due to the overarching commodity price outlook, the financial
ratios and restrictions on distributions contained within the Loan
Documentation and to align with forecast 2023 cashflows, the
Company is also revising downward its 2023 expected go forward
dividend by 50% from 0.171 pence/share per month to the equivalent
of 0.0855 pence/share per month. Additionally, the Company will now
commence paying dividends on a quarterly basis and will pay the Q3
dividend in October 2023, subject to being in compliance with (or
obtaining a waiver from) the financial ratios contained within the
Loan Documentation, following the financial ratio test at each
quarter end. Including dividends declared for the first 6 months in
2023 of GBP12.3 million, the forecast aggregate dividend payment to
shareholders for the first nine months of 2023, of 1.28 pence per
share, represents a yield of approximately 7.9% and a forward
running yield of 6.3% based on the closing price of i3's ordinary
shares of 16.26 pence on 28 June 2023. The Company will continue to
review its capital and dividend programmes on a quarterly basis,
with the purpose of balancing its total return model whilst
maintaining balance sheet strength.
The Company's asset base and operating model provides a large
degree of flexibility to modify and to scale up or down its
operations and capital programme. Should commodity prices improve
i3 will have the option to rapidly deploy capital to expand its
revised 2023 drilling programme. Alternatively, during periods of
low commodity pricing and low asset valuations the Company's
business model directs us to focus on growth via acquisitions to
maximise return on capital. It was through such similar initiatives
in 2020 and 2021 that the Company acquired its Canadian asset
portfolio at very low cash flow and reserve-based multiples. i3
aggressively monitors the transaction market in efforts to identify
acquisition opportunities which can be appropriately financed to
provide superior returns to those achieved by organic growth.
i3's revised guidance for 2023, which is now based on strip
pricing for the remainder of the year, is shown below. Sensitivity
to movement in commodity prices is also provided.
2023 Updated Guidance
2023 guidance and assumptions
(3)
Annual Average Production 20,000 - 21,000 boepd
(4)
------------------------------
Average Expenses ($/boe)
Royalty 15.3%
Operation & Transport USD 13.40 - 13.60 / boe
------------------------------
Net Operating Income (5) USD 75 million - 80 million
------------------------------
EBITDA (6) USD 67 million - 72 million
------------------------------
Capital Expenditures USD 25 million
------------------------------
Dividends (7) ( Forecast for USD 19 million
Jan - Sept. 2023)
------------------------------
2023 Updated Commodity Assumptions (8)
WTI (USD/bbl) $72.00/bbl
MSW Oil Differential (USD/bbl) $3.10/bbl
-----------
AECO Natural Gas (CAD/GJ) $2.60/GJ
-----------
USD / CAD Foreign Exchange 1.33
-----------
GBP / CAD Foreign Exchange 1.68
-----------
Next Twelve-Month Net Operating Income Sensitivity (9)
Next twelve months' sensitivity Estimated change to net operating
income
Change in WTI USD 1.00/bbl USD 1.30 million
----------------------------------
Change in AECO CAD 0.10/GJ USD 1.40 million
----------------------------------
Change in CAD/USD exchange USD 1.27 million
rate CAD 0.01
----------------------------------
Notice of Investor Presentation via Investor Meet Company
Management will be hosting a live presentation via Investor Meet
Company on 5 July 2023 at 3:00 pm BST.
The presentation is open to all existing and potential
shareholders. Questions can be submitted pre-event via your
Investor Meet Company dashboard up until 9am the day before the
meeting or at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and to
meet I3 ENERGY PLC via:
https://www.investormeetcompany.com/i3-energy-plc/register-investor
Investors who already follow I3 ENERGY PLC on the Investor Meet
Company platform will automatically be invited.
(1) Unless otherwise denoted, all figures are referenced in USD
($) and assume a foreign exchange rate of 1.33 CAD:USD and 1.26
GBP:USD, which is the average forecast for 2023
(2) i3 receives the average floor price plus 50% of difference
between the average floor price and the realised price if
higher.
(3) i3's 2023 guidance for its Net Operating Income and EBITDA
is based on an annual average production range of 20,000 - 21,000
boepd.
(4) Total annual average production (boepd) is comprised of
approximately 48% Oil, Condensate & NGLs, 51% Natural Gas and
1% Gross Overriding Royalty Production
(5) Net Operating Income is a non-GAAP financial measure and is
defined as gross profit before depreciation and depletion and gains
or losses on risk management contracts, which equals revenue net of
royalty expenses, less production costs
(6) EBITDA is a non-GAAP financial measure and is defined as
earnings before depreciation depletion, financial costs, and
tax
(7) Based on i3's forecast nine-month 2023 ordinary share
dividend of GBP15.2 million (US$19.0 million assuming 1.26 GBP:USD)
to be declared and paid during the first nine months in 2023. The
declaration of dividends is subject to terms of loan facility and
the approval of i3's board of directors, compliance with (or waiver
from) the financial ratios contained within the Company's
refinanced debt documentation and is subject to change. Forecast of
Q4 2023 dividends are not included in current guidance numbers but
will be revisited when the Company reviews its Q4 capital and
dividend programmes this fall.
(8) Commodity prices and foreign exchange reflect full year
average realized prices or rates
(9) Illustrates the expected impact of changes in commodity
prices and the CAD:USD exchange rate on i3's estimate of Net
Operating Income for 2023 of USD 75 million to USD 80 million,
holding all other variables constant. The sensitivity is based on
the commodity price and exchange rate assumptions set forth in the
table above. Calculations are performed independently and may not
be indicative of actual results. Actual results may vary materially
when multiple variables change at the same time and/or when the
magnitude of the change increases.
Qualified Person's Statement
In accordance with the AIM Note for Mining and Oil and Gas
Companies, i3 discloses that Majid Shafiq is the qualified person
who has reviewed the technical information contained in this
document. He has a Master's Degree in Petroleum Engineering from
Heriot-Watt University and is a member of the Society of Petroleum
Engineers. Majid Shafiq consents to the inclusion of the
information in the form and context in which it appears.
Enquiries:
i3 Energy plc c/o Camarco
Majid Shafiq (CEO) Tel: +44 (0) 203 781 8331
WH Ireland Limited (Nomad and
Joint Broker) Tel: +44 (0) 207 220 1666
James Joyce, Darshan Patel
Tennyson Securities (Joint Broker)
Peter Krens Tel: +44 (0) 207 186 9030
Stifel Nicolaus Europe Limited
(Joint Broker) Tel: +44 (0) 20 7710 7600
Ashton Clanfield, Callum Stewart
Camarco
Georgia Edmonds, Violet Wilson, Tel: +44 (0) 203 757 4980
Sam Morris
Notes to Editors:
i3 Energy is an oil and gas Company with a low cost,
diversified, growing production base in Canada's most prolific
hydrocarbon region, the Western Canadian Sedimentary Basin and
appraisal assets in the North Sea with significant upside.
The Company is well positioned to deliver future growth through
the optimisation of its existing 100% owned asset base and the
acquisition of long life, low decline conventional production
assets.
i3 is dedicated to responsible corporate practices and the
environment, and places high value on adhering to strong
Environmental, Social and Governance (" ESG ") practices. i3 is
proud of its performance to date as a responsible steward of the
environment, people , and capital management. The Company is
committed to maintaining an ESG strategy, which has broader
implications to long-term value creation, as these benefits extend
beyond regulatory requirements.
i3 Energy is listed on the AIM market of the London Stock
Exchange under the symbol I3E and on the Toronto Stock Exchange
under the symbol ITE. For further information on i3 Energy please
visit https://i3.energy
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
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