Q1 2022 Operational and Financial Update

RNS Number : 7044K

i3 Energy PLC

09 May 2022

 

9 May 2022

i3 Energy plc

("i3", "i3 Energy", or the "Company")

Q1 2022 Operational and Financial Update and Expanded Capital Programme

i3 Energy plc (AIM:I3E) (TSX:ITE), an independent oil and gas company with assets and operations in the UK and Canada, is pleased to announce the following Q1 2022 operational and financial update.

Highlights:

· Q1 2022 average production of approximately 18,095 barrels of oil equivalent per day ("boepd"), representing a 100% increase over Q1 2021

· Canadian Capital budget to increase by up to $50 million above the previously announced $47 million 2022 programme (together, the "Enlarged Capital Budget"), focused on continued low-risk, high-return development drilling of i3's core Glauconite and Cardium fairways, with expanded Montney and Clearwater programmes

· F ull-year 2022 net operating income ( "NOI" = revenue minus royalties, opex, transportation and processing) is now forecast to be $241million for 2022 assuming the full implementation of the Company's Enlarged Capital Budget

· Strong drilling results from the Company's operated and non-operated development programmes

· Increased the Company's Clearwater position by ~20% through the acquisition of 15 net sections (38.5 km ² ) of proximal, strategic acreage

· Monthly dividend payments of £1.1827 million commenced in March with year-to-date distributions totalling £3.55 million; a dividend increase is expected to be announced in due course

Majid Shafiq, CEO of i3 Energy plc, commented:

"We are very pleased with the continued strong performance of our Canadian production base, and the resulting cash flow generation in the first quarter of 2022. We exited Q1 above 20,000 boepd, in part due to the contribution from wells drilled as part of our maiden operated drilling programme. Results from wells drilled to date have met or exceeded management's pre-drill geological and production capacity expectations and have been drilled within budget. This, allied with the performance of our base production assets, increased NOI projections and strong commodity price forecasts has led us to plan for an expanded drilling programme for the second half of the year. An increase in dividend pay-out for 2022 is also expected to be announced in due course."

Q1 Production and 2022 Update

Production in Q1 2022 averaged 18,095 boepd, comprised of field estimate sales equalling 53.5 million standard cubic feet of gas per day ("mmcf/d"), 6,006 barrels per day ("bbl/d") of natural gas liquids, 2,789 bbl/d of oil and 376 boepd of gross overriding royalty interest production. The strong quarterly production represents a 100% increase over Q1 2021 and is a direct result of the continued outperformance of i3's low-decline base production, which is forecasted at 11.5%, and strong operational results across the Canadian portfolio. The Company exited Q1 2022 with record production of 20,312 boepd with April field sales estimates averaging 20,256 boepd.

Period Comparison: Q1 2022 vs. Q1 2021(2,4)
	Q1 2022	Q1 2021	% Increase
Production (boepd)	18,095	9,035	100%
Oil (bbl/d)	2,789	1,466	90%
Liquids (bbl/d)	6,006	2,123	183%
Gas (mcf/d)	53,548	31,600	69%
Royalty Interest (boepd)	376	179	110%

At present, i3 has the following hedges in place which cover 37% and 6% of the Company's projected 2022 and 2023 production volumes, respectively, assuming implementation of the Enlarged Capital Budget:

Year	Commodity	Volume	Weighted Average Price
2022 (Q2-Q4)	Gas	12,193,920 GJ	CAD 3.86/GJ
	Oil	740,220 bbls	CAD 92.30/bbl
	Propane	182,500 bbls	USD 46.94/bbl
2023 (Q1-Q2)	Gas	2,622,509 GJ	CAD 4.86/GJ
	Oil	99,369 bbls	CAD 105.99/bbl

2022 Guidance Update

i3's Board of Directors has approved a 2022 capital budget increase of up to an additional $50 million, internally funded through existing operations, over the previously announced Canadian capital budget of $47 million. The increased capital budget is a direct result of the Company's robust operational performance and forecasted strength in commodity prices. The Enlarged Capital Budget of up to $97 million will allow for the expansion and acceleration of i3's key Canadian development opportunities.

The Enlarged Capital Budget is fully-funded through existing Company resources (cash on hand and near-term forecasted cash flow), and is expected to materially enhance 2022 production and NOI while preserving the Company's strong balance sheet. The programme is designed to maximize near-term production and cash flow through further development of the Company's large inventory of predictable and highly-economic Glauconite locations in Central Alberta, while continuing to advance i3's high-impact Simonette Montney position and recently expanded Clearwater holdings (as described below). The revised capital budget is forecast to provide peak production above 24,000 boepd. As a material percentage of the budget will be deployed in Q4 2022, the full impact and benefit of the expanded capital budget will occur in 2023 and beyond.

Based on full deployment of i3's Enlarged Capital Budget, 2022 NOI is now forecasted to be $241 million, with the Company expecting a material working capital surplus that will be available for additional development drilling, opportunistic acquisitions, and distributions to shareholders.

Operational Results

During Q1 2022 the Company participated in 11 gross (5.2 net) wells across its drilling portfolio, including 3 gross (3.0 net) operated wells and 8 gross (2.2 net) non-operated wells. The results across the entire programme, both operated and non-operated initiatives, continue to achieve or exceed management's type curve expectations. The wells were all drilled within budgetary estimates. The drilling programme is continuing into Q2 as detailed below.

i3 continues to systematically expand upon and advance the development of its large inventory of highly profitable booked and un-booked locations, as the Company remains focused on delivering total shareholder returns. Ba sed on current strip pricing, the Company has an identified inventory of 870 gross (465 net) locations, of which approximately 40% are currently booked in GLJ's 2021 Year -end Reserves Report for i3 Energy Canada Ltd.  Of the Company's total inventory, approximately 570 gross (340 net) locations are capable of delivering payback periods of less than one year and provid e average estimated rates of return of approximately 240%. The Company is actively advancing this inventory to bring forward a multi-year development strategy, capitalizing on robust near-term commodity prices and the Company's extensive infrastructure network.

Central Alberta Glauconite

At  Open Creek , i3 brought on production 2 gross (2.0 net) extended-reach horizontal liquids-rich Glauconitic wells. The 103/14-24-042-05W5 and adjacent 102/13-24-042-05W5 wells were drilled and completed on time and under budget. During drilling, both wells encountered excellent quality Glauconitic reservoir rock throughout, ranging from 6 - 9% porosity, with strong gas responses along the entire lateral lengths. Completion of the two wells occurred sequentially, with the two-well pad producing at a combined rate of 8,900 mcf/d over the final full day of testing prior to tie-in on 24 March 2022 . Over the initial 30 days of production, the wells exhibited average per-well production of 778 boe/d, comprised of 3,315 mcf/d, 40 bbl/d of condensate and 185 bbl/d of natural gas liquids. The wells continue to perform above management type curve estimates and are projected to pay out in approximately 8 months.

With the success of the Company's initial two operated wells and its extensive inventory of highly-economic development locations, i3 has accelerated the drilling of 3 gross (3.0 net) extended-reach horizontal, liquids-rich Glauconitic wells at Open Creek. These three wells, drilled from a common surface pad, allow the Company to capture additional operational efficiencies, minimize surface disturbances and enhance overall project economics. To date, i3 has successfully drilled the extended-reach horizontal well pad, with all three wells encountering better reservoir quality than the offsetting 14-24 and 13-24 Glauconitic wells. Sequential completion of each well on the well pad is expected to commence on 15 May 2022, with testing anticipated to begin on 20 May 2022 and tie-in occurring in mid-to-late June.  To date, this three well project has been implemented with costs and timing tracking to budget.

Marten Hills Clearwater

At  Marten Hills , i3 has completed drilling 4 gross (2.0 net), eight-leg multilaterals in the  Clearwater  formation.  The eight-leg multilaterals had an average total lateral length of approximately 12,000m, with each well encountering excellent oil-stained reservoir demonstrating up to 30% porosity. The wells have all finished recovering load fluid and are exhibiting strong initial rates.  The wells on the pad have averaged approximately 214 bbl/d, with a 4% water cut on the initial seven days of production; these rates are materially outperforming the Company's internal type-well forecasts.  With the drilling of these wells, i3 has completed the initial 6 well (3.0 net) earning phase of the Company's  Clearwater  farm-in.  i3 has further elected to drill an additional 2 gross (1.0 net) earning wells, to be spud by 31 March 2023, which will earn an additional 13 sections along the prolific Clearwater trend.  

Simonette Montney

i3's 13-13-061-01W6  Lower Montney  horizontal well at South Simonette was spud on  4 February 2022 . The well was successfully drilled to a total measured depth of 6,350m including an in-zone lateral section of 2,882m in this proven prolific oil-bearing interval. Drilling operations proceeded without issue, with the lateral section encountering geological characteristics consistent with high quality reservoir throughout. The 13-13 well is slated for completion in mid-June, once seasonal road restrictions (due to the spring thaw) have been lifted.

The 13-13 well directly offsets i3's prolific 15-13-061-01W6 well which has already recovered approximately 220,000 bbls of oil and 0.5 BCF of natural gas, exhibiting strong deliverability with peak rates of greater than 1,000 boepd.

Wapiti / Elmworth

In the Wapiti / Elmworth area, i3 participated in 4 gross (0.2 net) non-operated horizontal oil wells, including 3 gross (0.1 net) Cardium wells and 1 gross (0.1 net) Dunvegan well. Each well has been drilled and brought onto production under budget, with results exceeding respective type curves and are projected to pay out in approximately five months.  

Serenity Appraisal Farm-out

As announced on 21 April 2022, i3 has executed a Farm-in Agreement ("FIA") with Europa Oil & Gas Limited ("Europa").

Under the terms of the FIA, Europa will acquire a 25% non-operated working interest ("WI") in a sub-area of UKCS Licence P.2358 Block 13/23c containing the Serenity discovery (the "New Serenity Block") by funding a 46.25% paying interest for one appraisal well on the field, whereafter i3 will retain a 75% operated WI in the New Serenity Block. The gross well cost is estimated to be circa £14mm and is expected to spud in late Q3 2022.

Clearwater Land Expansion

i3 has been focussed on expanding its Clearwater position since the Company's initial entrance into the play through the acquisition of Toscana Energy Income Corporation ("Toscana") in early 2020. The Company is pleased to announce that it has successfully increased its Clearwater land position by approximately 20%, to 94 net sections (241 km²), through a series of strategic, complementary transactions. These acquisitions, including successful bids at Alberta Crown Land Sales, joint ventures, farm-in agreements and partner consolidation, have increased the Company's exposure approximately 90% from the 50 net sections ( 128 km²) acquired as part of the Toscana acquisition.

i3 continues to explore potential opportunities for enhanced exposure to this top-tier play and is eager to accelerate potential exploration and development opportunities across its extensive Clearwater position.

Environmental, Social and Governance ("ESG")

i3 has completed the work for its maiden sustainability report, which is currently undergoing final review prior to publication. The Company's programme to replace its entire inventory of high-bleed pneumatic controllers with low-bleed units or instrument air is now complete. An electrification project has commenced at the Carmangay field to convert pumped wells to electrical power and similar projects are being considered for the Simonette and Retlaw fields. Applications have been made for grant funding under the Government of Alberta's Emissions Reduction Alberta program to help fund electrification and vent reduction projects and under the Alt FEMP (Fugitive Emissions Management Program) to monitor fugitive emissions with alternate methods. The Company received total grants of $2.3mm in 2021 under the Government of Alberta's Site Rehabilitation Program and has applied for a grant of $1.248mm under the Period 5 scheme to abandon 42 wells, with an estimated cost of $0.324mm net to i3.

Return of Capital

i3 initiated its return of capital model in July 2021 with its maiden dividend, returning over £3 mm during 2021 to shareholders.  In December 2021 the Company committed to pay a minimum dividend of £11.827 mm during the course of 2022 and in March 2022 transitioned to a monthly dividend payment schedule to expedite the return of capital to its shareholders. The Company remains committed to delivering a sustainable monthly dividend as part of its total return model, with an underlying policy of distributing up to 30% of free cash flow back to shareholders.  Due to strong operational, drilling and financial performance and supported by current cash flow forecasts, the Company intends to increase the committed dividend payment for 2022 in due course.

(1)  Unless otherwise denoted, all figures are referenced in USD ($) and assume a foreign exchange rate of 1.29 CAD:USD.

(2)  Unaudited management estimates.

(3)  IP30: the average daily production of a well over its initial 30-day production period.

(4)  Production based on accounting month recognition (sales volume) versus actual volumes produced during the month.

END

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 Majid Shafiq (CEO) / Graham Heath (CFO)	c/o Camarco Tel: [phone]
WH Ireland Limited (Nomad and Joint Broker) James Joyce, Darshan Patel	Tel: [phone]
Tennyson Securities (Joint Broker) Peter Krens	Tel: [phone]
Stifel Nicolaus Europe Limited (Joint Broker) Ashton Clanfield, Callum Stewart	Tel: [phone]
Camarco Georgia Edmonds, James Crothers, Violet Wilson	Tel: [phone]

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.

 

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