Q1 Update, Revised Capital & Div Program & Webinar

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:

·    Average 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 £6.12 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 £15.4 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 £31.0 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 £0.36 and P+P NPV10 per share of £0.81 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 (GJ)	Price (C$/GJ)		Volume (GJ)	Avg Floor Price (C$/GJ)	Avg Ceiling Price (C$/GJ)	Volume (mmbtu)	Price ($US/mmbtu)
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 (bbl)	Price (C$/bbl)		Volume (bbl)	Avg Floor Price (C$/bbl)	Avg Ceiling Price (C$/bbl)	Volume (bbl)	Avg Floor Price (C$/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 (bbl)	Price (C$/bbl)		Volume (bbl)	Avg Floor Price (C$/bbl)	Avg Ceiling Price (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 completed 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 £12.3 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 (4)	20,000 - 21,000 boepd
Average Expenses ($/boe) Royalty Operation & Transport	15.3% 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 Jan - Sept. 2023)	USD 19 million

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 rate CAD 0.01	USD 1.27 million

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 £15.2 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.

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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)	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, Violet Wilson, Sam Morris	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 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 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

 

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