Q3 2022 Operational and Financial Update

RNS Number : 9979E

i3 Energy PLC

02 November 2022

 

2 November 2022

i3 Energy plc

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

Q3 2022 Operational and Financial Update

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 Q3 2022 operational and financial update.

Highlights:

· Canadian portfolio validated through consecutive quarter-on-quarter organic growth since completing Canadian asset acquisitions in Q3 2021

· Record corporate production exceeding 23,000 barrels of oil equivalent per day ("boepd") achieved in October with forecasts in line to reach 24,000 boepd prior to year-end

· Average Q3 production of 20,571 boepd, comprised of 64.2 mmcf/d, 5,038 barrels per day ("bbl/d") of natural gas liquids, 4,396 bbl/d of oil & condensate and 440 boepd of royalty interest production

· 2022 drilling programme nearing completion, delivering wells to date which have met or exceeded pre-drill expectations, with programme costs in line with the budget

· Brought onto production nine operated gross wells (7.93 net) including the following key wells:

o  In Central Alberta, successfully drilled two operated (100% working interest ("WI")), wells targeting the Falher zone in Willesden Green and two operated (65% WI) wells targeting the Belly River formation in Leedale

o  In Simonette North, successfully drilled one operated (100% WI) well targeting the Middle Montney formation

· Post Q3 operations continuing with five gross (4.3 net) operated wells and five non-operated gross (1.4 net) wells to be brought on stream before year-end

· Assuming the full implementation of the Company's previously announced Enlarged Capital Budget (as announced on 9 May 2022), full-year 2022 net operating income ("NOI")⁽¹⁾ is now forecast to be approximately USD 172⁽²⁾ million based on current strip pricing.

· Completed the 13/23c-12 appraisal well on the UK North Sea Serenity field with results currently being evaluated

· Dividends of £5.098 million paid in the quarter with £11.952 million in dividends paid to date in 2022

Majid Shafiq, CEO of i3 Energy plc, commented:

"Q3 2022 was another extremely busy operational period for the Company with extensive drilling operations being conducted in Canada and the UK. We achieved record production levels in the quarter and are on track to exceed 24,000 boepd before year end; a highly significant achievement built on the organic growth of the superbly executed drilling campaign in Canada. The benefits of this drilling success will be largely realised in 2023 as most of the production growth commenced in the second half of the year. Whilst the Serenity appraisal well in the UK didn't prove up the anticipated volumes hoped for, we remain confident in our ability to commercialise value from the discovery. We have commenced our annual budgeting cycle and will announce before year end a 2023 capital programme, based on our total shareholder return model, balancing activities to seek to grow the share price with sustainable growing cash returns to shareholders".

Production Update

Production in Q3 2022 averaged 20,571 boepd, comprised of 64.2 million standard cubic feet of gas per day ("mmcf/d"), 5,038 barrels per day ("bbl/d") of natural gas liquids, 4,396 bbl/d of oil & condensate and 440 boepd of royalty interest production. The strong quarterly production represents an increase of approximately 55% and 6% over Q3 2021 and Q2 2022, respectively. The growth realized in the third quarter marks the fifth consecutive quarter-on-quarter production increase for i3, which reflects both the predictable low-decline nature of the Company's base assets and the efficiency of its 2022 drilling programme to date.

Period Comparison: Last Three Quarters(2)
	Q3 2022	Q2 2022	Q1 2022
Production (boepd)	20,571	19,502	18,391
Oil & Condensate (bbl/d)	4,396	3,886	3,945
NGLs (bbl/d)	5,038	5,099	4,942
Gas (mcf/d)	64,180	60,785	54,688
Royalty Interest (boepd)	440	385	389

Subsequent to Q3, i3 has achieved record corporate production of over 23,000 boepd as new wells were brought on stream, cleaned-up and optimized. The Company remains on track to reach 24,000 boepd by year-end with contribution increases from five gross (3.93 net) Montney and Cardium wells, which are still being cleared up, two gross (2 net) Falher wells recently drilled, tied-in and commencing clean-up and seven gross (3.7 net) recently drilled wells in the Glauconite, Clearwater, and Belly River formations, all of which are expected to be completed and tied-in prior to year-end.

Operational Results

i3 continued the execution of its expanded 2022 drilling programme, and in Q3 2022, the Company brought 11 gross (8.5 net) wells on production, which focussed on operated oil and liquids rich gas wells, in its strategically important Central Alberta (Glauconite), Wapiti (Cardium), Simonette (Montney) and Clearwater (operated and non-operated) assets. In the quarter, i3 participated in six gross (4.2 net) wells across its drilling portfolio, including four gross (3.7 net) operated wells and two gross (0.51 net) non-operated wells. 

Central Alberta (Glauconite, Falher & Belly River)

Based on the Company's successful Q1 Glauconite drilling programme at  Open Creek, i3 drilled, completed, equipped and tied-in three offsetting (100% WI) Glauconite wells from a single pad location. Post clean-up of these 3 wells, the Company's total Glauconite programme year to date has seen total project results outperforming type curve estimates and is on track to deliver pay-outs of approximately 8 months with peak 30-day individual well rates averaging in excess of 600 boepd. The Company spud the final Open Creek Glauconite well of its 2022 programme in October and the well reached total depth on 29 October, with completion operations commencing early November. Initial geological data conforms with pre-drill expectations.

In August, the Company spudded its first two (100% WI) 1.5-mile extended-reach horizontal Falher wells from a common pad at Willesden Green. The wells were drilled on time and on budget and exhibited strong gas response along the entire horizontal lateral lengths, consistent with the large-rate offsetting Falher wells and the Company's geotechnical interpretation. Completion and tie-in operations were finalized in late October, with clean-up flow having now commenced.

In late September, i3 commenced a two-well (1.3 net) Belly River drilling programme in Leedale, further demonstrating the multi-zone development inventory within the Company's Central Alberta portfolio. Drilling and completion operations were finished in late October and the wells are currently being equipped with production facilities and are expected to commence clean-up flow in mid-November.

Wapiti / Elmworth (Cardium)

In Q2, i3 drilled and operated four gross (2.94 net) horizontal Cardium oil wells, consisting of a 1.0 net single-well operation plus three gross (1.94 net) wells drilled from a common surface pad, representing the Company's initial operated development within this core area. The four-well programme has now been tied-in, with realized 30-day production rates of greater than 490 boepd per well, despite strong pipeline backpressure associated with the area gathering system. The Company expects ongoing third-party compression upgrades to alleviate current backpressure curtailment.

Simonette (Montney)

i3's initial two gross (1.99 net) Middle Montney and Lower Montney extended-reach horizontal wells at North and South Simonette, respectively, are now tied-in, following the installation of additional testing equipment. Both wells are now in the clean-up phase, recovering completion fluids associated with the stimulation operations. Peak rates from these high-impact 2-mile horizontal wells are expected to occur mid-to-late Q4 following an extended clean-up period, as is common with high intensity multistage Montney completions.

Clearwater

In Q3, i3 continued advancing the ongoing development and delineation of its Clearwater portfolio with the drilling of its initial six-leg horizontal multilateral well (0.5 net) in the greater Harmon area. This well is expected to begin clean-up flow in November following installation of production facilities.

Subsequent to the end of quarter, i3 and its working interest partner spud two gross (0.6 net) nine-leg multilateral horizontal wells at Marten Hills, with the third and final one gross (0.3 net) well in the programme being drilled at present. The initial two wells are currently being equipped with production facilities and all three wells are planned to commence clean-up flow in November. 

Additionally, i3 has continued to expand its Clearwater portfolio with the addition of 15 gross (15 net) sections of Clearwater rights within its core operating areas. Upon acquisition of these new lands, i3 increased its Clearwater position by approximately 16% to 109 net sections.

2022 Guidance Update

On 9 May 2022, following the excellent results of its initially budgeted drilling programme [and forecasted strength in commodity prices,] i3 announced an increase in its 2022 capital budget by up to 100%, to USD 97 million (the "Enlarged Capital Budget"). The Enlarged Capital Budget and expanded drilling programme had dual objectives - to increase production and grow booked reserves while demonstrating the upside from certain strategic assets in i3's Canadian portfolio. As outlined above, a significant number of the Company's recently drilled operated wells are still in the clean-up flow period or await tie-in to production facilities and are set to contribute during the remainder of the year. Although 2022 operations are not complete, i3 is currently forecasting that the full-year development drilling spend will be approximately in line with the Enlarged Capital Budget; being a major achievement considering industry wide inflationary pressures impacting the costs for oilfield equipment and services.

The Enlarged Capital Budget remains on track to deliver peak production above 24,000 boepd before year-end 2022. i3's full year 2022 NOI is forecasted to be approximately USD 170 million based on current strip prices. This is a reduction of USD$28 million compared to the Q2 Operational Update guidance and is primarily due to the recent softening of liquids and AECO gas forward pricing. Compared to the strip pricing used for the Q2 guidance, full year 2022 WTI oil pricing (to which the majority of i3's oil production is referenced) is down 2.3%, NGL pricing is down 7.4% and AECO gas pricing is down 8.8%.

i3 continues to employ a defensive risk management strategy with current hedges in place to cover 34.6%, 40.7% and 5.7%% of the Company's projected Q4 2022, Q1 2023 and Q2 2023 production volumes, respectively. i3's hedges are as follows:

		Swaps				Costless Collars			Participation Swaps(3)
GAS		Volume (GJ)	Price (C$/GJ)		Volume (GJ)	Avg Floor Price (C$/GJ)	Avg Ceiling Price (C$/GJ)
Q4 2022		3,214,025	3.90
Q1 2023		2,397,500	4.41		1,125,000	5.80	10.09
OIL		Volume (bbl)	Price (C$/bbl)		Volume (bbl)	Avg Floor Price (C$/bbl)	Avg Ceiling Price (C$/bbl)		Avg Floor Price (C$/bbl)
Q4 2022		115,000	94.18		207,000				92.2
Q1 2023		58,500	106.85		162,000	100.00	124.44
Q2 2023		13,650	114.20		90,900	100.00	129.63
PROPANE		Volume (bbl)	Price (C$/bbl)		Volume (bbl)	Avg Floor Price (C$/bbl)	Avg Ceiling Price (C$/bbl)
Q4 2022		46,000	46.93
Q1 2023					45,000	42.00	51.61

Serenity Appraisal Drilling

The 13/23c-12 Serenity appraisal well was drilled in October. The target Captain sand interval was not present in the well, although over 100ft of Captain sands were found lower in the section but were water wet. The well was plugged and abandoned. Data from the well is being analysed and will be incorporated into updated mapping of the field around the 13/23-10 discovery well, where there is the potential for a single well development and for which development and monetization options are being evaluated. The well was drilled significantly below budget and the final cost is expected to be approximately USD 10.5 million (gross). i3's working interest in the field is 75% post the farm-out to Europa Oil and Gas and under the terms of the farm-out agreement i3's paying interest for the well is 53.75% resulting in a net expected well cost to the Company of USD 5.7 million.

Environmental, Social and Governance ("ESG")

i3 continues to advance its initiatives to reduce greenhouse gas emissions. The wellsite electrification project to replace gas powered engines at the Carmangay field is ongoing, while its project to replace high emission chemical pumps has commenced in the Central Alberta field locations.

i3 will be publishing an updated ESG report before year end, which will include disclosure on the assets acquired from Cenovus Energy in 2021. This data was not available when the inaugural report was published on 7 July 2022.

Return of Capital

The Company remains committed to delivering a sustainable monthly dividend as part of its total return model. The Company paid dividends of £5.098 million in Q3 via its monthly dividend programme of 0.1425 pence/share and has paid £11.952 million in dividends to date for 2022.

2023 Capital Budget

The Company has commenced its annual budget exercise for 2023. The results and subsequent learnings from its 2022 drilling programme are being incorporated into the well selection and planning exercise to ensure optimised production and economic delivery. The Company's total return model will endeavour to seek to optimise share price growth and growing sustainable cash return to shareholders.

(1) NOI = revenue minus royalties, opex, transportation and processing.

Unless otherwise denoted, all figures are referenced in USD ($) and assume a foreign exchange rate of 1.30 CAD:USD, which is the average forecast for 2022 and 1.12 GBP:USD which was the average over the period September to October 2022, when costs were incurred for the UK drilling programme.

(2) Unaudited management estimates.

(3) i3 receives the average floor price plus 50% of difference between the average floor price and the realised price if higher. 

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)	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	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.

 

END

 

 

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