Q4 2023 Operational and Financial Update

i3 Energy PLC

26 February 2024

 

26 February 2024

i3 Energy plc

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

Q4 2023 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 Q4 2023 operational and financial update.

Highlights:

·    2023 annual average production of 20,711 barrels of oil equivalent per day ("boepd"), which represents record annual corporate production and is at the high end of the Company's 2023 guidance range of 20,000 - 21,000 boepd

·    Q4 2023 production averaged 20,413 boepd  

·    2023 drilling programme completed, delivering 12 gross (8.0 net) wells, which met or exceeded management's expectations and were completed on budget despite a high inflationary environment

·    In Q4, four gross oil focused wells (2.54 net) were drilled in i3's Central Alberta core area

·    Full year 2023 net operating income ("NOI")¹ (unaudited) is approximated at USD 93 million, in line with guidance, with year-end 2023 Net Debt² expected to be approximately USD 23 million (unaudited).

·    Dividends of £3.083 million were declared and paid during the fourth quarter, with total dividends of £13.298 million declared and £15.338 million paid in 2023. Additionally, the Q4 2023 dividend of £3.084 million was declared and paid in early 2024.

Majid Shafiq, CEO of i3 Energy plc, commented:

"The fourth quarter of 2023 rounded off a highly successful annual capital programme for the Company, with a dozen wells drilled, and which like our 2022 programme, in aggregate exceeded pre-drill expectations and was executed safely and in line with budget. We are very pleased that this programme, combined with our robust, low decline, asset base and a razor-sharp focus on operational efficiency, delivered very strong financial performance, despite a challenging commodity price environment and ensured that the company met its production and net operating income guidance for the year. This is a testament to the quality of our portfolio and the skill, expertise and dedication of our staff. Our strong production and financial performance supported our capital programme, debt re-payments, and dividend payments to shareholders of over £15 million throughout the year, and our extensive drilling inventory provides multiple options to maximise return on capital deployment. As we enter 2024 with continued weakness in commodity price forecasts, in particular for North American gas, our business strategy remains flexible between high rate of return organic drilling and inorganic growth opportunities. The Company is progressing several initiatives which will be incorporated into an optimised 2024 drilling and capital programme, and we look forward to updating the market on this during the course of March."

Production Update

Production in Q4 2023 averaged 20,413 boepd, comprised of 63.9 million standard cubic feet of natural gas per day ("mmcf/d"), 5,180 barrels per day ("bbl/d") of natural gas liquids ("NGLs"), 4,155 bbl/d of oil & condensate and 429 boepd of royalty interest production. The quarterly production represents a decrease of approximately 3% relative to Q3 2023, resulting from conservative capital management during the period of softening gas prices.

		Period Average Production Comparison: Last Five Quarters
		Q4 2023	Q3 2023	Q2 2023	Q1 2023	Q4 2022
Production (boepd)		20,413	21,156	18,529	22,773	22,757
Oil & Condensate (bbl/d)		4,155	4,485	4,247	5,238	5,119
NGLs (bbl/d)		5,180	4,887	4,057	5,569	5,106
Gas (mcf/d)		63,894	68,653	58,965	69,555	72,442
Royalty Interest (boepd)		429	342	398	373	458

Corporate production for the second week of February 2024 averaged 20,042 boepd with 49% representing oil and NGLs. Although intermittent seasonal production curtailments have occurred in 2024, the continued performance of i3's predictable, low-decline reserves, reflects the sustainable production base that the Company has acquired and developed.

Hedging Programme

i3 continues to employ a defensive risk management strategy, protecting approximately USD $41 million of 2024 NOI with current hedges in place as follows:

		Swaps
GAS		Volume (GJ)	Price (C$/GJ)
Q1 2024		2,275,000	3.04
Q2 2024		1,365,000	2.52
Q3 2024		1,380,000	2.52
Q4 2024		1,685,000	2.64
Q1 2025		1,800,000	2.69
					Costless Collars
OIL		Volume (bbl)	Price (C$/bbl)		Volume (bbl)	Avg Floor Price (C$/bbl)	Avg Ceiling Price (C$/bbl)
Q1 2024		189,750	95.89		22,750	100.00	121.32
Q2 2024		182,000	98.45		38,000	95.99	108.46
Q3 2024		84,500	100.08		122,500	100.00	111.11
Q4 2024		115,050	95.95		23,250	100.67	111.90
Q1 2025		20,150	96.32

Operational Results

In total, i3's 2023 Canadian drilling programme was comprised of 10 gross (7.5 net) operated wells and two gross (0.5 net) non-operated wells. The total 2023 capital expenditures of approximately USD 30 million (unaudited) served to efficiently delineate and develop its core areas of Central Alberta, Wapiti and the Clearwater. The well performance associated with the targeted formations, in aggregate, continues to meet or exceed management expectations. Further, the Company diligently managed the long-term performance of its high-impact Simonette Montney oil wells, drilled in 2022, further increasing the Company's conviction and commitment to unlocking the value inherent in these prolific oil weighted assets.

The Q4 2023 programme, focused on Central Alberta, included the drilling, completion and tie-in of two gross (2.0 net) horizontal Glauconite oil locations, one gross (0.53 net) vertical Leduc oil well and a minor working interest (0.01 net) in a non-operated Belly River oil well.

Central Alberta

Based on the Company's track record of successful Glauconite drilling in Central Alberta and the strong well results of industry peers in proximal acreage, i3 drilled, completed, equipped and tied-in two gross (2.0 net) 1-mile Glauconite oil wells from a single surface pad location. Resulting from upfront logistical work and efficient drilling, this two-well development was delivered approximately 13% under budget. The wells were brought on production at the end of December 2023 and have delivered strong performance while continuing to clean-up and recover load fluid.

The 102/03-05-043-02W5 was equipped with a hydraulic pumpjack and has produced peak oil rates of up to 150 bbl/d with associated gas compared to an expected type curve IP30³ of 122 bbl/d, and is currently producing 120 boepd. The 102/14-08-043-02W5 initially flowed without artificial lift at peak oil rates in excess of 400 bbl/d compared to an expected type-curve IP30 of 124 bbl/d. Subsequently, this well has been equipped with a pumpjack and bottom hole insert pump and its last weekly average production is at 232 boepd.  Both wells are in line with expectations and have further optimization potential.

In Q4, i3 and its working interest partners drilled one gross (0.53 net) vertical Leduc oil well into the Homeglen Rimbey D-3 unit in Central Alberta.  This well was drilled into a structural high in the underlying Leduc formation, that targeted un-swept attic oil. The Leduc formation, accurately identified on 3D seismic, was intersected approximately 5-7 metres higher than offsetting producing wells. However, a 7-metre-thick tight dolomite cap was encountered which effectively negated the structural gain. The well was swabbed and produced light oil with a high water cut and is not deemed economic in the current price environment. i3 and its working interest partners will utilize the wellbore for ongoing observation and optimization of the Homeglen Rimbey Unit.

Serenity

The Company continues with its partner Europa Oil and Gas to evaluate commercialisation options for the Serenity discovery.

Environmental, Social and Governance ("ESG")

Expanding on the ESG initiatives executed in 2022, i3 Energy has maintained its commitment to reducing its Scope 1 and Scope 2 carbon emissions. i3 replaced pneumatic pumps with solar-driven alternatives at 11 locations, which is expected to reduce methane emissions by an estimated 445t CO2e. Additionally, the electrification of 13 pumpjack engines in Carmangay and Retlaw are expected to further reduce emissions by an estimated 2,759 tCO2e per year. In a further move towards greenhouse gas reduction, the Company replaced natural gas-fired heaters with electric heaters at one of its Medicine River locations. In collaboration with an offset operator, i3 implemented an Alternative Fugitive Emissions Management Programme (ALT FEMP) at its locations in 2023, which images methane emissions from the air and is anticipated to contribute to a substantial reduction in fugitive emissions by over 50% compared to the previous year. Concurrently, i3 implemented two compressor consolidation projects which are expected to achieve annual emission reductions of 2,728 tCO2e and 681 tCO2e, respectively. These endeavours exemplify i3 Energy's dedication to environmental sustainability and continual progress in ESG practices. In January 2024, the Company was also pleased to publish its 2022 ESG Report.

Return of Capital

The Company remains committed to delivering a sustainable dividend as part of its total return model. During 2023, £13.298 million dividends were declared and £15.338 million or 1.2825 pence per share were paid. Q4 2023 dividends of 0.2565 pence per share were declared in January and paid in February 2024. Subject to Board approval at the end of quarter, the Company expects to pay the Q1 2024 dividend of 0.2565 pence per share in early Q2 2024, with an announcement made in due course, which translates to a forward running yield of 11.5% based on the closing price of i3's ordinary shares on 23 February 2024.

Year-End 2023 Reserves Update

i3's year-end 2023 independent reserves evaluation is in progress and the Company expects to release its final numbers in late March, prior to the dissemination of its 2023 year-end financial statements.

Year-End 2023 and 2024 Quarterly Financial Reporting

As the Company's Canadian shareholding has now increased beyond 10%, i3 is no longer a designated foreign issuer and therefore is no longer eligible for TSX continuous disclosure exemptions previously granted through National Instrument 71-102. As such, the Company will commence issuing TSX required quarterly financial reports for Q1 2024, including a Management Discussion and Analysis (MD&A). Additionally, an Annual Information Form (AIF) will be included as part of the Company's 2023 year-end financial statements which will be issued by 31 March 2024.

Outlook

In lower commodity price environments, when drilling economics soften, i3 Energy evaluates opportunities in the M&A market, where higher returns on investment are often achievable. Accordingly, the Company is currently evaluating several options to enhance shareholder value which include strategic acquisitions and disposition of non-core assets to increase liquidity. 

The capital programme will target the second half of the year, with wells brought on production ahead of stronger winter pricing. Considering the current weak forecast for North American gas prices, the drilling programme currently being planned will focus on oil well locations, but we retain the option to pivot to liquids rich gas wells should gas pricing improve. The Company currently has over 25 locations acquired and surveyed, across our portfolio of assets (including oil and gas wells), which will allow the Company to optimise capital allocation based on forecast H2 oil and gas prices.

Notes:

Unless otherwise denoted, all figures are referenced in USD ($) and assume a foreign exchange rate for the relevant period or point in time.

(1) Net operating income is defined as gross profit before depreciation and depletion, gains or losses on risk management contracts, and other operating income, which equals revenue from the sale of oil and gas and processing income, less production costs

(2) Net Debt is defined as borrowings and leases and trade and other payables, less cash and cash equivalents and trade and other receivables

(3) IP30 is the initial production rate through the first 30 days of a well

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 Andrew Turner, 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 high working interest 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