REG - i3 Energy PLC - Final Results for the year ended 31 December 2021
12/04/2022 07:00
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RNS Number : 0854I i3 Energy PLC 12 April 2022
12 April 2022
i3 Energy plc
("i3", "i3 Energy", or the "Company")
Final Results for the year ended 31 December 2021
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 audited
results for the year ended 31 December 2021. A copy of the Company's
financial statements will be posted to shareholders and made available shortly
on the Company's website at https://i3.energy (https://i3.energy) . The Notice
of Annual General Meeting ("AGM") will be posted in due course. The AGM will
be held at 11:00 am BST on 30(th) June 2022 at the offices of W H Ireland at
24 Martin Lane, London, EC4R0DR.
Highlights
CANADA UK AND CORPORATE
Completed 20 August 2021 CENOVUS ACQUISITION SERENITY 25% farmout on 1.85 for 1 basis (concluded post year-end)
Total 2021 Revenue £86.8 MILLION £25.1 MILLION Profit after tax
FY 2021 and Q4 2021 Production 12,442 BOEPD AND 18,229 BOEPD 2.84 AND 2.60 PENCE Basic and diluted EPS
Production acquisitions 8,000+ BOEPD £40 MILLION Equity raised
PDP and 2P reserves 45 MMBOE AND 153 MMBOE £3.4 MILLION Dividends declared and paid in 2021
Leasehold position 612k NET ACRES £3.5 MILLION Dividends declared to date in 2022
Net production wells 902 £11.8 MILLION Full-year dividend guidance for 2022
Dividend Distributions
· During the course of 2021, i3 paid total dividends of 0.36 p/share,
equating to a yield of approximately 6.5% for i3's shareholders based on i3's
closing share price on 1 January 2021.
· Announced in December that the Company is committing to pay a
minimum of £11.827 million in dividends during the course of 2022 (3.5x all
dividends paid during 2021), equating to 1.05 pence per share or a 10.2% yield
on the date of announcement, with forecasted year end "2022 Unencumbered Cash"
of US$66 million which could support additional shareholder distributions or
share buybacks, M&A, and supplemental development activity.
Financial Highlights
· 2021 revenue of £86.8 million (net) and net operating income (revenue
less royalties, opex, processing and transportation) of £48.8 million and
cash flow from operations of £24.4 million.
· To fund the Cenovus acquisition on 7 July 2021, i3 raised
approximately £40 million through the placing and subscription of 363,700,000
shares at an issue price of 11 pence per share, a 3% discount to the 15-day
average closing price of 11.4 pence.
· Concluded a reduction of the Company's share premium account by way
of a UK court approvals process in order to free up distributable reserves to
effect the abovementioned dividend payments.
Operational Highlights
· 2021 full-year production averaged 12,442 boepd, with Q4 2021
including the newly integrated Central Alberta assets acquired from Cenovus
Energy (which closed in August 2021) averaging 18,229 boepd (compared to
13,239 boepd in Q3, 9,018 boepd in Q2 and 9,173 boepd in Q1 2021). Q4's
production was comprised of 58 million standard cubic feet of gas per day
("mmscfd"), 5,210 barrels per day ("bbl/d") of NGLs, 3,015 bbl/d of oil and
331 boepd of gross overriding royalty interest production. Q4 2021 production
was impacted by the closing of multiple non-core asset disposals and
December's severe cold weather.
· Increased exposure to Alberta's premier Clearwater play:
• Confirmed presence of oil in three gas wells in i3's extensive
Marten Creek acreage, providing a green light for a winter 2021/22 oil
appraisal programme.
• Farmed-in to a 50% working interest in the Marten Hill's
Clearwater area and participated in two successful development wells which
added c.120 boepd net production, with an option to drill seven additional
wells on the acreage.
• Participated in Crown Land Sales, bolstering acreage through a
15-year lease on seven sections (17.9 km(2)) of land in the emerging Cadotte
area.
· Acquired a 49.5% interest in South Simonette at a cost of US$4.2
million, increasing i3's previously held 49.5% operated interest in this
Montney oil play to 99% and allowing it to bring back on to production three
wells to increase its corporate production by c.720 boepd and adding reserves
of 4.9 MMboe at a before-tax NPV10 valuation of US$30.9 million. Total
estimated 2P reserves as of 31 December 2021 were 10.3 MMboe.
· Elected to drill two oil-weighted wells with a partner at its Wapiti
Elmworth acreage, expected to initially increase i3's production by c.175
boepd, with payback estimated in 1.3 years.
· Acquired c.230 boepd of Wapiti production, conducted six
reactivations to increase production to 471 boepd, significantly exceeding the
expected 310 boepd.
· Brought on stream a gas well located on the Company's Noel acreage
in Northeast British Columbia at an average rate of 650 boepd, exceeding
expectations by 30%.
· Acquired circa 8,400 boepd (51% oil and NGLs) of low decline
production from Cenovus Energy Inc, located within i3's Central Alberta core
area, for a total consideration of CAD65 million (US$53.7 million). The assets
were acquired on excellent metrics of 1.73x next twelve months cashflow,
US$6,381/boepd and US$0.68/boe of 2P reserves and contain 79.5 MMboe of 2P
reserves with an NPV10 of US$193 million as at 1 April 2021, an inventory of
greater than 140 net drilling locations, 80 net reactivation opportunities and
1,140 km network of operated pipelines, and key processing facilities. The
transaction closed on 20 August 2021.
· To increase its focus on its high working interest assets in Central
Alberta, Wapiti / Elmworth, Simonette and the Clearwater play, during Q4 2021
the Company executed multiple non-core disposals with the purpose of reducing
its per boe operating costs, decreasing end-of-life obligations, and releasing
US$945 thousand of decommissioning-related bonds to i3's balance sheet
(previously held with provincial oil and gas authorities to offset potential
end-of-life liabilities). On a combined basis, these disposals reduced i3's
production by approximately 130 boepd from a combined 213 gross (184.5 net)
wells (consisting of 36 gross (34.3 net) active and 177 gross (150.2 net)
inactive wells) and reduced the Company's overall undiscounted asset
retirement obligation by approximately US$9.8 million. The proceeds from these
and future disposals will be utilised to accelerate growth from i3's extensive
inventory of highly economic development locations as the Company remains
focused on delivering total shareholder returns.
· During Q4 the Company brought on stream four gross (1.5 net) highly
economic non-operated horizontal wells within its Central Alberta and Wapiti
core areas, at an average 37% working interest. The programme consisted of
one well targeting the liquids-rich Ellerslie formation, one Belly River oil
producer and two Dunvegan oil wells, which in aggregate contributed net
average daily production over its initial 30-day production period ("IP30
rates") of approximately 600 boepd (65% oil and NGLs) and are collectively
meeting or exceeding i3's forecasted type curves. This non-operated
programme is expected to pay out in approximately one year and serve to
further bolster i3's year-end reserves and add newly identified offsetting
development locations.
· The Company continued to systematically identify and develop its
robust inventory of low-cost, high-return recompletion and reactivation
opportunities, which produce top-tier returns and assist in further reducing
i3's corporate operating costs on a boe basis through the utilisation of the
Company's extensive network of owned and operated infrastructure while
optimising field efficiencies with nominal capital. 16 gross (14 net)
oil-focused recompletions and reactivations were brought on production in Q4,
resulting in net IP30 rates of approximately 240 boepd (65% oil and NGLs).
Cumulatively, the operations were completed on budget and are anticipated to
pay out in substantially less than one year.
· On 20 December 2021, the Company announced a fully funded 2022
capital budget of US$47 million to fund a 12.6 net well operated drilling
programme, non-operated drilling, well reactivations, debottlenecking,
consolidation, and third-party tariff generating projects. This programme is
expected to deliver average corporate production in 2022 above 20,000 boepd,
with peaks reaching 21,000 boepd.
· The Company commenced a hedging program which will result in
approximately 50% of corporate volumes being hedged on a rolling 12 month
forward looking basis.
· Agreed terms with a potential farm-in partner for the Serenity
field appraisal drilling programme and, at year-end, the Company was awaiting
confirmation of funding commitments from that potential farm-in partner before
finalising and executing documentation.
Post Period and Outlook
A summary of key events which occurred after the reporting period are
presented in note 24 (#_Events_after_the) to the financial statements.
The Company's focus for the remainder of 2022 will be on four key areas:
1 The growth of i3's Canadian business through the deployment of capital
into its large proven undeveloped reserves base, operational excellence to
improve uptime and field performance, and strategic upsizing in core areas;
2 Drilling an appraisal well at the Company's Serenity oil discovery
in the UK to prove reserves and to guide future development plans;
3 Dividend distributions to its shareholders of up to 30% of free cash
flow; and
4 Conducting its operations safely and in an environmentally secure
manner.
The Company continuously evaluates opportunities to strengthen its balance
sheet whilst maintaining tight control of its costs and working capital
position.
Majid Shafiq, CEO of i3 Energy plc, commented:
"2021 was another truly transformational year for i3 which saw very
significant growth for the Company across all factors which drive shareholder
value - production, cashflow, reserves and portfolio scale and scope. We
entered the year having completed two acquisitions in late January 2020 which
saw our entry to the Canadian E&P market with circa 9,000 boepd of
production. We have just exited Q1 2022 producing in excess of 20,000 boepd
with year-end audited 2P reserves of 154 MMboe with a valuation of US$775mm
and forecast NOI for the year of US$192mm. Our organic reserve replacement
ratio for the year was over 200%, and this was achieved on the back of
hundreds of well interventions which are a testament to the dedication of all
our staff from field operations to those based in the office. We were also
active throughout the year optimising our portfolio with numerous acquisitions
and divestments, including one substantial transaction, the acquisition of
circa 8,400 boepd in our core Central Alberta area from Cenovus Energy, and
other strategic acquisitions in our Simonette Montney acreage and the
Clearwater play which has given us exposure to significant near-term share
price catalysts. Analysis and prioritisation of our substantial drilling
portfolio over the course of the second half of the year allowed us to
announce in December our inaugural operated drilling program which commenced
in January 2022, and which will see us drilling circa 12.6 net wells during
the first three quarters of the year. In the UK we continued discussions with
potential farminees for our Serenity appraisal well and in March 2022
announced a deal which will allow us to spud the well later this year.
We are also pleased to have commenced dividend payments in 2021 and to have
announced an increased dividend for 2022. We are confident we will add
substantial shareholder return through exploitation of the extensive portfolio
of drilling options we have lined up for 2022.
We are transformed into a strong, diversified production company with
significant near-term growth catalysts over which we have operational control.
I would as always like to thank and pay tribute to all i3 staff, who have
continued to work diligently, professionally and with good humour, whilst
building our business under the difficult circumstances of the global COVID-19
pandemic and also for the continued support of our shareholders and investors
who helped fund and support our growth in 2021."
"Majid Shafiq, Chief Executive Officer"
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) / Graham Heath (CFO) Tel: +44 (0) 203 781 8331
WH Ireland Limited (Nomad and Joint Broker)
James Joyce, Darshan Patel Tel: +44 (0) 207 220 1666
Tennyson Securities (Joint Broker)
Peter Krens Tel: +44 (0) 207 186 9030
Stifel Nicolaus Europe Limited (Joint Broker)
Ashton Clanfield, Callum Stewart Tel: +44 (0) 20 7710 7600
Camarco
Georgia Edmonds, James Crothers, Violet Wilson Tel: +44 (0) 203 757 4986
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.
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/
(https://i3.energy/) .
The information contained within this announcement is deemed by the Company to
constitute inside information under the Market Abuse Regulation (EU) No.
596/2014.
INTERIM Chairperson's and Chief Executive's Statement
Overview of the year
i3 is extremely pleased with the results of 2021, which served to prove the
Company's buy-and-build strategy of using acquisitions, operational focus, and
the drill-bit to create a portfolio of producing assets with realisable upside
from which shareholder value could be created and returned in the form of
share price growth and a cash yield.
Having acquired Toscana Energy Income Corporation ("Toscana") in 2020, with
its modest amount of production, as a foundation atop which to build a
growth-focused production business in the Western Canadian Sedimentary Basin
("WCSB"), followed by the purchase of the entire asset portfolio of Gain
Energy Ltd. ("Gain"), the Company entered 2021 having secured over 9,000 boepd
during one of the most depressed and volatile years in the sector's history.
During a period when most companies hunkered down, i3 bought assets as quickly
as access to capital and deal-flow permitted, as buying at or near market
bottoms is a long-proven strategy for increasing both the margins of safety
and error, providing tremendous torque to an eventual macro-economic recovery.
Our acquisition-led entry into the WCSB during a period which saw
unprecedented commodity price lows positioned the Company for success, and
following a busy period of corporate, financial, and operational amalgamation
of Toscana and Gain into i3 Energy Canada Limited, the Canadian operations
team set to harvesting the low-hanging fruit that existed within these
long-undercapitalised portfolios, while the executive continued to seek
further material asset packages that could be purchased.
On 17 June, i3 announced that numerous acquisition and drilling initiatives it
had concluded or committed to during the course of H1 would result in i3's
production surpassing 10,000 boepd during the second half of the year and were
expected to materially increase the Company's next twelve months ("NTM") net
operating income ("NOI" = revenue minus royalties, opex, transportation and
processing) well-beyond its previous market guidance. To mid-year 2021, i3 had
been able to capture its entire Canadian portfolio at an average of 1.0x NTM
NOI (from June 2021) and US$4,557/boepd.
On 6 July, i3 announced that it had signed an Asset Sale Agreement ("ASA")
with Cenovus Energy Inc., a senior Canadian oil and gas producer, to acquire
certain conventional central Alberta petroleum and infrastructure assets. The
acquisition would include approximately 8,400 boepd (51% oil and NGLs) of
predictable low-decline production, 79.5 MMboe of 2P reserves with an NPV(10)
of US$193 million, as at 1 April 2021, an inventory of greater than 140 net
drilling locations and 80 net reactivation opportunities across approximately
212,000 net acres, a 1,140 km network of operated pipelines, and key
processing facilities. The Cenovus assets complement i3's existing area assets
with approximately 3,090 boepd of overlapping joint working interest
production and associated land positions. The CAD65 million acquisition was
funded through an equity issuance of 363,700,000 shares at an issue price of
11 pence per share, representing a 3% discount to the 15-day average closing
price to 7 July of 11.4p.
The Cenovus acquisition is a continuation of i3's stated strategy of
capitalising on the abnormal market conditions of 2020 and 2021 to create a
cash-generative, all-weather portfolio by efficiently consolidating high
quality undercapitalised assets within our core operating areas. The
production, infrastructure and lands associated with the acquisition directly
overlap our current Central Alberta asset base and provide meaningful
operational synergies. Through this strategic acquisition, i3 significantly
enhances its production, cash flow and reserve base while strengthening its
balance sheet. Furthermore, the Cenovus acquisition enhances i3's ability to
grow future production, free cash flow, and its planned return of capital to
shareholders through dividend payments.
All in, the abovementioned initiatives were concluded at exceptional effective
acquisition metrics of 1.36x NTM NOI, or US$5,533/boepd. In the context of the
market, the Directors believe this to be an outstanding result for such
high-quality production assets. As importantly, i3's acquisitions have
garnered untapped Proven Undeveloped (PUD) and/or Proven plus Probable (2P)
development opportunities, resulting in several highly prospective projects
now existing within our portfolio. The upside potential within i3's South
Simonette, North Simonette and Clearwater positions in Canada and its Serenity
discovery in the UK, as well as redevelopment options of some of our more
mature assets via secondary recovery and infill drilling, present
company-making opportunities that have the potential to deliver multiples of
i3's current production, reserves and cash flow.
The opportunity high-grading process which followed our integration of the
Cenovus assets culminated in the 20 December announcement of a planned US$47
million 2022 capital budget (the "Capital Budget"), such that production and
cash flow can continue to be increased, targeted upside in the Company's key
Clearwater and Simonette Montney plays can be advanced, and the substantial
return of capital to i3's shareholders can be assured.
The Capital Budget, which is fully funded from existing Company resources and
forecast internally generated cash flow, is predicted to provide incremental
peak production of up to 5,250 boepd through the funding of 12.6 net wells (17
gross, 88% i3-operated, including one Montney oil producer at Simonette plus
two (net) oil producers and two non-producing test wells in the Clearwater
play), oil wells in the Cardium and liquids rich gas wells in the Falher and
Glauconitic plays and maintenance capital to support producing wells and
infrastructure. The budget also includes an amount of capital that has been
allocated to fund highly economic, non-operated drilling opportunities as they
arise, and projects which enhance cashflow and increase netbacks such as well
reactivations, debottlenecking, consolidation, and tariff-generating
third-party tie-ins to i3-operated facilities. This activity is expected to
deliver a 26% production increase over the 2022 exit rates predicted under
i3's blowdown case (which considers no capex and a conservatively estimated
natural decline across the entire portfolio of 14%), resulting in average 2022
production above 20,000 boepd with peaks reaching 21,000 boepd. The Capital
Budget focuses on a combination of swift payback and high impact targets in
i3's core operating areas as follows:
Figure one
http://www.rns-pdf.londonstockexchange.com/rns/0854I_1-2022-4-12.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0854I_1-2022-4-12.pdf)
Early results from the abovementioned activities position i3 to achieve or
exceed the initial expectations noted above. Should similar success continue,
the Company will look to accelerate additional capital deployment which will
take advantage of operational momentum and the current favourable commodities
environment. The Company remains highly confident that the continuance of its
Canadian strategy, in accordance with the above, will deliver to its
shareholders meaningful value through both share price appreciation and
long-term cash distributions. The following graphically demonstrates i3's
growth in the WCSB since its entry in 2020; we expect to continue along an
equally exciting trajectory:
Figure two:
http://www.rns-pdf.londonstockexchange.com/rns/0854I_1-2022-4-12.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0854I_1-2022-4-12.pdf)
154 MMBOE 2P reserves in the chart above reflects the Company Interest
reserves as of 31 December 2021.
We continue to actively identify production optimisation and cost reduction
opportunities within our portfolio, focussing on maintaining high uptime,
minimising operating costs, optimising operated processing facilities and
infrastructure, and implementing high return workovers to offset natural
production declines. These efforts continue to increase aggregate average net
production and substantially reduce the decline rates predicted within the
Company's competent persons reports. This is a testament to the quality of the
assets in the portfolio and the dedication of our workforce. In parallel with
operational activity, we continue to review the reservoir performance of the
producing assets and identify mature fields where redevelopment, particularly
through the implementation of relatively low-cost secondary recovery projects,
could materially increase production and ultimate hydrocarbon recovery.
Operating our assets in a safe and secure manner is fundamental to our
business and we continue to advance our health and safety policies and
procedures as we acquire and integrate additional production assets. There
were 106 routine regulatory government inspections during 2021. 83 returned
satisfactory results, 19 were categorised as low risk, and four that were
deemed to be high risk were subsequently remedied.
The Company was very pleased to announce on 2 March 2022 that, regarding its
UK assets, i3 would be welcoming Europa Oil & Gas Limited ("Europa") as a
25% working interest joint venture partner in the Company's Serenity oil
discovery upon the execution of a farm-in, join operating agreement, and trust
deed (each essentially agreed between the parties), in exchange for Europa
funding 46.25% of the next Serenity appraisal well, being planned for H2
2022. The team remains confident in its belief that the Serenity field holds
a company-making resource, and we expect this next appraisal well to prove
that premise. Discussions continue with other potential farminees, and i3 will
consider bringing in additional parties up to the point of drilling
commencement.
Financial Discipline
The Board and Management are focused on delivering consistent value to
shareholders. i3 is committed to being a dividend payer that distributes up to
30% of its free cash flow, and it is protecting this commitment through a
conservative hedging program. The Company has and continues to keep a
substantial portion of its production hedged through risk management contracts
to manage commodity price risk, with additional free cash being redeployed to
acquire production assets conditional on the associated acquisition metrics
competing with the organic returns achievable through the development of our
proven undeveloped (PUD) and 2P inventory. As i3 continues to grow its
portfolio, a proportion of all incremental production will be hedged in order
to secure future cash flow, and the Company will remain commercial in
monetising assets when third-party interest warrants consideration.
With the well-timed acquisitions and capital deployment of the last 24 months,
the Company's assets have continued to outperform the Directors' expectations.
During H2 2021, i3 made dividend distributions totalling £3.417 million, and
on 20 December 2021 the Company committed to pay a minimum dividend of
£11.827 million during the course of 2022. Showing the Directors' confidence
in the consistent performance of the portfolio, on 3 February 2022 i3
announced that this sum would be paid in ten equal increments on a monthly
schedule with its first monthly dividend to be paid in March.
The strong performance of the Company's assets combined with the current
strength in commodity prices will result in i3 having a substantial sum of
unencumbered free cash which can be directed towards additional production
growth initiatives, shareholder distributions or share buybacks, and
deleveraging.
Governance
The Board recognises its responsibility for the proper management of the
Company and is committed to maintaining a high standard of corporate
governance. The Directors also recognise the importance of sound corporate
governance commensurate with the size and nature of the Company and the
interests of its shareholders. The Quoted Companies Alliance has published a
set of corporate governance guidelines for AIM companies, which include a code
of best practice comprising principles intended as a minimum standard, and
recommendations for reporting corporate governance matters. The Directors
intend to comply with the QCA Corporate Governance Guidelines for Smaller
Quoted Companies so far as it is practicable having regard to the size and
current stage of development of the Company. The Board currently comprises two
Executive Directors (being the Chief Executive Officer and the Chief Financial
Officer) and four Non-Executive Directors (including the Interim Chairperson).
The Board's decision-making process is not dominated by any one individual or
group of individuals. The composition of the Board will be reviewed regularly
and modified as appropriate in response to the Company's changing
requirements. The Board has established an Audit and Risk Committee, Corporate
Governance Committee, Health, Safety, Environment and Security Committee,
Reserves Committee, and Remuneration Committee to ensure proper adherence to
sound governance and decision making.
Environmental Stewardship
i3 is fortunate to operate in the UK and Canada which have some of the world's
most stringent and rigorous environmental laws and regulations and the Company
strives to meet or exceed all local, provincial or national environmental
operational, reporting and compliance obligations and abandonment and
reclamation requirements. In Q4 2021 the Company commenced a detailed study of
its recently acquired operated wells and facilities to record baseline
emissions data for the purposes of developing an ESG strategy to meet its
currently stated target of being net zero with respect to Scope 1 and Scope 2
emissions by 2050. The work included an evaluation of potential opportunities
to reduce greenhouse gas emissions and the Company intends to publish in Q2
2022 its maiden annual sustainability report, which will report our emissions,
water use and air quality data and outline our ESG vision and strategy. On
acquisition of its Canadian portfolio in late 2020, the Company commenced
initiatives to reduce GHG emissions from its operated assets. This has
included the replacement of 389 pneumatic controllers which use natural gas as
the operating fluid with low bleed controllers or replaced the operating fluid
with air. The majority of these conversions were conducted in 2021. These
initiatives qualify for carbon credits which can be sold or used to offset
future carbon tax obligations. The Company has also commenced the replacement
where practical and economically feasible of some propane power generation
units with direct connections to utility electricity supply. The Company also
takes very seriously its asset retirement obligations and is an active
participant in the Government of Alberta's Site Rehabilitation Program ("SRP")
from which it has received grants of US$1.8 million in total and
Saskatchewan's Accelerated Site Closure Program ("ASCP") and has a regular and
routine program to abandon non-operational assets and reclaim the associated
land and environment. In 2021 the Company abandoned 17 wells (for a total of
30 including 2020), and 6 pipelines and decommissioned 1 facility and obtained
9 reclamation certificates.
Looking ahead
The Company is very proud of what it has and continues to accomplish since
reinventing itself in 2020 and expects to deliver more of the same. We will
carry on growing our Canadian production business by employing our stated
strategy of being acquisitive when systemic or situational drivers offer good
value, while drilling our ever-growing inventory of high-quality proven
undeveloped and 2P reserves when doing so offers better returns than the
M&A market. In the UK, we remain committed to the further appraisal and
development of Serenity and are looking forward to our H2 2022 drilling
programme.
Beyond our current business as an oil and gas company, we see climate change
as the most urgent matter of our time and deem it critical to act in a manner
that exhibits this concern. Though the world will undoubtedly require oil and
gas for some time yet, we understand the crucial role that hydrocarbon-based
corporates have to play in the transition to net zero and we remain committed
to an evolution of our energy company into one that continues to benefit
society for generations to come.
As always, we extend gratitude to our capital providers for their ongoing
support and to our employees for their relentless commitment to making i3 a
success. Though we operate within a macro environment that is beyond our
control, we believe we are doing the right things to create a very valuable
business that can weather good times and bad.
i3 will continue to manage our Canadian and UK businesses in a manner that
maximizes value creation and distributed returns.
"Linda Beal" "Majid Shafiq"
Linda Beal Majid Shafiq
Non-Executive Interim Chairperson
Chief Executive Officer
11 April 2022
11 April 2022
Consolidated Statement of Comprehensive Income
Notes Year Ended 31 December 2021 Year Ended 31 December 2020
£'000 £'000
Revenue 6 (#_Revenue) 86,763 12,991
Production costs (37,945) (8,075)
Loss on risk management contracts 18 (#_Risk_management_contracts) (5,485) -
Depreciation and depletion 12 (#_Property,_plant,_and) (21,643) (4,854)
Gross profit 21,690 62
Administrative expenses 7 (#_Administrative_expenses) (13,094) (5,755)
Acquisition costs 4 (#_Business_combinations) (256) (1,542)
Gain on bargain purchase and asset dispositions 4 (#_Business_combinations) 25,013 25,211
Operating profit 33,353 17,976
Finance costs 8 (#_Finance_costs) (7,609) (7,368)
Profit before tax 25,744 10,608
Tax (charge) / credit for the year 9 (#_Taxation) (661) 1,110
Profit for the year 25,083 11,718
Other comprehensive income / (loss):
Items that may be reclassified subsequently to profit or loss:
Foreign exchange differences on translation of foreign operations 1,511 (147)
Other comprehensive income / (loss) for the year, net of tax 1,511 (147)
Total comprehensive income for the year 26,594 11,571
Earnings per share Pence Pence
Earnings per share - basic 11 (#_Earnings_per_share) 2.84 3.78
Earnings per share - diluted 11 (#_Earnings_per_share) 2.60 3.46
All operations are continuing.
The accompanying notes form an integral part of these financial statements.
Consolidated Statement of Financial Position
Assets Notes 31 December 2021 31 December 2020
£'000 £'000
Non-current assets
Property, plant & equipment 12 (#_Property,_plant,_and) 224,080 108,509
Exploration and evaluation assets 13 (#_Exploration_and_evaluation) 49,819 48,809
Deferred tax asset 9 (#_Taxation) - 1,052
Other non-current assets 74 678
Total non-current assets 273,973 159,048
Current assets
Cash and cash equivalents 15,335 6,178
Trade and other receivables 14 (#_Trade_and_other_1) 25,503 8,731
Risk management contracts 18 (#_Risk_management_contracts) 814 -
Inventory 665 164
Total current assets 42,317 15,073
Current liabilities
Trade and other payables 15 (#_Trade_and_other) (19,709) (13,156)
Risk management contracts 18 (#_Risk_management_contracts) (925) -
Borrowings and leases 16 (#_Borrowings) (69) (28)
Decommissioning provision 17 (#_Decommissioning_provision) (2,368) (1,234)
Total current liabilities (23,071) (14,418)
Net current assets 19,246 655
Non-current liabilities
Non-current accounts payable 15 (#_Trade_and_other) (557) (3,000)
Borrowings and leases 16 (#_Borrowings) (23,855) (17,958)
Decommissioning provision 17 (#_Decommissioning_provision) (123,155) (65,549)
Deferred tax liability 9 (#_Taxation) (7,486) -
Total non-current liabilities (155,053) (86,507)
Net assets 138,166 73,196
Capital and reserves
Ordinary shares 19 (#_Authorised,_issued_and) 113 70
Deferred shares 19 (#_Authorised,_issued_and) 50 50
Share premium 19 (#_Authorised,_issued_and) 44,203 61,605
Share-based payment reserve 20 (#_Stock-based_payments) 9,102 6,337
Warrants - LNs 16 (#_Borrowings) 2,045 9,714
Foreign currency translation reserve 1,364 (147)
Retained earnings / (accumulated deficit) 81,289 (4,433)
Shareholders' funds 138,166 73,196
The accompanying notes form an integral part of these financial statements.
The consolidated financial statements of i3 Energy plc, company number
10699593, were approved by the Board of Directors and authorised for issue on
11 April 2022. Signed on behalf of the Board of Directors by:
"Majid Shafiq"
Majid Shafiq
Director
Consolidated Statement of Changes in Equity
Ordinary shares Share premium Deferred shares Share-based payment reserve Warrants - LN Foreign currency translation reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 December 2019 11 32,572 50 3,803 11,375 - (16,151) 31,660
Total comprehensive income for the year - - - - - (147) 11,718 11,571
Transactions with owners:
Issue of share capital 1 (#_Authorised,_issued_and) 9 58 27,372 - - - - - 27,430
Exercise of warrants - LNs 20 (#_Stock-based_payments) 1 1,661 - - (1,661) - - 1
Share-based payment expense 20 (#_Stock-based_payments) - - - 2,534 - - - 2,534
Balance at 31 December 2020 70 61,605 50 6,337 9,714 (147) (4,433) 73,196
Total comprehensive income for the year - - - - - 1,511 25,083 26,594
Capital reduction 19 (#_Authorised,_issued_and) - (64,056) - - - - 64,056 -
Transactions with owners:
Issue of share capital 19 (#_Authorised,_issued_and) 36 37,970 - - - - - 38,006
Exercise of options 20 (#_Stock-based_payments) 2 112 - - - - - 114
Exercise of warrants 20 (#_Stock-based_payments) 5 8,572 - (452) (7,669) - - 456
Share-based payment expense 20 (#_Stock-based_payments) - - - 3,217 - - - 3,217
Dividends declared in 2021 19 (#_Authorised,_issued_and) - - - - - - (3,417) (3,417)
Balance at 31 December 2021 113 44,203 50 9,102 2,045 1,364 81,289 138,166
The accompanying notes form an integral part of these financial statements.
The following describes the nature and purpose of each reserve within equity:
Reserve Description and purpose
Ordinary shares Represents the nominal value of shares issued
Share premium account Amount subscribed for share capital in excess of nominal value
Deferred shares Represents the nominal value of shares issued, the shares have full capital
distribution (including on wind up) rights and do not confer any voting or
dividend rights, or any of redemption
Share-based payment reserve Represents the accumulated balance of share-based payment charges recognised
in respect of share options granted by the Company less transfers to retained
deficit in respect of options exercised or cancelled/lapsed
Warrants - LNs Represents the accumulated balance of share-based payment charges recognised
in respect of warrants granted by the Company in respect to warrants granted
to the loan note holders
Foreign currency translation reserve Exchange differences arising on consolidating the assets and liabilities of
the Group's non-Pound Sterling functional currency operations (including
comparatives) recognised through the Consolidated Statement of Other
Comprehensive Income.
Retained earnings Cumulative net gains and losses recognised in the Consolidated Statement of
Comprehensive Income
Note: The issued share capital comprises of both ordinary and deferred
shares and the consolidated nominal value exceeds the required minimum issued
capital of £50,000.
Consolidated Statement of Cash Flow
Notes Year ended 31 December 2021 Year ended 31 December 2020
£'000 £'000
OPERATING ACTIVITIES
Profit / (loss) before tax 25,744 10,608
Adjustments for:
Depreciation and depletion 12 (#_Property,_plant,_and) 21,643 4,854
Gain on bargain purchase and asset dispositions 4 (#_Business_combinations) (25,013) (25,211)
Finance costs 8 (#_Finance_costs) 7,609 7,368
Unrealised loss on risk management contracts 18 (#_Risk_management_contracts) 111 -
Unrealised FX (gain) / loss 7 (#_Administrative_expenses) (154) 68
Share-based payments expense - employees (including NEDs) 7 (#_Administrative_expenses) 3,217 336
Operating cash flows before movements in working capital:
(Increase) in trade and other receivables (15,297) (7,217)
Increase in trade and other payables 6,862 4,974
(Increase) / decrease in inventory (283) 69
Net cash from / (used in) operating activities 24,439 (4,151)
INVESTING ACTIVITIES
Business acquisitions 4 (#_Business_combinations) (37,079) (18,474)
Cash assumed on business acquisitions 4 (#_Business_combinations) - 262
Expenditures on property, plant & equipment (9,465) (229)
Disposal of property, plant & equipment 529 -
Expenditures on exploration and evaluation assets (3,317) (17,403)
Expenditure on decommissioning oil and gas assets 17 (#_Decommissioning_provision) (648) (131)
Tax credit for R&D expenditure 9 (#_Taxation) 487 383
Net cash used in investing activities (49,493) (35,592)
FINANCING ACTIVITIES
Proceeds on issue of ordinary shares, net of issue costs 19 (#_Authorised,_issued_and) 38,125 27,253
Interest and other finance charges paid 8 (#_Finance_costs) (448) (114)
Lease payments 16 (#_Borrowings) (30) (10)
Dividends paid 19 (#_Authorised,_issued_and) (3,417) -
Net cash from financing activities 34,230 27,129
Effect of exchange rate changes on cash (19) (278)
Net Increase / (decrease) in cash and cash equivalents 9,157 (12,892)
Cash and cash equivalents, beginning of year 6,178 19,070
CASH AND CASH EQUIVALENTS, END OF YEAR 15,335 6,178
Included within cash and cash equivalents is £315 thousand of restricted
cash, which relates to guarantees for product marketing.
Non-current accounts payables reconciliation is show in note 15
(#_Trade_and_other) and the debt reconciliation is shown in note 16
(#_Borrowings) .
The accompanying notes form an integral part of these financial statements.
Notes To the Group Financial Statements
1 General information
i3 Energy plc ("the Company") is a Public Company, limited by shares,
registered in England and Wales under the Companies Act 2006 with registered
number 10699593. The Company's ordinary shares are traded on the Toronto Stock
Exchange and the AIM Market operated by the London Stock Exchange. The address
of the Company's registered office is New Kings Court, Tollgate, Chandler's
Ford, Eastleigh, Hampshire, SO53 3LG.
The Company and its subsidiaries (together, "the Group") principal activities
consist of the appraisal of oil and gas assets on the UK Continental Shelf and
of oil and gas production in Western Canadian Sedimentary Basin.
2 Basis of preparation
The financial statements of i3 Energy plc have been prepared in accordance
with UK-adopted international accounting standards in accordance with the
requirements of the Companies Act 2006 and in accordance with the requirements
of the AIM rules.
The consolidated financial statements have been prepared under the historical
cost convention, as modified by the financial assets and financial liabilities
(including derivative instruments) at fair value through profit or loss.
The financial information is presented in Pounds Sterling (£, GBP), which is
the Company's functional currency, and rounded to the nearest thousand unless
otherwise stated. The functional currency of the Company's UK subsidiary, i3
Energy North Sea Limited, is GBP, and the functional currency of its Canadian
subsidiary, i3 Energy Canada Limited, is CAD.
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied unless otherwise stated.
Basis of Consolidation
The consolidated financial statements consolidate the audited financial
statements of i3 Energy plc and the financial statements of its subsidiary
undertakings made up to 31 December 2021.
Subsidiaries are entities over which the Group has control. The Group controls
an entity when the Group is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They are
de-consolidated from the date that control ceases.
When necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with the Group's
accounting policies. All intra-group assets and liabilities, equity, income,
expenses, and cash flows relating to transactions between members of the Group
are eliminated in full on consolidation.
Going concern
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future. Thus, they
continue to adopt the going concern basis of accounting in preparing the
financial statements. The use of this basis of accounting takes into
consideration the Group's current and forecast financing position, additional
details of which are provided in the going concern section of the Directors'
Report.
3 Significant accounting policies
Financial instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and cash held on current
account or on short-term deposits at variable interest rates with original
maturity periods of up to three months. Any interest earned is accrued monthly
and classified as interest income within finance income.
Trade and other receivables
Trade and other receivables are initially recognised at fair value when
related amounts are invoiced then carried at this amount less any impairment
of these receivables using the expected credit loss model. A provision for
impairment is made when there is objective evidence (such as the probability
of insolvency or significant financial difficulties of the debtor) that the
Company will not be able to collect all of the amounts due under the original
terms of the invoice. The carrying amount of receivables is reduced through
use of an allowance account. Impaired debts are derecognised when they are
assessed as uncollectible.
Trade and other payables
These financial liabilities are all non-interest bearing and are initially
recognised at the fair value of the consideration payable.
Loan Notes
These financial liabilities are all interest bearing and are initially
recognised at amortised cost and include the transaction costs directly
related to the issuance. The transaction costs are amortised using the
effective interest rate method over the life of the Loan Notes.
Financial liabilities at Fair Value Through Profit or Loss ("FVTPL")
Financial liabilities at FVTPL comprise of the Group's risk management
contracts and non-current accounts payable. Financial liabilities are
classified as at FVTPL when the financial liability is (i) contingent
consideration that may be paid by an acquirer as part of a business
combination to which IFRS 3 applies, (ii) held for trading, or (iii) it is
designated as at FVTPL.
A financial liability is classified as held for trading if:
· it has been incurred principally for the purpose of repurchasing it
in the near term; or
· on initial recognition it is part of a portfolio of identified
financial instruments that the Company manages together and has a recent
actual pattern of short-term profit-taking; or
· it is a derivative that is not designated and effective as a hedging
instrument.
A financial liability other than a financial liability held for trading or
contingent consideration that may be paid by an acquirer as part of a business
combination may be designated as at FVTPL upon initial recognition if:
· such designation eliminates or significantly reduces a measurement or
recognition inconsistency that would otherwise arise; or
· the financial liability forms part of a group of financial assets or
financial liabilities or both, which is managed, and its performance is
evaluated on a fair value basis, in accordance with the Company's documented
risk management or investment strategy, and information about the grouping is
provided internally on that basis; or
· it forms part of a contract containing one or more embedded
derivatives, and IFRS Financial Instruments: Recognition and Measurement
permits the entire combined contract (asset or liability) to be designated as
at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any gains or
losses arising on re-measurement recognised in profit or loss. The net gain or
loss recognised in profit or loss incorporates any interest paid on the
financial liability and is included in the 'other gains and losses' line item
in the statement of comprehensive income.
Risk management contracts
Financial risk management contracts are measured and recognised in accordance
with the Group's accounting policy for financial liabilities at FVTPL as
described above. Physical risk management contracts represent physical
delivery sales contracts in the ordinary course of business and are therefore
not recorded at fair value in the consolidated financial statements.
Settlements on these physical risk management contracts are recognised within
realised gains or losses on risk management contracts at the time of
settlement.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts
are treated as separate derivatives when their risks and characteristics are
not closely related to those of the host contracts and the host contracts are
not measured at FVTPL.
Leases
Lease liabilities are initially measured at the present value of lease
payments unpaid at the commencement date. Lease payments are discounted using
the incremental borrowing rate (being the rate that the lessee would have to
pay to borrow the funds necessary to obtain an asset of similar value in a
similar economic environment with similar terms and conditions) unless the
rate implicit in the lease is available. The Group currently uses the rate
implicit in the lease as the discount rate for all leases. For the purposes of
measuring the lease liability, lease payments comprise fixed payments.
Right-of-use assets are measured at cost, which comprises the initial
measurement of the lease liability, plus any lease payments made prior to
lease commencement, initial direct costs incurred and the estimated cost of
restoration or decommissioning, less any lease incentives received. The
right-of-use assets is depreciated on a straight-line basis over their
expected useful lives. Right-of-use assets are subject to an impairment test
if events and circumstances indicate that the carrying value may exceed the
recoverable amount.
Lease repayments made are allocated to capital repayment and interest so as to
produce a constant periodic rate of interest on the remaining lease liability
balance.
Right-of-use assets are presented within property, plant, and equipment. Lease
liabilities are presented within borrowings and leases. In the cash flow
statement, lease repayments (both the principal and interest portion) are
presented within cash used in financing activities, except for payments for
leases of short-term and low-value assets and variable lease payments, which
are presented within cash flows from operating activities.
Leases of low-value items (such as office equipment) and short-term leases
(where the lease term is 12 months or less) are expensed on a straight-line
basis to the statement of comprehensive income.
Inventory
Inventories comprise oil and gas in tanks and field parts and supplies, all of
which are stated at the lower of production cost (including royalties,
depletion and amortisation of plant, property, and equipment), and net
realisable value. Net realisable value is the estimated selling price in the
ordinary course of business less marketing costs. The cost of inventory is
expensed in the period in which the related revenue is recognised.
Equity
Equity instruments issued by the Company are usually recorded at the proceeds
received, net of direct issue costs, and allocated between called up share
capital and share premium accounts as appropriate.
Foreign currency
Transactions denominated in currencies other than functional currency are
translated at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are
re-translated at the rate of exchange ruling at the balance sheet date. All
differences that arise are recorded in the statement of comprehensive income.
The functional currency of the Company is GBP, and the Group results and
financial position are presented in GBP.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group's foreign operations are translated at exchange
rates prevailing on the reporting date. Income and expense items are
translated at the average exchange rates for the period, unless exchange rates
fluctuate significantly during that period, in which case the exchange rates
at the date of transactions are used. Exchange differences arising, if any,
are recognised in other comprehensive income and accumulated in a separate
component of equity (attributed to non‑controlling interests as
appropriate).
Taxation
Tax is recognised in the Consolidated Statement of Comprehensive Income,
except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax is also
recognised in other comprehensive income or directly in equity respectively.
Deferred tax is accounted for using the balance sheet liability method in
respect of temporary differences arising from differences between the carrying
amount of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit. However,
deferred tax liabilities are not recognised if they arise from the initial
recognition of goodwill; deferred tax is not accounted for if it arises from
initial recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss.
In principle, deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profit will be available against which
deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Company is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred tax assets and liabilities relate to taxes levied by the
same taxation authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a net basis.
Deferred tax is calculated at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled. Deferred tax
assets and liabilities are not discounted.
Intangible assets - Exploration and evaluation expenditures (E&E)
Development expenditure
Expenditure on the construction, installation, and completion of
infrastructure facilities such as platforms, pipelines and the drilling of
development wells, including service, is capitalised initially within
intangible fixed assets and when the well has formally commenced commercial
production, then it is transferred to property, plant and equipment and is
depreciated from the commencement of production as described in the accounting
policy for property, plant and equipment.
Drilling costs and intangible licences
The Group applies the successful efforts method of accounting for oil and gas
assets, having regard to the requirements of IFRS 6 'Exploration for and
Evaluation of Mineral Resources'. Costs incurred prior to obtaining the legal
rights to explore an area are expensed immediately to the Statement of
Comprehensive Income.
Expenditure incurred on the acquisition of a licence interest is initially
capitalised within intangible assets on a field-by-field basis. Costs are
held, unamortised, within Petroleum mineral leases until such time as the
exploration phase of the field area is complete or commercial reserves have
been discovered. The cost of the licence is subsequently transferred into
property, plant and equipment and depreciated over its estimated useful
economic life.
Exploration expenditure incurred in the process of determining exploration
targets is capitalised initially within intangible assets as drilling costs.
Drilling costs are initially capitalised on a well-by-well basis until the
success or otherwise has been established. Drilling costs are written off on
completion of a well unless the results indicate that hydrocarbon reserves
exist and there is a reasonable prospect that these reserves are commercially
viable. Drilling costs are subsequently transferred into 'Drilling
expenditure' within property, plant and equipment and depreciated over their
estimated useful economic life.
Impairment
The Group assesses at each reporting date whether there is an indication that
an asset may be impaired. This includes consideration of the IFRS 6 impairment
indicators for any intangible exploration and evaluation expenditure
capitalised as intangible assets. Examples of indicators of impairment include
whether:
(a) the period for which the entity has the right to explore in the specific
area has expired during the period or will expire in the near future and is
not expected to be renewed.
(b) substantive expenditure on further exploration for and evaluation of
mineral resources in the specific area is neither budgeted nor planned.
(c) exploration for and evaluation of mineral resources in the specific area
have not led to the discovery of commercially viable quantities of mineral
resources and the entity has decided to discontinue such activities in the
specific area.
(d) sufficient data exist to indicate that, although a development in the
specific area is likely to proceed, the carrying amount of the exploration and
evaluation asset is unlikely to be recovered in full from successful
development or by sale.
If any such indication exists, or when annual impairment testing for an asset
is required, the Group makes an estimate of the asset's recoverable amount,
which is the higher of its fair value less costs to sell and its value in use.
Any impairment identified is recorded in the statement of comprehensive
income.
Property, plant and equipment
Oil and gas assets - cost
Oil and gas assets are accumulated generally on a cost generating unit (CGU)
basis and represent the cost of developing the commercial reserves discovered
and bringing them into production, together with the intangible exploration
and evaluation asset expenditures incurred in finding commercial reserves
transferred from intangible exploration and evaluation assets. The cost of oil
and gas properties also includes the cost of directly attributable overheads,
borrowing costs capitalised and the cost of recognising provision for future
restoration and decommissioning.
Oil and gas assets - depreciation
Oil properties, including certain related pipelines, are depreciated using a
unit-of-production method. The cost of producing wells is amortised over
proved plus probable reserves. Licence acquisition, common facilities and
future decommissioning costs are amortised over total proved plus probable
reserves. The unit-of-production rate for the depreciation of common
facilities takes into account expenditures incurred to date, together with
estimated future capital expenditure expected to be incurred relating to as
yet undeveloped reserves expected to be processed through these common
facilities.
Oil and gas assets - impairment
An impairment test is performed whenever events and circumstances arising
during the development or production phase indicate that the carrying value of
an oil and gas property may exceed its recoverable amount.
The carrying value is compared against the expected recoverable amount of the
asset, generally by reference to the present value of the future net cash
flows expected to be derived from production of commercial reserves. The
cash-generating unit applied for impairment test purposes is generally the
field, except that a number of field interests may be grouped as a single
cash-generating unit where the cash inflows of each field are interdependent.
Any impairment identified is charged to the income statement. Where conditions
giving rise to impairment subsequently being reversed, the effect of the
impairment charge is also reversed as a credit to the income statement, net of
any depreciation that would have been charged since the impairment.
Non-oil and gas assets
Property, plant and equipment is stated at cost less accumulated depreciation
and any accumulated impairment losses. Depreciation is provided on all
property, plant, and equipment to write off the cost less estimated residual
value of each asset over its expected useful economic life on a straight-line
basis at the following annual rates:
· Office equipment - 20% or straight line over the life of the
equipment, whichever is the lesser
· Field equipment - between 5% and 25%
All assets are subject to annual impairment reviews where indicators of
impairment are present.
Property, plant, and equipment - disposals
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected to arise from the continued use of
the asset. The gain or loss arising on the disposal or retirement of an asset
is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in profit or loss.
Decommissioning provision
Liabilities for decommissioning costs are recognised when the Group has an
obligation to plug and abandon a well, dismantle and remove a facility or an
item of plant and to restore the site on which it is located, and when a
reliable estimate of that liability can be made. Where an obligation exists
for a new facility or item of plant, such as oil production or transportation
facilities, this liability will be recognised on construction or installation.
Similarly, where an obligation exists for a well, this liability is recognised
when it is drilled. An obligation for decommissioning may also crystallise
during the period of operation of a well, facility or item of plant through a
change in legislation or through a decision to terminate operations; an
obligation may also arise in cases where an asset has been sold but the
subsequent owner is no longer able to fulfil its decommissioning obligations,
for example due to bankruptcy. The amount recognised is the present value of
the estimated future expenditure determined in accordance with local
conditions and requirements. The provision for the costs of decommissioning
wells, production facilities and pipelines at the end of their economic lives
is estimated using existing technology, at future prices, depending on the
expected timing of the activity, and discounted using a risk-free rate.
An amount equivalent to the decommissioning provision is recognised as part of
the corresponding intangible asset (in the case of an exploration or appraisal
well) or property, plant, and equipment. The decommissioning portion of the
property, plant and equipment is subsequently depreciated at the same rate as
the rest of the asset. Other than the unwinding of discount on or utilisation
of the provision, any change in the present value of the estimated expenditure
is reflected as an adjustment to the provision and the corresponding asset
where that asset is generating or is expected to generate future economic
benefits. If government assistance is obtained to reduce the liability, the
carrying value of the decommissioning provision and the corresponding E&E
or PP&E asset are reduced by the estimated amount of the extinguished
liability.
Joint operations
The majority of the Group's exploration and production activities are
conducted jointly with others and, accordingly, these consolidated financial
statements reflect only the Group's interest in such activities.
Revenue
Revenue from contracts with customers is recognised, net of royalties, when or
as the Group satisfies a performance obligation by transferring control of a
promised good or service to a customer. The transfer of control of oil,
natural gas, natural gas liquids and petroleum, and other items usually
coincides with title passing to the customer and the customer taking physical
possession. The Group principally satisfies its performance obligations at a
point in time; the amounts of revenue recognised relating to performance
obligations satisfied over time are not significant.
When, or as, a performance obligation is satisfied, the Group recognises as
revenue the amount of the transaction price that is allocated to that
performance obligation. The transaction price is the amount of consideration
to which the group expects to be entitled. The transaction price is allocated
to the performance obligations in the contract based on standalone selling
prices of the goods or services promised.
Contracts for the sale of commodities are typically priced by reference to
quoted prices. Revenue from term commodity contracts is recognised based on
the contractual pricing provisions for each delivery. Certain of these
contracts have pricing terms based on prices at a point in time after delivery
has been made. Revenue from such contracts is initially recognised based on
relevant prices at the time of delivery and subsequently adjusted as
appropriate. All revenue from these contracts, both that recognised at the
time of delivery and that from post-delivery price adjustments, is disclosed
as revenue from contracts with customers.
Royalty income is recognised as it accrues in accordance with the terms of the
overriding royalty agreements.
Processing income is recognised at the time the services are rendered.
Finance income
Finance income consists of bank interest on cash and cash equivalents which is
recognised as accruing on a straight-line basis, over the period of the
deposit.
Share-based payments
Equity-settled share-based payments to employees and others providing similar
services are measured at the fair value of the equity instruments at the grant
date. The fair value excludes the effect of non-market-based vesting
conditions.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based
on the Company's estimate of equity instruments that will eventually vest. At
each balance sheet date, the Company revises its estimate of the number of
equity instruments expected to vest as a result of the effect of
non-market-based vesting conditions. The impact of the revision of the
original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding
adjustment to equity reserves. When non-employee share options or warrants are
exercised, the initial fair value ascribed to the instruments and recorded as
a reserve is reclassified to share premium.
Business combinations
Acquisitions of business are accounted for using the acquisition method. The
consideration transferred in a business combination is measured at fair value,
which is calculated as the sum of the acquisition‑date fair values of assets
transferred by the Group, liabilities incurred by the Group to the former
owners of the acquiree and the equity interest issued by the Group in exchange
for control of the acquiree. Acquisition‑related costs are recognised in
profit or loss as incurred.
At the acquisition date, the identifiable assets acquired, and the liabilities
assumed are recognised at their fair value at the acquisition date.
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non‑controlling interests in the acquiree,
and the fair value of the acquirers previously held equity interest in the
acquiree (if any) over the net of the acquisition‑date amounts of the
identifiable assets acquired, and the liabilities assumed. If, after
reassessment, the net of the acquisition‑date amounts of the identifiable
assets acquired and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non‑controlling interests in the acquiree and
the fair value of the acquirers previously held interest in the acquiree (if
any), the excess is recognised immediately in profit or loss as a bargain
purchase gain.
Changes in accounting standards
The standards which applied for the first time this year have been adopted and
have not had a material impact.
Standards which are in issue but not yet effective:
At the date of authorisation of these financial statements, the following
Standards and Interpretation, which have not yet been applied in these
financial statements, were in issue but not yet effective. The Group does not
anticipate they will have a material impact.
Standard Interpretation Description Effective date for annual accounting period beginning on or after
IAS 1 Amendments - Presentation and Classification of Liabilities as Current or TBC
Non-current
IAS 16 Amendments - Property, Plant and Equipment 1 January 2022*
IAS 37 Provisions, Contingent Liabilities and Contingent Assets 1 January 2022*
IAS 8 Amendments - Definition of Accounting Estimates 1 January 2023*
IAS 1 Amendments - Disclosure of Accounting Policies 1 January 2023*
IFRS 3 Amendments - Business Combinations - Conceptual Framework 1 January 2022*
IFRS Annual Improvements to IFRS Standards 2018-2020 1 January 2022*
*Subject to UK endorsement
The Group has not early adopted any of the above standards and intends to
adopt them when they become effective.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements using accounting policies consistent
with IFRS requires the Directors to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities and the reported amounts of income and expenses. The
preparation of financial statements also requires the Directors to exercise
judgement in the process of applying the accounting policies. Changes in
estimates, assumptions and judgements can have a significant impact on the
financial statements.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised prospectively from the period
in which the estimates are revised.
Critical Accounting Judgements
The following are critical judgements, apart from those involving estimations
(which are presented separately below), that the Directors have made in the
process of applying the Group's accounting policies and that have the most
significant effect on the amounts recognises in the financial statements.
Carrying value of intangible exploration and evaluation assets
At 31 December 2021, the Group held oil and gas E&E assets of £49.8
million (2020: £48.8 million), note 13 (#_Exploration_and_evaluation) . The
carrying value of E&E assets are assessed for impairment when
circumstances suggest that the carrying amount may exceed its recoverable
value. In making this judgement the Management considers the indicators of
impairment in the intangible exploration and evaluation asset accounting
policies set out above. Management has considered the expiration of the P.1987
licence on 31 December 2020, prevailing commodity prices, and budgeted spend
and future activity on the P2358 licence, concluding that these do not
represent an indicator of impairment. Further discussion is provided in note
13 (#_Exploration_and_evaluation) . Refer to note 24 (#_Events_after_the) for
discussion around the early-2022 farm-out of Serenity.
Carrying value of property, plant and equipment - oil and gas assets
At 31 December 2021, the Group held oil and gas PP&E assets of £224.0
million (2020: £108.4 million), note 12 (#_Property,_plant,_and) , with the
majority of the 2021 increase being acquired through the Cenovus acquisition
which completed in the period, note 4 (#_Business_combinations) . These assets
are subject to an annual impairment assessment under IAS 36 'Impairment of
assets' whereby management is first required to consider if there are any
indicators of impairment, and if so, management is then required to estimate
the asset's recoverable amounts. The judgement over indicators of impairment
considers several internal and external factors, including changes in
estimated commercial reserves, changes in oil prices, and changes in expected
future operating and capital expenditure, decommissioning expenditure, the
NPV10 of 2P reserves per the 31 December 2021 independent competent person's
report, and increases in cost of capital which may indicate a higher discount
rate is likely required in assessing the assets recoverable amount. After
considering the above, Management has concluded that there were no indicators
of impairment of oil and gas PP&E assets as at 31 December 2021.
Fair value judgements for businesses acquired
The Group completed 1 business combination during the year ended 31 December
2021. Management has applied judgement in concluding that the Group had
acquired a business in the Cenovus acquisition. In accordance with IFRS 3
'Business combinations', management has then applied judgement in estimating
the fair value of assets acquired and liabilities assumed, which included
estimates relating to oil and gas reserves, future production rates, oil and
gas prices, operating and capital expenditure, decommissioning expenditure,
and discount rates. Further details are provided in note 4
(#_Business_combinations) .
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the reporting period that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed below.
Commercial hydrocarbon reserves estimates
Commercial hydrocarbon reserves are those that can be economically extracted
from the Group's oil and gas assets. These estimates are based on information
compiled by independent qualified persons as at 31 December 2021 and consider
a number of factors, including assumptions about future commodity prices,
production rates, operating costs, exchange rates, and various geological and
geophysical technical factors to model reservoir size, quality, and
extractability. Reserve estimates may change from period to period. Changes to
reserves estimates may have a material impact on the depreciation charge for
oil and gas PP&E assets, the decommissioning provision, the carrying value
of deferred tax assets, and the Group's conclusions around indicators of
impairment for oil and gas PP&E assets. The reserve reports are available
at https://i3.energy/ (https://i3.energy/) .
The Group estimates it had commenced the year with 54.0 MMboe of proved plus
probable reserves and acquired a further 80.7 MMboe through the Cenovus
acquisition. A 1.0 MMboe increase/decrease to each of these estimates would
have decreased/increased the oil and gas depreciation charge for the period by
£553 thousand, respectively.
Decommissioning costs
At 31 December 2021 the Group had recorded a decommissioning provision of
£125.5 million (2020: £66.8 million). In estimating the amount of the
provision, Management makes various assumptions around costs, time to
abandonment and inflation rates, which are discounted at long term government
bond rates, see note 17 (#_Decommissioning_provision) .
The most difficult, subjective, or complex assumptions include the inflation
rate and the discount rate, which have been selected based on market rates
published by the Bank of Canada. A 0.5% increase/decrease in the inflation
rate would have increased/decreased the decommissioning provision by £18.5
million and £15.4 million, respectively. A 0.5% increase/decrease in the
discount rate would have decreased/increased the decommissioning provision by
£15.4 million and £18.6 million, respectively.
Recognition and measurement of deferred tax assets
At 31 December 2021, the Group held deferred tax liabilities of £7.5 million
(2020: asset of £1.1 million) which result from temporary differences at the
Group's Canadian operations. This liability has been reduced by certain
deferred tax assets from deductible temporary differences at the Group's
Canadian operations. In accordance with IAS 12 'Income Taxes', deferred tax
assets shall be recognised for all deductible temporary differences to the
extent that it is probable that taxable profit will be available against which
the deductible temporary difference can be utilised. The Group has generated
positive cash flows and profits from its Canadian operations in 2021 and
expects to continue to do so in the future. Management has applied judgement
in determining the extent to which it is probable that taxable profits will be
available based on estimates of future profits, which include estimates of
commercial reserves, oil prices, operating and capital expenditure, and
decommissioning expenditure. If future taxable profits differ from these
estimates, the deferred tax asset associated with these deductible temporary
differences could be derecognised and result in a deferred tax charge to the
statement of comprehensive income.
4 Business combinations
On 6 July 2021 ("Cenovus ASA Date") the Group through its wholly owned
subsidiary i3 Energy Canada Limited ("i3 Canada") entered into a binding
purchase and sale agreement to acquire certain petroleum and infrastructure
assets (the "Cenovus Assets") from Cenovus Energy Inc. ("Cenovus") for gross
consideration of CAD65.0 million (£37.1 million). The transaction completed
on 20 August 2021 (the "Acquisition Date") at which point i3 obtained control
of the Cenovus Assets, which include approximately 8,400 boepd (51% oil and
NGLs) of predictable low-decline production, 79.5 MMboe of 2P reserves, an
inventory of greater than 140 net drilling locations and 80 net reactivation
opportunities across approximately 212,000 net acres, an 1,140 km network of
operated pipelines, and key processing facilities. The acquisition enabled the
Group to expand its Canadian operations through cash flow generating assets.
The Cenovus Assets are an integrated set of activities and assets that are
capable of being managed and conducted for the purpose of providing a return,
and therefore constitute a business. Accordingly, the transaction has been
accounted for in accordance with IFRS 3 'Business Combinations' which requires
the assets acquired and liabilities assumed to be recognised on the
acquisition date at their fair value.
The acquisition had an effective date of 1 April 2021 and therefore the
acquisition price of CAD65 million was (i) reduced by CAD7.6 million for the
income generated from the Cenovus assets between the "Economic Effective Date"
of 1 May 2020 and the Acquisition Date; and (ii) increased by CAD0.9 million
for interest accruing from the Economic Effective Date to the Acquisition Date
at Canadian Prime + 1.0% on the Gross consideration.
The fair value of oil and gas assets is estimated based on the pre-tax net
present value of PDP reserves as derived from a reserves report by a firm of
independent reservoir engineers dated 30 April 2021, re-run with an effective
date of 20 August 2021 with an updated price deck, discounted at a rate of 10%
which management determined to be representative of the risk profile of the
assets, along with the market value of the seismic data acquired as estimated
from the sale price of similar data. The fair value of the decommissioning
provision is estimated based on rates published by the AER. These represent a
level 3 valuation in the IFRS 13 fair value hierarchy as they are based on
valuation techniques that use inputs which are not based on observable market
data. The fair value of the assets acquired, and liabilities assumed exceed
the consideration by £24.3 million, reflecting the gain on bargain purchase
which has been recorded in the statement of comprehensive income. It is likely
that the gain on bargain purchase arose due to the oil price recovery between
the date the purchase price was agreed and the acquisition date. Further
details of the transaction are provided in the Strategic Report.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are as set out in the table below.
20 August 2021
£'000
Net consideration to allocate 33,264
Property, plant, and equipment - oil and gas assets 117,416
Inventory 218
Prepaid expenses 979
Decommissioning provisions (53,840)
Deferred tax liability (7,247)
Gain on bargain purchase (24,262)
Total 33,264
The Cenovus assets contributed £23.2 million revenue (net of royalties) and
£16.8 million to the Group's net operating income for the period between the
acquisition date and the reporting date. If the acquisition of the Cenovus
assets had been completed on the first day of the financial year, Group
revenues for the year would have been £118.4 million and Group net operating
income would have been £66.3 million. Net operating income is a non-IFRS
measure, refer to Appendix B. It is considered impractical to present the
impact on profit as if the acquisition had competed on the first day of the
financial year as it would require estimation of commercial reserves, future
development costs, various judgements over the decommissioning provision, and
certain administrative costs, all of which are not readily available to
Management, and therefore the impact on net operating income has been
presented instead.
Acquisition costs of £0.3 million (2020 - £1.5 million) relating to the
acquisition have been recognised in the statement of comprehensive income.
A gain on asset dispositions arose upon the sale of certain oil and gas
assets. Further details are provided in note 12 (#_Property,_plant,_and) .
The gain on bargain purchase and asset dispositions as per the consolidated
statement of comprehensive income is as follows:
2021 2020
£'000 £'000
Gain on bargain purchase 24,262 25,211
Gain on asset dispositions 751 -
Gain on bargain purchase and asset dispositions 25,013 25,211
5 Segmental reporting
The Chief Operating Decision Maker (CODM) is the Board of Directors. They
consider that the Group operates as two segments, as follows:
· UK / Corporate - That of Corporate activities in the UK and oil and
gas exploration, appraisal and development on the UKCS.
· Canada - That of oil and gas production in the WCSB.
Such components are identified on the basis of internal reports that the Board
reviews regularly.
The following is an analysis of the Group's revenue and results by reportable
segment in 2021:
UK / Corporate Canada Total
£'000 £'000 £'000
Revenue - 86,763 86,763
Production costs - (37,945) (37,945)
Loss on risk management contracts - (5,485) (5,485)
Depreciation and depletion (4) (21,639) (21,643)
Gross (loss) / profit (4) 21,694 21,690
Administrative expenses (7,059) (6,035) (13,094)
Acquisition costs - (256) (256)
Gain on bargain purchase and asset dispositions - 25,013 25,013
Operating profit (7,063) 40,416 33,353
Finance costs (5,930) (1,679) (7,609)
(Loss) / profit before tax (12,993) 38,737 25,744
Tax (charge) / credit for the year 487 (1,148) (661)
(Loss) / profit for the year (12,506) 37,589 25,083
The following is an analysis of the Group's revenue and results by reportable
segment in 2020:
UK / Corporate Canada Total
£'000 £'000 £'000
Revenue - 12,991 12,991
Production costs - (8,075) (8,075)
Depreciation and depletion (5) (4,849) (4,854)
Gross (loss) / profit (5) 67 62
Administrative expenses (3,335) (2,420) (5,755)
Acquisition costs (989) (553) (1,542)
Bargain purchase gain 5,962 19,249 25,211
Operating profit 1,633 16,343 17,976
Finance costs (7,108) (260) (7,368)
(Loss) / profit before tax (5,475) 16,083 10,608
Tax credit for the year 383 727 1,110
(Loss) / profit for the year (5,092) 16,810 11,718
The following is an analysis of the Group's assets and liabilities by
reportable segment as at 31 December 2021 and the capital expenditure for the
year then ended:
UK / Corporate Canada Total
£'000 £'000 £'000
Total assets 50,129 266,161 316,290
Total liabilities (25,733) (152,391) (178,124)
Capital expenditure - E&E 1,010 - 1,010
Capital expenditure - PP&E - 11,184 11,184
The following is an analysis of the Group's assets and liabilities by
reportable segment as at 31 December 2020 and the capital expenditure for the
year then ended:
UK / Corporate Canada Total
£'000 £'000 £'000
Total assets 48,932 125,189 174,121
Total liabilities (24,160) (76,765) (100,925)
Capital expenditure - E&E 2,281 - 2,281
Capital expenditure - PP&E - 697 697
6 Revenue
All revenue is derived from contracts with customers and is comprised of the
sale of oil and gas and processing income, net of royalties, as follows:
2021 2020
£'000 £'000
Oil and natural gas liquids 61,027 7,274
Natural Gas 34,994 5,978
Royalties (12,094) (830)
Revenue from the sale of oil and gas 83,927 12,422
Processing income 2,605 569
Other operating income 231 -
Total revenue 86,763 12,991
All revenue is from the Group's Canadian operations. Revenue from the sale
of oil and natural gas liquids is recognised at the point in time when title
transfers to the purchaser. Processing income is recognised at the time the
service is rendered.
During the year ended 31 December 2021, four (2020: three) customers
individually totalled more than 10% of total revenues, totalling 79% (2020:
70%) in aggregate.
7 Administrative expenses
2021 2020
£'000 £'000
Directors' fees 300 229
Employee costs* 8,503 2,879
Professional fees** 1,728 1,207
Other 2,448 1,388
Realised FX loss / (gain) 269 (16)
Unrealised FX (gain) / loss (154) 68
Total administrative expenses 13,094 5,755
* Group staff costs comprised:
2021 2020
£'000 £'000
Wages, salaries, and benefits 6,027 3,185
Social security costs 336 44
Other pension costs 254 64
Share-based payments expense - employees (including NEDs) 3,217 336
Total staff costs 9,834 3,629
Capitalised salaries and overhead recoveries (1,331) (750)
Charge to the profit or loss 8,503 2,879
i3 Energy plc had no staff during the year ended 31 December 2021 (2020 - Nil)
and therefore no payments were made. The Directors of the Group are not
considered staff, and their remuneration is disclosed in note 10
(#_Directors%E2%80%99_remuneration) .
The average number of persons employed by the Group, including Executive
Directors, was:
Average number of persons employed 2021 Number 2020 Number
Operations 29 13
Corporate and administration 18 7
Total 47 20
** Included within professional fees are fees payable to the Company's auditor
and its associates for the following:
2021 2020
£'000 £'000
Audit services
The audit of the Company's annual accounts 120 80
The audit of the Company's subsidiaries - -
Total audit fees 120 80
Reporting accountant work in relation to 2020 admission documents - 170
Total 120 250
8 Finance costs
2021 2020
£'000 £'000
Accretion of loan notes (note 16 (#_Borrowings) ) 2,824 2,355
Interest expense on loan notes (note 16 (#_Borrowings) ) 3,144 2,487
Stock-based compensation - warrants (note 20 (#_Stock-based_payments) ) 451 2,198
Unwinding of discount on decommissioning provision (note 17 1,539 214
(#_Decommissioning_provision) )
Bank charges and interest on creditors 374 114
(Gain) / loss on BHGE DPIB (note 15 (#_Trade_and_other) ) (723) -
Total finance costs 7,609 7,368
9 Taxation
Taxation credit
The below table reconciles the tax charge for the year to the expected tax
charge based on the result for the year and the corporation tax rate.
2021 2020
£'000
£'000
Profit before income tax 25,744 10,608
Rate of Corporate Tax 40% 40%
Expected tax charge 10,298 4,243
Effects of:
Interest and other not deductible for SCT 620 491
Permanent differences (3,804) (4,415)
Foreign tax rate difference (6,585) (3,747)
Change in estimated pool balances 179 -
Derecognition of deferred tax asset 440 2,701
R&D tax credit received (487) (383)
Total income tax charge / (credit) 661 (1,110)
Of which: 2021 2020
£'000
£'000
Current tax (credit) - prior years (487) (383)
Deferred tax charge / (credit) - current year 1,148 (727)
Total income tax charge / (credit) 661 (1,110)
During the year the Group received £487 thousand in R&D tax refunds in
the UK in respect of the 2019 fiscal year. The difference on foreign tax rate
results from the 23% rate of corporate taxation at its Canadian subsidiary.
Deferred tax
The components of the net deferred tax asset and the movement during the year
is summarised as follows:
At 31 December 2020 Acquired during the year Recognised in income FX movement At 31 December 2021
£'000 £'000 £'000 £'000 £'000
UK:
Deferred tax assets:
Losses 25,764 - 2,947 - 28,711
Valuation allowance (6,238) - (2,544) - (8,782)
Deferred tax liabilities:
PP&E (19,526) - (403) - (19,929)
Net deferred tax asset - - - - -
Canada:
Deferred tax assets:
Decommissioning provision 15,360 12,383 679 448 28,870
Losses 5,625 - (3,263) 54 2,416
Risk management contracts - - 25 - 25
Other 157 - 48 2 207
Valuation allowance (7,912) - 2,360 (87) (5,639)
Deferred tax liabilities:
PP&E (12,178) (19,630) (997) (560) (33,365)
Net deferred tax asset 1,052 (7,247) (1,148) (143) (7,486)
Net deferred tax asset / (liability) 1,052 (7,247) (1,148) (143) (7,486)
A deferred tax asset has not been recognised in respect of tax losses and
allowances in the UK due to uncertainty over the availability of future
taxable profits in the UK to offset these losses against.
The Group recognised a net deferred tax liability through the Cenovus
acquisition of £7,247 thousand, and a deferred tax charge of £1,148 thousand
for changes in net deductible temporary differences in the year. The deferred
tax liability has been partially offset by a deferred tax asset which has been
recognised in Canada to the extent that the Group anticipates probable future
taxable profits to against which the assets can be utilised.
The Group's estimated tax pools are summarised in the following table. The
non-capital tax loss pools in Canada expire over a period of 20 years. All
other tax pools do not expire.
31 December 2021 31 December 2020
£'000 £'000
UK:
Taxable losses 29,325 20,585
Mineral extraction allowances 49,819 48,809
79,144 69,394
Canada:
Canadian exploration expense 3,107 3,068
Canadian development expense 7,519 4,698
Canadian oil and gas property expense 56,391 39,311
Undepreciated capital cost 11,991 8,383
Non-capital losses 10,503 24,456
Other 833 684
Total 90,344 80,600
10 Directors' remuneration
Salary / Fees Bonus Share based payments Total
£'000 £'000 £'000 £'000
2021
Executive Directors
Majid Shafiq 384 438 252 1,074
Graham Heath 319 358 156 833
Non-Executive Directors
Neill Carson 60 - 51 111
Richard Ames 60 - 51 111
Linda Beal 120 - 45 165
John Festival 60 - 13 73
Total 1,003 796 568 2,367
Salary / Fees Bonus Share based payments Total
2020
Executive Directors
Majid Shafiq 313 389 - 702
Graham Heath 244 329 - 573
Non-Executive Directors
David Knox 22 - - 22
Neill Carson 57 - - 57
Richard Ames 54 - - 54
Linda Beal 70 - - 70
John Festival 6 - - 6
Total 766 718 - 1,484
Share based payments represents the difference between the exercise price and
the market value of i3 shares on the date of exercise, multiplied by the
number of options exercised. The comparative figures for 2020 have also been
presented on this basis.
During the year the Company contributed £2 thousand to i3's CEO's pension
scheme (2020 - £3 thousand).
11 Earnings per share
From continuing operations
Basic earnings or loss per share is calculated as profit/(loss) for the year,
adjusted to exclude any costs of servicing equity (other than dividends),
divided by the weighted average number of ordinary shares, adjusted for any
bonus element.
Diluted earnings or loss per share amounts are calculated by dividing losses
or profits for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding during the year,
plus the weighted average number of shares that would be issued on the
conversion of dilutive potential ordinary shares into ordinary shares.
The calculation of the basic and diluted earnings per share is based on the
following data:
Year Ended 31 December 2021 Year Ended 31 December 2020
Earnings
Earnings for the purposes of basic and diluted earnings per share being net 25,083 11,718
profit attributable to owners of i3 Energy (£'000)
Weighted average number of shares
Weighted average number of Ordinary Shares - basic 883,664,352 309,889,077
Effect of dilutive potential ordinary shares:
Share options 49,369,708 2,399,909
Warrants 32,758,752 26,700,708
Weighted average number of Ordinary Shares - diluted 965,792,812 338,989,694
Basic earnings / (loss) per share (pence) 2.84 3.78
Diluted earnings / (loss) per share (pence) 2.60 3.46
In 2021, prior to the BHGE warrant repricing on 17 May 2021, these instruments
were anti-dilutive as their exercise price exceed the average market price of
the Ordinary Shares over this period. Concurrent with their repricing the BHGE
warrants were immediately exercised for ordinary shares. The BHGE shares were
therefore included in the basic weighted average number of Ordinary Shares
from 17 May 2021 but were not further included in the effect of dilutive
potential ordinary shares.
In 2020, prior to the option and warrant repricing on 28 October 2020 and 23
June 2020 (note 20 (#_Stock-based_payments) ), respectively, these instruments
were anti-dilutive as their exercise prices exceeded the average market price
of the Ordinary Shares over this period. The Share options and Warrants were
dilutive following their re-pricing and their impact is presented in the table
above.
12 Property, plant, and equipment
Oil and gas assets Right of use assets Other fixed assets Total
Cost
As at 1 January 2020 - - 22 22
Acquisitions 114,826 - - 114,826
Additions 697 110 - 807
Changes to decommissioning estimates (2,310) - - (2,310)
Decommissioning settlements under SRP and ASCP (note 17 (104) - - (104)
(#_Decommissioning_provision) )
Exchange movement 84 (2) - 82
As at 31 December 2020 113,193 108 22 113,323
Acquisitions 122,762 - - 122,762
Additions 11,184 - 50 11,234
Disposals (8,242) - - (8,242)
Changes to decommissioning estimates 7,603 - - 7,603
Decommissioning settlements under SRP and ASCP (note 17 (324) - - (324)
(#_Decommissioning_provision) )
Exchange movement 3,857 1 - 3,858
As at 31 December 2021 250,033 109 72 250,214
Accumulated depreciation
As at 1 January 2020 - - (14) (14)
Charge for the year (4,843) (6) (5) (4,854)
Exchange movement 54 - - 54
As at 31 December 2020 (4,789) (6) (19) (4,814)
Charge for the year (21,611) (27) (5) (21,643)
Disposals 481 - - 481
Exchange movement (158) - - (158)
As at 31 December 2021 (26,077) (33) (24) (26,134)
Carrying amount at 31 December 2020 108,404 102 3 108,509
Carrying amount at 31 December 2021 223,956 76 48 224,080
During the year, i3 disposed of certain assets in its Weyburn, Marten Creek,
and Drayton Valley areas for net proceeds of £529 thousand. After removing
the associated decommissioning obligations, a resulting gain on disposition of
£751 thousand has been recognised in the consolidated statement of
comprehensive income.
Right of use assets consist of certain field vehicles whose leases commenced
in September 2020.
13 Exploration and evaluation assets (Intangible)
Year Ended 31 December 2021 Year Ended 31 December 2020
£'000 £'000
At start of year 48,809 46,528
Additions 1,010 2,281
At end of year 49,819 48,809
The Directors have considered the carrying value of the exploration and
evaluation assets as at 31 December 2021 and concluded that no indicators of
impairment arose during the period. In reaching this conclusion, the Directors
have given particular attention to the relinquishment of UKCS Licence P.1987
which reached the end of its two-year second term on 31 December 2020. Licence
P.1987 encompasses UK Block 13/23d which contains contingent resources for the
Group's Liberator asset, which have been evaluated as sub-commercial by i3 and
in an 'independent competent person' report and as such do not represent a
viable commercial development. i3 may choose to re-apply for Licence P.1987
licence in the future if justified by its appraisal of the Liberator West /
Minos High prospective areas and/or the Serenity discovery. The relinquishment
will result in a significant saving in licence fees whilst i3 progresses its
appraisal of resources on its adjoining P.2358 Licence.
This relinquishment has no impact on Licence P.2358, which commenced its
four-year second term on 30th September 2020 and contains the vast majority of
the resources and potential reserves in the Company's UK acreage. Licence
P.2358 includes the Serenity discovery and the Liberator West and Minos High
prospective areas, which will be the focus of plans for appraisal and
exploration drilling.
Management also considered the active farm-out discussion which were ongoing
at 31 December 2021, which ultimately led to an agreement with a new joint
venture partner in early-2022. Further details are provided in note 24
(#_Events_after_the) .
14 Trade and other receivables
31 December 2021 31 December 2020
£'000 £'000
Trade receivables 21,982 6,295
Sales tax receivables - 46
JV receivables 1,483 864
Prepayments & other receivables 2,038 1,526
Total trade and other receivables 25,503 8,731
All receivables are all due within one year.
JV receivables represent amounts due from operating partners for operating and
capital activity in Canada.
The fair value of other receivables is the same as their carrying values as
stated above and they do not contain any impaired assets.
The maximum exposure to credit risk at the reporting date is the carrying
value of each class of receivable mentioned above. The Group does not hold any
collateral as security.
15 Trade and other payables
31 December 2021 31 December 2020
£'000 £'000
Trade creditors 5,169 7,780
Sales tax payable 65 -
Accruals 13,565 5,146
JV payables 910 230
Total trade and other payables 19,709 13,156
The average credit period taken for trade purchases is 60 days. No interest is
charged on the trade payables. The carrying values of trade and other payables
are considered to be a reasonable approximation of the fair value and are
considered by the Directors as payable within one year.
JV payables represent amounts due to operating partners for operating and
capital activity in Canada.
Non-current accounts payable
On 2 July 2019 the Group agreed with Baker Hughes, a GE Company, and GE Oil
& Gas Limited (collectively referred to as "BHGE" hereafter) that £3.0
million of oilfield service and oilfield equipment contract payments will not
become payable until such time as i3 has received its first sales revenues
from Liberator Phase I. This payable was previously recorded as a non-current
accounts payable.
On 17 May 2021, i3 announced that it had successfully restructured legacy
contracts and agreements for equipment, oil field services, and warrants with
BHGE. In summary, the remainder of a £5.8 million contract for subsea trees
and wellheads was cancelled, 5,277,045 warrants had an exercise price
reduction to £0.0001 per share (the "Warrant Shares"), and an outstanding
contingent payment for £3.0 million ("Deferred Payment Invoice Balance", or
"DPIB") in oil field services and equipment that becomes payable at such time
as the Company receives consideration from any sale or farm-down of its
Serenity or Liberator assets will be reduced by the exercise value of the
Warrant Shares, the market value of the Warrant Shares from time to time, all
dividends received by BHGE associated with the Warrant Shares, and certain
payments to be made to BHGE. The purpose of this restructuring was to enable
i3 to become a dividend payer, as certain conditions of the abovementioned
contracts prevented it from reducing its share premium account - a required
step in order for i3 to effect dividend distributions to its shareholders. The
incremental fair value of the modified warrants was expensed in 2021 (note 8
(#_Finance_costs) ).
The future Market Value reduction of the payable amount will vary with the
trading value of i3 shares and therefore represents an embedded derivative.
The entire combined contract is designated as at FVTPL. The fair value of
£1,789 thousand has been calculated as the £3.0 million payable amount, less
the exercise value of the Warrant Shares of £1 thousand, less cash payments
of £487 thousand made against the DPIB balance, less the Market Value of the
Warrant Shares of £723 thousand, which totals the 5,277,045 Warrant Shares as
at the 31 December 2021 share price of 13.35p/share and £19 thousand of
dividends paid to the Warrant Shares. The fair value of the combined
contract is classified as Level 2 in the fair value hierarchy as defined by
IFRS 13 'Fair value measurements'. £1,232 thousand is expected to be paid in
2022 has been classified as a current liability (31 December 2020: nil), and
the remaining £557 thousand has been classified as a non-current liability
(31 December 2020: £3.0 million). A reconciliation of the balance is as
follows:
Year Ended 31 December 2021 Year Ended 31 December 2020
£'000 £'000
At start of year 3,000 3,000
Exercise value of the Warrant Shares (1) -
Cash payments made during the year (487) -
Non-cash change in market value of the Warrant Shares (note 8 (723) -
(#_Finance_costs) )
At end of year 1,789 3,000
31 December 2021 31 December 2020
£'000 £'000
Of which:
Current, within trade accounts payable 1,232 -
Non-current 557 3,000
Total 1,789 3,000
16 Borrowings
H1-2019 loan note facility
In May 2019, the Company completed a £22 million H1-2019 loan note facility
("H1-2019 LN"). The H1-2019 LNs have a term of 4 years, maturing on 31 May
2023 and bearing interest, payable on a quarterly basis at the Company's
option (i) in cash at a rate of 8% per annum, or (ii) in kind (at i3's option)
at a rate of 11% per annum by the issuance of additional H1-2019 LNs.
The noteholders were granted warrants ("H1-2019 LN Warrants") in the notional
amount of £1 for each £1 of loan notes issued, with H1-2019 Warrants being
issued proportionately across three series. The H1-2019 LN Warrants vested on
the issue date and expire 4 years thereafter and can be exercised through
either/or a combination of a cash payment and/or surrender of H1-2019 LNs plus
accrued interest equal to the aggregate notional amount of the H1-2019 LN
Warrants being exercised. Each H1-2019 LN Warrant gives the holder the right
to convert the notional amount into such number of shares as is derived by
dividing the notional amount by the exercise price. The following table
outlines the terms of the warrants as at their issuance date.
Notional amount of warrants (£) Exercise price upon issuance Shares to be issued upon exercise of warrants Share price at issuance (£) Time to maturity (years) Value (£/share)
(£/share)
Tranche 1 7,333,333 0.4070 18,018,018 0.39 4 0.2557
Tranche 2 7,333,333 0.4810 15,246,015 0.39 4 0.2435
Tranche 3 7,333,333 0.5550 13,213,213 0.39 4 0.2313
Total fair value of the Tranche 1, Tranche 2 and Tranche 3 warrants on
issuance was £11,375,184 and was bifurcated from the debt contract and
classified as equity.
The H1-2019 LNs are comprised of the following components: the debt contract,
the conversion feature, the interest rate payment option and the early
conversion feature (at i3's option). At inception the debt component was
recorded at an estimated fair value of £10,624,816. The debt balance is
unwound using the effective interest rate method to the principal value at
maturity with a corresponding non-cash accretion charge to earnings.
On the 23 June 2020 the Company amended the 30 April 2020 Development Funding
Long-stop Date (previously amended on 8 November 2019 when the Majority
Noteholders of the Company's secured loan notes agreed to extend the date by
which the Company must either inter into a reserves-based lending facility or
find an alternative means of funding to achieve first oil from the Liberator
field, to 30 April 2020). As the Company was not in a position to enter into
such a facility by 30 April 2020, the Company and the Majority Noteholders
have come to an agreement to waive this condition in return for certain
amendments to the May 2019 Loan Note Instrument and the associated Warrant
Instruments.
The Loan Note Instrument Amendments are as follows:
The obligation to enter into a development facility for Liberator by a certain
date has been removed. A new Corporate Development Long-stop Date had been set
for 30 September 2020 prior to which i3 has to achieve one of the following
Corporate Development Longstop Conditions:
· Secure firm irrevocable commitments for a minimum £15 million of
unsecured or fully subordinated financing, subject only to closing mechanics;
or
· Agree a farm-out and/or funding term sheet, subject only to legal
documentation to fund the drilling of a least one appraisal well on Serenity
during 2020 or 2021; or
· Execute an acquisition agreement for at least 2500 boepd of
production net to i3.
In addition, the Company has an obligation to achieve net corporate production
at or above 5000 boepd by 30 April 2021. These requirements were met with the
completion of the Gain acquisition on 3 September 2020.
The Loan Note Instrument amendments include the requirement that the currently
outstanding i3 management options will be cancelled, and replacement options
will be issued to i3 staff and Directors which replicate the terms of the
adjusted Loan Note warrants (the "New Options") in relation to the exercise
price, to seek alignment between the Noteholders and management (note 20
(#_Stock-based_payments) ).
The Warrant Instrument Amendments are as follows:
All warrants associated with the Loan Notes will have their strike prices
reset to the nominal value of i3 shares (£0.0001/share). The Company
calculated the difference in the fair value of the unmodified and modified
warrants at the modification date of June 23, 2020, resulting in an additional
expense of £2,199 thousand recognised in share-based payment expense in 2020
(note 20 (#_Stock-based_payments) ). 40,140,172 H1-2019 LN Warrants were
exercised in 2021 (note 20 (#_Share-based_payments) ).
The H1-2019 LNs are redeemable before the maturity date and the holders are
secured against the Group's assets. The Company may repay all or part of the
H1-2019 LNs within the first 12 months at 116% of par and at par plus accrued
interest thereafter. The fair value of the repayment option is nil at 31
December 2021.
Interest expense and accretion expense to 31 December 2021 was £3,144
thousand and £2,824 thousand respectively.
Borrowings reconciliation
H1-2019 LN Leases Total
£'000 £'000 £'000
At 31 December 2019 13,046 - 13,046
New leases - 110 110
Increase through interest (non-cash) 2,486 1 2,487
Accretion expense (non-cash) 2,355 - 2,355
Lease payments (cash) - (10) (10)
Exchange movement (non-cash) - (2) (2)
At 31 December 2020 17,887 99 17,986
Increase through interest (non-cash) 3,144 2 3,146
Accretion expense (non-cash) 2,824 - 2,824
Lease payments (cash) - (30) (30)
Exchange movement (non-cash) - (2) (2)
At 31 December 2021 23,855 69 23,924
H1-2019 LN Leases Total
£'000 £'000 £'000
Of which:
Current - 69 69
Non-current 23,855 - 23,855
At 31 December 2021 23,855 69 23,924
17 Decommissioning provision
Year Ended 31 December 2021 Year Ended 31 December 2020
£'000 £'000
At start of year 66,783 -
Liabilities assumed through acquisitions 56,350 69,092
Liabilities incurred 312 -
Liabilities disposed (7,984) -
Liabilities settled (670) (109)
Liabilities settled under SRP and ASCP (324) (104)
Change in estimates 7,603 (2,310)
Unwinding of discount (Note 8 (#_Finance_costs) ) 1,539 214
Exchange movement 1,914 -
At end of year 125,523 66,783
31 December 2021 31 December 2020
£'000 £'000
Of which:
Current 2,368 1,234
Non-current 123,155 65,549
Total 125,523 66,783
A summary of the key estimates and assumptions are as follows:
31 December 2021 31 December 2020
Undiscounted / uninflated cash flows (CAD, thousands) 207,371 122,926
Inflation rate 1.82% 1.00%
Discount rate 1.68% 1.21%
Timing of cash flows 1-50 years 1-50 years
Liabilities settled reflect work undertaken in the period. This includes wells
decommissioned under Alberta's Site Rehabilitation Program ("SRP") and
Saskatchewan's Accelerated Site Closure Program ("ASCP") whereby certain costs
of settling the Group's liabilities were borne by the Government of Canada.
Where liabilities were settled through the SRP a corresponding decrease to the
decommissioning asset was recorded. The change in estimate for the year ended
31 December 2021 was primarily driven by changes in market interest and
inflation rates as published by the Bank of Canada.
18 Risk management contracts
In 2021, the Group entered a variety of risk management contracts to hedge a
portion of the Group's exposure to fluctuations in prevailing commodity prices
for oil, gas, and natural gas liquids. The Group's physical commodity
contracts represent physical delivery sales contracts in the ordinary course
of business and are therefore not recorded at fair value in the consolidated
financial statements. The Group's financial risk management contracts have not
been designated as hedging instruments in a hedge relationship under IFRS 9
and are carried at fair value through profit and loss. The financial risk
management contracts are classified as Level 2 in the fair value hierarchy as
defined by IFRS 13 'Fair value measurements' (note 22
(#_Financial_instruments_and) ).
The principal terms of the risk management contracts held as at 31 December
2021 are presented in the table below.
Type Effective date Termination date Total Volume Avg. Price
AECO 5A Financial Swaps 1 Nov 2021 31 Mar 2022 10,000 GJ/Day CAD 4.0975 / GJ
AECO 5A Physical Swaps 1 Nov 2021 31 Mar 2022 15,000 GJ/Day CAD 4.3313 / GJ
AECO 5A Physical Swaps 1 Apr 2022 31 Dec 2022 9,000 GJ/Day CAD 3.6244 / GJ
Chicago Physical Basis Differential 1 Dec 2021 31 Mar 2022 5,000 MMBtu/Day (USD 1.0450) / MMBtu
WTI Financial Swaps 1 Jan 2022 31 Mar 2022 350 bbl/Day CAD 83.04 / bbl
WTI Financial Swaps 1 Apr 2022 31 Dec 2022 500 bbl/Day CAD 87.86 / bbl
Purchased WTI Put Option * 1 Jan 2022 31 Dec 2022 1,000 bbl/Day CAD 92.20 / bbl
Conway Financial Swaps 1 Jan 2022 31 Dec 2022 500 bbl/Day USD 1.1175 / gal
* The purchased WTI put option has a strike price of CAD 92.20 / bbl and a
premium of CAD 11.00 / bbl. The option premium has been deferred over the
effective period of 1 January 2022 to 31 December 2022 and the resulting
liability is included in the net carrying value of the financial instrument as
of 31 December 2021.
The Group's losses on risk management contracts are presented in the following
table.
2021 2020
£'000 £'000
Unrealised loss on risk management contracts 111 -
Realised loss on risk management contracts 5,374 -
Total 5,485 -
19 Authorised, issued and called-up share capital
Issuance Ordinary shares Deferred shares Nominal value per Share Ordinary shares Deferred shares Share premium before share issuance costs Share issuance costs Share premium after Share issuance costs
date
Shares Shares £ £'000 £'000 £'000 £'000 £'000
At 31 December 2019 107,719,400 5,000 - 11 50 33,965 (1,393) 32,572
Warrants exercised at 0.01 pence/share 24 Aug 20 6,788,945 - 0.0001 1 - 1,661 - 1,661
Issued at 5 pence/share 28 Aug 20 581,147,255 - 0.0001 58 - 29,000 (1,806) 27,194
Issued for Toscana acquisition 30 Oct 20 4,399,215 - 0.0001 - - 178 - 178
At 31 December 2020 700,054,815 5,000 - 70 50 64,804 (3,199) 61,605
Issued on exercise of 0.01 pence H1-2019 warrants Various 40,140,172 - 0.0001 4 - 7,669 - 7,669
Issued on exercise of 0.01 pence options Various 15,303,960 - 0.0001 2 - - -
Issued on exercise of 5 pence options Various 1,700,000 - 0.0001 - - 85 - 85
Issued on exercise of 0.01 pence BHGE warrants 4 Jun 21 5,277,045 - 0.0001 1 - 903 - 903
Capital reduction * 6 Jul 21 - - - - - (67,255) 3,199 (64,056)
Issued at 11 pence/share 27 Jul 21 363,700,000 - 0.0001 36 - 39,970 (2,000) 37,970
Issued on exercise of 11 pence EMI options 1 Oct 21 250,000 - 0.0001 - - 27 - 27
At 31 December 2021 1,126,425,992 5,000 - 113 50 46,203 (2,000) 44,203
* On 6 July 2021 the Registrar of Companies registered the cancellation of
i3's share premium account. The £64.1 million balance of the Group's share
premium net of share issuance costs was accordingly transferred to retained
earnings. This created distributable reserves and enables the Company to
become dividend paying.
The ordinary shares confer the right to vote at general meetings of the
Company, to a repayment of capital in the event of liquidation or winding up
and certain other rights as set out in the Company's articles of association.
The deferred shares do not confer any voting rights at general meetings of the
Company and do confer a right to a repayment of capital in the event of
liquidation or winding up, they do not confer any dividend rights or any of
redemption.
£3.4 million of dividends were proposed and paid in 2021 (2020 - Nil) as
follows:
Declaration date Ex-Dividend date Record date Payment date Dividend per share Total Dividend
(pence) £'000
8 July 2021 15 July 2021 16 July 2021 6 August 2021 0.16 1,163
27 September 2021 7 October 2021 8 October 2021 29 October 2021 0.20 2,254
Total 3,417
20 Share-based payments
During the year the Group had share based payment expense of £3,668 thousand
(2020: £2,534 thousand).
Employee and NED Share Options
During the year the Group had share based payment expense relating to the
issuance of share options of £3,217 thousand (2020: £335 thousand). Details
on the employee and NED share options outstanding during the period are as
follows:
Number of options Weighted average exercise price Weighted average contractual life
(pence)
At 31 December 2019 12,252,013 46.03 8.91
Cancelled - 28 October 2020 (12,252,013) 46.03 8.09
Issued - 28 October 2020 12,128,955 0.01 4.00
Issued - 3 December 2020 4,028,659 0.01 4.00
At 31 December 2020 16,157,614 0.01 3.85
Issued - 10 January 2021 13,166,358 6.10 10.00
Issued - 10 January 2021 75,184,252 5.00 10.00
Issued - 30 July 2021 57,121,402 11.00 10.00
Issued - 16 December 2021 1,625,000 11.00 10.00
Exercised during the year (17,003,960) 0.51 3.98
Forfeited during the year (2,290,291) 7.62 9.75
At 31 December 2021 143,960,375 7.48 9.22
On 10 January 2021, the Company issued options over a total of 75,184,252
ordinary shares as described in the Gain-related Readmission document released
on 11 August 2020. The options were issued in accordance with the rules of the
Company's Employee Share Option Plan at an exercise price of 5 pence per
share. Of the options issued to employees of i3 Canada. One-third of the
options vested immediately, with a further one-third vesting in July 2021 if
production exits at or above 9,000 boepd, and 100 per cent will vest if there
is an addition of 5,000 boepd or, alternatively, 25 MMboe 2P reserves. Of the
options issued to employees of i3 North Sea Limited, one-third of the options
vested immediately, with a further one-third vesting at the spud of the next
Serenity / Liberator appraisal well, and 100 per cent will vest upon a
third-party reserve auditor attributing 25 MMbbls 2P post drilling of a
Serenity / Liberator appraisal well. The options will otherwise fully vest
on the third anniversary. Of the options issued to the Executive and
Non-Executive Directors and one corporate employee, one-third of the options
vested immediately, with a further one-third vesting upon the earlier of spud
of the next Serenity or Liberator appraisal well; and July 2021 production
exits being at or above 9,000 boepd, and 100% will vest upon the earlier of a
third-party reserve auditor attributing 25 MMbbls 2P post drilling of a
Serenity or Liberator appraisal well and the addition of 5,000 boepd or 25
MMboe 2P reserves. The fair value was calculated using the Black Scholes model
with inputs for stock price of 6.10 pence, exercise price of 5.0 pence, time
to maturity of 10 years, volatility of 114%, the Risk-Free Interest rate of
0.360%, and a dividend yield of 11%. The resulting fair value of £1,384
thousand will be expensed over the expected vesting period.
On 10 January 2021, the Company also issued options over a total of 13,166,358
ordinary shares to key staff that joined its Canadian subsidiary, i3 Energy
Canada Ltd., following the acquisition of Gain's oil & gas assets. The
options were issued in accordance with the rules of the Company's Employee
Share Option Plan at an exercise price of 6.1 pence per share, the closing
price on 8 January 2021The fair value was calculated using the Black Scholes
model with inputs for share price of 6.1 pence, exercise price of 6.1 pence,
time to maturity of 10 years, volatility of 114%, the Risk-Free Interest rate
of 0.360%, and a dividend yield of 11%. The options contain the same vesting
conditions as the 5 pence options for employees of i3 Canada as described in
the paragraph above. The resulting fair value of £240 thousand will be
expensed over the expected vesting period.
On 30 July 2021, the Company issued options over a total of 53,705,491
ordinary shares to i3 staff and board and has additionally issued 1,750,000
options to incoming staff and conditionally allocated 3,750,000 for additional
hires as part of the Acquisition. A total of 57,121,402 options were
ultimately issued. The options were issued in accordance with the rules of the
Company's Employee Share Option Plan at an exercise price of 11 pence per
share. Of the options issued to employees of i3 Canada, one-third of the
options vested immediately, with a further one-third vesting if production of
20,000 boepd is achieved prior to July 2022 (substantially funded from
internally generated cash flow); and 100 per cent will vest upon the addition
of 9,250 boepd or 50 MMboe 2P reserves. Of the options issued to employees of
i3 North Sea Limited, one-third of the options vested immediately, with a
further one-third vesting at spud of the earlier of a second appraisal well or
first development well at either Serenity or Liberator, and 100 per cent will
vest upon the addition of 2,500 boepd of European production. Of the options
issued to the Executive and Non-Executive Directors and one corporate
employee, one-third of the options vested immediately, with a further
one-third vesting (i) at spud of the earlier of a second appraisal well or
first development well at either Serenity or Liberator; or (ii) if production
of 20,000 boepd is achieved prior to July 2022 (substantially funded from
internally generated cash flow), whichever is first to occur, and 100 per cent
will vest upon (i) the addition of 2,500 boepd of European production; or (ii)
the addition of 9,250 boepd or 50 MMboe 2P reserves, whichever is first to
occur. The fair value was calculated using the Black Scholes model with inputs
for stock price of 10.95 pence, exercise price of 11.0 pence, time to maturity
of 10 years, volatility of 110%, the Risk-Free Interest rate of 0.647%, and a
dividend yield of 6%. The resulting fair value of £3,202 thousand will be
expensed over the expected vesting period.
On 16 December 2021, the Company issued options over a total of 1,625,000 to
new employees of i3 Canada. The vesting conditions mirror those of the 30 July
2021 grant described above, except for the first one-third of options vesting
on the 6-month employment anniversary rather than immediately.
In addition, to incentivise the UK and Canadian offices of the Enlarged Group
to work as one team and assist each other as required going forward, if one of
the offices satisfies one of the early vesting criteria for the options
described above then the equivalent vesting criteria for the other office
shall be deemed 20 per cent satisfied (and a further 6.67 per cent. of the
options held by employees in the other office would vest immediately).
All options issued on 10 January 2021, 30 July 2021, and 16 December 2021 will
otherwise fully vest on the third anniversary of their grant dates.
99,721,892 outstanding employee share options as at 31 December 2021 were
fully vested and exercisable.
Warrants
During the year the Group had share based payment expense relating to the
modification and issuance of warrants of £451 thousand (2020: £2,198
thousand). Details on the warrants outstanding during the period are as
follows:
Number of warrants Weighted average exercise price Weighted average contractual life
(pence)
At 31 December 2019 65,483,293 46.98 3.04
Modified - 23 June 2020 (55,981,044) 46.09 2.67
Modified - 23 June 2020 55,981,044 0.01 2.67
Exercised - 24 August 2020 (6,788,945) 0.01 2.77
At 31 December 2020 58,694,348 5.27 1.98
BHGE warrants modified - 17 May 2021 (5,277,045) 56.85 0.34
BHGE warrants modified - 17 May 2021 5,277,045 0.01 0.34
BHGE warrants exercised - 17 May 2021 (5,277,045) 0.01 0.3
H1-2019 LN warrants exercised throughout the year (40,140,172) 0.01 1.34
At 31 December 2021 13,277,131 15.07 1.85
On 17 May 2021, i3 announced that it had successfully restructured legacy
contracts and agreements for equipment, oil field services, and warrants with
BHGE. This resulted in the exchange of 5,277,045 warrants with a strike price
of 56.85 pence for Ordinary Shares with a nominal value of 0.01 pence. Further
details are provided in Note 15 (#_Trade_and_other) .
EMI Options
The Company operates an Employee Management Incentive (EMI) share option
scheme. Grants were made on 14th April 2016 and 6th December 2016. The scheme
is based on eligible employees being granted EMI options. The right to
exercise the option is at the employee's discretion for a ten-year period from
the date of issuance.
250,000 options were exercised on 1 October 2021 at a price of £0.11 per
share. 250,000 options remain outstanding and were exercisable at both 31
December 2021 and 2020 at a price of £0.11 per share. If the options remain
unexercised after a period of ten years from the date of grant the options
expire. Employees who leave i3 Energy have 60 days to exercise the Options
prior to them being forfeited. The options outstanding at 31 December 2021
have a weighted average exercise price of £0.11 and a weighted average
remaining contractual life of 4.93 years.
21 Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
Remuneration of Key Management Personnel
Directors of the Group are considered to be Key Management Personnel. The
remuneration of the Directors is set out in note 10
(#_Directors%E2%80%99_remuneration) .
Ultimate parent
There is no ultimate controlling party of the Group.
22 Financial instruments, financial and capital risk management
Financial instruments
Fair value measurements
The Group carries risk management contracts, and following its modification in
May 2021, non-current accounts payable at FVTPL. The fair value of the risk
management contracts is determined by discounting at a risk-free rate the
difference between the contracted prices and the published forward curves at
the reporting date. The fair value of non-current accounts payable is
determined by subtracting the value of the Warrant Shares, being the 5,277,045
Warrant Shares multiplied by the higher of (i) the quoted price of one i3
share at the reporting date, and (ii) the 5-day volume weighted average value
of one i3 share during the 5-day dealing period to 17 September 2021, from the
remaining Deferred Payment Invoice Balance. The risk management contracts and
non-current accounts payable are classified as Level 2 valuations within the
fair value hierarchy as defined by IFRS 13 Fair Value Measurement which is as
follows:
· Level 1 fair value measurements are those derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities;
· Level 2 fair value measurements are those derived from inputs other
than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e., as prices) or indirectly (i.e., derived
from prices); and
· Level 3 fair value measurements are those derived from valuation
techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
There were no financial assets or liabilities measured at Level 1 or 3 or
reclassified between Levels 1, 2 or 3 during the year.
The fair value of the Group's financial assets and liabilities approximate to
their carrying amounts at the reporting date. The following tables combine
information about the Group's classes of financial instruments and their fair
value and carrying amounts at the reporting date.
As at 31 December 2021 Carried at FVTPL Carried at amortised cost
Financial assets
Cash and cash equivalents - 15,335
Trade and other receivables - 25,792
Risk management contracts (Level 2) 814 -
Total 814 41,127
Financial liabilities
Trade and other payables 1,232 17,746
Risk management contracts (Level 2) 925 -
Borrowings and leases - 23,924
Non-current accounts payable (Level 2) 557 -
Total 2,714 41,670
As at 31 December 2020 Carried at FVTPL Carried at amortised cost
Financial assets
Cash and cash equivalents - 6,178
Trade and other receivables - 8,731
Deposit - 678
Total - 15,587
Financial liabilities
Trade and other payables - 13,156
Borrowings and leases - 7,986
Non-current accounts payable - 3,000
Total - 24,142
Financial Risk Management
Financial Risk Factors
The Group's activities expose it to a variety of financial risks; market risk
(including foreign currency risk and price risk), credit risk and liquidity
risk. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance.
Risk management is carried out by the Board of Directors under policies
approved at Board meetings. The Board frequently discusses principles for
overall risk management including policies for specific areas such as foreign
exchange.
a Market Risk
i Foreign Exchange Risk
The Group is exposed to foreign exchange risk arising from various currency
exposures, primarily with respect to the UK pound sterling and the Canadian
dollar and US Dollar. Foreign exchange risk arises from recognised monetary
assets and liabilities (USD and CAD bank accounts) where they may be
denominated in a currency that is not the local functional currency. The Group
mitigates is foreign exchange exposure by holding monetary assets and
liabilities primarily in the local functional currency. All of the monetary
assets and liabilities held by the Group's Canadian operations were held in
CAD, the functional currency, and therefore there is no foreign exchange
exposure in the Canadian operations. The UK operations did not hold
significant monetary assets or liabilities as at 31 December 2021.
The Group is also exposed to exchange differences on translation of its
foreign operations in Canada, which resulted in a gain of £1,511 thousand for
the year ended 31 December 2021 (2020: £185 thousand). A 10% strengthening of
GBP against CAD as at 31 December 2020 would have resulted in a loss on
translation of £8,876 thousand (2020: £4,522 thousand), and a 10% weakening
of GBP to CAD would have resulted in a gain of £14,222 thousand (2020:
£5,201 thousand). Profit after tax would not be impacted.
b Credit Risk
Credit risk arises from cash and cash equivalents and trade receivables from
the sale of hydrocarbons. It is Group policy to assess the credit risk of new
customers.
The Group considers the credit ratings of banks in which it holds funds in
order to reduce exposure to credit risk. The Group will only keep its holdings
of cash with institutions which have a minimum credit rating of 'A'. The Group
sells hydrocarbons to reputable purchasers and are settled the month following
their sale. Long-term deposits for decommissioning provisions are lodged with
government bodies. The carrying value of cash and cash equivalents and trade
and other receivables represents the Group's maximum exposure to credit risk
at year end.
The Group considers that it is not exposed to major concentrations of credit
risk.
The Group holds cash as a liquid resource to fund its obligations. The Group's
cash balances are held in Sterling Canadian Dollar, and US Dollar. The Group's
strategy for managing cash is to maximise interest income whilst ensuring its
availability to match the profile of the Group's expenditure. This is achieved
by regular monitoring of interest rates and monthly review of expenditure
forecasts.
c Liquidity Risk
The Group relies upon debt and equity funding, and cash flow from its Canadian
operations to finance operations. The Directors are confident that adequate
liquidity will be forthcoming with which to finance operations. Controls over
expenditure are carefully managed.
The Group ensures that its liquidity is maintained by a management process
which includes projecting cash flows and considering the level of liquid
assets in relation thereto, monitoring Balance Sheet liquidity and maintaining
funding sources and back-up facilities.
The Group's expected cash flows for its financial liabilities are presented in
the following table and includes undiscounted principal and expected interest
payments.
6 Months 6-12 months 1-2 years 2+ years Total
£'000 £'000 £'000 £'000 £'000
Trade and other payables 18,970 740 - - 19,710
Non-current payable * - - 557 - 557
H1 2019 LNs - - 22,000 - 22,000
H1 2019 PIK interest ** - - 9,680 - 9,680
Leases 11 6 - - 17
At 31 December 2021 18,981 746 32,237 - 51,964
6 Months 6-12 months 1-2 years 2+ years Total
£'000 £'000 £'000 £'000 £'000
Trade and other payables 13,155 - - - 13,155
Non-current payable * - - - 3,000 3,000
H1 2019 LNs - - - 22,000 22,000
H1 2019 PIK interest ** - - - 9,680 9,680
Leases 15 15 17 - 47
At 31 December 2020 13,170 15 17 34,680 47,882
* The non-current payable will not become payable until such time as i3 has
received consideration from any sale or farm-down of its Serenity or Liberator
assets (see note 15 (#_Borrowings) ). However, as the DPIB will be reduced by
certain payments to BHGE, management expects the balance will be repaid by
2023.
** The H1 2019 LNs have an early redemption option and the interest can be
paid in either cash or in kind (see note 16). The table assumes no early
redemption and that all interest is paid in kind at the maturity.
d Commodity Price Risk
Commodity price risk in the Group primarily arises from price fluctuations in
markets for the Group's oil, gas and NGL products. Commodity prices can be
volatile and may be impacted by various supply and demand factors which are
outside the Group's control. Fluctuations in commodity prices could have a
significant impact on future results of operations, cash flow generation, and
development opportunities.
The Group manages commodity price risks by entering a variety of risk
management contracts. Further details of risk management contracts entered in
2021 are provided in note 18 (#_Risk_management_contracts) , and of risk
management contracts entered after the reporting period are provided in note
24 (#_Events_after_the) .
The following table illustrates the impact on the Group's profit before tax
and equity due to reasonably possible changes in commodity prices and their
impact on the fair value of financial instruments, with all other variables
held constant.
Decrease in commodity price / increase in profit before loss and equity Increase in commodity price / (decrease) in profit before loss and equity
£'000 £'000
Change in WTI - CAD 5.00 / bbl 1,555 (651)
Change in AECO - CAD 0.50 / GJ 262 (262)
Change in Conway - USD 5.00 / bbl 677 (677)
Capital Risk Management
The Group's objectives when managing capital are to safeguard the Group's
ability to position as a going concern and to continue its development and
production activities. The capital structure of the Group consists of
borrowings and leases of £23,924 thousand at 31 December 2021 (2020 -
£17,986 thousand) (note 16 (#_Borrowings) ), has capital, defined as the
total equity and reserves of the Group of £138,731 thousand (2020 - £79,888
thousand) and cash and equivalents of £15,335 thousand (2020 - £6,178
thousand).
The Group monitors its level of cash resources available against future
planned exploration and evaluation activities and may issue new shares in
order to raise further funds from time to time.
23 Commitments
1 year 2-3 years 4-5 years 5+ years Total
£'000 £'000 £'000 £'000 £'000
Operating - - - - -
Transportation 1,663 1,322 298 55 3,338
Total 1,663 1,322 298 55 3,338
The Group previously held an operating commitment to lease offices in the UK
that expired in April 2022, which was terminated early by the Group in
2021.Transportation commitments relate to take-or-pay pipeline capacity in
Alberta.
The Group did not have any capital commitments as at 31 December 2021 (2020 -
£3,960 thousand).
24 Events after the reporting period
After 31 December 2021 i3 entered into various risk management contracts, as
summarised below.
Type Effective date Termination date Total Volume Avg. Price
AECO 5A Physical Swaps 1 Apr 2022 30 Jun 2022 7,500 GJ/Day CAD 3.2500 / GJ
AECO 5A Physical Swaps 1 Apr 2022 31 Oct 2022 20,275 GJ/Day CAD 3.9371 / GJ
AECO 5A Physical Swaps 1 Jul 2022 31 Jul 2022 7,500 GJ/Day CAD 3.2700 / GJ
AECO 5A Physical Swaps 1 Aug 2022 31 Aug 2022 7,500 GJ/Day CAD 3.3300 / GJ
AECO 5A Physical Swaps 1 Sep 2022 30 Sep 2022 7,500 GJ/Day CAD 3.2600 / GJ
AECO 5A Physical Swaps 1 Oct 2022 31 Dec 2022 7,500 GJ/Day CAD 3.5000 / GJ
AECO 5A Physical Swaps 1 Nov 2022 30 Nov 2022 2,500 GJ/Day CAD 5.0050 / GJ
AECO 5A Financial Swaps 1 Nov 2022 31 Mar 2023 10,000 GJ/Day CAD 4.1500 / GJ
AECO 5A Physical Swaps 1 Nov 2022 31 Mar 2023 5,000 GJ/Day CAD 4.3800 / GJ
AECO 5A Physical Swaps 1 Dec 2022 31 Dec 2022 2,500 GJ/Day CAD 5.0800 / GJ
AECO 5A Physical Swaps 1 Jan 2023 31 Jan 2023 2,500 GJ/Day CAD 5.1500 / GJ
AECO 5A Financial Swaps 1 Jan 2023 31 Mar 2023 5,000 GJ/Day CAD 4.3800 / GJ
AECO 5A Physical Swaps 1 Jan 2023 31 Mar 2023 5,000 GJ/Day CAD 4.7500 / GJ
AECO 5A Physical Swaps 1 Feb 2023 28 Feb 2023 2,500 GJ/Day CAD 5.1300 / GJ
WTI Financial Swaps 1 Apr 2022 30 Jun 2022 250 bbl/Day CAD 100.00 / bbl
WTI Financial Swaps 1 Apr 2022 31 Dec 2022 500 bbl/Day CAD 97.41 / bbl
WTI Financial Swaps 1 Jul 2022 30 Sep 2022 250 bbl/Day CAD 100.09 / bbl
WTI Physical Swaps 1 Oct 2022 31 Oct 2022 250 bbl/Day CAD 100.00 / bbl
WTI Physical Swaps 1 Nov 2022 30 Nov 2022 250 bbl/Day CAD 100.00 / bbl
WTI Physical Swaps 1 Dec 2022 31 Dec 2022 250 bbl/Day CAD 101.05 / bbl
WTI Physical Swaps 1 Jan 2023 31 Jan 2023 250 bbl/Day CAD 100.00 / bbl
WTI Financial Swaps 1 Jan 2023 31 Mar 2023 250 bbl/Day CAD 106.00 / bbl
WTI Physical Swaps 1 Feb 2023 28 Feb 2023 250 bbl/Day CAD 100.00 / bbl
WTI Physical Swaps 1 Mar 2023 31 Mar 2023 250 bbl/Day CAD 109.53 / bbl
Sold WTI Call Option * 1 Mar 2022 31 Dec 2022 500 bbl/Day CAD 92.20 / bbl
* The sold WTI call option has a strike price of CAD 92.20 / bbl and a premium
of CAD 17.60 / bbl. The option premium has been deferred over the effective
period of 1 March 2022 to 31 December 2022.
On 3 February 2022 the Group announced it had revised its dividend guidance
from bi-annually to monthly. In early-2022 the Company has declared dividends
as summarised in the following table:
Declaration date Ex-Dividend date Record date Payment date Dividend per share Total Dividend
(pence) £'000
9 February 2022 17 February 2022 18 February 2022 11 March 2022 0.105 1,183
9 March 2022 17 March 2022 18 March 2022 8 April 2022 0.105 1,183
6 April 2022 14 April 2022 19 April 2022 6 May 2022 0.105 1,183
Total 3,549
On 2 March 2022 the Group noted the announcement by Europa Oil & Gas
Limited ("Europa") (company number 03093716) regarding its agreement in
principle to farm-in to the Company's Serenity oil discovery in the UK North
Sea and the equity funding it is conducting to fund its farm-in obligations.
We can confirm that the farm-in, joint operating agreement and trust deed have
been essentially agreed between the parties to enable Europa to acquire a 25%
non-operated working interest ("WI") in a sub-area of UKCS Licence P.2358
Block 13/23c (containing the Serenity discovery) by funding a 46.25% paying
interest for one appraisal well on the field, whereafter i3 will retain a 75%
operated WI in the Block.
The well cost is estimated to be circa £14 million and Europa's 46.25% paying
interest will be applied up to a capped gross well cost of £15 million. Any
well costs exceeding £15 million will be paid by the companies in proportion
to their respective working interests. Completion of the deal and transfer of
the licence interest to Europa will be subject to the following principal
conditions:
1. Europa funding an escrow account with their paying interest obligation.
We note that closing of Europa's equity funding is subject to the approval of
its shareholders at an EGM. This shareholder approval was obtained by Europa
on 25 March 2022.
2. Approval of the UK Oil and Gas Authority ("OGA") to the creation of the
Serenity area of Block 13/23c as a new block of Licence P.2358 (the "New
Serenity Block").
3. Consent of the OGA to assignment of an interest in the Licence and New
Serenity Block to Europa.
4. UK National Security and Investment Act approval.
5. Approval of i3's Loan Note holders of the assignment of the Licence
interest.
Following this farm-out i3 will retain a 100% WI in the remainder of Block
13/23c which contains the Minos High prospect and Liberator discovery.
On 4 April 2022 the Group announced the reserves of i3 Energy Canada Limited
as of 31 December 2022. Highlights include Company Interest PDP reserves of
46MMboe, 1P reserves of 85MMboe, and 2P reserves of 154MMboe. Further details
can be found on the Company's website at www.i3.energy (http://www.i3.energy)
.
Glossary
1P Proved reserves
2P Proved plus probable reserves
AER Alberta Energy Regulator
AIM The Alternate Investment Market of the London Stock Exchange
APM Alternate Performance Measure
ARO Asset Retirement Obligation
ASCP Saskatchewan's Accelerated Site Closure Program
bbl Barrel
BHGE Baker Hughes, a GE Company, and GE Oil & Gas Limited
BOE Barrels of Oil Equivalent
BOEPD Barrels of Oil Equivalent Per Day
CAD Canadian Dollars
Cenovus Cenovus Energy Inc.
Cenovus Acquisition Date 20 August 2021
Cenovus Assets Certain petroleum and infrastructure assets acquired from Cenovus
CEO Chief Executive Officer
CFO Chief Financial Officer
CLNs Convertible Loan Notes
Company i3 Energy plc
CPR Competent person's report
E&E Exploration and evaluation
Europa Europa Oil & Gas Limited
FCF Free cash flow
FVTPL Fair Value through Profit or Loss
Gain Gain Energy Ltd.
Gain Acquisition Date 3 September 2020
Gain Assets Assets retained by i3 following the purchase from Gain and sale to Harvard
gal Gallon
GBP British Pounds Sterling
GJ Gigaloule
Group i3 Energy plc, together with its subsidiaries
Harvard Harvard Resources Inc.
i3 i3 Energy plc, together with its subsidiaries
i3 Canada i3 Energy Canada Limited
IAS International Accounting Standard
IFRIC International Financial Reporting Interpretations Committee
IFRS International Financial Reporting Standard
IP30 Average daily production of a well over its initial 30-day production period
LLR The licensee's deemed asset to deemed liability ratio as determined under
Directive 006 (Licensee Liability Rating (LLR) Program and Licence Transfer
Process) of the Alberta Energy Regulator (AER). The deemed asset value is
calculated by multiplying the licensee's reported production of oil and gas
for the prior 12 months by the rolling 3-year provincial industry average
netback (determined by the AER). The deemed liability is the total cost for
the future abandonment and site reclamation of all a licensee's wells and
upstream facilities based on provincial industry average costs (determined by
the AER).
MMboe Million Barrels of Oil Equivalent
MMBtu Metric Million British Thermal Unit
NGL Natural gas liquids
NED Non-Executive Director
NOI Net Operating Income
NTM Next Twelve Months
OGA UK Oil and Gas Authority
PDP Proved, developed, producing reserves
PP&E Property, plant and equipment
RTO Reverse Take-over
SRP Alberta's Site Rehabilitation Program
TEIC Toscana Energy Income Corporation
Toscana Toscana Energy Income Corporation
Toscana Acquisition Date 30 October 2020
TSX Toronto Stock Exchange
UKCS UK Continental Shelf
USD (US$) United States Dollar
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