REG - i3 Energy PLC - Q2 2022 Operational and Financial Update

I3 EnergyAnnouncement

26/08/2022 07:00

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RNS Number : 2981X  i3 Energy PLC  26 August 2022

26 August 2022

i3 Energy plc

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

Q2 2022 Operational and Financial Update

i3 Energy plc (AIM:I3E) (TSX:ITE), an independent oil and gas company with
assets and operations in the UK and Canada, is pleased to announce the
following Q2 2022 operational and financial update, in advance of its half
year results which will be released in September 2022.

Highlights:

·    Strong Q2 2022 average production of approximately 19,502 barrels of
oil equivalent per day ("boepd"), representing a 116% increase over Q1 2021
and an 8% increase over Q1 2022, despite delays to drilling caused by expected
seasonal wet weather conditions and maintenance shutdowns at third party
facilities

·    Average field sales estimates exited July above 20,000 boepd with
current field estimates of approximately 20,500 boepd.

·    Assuming the full implementation of the Company's previously
announced Enlarged Capital Budget (as announced on 9 May 2022), full-year 2022
net operating income ("NOI" = revenue minus royalties, opex, transportation
and processing) is now forecast to be approximately USD 200((1)) million
(based on current strip), versus previous guidance of USD 241 million,
predominantly due to volatile near-term commodity pricing

·    Ongoing multi-well pad development of i3's core Glauconite, Cardium
and Clearwater holdings and the strategic delineation of the Company's
high-impact Simonette Montney position

·    Drilled 7 wells (5 operated and 2 non-operated) with production
testing underway

·    Completed a 25% working interest farmout of the Serenity discovery to
Europa Oil and Gas ("Europa") with Europa funding 46.25% of the cost of the
upcoming appraisal well, up to a gross capped well cost of £15 million.
 Preparations remain on track for a mid-September spud

·    Inaugural annual sustainability report published outlining the
Company's ESG initiatives and plans to reduce GHG emissions

·    Increased minimum annual dividend to be paid in 2022 by 25% to
£14.784 million (current monthly distribution of 0.1425 pence/share) on
strong operational and financial performance and paid out £5.153 million in
H1 2022

·    Full year 2022 Enlarged Capital Budget as outlined on 9 May 2022
remains unchanged at USD 97 million, and i3 remains on track to deliver peak
2022 production above 24,000 boepd

 

Majid Shafiq, CEO of i3 Energy plc, commented:

"The second quarter was another very busy period for i3. The Company managed
to increase base production levels quarter on quarter, without any
contribution from our Q2 drilling campaign, despite delays and operational
challenges caused by expected seasonal wet weather conditions and maintenance
shutdowns at third party facilities, The recently drilled wells from our Q2
campaign have been tied in post quarter end and will imminently commence
making a material production contribution post clean-up. Our expanded drilling
campaign in Canada proceeds at pace and preparations for appraisal drilling on
the Serenity field in the UK are on track for an expected spud in
mid-September. We look forward to providing further updates to the market over
the coming weeks.

Q2 Production

Production in Q2 2022 averaged 19,502 boepd, comprised of field estimate sales
equalling 60.8 million standard cubic feet of gas per day ("mmcf/d"), 5,099
barrels per day ("bbl/d") of natural gas liquids, 3,886 bbl/d of oil &
condensate and 385 boepd of gross overriding royalty interest production. The
strong quarterly production represents a 116% increase over Q2 2021 and an 8%
increase over Q1 2022, despite production curtailments resulting from a major
turnaround at a third-party midstream facility, planned maintenance at i3
operated facilities and well shut-ins to enable offset-drilling and completion
activity in the Company's core Montney position at Simonette. The strong
production profile, notwithstanding these meaningful curtailments, results
from the continued outperformance of i3's low-decline base production -
forecasted at approximately 11.5% - and strong operational results across the
Canadian portfolio from its Q1 2022 drilling programme. With the
abovementioned turnarounds complete and including the impact of well shut-ins
for ongoing completion activity, average field sales estimates exited July
above 20,000 boepd with current field estimates of approximately 20,500 boepd.

 

 Period Comparison: Q2 2022 vs. Q2 2021((2,3))
                               Q2 2022  Q2 2021  % Increase
 Production (boepd)            19,502   9,018    116%
 Oil & Condensate (bbl/d)      3,886    1,734    124%
 Liquids (bbl/d)               5,099    1,909    167%
 Gas (mcf/d)                   60,791   31,032   96%
 Royalty Interest (boepd)      385      203      90%

 

2022 Guidance Update

On 9 May 2022, i3 announced an increase in its 2022 capital budget by up to
100%, to USD 97 million (the "Enlarged Capital Budget"), as a direct result of
the Company's robust operational performance and forecasted strength in
commodity prices. The Enlarged Capital Budget has allowed the Company to
accelerate its development drilling programme which, in addition to expanding
production, is designed to grow booked reserves and further demonstrate the
upside in certain key components of i3's Canadian portfolio. Wet weather
conditions, which are typical for this period, have impacted accessibility
issue throughout Q2 and caused delays to drilling, completion activities and
facility construction operations. Numerous wells, including Q1's South
Simonette Lower Montney drill are currently being tied-in to newly installed
production facilities and put on clean up flow. The Company will provide a
production update in September, incorporating the output from these new wells.

The Enlarged Capital Budget remains on track to deliver peak 2022 production
above 24,000 boepd after adjusting well-timing to account for the
aforementioned delays, and access restrictions. As a material percentage of
the associated production is expected to come onstream in late Q3 or Q4 2022,
the full impact and benefit of the Enlarged Capital Budget will occur in 2023
and beyond.

With the full deployment of its Enlarged Capital Budget, i3's 2022 NOI is
forecasted to be approximately USD 200 million driven by recent fluctuations
in commodity prices, pricing differentials and inflationary pressures. When
compared to i3's Q1 operational update of 9 May 2022, the softening in
full-year 2022 commodity pricing predictions and expected differentials result
in a 9.4% decrease to i3's revenue forecast (circa 6% for gas and 3.4% for
liquids), while inflationary pressures are predicted to increase costs
(royalties, opex, transportation and processing) by 3.0%. i3 continues to
employ a defensive risk management strategy with current hedges in place to
cover 36% and 22.5% of the Company's projected H2 2022 and H1 2023 production
volumes, respectively.  i3's hedges are as follows:

                                  Swaps                              Costless Collars                                    Participation Swaps((4))

 Period            Commodity      Volume         Average             Volume         Avg Floor Price  Avg Cap Price       Volume         Avg Floor Price
 2022 (Q3&Q4)      Gas            6,897,325 GJs  CAD 3.85/GJ
                   Oil            230,000 bbls   CAD 94.15/bbl                                                           414,000 bbls   CAD 92.20/bbl
                   Propane        92,000 bbls    USD 46.93/bbl
 2023 (Q1&Q2)      Gas            2,397,500 GJs  CAD 4.41/GJ         1,125,000 GJs  CAD 5.80/GJ      CAD 10.09/GJ
                   Oil            72,150 bbls    CAD 108.24/bbl      252,900 bbls   CAD 100.00/bbl   CAD 126.31/bbl
                   Propane                                            45,000 bbls   USD 42.00/bbl    USD 51.61/bbl

 

Q2 Operational Results

i3 continues to systematically advance the development of its large inventory
of highly profitable booked and unbooked locations, as the Company remains
focused on delivering total shareholder returns. Building on the strong
operational results in Q1 2022, i3 participated in 7 gross (4.5 net) wells
across its drilling portfolio, including 5 gross (3.9 net) operated wells and
2 gross (0.6 net) non-operated wells in Q2 2022. Production associated with
the majority of the operated Q2 2022 capital programme is in the initial
clean-up phase or currently being tied in. Preliminary results continue to
achieve or exceed management's expectations and i3 will provide a more
detailed production update as wells are brought on stream. The Company remains
focused on pad development and gaining efficiencies across its portfolio as it
continues to monitor industry-wide inflationary pressures.

Central Alberta Glauconite

Based on the successful results of the Company's 2-well Glauconite drilling
programme at Open Creek in Q1 (which continues to perform above management
type curve estimates, with a projected payout of approximately 8 months), i3
drilled and completed another 3 gross (3.0 net) extended-reach horizontal
liquids-rich Glauconite wells. The new 3-well pad allowed the Company to
mitigate inflationary pressures, capturing additional operational efficiencies
to enhance overall project economics and minimize surface disturbances. This
pad was completed, equipped and tied-in in early Q3 2022, following weather
delays and area infrastructure enhancements to support ongoing future
development. The 3-well pad is currently in the clean-up phase and
demonstrating encouraging initial results.

Wapiti / Elmworth

In Q2, i3 drilled and operated 4 gross (2.94 net) horizontal oil wells in its
initial phase of Cardium development within this core area. The programme
consisted of 1 gross (1.0 net) single-well operation plus 3 gross (1.94 net)
wells drilled from a common surface pad, thereby capturing operational
efficiencies, enhancing overall economics, and minimizing surface disturbance.
In August, i3 brought onto production the single Cardium well and, whilst the
well is still in the clean-up phase, initial results are exceeding type curve
estimates. The Company is actively tying-in the 3-well pad with production to
commence in the coming weeks and it expects the Cardium programme to meet or
exceed type curve expectations.

Simonette Montney

i3's initial 1 gross (0.99 net) Lower Montney extended-reach horizontal well
at South Simonette was spud on 4 February 2022 and completed with 206
hydraulic fracturing stages in June after weather related seasonal road
restrictions were lifted. Facility construction operations at the wellsite
were similarly delayed due to wet weather conditions but have now been
completed. Well tie-in operations are almost complete with the clean-up flow
period expected to commence imminently.  This new well is expected to meet or
exceed type curve expectations based on the formation characteristic logged
during drilling and as it directly offsets i3's prolific 15-13-061-01W6
Montney oil well which has already recovered approximately 234,000 bbls of oil
and 0.54 BCF of natural gas, exhibiting strong deliverability with peak rates
above 1,000 boepd.

Marten Hills Clearwater

At Marten Hills, i3 and its working interest partner drilled 2 gross (0.6
net) wells during Q2 and have now drilled and brought on a total of 8 gross
(3.6 net) eight-leg multilaterals in the Clearwater formation. The new wells
commenced clean-up flow operations in July and have now recovered load fluid
and exhibit strong initial rates, materially outperforming the Company's
internal forecasts. Based on field estimates, the new wells have each averaged
approximately 214 bbl/d for the first half of August. Through its H1 2022 area
operations, i3 has completed the initial earning phase of the
Company's Clearwater farm-in. The Company and its partner are currently
planning operations for the next phase of earning wells, to be spud prior to
31 March 2023, which will earn i3 an additional 13 net sections along the
prolific Clearwater trend. Additionally, i3 is advancing drilling locations
for an accelerated Winter programme across its recently enlarged portfolio of
partnered and wholly owned Clearwater acreage.

Serenity Appraisal Farm-out

As announced on 1 August the Company completed the farm-out of a 25% working
interest in the Serenity discovery to Europa Oil & Gas Limited ("Europa").

As previously disclosed under the terms of the FIA, Europa will acquire a 25%
non-operated working interest ("WI") in a sub-area of UKCS Licence P.2358
Block 13/23c containing the Serenity discovery (the "New Serenity Block") by
funding a 46.25% paying interest for one appraisal well on the field up to a
gross capped well cost of £15 million, whereafter i3 will retain a 75%
operated WI in the New Serenity Block. Any well costs exceeding £15 million
will be funded by the companies in proportion to their respective working
interests. Rig mobilisation is expected in the first half of September and all
operational preparations and permitting are proceeding as planned.

This delineation well will test the thickness of the Captain sand to the West
of the initial discovery well 13/23c-10 and allow the Company to update its
estimates of oil in place.  i3's independent competent persons report ("CPR")
estimates a range of 16 million barrels in the low case, which could support a
single well development in the vicinity of the discovery well via existing
infrastructure, to 240 million barrels in the high case, which would likely
require a stand-alone FPSO development. At present, the Company carries no
reserves for Serenity and as such does not consider any estimated production
or cash flow in its go-forward forecasts.

Environmental, Social and Governance ("ESG")

i3 published its inaugural annual ESG report on 7 July 2022 as part of the
Company's commitment to long-term sustainable resource development,
environmental stewardship and the well-being of employees and the communities
in which i3 operates.

The ESG report set out the Company's goals and ambitions with respect to
greenhouse gas emission reductions and environmental stewardship. Having
already replaced the Company's entire inventory of high-bleed pneumatic
controllers with low-bleed units or instrument air, i3 continues to advance
its 30-well site electrification project at the Carmangay field to eliminate
greenhouse gas emissions associated with current gas-powered engines on its
pumping wells. Applications have now been approved for approximately USD 0.3
million grant funding under the Government of Alberta's Emissions Reduction
program to further assist the Company's electrification and vent reduction
projects at Carmangay. Similar projects are also being advanced at i3's
Simonette and Retlaw fields.

In Q2, the Company received approval for USD 1.4 million in combined funding
through the Government of Alberta's Site Rehabilitation Programs and continues
to exceed its abandonment obligations under the Alberta Energy Regulator's
("AER") Inventory Reduction Program (previously the Area Based Closure
Program). The Company expects to deploy approximately USD 2.5 million on
wellbore abandonment activities in 2022, targeting greater than 60 inactive
wellbores.

Return of Capital

In December 2021 the Company committed to pay a minimum dividend of £11.827
million during the course of 2022 and in March 2022 transitioned to a monthly
dividend payment schedule to expedite the return of capital to its
shareholders. Based on the strong operational performance of the Company's
assets, positive results from the initial phase of its 2022 development
drilling programme, continued commodity price strength, and the resultant
positive impact on i3's cash flow projections, in May the Company increased
the minimum dividend to be paid in 2022 by 25% from £11.827 million to
£14.784 million. The Company paid out dividends of £3.975 million in Q2 and
£5.153 million in H1 2022. The Company remains committed to delivering a
sustainable monthly dividend as part of its total return model, with an
underlying policy of distributing up to 30% of free cash flow back to
shareholders.

As announced on 3 August 2022, the next monthly dividend, totalling £1.6996
million (0.1425 pence/share) will be payable on 2 September 2022 to
shareholders of record on 12 August 2022.

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

(2)  Unaudited management estimates.

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

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

 

END

Qualified Person's Statement

In accordance with the AIM Note for Mining and Oil and Gas Companies, i3
discloses that Majid Shafiq is the qualified person who has reviewed the
technical information contained in this document.  He has a Master's Degree
in Petroleum Engineering from Heriot-Watt University and is a member of the
Society of Petroleum Engineers. Majid Shafiq consents to the inclusion of the
information in the form and context in which it appears.

Enquiries:

 i3 Energy plc                                    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) 203 781 8331

 

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

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