EASTLEIGH, UK – i3 Energy plc (“i3”, “i3 Energy”, or the “Company”) (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.
- 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.
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|
|Oil & Condensate (bbl/d)||3,886||1,734||124||%|
|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||AvgFloor Price|
|2022 (Q3&Q4)||Gas||6,897,325 GJs||CAD 3.85/GJ|
|2022 (Q3&Q4)||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|
|2023 (Q1&Q2)||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.
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.
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.