i3 Energy PLC announces i3 Energy Canada Ltd YE 2022 reserves

EASTLEIGH, ENGLAND – i3 Energy plc (“i3”, “i3 Energy”, “i3 Canada”, 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 results of its 2022 year-end reserve report, for its subsidiary i3 Energy Canada Ltd.

i3’s independent reserve report (the “GLJ report”) was prepared by GLJ Ltd. (“GLJ”) in accordance with standards contained in the Canadian Oil and Gas Handbook (COGEH) and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”), with an effective date of 31 December 2022.

Highlights

• Successful Execution of 2022 Capital Programme Provided Year-Over-Year Reserve Additions Across All Reserve Categories
  • Total Company Interest proved plus probable developed producing reserves (“2PDP”) increased 9% to 65.7 million boe, total proved (“1P”) reserves increased 10% to 93.5 million boe and total proved plus probable (“2P”) reserves increased 18% to 181.5 million boe, compared to the prior year.
• Strong Organic Reserves Replacement Ratio, Long Reserve Life Assets and Low Decline Profile to Support the Company’s Total Return Model
  • The Company’s organic Working Interest reserves replacement ratio in 2022 was 176% on a 2PDP reserve basis, 214% on a 1P reserves basis and 479% on a 2P basis.
  • 2PDP, 1P and 2P reserve life indices of 8.8 years, 12.2 years and 22.5 years, respectively, combined with our low base corporate decline rate of approximately 17% and our extensive inventory of highly economic development drilling locations, underpin i3’s ability to sustainably grow production per share from our existing asset base and generate significant distributable cash flow for our shareholders.
• Material Increase in the Company Interest Reserve Value
  • As evaluated by GLJ, the Before-tax Net Present Value (“NPV”) of cash flows attributable to the Company’s reserves, discounted at 10%, has been determined to be $511.0 million (CAD 689.8 million), $623.0 million (CAD 841.0 million), and $1,161.5 million (CAD 1,568.0 million) for its 2PDP, 1P and 2P reserves, respectively, being indicative of the Company’s strong production base, successful 2022 drilling program and robust portfolio of economic development opportunities.
  • 2PDP NPV per share, using a 10% discount rate, increased by 50% to £0.36 per share (CAD 0.58 per share), 1P NPV increased by 43% to £0.43 per share (CAD 0.71 per share) and 2P NPV increased by 56% to £0.81 per share (CAD 1.31 per share), as compared to the prior year.
• Strong Finding, Development and Acquisition (“FD&A”) Cost Metrics and Recycle Ratios Reflective of Efficient Development and Opportune Acquisition Strategy
  • Efficient development provided strong FD&A costs of $7.68 per boe on a 2PDP basis, translating to recycle ratios of 2.84x.
  • Over the three-year period since its entrance into the Western Canadian Sedimentary Basin, i3 has delivered FD&A costs of $2.96 per boe on a 2PDP basis, translating to a recycle ratio of 6.0x.
• Partial Recognition of the Company’s Undeveloped Locations Leaves Significant Inventory of Future Unbooked Upside
  • Successful conversion of undeveloped locations to production, while increasing the total net undrilled booked locations by 25% to 376 gross (255.1 net) locations across the Company’s four core areas, for a total Company inventory (undrilled booked and undrilled unbooked) of 881 gross (502 net) undeveloped locations.
  • Material increases in booked Montney and Cardium oil locations, with 32 net and 12.2 net locations added, respectively.
  • Total undeveloped inventory represents greater than 30 years of development drilling assuming the current annual capital program.

Ryan Heath, President of i3 Energy Canada Ltd., commented:

“The Canadian reserve report reflects the hard work and commitment of the entire i3 team. The Company’s 2022 capital programme was executed with efficiency, while meeting or exceeding production expectations and corporate guidance. The efforts of 2022 have placed i3 in a strong position for 2023 as we continue to build upon the Company’s predictable low-decline base production and further expand its extensive portfolio of high-return development opportunities.”

Majid Shafiq, CEO of i3 Energy plc, commented:

“2022 was another very successful year for i3 Energy. In 2021 our reserves replacement was primarily driven by acquisitions. In 2022 we pivoted to growth via the drill bit and very successfully grew production and our reserves base. We proved the quality of our asset base and the expertise of our staff by organically delivering growth in our P1 reserves by 10% and 2P reserves by 18%. Our 2P reserves are now independently valued at circa $1.2 billion or £0.81 per share at year end, with their longevity demonstrated by a reserve life index of 22 years. Whilst this reflects year-end commodity pricing it demonstrates the material upside in our portfolio and the potential for year-on-year growth in production and total shareholder return.”

2022 Reserves Review

The Company’s year-end reserves were evaluated by GLJ in accordance with the definitions, standards and procedures contained in the COGEH and NI 51-101 as of 31 December 2022. The reserves evaluation was based on the average forecast pricing of GLJ, McDaniel & Associates Consultants Ltd. and Sproule Associates Limited (“3 Consultants Average”, or “3CA”) and foreign exchange rates as of 1 January 2023.

Reserves included are Company Interest reserves which reflect i3’s total working interest reserves before the deduction of any royalties and include any royalty interests payable to the Company. Additional reserve information as required under NI 51-101 will be included on Forms 51-101 F1-F3 which will be filed on SEDAR. The numbers outlined in the tables below may not sum precisely due to rounding.

Summary of Reserves

The tables below outline GLJ’s estimates of i3’s reserves as of 31 December 2022.

Through the Company’s productive 2022 drilling programme, i3 successfully converted a suite of high-return undeveloped locations to production, while increasing the total net undrilled booked locations by 25% to 376 gross (255.1 net) locations across its core areas, for a total Company inventory (undrilled booked and undrilled unbooked) of 881 gross (502 net) undeveloped locations.

Material increases in booked reserves were predominantly a direct result of i3’s successful 2022 Montney and Cardium development initiatives, in its Simonette and Wapiti fields, resulting in an increase of 32 net and 12.2 net booked oil locations added, respectively. Total undeveloped inventory now represents greater than 30 years of economic development drilling, based on the Company’s current annual capital programme.

Reserve Reconciliation

The following table sets out the reconciliation of the Company’s Working Interest reserves based on forecast prices and costs by principal product type as of 31 December 2022 relative to 31 December 2021.

Performance Measures – Finding and Development (“F&D”), Finding, Development and Acquisition (“FD&A”) Costs and Recycle Ratios

F&D and FD&A costs for 2022, 2021, 2020 and the three-year average are presented in the tables below. The capital costs used in the calculations are those costs related to land acquisition and retention, seismic, drilling, completions, tangible well site, tie-ins, and facilities, plus the change in estimated future development costs (“FDC”) as per the GLJ report. Net acquisition costs are the cash outlays in respect of acquisitions, minus the proceeds from the disposition of properties during the year. The reserves used in this calculation are working interest reserve additions, including technical revisions and changes due to economic factors. The recycle ratio is the net operating income (revenue minus royalties, opex, transportation and processing) per barrel divided by the cost per barrel (F&D or FD&A).

Reserve Life Index (“RLI”)

RLI is calculated by taking the Total Company Interest reserves from the GLJ Report and dividing them by the projected 2023 production as estimated in the GLJ Report.

Forecast Prices Used in Estimates

GLJ has employed the 3 Consultants Average forecast prices in the GLJ Report. The 3CA forecast prices, exchange rate and inflation (2% post 2037) assumptions as of 31 December 2022 are tabulated below.

Notes:

1. $ = USD.
2. Any figures converted from CAD to USD are done so at CAD 1.35 to USD 1, and any figures converted from CAD to GBP are done so at CAD 1.63 to GBP 1.
3. Reserves estimates have been prepared by GLJ in accordance with standards contained in the Canadian Oil and Gas Evaluation Handbook (COGEH).
4. Total Company Interest – Represents the sum of the company’s working interest and any royalty interests it may hold.
5. Working Interest – Represents the percentage of ownership in a specific property’s mineral rights that a company holds.
6. Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal to or exceed the estimate.
7. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable (2P) reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the 2P estimate.
8. Developed reserves are those reserves expected to be recovered from known accumulations from existing wells and facilities where no significant expenditure is required to render them capable of production. They must fully meet the requirements of the reserves category (for example proved or probable) to which they are assigned.
9. Developed producing reserves are those reserves expected to be recovered from completion intervals that are open and producing at the effective date of the estimate.
10. Proved plus Probable Developed Producing (2PDP) reserves are those reserves for which there is a 50% probability that the actual quantity of oil and gas that will be recovered from the current producing assets will equal or exceed the 2PDP estimate.
11. Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves category (for example proved or probable) to which they are assigned.
12. The Company is in a tax paying position due to fully utilizing its Canadian non-capital tax loss pools during the year ended 31 December 2022.
13. Recycle ratio is calculated as the operating netback per boe divided by F&D or FD&A costs per boe as applicable. The operating netbacks used in the respective years are as follows: 2022 (unaudited) – $29.48/boe; 2021 – $18.45/boe and the three-year average is $23.87/boe
14. Reserves replacement ratio is calculated by dividing the annual reserves additions in the year, in boe, by i3’s annual production in that year, in boe.

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.