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 its operating and financial results for the three and six months ended 30 June 2024. i3's unaudited condensed interim financial statements for the three and six months ended 30 June 2024 and related Management's Discussion and Analysis ("MD&A") are available on i3 Energy's website at https://i3.energy/ and filed on SEDAR+.
Highlights:
· i3 entered into a definitive agreement to sell most of the Company's royalty assets (the "Royalty Disposition") for a total gross cash consideration of USD 24.81 million (CAD 33.50 million) before customary closing adjustments, which at the time of Closing translated to 6.9 times 2024 forecasted cash flow and approximately USD 63,960 per flowing boepd
· Free cash flow (FCF)(1) for Q2 2024 was USD 28.5 million fuelled by the aforementioned Royalty Disposition and certain property divestments in the quarter.
· i3 posted a profit before tax of USD 24.4 million during Q2 2024 and net cash flow from operating activities of USD 7.6 million for same period.
· Achieved an average Q2 2024 production of 18,271 barrels of oil equivalent per day ("boepd"), despite the sale of ~415 boepd and management of several scheduled and unscheduled production outages.
· The Company further closed the accretive disposition of a non-core, non-operated, shallow dry gas focussed Northern Alberta asset (Hangingstone), along with two non-producing, non-core mineral rights divestments, for total realized proceeds of USD 2.75 million.
· At 30 June 2024 i3 was undrawn on its credit facility, posting a net cash surplus(1) of USD 6.96 million and i3 is pleased to announce a successful borrowing base redetermination at the original CAD 75 million.
· As part of i3's commitment to its total shareholder return model, Q1 2024 dividends of £3.084 million (USD 3.890 million) were declared and paid in Q2 2024.
Majid Shafiq, CEO of i3 Energy plc, commented:
"Q2 2024 was a very busy period for the Company as we completed the strengthening of our balance sheet through the highly accretive sale of the majority of our royalty interests and the refinancing of our outstanding debt with a revolving non-amortising reserves-based loan. This corporate activity essentially made i3 debt free and created significant liquidity to finance our development program.
We are very pleased to announce the successful semi-annual redetermination of our reserves-based borrowing facility, achieved in a lower commodity price environment which demonstrates the quality of our resource and asset base. Our production assets continue to perform robustly, and we are pleased to reconfirm existing production and EBITDA guidance for the year, which is a result of the Company's stable, low-decline, production profile and a rigorously enforced hedging programme.
With a solid half year behind us, we now look forward to our H2 focussed development and drilling programme which has already commenced with the successful drilling of our first operated well in Central Alberta. Our team will be busy during the second half of the year with back-to-back drilling across our portfolio, which will set the Company up for the commencement of our Montney development drilling in Q1 2025 for which we now are evaluating asset backed debt financing solutions to accelerate development."
The Company experienced strong FCF(1) for Q2 2024 of USD 28.5 million and posted a net profit before tax of USD 24.4 million, primarily as a result of a gain on the Royalty Disposition, and further bolstered through three separate non-core asset divestitures.
Production Update
Production in Q2 2024 averaged 18,271 boepd, comprised of 57.5 million standard cubic feet of natural gas per day ("mmcf/d"), 4,616 barrels per day ("bbl/d") of natural gas liquids ("NGLs"), 3,983 bbl/d of oil & condensate and 87 boepd of royalty interest production. The quarterly production represents a decrease of approximately 6% relative to Q1 2024, resulting from multiple non-core dispositions achieved throughout the period (consisting of ~415 boepd) along with conservative capital management during a period of softening gas prices, and downtime in the Wapiti area due to an outage to debottleneck third-party Pembina Pipeline Corporation infrastructure. Producing assets were further impacted by several additional temporary third-party facility outages and scheduled third-party facility turnarounds.
Post period, field estimated production for the last week of July 2024 averaged 18,371 boepd, not considering ~310 boepd of production that was voluntarily shut-in at the beginning of July due to current natural gas pricing.
Strategic Non-Core Dispositions
Since entering Canada in 2020, i3 has executed a series of strategic acquisitions. This targeted acquisition strategy focused on establishing four high quality core operating areas (Central, Simonette, Wapiti & the Company's Clearwater position), each area consisting of strong, low-decline, production profiles and an inventory of economic development drilling opportunities. Through these strategic acquisitions, i3 also acquired a series of minor, non-core assets, which the Company continues to monetize to focus the business, thereby unlocking and accelerating unrecognized value.
During Q2 2024, i3 closed four asset transactions for combined net proceeds of USD 26.29 million. Proceeds from these transactions assisted in the elimination of all outstanding Net Debt. The Company exited Q2 2024 with a net cash surplus(1) of USD 6.96 million, positioning i3 with a strong balance sheet, a fully undrawn CAD 75 million credit facility, and strong cash flow base to execute its growth and income-based business strategy.
Partial Sale of Royalty Assets
On 17 April 2024, i3 announced the sale of the majority of the Company's royalty assets (the "Royalty Disposition") for a total gross cash consideration of USD 24.81 million (CAD 33.50 million) before customary closing adjustments, which includes USD 2.22 million (CAD 3.00 million) from a seismic license sale agreement which was recorded within our operating income.
The Royalty Disposition involved most of the Company's royalty assets, but not its core Simonette Royalty, and translated to 6.9 times 2024 forecasted cash flow and approximately USD 63,960 per flowing boepd, representing a significant premium to the Company's equivalent current market trading metrics.
Partial Sale of Hangingstone
On 16 April 2024, i3 closed a disposition encompassing most of its non-core, non-operated, shallow dry gas focussed Northern Alberta Hangingstone asset, for realized proceeds of USD 0.3 million. The sub-economic asset produced net 115 boepd for the month of February 2024 and was forecast to return negative cash flows for the 12-month period of March 2024 to February 2025, based on strip pricing. The sale of these non-core assets is highly accretive to the Company's Asset Retirement Obligations ("ARO") level, further reducing the Company's total ARO by USD 1.2 million.
Undeveloped Bluesky Land Disposition
On 10 April 2024, i3 Closed a disposition of 13.5 gross (10.1 net) sections of land in northern Alberta for realized proceeds of USD 1.72 million which translates to approximately USD 171,000 per section or USD 667 per hectare. Rights associated with these lands were limited to the Bluesky formation, with the Company retaining all associated Clearwater rights. The Company preserved upside exposure in the Bluesky formation through a retained 25%, non-operated, working interest in the lands. The acquirer has committed to drilling a horizontal Bluesky well on these lands on or before March 31, 2025.
Undeveloped Central AB Land Disposition
On 6 May 2024, the Company closed a disposition of approximately 3.75 net sections of land in the greater Gilby area of Central Alberta for realized proceeds of USD 730,000, which translates to approximately USD 195,000 per section or USD 761 per hectare. Rights associated with the transaction were focused primarily on deep unconventional formations and i3 had no production or reserves associated with these lands.
Woodland Cree First Nation Relationship Agreement
During the quarter, the Company entered into a relationship agreement with the Woodland Cree First Nation (the "WCFN"). This agreement, based on mutual respect and understanding, provides a framework for development of the Company's Clearwater assets and a platform upon which the WCFN and i3 will establish a long and mutually beneficial relationship. The Company, in consultation and collaboration with the WCFN, is actively preparing its upcoming drilling program. i3 is looking forward to working together with the WCFN to advance its near- and long-term Clearwater initiatives.
Semi-Annual Credit Redetermination
In the first quarter, the Company announced the successful establishment of a CAD 75 million senior secured revolving reserve-based lending facility (the "Credit Facility") with National Bank of Canada. The new Credit Facility marked a significant step in transitioning i3's capital structure, enhancing the Company's financial flexibility through improved liquidity and enabling acceleration of its growth and income-based business plan.
The Company is pleased to announce that subsequent to the second quarter the lender has affirmed that at 30 June 2024 the Credit Facility remains at CAD 75 million until the next redetermination period. The borrowing base has been renewed at CAD 75 million, comprised of a CAD 55 million revolving facility and a CAD 20 million operating loan facility.
Return of Capital
The Company remains committed to delivering a sustainable dividend as part of its total return model. The Q1 2024 dividend of £3.084 million (USD 3.890 million) or 0.2565 pence per share was declared and paid in Q2 2024. The Q2 2024 dividend of £3.084 million (USD 3.890 million) or 0.2565 pence per share was declared in early July and subsequently paid in early August. Subject to Board approval, the Company expects to pay the Q3 2024 dividend of 0.2565 pence per share in early Q4 2024, which translates to a forward yield of 11.5% based on the closing price of i3's ordinary shares on 12 August 2024.
Environmental, Social and Governance ("ESG")
During the second quarter, the Company continued with initiatives to reduce its Scope 1 and Scope 2 carbon emissions. i3 installed and commenced the trial of a solar powered air compression system at one of its operated facilities, three booster compressors were shut-in to eliminate the combustion of fuel gas, and the Company's Alternative Fugitive Emissions Management Programme (ALT FEMP), which images methane emissions from the air, identified 51 leaks which were repaired to eliminate 270 e3m3/year of emissions.
During the period, i3 also downhole abandoned 3 gross wells (3.0 net).
Outlook
Strong operational performance over the first half of 2024, combined with disciplined financial results have placed the Company on a strong footing to realize its growth plus income-based strategy. After accounting for the recent dispositions, the Company's low-decline production continues to perform in-line with expectations and remains on track to meet its 2024 annual average guidance of 18,000 - 19,000 boepd and exit rate guidance of 20,250 - 21,250 boepd.
Despite volatile commodity prices to date in 2024, resulting in a slightly reduced Net Operating Income forecast of USD 63-67 million, i3's hedging programme has been designed to protect and stabilize cash flows. At current strip prices, EBITDA after considering hedges remains within expectations of USD 50-55 million, based on a capital programme of approximately USD 50.9 million and with an exit net debt of approximately USD 23-26 million.
Following Spring break-up, the Company has commenced its H2 capital program with the drilling of its first horizontal well at Willesden Green, which was spud on 9 July 2024. The well was successfully drilled, cased, and completed, with tie-in operations ongoing. Following tie-in operations at Willesden Green, the Company expects to maintain continuous drilling operations through to year-end, with an initial focus on oil and liquid rich wells
The 2024 capital programme will be fully funded from existing Company resources and is designed to balance growth, financial discipline, and a sustainable long term-dividend through a predictable development-focused programme, all while positioning the Company to commence its Simonette Montney pad development drilling in Q1 2025. To accelerate development of our very substantial Simonette Montney drilling inventory, the Company has commenced evaluating options with third parties to finance an expanded drilling and infrastructure development via asset backed debt financing.
The Company has the flexibility to both reallocate its drilling locations to optimize economic returns or capitalize on strategic accretive transactions as they are identified and evaluated.
The Company is pleased to present a snapshot of its 2024 three and six months ended financial results below. i3's unaudited condensed interim financial statements for the three and six months ended 30 June 2024 and related Management's Discussion and Analysis ("MD&A") are available on i3 Energy's website at https://i3.energy/ and filed on SEDAR+.