EASTLEIGH, UK / ACCESSWIRE / December 22, 2022 / 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 operational update along with the Company's 2023 guidance and increased dividend for 2023. i3 will hold an investor presentation on 9 January at 4:00pm GMT via Investor Meet Company; to register for the call, details are below.
Highlights:
- Record Corporate Production in 2022
Record corporate peak production achieved in December exceeding 24,000 barrels of oil equivalent per day ("boepd") on strong operational results across the Company's extensive asset portfolio, in line with previously forecasted peak 2022 production estimates
2023 Capital Budget of USD 64.05 million, forecasted to deliver 23 gross wells (15.2 net, 70% net i3-operated) to be drilled across the Company's diversified portfolio in Central Alberta, Simonette, Wapiti and its northern Clearwater acreage
Forecast 2023 annual average production of 22,250 - 23,000 boepd, representing a year-over-year increase of approximately 10% - 13%, with an expected 2023 peak production rate of approximately 26,000 boepd
USD 159.6 - 166.7 million of 2023 Net Operating Income ("NOI") and USD 144.0 - 150.5 million of EBITDA, based on our budget price assumption of USD 80/barrel ("bbl") for WTI and CAD 4.50/Gigajoules ("GJ") for AECO natural gas
As part of the i3's commitment to its total return model, the Company is increasing its 2023 minimum dividend by 59.4% above the total dividends paid during 2022 to £24.475 million (USD 30.095 million), through an increased monthly dividend of 0.171 p/share - equating to an annual dividend of 2.052 p/share or a 9.7% yield (1)
Majid Shafiq, CEO of i3 Energy plc, commented:
"2022 was a year of exceptional performance for i3 Energy. We entered the year with corporate production of circa 18,000 boepd and will exit having achieved our target of 24,000 boepd having successfully implemented a USD 97 million capital program on time and on budget in Canada and the UK.The success of our 2022 drilling program in Canada has continued to de-risk our growth strategy in certain key development assets within our portfolio and we are confident that our 2023 capital program will be equally successful and should result in production growth of up to 13% in 2023. We are also pleased to offer year-on-year dividend growth from £3.4 million in 2021, to £15.4 million this year and a minimum pay-out of £24.5 million in 2023."
Production Update
i3 has successfully delivered record corporate production, exceeding 24,000 boepd (based on field estimates) as forecast by the Company on May 2022 when it announced an expanded capital budget for 2022, as new wells were brought on stream, cleaned-up and optimized. This achievement is a testament to the expertise, attention to detail and unwavering dedication of all our staff combined with the Company's stable, low-decline base production and the predictable nature of its extensive inventory of development drilling opportunities.
2023 Capital Programme Highlights
Building on the successful execution of the Company's USD 97 million 2022 capital programme, the strong performance of the Company's asset base and the current commodity price outlook, i3 is pleased to provide its 2023 operational and financial guidance, balancing growth and a sustainable long term dividend. The Board has approved a USD 64.05 million capital programme for 2023, which will be fully funded from existing Company resources and forecast internally generated cash flow, focused on delivering estimated year-over-year average production growth of 13% despite the impact of planned facility turnarounds in Central Alberta which have been incorporated into the annual 2023 forecast and are expected to impact total annual production by approximately 415 boepd, or 2% on the year.
The 2023 budget currently reflects an estimated total capital investment of USD 64.05 million, of which approximately USD 54.2 million is allocated to drilling and development with the balance apportioned to maintenance capital, facilities, land, ESG and seismic. The 2023 budget reflects inflationary pressures experienced in 2022 and accounts for expected increases across the industry, including but not limited to, materials, labour and service costs.
i3's 2023 capital programme will be 67% weighted to the second half of the year with wells expected to be brought on production ahead of historically stronger winter pricing and further enabling the Company to manage certain near-term infrastructure constraints associated with the strong drilling results realized in 2022, seasonal restrictions and regularly scheduled facility turnarounds in Central Alberta. Corporate guidance incorporates the drilling of 23 (15.2 net) wells with locations split between i3's key operating areas, comprising 8 gross (5.0 net) wells in Central Alberta, 3 gross (2.9 net) wells in Simonette, 7 gross (3.7 net) wells in Wapiti and 5 gross (3.5 net) wells across the Clearwater fairway.
The 2023 capital programme is forecasted to deliver total average production of between 22,250 and 23,000 boepd (natural gas, oil & condensate, natural gas liquids and royalty interest production expected to average approximately 50%, 25, 24% and 1%, respectively), with estimated peak production, achieved in the second half of the year of approximately 26,000 boepd. Despite inflationary pressures, these production gains are expected to be delivered with a capital efficiency(2) similar to that achieved in 2022 of USD 13,500/boepd. For its planning case, i3 has used commodity price assumptions of USD 80.00/bbl for WTI crude oil and CAD 4.50/GJ for AECO natural gas and expects to generate NOI of approximately USD 159.6 - 166.7 million and EBITDA of USD 144.0 - 150.5 million for 2023.
2023 Guidance and Commodity Price Assumptions
| | 2023 guidance and assumptions(3) |
| Annual Average Production(4) | 22,250 - 23,000 boepd |
| Average Expenses ($/boe) Royalty Operation & Transport | 15.2% 11.70 - 11.50 / boe |
| Net Operating Income(5) | USD 159.6 million - 166.7 million |
| EBITDA (6) | USD 144.0 million - 150.5 million |
| Capital Expenditures | USD 64.074 million |
| Dividends(7) | USD 30.095 million |
| Net Debt (8) | USD 8.8 million - 3.0 million |
2023 Commodity Assumptions (9)
| WTI (USD/bbl) | $80.00/bbl |
| MSW Oil Differential (USD/bbl) | $3.85/bbl |
| AECO Natural Gas (CAD/GJ) | $4.50/GJ |
| USD / CAD Foreign Exchange | 1.35 |
| GBP / CAD Foreign Exchange | 1.66 |
Next Twelve-Month Net Operating Income Sensitivity (10)
| Next twelve months' sensitivity | Estimated change to net operating income |
| Change in WTI USD 1.00/bbl | USD 2.48 million |
| Change in AECO CAD 0.10/GJ | USD 2.49 million |
| Change in CDN/US exchange rate CAD 0.01 | USD 2.51 million |
- Based on i3's closing share price of £0.2115 (AIM) on 21 December 2022
- As used here, capital efficiency is the capex required to add production capacity which will flow at an average of one boepd over the course of the first year of production
- i3's 2023 guidance for its Net Operating Income, EBITDA and year-end Net Debt is based on an annual average production range of 22,250 - 23,000 boepd.
- Total annual average production (boepd) is comprised of approximately 49% Oil, Condensate & NGLs, 50% Natural Gas and 1% Gross Overriding Royalty Production
- Net Operating Income is a non-GAAP financial measure and is defined as gross profit before depreciation and depletion and gains or losses on risk management contracts, which equals revenue net of royalty expenses, less production costs
- EBITDA is a non-GAAP financial measure and is defined as earnings before depreciation depletion, financial costs, and tax
- Based on i3's annual common share dividend of £24.475 million (US$30.095 million assuming 1.23 GBP:USD) paid in 2023. The declaration of dividends is subject to the approval of i3's board of directors and is subject to change
- Net Debt is a non-GAAP financial measure and is defined as borrowings and leases and trade and other payables, less cash and cash equivalents and trade and other receivables
- Commodity prices and foreign exchange reflect full year average realized prices or rates
- Illustrates the expected impact of changes in commodity prices and the CAD:USD exchange rate on i3's estimate of Net Operating Income for 2023 of USD 159.6 million to $166.7 million, holding all other variables constant. The sensitivity is based on the commodity price and exchange rate assumptions set forth in the table above. Calculations are performed independently and may not be indicative of actual results. Actual results may vary materially when multiple variables change at the same time and/or when the magnitude of the change increases.
Hedging
i3 continues to employ a defensive risk management strategy with current hedges in place to cover 41.6% and 13.3% of the Company's projected Q1 and Q2 2023 production volumes respectively. i3's hedges, by quarter, are as follows:
| | | Swaps | | Costless Collars | | Participation Swaps(10) |
| | | | | | | | | | | |
| GAS | | Volume (GJ) | Price (C$/GJ) | | Volume (GJ) | Avg Floor Price (C$/GJ) | Avg Ceiling Price (C$/GJ) | | | |
| Q1 2023 | | 2,397,500 | 4.41 | | 1,125,000 | 5.80 | 10.09 | | | |
| | | | | | | | | | | |
| OIL | | Volume (bbl) | Price (C$/bbl) | | Volume (bbl) | Avg Floor Price (C$/bbl) | Avg Ceiling Price (C$/bbl) | | Volume (bbl) | Avg Floor Price (C$/bbl) |
| Q1 2023 | | 58,500 | 106.85 | | 162,000 | 100.00 | 124.44 | | | |
| Q2 2023 | | 36,400 | 112.83 | | 113,650 | 100.00 | 127.39 | | 91,000 | 90.00 |
| | | | | | | | | | | |
| PROPANE | | Volume (bbl) | Price (C$/bbl) | | Volume (bbl) | Avg Floor Price (C$/bbl) | Avg Ceiling Price (C$/bbl) | | | |
| Q1 2023 | | | | | 45,000 | 42.00 | 51.61 | | | |
| | | | | | | | | | | |
(10) i3 receives the average floor price plus 50% of difference between the average floor price and the realised price if higher
UK Operations
The Company's UK operations are focussed on advancing a Field Development Plan ("FDP") for the Serenity field as a one well development, tied in to existing third party infrastructure. Costs for the UK operation have been optimised accordingly and total capital allocation for the Serenity development is less than USD 0.6 million for 2023.
Environmental, Social and Governance ("ESG")
i3 Energy is committed to conducting its operations responsibly and in accordance with industry best practices. The Company's commitment to high ESG standards is central to maintaining our social licence to operate, creating value for all stakeholders, and ensuring long-term commercial success. i3 recognises the safety and well-being of our employees, local communities, and other key stakeholders as a priority, and considers climate change as having a material impact on our business.
In 2022 i3 abandoned a total of 69 wells and decommissioned 37 well sites, representing approximately 14% of its operated non-producing well stock. In 2023, and in accordance with the Alberta Energy Regulator's decommissioning guidance, i3 expects to deliver result in a similar number of abandonment operations as achieved in 2022.
In 2022, i3 has taken significant steps to reduce greenhouse gas emissions through electrification projects and the replacement of high emission pneumatic controllers and pumps with low bleed controller and solar powered pumps. i3 has aggressively pursued a three-phase programme to reduce and eliminate methane sources, whereby the combination of these programmes will result in a reduction of 71,450 tonnes of CO2e annually - the equivalent of removing 15,530 cars off the road each year. Similar initiatives will continue in 2023 as we continue to reduce the carbon intensity of our production base. These CO2e emissions reductions qualify for carbon credits which can be sold or used to offset future carbon tax obligations.
Continuing with historical practices, i3 is very pleased to have donated, this Holiday Season, CAD 24,394 (coinciding with its peak daily barrel of oil equivalent production rate) to local foodbanks in which the Company has core operations and ongoing dealings with vendors, residents, and lessors.
Return of Capital
As part of its total return model, the Company remains committed to delivering a sustainable monthly dividend to complement its organic growth profile. In 2022 i3 has paid total dividends of £15.35 million. Based on the successful 2022 development program and its forecasted 2023 guidance, i3 will increase its current monthly dividend of 0.1425 pence per share by 20% to 0.171 pence per share, resulting in minimum total 2023 dividends of £24.475 million (USD 30.095 million), representing an incremental year-over-year increase of approximately 59%. The Company's dividend is designed to grow with the underlying profitability of the business and be sustainable despite fluctuations of the commodity cycle.