i3 Energy PLC Announces Interim Report for the 6 Months Ended 30 June 2022

EASTLEIGH, ENGLAND / ACCESSWIRE / September 12, 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 unaudited results for its period ended 30 June 2022. A copy of the Company's unaudited interim financial statements will be available shortly on the Company's website at https://i3.energy/investor-relations/regulatory-news.

HIGHLIGHTS

Dividend Declaration

· During the first half of 2022, i3 announced total dividends of 0.60 pence/share (totalling £6.853 million), equating to an H1 yield for the period from 1 January 2022 to 30 June 2022 of approximately 4.5% for i3's shareholders based on i3's closing share price on 4 January 2022

· After announcing in December 2021 that the Company was committing to pay a minimum of £11.827 million in dividends during the course of 2022 (3.5x all dividends paid during 2021), i3 announced in February 2022 that it would be moving to a monthly dividend and in May 2022 that it would be increasing its dividends payable during 2022 by 25% to £14.784 million, equating to 1.3125 pence per share or a 9.8% yield for i3's shareholders based on i3's issued and outstanding ordinary shares and closing share price on 4 January 2022

Financial Highlights

· H1 revenue of £101.6 million (H1 2021 £26.5 million), net operating income(1) (Revenue less royalties, opex, processing and transportation) of £68.8 million (H1 2021 £12.5 million), and cash flow from operations of £48.6 million (H1 2021 of £8 million)

· Employees elected to convert 114,547,030 options at a market price of c.28 pence per share into 66,305,381 ordinary shares (primarily settled on a post-tax in-the-money basis thereby reducing the resulting option shares and associated dilution by 42%), enabling all staff to become invested and aligned as shareholders

(1) Non-IFRS measure. Refer to Appendix B

Operational Highlights

· Average production of 18,950 barrels of oil equivalent per day ("boepd") for the six-month period (107% higher than H1 2021) while exiting H1 above 20,000 boepd, August above 21,100 boepd and presently above 21,600 boepd, offsetting expected natural declines through excellent operations management, targeted maintenance capital allocation, and the initial deployment of i3's ongoing 2022 capital programme

· Canadian Capital budget increased by up to USD 50 million above the previously announced (December 2021) USD 47 million 2022 programme (together, the "Enlarged Capital Budget"), focused on continued low-risk, high-return development drilling of i3's core Glauconite and Cardium fairways, with expanded Montney and Clearwater programmes; i3 remains on track to deliver peak 2022 production above 24,000 boepd

· Drilled 20 gross wells (11.7 net) wells during H1; production associated with the majority of the operated Q2 2022 capital programme now in the initial clean-up phase or being tied into infrastructure, with initial well results continuing to achieve or exceed management's expectations

· Increased the Company's Clearwater position by ~20% through the acquisition of 15 net sections (38.5 km2) of proximal, strategic acreage

· Executed a Farm-in Agreement with Europa Oil and Gas ("Europa") for a 25% working interest ("WI") in i3's Block 13/23c North (Licence P.2358) which contains the Serenity oil discovery, in exchange for Europa funding 46.25% of the cost of the upcoming appraisal well up to a gross capped cost of £15 million, above which any costs will be funded in proportion to the respective working interest of each company

· Inaugural annual sustainability report published outlining the Company's Environmental, Social and Governance ("ESG") initiatives and plans to reduce greenhouse gas emissions

POST PERIOD AND OUTLOOK

On 9 September 2022, the Company announced the appointment of John Festival as Non-Executive Chairman of i3's Board of Directors, effective immediately. Linda Beal, who has seen the Company through a period of transformational growth as Interim Chairperson, remains as a Non-Executive Director with the Company and will focus on her roles as chair of the Audit and Governance Committees.

On 1 August 2022, i3 announced that all conditions precedent under the Farm-in Agreement with Europa had been satisfied and that its farmout of a 25% working interest the Serenity oil discovery was complete.

· Following the Serenity farm-out, i3 retains a 75% WI in Block 13/23c North (Licence P.2358) and a 100% WI in Block 13/23c South (Licence P.2358), which contains the Minos High Prospect and Liberator oil discovery.

Between July and September, i3 announced monthly dividends totalling £5.1 million (0.4275 pence per share), bringing the year-to-date yield to 7.7% for i3's shareholders based on i3's closing share price on 4 January 2022.

As announced on 26 August 2022, with the full deployment of its Enlarged Capital Budget, i3's 2022 Net Operating Income ("NOI" = revenue minus royalties, opex, transportation and processing) is forecasted to be approximately USD 200 million driven by recent fluctuations in commodity prices, pricing differentials and inflationary pressures. This remains USD 8 million above the forecasted NOI of USD 192 million announced by i3 on 12 April 2022, which increased rapidly thereafter to USD 241 million by i3's Q1 operational update of 9 May 2022. The recent softening in full-year 2022 commodity pricing predictions and expected differentials since May's Q1 update 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:

The Company's focus for the remainder of 2022 will be on 5 key areas:

1 The growth of i3's Canadian business by way of operational excellence, capital deployment and strategic upsizing in core areas;

2 Serenity appraisal drilling and, upon success, the booking of reserves and initiation of field development planning;

3 Dividend distributions to shareholders of up to 30% of free cash flow;

4 Conducting operations safely and in an environmentally secure manner; and

5 Continuing to develop the ESG strategy outlined in its recently published maiden annual sustainability report.

Majid Shafiq, CEO of i3 Energy plc, commented:

"We are very pleased to announce a solid set of results for the first half of the year. These reflect the hard work of our staff in Canada and the UK in successfully progressing our business plan on all fronts. We have made great strides in executing efficiently on our operated drilling program in Canada, with all wells drilled being on prognosis geologically and production contributions now commencing following tie-ins to infrastructure. We are also very happy to bring in a partner to the Serenity oil field in the UK and plans to drill the appraisal well are on track to spud this month. Our operations team continue to perform diligently to maintain our base production volumes, whilst operating safely with no lost time incidents being recorded. We also published our inaugural annual ESG report which set out our commitment to high ESG standards and operating practises. Our move to a monthly dividend program reflects our confidence in the stability and resilience of our production assets and we look forward to updating the market over the next quarter as our busy drilling program continues."

Enquiries:

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 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 quoted 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/.

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

Overview of the year to date

i3 is extremely pleased with its progress across the first half of 2022, which served to further validate the Company's buy-and-build strategy of using acquisitions during distressed markets to purchase high-quality but undercapitalized assets, improving the productivity of those assets through operational excellence and the pursuit of low-cost, high return projects, and then turning to the drill-bit if asset price inflation makes organic growth the more profitable option during times of market frothiness to ensure that the Company's capital efficiency remains high and minimising the time to payback of every dollar deployed. This approach, which i3 has implemented to grow its Canadian business since 2020, has created a portfolio of producing assets with upside from which shareholder value can be created and returned in the form of share price appreciation and a meaningful cash yield.

The historic lack of investment in the exploration and production sector has resulted in limited spare oil and gas production capacity. The world's gradual return to "normal" through the second half of 2021 following the end of the majority of Covid related restrictions and the consequent demand growth saw oil prices quintuple from 18 months prior. Russia's tragic invasion of Ukraine at the beginning of 2022 further exacerbated the supply and demand imbalance, driving energy prices in some jurisdictions to untested heights, contributing to rocketing inflationary concerns which threaten to invoke recessions (if not already underway in some markets). With citizens suffering cost of living increases and businesses facing increased costs to production, there has been a scramble for energy security. Some countries, facing brownout and blackout threats, have had to make the unfortunate decision to reinstate coal-fired power plants, going entirely against their stated commitments to climate change initiatives. As a joined-up approach amongst the world's economies to meet the ever-increasing energy demands of humanity seems unlikely in the near-term, it would be reasonable to expect a continuance of oil and gas price volatility. Against the background of this volatility and until some of these ongoing issues are resolved, we expect oil and gas prices to remain robust.

Increasing commodity prices have naturally resulted in an increase to the average price at which oil and gas transactions are being consummated. In many instances, transactions are now occurring at a five-fold premium to the per-barrel of oil equivalent ("boe") of reserves and per-flowing boe prices that i3 paid for its 2020 and 2021 acquisitions in Canada. And even though the current cash flow multiples of two to four times being paid to secure these transactions remains reasonable in the context of the commodity price forward curve (if achieved), i3 has commenced executing an organic growth plan via the drilling of its own inventory of proven undeveloped reserves, which deliver paybacks of less than 12 months. With over 450 net drilling locations identified, i3 has the capacity to continue to grow production levels significantly and only consider acquisitions if they are highly-strategic and can be concluded at attractive and highly accretive metrics.

In light of the current market and in hindsight, the Directors see that the USD 5,533/boepd paid by the Company for its 2020 and 2021 acquisitions was an outstanding result for such high-quality production assets. i3's acquisitions included significant untapped Proven Undeveloped ("PUD"), Proven plus Probable ("2P") development opportunities and a material number of un-booked drilling locations, resulting in several exciting plays in our current portfolio. The upside potential within i3's Simonette Montney, Central Alberta Glauconite, Wapiti Cardium and Marten Hills Clearwater positions in Canada and its Serenity discovery in the UK, as well as redevelopment options of some of our more mature assets via secondary recovery and infill drilling, present company-making opportunities that have the potential to deliver multiples of i3's current production, reserves and cash flow.

Following i3's aggressive inorganic growth in 2020 and 2021, the Company went through an opportunity high-grading process which culminated in the 20 December 2021 announcement of a planned USD 47 million 2022 capital budget. These funds were to be deployed such that production and cash flow could be organically increased, targeted upside in the Company's key assets could be advanced and crystallised, and the return of capital to i3's shareholders via dividend payments could be assured. At the time of announcement, the Directors anticipated that the capital budget could be expanded if production levels and commodity prices remained stable. In May, i3's Board of Directors approved a 2022 capital budget increase of up to an additional USD 50 million as a direct result of the Company's robust operational performance and forecasted strength in commodity prices, allowing the expansion and acceleration of i3's key Canadian development opportunities.

The Enlarged Capital Budget of USD 97 million is fully-funded through existing Company resources (cash on hand and near-term forecasted cash flow), and is expected to materially enhance 2022 production and NOI while preserving the Company's strong balance sheet. The programme is designed to maximize near-term production and cash flow through further development of the Company's large inventory of predictable and highly-economic oil wells in the Cardium and liquids rich gas wells in the Glauconitic plays, while continuing to advance i3's high-impact Simonette Montney position and recently expanded Clearwater holdings. The budget also includes an amount of capital that has been allocated to fund highly economic, non-operated drilling opportunities as they arise, and projects which enhance cashflow and increase netbacks such as well reactivations, debottlenecking, consolidation, and tariff-generating third-party tie-ins to i3-operated facilities.

During Q1 2022, the Company participated in 11 gross (5.2 net) wells across its drilling portfolio, including 3 gross (3.0 net) operated wells and 8 gross (2.2 net) non-operated wells. Building on the strong operational results in Q1, in Q2 i3 participated in 9 gross (6.5 net) wells across its drilling portfolio, including 7 gross (5.9 net) operated wells and 2 gross (0.6 net) non-operated wells. Production associated with the majority of the operated Q2 2022 capital programme is in the initial clean-up phase or currently being tied in. Results from i3's H1 campaign continue to achieve or exceed management's expectations and we are looking forward to providing production updates as wells are brought on stream. Having average H1 production of 18,950 boepd and current production of 21,602 boepd, we are very pleased with our year-to-date operational and asset performance. The Enlarged Capital Budget is forecast to provide peak production during 2022 above 24,000 boepd, and as a material percentage of the budget will be deployed in Q4 2022, the full impact and benefit of the expanded capital budget will last well into 2023 and beyond. Operating our assets in a safe and secure manner is fundamental to our business and we are pleased that we suffered no lost time incidents in H1 2022, and we continue to advance our health and safety policies and procedures as we integrate additional production assets.

The Company continues to actively identify production optimisation and cost reduction opportunities within our portfolio, focussing on maintaining high uptime, minimising operating costs, optimising operated processing facilities and infrastructure, and implementing high return workovers to offset natural production declines. These efforts have increased aggregate average net production and substantially reduced the decline rates predicted within the Company's Canadian competent persons report ("CPR"). Our ongoing realized average decline rate of 11.5% is a testament to the quality of the assets in the portfolio and the dedication of our workforce. In parallel with operational activity, we continue to review the reservoir performance of the producing assets and identify mature fields where redevelopment could materially increase production and ultimate hydrocarbon recovery.

Regarding i3's UK assets, the Company was very pleased to announce on 1 August 2022 the completion of a 25% working interest farmout to Europa Oil & Gas Limited ("Europa"), in exchange for Europa funding 46.25% of the upcoming Serenity appraisal well, expected to spud during mid-September. This delineation well will test the thickness of the Captain sand to the West of the initial Serenity discovery well 13/23c-10 and allow the Company to update its estimates of oil in place. i3 UK's independent 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, thereby presenting pure potential upside value to i3's current share price.

Financial discipline

The Board and Management are focused on delivering consistent value to shareholders. i3 is committed to being a dividend payer that distributes up to 30% of its free cash flow, and it is protecting this commitment through a conservative hedging program. The Company has and continues to keep a substantial portion of its production hedged through risk management contracts to manage commodity price risk, with additional free cash being available to acquire additional production assets conditional on the associated metrics competing with the organic returns achievable through the development of our PUD and 2P inventory. As i3 continues to grow its portfolio, a proportion of all incremental production will be hedged in order to secure future cash flow, and the Company will remain commercial in monetising assets when third-party interest warrants consideration.

With the well-timed acquisitions and capital deployment of the last 24 months, the Company's assets have continued to outperform the Directors' expectations. During H1 2022, i3 announced dividend distributions totalling £6.853 million. Following a 25% increase to our 2022 dividend guidance from £11.827 million to £14.784 million, the Company now pays a current monthly dividend of 0.1425 pence per share.

Governance

The Board recognises its responsibility for the proper management of the Company and is committed to maintaining a high standard of corporate governance. The Directors also recognise the importance of sound corporate governance commensurate with the size and nature of the Company and the interests of its shareholders. The Quoted Companies Alliance has published a set of corporate governance guidelines for AIM companies, which include a code of best practice comprising principles intended as a minimum standard, and recommendations for reporting corporate governance matters. The Directors comply with the QCA Corporate Governance Guidelines for Smaller Quoted Companies so far as it is practicable having regard to the size and current stage of development of the Company. The Board currently comprises two Executive Directors (being the Chief Executive Officer and the Chief Financial Officer) and four Non-Executive Directors (including the Chairman).

The Board's decision-making process is not dominated by any one individual or group of individuals. The composition of the Board will be reviewed regularly and modified as appropriate in response to the Company's changing requirements. The Board has established an Audit and Risk Committee, Corporate Governance Committee, Health, Safety, Environment and Security Committee, Reserves Committee, and Remuneration Committee to ensure proper adherence to sound governance and decision making.

Environmental stewardship

i3 is fortunate to operate in the UK and Canada which have some of the world's most stringent and rigorous environmental laws and regulations. The Company strives to meet or exceed all local, provincial or national environmental, operational, reporting and compliance obligations and abandonment and reclamation requirements. In Q4 2021 the Company commenced a detailed study of its recently acquired operated wells and facilities to record baseline emissions data for the purposes of developing an ESG strategy to meet its currently stated target of being net zero with respect to Scope 1 and Scope 2 emissions by 2050. The work included an evaluation of potential opportunities to reduce greenhouse gas emissions. 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 now 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 propane-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. Additionally, the Company continues to exceed its abandonment obligations under the Alberta Energy Regulator's ("AER") Inventory Reduction Program (previously the Area Based Closure Program) and expects to deploy approximately USD 2.5 million on wellbore abandonment activities in 2022, targeting greater than 60 inactive wellbores.

Looking ahead

The Company is very proud of what it has and continues to accomplish. In Canada, i3 will continue to adhere to its stated strategy for finding, developing and acquiring assets as the Directors and management believe their approach offers an excellent balance of risk and reward. In the UK, i3 remains committed to the further appraisal and development of Serenity and we are looking forward to the imminent commencement of our drilling programme.

Beyond our current business as an oil and gas company, we see climate change as the most urgent matter of our time and deem it critical to act in a manner that exhibits this concern. Though recent events somewhat painfully demonstrate the world's continued reliance on a hydrocarbon-based economy, we recognize the crucial role that our sector has to play in the transition to net zero and we remain committed to an evolution of our energy company into one that continues to benefit society for generations to come.

As always, we extend gratitude to our capital providers for their ongoing support and to our employees for their relentless commitment to making i3 a success. Though we operate within a macro environment that is beyond our control, we believe we are doing the right things to create a very valuable business that can weather the changing times.

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SOURCE: i3 Energy PLC