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 2022 Canadian capital programme and dividend guidance.
· Capital Budget of US$47 million, forecasted to deliver:
o 17 gross wells (12.6 net, 88% i3-operated) to be drilled across the Company’s diversified portfolio in Central Alberta, Marten Hills (Clearwater), Simonette (Montney), and Wapiti
o Incremental peak production of up to 5,250 boepd (net), with estimated average 2022 production above 20,000 boepd and peaks reaching 21,000 boepd, resulting in an exit-2022 production increase of 26% over i3’s “Blowdown” case (no capex and conservatively-estimated natural declines of 14%)
o US$184MM of combined 2022/23 Net Operating Income (“NOI” = revenue minus royalties, opex, transportation and processing) based on current strip commodity prices; a 37% increase over the Blowdown case
· The Company is committing to pay a minimum of £11.827 million in dividends during the course of 2022 (3.5x all dividends paid during 2021), equating to 1.05 pence per share or a 10.2% yield at the current share price(1), with forecasted “2022 Unencumbered Cash” of US$66 million which could support additional shareholder distributions or share buybacks, M&A, and supplemental development activity
Majid Shafiq, CEO of i3 Energy plc, commented:
“Following an intense period of technical work to evaluate our portfolio in Canada, we look forward to a very busy 2022, when we will embark on an extensive drilling program of 17 gross wells, 15 of which i3 will be operating. The programme will target low risk, high return production, including wells in our Clearwater and Simonette Montney acreage designed to accelerate value creation in these key plays. All these wells have high rates of return and payback metrics equivalent to what we achieved on our major production acquisitions in Canada. We are also very pleased to be able to give clear guidance on the minimum level of cash dividends to be paid during 2022.”
2022 Capital Programme and Dividend Guidance
i3 remains intensely focused on maximizing total shareholder returns via growth-based share price appreciation and the consistent distribution of profits via dividend payments. With the extreme sector volatility experienced since the beginning of 2020, the Company also deems the protection of its conservatively-leveraged balance sheet as a top priority. It is with these considerations that the Company has approved a 2022 capital budget of US$47 million (the “Capital Budget”), such that production and cash flow can continue to be increased, targeted upside in the Company’s key Clearwater and Simonette Montney plays can be advanced, and the substantial return of capital to its shareholders can be assured.
The Capital Budget, which is fully funded from existing Company resources and forecast internally generated cash flow, is predicted to provide incremental peak production of up to 5,250 boepd through the funding of 12.6 net wells (17 gross, 88% i3-operated, including one Montney producer at Simonette plus two producers and two non-producing test wells in the Clearwater play), and maintenance capital to support producing wells and infrastructure. 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. This activity is expected to deliver a 26% production increase over the 2022 exit rates predicted under i3’s Blowdown case (which considers no capex and a conservatively-estimated natural decline across the entire portfolio of 14%), resulting in average 2022 production above 20,000 boepd with peaks reaching 21,000 boepd. Under current strip commodity pricing, employing this Capital Budget is predicted to result in a 2022 closing cash balance of approximately US$66 million (“2022 Unencumbered Cash”).
i3 has previously conveyed that it will distribute by way of dividends up to 30% of Free Cash Flow, defined by the Company as “Cash Flow from Operations minus Expenditures on Property, Plant & Equipment minus Expenditures on Exploration & Evaluation assets”. With 2022 being planned as a particularly capital-intensive year, and with a flexible capital programme, forecasting the actual level of Free Cash Flow is more uncertain. As such, and to give clarity to i3’s investors regarding next year’s distribution, the Company is committing to pay a minimum of £11.827 million in dividends during 2022 (split equally and paid in conjunction with the release of its 2021 Annual and 2022 Interim Reports), equating to 1.05 pence per share – a 10.2% yield based on i3’s current share price(1). This is approximately 3.5 times the £3.36 million in total dividends paid during the course of 2021. Subject to prevailing market conditions, outlook, and Board approval, i3’s forecasted 2022 Unencumbered Cash could be used to support additional dividend distributions, potential share repurchases, and M&A or development activity.
It is important to note that much of the benefit of i3’s 2022 capital programme will be recognized in future years, with approximately 45% of the Capital Budget being attributed to drilling during the second half of the year. For its planning case, i3 has relied upon the recently softened forward curve, with WTI at US$69.79/bbl and US$66.32/bbl, and AECO gas at US$2.63/GJ and US$2.50/GJ, for 2022 and 2023, respectively. Under these pricing assumptions which are in backwardation, i3’s combined 2022 and 2023 NOI for its Blowdown and Capital Budget cases are forecast to be US$134MM and US$184MM, respectively. Under the forward strip, the average payout of all operated wells being drilled is less than 1.4 years; this metric is in line with that achieved for i3’s 2020 acquisition of the portfolio of Gain Energy Ltd. and the 2021 asset acquisition from Cenovus Energy, and below what the Company is currently observing on the market for available M&A and A&D transactions of similar asset quality.
For reference purposes only, and to demonstrate the significant upside associated with a moderate strengthening of commodity prices, combined 2022 and 2023 NOI for i3’s Capital Budget is forecast to be US$244MM at US$80/bbl WTI and US$2.75/GJ, with the average operated well payout falling to 0.8 years. The Company retains the flexibility to pay special dividends to return excess cashflow to shareholders in a strengthening commodity price environment, such as that considered here.
1) The closing share price on 17 December 2021 of 10.3 pence per share
i3 Energy plc
Majid Shafiq (CEO) / Graham Heath (CFO)
Tel: +44 (0) 203 781 8331
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