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Also your assumption on the price used for gas is incorrect - for some reason WHI use Henry hub as the bench mark presumably because they think it is a more visable number for investors - but if you actualy go into the tables and look at "realized prices" - you can see that they use the correct CAD AECO pricing in their number crunching
I think its nonsense because it actually confuses investors . They use to quote Brent as the bench marl for oil but thankfully have changed to WTI but even WTI is not stictly correct - it would be better if they stuck to the applicable bench marks which are WCS & Edmonton Light Sweet.
Thanks Tony, yes the discrepancy between volume and revenue is important which I overlooked, thank you.
May I ask, what are your thoughts on the gas price that WHI has used when converted to CAD/GJ particularly against gasalberta forecasts?
Stas,
There's no doubt that the projected increase in gas price is having a significant impact on their valuation but its not all of it. Its also got to do with the significant capital program and associated production and better Oil & NGL prices and better liquidity due to the refinancing.
whilst gas is 52% of production - its only about 14% of revenue in April and even in December where I have plugged in CAD 3.00 for AECO - its still only 21% of revenue. So their valuation is underpinned by more than just a projected increase in AECO.
Welloil, of course I would like that to be the case, however it takes one hell of a leap of faith to believe that current gas prices at just over a $ , that it is acceptable to then forecast on over 4 times this, I'd be happy to be wrong, can someone show me forecasted gas prices of this level, https://www.gasalberta.com/gas-market/market-prices is not showing this.
Stas, have you considered why the consensus across the Canadian gas sector is so bullish on pricing going forward? Could it be that an army of professional analysts have more insight than your good self? Could it be a masterstroke that i3e are going after low cost gas to sell into a rising market coupled with the ability to pivot to oil if required? I trust Majid and the board to make decisions in our best interests, I suggest you do the same.
Additionally do note that WHI have used the price for gas being $US 3.50/mmbtu whereas i3e used the value of CAD/GJ.
If I am not mistaken, then that would work out at $5.05 CAD/GJ using;
- the current exchange rate of 1 USD = 1.36786 CAD
- 1 mmbtu = 1.05506 GJ (approximately)
thus
Convert USD to CAD:
3.50 USD/mmbtu x 1.36786 CAD/USD = 4.79201 CAD/mmbtu
Convert mmbtu to GJ:
1 mmbtu = 1.05506 GJ (approximately), we can multiply the CAD/mmbtu by this conversion factor.
4.79201 CAD/mmbtu×1.05506 GJ/mmbtu = 5.05109 CAD/GJ
So, the forecasted AECO gas price of $3.50 USD/mmbtu would be approximately $5.05 CAD/GJ. what world does WHI live in to take $5.05 CAD/GJ as forecasted AECO gas and being the house broker Majid should be all over this.
I think, the foundations are decent, however doubts remain on management ability to unlock value through organic growth. Seem intent on status quo rather than growth.
Tony from what I can see the reasoning behind the increase in price by WHI, is they have raised the target price aspect of the prior price by 63% which is the same price increase they have adjusted the gas price uplift.
old target price 16.2p represents approx. 50% gas thus 16.2p / 2 = 8.1p x 163% = 13.2p + 8.1p = 21.3p thus new price is just a reflection of WHI increasing the gas price by 63% - It then all comes down to trust in their gas price forecasting.
"Gas futures in alberta are below $2 for the remainder of 2024, I don't know how they project it to be $2.5 for the whole year. The guidance doesn't make any sense and it looks like it will be lowered/worsened already in Q2"
For anyone that runs the numbers - the guidance makes sense and if anything is on the conservative side - of course it all depends on oil & gas prices. WHI seem to think the same.
I see production towards the top end of guidance and NOI being in excess of $80m. They have already confirmed their intention to maintain the diviend at current levels and ye production of around 21,000 boepd with them set to ramp up Montney development in 2025.
Market reaction is overdone imo and on the back of this RNS - WHI have actually increased their valuation because they have run and understand the numbers,
WH ireland broker raises target to 21p from 16p on release of i3e capital budget and forecast rns
(have been asked to provide part view of report released today on the back of today's rns so here is part view)
https://twitter.com/surprised_trade/status/1783428334380048768
The gas export markets from Canada will be transformed by the new LNG hubs coming onstream starting in the next few months with LNG Canada in British Columbia - there are also another 7 LNG export hubs coming onstream in the next few years. Forecast gas prices look low to me in today's rns.
https://natural-resources.canada.ca/energy/energy-sources-distribution/natural-gas/canadian-liquified-natural-gas-projects/5683
I expect GGG has offloaded a load today, all those 150k sells I expect.
And we know where forecasts go, current price of gas is just above $1 and they are forecasting their NOI on AECO Natural Gas ($/GJ) CAD 2.25/GJ - it makes me angry that they should expend any money on gas drilling, it is the gas that has been the cause of these issues
Gas futures in alberta are below $2 for the remainder of 2024, I don't know how they project it to be $2.5 for the whole year. The guidance doesn't make any sense and it looks like it will be lowered/worsened already in Q2
G.G.G
Let us know when you have stopped selling then I can buy some more.
Gas prices are currently forecast to rise into winter as oil reduces....
May be but still do not understand how we are supposedly debt free now but will close the year in roughly the same debt as last year
"
· Full year 2023 net operating income ("NOI")1 (unaudited) is approximated at USD 93 million, in line with guidance, with year-end 2023 Net Debt2 expected to be approximately USD 23 million (unaudited)."
and from todays RNS
Net Debt (Dec. 2024) (6) USD 23.0 million - USD 26.0 million
where is the "“This programme will be fully funded from existing Company resources"
“Should it be the case that the forward strip forecast for gas prices deteriorates, the Company is well positioned to both reallocate its drilling locations to more oil weighted development opportunities“
I don’t understand this statement - why are they allocating any development budget to gas, when gas prices are already on the floor? One of the weaknesses of I3E is the low oil production, so why not focus only on oil.
I can see where SP and market cap is where it is - they are spending around $50million to more or less maintain production so true free cashflow is somewhere around $20million per year.
No problem as far as I see, production expected to increase, all funded, divi all in place and secure and if planned drills go well all figures could increase substantially, as they have learned under promise and over deliver.
'Following very successful initiatives in the first half of the year to increase our balance sheet strength and liquidity, i3 is extremely pleased to announce a substantial USD 51 million capital programme for the remainder of the year, which will drill a diverse group of oil and gas wells across our portfolio in Canada. The majority of wells will be drilled in the second half of the year, with the high-volume Central Alberta gas wells producing into a forecast strong winter pricing environment and pad drilling of our exciting Montney acreage expected to commence early in Q1 2025. The programme is designed to deliver production growth and support our dividend programme, whilst maintaining liquidity and a conservative leverage position to maximise flexibility to deal with volatile market conditions and opportunities as they arise."
The new debt facility is part of "existing Company resources". When they paid off the trafigura loan from the proceeds of the recent asset sale - remaining cash was maybe around $4m. So if their going to be able to fund a $50m capex program - then obviously they need to tap into the debt facility.
I'll have to take another look at the numbers and compare to my spread sheet - but my initial reaction is that i3e's numbers are pretty conservative. This appears to be a contrast to the previous CFO - who's numbers were often found to be too optimistic.
The reaction to the RNS is overdone in opinion but the numbers (production, NOI & net debt) were clearly not what many were expecting. On top of this, there was an expectation that there might be a significant acquisition or other transaction which was not announced today.
From my reading it looks like a number of folk are misjudging the projected (guessed) figures made in 2022/23 with the ACTUAL production results achieved and cash flow, divi etc, markets always throw up the odd moment.
What about the comments on net debt increasing so much when the company states
“This 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.”
Looks like the biggest discrepancy is in the assumptions
2023 $80 oil and $4.50/GJ gas
2024 $82 oil and 2.25/GJ gas
Absolutely dropping like a stone. Clearly quite a shock for most. Imagine some value buyers will be jumping in around now. Yield is about 9% now.
Total over reaction to this morning’s rns. Market cap now under £140m. Wash out the weak holders and thepatient will see the rewards.