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There have been some calculations that Imo are fatally floored - i.e. they doesn’t take into account that the royalty barrels are revenues that don’t have associated opex, capex and other costs. Here’s my calculation – a bit rough - comments welcome:
$3.6m (income per year on royalty bbls) / (388 boepd x 365 days) = $25.42 / boe
(i.e. each royalty barrels earns $25.42 / boe)
Doing a similar calculation for i3e’s production barrels starting from NOI and deducting costs to come up with an income per boe.
$93m (NOI) – $18m (SG&A) - $3.6m (Royalty boe) - $25m (Capex) - $4m (abandonment) - $5m (hedging loss) = $37.4 (income)
$37.4m / (19,500 boepd x 365) = $5.25 / boe
(i.e. each production barrel earns about $5.25 / boe)
25.42 / 5.25 = 4.84
(i.e. each royalty barrel earns 4.84 x more income than each production barrel)
Valuation of Royalty Barrels = $64k per flowing boe
£147m (market cap) x 1.25 = $183.7m / 19500 boepd = $9.4k per flowing boe (valuation of i3e’s production barrels)
$64k/$9.4k = 6.81
6.81/4.84 = 1.41 (i.e. the royalty barrels attract a premium of about 1.41x production barrels on an income basis)
Or put another way i3e’s sp should be trading at a minimum 1.41 x 12.3p = 17.3p
I think there is upside to this valuation as the barrels are from Central Albert which are the most gas weighted bbls in i3e’s portfolio with Clearwater and the Montney potentially being much more valuable on a boe basis.
"flawed" before someone points out I cannot spell, let alone do calculations !
Of course tomorrow we get the acquisition announcement then you’ll have to do all your calculations again. ;~)
One things for certain - we wont get an announcement tomorrow unless i've forgotten what day it is ?
Nice ;-)
Imma use "fatally floored" from now on.
SP starting to do an upward run. Will we break 13p with the development plans for this year...? Great to think we're about to get some more good news in the next couple of weeks. Q1 results should be solid as well. Nice. end to the week. GLA
Good analysis Tony on the per barrel income and netback on their royalty barrels. What was very interesting to me during yesterday's Proactive interview was Majid talking about the potential future income from their Simonette Montney lands which they kept. There is huge interest in the Montney (its becoming known as a word class basin) and several 100% Montney producers working there now running rigs year round. Only a matter of time that i3' 35 Simonette royalty barrels are 350 boe/d or even 3500 boe/d. The Montney metrics are far better than Central Alberta however using $25 -20/boe that you calculated is a great baseline:
@ 350 boe/d = 127,750 boe / year x $30 = $3.8M USD
@ 3500 boe/d = 1,277,500 boe / year x $30 = $38.3M USD
Recall that the company believes that their Simonette could produce 30k+ boe/d if fully developed.
So potentially huge future income with little company drilling risk from their Simonette royalty still.
My question is, if this was such a good deal, why had it not been done sooner when AECO was firmer. To answer my own question I suggest Jason D is showing his mettle & we should see more financial wizardry & valuation realisation.
@Panamapete: My guess on the timing of that sale is: We sold to a "newly minted private Canadian royalty company". They had money and needed deals to show their investors activity. Thus they overpaid (and will name it "strategic" to their investors :-)
I don’t think the buyer overpaid at all. I also don’t think the i3 sold it for dirt cheap either. I think it was just a deal that works for both sides. It’s royalty land, the net income could be $5M or even $10M in a few years in the buyers hands and if that is the case, they got it for very cheap. Time will tell how it works out for them. Still a good deal today for i3 for this non-core disposition as it allows them many option going forward.
IBB,
I agree - probably a good deal for the purchaser but clearly a good deal for I3E. Just another example of good execution by the team.
Let’s see what the Capex Update looks like.
Agree 100% Tony. Win win deal.
I posted elsewhere that I got a response from IR and this was an entirely non-core asset sale with no revision to working interest average or marked drilling locations. Excellent stuff.
Oil price 83.5
Let's get after the Simonette Majid.
Whether the purcheser will be happy with this buy - it is not that important. More important to me: When we spend the received money in new wells, we will generate much higher EBITDA than the Royalities would do. Thus very value accreditive. The ability to derisk our promising play further is a big (nofinancial) advantage and it's for free.
Again: Great Deal!
With whats to come here shares will be trading in the 20's soon.
Let's see. It's the Lse Aim but if the asset transactions and growth programme is significant then the market revaluation will happen over time with a very healthy dividend along the way
I3 is one of the best value oil and gas producers on the market
Low market cap to free cash flow here
Good dividend %
I think the only way we'll get back to the 20's is with gas strengthening to an average CAD$3.00 or above. Many posters are certain gas prices are going to strengthen at year end, and into 2025. So not that long to wait.
Good thing is they can now safely throw USD$50m at oil development over the next 12 months so even if gas remains subdued there's a decent chance we'll be in the high teens based on greater oil production. Plus we can pick up a guaranteed 8% yield whilst we wait for production and gas prices to increase. This will be a slow build, but certainly looks good for 30-50% (inc. dividends) over the next year. Looking forward to the development plan. GLA