WH Ireland Research13 Apr 2022 06:16
WH Ireland posts new research note (summary below).
Final Results – Significantly More Cash than Expected i3 Energy’s financial results for 2021 indicate that significant shareholder value creation was achieved in the period and that the company’s cash costs are significantly lower than we had modelled. We are increasing our fair value estimate to 47.5p (from under review, previously 37.6p) to reflect i) higher commodity prices ii) a modest increase to our expected 2022 production numbers, iii) lower forward looking cash costs and iv) the fine-tuning of a host of assumptions in our financial model relative to the company’s final results. 2021 financial results: Oil sales revenues and gas sales revenues amounted to £61.0M (WHIe: £61.1M) and £35.0M (WHIe: £35.2M), respectively. Excluding a £25.0M gain on bargain purchase, earnings amounted to £0.1M (WHIe: £1.4). Cashflow from operations (before changes in working capital) amounted to £33.1M (WHIe: £27.2), with non-cash expenses (depreciation of £21.6M and non-cash employee compensation of £3.2M) representing a significantly higher portion of operating expenses than we had modelled. Most importantly, the 2021 final results have provided greater visibility and confidence in our forward-looking projections – the i3 Energy cashflow machine is working as expected, only with significantly lower cash costs than what we had been modelling – significantly positive. Nudging production forecasts upward: The company previously announced (4 April 2022) a 1Q 2022 exit rate of 20,312 boe/d, which compared to our Q1 production estimate of 19,043 boe/d. We had aligned our 2022 production forecast with the company’s guidance of greater than 20,000 boe/d. Strong production delivery is compelling us to nudge our 2022 production forecast upwards to 20,342 boe/d (from 20,031 boe/d) – 47% liquids, 53% natural gas. What’s new? There are three new critical developments that are necessary to appreciate i3 Energy’s trajectory: Firstly, the company is emerging as a top-tier oil & gas company in terms of its operational excellence. This is translating to “free production” with the company delivering well recompletions (and workovers) that are essentially offsetting natural declines. Secondly, increased European demand for North American natural gas is transforming North American natural gas markets and can be expected to result in much higher North American natural gas prices. Thirdly, the company’s cash costs are significantly lower than we had modelled, allowing us to make forward-looking adjustments that provide higher, and more accurate, cashflow estimates.
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