Member Info for tonynorstrom1

I3 Energy (I3E), an independent oil and gas company with assets and operations in the UK and Canada, announced its 1st Quarter 2024 dividend totalling £3.084 million, equivalent to 0.2565 pence/share.

Comment: Shares of I3E have rallied some 20% over the past month, helped along by director buying below the 10p level. One would expect a further re-rate off the back of firmer oil prices, and the company reminding the market that it is a decent dividend payer.

https://zakstraderscafe.com/rns-hotlist-april-4-amaroq-cavendish-genflow-gulf-marine-gunsynd-i3-energy-ondine-react/9090/

Interesting RNS out this morning from Union Jack Oil - OTC listing.

The share pric action over at UJO has been mystifying to me - they've had a string of reasonably positive RNS's and yet the SP continues to drift down. They also pay a dividend and buy back stock !!

I pulled us the chart for UJO and superimposed with Europa and shockingly Europa has significantly outperformed over 1 and 3 years even though our SP performance has been abysmal - can anyone explain that.

I dont own stock here but I find the SP puzzling - UJO have had a stream of reasonally positive RNS's including the one this morning but the stock keeps on going down. I do own Europa which I think on balance has not had the same news flow imo and yet if you pull up the 1 year and 3 year charts - Europa has out performed even though its sharprice has been abysmal also.

https://www.youtube.com/watch?v=dqg3d-d2fxu

ok i was wrong - this video was horse **** !

Line Fill on the Trans Mountain Pipeline has commenced.

Price differentials on WCS are narrowing which is good for Clearwater Production.

Gas looks to be edging up. Line Fill on the Coastal Gas Link cannot be far away either!

The outlook for I3E has certainly improved in recent weeks.

Let’s see what Majid has up his sleeve - hopefully a very positive Capex update !

Hopefully they can announce some "substantive" news on the finance in the upcoming Investor Meet Company podcast on the 10th April.

Https://www.theglobeandmail.com/investing/markets/stocks/ITE-T/pressreleases/25164741/25164741/

There are about 1500 companies listed on the TSX and according to the above article - i3e is in the top 25 most undervalued. Also no Oil & Gas Company trades cheaper based on their valuation metrics. Not sure this is 100% correct but I suspect it is largely correct.

They calculate fair value at 21.5p - seems a little bit high but still an indicator that i3e is trading too low

This might be worth a watch tomorrow - added advantage is that it has Hindi subtitles !

https://www.youtube.com/watch?v=dqg3D-D2FXU

Https://oilprice.com/Energy/Energy-General/Why-Morgan-Stanley-Says-to-Buy-Energy-Stocks-Right-Now.html

I have to say I agree with you and unless the Market is asleep - it also appears to agrees.

Lets hear what Mr Hobbs has to say in the upcoming Podcast.

The loan covenants previously dictated the timing of the announcement i.e. shortly after the end of quarter end covenant checks. Now these particular* checks are no longer applicable - i3e have full discretion as when to announce I assume. So I suspect you are correct with April 2nd although it could even be today !

*Be interesting to learn what conditions come with the new loan

I think I recall WH explaining that a preliminary application is submitted first to solicit comments and then a formal application is submitted. My assumption that this is the formal application.

Agreed though on Serenity I personnaly dont have a huge amount of concern - I think they have learnt some lessons and will tread more carefully in the future.

If you ignore everything prior to the last drill - the last drill was one of over 20 wells drilled in 2022 and came at a cost of only £7m which was less than a Montney well in Canada. The potential upside was huge and would have been a game changer.

As it stands now Serenity is worth nothing and they would likely get nothing for it on disposal, however, with an approved FDP - it is potentially worth something. I believe this was the plan the last time they areticulated it - i.e. develop Serenity to the FDP stage and then make a decision to sell it or develop it. I believe the cost to reach FDP would be relatively small - might be a question worth puttng to investor relations i.e. estimated cost to get an approved FDP for Serenity.

The work on the FDP stopped when the Tain licence lapsed so I assume they are waiting to see what happens to Tain before deciding how to proceed.

The one question I would have on Serenity / Tain if they decided to proceed - why was the reserves auditor able to interpret the technical data better than the technical teams of both i3e and Europa?

So maybe you dont understsnd the concern with sticking to guidance with regards to expected announcements, milestones etc - but there are plenty on here that do and i'm sure that some of those have 1st hand experience with other AIM shares due to non delivery on timelines - I have a relatively small holding myself in Europa Oil and Gas which is suffering from this very problem and has done for many years.

I agree that a few days delay or even a few weeks to a months or more doesnt make much of a difference as long as Pantheon deliver.

Buts lets remember what David Hobbs actuall said in January and it wasnt " The board have guided to end of Q1":

“We told you that we would anticipate having the first substantive announcement around the non-equity based funding during the 1st quarter – we are still on track for that”

Agreed its not a deadline or a milestone but he's certainly set an expectation. It stuck in my mind - because when he said it and knowing how difficult it can be to get finance on this type of scale - I thought uh oh - thats pretty aggressive - you've just created "a rod for you're own back"

I still have a lot of confidence in David Hobbs based on what he's set out and backing himself with pretty chunky share purchases. But its getting close to when he needs to start delivering - fingers crossed he does it !

"Is this good news,I don’t fully understand it."

the answer is yes and no:

1) it does not change the number of shares you have, the value of the shares of the net asset value of the company or cash in the bank - so in that sense the news is neutral as can be seen from the muted reaction of the SP.

2) It allows the Company to pay out dividends to shareholders and buy back stock - it does not create any additional funds. Why are they doing it - as per UK Company Law - Distributions which include dividends can only be paid out of retained earning which is really just a notional figure on the balance sheet and part of the capital structure. It is an accounts entry only and has no direct relationship to available cash. They are also adopting a new accounting standard for the Parent Company Accounts which apparently are already utilized for the Group Company Accounts. This allows them to recognize the value of the Canadian Business in the Capital structure of the Parent Company Accounts and create "distributable reserves".

Gerry - On the "disengenous" bit - you are correct on the definition but it was said a little tongue in cheek - are you asking for an apology for that ?

As far as owing Paul an apology - if he had not accused me of "peddling untruths" - then perhaps I would owe him one, but since he did make that comment which I assume is based on the share price performance under his tenure - then I would suggest that the the long term share graph supports my comments. What are the "untruths" I was peddling - if Paul has no basis for the comment he made - is that not libellous ?

So in summary - dont hold your breath - I would not want you to die over a couple of silly posts on this BB. Have a good evening.

PART 5

This was the table in the WHI report this morning - WHI's estimate for average production for 2024 is interesting. I currently have it under 20,000 boepd in my model due to the expectation of limited capex spend and drilling only in Q3. Hopefully they've spoken with i3 to come up with that number but I suspect they have pulled it out of thin air. i3e are going to have to pull a rabbit out of the hat to meet that number especially as production is declining and new wells will only start adding to production in mid to late Q3. M&A ?

Due to todays RBL announcement - ill have to update my model including finance costs and capex estimate. They now save about £100,000 a month on interest cost though this will change as they draw down further on the loan. They also have a potentiall extra £1,300,000 per month in the short term to plough into drilling due to deferred principal payments although the revolving credit agreement will also have a payment schedule.

Todays announcement whilst maybe not a game changer - its probably a mini game changer as the Trafigura Loan payments severly restricted available cash in this low gas price environment.

(Dec £m) 2021A 2022A 2023E 2024E

Production (boe/d) 12,392 20,317 20,713 21,606

Percent liquids (%) 44.3% 48.3% 47.5% 48.2%

Cash flow (before w/c) 33.2 98.1 61.7 53.5

Enterprise value / cash flow 6.1 2.1 3.3 3.8

Earnings (normalised) 0.2 41.1 14.2 8.0

EPS (p; normalised) 0.0 3.5 1.2 0.7

P/E 449.1 2.8 8.3 14.8

Dividends 3.4 15.4 16.4 12.3

Dividend per share (p/sh) 0.360 1.313 1.362 1.026

Dividend yield 3.7% 13.3% 13.8% 10.4%

Oil - WTI ($/bbl) 67.64 93.00 77.41 81.04

Gas - HH ($/mmbtu) 3.91 6.41 2.54 2.23

USD/GBP 1.38 1.24 1.24 1.26

Part 4

Pragmatically, that potential rerating would translate to higher trading multiples for companies, like i3 Energy, with deep inventories of high-quality undrilled well locations. For reference, i3 Energy has a reserve life index (reserves / production ) of 23.0 years, with potential to double that with currently unbooked identified well locations – to our knowledge that is uniquely impressive amongst its peer group.

Reserves reflect strong operational results: The company indicated that following its 2023 capex programme the company expects to experience a base decline rate of 15% in 2024, which is low and speaks to the productivity and high quality of the company’s assets. We believe that US shale oil companies would have significantly steeper base declines – several multiples above that of i3 Energy, implying most US oil companies must drill much more aggressively to stave off declines and deliver growth. The company indicated that its growth in proven and probable reserves (net of production) was achieved at a very low finding and development cost of $1.76/ boe (for 2P reserves) – exceptionally low. The company indicated that it achieved a recycle ratio of 7.0x in 2023 (based on its 2P reserves). That measure is a common gauge of a company’s ability to create shareholder value in North America. The recycle ratio is determined by dividing the company’s cash netback (cash profit before hedging, taxes and overhead costs) by the cost of finding and developing reserves.

Conclusions on reserves: We see very solid delivery in a context where the 2023 reserve numbers might have been considerably weaker due to i) limited capex and exploration spend and ii) lower natural gas prices. In our opinion, the robust third-party reserve estimates speak to the operational delivery achieved by the company and the favourable productivity and high quality of its assets. We have spoken in the past of i3 Energy emerging as company that consistently delivers solid results and its reserve update certainly reinforces our confidence in i3 Energy’s asset base. With rising commodity prices, and combined with its newly arranged financial facility, we see a tremendous resource base that i3 Energy is better placed than ever to transform into a growing cashflow stream for shareholders.

Part 3

Conclusions in respect of the RBL facility: We believe that today’s announcement from i3 Energy is unambiguously significant and positive for the company and that it sets the scene for an important capex and production guidance announcement – expected mid-April. We are as yet unsure of exactly how i3 Energy will balance the main competing priorities of i) growth ii) balance sheet strength and iii) dividends; however, we are categorical that the newly announced RBL facility is much better adapted to the company’s needs and we expect that to translate into more growth than would otherwise be the case. That growth, we expect, will drive a rerating and an improved trading multiple for i3 Energy (i3 Energy is currently trading at an EV/2024e Cash Flow multiple of 3.8x based on our estimates). To emphasise that point, i3 Energy is currently providing investors with a dividend yield of 10.4%; adding a highly visible production / value creation growth trajectory to such a high dividend yield can only, we believe, lead to a significant rerating.

Reserves update: GLJ, a recognised global leader in reserve assessments, determined that i3 Energy had year-end proven and probable reserves amounting to 179.9 million boe (49% liquids) – essentially flat from the prior year (181.5 million boe), suggesting that the company was able to replace the resources it produced in the year (7.6 million boe), despite it being a year of limited capex spend and lower gas prices that might have had a negative impact on the company’s reserve estimates. GLJ estimated that the present value of the company’s proven and probable reserves amounts to $US 1,026 million, equating to £0.67/share (applying a 10% discount rate to before tax cashflows). For reference, our fair value estimate of 16.2p is premised on a much more conservative approach of applying an EV/CF 2024e multiple of 5.0x.

Proven and probable reserves: We believe the equity market should focus on the company’s proven and probable (“2P”) reserves, as they reflect the best estimate of reserves, which is aligned with the perspective of the equity market, we believe. The probability of actual production over or under performing relative to the 2P reserve estimate is 50%/50%.

Depth of drilling inventory: The proven and probable reserve estimate includes 254 net undrilled well locations; whereas, i3 Energy has a total of 550 net identified undrilled well locations, indicating the company’s actual resource potential considerably exceeds the proven and probable reserve estimate. We believe that the strength of production growth from US shale oil has created the perception that there is an abundance of undrilled well locations; however, US shale oil growth is stalling. We believe that at some point the market will revalue the benefit of having a long-term, high quality deep drilling inventory.

Part 2

We believe that the interest rate i3 Energy will pay on its new RBL facility is lower than the fixed interest rate of the Trafigura facility (9.521%); additionally, i3 Energy under the new facility stands to benefit considerably from the widely expected lowering of interest rates in Canada, which will, we expect, improve the Canadian Prime Rate.

Stability: For reference, i3 Energy entered Canada in the summer of 2020 with a legacy balance sheet consisting of £22m of loan notes (as amended at the time). The Trafigura facility served to refinance those notes. The key point is that the company’s legacy balance sheet, extreme commodity price dynamics, COVID, dynamics within the Canadian banking community and the relative immaturity of i3 Energy in Canada in 2020 created very considerable challenges for i3 Energy – with some operational and financial decisions constrained by the parameters of financial instruments that were, in our opinion, not ideal. With today’s announcement, i3 Energy has effectively announced, in our opinion, that it has grown in a very short period of time into an entity that is now supported by a major Canadian chartered bank that is able to provide specialist financial support and products that are designed specifically for high-growth oil & gas companies. We have long held the view that that change would occur when i3 Energy’s production grew above the 20,000 boe/d threshold – which it has. Notwithstanding inevitable commodity price volatility, we believe shareholders can expect a much more stable strategic and financial direction from i3 Energy going forwards now that i3 Energy has successfully secured a solid, long-term funding arrangement that is fit-for-purpose.

Capex and production guidance: Today’s announcement sets the scene for i3 Energy to provide capex and production guidance for 2024, which is expected mid-April. That guidance will be of particular interest because it will be the first guidance provided by the company since securing a long-term fit-for-purpose debt facility to support its balance sheet. Key priorities that emerge from the forthcoming guidance inclusive of core drilling and growth priorities will have important long-term strategic implications.

M&A?: We believe that having a relationship with an established chartered Canadian bank will facilitate debt funding for potential acquisitions – potentially a real game-changer in terms of the fire-power and speed with which i3 Energy might opportunistically acquire value accretive and complementary assets.

I3 Energy RBL Facility Refinances Trafigura Amortising Facility & Year-end Reserves Update i3 Energy has announced that it has refinanced its Trafigura straight-line amortising facility with a traditional RBL facility provided by a Canadian chartered bank. We believe that i3 Energy’s shareholders stand to benefit considerably from the restructured balance sheet because it is significantly better adapted to the company’s needs, in our opinion. We believe the new RBL facility will free funds for growth and provide better long-term balance sheet stability, while significantly reducing interest costs. Critically, the change sets the scene for the company to provide capex and production guidance for the current year, expected in mid-April. We are holding our production estimates unchanged and reiterate our fair value estimate of 16.2p. We cannot over-emphasise the importance of the change announced today as we expect it to serve as an inflection point allowing for more of what shareholders want, namely, more growth and/or increased dividend payments. In respect of its year-end reserves update, the company reported strong results, which are detailed further in this note.

New credit facility: The company stated that its new $CAD 75m ($US 55m) credit facility consists of a $CAD 55m ($US 40m) revolving facility and a $CAD 20m ($US 15m) operating loan facility. The company stated that the two-year term of the RBL facility is expected to be extended on an annual basis. The company stated that it drew $CAD 27m ($US 20m) on the new facility, which combined with available cash, was applied to the repayment of the $CAD 57m ($US 42m) outstanding amount under the Trafigura facility (with no early repayment penalty). i3 Energy stated that it will pay interest at the Canadian Prime Rate (currently circa 7.2%) + 2.00% on amounts drawn under the new RBL facility.

Advantages of the new facility: i3 Energy was paying $CAD 25.0m ($US 18.3m) of principal outstanding per annum pursuant to the straight-line amortization feature of the Trafigura facility. Although that served to strengthen the balance sheet through the application of cash to debt repayment, it significantly reduced the financial flexibility of the company. We believe that i3 Energy, with its new facility, will likewise maintain a strong balance sheet while investing in high-growth, high value, highly cash generative projects – mainly drilling liquids rich wells. Conceptually, in our opinion, the new RBL facility is simply better adapted to the needs of i3 Energy, given the company is a growing junior oil & gas company with a very deep inventory of high quality undrilled well locations. We also highlight that, under the new revolving RBL facility, i3 Energy reduces the amount of its outstanding debt – and therefore the amount of interest it must pay – by applying its cash balance to reduce the amount of its drawn debt.