Member Info for tonynorstrom1

Looking at the Gas Hedges:

In Q1 they have hedged 2,275,000 GJ at CAD 3.04 - a fantastic hedge considering that AECO is currently sitting at about CAD 1.60

2,275,000/90 days = 25,300 GJ/day of production hedged

They don’t make it easy for you as the hedge is priced per GJ but production in given in mcf – but easy to get the conversion factor off the internet.

25,300 / 1.05 = 24,070 mcf/day hedged

24,070/63,894 = 38%

So 38% of gas production is hedged in Q1. The volumes in Q2 and Q3 are considerably less at around 20% but at a pretty decent price of CAD 2.52 / GJ

I suspect the reason they are not more hedged in Q2 & Q3 is that by the time they would normally have added hedges – the pricing was too low so they decided to stick to 20% and try to maximise the potential upside if and when gas prices rise.

"Not wanting to kick off any more hedging debates, but does anyone know how much gas and oil has been hedged as a % of our 2024 production" - Does anyone bother reading the RNS's properly - FFS - its all in there in no more than 3 or 4 pages !!!

So for the benefit of those that are not sure how the hedging works (and not those that are too lazy to read the RNS for themselves)

i3e have hedged about 210,000 bbl of Oil in Q1 2024 - look at the table in the RNS - 189,750 bbl in swaps and 22,750 bbl in costless collars.

That's 210,000/90 days = 2300 bbl / day hedged out of 4155 bbl/day total oil production or 55% hedged. The swaps are priced at CAD 95.89 / bbl (or $71) meaning that whether Oil is $90 or $10 per barrel - i3e is getting $71 / bbl on 55% of its production.

If you look at Q2 - a very similar volume is hedged but at a slightly higher price of CAD 98.45 / bbl.

For Q3 and Q4 the volumes hedged are substantially less, however, it is likely that i3e will be adding hedges over the coming weeks / months so Q3 & Q4 will end up being similarly hedged at around 50%.

So just picking up on the earlier discussion about whether hedging losses/gains is a "notional accounting entry only". The hedge can be a physical hedge i.e. you've agreed with a purchaser to sell oil at the hedged price of $71 (even if the market price in $80) or it can be a financial hedge where you sell to the purchaser at the market price ($80) but then separately have to pay out $9 ($80 - $71) to a financial institution for having that price guarantee (hedge). The net effect is identical - i.e. you only earn $71 on the barrel. So its a very real loss or gain and this exactly how it is shown on the Income statement in the Company Accounts - so notional accounting entry my a$$ !

Anyway - new topic - anyone have any idea what the "none core assets" maybe as referenced in the RNS?

"The spot price situation has changed since those hedges were set"

- correct but Oil and Gas Prices change every day as do the pricing of hedges. So my comment was that "as of the day a hedge is set" - this is more accurate than anything your average Joe Blow forecast but obviously has to be re-evaluated as prices and hedges change. A hedge placed today for WTI delivery in May 2024 will be priced differently from a hedge placed next month for the same delivery - most people here I think understand that.

"And again you are wrong thinking the financial institutions setting the hedge prices are doing so based primarily upon their forecasts of future oil prices"

Your putting words into my mouth - I didn't say "primarily upon their forecast" - these are your words. But they cannot be strictly using "the futures markets" otherwise all hedges placed at a 9am monday the 29th February would all be at the same price and they are not. A bit like the bookies - odds should be similar but not exactly the same.

"they aren’t, they are tying the futures market and making money on the spread not the risk."

as a general statement - this is nonsense - the spread on a swap includes the risk premium. Anyway - beer time !

Spike,

I said my last word - so i will only break it partially and respond to your first point only - suffice to say I disagree with a big chunk of what you say and I think you are talking semantics:

1) "The hedge contracts are physical delivery contracts...."

- this is not correct. If you look at i3e's hedges (check their reports) - the're a combination of physical and financial hedges - the financial hedges get settled in cash.

"The accounting loss that is booked is the notional difference between the spot price and the hedge price. It’s an accounting booking only, there is no cash movement"

This is not correct in the case of financial hedges and even in the case of "physical delivery" - you are talking semantics. Whilst its true no cash changes hand in this instance you are effectively getting $65 on the barrel for example where if you went unhedged you would be getting $70 - effectively a "LOSS" of $5 on a barrel and this is exactly how it is recorded on the Income Statement i.e. a loss or a gain depending on which way oil moves.

And finally - this was not even what we were really talking about - my original comment was that imo - a hedge placed today by i3e for say WTI in May is likely to be priced more accurately or at least with more thought process than anyone on here's forecast. It may not be right - but a bit like the bookies - they are more right than wrong !

thats it Spike - i'm done !

Spike,

My last post on this subject since it appears we will have to agree to disagree:

1) i3e lost $25m in 2022 on hedging - that's a fact - it in their audited accounts. The loss is ABSOLUTELY not "a notional accounting entry". This is a real cost and cash they have paid out to the entities providing the hedges !!

2) For i3e to lose $25m means that a counterparty/counterparties have gained $25m - this is just common sense - the money just doesn't disappear into thin air.

3) Most Oil Companies will hedge like i3e - i.e. with options or swaps that guarantee a minimum oil price for hedged volumes - i.e. they cannot pass off the counter trade to other Oil Companies. Hence the majority of the Counterparties will be making money on whether they get the hedge right, not on whether they make money selling physical oil and gas. So for these companies, whether they be hedge funds, bank trading arms, commodity traders etc and they provide a swap for AECO CAD 3.00 - for them to make money AECO has to trade above CAD 3.00.

4) "You just have to look back at historical hedge prices I3E had to see how ‘wrong’ they were." So i'm not sure exactly what you are saying here as I don't know who "they" are. But this is part of my point - i3e's expertise is producing Oil & Gas and not hedging / predicting the future price of Oil & Gas. But the companies that provide the hedges are experts - their profits or loses depend on it !

5) and to defend i3e - I just looked at my spread sheet for 2023 which I estimate i3e made £2,600,106 profit on their hedges. So their hedges were pretty good in 2023 and they look pretty good so far in 2024.

"It’s is CATEGORICALLY not the BANK gambling SUBSTANTIALLY on future commodities prices,. The commodity traders will be more actively buying and selling the hedges as they form their own assessment of future prices, but commodity traders MAINLY make money on volatility not absolute prices."

Sound like you are agreeing with me! First of all, I did not “CATEGORICALLY” state that the counterparty is only a bank - It could be a Hedge Fund, Bank, Trading House or other.

Some banks have trading arms and I believe that your use of the word “substantially” acknowledges the fact that trading arms may place at least “some” speculative bets on the future price of commodities. Likewise with your use of the word “mainly” acknowledges the fact that trading houses may indeed place “some” bets on the future price of commodities even if their strategy is based more on volatility.

When a counterparty places a hedge – it’s a speculative bet on the movement of Oil & Gas prices. i3e lost around $25m on hedges in 2022 and they are a small player in Canada - total hedging losses / gains are in the billions - so for you to say that there is "very little speculative risk" is absolute nonsense. There is lots of money to be made by hedging Oil & Gas with numerous instruments / strategies.

In effect, the hedged price is an agreement between Company and Counterparty what the fair price is of a Commodity at some point in the future - so if the hedged price for AECO is CAD 3.00 for example that is a consensus view of informed Industry Insiders. It’s not infallible but like the bookies - trading houses / hedge funds/banks etc will be right more times than the average punter.

These are how hedges work Spike:

https://aegis-hedging.com/which-parties-are-involved-in-a-transaction

and additionally:

Oil and gas producers often enter into floating-price physical oil and gas contracts with first purchasers, and separately hedge exposure to price risk using financially settled transactions (for example, swaps) with LARGE, FINANCIALLY SOPHISTICATED COUNTERPARTIES such as COMMODITY TRADING COMPANIES, BANKS etc

If the Counter Party is a Commodity Trading House - their business is making money on trades including hedges. i3e's interest in hedging is not necessarily making money, but price stability and guaranteeing a certain level of income. i3e lost $25m on hedges in 2022 and conversely the counterparty made $25m. So personally I would put a lot of weight in what hedges are priced at - the commodity trading houses have tens of millions of dollars at risk.

Like a bookie - if the Counter Party is over exposed then they may lay off part of the bet, but they can not lay off all the risk otherwise they lose money.

First of all GGG - you have no idea what most investors are thinking - you can only speak for yourself.

Secondly - i'm posting what the hedges are actually placed at - so these are financial institutions that are betting tens of millions if not hundreds of million of dollars on where oil and gas pricing is heading. Who are you going to pay attention to - some dumb nut on the LSE BB or the hedging companies ?

Hedging as I have said before is not dissimilar to the bookies - they may get one or two bets wrong but they make money year on year.

I have asked I3E before and provided they meet the debt covenants - they have full discretion on how to spend the cash.

In the interim report they talk about Trafigura being a potential partner in future developments - this potentially gives them more access to cash but obviously would mean that they would have to have the developments approved with transfigura.

I agree nomad - a very solid RNS.

Also look at the gas hedging bearing in mind that the Companies providing the hedging make their money by correctly predicting the minimum or maximum pricing of commodities. So in Q1 - 40% of i3e's gas production is hedged at CAD 3.04, i.e. they receive CAD 3.04 / GJ versus the current pricing of CAD 1.75 and in Q4 for example they are hedged at CAD 2.64 / GJ.

Quite why some people on here want to run projections at CAD 1.5 and CAD 1.75 is a little puzzling to me. Forecasters / hedging Companies are not always right but they are right more often than not otherwise they would not be in business. In this case because of Canada LNG drawing gas this year and the ramping up of Oil Sands production - imo prices will comfortably exceed the hedged prices in the 2nd half of the year.

Jun_man,

You are not making any sense and in fact have contradicted yourself:

"(desperate to announce good news) keeps repeating historical facts as if they were new information"

followed by:

"They've done it again in this RNS, effectively 'pre-announced' the Q1 dividend"

- so this is not historical but forward looking and as some were questioning the dividend I would think good news to most - so what on earth are you talking about ??

Define what you mean by break even - what is covered what is not?

Hxxps://www.gorozen.com/commentaries/4q2023

check out the Q4 update from Goehring & Rozencwajg (the norwegian illusion) - great research as usual and very bullish North American Oil & Gas this year !

Https://www.youtube.com/watch?v=4bWVySnf72o

Another great podcast

Who is WA?

Https://kimray.com/training/flowback-quick-guide

The wells drilled and tied in the network in December are fracked and take up to 3 months to clean up i.e. recover frack fluids / drilling mud. I would imagine this is one of the factors driving the Q4 update - waiting for stabilized flow rates to report in addition to the development options they are chewing over.

Rehauer

"I would not put too much weight in that statement."

You're free to read into it what you want - it's your money. IMO - it's pretty significant - they would not be able to make that statement if Trafigura were not a potential partner for "future development".

It also seems to tie into the recent update of the loan covenants.

Just came across this in the 2023 Interim Report (Chairman's Statement). I assume this could mean that Trafigura might assist with the funding of a development in the Montney for example.

"We are very pleased to have established a relationship with Trafigura, a sophisticated oil and gas trader and a POTENTIAL PARTNER for future production focussed growth."