The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Here’s an interesting Company to Compare i3e with: Pine Cliff Energy (lots of interesting info on Gas / Gas Outlook in their presentation)
https://boereport.com/2024/03/04/pine-cliff-energy-ltd-announces-2023-annual-results-filing-of-disclosure-documents-year-end-reserves-provides-2024-guidance-dividend-declaration-and-executive-update/
https://assets-global.website-files.com/64dcf83dc7b2e3793ab75d23/65bc0d458b2065bafa856d10_PNE%20Corporate%20Presentation%20Jan%202024%20Final.pdf
Key Take Aways:
Similar production to i3e at around 21,000 boepd, however 80% Gas
Low-cost producer – SG&A less than 50% 0f i3e’s, Opex around 15-20% less
Significantly lower revenues than i3e
Low declines – less than 10% v i3e at around 15%
Debt similar at around CAD 55m
Highly regarded Management
Market cap double that of i3e
Reserves of less than 50% of i3e’s both on a boe basis and NPV10.
March dividend CAD 0.005 = 5.5% running yield
Lower Capex requirement due to business model/low decline rates
Significantly higher (30-40%) long term decommissioning liabilities than i3e
Conclusions
I cannot understand why Pine Cliffs market cap sits at twice that of i3e – the numbers tell me that we should be rated no lower and perhaps at a premium to Pine Cliff. Whilst Pine Cliff have certain advantages such as lower costs (opex, capex & SG&A) – these are more than offset by i3e’s higher revenues, higher reserves and lower ARO’s - not to mention i3e’s higher dividend (which they can afford to pay - just). The only reason I can come up with is that perhaps their Management is rated higher by Investors. They also have their primary listing in Canada – should that make such a big difference??
All in my opinion - DYOR !
M22C - very clever - how long did it take you to come up with that ?
I didn't know you were good at maths 3LittleBirds !
All the wells were drilled nearly a year ago except the 2.5 net wells drilled in Q4 in Central Alberta which would have been in Clearwater but for the access issues. By your reasoning I'm assuming you consider Wapiti, Simonette and Clearwater all non-core and potentially up for sale !
"In Q1, i3 drilled 3 gross (2.5 net) multilateral horizontal Clearwater wells at Dawson and Marten Creek as part of its ongoing exploration and development portfolio of 144 gross sections (109 net sections, equivalent to 280 km2) of prospective Clearwater lands."
There you go d**b ar$e !
and anyone paying attention will have recalled i3e's intention to drill additional clearwater wells in Q4 but due to access issues they switched to Central Alberta. Probably a doubly good call since the discount on heavy oil is / was around $18 to WTI.
What are you rabbiting on about - i3e only drilled 11 (8 net wells) last year and 3 (2.5 net) were in Clearwater.
Also from the last RNS:
The total 2023 capital expenditures of approximately USD 30 million (unaudited) served to efficiently delineate and develop its CORE areas of Central Alberta, Wapiti and the CLEARWATER.
“Tony, ask yourself why did both parties go through all the effort to transact on i3’ one Clearwater well in Martin Creek.”
Funny enough I did ask that question including why a Company with 680 net sections and over 65,000 boepd of production would buy just one well and also why i3e that’s been busy adding to its acreage in clearwater suddenly be selling in Martens Creak of all places which happens to be amongst the best acreage in Clearwater.
My conclusion was that I3e wouldn’t ordinarily be doing this and this is housekeeping and a one off. sale – i3e have some isolated sections that are surrounded by other competitors land . My guess is that Tamarack have adjacent sections and bought this well to make their operations more contiguous.
Also, these asset transfers are happening all the time – i3e is in the process of transferring 8 wells to Axiom Energy along with Acquiring 1 facility and 2 pipelines from BTG Energy Corp – so quite why Canuck is making a big song and dance about this one well to Tamarack – I’m puzzled.
From i3e’s November corporate presentation:
“Near-Term Focus:
• Accelerate development at Dawson and Cadotte based on initial de-risking activity and success of offsetting operators
• Continue advancing delineation of extensive undeveloped land positions (Marten Creek, Walrus and Seal)”
And from i3e’s website:
“In Marten Creek where access is restricted, i3 has negotiated unfettered use of a large inventory of surface pads and more than 150 km of third-party pipeline infrastructure, which can be utilised to minimise future capital requirements as efforts shift to potential oil development.”
It sounds to me like Clearwater / Martens Creeks is considered "core" - but hey ho - I could be wrong.
Since we have zero qualms about posting rubbish - its 1 well you Wally !
A pretty optimistic take on things
https://bnnbreaking.com/finance-nav/i3-energy-hits-record-production-in-2023-navigating-through-commodity-price-challenges
Nomad,
What you have written reads well and i'm sure there are a few on here nodding their head in agreement/approval. But your post is actually factually incorrect. Hedging is also one of those things that it’s much easier to be smart after the fact.
Are you sure about i3e’s hedging policy – I don’t ever recall seeing this as stated policy – my recollection of the policy is to hedge up to 50% of production on a rolling basis.
A bit of context before I get into the fact checking - Oil was at or above $120 for only 4 days I think in 2022. The highest oil prices were in the middle of the year 2022 with the highs in June and the average over the 5 months from March to July of $106 - the remaining months trending down to $76 in Dec 2022.
1) I've pulled the numbers below from the 2022 Interim report which covers the 6 months ending 30 June 2022. Both Oil & Gas are more than 50% hedged in the highest price environment in years and more hedging than is in place now – this appears to contradict your comments on hedging policy.
2) The pricing of the hedges is even more interesting – in January 2022, oil averaged $83/bbl climbing steadily to average $113 in June yet the hedges they were able to place for Q3 & Q4 were at CAD 94.15 / bbl ($70)
3) Gas pricing tells a similar story – they hedged at CAD 3.85 / GJ in spite of the fact the fact that gas averaged closer to CAD 5.80 in H1 2022
So its pretty obvious that hedges are not based on temporary price spikes or what the price maybe on any given day – it’s a bit more complex than that. Its worth mentioning because I recall when the gas price spiked to CAD 14.00 in January for a few days – there a were a few here and on other BB’s saying – I hope i3e are busy loading up on gas hedges !
2022 (Q3&Q4)
Gas 6,897,325 GJs CAD 3.85/GJ
Oil 230,000 bbls CAD 94.15/bbl 414,000 bbls CAD 92.20/bbl
Propane 92,000 bbls USD 46.93/bbl
El Steve,
“You also say that the NOI is based on the spot and not the hedged price however that is an issue for the i3 accounts department to clarify,”
I more than say - I know because my spread sheet is is in alignment with I3E’s accounts . I3E’s accounts are audited so I have a high degree of confidence they comply with applicable accounting standards.
If you doubt this - it’s not up to i3e - it’s up to you to clarify with i3e.
I agree that NOI is not one of the the best metrics because as an investor you are more interested in cash generation or more specifically free cash flow. As Buffet says - Free Cash Flow is the gold standard - many of these non gap measures are smoke and mirrors. Also NOI hides the fact that I3E’s SG&A is on the high side.
I check my model against I3E’s results both interim and FY. I check all line entries including revenues, of all streams, royalty, opex, SG&A etc - what it tells me is that the market price is used to calculate revenues and hedging loses / gains are deducted lower down in the accounts like SG&A, debt repayments etc to arrive at profits , FCF etc. I believe all is per the applicable accounting standards and applied by I assume all I3E’s peers but NOI appears to be Unique to I3E.
Elsteve,
"To put it simply you correctly say that the profit or loss on the hedge is irrelevant."
Firstly and Simply put you are not correct - to many PI's its not irrelevant because they dont fully understand the hedging , both the quantity and how they work . Also I3e's quarterly update / guidance only provides a figure for NOI which EXCLUDES the impact of hedging and all other major costs except opex and royalties so you only get to see the impact on i3e's profits and free cash flow etc in the interim report and final reports issued twice a year 3 - 6 months after the cut off period when they include a figure for hedging gains or losses. Profits and losses impact share price !!!
Secondly - the accounts don't agree with you - they classify it as a loss or a gain and not a technicality or a notional charge.
Thirdly - intuitively many PI's here I would speculate to say would consider that selling oil at $70 when the market is $80 is a loss even though you may have entered into the hedge many months before the oil is sold at $70. And just to reiterate the first point - NOI guidance is based on the $80 and not the hedged price.
Fourthly - You have the option of going unhedged, 20% hedged such as i3e in Q2 (Gas) or 85% hedged such as DEC or any other combination . All of these decisions have a massive impact on profitability.
Apologies Spike - should have not made the Coconut comment - you have been reasonably polite with your comments - I should have been equally polite.
your being extremely pedantic spike - my target audience is fellow posters here and not the i3e bod who obviously figure hedges into projections.
"whether the size of the hedge impact is a loss of $1billion or gain of $1billion it makes very little difference for the end result which was already determined"
that is just bat **** crazy - of course it makes a huge difference whether you are making a 1 billion loss or 1billion gain on hedges - it brings up the whole question whether you should hedge at all or whether you are 20% hedged as i3e is in q2 (gas)or you are 85% hedged as are other companies such as diversified energy. i'm going to leave it there as it feels like i'm talking to a coconut.
I must say - a very positive presentation - several transformative projects. I get the sense that EQ is the pick of the larger projects due to the more favourable environment.
I thought Will Holland answered the questions very well and apparently news on the Cloughton drilling pad shortly - "watch this space"
Looking at the positive effect of hedging - February is nearly done and by my calculation - i3e have made a hedging gain of about $700,000 on its gas partially offsetting the weak AECO pricing.
But if its only "notional" - I have a good mind to email Majid and ask him to hand the money back !
Its real accounting Spike and not "hedge accounting" - and I would add particularly from the average Joe Blows perspective.
If Oil was to shoot up to $90 a bbl tomorrow - many of us here would be focused on the $90 but forget the impact of hedging on profits / free cash flow. So in i3e's case being 55% hedged - they would in effect be getting something a little under $80 per average bbl rather than the $90. $78 is no where near as sexy sounding as $90 though its still pretty good !
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?