Member Info for tonynorstrom1

I see from the BOE Report Website that i3e are in the process of transfering another 48 wells to Axiom Energy. If you recall they transfered about 44 wells earlier this year to the same Company describing the wells as inactive or marginal producers.

So there are things going on behind the scenes - would be good if i3e communicated a bit of this - this tidies up their portfolio and reduces their decommissioning liabilities which is obviously positive.

Jmort,

The biggest unknown is the Q4 production figures though we have some clues and projections from the Q3 update. As far as oil and gas prices - were half way through December so I think average numbers for December can be estimated with a reasonable degree of accuracy.

If i3e fail to deliver the 24,000 boepd by years end - its possible that NOI could slip a million or so below the $172m. So it boils down to whether they deliver on the low or high end of what they have guided in Q3 - plugging this in - I get a range of $173m - $176m and i've assumed WTI at $75 which is roughly the average for Dec.

if its that Josh Lamb from Citi Group - boy oh boy - what a numpty !

Well thats a lot better than many oil stocks - now you have a poor housing market and high inflation - good luck with Llloyds.

I'm happy in i3e - I think we will be able to grow production, dividends and SP - not knocking Lloyds - but no appeal to me.

Who would buy Lloyds bank in a week housing market, inflation in double digits and being the UK’s largest Mortgage Lender ?? The stock is up around 9% in the last month so maybe the buybacks are having some effect.

https://www.investegate.co.uk/jadestone-energy-plc/rns/transaction-in-own-shares/202212120700032944J/
https://www.investegate.co.uk/pharos-energy-plc--phar-/rns/transaction-in-own-shares/202212130700044557J/
https://www.investegate.co.uk/bp-plc--bp.-/rns/transaction-in-own-shares/202212121808004487J/
https://www.investegate.co.uk/CompData.aspx?code=HBR&tab=announcements
https://www.investegate.co.uk/shell-plc--shel-/gnw/transaction-in-own-shares/20221212175342H1850/

this is just some of the energy companies in the last 2 days. Other notables in the last couple of days:

BAE Group
Diagro
Jupitor Fund Management
Rightmove
Smithson Investment Trust

The last one on the list is particularly interesting - most here should know Terry Smith and his fantastic fund "Fundsmith". One of his other funds is "Smithson Investment Trust" - Its investment universe is small companies world wide so he has a lot of choice what to do with funds under management. He obviously thinks that buybacks will help to close the valuation disconnect ! He has written several articles on the subject - a couple of links for your reading pleasure - go on GGG - have a look - you know you want to.

https://www.fundsmith.co.uk/media/pnbnh5we/share-buybacks-pdf.pdf
https://www.ftadviser.com/investments/2020/03/05/terry-smith-s-trust-ponders-buyback-as-discount-widens/

(he's not pondering any more)

I don’t think anyone is ignoring the realities of cash flow in a cyclical business - but if it’s done conservatively it can be managed. I think Shell were able to pay a progressive dividend for something like 50 years until Covid - there’s also a couple of Canadian Companies that have done similar - CNQ is one of them I think.

I3e has an advantage in that it can grow production sufficiently quickly that it can offset a certain degree of prices weakness - but not if it spunks all its cash on dividends.

“Tony, you've just flipped your script. You were saying the other day we can't afford to hike the divi 50% (£30m) and maintain production (£30m)”

No I’m sticking with we cannot afford to hike the dividend 50% and be progressive - see the definition I posted. The production bit there’s a context which you haven’t understood.

“but now you're saying we can spend £30m on a 10% buy-back...? “

This is not exactly what I’ve said - I said we can afford to initiate a 10% buyback which would initially cost about £1.2m a month but could be accelerated / rolled back or even suspended depending on the POO. So in the worst case you spend £2-3m on shares and then suspend the program if the POO is below expectation.

This is completely different to committing to a Dividend increase of 50% or even 25% then having to cut it back if the Oil price is below forecast.

Anyway - let’s move the discussion on. Simonette Wells !

Anyway changing subjects - did anyone notice the well design issues on the Simonette Well - adding gas lift and also a change in liner / tube size as per the last corporate presentation.

This could possibly explain why we have not had a November Production update - we are still waiting on production numbers for the two new Simonette wells and these are potentially biggies - 800 boepd plus each (>70% Oil).

This is the meaning of a progressive dividend:

“Progressive dividend policy. A progressive dividend policy is one where the dividend is expected to rise at least in line with increases in earnings per share. However, if earnings per share falls, the dividend will not be reduced.”

They increased the dividend in June 40% - how many increases do you want and it should also be noted that earnings per share have likely dropped in H2.

They have about $30m in cash and are generating lots of cash - so imo they tick 3 out of your 4 boxes. Its just a question of getting the balance right between all the options discussed.

So if your buying back 0.5 % - thats about £1.2m per month. Some may say thats very affordable.

I also want to highlight the SP action since 8th June (AGAIN) which you have ignored a couple of times - dividend was increased by 40% on the 15th June and the SP has been on a downtrend since - how can you possibly say that another hike which would have to be significantly less than 40% is guranteed to lift the SP.

To answer your Question GGG - can they afford a buyback ? - yes I think they can for several reasons but the main one being that part of your logic is flawed i.e. I believe like other companies, if they do it - it woud be a "Plan to buy UP TO 10% of the stock over the course of a year" at perhaps 1 to 2% a month. It could be scaled up or down depending on the POO or even suspended. Not as easy to roll back a dividend without upsetting shareholders and the SP.

To be clear - I dont believe sharebuybacks trump dividends of growth. I'm very much in agreement with i3e's current philiosphy of a sustainable growing dividened with production growth and the return of excess FCF via bonus dividends, sharebuybacks or other means as determined by Management.

I dont see the need to pump up the dividend excessively especially if its already a market leading yield - why would you do that? It is not guaranteed to jack up the SP by itself - You only have to look back to i3e's own performance relative to the dividend increase on 15th June this year - the dividend was bumped up nearly 40% and the SP has been in declince ever since.

"Clearly you haven't read or don't understand my position on when to use funds for buy-backs" - I dont think I have read your theory either - can you share. I only recall you being dead against in all circumstances.

Even Buffet buys back shares and one of, if not the chief criteria is that the shares must be undervalued. i3e is clearly undervalued relative to peers - cheapest Canadian Listed stock with the exception of Vermillion on a FCF yield basis and 50% of the average yield - is there a better time than now ?

In Majid we trust !!

FWIW - I posted a couple of questions to Shubham Garg on i3e and also his opinion on a twitter post from Eric Nuttal on the return of excess cash to shareholders. These were his thoughts:

"Nuttall has his own bias on everything he posts but buybacks are the only thing that make sense at this point in time."

I asked him about i3e being half the valuation of the average Oil and Gas Company on a FCF basis and whether he thought that i3e should trade at above average multiples:

"Yes, i3 will stay in my portfolio until the valuation gap normalizes"

I think I’ve run that calculation before. Stay Flat Capex is about $30m and to increase production by 2,500 boepd is about $30m.

So to make the dividend sustainable at current level
- imo we need WTI at around $70 and AECO at $3.30.

If I3E prioritize the dividend which I think they will - they could afford the stay flat capex ($30m) and cut the growth capex to zero and still afford the dividend at a WTI $62 and AECO $3.00 imo.

It all depends how aggressive / conservative I3E are and how they prioritize dividend v growth.

I think this highlights the importance of having growth to smooth out the price fluctuations. WTI averaged over $100 in H1, yet despite WTI being down over 30% from the H1 average - forecasted monthly revenue in Dec should be slightly ahead of H1 average.

I find the Contrarian Sage act works best is if you make the call in advance. A bit like "I think she'e goin to sink Captain" as the funnel disappears below the surface.

The good thing about Eric is that he does provide facts an figures to support his arguments which tend to be in short supply at times here. Recessions typically dont boost stock prices in most industries so its not unique to oil.

Also, recessions dont necessarily mean a contraction in oil demand if you've been paying attention to uncle Eric and other commentators. Thats not the same thing as prices not being affected, however, price weakness tends to be short lived if the fundamentals stay in tact.

Companies that spit out cash, pay a handsome dividend, have zero net debt and are are able to grow should do quite well relative to other investments - at the moment i3e ticks all those boxes.

i3e's stock price is second only to Vermillion in the Canadian Sector on a FCF yield basis and unjustfiably so imo. I know of no fundamental reason for this to be the case other than poor news flow / PR in the last qtr from i3e which should improve over time. Im still confident that as a minimum we rerate relative to peers even if the sector remains a little depressed.

https://www.investing.com/news/commodities-news/canadian-oil-companies-lighter-in-debt-have-cash-to-spare-despite-falling-prices-2960980

Someone posted on ADFN - value will out !

GGG,

I took a quick look at PTAL. A couple of comments off the bat:

1) PTAL was the cheapest of all Canadian Oilers a few quarters back and significantly cheaper than i3e. However as per Q3 results and as calculated by Shubham Garg - both i3e and Vermillion are now cheaper on a FCF yield basis.

2) The risks and you have already highlighted them:

a) Political Risk - Canada or Peru ?
b) Civil Unrest - Canada or Peru ?
c) Payments - for me this a problem. PetroPeru are in $90m in arrears with PTAL and the number seems to get larger over time. $60m or at least part of it is not scheduled to be settled until 13 months after the shipment per RNS today???
d) Severe Pipeline / Barging Constraints which could well get worse if they do manage to expand production.
e) 6-7 years of reserves v 21 years for i3e

Also the latest presentation raises a bit of a flag to me with regards to growing production - seems to recogniize that it might be difficult beyond a certain point for various reasons and talks about the option of holding production flat. i3e has several potential developments that potentially double production from here.

The're also not paying a dividend yet so are a year or more behind i3e.

I dont see mutch attraction at all owning PTAL over i3e at current prices. Its cheap (if it ever gets paid all its invoices) but i3e is as cheap or cheaper and in a better place to create and return value to shareholders imo.

Are you thinking straight GGG - your in a stock paying an 8% yield with fantasitic growth potential in a safe jurisdiction. You want to pump it into a South American Oil Play paying no dividend ????????? I think its worth investors taking another look at i3e's last presentation to see what the hold and some of the goodies they can look forward to in 2023.

https://wp-i3energy-2021.s3.eu-west-2.amazonaws.com/media/2022/12/Corporate-Presentation.pdf

I'm also trying to get my hands on a list of Canadian Dividend Paying stocks to see if your gripe is justified or whether Barnyards Moniker is apt. I suspect i3e'e dividend yield stacks up quite well with the some of the highest yielding stocks in the Sector.

Even at todays Oil Price - i3e is generating just over £8m in cash flow per month i.e. all day to day running costs paid including finance charges and £8m left to spend on Capex, Dividends, Debt Repayment and other.

The dividend is costing around £1.6m per month
Keeping Production Flat is about £2m per month
Guestimating that they would want to spend another £2m minimum to grow production (2k - 3k boepd)

That would leave about £2.4 m for debt repayment / share buybacks / dividend increase / other.

This would put them above their 30% of FCF policy. But as i've said before and imho only - i3e's definition is not entirely logical and undersells this metric relative to peers.

I agree with GGG that they need to do something if the're looking to rerate the share - maintaining the dividend as is on a monthly basis (even though it would represent a increase yoy) is unlikely to get investors overly excited. They've been bold and surprised before including with the dividend. It will be interesting to see what they do.

https://www.bnnbloomberg.ca/video/we-could-retest-the-lows-of-october-strategist~2578385

Energy the place to be in this recession and also for the next 3-5 years - this is from a general equity analyst. Also another good interview with Eric Nuttall yesterday - it seems he's on the box just about every other day.