I3 ENERGY PLC

Earnings Release • Apr 4, 2022

National Storage Mechanism | Additional information

RNS Number : 0631H

i3 Energy PLC

04 April 2022

4 April 2022

i3 Energy plc

("i3", "i3 Energy", "i3 Canada", or the "Company")

Record Corporate Production and i3 Canada Ltd YE 2021 Reserves

i3 Energy plc (AIM:I3E) (TSX:ITE), an independent oil and gas company with assets and operations in the UK and Canada, is pleased to announce that the Company has achieved a record for corporate production as well as provide a 2021 year-end reserves report for its subsidiary i3 Energy Canada Ltd. 

i3's independent reserve report (the "GLJ report") was prepared by GLJ Ltd. ("GLJ") in accordance with standards contained in the Canadian Oil and Gas Handbook (COGEH) and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") with an effective date of 31 December 2021.

Highlights

·    Record Corporate Production on Strong Operational Performance. 

o  Based on field estimates, i3 exited the first quarter of 2022 with a record weekly average production of approximately 20,312 boepd comprised of 61.1 million standard cubic feet of gas per day ("mmscfd"), 6,290 barrels per day ("bbl/d") of natural gas liquids ("NGLs"), 3,522 bbl/d of oil and 316 boepd of gross overriding royalty interest production.

o  Current production continues to exceed expectations due to continual outperformance of the Company's low decline production base, which has been further enhanced through strong drilling results via i3's inaugural development drilling program.

o  Based on forward strip pricing at 31 March 2022, i3 now forecasts full-year 2022 net operating income ("NOI" = revenue minus royalties, opex, transportation and processing) of $192 million, a 28% increase over that predicted in the Company's December 2021 capital budget announcement. This increase reflects the upward shift in commodity prices, in addition to well results that have bettered i3's pre-drill forecasts.

·    Acquisitions within Core Areas Provided Significant Reserve Additions. 

o  Proved plus probable developed producing reserves ("P50 PDP") increased 262% to 60.1 million boe, total proved ("1P") reserves increased 163% to 85.3 million boe and total proved plus probable ("2P") reserves increased 185% to 154.1 million boe, compared to the prior year.

·    Material Increase in the Company's Reserve Value. 

o  The Before-tax Net Present Value of cash flows attributable to the Company's reserves, discounted at 10%, has been determined to be $354mm, $444mm, and $775mm for its P50 PDP, 1P and 2P reserves, respectively, being indicative of the Company's strong production base and robust portfolio of economic development opportunities.

·    Accretive Acquisitions Provided Significant Reserve Additions on a Per Share Basis.

o  P50 PDP net present value ("NPV"), using a 10% discount rate, increased by 231% to £0.24 per share, 1P NPV increased by 195% to £0.30 per share and 2P NPV increased by 172% to £0.52 per share, as compared to the prior year.

o  The NPV calculations performed by GLJ used an average 2022-2026 WTI price of $69.18/bbl (three consultants average) which is significantly lower than current strip prices.

·    Excellent Organic Reserves Replacement Ratio, Long Reserve Life Assets and Low Decline Profile Demonstrate Sustainability of the Company's Total Return Model. 

o  On a Proven reserves basis, the Company's organic reserves replacement ratio in 2021 was 220%. P50 PDP, 1P and 2P reserve life index of 9.5 years, 11.8 years and 18.6 years, respectively, combined with our low base decline rate of approximately 12.4% and our extensive inventory of highly economic development drilling locations, underpins i3's ability to sustainably grow production per share from our existing asset base and generate significant distributable cash flow for our shareholders.

·    Strong FD&A Metrics and Recycle Ratios Reflective of Efficient Development and Acquisition Strategy. 

o  Efficient development and disciplined acquisitions provided strong proved developed producing ("PDP") FD&A of $1.96 per boe, 1P FD&A of $4.51 per boe and 2P of $4.31 per boe, delivering recycle ratios of 5.8x, 2.5x and 2.6x, respectively.

Ryan Heath, President of i3 Energy Canada Ltd., commented:

"The Canadian reserve report reflects the hard work and commitment of the entire i3 team. Strategic, accretive acquisitions along with efficient, low-cost field optimization has built predictable base production and a portfolio with extensive future development opportunities. i3 Canada is pleased to deliver record production exceeding 20,000 boepd, resulting from the Company's low decline profile and strong drilling performance."

Majid Shafiq, CEO of i3 Energy plc, commented:

"Our 2021 year-end reserves report encapsulates a very successful year for i3 Energy. We significantly increased our reserve base year-on-year through a combination of accretive acquisitions and operational activity, with our 2P reserves being valued at $775 million or £0.52 per share at year-end.

"Our organic reserves replacement ratio during the year was greater than 200% demonstrating the quality of our assets and operational capability to replace production from our existing asset base and with a 2P reserves life index of almost 19 years and multiple drilling opportunities, we have a portfolio ideally suited to deliver a consistent and progressive dividend and value growth.

"We are very pleased to exit the last quarter at over 20,000 boepd and look forward to updating the market with results from our currently active drilling program."

2021 Reserves Review

The Company's year-end reserves were evaluated by GLJ in accordance with the definitions, standards and procedures contained in the COGEH and NI 51-101 as of 31 December 2021. The reserves evaluation was based on the average forecast pricing of GLJ, McDaniel & Associates Consultants Ltd. and Sproule Associates Limited ("3 Consultants Average", or "3CA") and foreign exchange rates at 1 January 2022.

Reserves included are Company share reserves which reflect i3's total working interest reserves before the deduction of any royalties and including any royalty interests payable to the Company. Additional reserve information as required under NI 51-101 will be included in our Annual Information Form which will be filed on SEDAR. The numbers outlined in the tables below may not add due to rounding.

Summary of Reserves

The tables below outline GLJ's estimates of i3's reserves at 31 December 2021.

i3 YE 2021 - Reserves Volumes
Reserves Category	Total Company Interest Reserves
	Oil Mbbl	NGL Mbbl	Gas MMcf	Total Mboe	Liquids Weighting
Proved Producing	7,454	15,406	139,948	46,185	49%
Proved Non-Producing	406	801	15,304	3,758	32%
Proved Undeveloped	4,152	11,636	117,695	35,404	45%
Total Proved	12,011	27,843	272,947	85,346	47%
Probable Producing	2,257	4,510	42,740	13,891	49%
Total Probable	9,512	22,500	220,628	68,784	47%
Proved plus Probable	21,524	50,344	493,575	154,130	47%

	i3 YE 2021 - Reserves Values
	Before Tax Net Present Value ($MM)
Discount Rate
0%	5%	10%	15%	20%
Proved Producing	284,418	336,749	295,493	257,966	229,266
Proved Non-Producing	26,967	21,246	17,328	14,521	12,434
Proved Undeveloped	305,510	198,952	131,199	87,376	58,012
Total Proved	616,935	556,947	444,020	359,863	299,713
Probable Producing	193,704	93,925	58,126	41,047	31,167
Total Probable	874,094	507,197	331,242	233,388	173,338
Proved plus Probable	1,491,029	1,064,145	775,262	593,250	473,050

Notes:

(1)   The Company is not in a tax paying position due to Canadian tax loss pools for year-end 2021.

(2)   "Net" reserves mean the Company's working interest share after deduction of royalty obligations. 

Reserve Reconciliation

The following table sets out the reconciliation of the Company's total gross reserves based on forecast prices and costs by principal product type as at 31 December 2021 relative to 31 December 2020

	Light and Medium Crude Oil	Heavy Crude	Natural Gas (associated & non-associated)	NGL	Total Oil Equivalent
Factors	(Mbbl)	(Mbbl)	(MMcf)	(Mbbl)	(MBOE)
TOTAL PROVED
31 December 2020	4,380	0	122,387	6,963	31,741
Revisions	766	0	25,379	2,209	7,205
Extensions and Improved Recovery	92	200	7,347	448	1,964
Acquisitions	7,187	0	129,351	19,180	47,925
Production	-704	-12	-15,097	-1,209	-4,441
31 December 2021	11,721	188	269,367	27,591	84,394
TOTAL PROBABLE
31 December 2020	4,397	0	74,005	4,592	21,323
Revisions	-72	0	3,160	-221	234
Extensions and Improved Recovery	-16	265	12,809	545	2,928
Acquisitions	4,881	0	129,361	17,474	43,916
Production	0	0	0	0	0
31 December 2021	9,190	265	219,335	22,390	68,401
TOTAL PROVED PLUS PROBABLE
31 December 2020	8,776	0	196,393	11,555	53,065
Revisions	695	0	28,539	1988	7440
Extensions and Improved Recovery	75	465	20,155	993	4,892
Acquisitions	12,069	0	258,712	36,654	91,841
Production	-704	-12	-15097	-1209	-4441
31 December 2021	20,911	453	488,702	49,981	152,797

Performance Measures - Finding and Development ("F&D"), Finding, Development and Acquisition ("FD&A") Costs and Recycle Ratio

F&D and FD&A costs for 2021, 2020 and the two-year average are presented in the tables below.  The capital costs used in the calculations are those costs related to: land acquisition and retention, seismic, drilling, completions, tangible well site, tie-ins, and facilities, plus the change in estimated future development costs ("FDC") as per the GLJ report.  Net acquisition costs are the cash outlays in respect of acquisitions, minus the proceeds from the disposition of properties during the year. The reserves used in this calculation are working interest reserve additions, including technical revisions and changes due to economic factors. The recycle ratio is the NOI per barrel divided by the cost per barrel (F&D or FD&A).

	2021	2020	2-Year Average
Proved Developed Producing
F&D costs ($/boe)	$2.61	N/A	$2.77
F&D recycle ratio	4.4x	N/A	3.5x
FD&A costs ($/boe)	$1.96	$1.65	$1.84
FD&A recycle ratio	5.8x	1.3x	5.2x
Total Proved
F&D costs ($/boe)	$4.02	N/A	$4.12
F&D recycle ratio	2.8x	N/A	2.3x
FD&A costs ($/boe)	$4.51	$3.78	$4.25
FD&A recycle ratio	2.5x	0.6x	2.3x
Total Proved Plus Probable
F&D costs ($/boe)	$3.42	N/A	$3.50
F&D recycle ratio	3.3x	N/A	2.7x
FD&A costs ($/boe)	$4.31	$3.79	$4.14
FD&A recycle ratio	2.6x	0.6x	2.3x

Reserve Life Index ("RLI")

RLI is calculated by taking the Total Company Interest Reserves from the GLJ Report and dividing them by the projected 2022 production as estimated in the GLJ Report.

	Total Company Interest Reserves	2022 Company Production	RLI
Reserves Category	(Mboe)	(Mboe)	(Years)
Proved Producing	46,185	6,160	7.5
Total Proved	85,345	7,243	11.8
Proved plus Probable Producing	60,075	6,325	9.5
Proved plus Probable	154,130	8,265	18.6

Forecast Prices Used in Estimates

GLJ has employed the 3 Consultants Average forecast prices in the GLJ Report. The 3CA forecast prices, exchange rate and inflation (2% post 2035) assumptions as at 31 December 2021 are tabulated below.

	Canadian Light Sweet	Western Canada Select	Alberta AECO-C	Pentanes Plus	Butanes	Propanes	Inflation Rate	Exchange Rate
40° API	WCS 20.5 API	Spot	FOB Edmonton
Year	(C$/bbl)	(C$/bbl)	(C$/MMBTU)	(C$/bbl)	(C$/bbl)	(C$/bbl)	(%/year)	(USD/CAD)
2022	86.82	74.43	3.56	91.85	57.49	43.39	0	0.7967
2023	80.73	69.17	3.2	85.53	50.17	35.92	2	0.7967
2024	78.01	66.54	3.05	82.98	48.53	34.62	2	0.7967
2025	79.57	67.87	3.1	84.63	49.5	35.31	2	0.7967
2026	81.16	69.23	3.17	86.33	50.49	36.02	2	0.7967
2027	82.78	70.61	3.23	88.05	51.5	36.74	2	0.7967
2028	84.44	72.02	3.3	89.82	52.53	37.47	2	0.7967
2029	86.13	73.46	3.36	91.61	53.58	38.22	2	0.7967
2030	87.85	74.69	3.43	93.44	54.65	38.99	2	0.7967
2031	89.6	76.19	3.5	95.32	55.74	39.77	2	0.7967
2032	91.4	77.71	3.57	97.22	56.86	40.56	2	0.7967
2033	93.23	79.26	3.64	99.17	58	41.37	2	0.7967
2034	95.09	80.85	3.71	101.15	59.15	42.2	2	0.7967
2035	96.99	82.47	3.79	103.17	60.34	43.04	2	0.7967
2036	98.93	84.11	3.86	105.24	61.54	43.91	2	0.7967
Escalated at 2% per year thereafter

Notes:

1.     $ = USD.

2.     Any figures converted from CAD to USD are done so at CAD 1.25 to USD 1, and any figures converted from CAD to GBP are done so at CAD 1.64 to GBP 1.

3.     Reserves estimates have been prepared by GLJ in accordance with standards contained in the Canadian Oil and Gas Evaluation (COGE) Handbook.

4.     Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal to or exceed the estimate.

5.     Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable (2P) reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal to or exceed the 2P estimate.

6.     Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves category (for example proved or probable) to which they are assigned.

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Qualified Person's Statement

In accordance with the AIM Note for Mining and Oil and Gas Companies, i3 discloses that Majid Shafiq is the qualified person who has reviewed the technical information contained in this document.  He has a Master's Degree in Petroleum Engineering from Heriot-Watt University and is a member of the Society of Petroleum Engineers. Majid Shafiq consents to the inclusion of the information in the form and context in which it appears.

Enquiries:

i3 Energy plc Majid Shafiq (CEO) / Graham Heath (CFO)	c/o Camarco Tel: +44 (0) 203 781 8331
WH Ireland Limited (Nomad and Joint Broker) James Joyce, Darshan Patel	Tel: +44 (0) 207 220 1666
Tennyson Securities (Joint Broker) Peter Krens	Tel: +44 (0) 207 186 9030
Stifel Nicolaus Europe Limited (Joint Broker) Ashton Clanfield, Callum Stewart	Tel: +44 (0) 20 7710 7600
Camarco Owen Roberts, James Crothers, Violet Wilson	Tel: +44 (0) 203 781 8331

Notes to Editors:

i3 Energy is an oil and gas Company with a low cost, diversified, growing production base in Canada's most prolific hydrocarbon region, the Western Canadian Sedimentary Basin and appraisal assets in the North Sea with significant upside.

The Company is well positioned to deliver future growth through the optimisation of its existing 100% owned asset base and the acquisition of long life, low decline conventional production assets.

i3 is dedicated to responsible corporate practices and the environment, and places high value on adhering to strong Environmental, Social and Governance ("ESG") practices.  i3 is proud of its performance to date as a responsible steward of the environment, people, and capital management.  The Company is committed to maintaining an ESG strategy, which has broader implications to long-term value creation, as these benefits extend beyond regulatory requirements.

i3 Energy is listed on the AIM market of the London Stock Exchange under the symbol I3E and on the Toronto Stock Exchange under the symbol ITE. For further information on i3 Energy please visit  https://i3.energy/.

This announcement does not contain inside information.

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