i3 Energy (I3E ), a UK and Canada focused oil producer, announced this morning completion of drilling operations on its Serenity appraisal well on UK license P.2358, Block 13/12c.
i3 Energy said the Serenity appraisal well was drilled to a total vertical depth of 5,630 ft below sea level. The targeted Lower Cretaceous Captain sand, containing hydrocarbons in the 13/23c-10 well discovered in October 2019, was not present at the location, the company reported. Over 100 ft of other Captain sands in various sequences were found, but were water wet. Therefore, i3 said the well was to be plugged and operations suspended.
On the bright side, i3 gathered valuable data from the appraisal well that will be integrated into its future reservoir modelling to optimise ongoing development of the site, particularly reserves proven up by the prior discovery well in the eastern area of the structure.
Majid Shafiq, CEO, commented:
"Whilst this result is disappointing, we and Europa (having satisfied the farm-in conditions) will use the data recovered to improve our understanding of the Serenity field and the architecture and geometry of the Captain sand reservoir intervals. The data will also improve our understanding of the extent and geometry of the oil-bearing sand found in the 13/23c-10 discovery well. This will allow us to proceed with the planning and evaluation of a preferred development option, initially focussed on the eastern area of the mapped structure around the discovery well."
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Overall, this is a small setback for i3 Energy. While not the result investors were hoping for, the Serenity well was drilled significantly below budget at an estimated total cost to i3 of £5.6m, with data gathered from the appraisal well expected to significantly enhance the company's understanding of the hydrocarbon-bearing Captain sand reservoir. This should result in more efficient future drilling in the eastern portion of the site.
Earlier in the year, i3 Energy executed a farm-in agreement with Europa Oil and Gas for a 25% working interest in i3's Block 13/23c North, containing the Serenity oil discovery, in exchange for Europa funding 46.25% of the appraisal well, up to a total capped cost of £15m. Therefore, i3 only bore appox. half the cost of the well, already under budget.
On 12 September, i3 Energy announced interim results for 1H22 that showed material improvement across the board year-on-year. Revenues nearly quadrupled and net profit doubled. Average production increased 107% and cash flow from operations increased 6x to £48.6m. As a result, shares in i3 Energy are up 81% YTD and 89% in the past 12 months despite today's setback.
The company announced a US$50m increase in its capital budget to US$97m, forecast to provide peak production during 2022 above 24,000 boepd. As most of the budget increase will be deployed in Q4 2022, the full impact and benefit of it should last well into 2023 and beyond. The US$97m budget is fully funded through i3's existing cash balance and should materially improve NOI while preserving i3's balance sheet.
i3 also said it has commenced an organic growth plan via drilling of its own inventory of undeveloped reserves, which it says can deliver paybacks in less than 12 months. With over 450 drilling locations identified, i3 has the capacity to continue growing production levels significantly, and only consider acquisitions if they are highly strategic and can be concluded at attractive metrics, given the current market climate.
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