i3 Energy (I3E) , a UK and Canada-focused oil producer, issued a quarterly trading update for the 3 months to June 30, 2024 (Q2 2024).
I3E posted a profit before tax of US$24.4m and net cashflow from operating activities of US$7.6m for Q2. The company achieved an average Q2 production of 18,271 boepd despite the sale of 415 boepd and several production outages.
As of June 30, 2024, I3E was undrawn on its credit facility, posting a net cash surplus of US$6.97m. The company also announced a successful redetermination of its reserve-based facility at the original CAD$75m. Q1 dividends of £3.084m were declared and paid in Q2 2024.
During the period, I3E entered an agreement to sell most of its royalty assets for US$24.81m in cash (CAD$33.50m), which at the time of closing translated to 6.9x its FY24 forecast cashflow and approx. US$63,960 per flowing boepd. Free cashflow for Q2 2024 was US$28.5m, fueled by the royalty disposition and property divestments during the period.
In Q2, I3E disposed of a non-core and non-operated shallow dry gas-focused asset Hangingstone, Northern Alberta, alongside two non-producing mineral rights divestments, for total realised proceeds of US$2.75m.
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The highlight of Q2 for I3E was the sale of most of its royalty assets and refinancing of its outstanding debt, both of which significantly strengthened the group's balance sheet. Consequently, I3E is now essentially debt-free and with substantial liquidity to finance its 2024 capital programme and future development.
I3E's reserves-based borrowing facility was also redetermined at its original CAD$75m, validating the potential of the group's asset base. I3E's portfolio benefits from a stable, low-decline production profile, with a long reserve life and an effective hedging strategy.
I3E maintained robust production in Q2 at 18,271 boepd, prompting the group to maintain its existing production and EBITDA guidance for the year. Looking ahead, I3E's drilling acitivites in H2 will focus on its first operated well in Central Alberta, and other projects per its 2024 capital programme, setting up the major Montney development project in Q1 2025.
We expect I3E's US$51m 2024 capital programme to yield a significant 5-10% increase in annual production. The new programme will be fully funded from existing resources. I3E remains well funded after the aforementioned partial sale of its royalty assets. The 2024 programme will also support a long-term dividend, with an est. £12.3m to be returned in FY24, representing 1.0260/p for the year and a forward yield of 8.1% based on a share price of 12.66p for I3E.
Investors should note that the new capital programme will be c. 85% H2-weighted to take advantage of stronger forecast winter gas pricing. In the event forward gas prices deteriorate, I3E has flexibility to reallocate drilling locations to more oil-weighted opportunities.
I3E's Canadian portfolio holds significant upside across years of potential growth, with 2P reserves now valued at c. US$1bn or £0.67/share - a significant premium to I3E's current share price.
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