TIDMI3E
RNS Number : 2926A
i3 Energy PLC
31 May 2021
31 May 2021
i3 Energy plc
("i3", "i3 Energy", "i3 Canada", or the "Company")
South Simonette Consolidation - ROFR Exercise
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 the execution of a strategic acquisition in its core
Simonette area, taking operatorship and doubling its position in a
premium light oil asset in the Lower Montney.
Highlights:
-- Acquired an additional 49.5% position plus operatorship in
the Company's South Simonette oil property, increasing i3's
interest to 99%.
-- Cost to exercise the Right of First Refusal ("ROFR") of USD
4.2mm (CAD 5mm) plus planned capital investment of USD 0.58mm to
reactivate two suspended wells in July results in effective
acquisition at 1.49x next twelve months ("NTM") forecasted net
operating income ("NOI" = revenue minus royalty, opex,
transportation and processing costs) of USD 3.2mm.
-- Operational control and direction of capital deployment to
reactivate two currently suspended wells at South Simonette in July
estimated to result in an incremental increase to i3's corporate
production and NOI of 720 boepd (41% oil, 4% NGLs, 55% gas) and USD
5.2mm, respectively, increasing i3's overall exposure to oil by
approximately 20% and increasing i3's expected NTM NOI by over
16%.
o Additional estimated net production associated with the
acquired 49.5% operated working interest of circa 430 boepd and USD
3.2mm in NTM NOI.
o Estimated incremental production and NOI associated with i3's
current 49.5% interest of circa 290 boepd and USD 2.0mm.
-- Proved plus Probable (2P) reserves addition of 4.9 mmboe with
before-tax NPV(10) of USD 30.9mm.
-- Doubles i3's working interest position in over 70 potential
Lower Montney development well locations at South Simonette.
-- Brings i3 ownership at its North and South Simonette
properties to almost 100% (connected by i3's Middle Montney acreage
over which it has gross overriding royalty interest positions
ranging between 5% and 15%) allowing the Company to control
investment and development timing in these assets.
-- Contributes a deemed asset value of approximately CAD 26.5mm
and a correspondingly high Licensee Liability Rating ("LLR") ratio
of 46.1 to i3's asset portfolio.
Majid Shafiq, CEO of i3 Energy plc, commented:
"The acquisition of this operated working interest in South
Simonette is not only a very accretive addition to our production
portfolio, but also highly strategic for i3. Following completion,
we will be close to a 100% owner and operator of our North and
South Simonette properties, which are significant contributors to
our current production base, and provide significant, incremental
oil-focussed growth potential during a sustained period of higher
oil prices. Together with recent acquisitions and advancement of
development opportunities in our growing Clearwater position and
other assets in our portfolio, this acquisition provides
significant optionality in terms of where we choose to allocate our
development capital."
Anegada ROFR
i3 Energy has exercised its pre-emptive right, as provided for
under the head agreements governing the assets, to acquire the
entire 49.5% operated interest held by Anegada Oil Corporation
("Anegada") in its South Simonette property (the "Anegada
Interest"). On 3 May 2021, Anegada executed a purchase and sale
agreement ("PSA") to sell the Anegada Interest to a third party. i3
is exercising a ROFR that it held over the Anegada Interest which
was activated by Anegada's execution of said PSA.
Upon completion, i3 Canada will control a 99% operated interest
in the associated land base, which has a gross area of 64 km(2) .
The acquisition of the Anegada Interest has an effective date of 1
April 2021, and closing is expected to occur in Q2 (subject to
regulatory approval). The ROFR is being exercised by i3 at a cost
of USD 4.2mm, subject to normal closing adjustments, and will be
financed from the Company's existing cash resources. Gain Energy
Ltd (whose assets were entirely purchased by i3 in 2020) and
Anegada acquired this acreage in December 2017 for USD 2.9mm,
subsequently spending a total of USD 30.7mm to drill and complete
three Lower Montney oil wells, a water disposal well, and to
construct associated facilities and pipelines (for their collective
99% working interest). Of the three production wells, one currently
produces circa 317 boepd gross and the other two are suspended.
Post-acquisition and as Operator, i3 will bring the two
suspended wells back onto production in July at a total estimated
cost of USD 1.16mm (USD 0.58mm for each of i3's current and
acquired Anegada Interest) by installing gas lift in one and
repairing an electrical submersible pump in the other, resulting in
an expected increase to i3's corporate production of 720 boepd (41%
oil, 4% NGLs, 55% gas) and NTM NOI of USD 5.2mm; effectively
increasing the Company's exposure to oil by 20% and expected NTM
NOI by over 16%.
The combined rate associated with the Anegada Interest for the
three wells is estimated to be 430 boepd. The 2P reserves and
associated valuation estimate for the Anegada Interest are 4.9
mmboe and USD 30.9mm, respectively, based on GLJ's YE 2020 reserves
evaluation, reflecting the high-impact potential oil resource
identified in the Lower Montney formation at South Simonette. With
all three wells on production, the forecasted next twelve months
net operating income for the Anegada Interest is estimated at USD
3.2mm. At a total cost to i3 of USD 4.78mm for the acquisition and
two well reactivation in July, the Company is acquiring the Anegada
Interest and reinstating production for 1.49x NTM forecasted NOI of
USD 3.2mm, USD 11,111/boepd, and USD 0.95/boe (2P), materially
below the averages since Q4 2020 for similar Western Canadian
transactions of 4.53x NTM NOI, USD 32,067/boepd, and USD 5.61/boe.
For i3's already-owned 49.5% South Simonette interest (and
incremental to i3's current share of production from the existing
producing well) the reactivation of the two wells is estimated to
increase i3's production and by 290 boepd and NTM NOI by USD 2.0mm.
The Anegada Interest has a LLR of 46.1.
The operating income statement of the Anegada Interest for the
twelve months to 31 December 2020 are presented below:
Anegada Interest Operating Statement of Income Before Depletion
and Taxation
Twelve Months Ended
31 December 2020 (unaudited)
GBP
Revenue
Production Revenue 2,359,407
Net Royalties (99,963)
-----------------------------
Net Revenues 2,259,444
Operating Expense (631,303)
Total expenses (631,303)
-----------------------------
Net Income Before Depletion and Taxation 1,628,141
=============================
Strategic Rationale for the Transaction
The North and South Simonette areas are core and strategic
components of i3's Canadian asset portfolio, encapsulating a
broadly contiguous land base representing a large contingent of
i3's highest rate of return development locations supported by an
existing network of infrastructure. South Simonette development
commenced in 2018 targeting light oil in a thick Lower Montney
stratigraphic interval, while at North Simonette development has
focussed on Middle Montney light oil, additional potential in the
Lower Montney interval, and production from the Dunvegan and deeper
Devonian formations.
Having previously received a 49.5% non-operated working interest
through its acquisition of all the assets of Gain Energy Ltd in
2020, i3 is a current owner of the majority of the assets subject
to the ROFR. The acreage being acquired increases i3's working
interest in the South Simonette area to 99%, with i3 also becoming
operator. GLJ has assigned in its YE 2020 reserves evaluation
undeveloped reserves to 12 future locations offsetting the existing
development wells, consisting of 6 Proved and 6 Probable locations,
and i3 believes there is potential for more than 60 additional
development drilling locations on the acreage. The wells drilled at
South Simonette have exhibited initial oil production rates as high
as 740 bopd, in line with GLJ's 2P expectation for wells from this
zone. If fully exploited, i3 believes South Simonette could deliver
peak net production of over 16,000 boepd. Such a development would
utilize components of i3's owned and operated North Simonette
Y-Battery, described below.
At North Simonette, i3 owns an operated 100% working interest in
20.5 sections (53 km(2) ) of land, with current net production of
approximately 825 boepd, booked Proven reserves of 2.1 mmboe and
Proven plus Probable reserves of 3.6 mmboe. i3 has modelled a
potential 38-well North Simonette Montney oil development which
could deliver peak net production of over 10,000 boepd, with
further development potential from the currently producing Dunvegan
formation. Importantly at North Simonette, i3 owns key
infrastructure, including a 50% operated working interest in the
Y-Battery, an oil and gas processing facility with liquid handling
capacity of 12,000 bbl/d. The Company also owns a 100% working
interest in a water disposal well and the rights to a 7.0 mmbbl
stream-fed, freshwater reservoir. In addition to handling i3's
current production from North Simonette, and generation of stable
third-party processing income, this infrastructure provides
capacity to accommodate production resulting from i3's future
development activity in the area.
In addition to the above, i3 owns gross overriding royalties of
between 5% and 15% on any production from the Middle Montney
stratigraphic interval, which targets proven, liquids-rich gas in a
contiguous 16 section (41 km(2) ) area, between its North and South
Simonette acreage.
Ryan Heath, President of i3 Canada, commented:
"The recent increase in global oil prices has resulted in a
significant increase in M&A activity in offsetting Montney
acreage, as competitors seek to grow their exposure to this
prolific play. In this environment i3 is very pleased to capture a
near 100% operated and contiguous working interest in over 120
km(2) of Montney acreage in Simonette which includes strategically
located processing infrastructure. This is now a very attractive
package."
Notes:
1. i3's Proved plus Probable (2P) reserves calculations are
based on GLJ's year-end 2020 reserves evaluation, adjusted to
reflect that i3 will no longer receive a gross overriding royalty
on the interest it is acquiring from Anegada.
2. The Licensee Liability Rating, or LLR, is the licensee's
deemed asset to deemed liability ratio as determined under
Directive 006 (Licensee Liability Rating (LLR) Program and Licence
Transfer Process) of the Alberta Energy Regulator (AER). The deemed
asset value is calculated by multiplying the licensee's reported
production of oil and gas for the prior 12 months by the rolling
3-year provincial industry average netback (determined by the AER).
The deemed liability is the total cost for the future abandonment
and site reclamation of all a licensee's wells and upstream
facilities based on provincial industry average costs (determined
by the AER).
3. Reserves estimates have been prepared by GLJ in accordance
with standards contained in the Canadian Oil and Gas Evaluation
(COGE) Handbook.
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.
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.
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.
END
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 graduated with a Master's Degree in Petroleum
Engineering from Heriot-Watt University in 1988 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 c/o Camarco
(CFO) Tel: +44 (0) 203 781 8331
WH Ireland Limited (Nomad and Joint
Broker)
James Joyce, James Sinclair-Ford Tel: +44 (0) 207 220 1666
Canaccord Genuity Limited (Joint
Broker)
Henry Fitzgerald- O'Connor, James Tel: +44 (0) 207 523 8000
Asensio
Tennyson Securities (Joint Broker) Tel: +44 (0) 207 186 9030
Peter Krens
Camarco
Owen Roberts, James Crothers, Violet Tel: +44 (0) 203 781 8331
Wilson
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/
The information contained within this announcement is deemed by
the Company to constitute inside information under the Market Abuse
Regulation (EU) No. 596/2014.
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END
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