I3E I3 Energy Plc

15 May 2024

i3 Energy plc

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

Q1 2024 Operational and Financial Results

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 its operating and financial results for the three months ended 31 March 2024. As previously stated, the Company's Canadian shareholding has increased beyond 10% and, as a result, i3 is no longer a designated foreign issuer and therefore no longer eligible for certain continuous disclosure exemptions previously granted through National Instrument 71-102. As such, the Company has commenced issuing quarterly financial reports and preparing continuous disclosure in accordance with applicable Canadian securities laws. i3's unaudited condensed interim financial statements for the three months ended 31 March 2024 and related Management's Discussion and Analysis ("MD&A") are available on i3 Energy's website at https://i3.energy/ and filed on SEDAR+.

Highlights:

·    Free cash flow (FCF)⁽¹⁾ for Q1 2024 was USD 15.0 million compared to USD 9.9 million for the same 2023 period.

·    A new CAD 75 million reserve-based senior secured credit facility with the National Bank of Canada, comprised of a CAD 55 million revolving facility and a CAD 20 million operating loan facility.

·    Repayment of approximately CAD 57 million, representing the outstanding balance of i3 Energy's existing CAD 75 million loan facility (the "Debt Facility") with Trafigura Canada Ltd., a subsidiary of Trafigura Pte Ltd ("Trafigura").

·    Average Q1 2024 production of 19,410 barrels of oil equivalent per day ("boepd").

·    The Company published its 2022 ESG Report, continued its CO2e emissions reduction initiatives with the electrification of 3 well sites, and downhole abandoned 4 wells.

·    As part of i3's commitment to its total shareholder return model, dividends of £3.084 million (USD 3.911 million) were declared and paid in Q1 2024.

·    Post quarter-end, i3 entered into a definitive agreement to sell most of the Company's royalty assets (the "Royalty Disposition") for a total gross cash consideration of USD 24.81 million (CAD 33.50 million) before customary closing adjustments, which translates to 6.9 times 2024 forecasted cash flow and approximately USD 63,960 per flowing boepd.

·    As at 31 March 2024, i3 had Net Debt⁽¹⁾ of USD 21.0 million, which was eliminated at the Close of the aforementioned Royalty Disposition.

·    Post quarter-end, the Company further Closed the accretive disposition of a non-core, non-operated, shallow dry gas focussed Northern Alberta asset (Hangingstone), for realized proceeds of USD 0.3 million.  

Majid Shafiq, CEO of i3 Energy plc, commented:

"Q1 2024 was a period of intense corporate activity during which we refinanced our existing debt with a non-amortising, traditional oil and gas reserves-based loan and laid the groundwork for monetising the majority of our non-core royalty production which significantly strengthened our balance sheet and increased liquidity. This financial restructuring supports the long-term sustainability of our total shareholder return model and sets the Company up for a busy operational period for the second half of the year, during which we will drill a diversified inventory of drilling locations across our Canadian portfolio, designed to grow production and advance development of some key assets. We look forward to updating the market as the year progresses."

Financial and Operating Summary

(1) Non-IFRS measure. Refer to Note 1.

The Company experienced robust FCF⁽¹⁾ for Q1 2024 of USD 15.0 million. i3 incurred an earnings loss in the first quarter, primarily as a result of non-cash charges including, but not limited to, risk management contracts, depletion/depreciation/amortization, increased deferred taxes and the acceleration of deferred finance charges associated with the early expiration of the Debt Facility.  

Debt Refinancing

During the first quarter, the Company announced the successful establishment of a reserve-based lending facility (the "Credit Facility"). The new Credit Facility marked a significant step in transitioning i3's capital structure, enhancing the Company's financial flexibility through improved liquidity and enabling acceleration of its growth and income-based business plan.

The establishment of a CAD 75 million senior secured revolving credit facility with the National Bank of Canada was utilized to settle the Company's existing CAD 75 million Debt Facility with Trafigura, without prepayment penalty, of which approximately CAD 57 million was outstanding at the time of the repayment. Secured against substantially all the assets and shares of i3 Energy Canada Ltd., the new Credit Facility, comprised of a CAD 55 million revolving facility and a CAD 20 million operating loan facility, has been established for i3 Energy's wholly owned subsidiary, i3 Energy Canada Ltd.

The refinanced capital structure enhances the Company's free cash flow profile through the elimination of the previously managed three-year, CAD 25 million per annum, straight-line amortization schedule, which can now be redeployed to accelerate the development of its extensive drilling inventory to enhance shareholder value.

Production Update

Production in Q1 2024 averaged 19,410 boepd, comprised of 60.0 million standard cubic feet of natural gas per day ("mmcf/d"), 4,814 barrels per day ("bbl/d") of natural gas liquids ("NGLs"), 4,246 bbl/d of oil & condensate and 348 boepd of royalty interest production. The quarterly production represents a decrease of approximately 4% relative to Q4 2023, resulting from conservative capital management during the period of softening gas prices and further downtime primarily due to extreme cold in January 2024, which led to a loss of ~300 boepd for the month (or ~100 boepd for the quarter).

Hedging Programme

i3 continues to employ a defensive risk management strategy with current hedges in place protecting USD 44.8 million of net operating income in 2024, and covering 31%, 26%, 26% and 24% of the Company's projected Q1, Q2, Q3 and Q4 2024 production volumes, respectively. i3's 2024 hedges are as follows:

Environmental, Social and Governance ("ESG")

Continuing with the ESG initiatives executed in 2023, i3 Energy has maintained its commitment to reducing the Company's Scope 1 and Scope 2 carbon emissions. i3 electrified three well sites throughout key operating areas, converting combustion engines to electric drive engines on existing pumpjacks. The Company further executed Phase 1 of the previously announced Alternative Fugitive Emissions Management Programme (ALT FEMP), which images methane emissions from the air. The effect of this program, along with corrective actions applied, resulted in an annual emissions reduction of 3862 tCO2e. Phase 2 of the ALT FEMP is currently underway.

During the period, i3 also downhole abandoned 4 gross wells (2.78 net) and, in January 2024, the Company published its 2022 ESG Report. i3 remains dedicated to environmental sustainability and strives towards continued positive advancements in its ESG practices.

Return of Capital

The Company remains committed to delivering a sustainable dividend as part of its total return model. The Q4 2023 dividend of £3.084 million (USD 3.911 million) or 0.2565 pence per share was declared and paid in Q1 2024. The Q1 2024 dividend of £3.084 million (USD 3.911 million) or 0.2565 pence per share was declared in early April and subsequently paid in early May. Subject to Board approval, the Company expects to pay the Q2 2024 dividend of 0.2565 pence per share in early Q3 2024, which translates to a forward yield of 9.4% based on the closing price of i3's ordinary shares on 10 May 2024.

Post Quarter-end Events

Partial Sale of Royalty Assets

Subsequent to the first quarter, i3 announced that its subsidiary, i3 Energy Canada Ltd. entered into a definitive agreement with a newly formed private royalty company to sell the majority of the Company's royalty assets for a total gross cash consideration of USD 24.81 million (CAD 33.50 million) before customary closing adjustments.

The Royalty Disposition, involving most of the Company's royalty assets, but not its core Simonette Royalty, translated to 6.9 times 2024 forecasted cash flow and approximately USD 63,960 per flowing boe/d, which represents a significant premium to the Company's current market valuations.

The proceeds of the Royalty Disposition fully eliminated i3's outstanding bank indebtedness and established a working capital surplus without materially impacting its working interest production base; which, together with forecasted cash flows and undrawn credit facility, provides the Company with significant liquidity to execute its growth and income strategies.

Partial Sale of Hangingstone

Post quarter-end, i3 Energy Closed a disposition encompassing most of its position in the Company's non-core, non-operated, shallow dry gas focussed Northern Alberta Hangingstone asset, for realized proceeds of USD 0.3 million. The sub-economic asset produced net 115 boepd for the month of February 2024 and is forecast to return negative cash flows for the 12-month period of March 2024 to February 2025, based on strip pricing. The sale of these non-core assets is highly accretive to the Company's Asset Retirement Obligations ("ARO") standing, further reducing the Company's total ARO by USD 1.2 million.    

Outlook

Following the Company's recent USD 24.8 million partial sale of its royalty assets, the elimination of all bank indebtedness and the establishment of a USD 55.6 million reserve-based credit facility, i3 is well positioned to execute its USD 50.9 million 2024 capital programme. The programme will be fully funded from existing Company resources and is designed to balance growth, financial discipline, and a sustainable long term-dividend through a predictable development-focused programme, all while positioning the Company to commence its Simonette Montney pad development drilling in Q1 2025.

The Company has an ongoing campaign of scouting, surveying and acquiring key surface locations to ensure a large inventory of drillable oil and gas locations, allowing it to pivot operationally to respond to commodity price movements and operational risks, as they occur.

The capital programme will be focused on the second half of the year, with 85% of the capital deployed over the balance of 2024. As such, the 2024 programme anticipates drilling operations will commence in late Q2, with continuous operations through to year-end. Should it be the case that the forward strip forecast for commodity prices deviates from the Company's budgeted projections, the Company is well positioned to both reallocate its drilling locations to optimize economic returns or capitalize on strategic accretive acquisitions as they are identified.

The Company is extremely pleased with recent objectives completed and is excited to have realized increased liquidity on its balance sheet which, combined with stable cash flows, can be used to support both its organic and inorganic initiatives during the remainder of 2024.

The Company is pleased to present a snapshot of our Q1 2024 financial results below. i3's unaudited condensed interim financial statements for the three months ended 31 March 2024 and related Management's Discussion and Analysis ("MD&A") are available on i3 Energy's website at https://i3.energy/ and filed on SEDAR+.

Financial Statements

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Cash Flow

NoTE 1: Alternate performance measures

The Group uses Alternate Performance Measures ("APMs"), commonly referred to as non-IFRS measures, when assessing and discussing the Group's financial performance and financial position. APMs are not defined under IFRS and are not considered to be a substitute for or superior to IFRS measures. Other companies may not calculate similarly defined or described measures, and therefore their comparability may be limited. The Group continually monitors the selection and definitions of its APMs, which may change in future reporting periods. All USD figures were derived from the Group's GBP figures, which is the Group's IFRS presentation currency, and may differ from IFRS figures prepared using USD as their presentation currency.

EBITDA and Adjusted EBITDA

EBITDA is defined as earnings before depreciation and depletion, financial costs, and tax. Adjusted EBITDA is defined as EBITDA before gain on bargain purchase and acquisition costs. Management believes that EBITDA provides useful information into the operating performance of the Group, is commonly used within the oil and gas sector, and assists our management and investors by increasing comparability from period to period. Adjusted EBITDA removes the gain or loss on bargain purchase and asset dispositions and the related acquisition costs which management does not consider to be representative of the underlying operations of the Group.

A reconciliation of profit as reported under IFRS to EBITDA and Adjusted EBITDA is provided below.

(i)    Amounts converted at the period-average GBP:USD exchange rates of 1.2680 and 1.2152 for the 2024 and 2023 periods, respectively.

Net operating income

Net operating income is defined as gross profit before depreciation and depletion, gains or losses on risk management contracts, and other operating income, which equals revenue from the sale of oil and gas and processing income, less production costs. Management believes that net operating income is a useful supplementary measure as it provides investors with information on operating margins before non-cash depreciation and depletion charges and gains or losses on risk management contracts. 

A reconciliation of gross profit as reported under IFRS to net operating income is provided below.

(i)    Amounts converted at the period-average GBP:USD exchange rates of 1.2680 and 1.2152 for the 2024 and 2023 periods, respectively.

Acquisitions & Capex

Acquisitions & Capex is defined as cash expenditures on acquisitions, PP&E, and E&E. Management believes that Acquisition & Capex is a useful supplementary measure as it provides investors with information on cash capital investment during the period.

A reconciliation of the various line items per the statement of cash flow to Acquisitions & Capex is provided below.

(i)     Amounts converted at the period-average GBP:USD exchange rates of 1.2680 and 1.2152 for the 2024 and 2023 periods, respectively.

Free cash flow (FCF)

FCF is defined as cash from / (used in) operating activities less cash capital expenditures on PP&E and E&E. Management believes that FCF provides useful information to management and investors about the Group's ability to pay dividends.

A reconciliation of cash from / (used in) operating activities to FCF is provided below.

(i)     Amounts converted at the period-average GBP:USD exchange rates of 1.2680 and 1.2152 for the 2024 and 2023 periods, respectively.

Net debt

Net debt is defined as borrowings and leases and trade and other payables, less cash and cash equivalents and trade and other receivables. This definition was expanded in 2023 to include other non-current liabilities which is a new account balance that arose during the year. Management believes that net debt is a meaningful measure to monitor the liquidity position of the Group.

A reconciliation of the various line items per the statement of financial position to net debt is provided below.

(ii)   Amounts converted at the period-end GBP:USD exchange rates of 1.2632 and 1.2747 for the 2024 and 2023 periods, respectively.

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 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:

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 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 contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

Forward-Looking Statements

This press release offers our assessment of i3's future plans and operations as at the time of dissemination and contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "should", "plan", "intend", "believe" and similar expressions (including the negatives thereof) are intended to identify forward looking information or statements.

The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: those relating to results of operations and financial condition; general economic conditions; industry conditions; changes in regulatory and taxation regimes; volatility of commodity prices; escalation of operating and capital costs; currency fluctuations; the availability of services; imprecision of reserve estimates; geological, technical, drilling and processing problems; environmental risks; weather; the lack of availability of qualified personnel or management; stock market volatility; the ability to access sufficient capital from internal and external sources; and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel. Risks are described in more detail in our Financial Review, which is available on www.i3.energy and on www.sedarplus.ca. Forward-looking statements are provided to allow investors to have a greater understanding of our business.

You are cautioned that the assumptions used in the preparation of such information and statements, including, among other things: future oil and natural gas prices; future capital expenditure levels; future production levels; future exchange rates; the cost of developing and expanding our assets; our ability to obtain equipment in a timely manner to carry out development activities; our ability to fund future dividends; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; the availability of adequate and acceptable debt and equity financing and funds from operations to fund our planned expenditures; and our ability to add production and reserves through our development and acquisition activities, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them. The forward-looking information and statements contained in this document is expressly qualified by this cautionary statement. Our policy for updating forward-looking statements is that i3 disclaims, except as required by law, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-IFRS Financial Measures

i3 uses the following terms for measurement within this press release that do not have a standardized prescribed meaning under International Financial Reporting Standards ("IFRS") and these measurements may not be comparable with the calculation of similar measurements of other entities. The Company refers to these as Non-IFRS Measures or Alternate Performance Measures ("APMs"). APMs are not defined under IFRS and are not considered to be a substitute for or superior to IFRS measures. Other companies may not calculate similarly defined or described measures, and therefore their comparability may be limited. The Company continually monitors the selection and definitions of its APMs, which may change in future reporting periods. Refer to Note 1 Alternative Performance Measures for further discussion.   

51-101 Advisory

In conformity with National Instrument 51-101, Standards for Disclosure of Oil and Gas Activities ("NI 51-101"), natural gas volumes have been converted to barrels of oil equivalent ("boe") using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil. In certain circumstances, natural gas liquid volumes have been converted to a thousand cubic feet equivalent ("mcfe") on the basis of one barrel of natural gas liquids to six thousand cubic feet of gas. Boes and mcfes may be misleading, particularly if used in isolation. A conversion ratio of one barrel to six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio on a 6:1 basis may be misleading as an indication of value.