i3 Energy quadruples revenues, doubles profit in H1

i3 Energy (I3E Follow | I3E), a UK and Canada focused oil producer, announced this morning unaudited results for the 6 months to 30 June 2022 (H1 2022).

Financial performance

i3 Energy recorded £101.6m of revenues in H1, an almost 4x increase year-on-year from £26.5m in H1 2021. Net profit was £14.7m, more than double last year's £7m. Net operating income was £68.8m, compared to £12.5m a year ago, and cash flow from operations was £48.6m compared to £8m in H1 2021.

i3 announced total dividends of £6.853m or £0.60p/share in H1, equating to a yield of 4.5% for the 6 months, based on i3's closing price on 4 January 2022.

In February, i3 announced it would move to a monthly dividend, and in May 2022 increased its dividend by 25% to £14.784m or 1.3125p/share, equating to a 9.8% yield based on the company's closing price on 4 January 2022.

Between July and September, i3 announced monthly dividends totalling £5.1m, bringing the year-to-date yield to 7.7% based on the company's closing price on 4 January 2022.

Operational highlights

Average production increased 107% year-on-year to 18,950 boepd while exiting H1 above 20,000 boepd. The company is maintaining the upwards trajectory, presently outputting 21,600 boepd.

i3 said its production pace offset expected natural declines through "excellent operations management, targeted maintenance capital allocation, and the initial deployment of i3's ongoing 2022 capital programme". i3 said it remains on track to deliver peak 2022 production of 24,000 boepd.

i3 Energy's Canadian capital budget increased by US$50m above the previously announced US$47m 2022 programme, to a total of US$97m, as the company continues to develop its core Glauconite and Cardium fairways and expand on its Montney and Clearwater programmes. i3 increased its Clearwater position by c. 20% through the acquisition of 15 net sections (38.5m km2).

i3 Energy drilled 20 gross wells (11.7 net) in H1. Production associated with the majority of its Q2  2022 capital programme is now in the initial clean-up phase or being connected to infrastructure, the company said.

Farm-in agreement with Europa Oil and Gas

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 upcoming appraisal well, up to a total capped cost of £15m.

Following the Serenity farm-out, i3 retains a 75% working interest in Block 13/23c North (P.2358) and a 100% working interest in Block 13/23c South (P.2358), which contains the Minos High Prospect and Liberator oil discovery.

Majid Shafiq, CEO, commented on the results:

"We are very pleased to announce a solid set of results for the first half of the year. These reflect the hard work of our staff in Canada and the UK in successfully progressing our business plan on all fronts. We have made great strides in executing efficiently on our operated drilling program in Canada, with all wells drilled being on prognosis geologically and production contributions now commencing following tie-ins to infrastructure. We are also very happy to bring in a partner to the Serenity oil field in the UK and plans to drill the appraisal well are on track to spud this month. Our operations team continue to perform diligently to maintain our base production volumes, whilst operating safely with no lost time incidents being recorded."

View from Vox

i3 Energy's financial performance in H1 represents a material improvement across the board compared to H1 2021. Revenues nearly quadrupled and net profit doubled. Cash flow from operations increased 6x to £48.6m. As a result, shares in i3 Energy are up 87.27% YTD and 118% in the past 12 months.

The company's enlarged capital budget of US$97m is 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.

i3 Energy's decision to implement a monthly dividend is further testament to the stability and resilience of its production assets.

i3 also announced today its updated revenues forecast for FY22 at US$200m, driven by commodity pricing fluctuations, pricing differentials, and inflationary pressures. i3 employs a defensive risk management strategy with current hedges in place to cover 36% and 22.5% of its projected 1H22 and 1H23 production volumes.

The aforementioned US$50m capital budget increase to US$97m is a direct result of i3's robust operational performance and forecast strength in commodity prices, allowing the company to continue active development and expansion of its Canadian assets. The US$97m budget is fully funded through i3's existing cash balance and should materially improve NOI while preserving i3's balance sheet.

The expanded budget also includes capital allocated to fund "highly economic, non-operated drilling opportunities as they arise, and projects which enhance cashflow and increase netbacks such as well reactivations, debottlenecking, consolidation, and tariff-generating third-party tie-ins to i3-operated facilities."

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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