i3 Energy plc, an independent oil and gas company with assets and operations in the UK and Canada, is pleased to provide the following Q4 operational and financial update.
· Q4 2021 average production of approximately 18,229 barrels of oil equivalent per day ("boepd"), a 38% increase from the previous quarter, with current production of approximately 19,000 boepd
· Q4 2021 revenues of US$57.6mm (+64% versus Q3 2021), generating US$31.5mm of NOI (+75% versus Q3 2021)
· Full-year 2021 net operating income ("NOI" = revenue minus royalties, opex, transportation and processing) is now forecast to be approximately $66mm(1,2), and $150.3mm for 2022 assuming implementation of the Company's approved and ongoing 2022 capital programme
· Dividend of £2.25mm paid in October, bringing total 2021 distributions to £3.41mm
· Concluded multiple non-core divestitures, realizing a reduction in end-of-life obligations while decreasing i3's average opex per producing boe
· Four (1.5 net) non-operated wells were brought onto production and 16 (14 net) recompletions/reactivations were successfully completed to yield aggregate net IP30(3) rates of approximately 600 boepd (65% oil and Natural Gas Liquids ("NGLs"))
Majid Shafiq, CEO of i3 Energy plc, commented:
"We are very pleased with the progress we've made with the Cenovus assets since acquisition in August 2021. We spent the following months on an extensive integration process to optimise the portfolio and generate a development programme to organically grow our production and income base. The execution of these plans during Q3 and Q4 2021 allowed us to replace declines, grow production and enhance margins in an improving commodity price environment. I am pleased to report that this has resulted in significantly improved income projections for the coming year.
We entered 2022 with a significant working capital surplus and a disciplined hedging program, covering approximately 36% of forecasted 2022 production, ensuring the fully funded 2022 programme and a monthly dividend commitment. We are also very excited to have commenced our high impact 2022 drilling programme in January and initial results are very promising; we will update the market as we commence production from these new wells."
Production in Q4 2021 included the newly integrated Central Alberta assets acquired from Cenovus Energy (which closed in August 2021) and averaged 18,229 boepd (compared to 13,239 boepd in Q3, 9,018 boepd in Q2 and 9,173 boepd in Q1 2021). Q4's production estimate was comprised of 58 million standard cubic feet of gas per day ("mmscfd"), 5,210 barrels per day ("bbl/d") of NGLs, 3,015 bbl/d of oil and 331 boepd of gross overriding royalty interest production. Q4 2021 production was impacted by the closing of multiple non-core disposals and December's severe cold weather.
With improved winter conditions and the positive impact of Q4's non-operated drilling, current aggregate corporate production averaged approximately 19,055 boepd, for the seven-day period ending 12 February 2022, comprised of approximately 56.6 mmscfd, 5,940 bbl/d of NGLs, 3,365 bbl/d of oil and an estimated 320 boepd of gross overriding royalty interest production. The continued performance of i3's predictable, low-decline asset base positions the Company to meet or exceed management's production forecasts.
i3's 2022 forecasted NOI of $150.3mm is 128% higher than i3's 2021 full-year estimated NOI of $66mm(2), and assumes the natural decline of the Company's currently producing well stock and the implementation of its approved 2022 capital programme.
Acquisitions and Divestments
Since the Company's initial entry into Canada and the Western Canadian Sedimentary Basin in March 2020, i3 has successfully closed four highly accretive, synergistic acquisitions and a series of minor strategic tuck-in purchases and farm-ins. While each of these transactions have been focused on the expansion of i3's established core areas, the Company has also commenced the process of rationalizing certain non-core assets which are deemed tertiary to i3's targeted growth areas.
To increase its focus on its high working interest assets in Central Alberta, Wapiti / Elmworth, Simonette and the Clearwater play, during Q4 2021 the Company executed multiple non-core disposals with the purpose of reducing its per boe operating costs, decreasing end-of-life obligations, and releasing $945k of decommissioning-related bonds to i3's balance sheet (previously held with provincial oil and gas authorities to offset potential end-of-life liabilities). On a combined basis, these disposals reduced i3's Q4 2021 production by approximately 130 boepd from a combined 213 gross (184.5 net) wells (consisting of 36 gross (34.3 net) active and 177 gross (150.2 net) inactive wells) and reduced the Company's overall undiscounted asset retirement obligation by approximately $9.8mm. The proceeds from these and future disposals will be utilized to accelerate growth from i3's extensive inventory of highly-economic development locations as the Company remains focused on delivering total shareholder returns.
During Q4 the Company brought on stream four gross (1.5 net) highly economic non-operated horizontal wells within its Central Alberta and Wapiti core areas, at an average 37% working interest. The programme consisted of one well targeting the liquids-rich Ellerslie formation, one Belly River oil producer and two Dunvegan oil wells, which in aggregate contributed net IP30 rates of approximately 600 boepd (65% oil and NGLs) and are collectively meeting or exceeding i3's forecasted type curves. This non-operated programme is expected to pay out in approximately one year and serve to further bolster i3's year-end reserves and add newly identified offsetting development locations.
The Company continues to systematically identify and develop its robust inventory of low-cost, high-return recompletion and reactivation opportunities, which produce top-tier returns and assist in further reducing i3's corporate operating costs on a boe basis through the utilization of the Company's extensive network of owned and operated infrastructure while optimizing field efficiencies with nominal capital. 16 gross (14 net) oil-focused recompletions and reactivations were brought on production in Q4, resulting in net IP30 rates of approximately 240 boepd (65% oil and NGLs). Cumulatively, the operations were completed on budget and are anticipated to pay out in substantially less than one year.
2022 Capital Programme
On 20 December 2021, the Company announced a fully funded 2022 capital budget of $47mm to fund a 12.6 net well operated drilling programme, non-operated drilling, well reactivations, debottlenecking, consolidation, and third-party tariff generating projects. This programme is expected to deliver average production in 2022 above 20,000 boepd, with peaks reaching 21,000 boepd.
The 2022 drilling programme commenced in January with operated and non-operated wells currently being drilled in i3's Central Alberta, Simonette and Marten Hills acreage.
i3's Smoky 13-13-061-01W6 Lower Montney horizontal well at Simonette was spud on 4 February 2022. The well is currently drilling at a measured depth of 5,175m in this proven prolific oil-bearing interval. The well is approximately 975m from reaching a total depth (TD) of 6,150m, with the lateral section encountering high quality reservoir and exhibiting a consistently strong gas response throughout. The 13-13-061-01W6 well will reach TD within the week and is slated for completion once road bans have been lifted.
At Open Creek, i3 completed drilling operations on two gross (two net) Glauconitic horizontal wells. The 103/14-24-042-05W5 well, spud 10 January 2022 and rig released 27 January 2022, reached a total depth of 5,334m with a lateral of 2,902m. The rig immediately skidded over to drill the adjacent 102/13-24-042-05W5 well, which was spud on 28 January 2022 and rig released on 17 February 2022. The well reached a total depth of 5,810m measured depth with a lateral of 3,060m. Both wells encountered excellent quality Glauconitic reservoir rock throughout, ranging from 6 - 9% porosity with strong gas responses throughout the entire lateral lengths. Completion of the two gross (two net) Glauconitic wells will occur sequentially, and is anticipated to commence on 26 February 2022, with production anticipated to commence in late March 2022.
At Marten Hills, i3 has completed drilling the first of four gross (two net), eight-leg multilaterals in the Clearwater formation. The 02-12-075-26W5 well spud on 2 February 2022 and rig released 15 February 2022. The eight-leg multilateral had a total lateral length of approximately 11,000m, encountering excellent, oil-stained reservoir with up to 24% porosity. The well is currently on production and cleaning-up. The second of four gross (two net) planned multilaterals, the 13-13-075-26W5 well, spud on 15 February 2022 with operations currently ongoing. After reaching TD, the 13-13-075-26W5 well will be placed on production with the rig shifting to drill the 05-13-075-26W5 and 04-13-075-26W5 multilaterals, completing the initial earning phase of the Company's Clearwater farm-in.
Early results from ongoing operations position i3 to achieve or exceed initial management expectations. With continued success, the Company may expand its 2022 drilling programme to take advantage of operational momentum and the current favourable commodity price environment, which i3 is well-funded to do.
Serenity Appraisal Drilling Farmout
Discussions continue with potential farm-in partners for the Serenity field appraisal drilling programme. Terms have been agreed with one counterparty and we await confirmation of funding before finalising and executing documentation. The market will be updated if and when agreements are reached.
Environment, Social and Governance ("ESG")
i3 has commenced a strategic review of its ESG objectives and targets. This will lead to the publication of the Company's maiden sustainability report in Q1 of 2022. In the meantime, the Company continues to pursue carbon emission reduction initiatives to meet and exceed current regulatory requirements. As part of this programme, i3 has replaced 389 pneumatic controllers, which previously used natural gas as the fluid, with low-bleed controllers or instrument air. The Company is an active participant in the Government of Alberta's Site Rehabilitation Program ("SRP") and, through its involvement in the SRP, has received grants to date exceeding $1.8mm. Such subsidy has been prudently dedicated to accelerating the closure of inactive wells, pipelines and facilities, deploying $0.4mm to these initiatives since i3's enrolment. The Company is actively advancing a programme to employ the remaining $1.4mm which will further reduce its overall future end-of-life obligations. In Q4 2021, i3 abandoned 3 wells and 2 pipelines, bringing the total abandonments since 2020 to 30 wells and 6 pipelines. The Company has also obtained $0.2mm of funding from the Government of Alberta's Baseline and Reduction Opportunity Assessment Program ("BROA") which has been utilised to gather data which will assist i3 in developing near-term methane emission reduction initiatives.
In Q4 2021, i3 paid a dividend of £2.25mm, bringing total 2021 distributions to £3.41mm. On 20 December 2021, i3 committed to pay a minimum dividend of £11.827mm during the course of 2022, and on 3 February 2022 announced that this sum would be paid in ten equal increments on a monthly schedule with its first monthly dividend to be paid on 11 March 2002.
(1) Unless otherwise denoted, all figures are referenced in USD ($) and assume a foreign exchange rate of 1.27 CAD:USD.
(2) Unaudited management estimates.
(3) IP30: the average daily production of a well over its initial 30-day production period.
(4) Production based on accounting month recognition (sales volumes) versus actual volumes produced during the period.