i3e - i3 Energy
Should you say Eye Eye (Eye) to i3?
i3 energy makes me think of Tri-Klops. If you’re of a certain age then Tri-Klops is a blast from the past - and is an interdimensional bounty hunter and swordsman who can see in any direction. And if you’re not then HeMan is a cornerstone of 80s culture - so go culture yourself at this link
Meanwhile oil get back to today’s investment analysis.
i3 Energy plc
is an oil and gas company with assets and operations in the Western Canadian Sedimentary Basin and the United Kingdom North Sea (Serenity and Liberator/Minos High). Its Canadian production asset base consists of approximately over 850 net conventional oil, natural gas and natural gas liquids production wells. Its key operating areas include Clearwater, central Alberta, Wapiti/Elmworth and Simonette.
i3 Energy has had a challenging year to date. Canadian wildfires. Downtime. A lower oil price and outlook. Last but not least a 50% dividend cut, along with a move from monthly to quarterly dividends to preserve cash. Cautious and with hindsight, possibly too cautious.
Its share price has been given a royal kicking.
Yet, it has continued its organic growth and averaged 21,000 boepd in 2023 (vs 20,317 in 2022). That’s after slowing down its investment budget.
Meanwhile oil today is up nearly 6% year on year.
And as every Stark knows…… yep….. Winter is coming. That’s positive for Natural Gas and NGLs.
i3e forecast FY23 EBITDA of US$80m-85m which is nearly double its capital budget (US$25m) and dividend payout (US$19m).
At the current share price of 13.6p/shr, i3 offers a dividend yield of ~7.5% which is well covered by earnings.
Some debt but this is being paid down and will be zero in 2 years at the current rate of paying down.
Tennyson suggest a risked valuation of 37p (so nearly a 3 bagger) however it’s worth pointing out that’s based on a future $60 barrel price. This grows to 53p a share at $90 oil. WH Ireland point to a much lower 25.6p but that’s because they believe the North Sea is worth zero.
Where’s the risk?
A general collapse of oil price
A wild fire wipe out in Canada
Labour Government in 2024 - no new North Sea development
Where’s the upside?
Tain-ted love? Next door to Serenity (a 6-7mmbbls worth $102m) is Tain a (10 mmbbls worth $140m) field. Tain would add about 10p a share (unrisked) if a deal could be done - and provide improved economics for Serenity.
Liberator West and Minos High these are monster 217mmbbls and “worth” 112p unrisked. But would require a big chunk of change to drill and invest into.
i3 Energy holds 537 or 940 net undrilled well locations in Canada depending on which broker you read. Assuming its 537 that’s a lot of growth and projecting based on the historical average of 300BOEPD each, if you drilled them all at once that’s 7.5X current production! Taking account of the 17% depletion rate, it probably means a gentler 5% annual growth, but that’s 5% growth for the next 38 years without any further M&A. Once that fact sinks in, your next thought should be where is that in the price? Or in the WH Ireland or Tennyson valuation? The fact is they speak to it but don’t put a penny of value on it. Hidden value.
M&A - clearly the business have skill in acquiring assets. I rate the management team.
Conclusion - judging by the volume spike in July 2023 many investors rushed for the exit and few have re-entered. That leaves i3e on a compelling valuation with various areas of upside.
Even without those “areas of upside” I3e could actually afford to re-double the dividend, but see more compelling opportunity via growth, so as Majid says it’s just a question of capital allocation. I, for one, am happy to be led by their thinking. They’re proven their capability to make smart choices.
This is not advice. This writing helps me contemplate my holdings or shares I’m contemplating holding. Happy for you to read my thinking and good fortune in your own investment decisions.
Oak.