i3 Energy

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Can i3 Energy become the North Sea’s leading production company?

The last three months have seen i3 Energy close its £22m junior facility and spud the first well on its prospective Liberator oil discovery – two critical developments for the North Sea-focused oil and gas business. Here, we look at whether the firm’s current 49.5p share price could represent a good entry point following a decline from 120p over the past year.

According to its website, I3 Energy is aiming to become the leading North Sea production company with an international reach. The firm, which listed in August 2017, plans to do this by targeting production and development assets that require a new injection of capital or energy to ‘cross the finish line’. It is led by CEO Majid Shafiq, an industry veteran with 30 years of technical and investment banking experience focused on the global E&P sector, and non-exec chair David Knox – the former CEO of Santos.

I3’s current focus is the development of Liberator, its 100pc-owned and operated North Sea oil discovery immediately adjacent to the Blake field and 2km from Blake’s producing drill centre. Liberator is thought to contain mid-case discovered, contingent, and prospective resources of 314MMbbls oil initially in place – 146MMbbls of this is currently in the recoverable category. 

Liberator is accompanied by another nearby prospect called Serenity prospect, which is also owned and operated by i3. This earlier-stage opportunity is estimated to contain 197MMbbls of oil initial in place. With the successful appraisal and development of both Liberator and Serenity, i3 believes that it could potentially produce more than 200MMbbls from its current licences.

First steps

To achieve this potential, i3 has begun by laying out a clear, phased multi-year field development plan for Liberator and Serenity. Firstly, the business has contracted a drilling rig from Borgland Dolphin to complete a 94-day, three well drilling programme.

This work includes the LPt-02 pilot well, which spudded earlier in August and will optimise the placement of the first Liberator Phase I production well, LP-02, planned to be drilled in 2020. The programme is also expected to include the LA-03 appraisal well, which has a 70pc commercial chance of success (COS) and is expected to convert Liberator West’s resources partially into reserves. Finally, i3 plans to drill the SA-01 well into the Serenity prospect. This has a 72pc geological CoS that i3 hopes to prove a material extension of the neighbouring Tain discovery.

Once this has completed, i3 intends to follow-up with further development drilling – two wells all-in-all including LP-02 – along with pipeline installation. The firm’s critical goal is then to secure the development of first oil from Liberator at a rate of c.20,000bopd by summer next year. It is also important to note that i3 estimates that its 2019 drilling campaign will cost c.$41m with additional capex to 2020 first oil of c.$90m, inclusive of considerable contingency.

This year has so far seen i3 take significant steps towards drilling both Liberator and Serenity. Firstly, the firm ensured it was funded for its three-well programme by successfully closing a £22m junior facility in February and completing one £2m share placing and another £16m raise in March. 

In its final results for the year ended 31 December, released at the end of May, the business said one of its goals for the remainder of 2019 was to ‘secure sufficient funding to conduct [its] 2019 drilling and 2020 development initiatives.]’ One assumes that its efforts to secure funding fully to first oil are ongoing.

Meanwhile, the business has also posted numerous operational developments, progressing its joint venture farmout process, contracting Gardline to conduct a site survey, and hiring a drilling rig for its programme. As mentioned, that programme has now begun, with LPt-02 spudding earlier this month.

Conclusion

After a long wait, the wheels now appear to be in motion for i3 – its drilling programme is underway, and all the contracts appear to have been secured to reach first oil from Liberator. Obviously, this could just be the beginning for the assets as well; from first oil, the company expects to generate much more upside from the asset.

However, the shine of recent progress will be tarnished for long-term shareholders who have seen the i3’s share price fall heavily over the last year from 120p to its current 49.5p. The main catalysts appear to be the firm’s financing announcements (presumably with dilution being a concern) and – most notably – the delay of potential joint venture discussions towards the end of last year.

With this in mind, the company current valuation – which is up considerably on lows hit in June – could represent a decent entry point for new investors. Assuming i3 can get funding for all of its requirements between now and first oil, the future opportunity looks bright, and the company’s management team appears to boast the strength to see it through.

i3 Energy – Proactive’s Oil Capital Conference June 2019

The author was remunerated but does not hold shares in the company

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Categories: Bulletin