I3 Energy PLC (LON: I3E)

I3 Energy PLC is an FTSE AIM All-Share Index listed independent oil and gas development company. It operates on the North Sea with operations in the United Kingdom. The Liberator oil field is the Company's core asset. It is also engaged with the supply chain to deliver equipment and services.

Recent trend of dividend payments 

The Company declared an interim dividend of GBX 0.20 per share to be paid on 29 October 2021 (Ex-Dividend: 7 October 2021). Recently, I3E paid a special dividend of GBX 0.16 per share in August 2021, including that the Company will pay a total dividend of GBX 0.36 per share. The Company has implemented a policy to pay half-yearly distributions of up to 30% of FCF as a dividend.

Outlook for Oil and Gas

Multiyear high in Natural Gas, record fuel shortage across the UK, low supply across China and Europe resulted from the global energy shortage. Post the devastation caused by the Covid-19. The global energy producers are yet to recover back to the pre-pandemic levels. At the same time, the low interest rate, bond buying and government spending on growth and infrastructure have boosted the demand for fossil fuels quicker than anticipated. Nature is also playing its role in denting the supply with hurricanes across the Gulf of Mexico affecting the productions.

In conclusion, we can say that the demand for Oil and Natural Gas is likely to continue even further, taking the commodity prices to even higher levels.

Growth Prospects

• Solid Business Model: I3E has a solid business model where it hunts high-quality assets where cycle, situation, or geography offer disparate opportunities. It purchases assets at the final level of development from companies where required "finish-line" financing, market conditions, or cost of the capital provide opportunities with a sizable margin of safety. The Company also actively participates in production and development partnerships to smooth operations, mitigate delivery risk, and preserve project value.
• Project Pipeline: The Company produces over 9,000 boepd and 53 MMboe 2P in the WCSB that acts as a base for future growth. In H1FY21, the Company produced 4.2% more compared to H1FY20. The acquisitions, operations and planned drilling are estimated to increase NTM NOI and production by 31% and 16%, respectively, in the near term.
• Acquisitions Yielding Results: The acquisitions of Simonette & Wapiti is likely to boost the production by 700+ boepd. The Company strategically captures PDP reserves through M&A in depressed markets while drilling out low-risk, low-cost on-property PUDs & 2Ps, which no longer remains feasible for the owner to operate, giving a lucrative opportunity for the Company to grow shareholders value at a minimal cost.
  

Key Risks 

• Incorrect Evaluations: Incorrect interpretation of subsurface data may lead to inaccurate reserves and production forecasts which may hurt the financial performance of the Group.
• Regulatory Risk: The Group operates in multiple jurisdictions which have their own regulatory frameworks. Any non-compliance could lead to loss of title to its assets, financial damage, or reputational damage.
• Integration Risk: Failure to properly evaluate the acquired Company could result in losses or additional expenses.
  

Now we will analyse some key fundamental and shareholders statistics of I3 Energy PLC.

Financial and Operational Highlights (for the six months ended 30 June 2021 as of 27 September 2021)

(Source: LSE Website)

• Record Surge in Revenue: The Company doubled its revenue from £12.92 million in FY20 to £26.50 million in H1FY21, driven by high volume and Company's acquisition approach.
• Robust Production: I3's production in H1FY21 averaged 9,095 boepd. The production was comprised of 58% natural gas and 42% oil and natural gas liquids.
• Impressive Acquisition Pipeline: The Company acquired c.230 boepd of Wapiti production, operated six reactivations to increase production to 471 boepd, considerably exceeding the expected 310 boepd targets. Moreover, I3E also acquired on stream a gas in Northeast British Columbia at an average rate of 650 boepd, which exceeded expectations by 30%. They also purchased circa 8,400 boepd (51% oil and NGLs) of low decline production from Cenovus Energy Inc.
• Hedging Program: The Company is starting a hedging program, resulting in approximately 50% of corporate volumes being hedged on a rolling 12-month forward-looking basis.

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 06 October 2021, at 11:47 AM GMT+1, I3E’s shares were trading at GBX 13.48, up by around 0.60% against the previous day closing price. Stock 52-week High and Low were GBX 16.80 and GBX 3.62, respectively.

On a daily chart, the MACD line remained above the signal line. Hence, there could be an uptick in the stock price in the near term. Moreover, the 20-days exponential moving average of GBX 12.91 supports an upside momentum in the stock price.

Over the last one year, I3E’s stock price has delivered a positive return of ~245.64%, and it has outperformed the FTSE AIM All-Share index (benchmark index) with a return of about 25.24% and FTSE All-Share Oil, Gas & Coal index (benchmark sector) with a return of around 84.97%.

Valuation Methodology: EV/Sales (NTM) (Illustrative)

Business Outlook

I3E delivered a decent performance in H1 FY21, as it successfully maintained the production level above an averaged 9,095 boepd. The Company's unique business model not only help it improve production but also create value for its shareholders with minimal risk. Moreover, the higher Oil and Gas prices are likely to boost the margins and profitability of the Company going forward. I3E will focus on the following areas in FY21:

• Grow Canadian business through operational excellence, capital deployment and strategic upsizing in core areas.
• Farmout of its UK licences to conduct further appraisal drilling at Serenity and Liberator.
• Dividend distribution target of up to 30% of free cash flow.
• Continue to develop ESG strategy.

Considering the high demand and prices of Oil and Gas, its increased production volume, its continued investments strategy with low risk, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on I3 Energy Plc at the current price of GBX 13.48 (as on 06 October 2021 at 11:47 AM GMT+1), with lower-double digit upside potential based on 2.71x EV/NTM Sales (approx.) on FY21E sales (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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