WTI (Apr) $76.49 -$2.12, Brent (Apr) $81.62 -$2.05, Diff -$5.13 +7c
USNG (Mar) $1.60 -13c, UKNG (Mar) 57.25p -0.25p, TTF (Mar) €23.05 +€0.5

Oil price

Oil fell last week which can be mainly laid at the door of international bankers who have been pouring cold water on rate cuts to be expected this year. The rig count on Friday showed a gain of 5 units overall to 626 and in oil was up 6 units at 503.

Jersey Oil & Gas/Serica Energy

Jersey Oil & Gas has announced that, further to the press release issued on 23 November 2023, the Company has now completed its farm-out of a 30% interest in the Greater Buchan Area  licences to Serica Energy (UK) Limited and received the associated milestone cash payment of $6.8 million. 

The GBA comprises licences P2498 (‘Buchan’) and P2170 (‘Verbier’), with the joint venture partnership now consisting of NEO Energy (50% interest, Operator), Serica Energy (30% interest) and JOG (20% interest). 

In aggregate the GBA farm-out transactions provide JOG with up to $38 million in cash payments ($18 million of which has now been received) and a full carry on both pre-sanction costs and capital expenditure in the approved Buchan Field Development Plan.

For JOG this is another amazing milestone to have passed, apart from the legal certainty of closing, it puts JOG in a very strong financial position so that now they and their exceptional partners can take this project on to become one of the biggest, and low carbon developments in the UKCS.

For years I have been impressed by the way that JOG have moved forward and now that they have two high quality partners with Serica now formally on board (see comments below) they can kick on with certainty. My Price Target has been £10 per share for a long time now and at the current share price exhibits a material discount to the core NAV. JOG remains an outstanding investment in the sector.

Serica has announced the completion of the acquisition by its wholly owned subsidiary, Serica Energy (UK) Limited, of 30% non-operated interests in the P2498 and P2170 licences from Jersey Oil & Gas. The partners in the GBA are Serica Energy (UK) Limited (30%), NEO Energy (50% and operator) and JOG (20%).

The Transaction provides Serica with the option of participating in the re-development of the Buchan field (formally re-named “Buchan Horst”) and other potential projects in the GBA, such as the development of the J2 and Verbier discoveries. Subject to project sanction and regulatory approval, the target for first production from Buchan is Q4 2026.

On completion, Serica made a cash payment to JOG of US$7.5 million being US$6.8 million adjusted to reflect an economic date of 1 April 2023 as previously reported. The remainder of the potential consideration is in the form of a Buchan development cost carry and contingent amounts linked to certain future events as also reported in the RNS on 23 November 2023.

Mitch Flegg, Chief Executive of Serica, commented:
“We are pleased to have completed this transaction which creates the possibility of adding a third production hub to Serica’s North Sea portfolio. As a potential domestic source of oil and gas with a low level of production emissions, a provider of quality jobs for UK workers and a generator of much needed future tax revenues, Buchan is the sort of project the UK needs as part of the energy transition.”

Another great addition to the portfolio for Serica as completion of the farm-in to the GBA is announced. The GBA will define the future, low carbon and emission leverls whilst being a big provider for the country, its oil workers and fiscal income.  

Diversified Energy Company

Diversified Energy Company announces that further to the announcement of 15 February 2024, the Company has today published a circular (the “Circular”) in connection with the Return of Capital, details of which are set out below.

The Circular will today be posted to the shareholders and is also available on the Company website, ir.div.energy. A copy of the Circular will also be filed and available for inspection at the National Storage Mechanism https://data.fca.org.uk/#/nsm/nationalstoragemechanism shortly.

Following the announcement on 15 November 2023 of the interim dividend for the three-month period ended 30 September 2023 (the “Third Quarter Dividend”), the Company is offering shareholders with an opportunity to elect how they will receive the return of capital of approximately US$42 million, in aggregate (the “Return of Capital”). The Company will return the same amount of the previously declared Third Quarter Dividend, but shareholders will be offered the optionality as to how they receive that payment.

The Directors believe that the current trading price of the shares does not reflect the quality of the Company’s assets nor the significant opportunities for the Company’s long-term strategy. The Directors therefore consider that the repurchase of shares is a prudent use of capital for the Company and is in the best interests of the shareholders.

Following consultation with shareholders and after careful consideration of the feedback received, the Company is offering shareholders optionality as to the Return of Capital. Specifically, Qualifying Shareholders (as defined below) can elect to either:

• Do nothing, in which case they will remain unimpacted and will be paid their Third Quarter Dividend on 28 March 2024; or
• Elect to waive some or all of their Entitlement (as defined below) in order to have their Shares (as defined below) purchased in a tender offer for cash (the “Tender Offer”) at the Tender Price (which will include a premium).

The Company will fund the Tender Offer using funds available from the Company’s cash and cash equivalents.  

This Return of Capital allows shareholders to be paid the same total amount of the previously declared Third Quarter Dividend while providing optionality for shareholders to receive that payment in the form of a cash dividend payment or a cash payment as consideration for the sale of their Shares in the Tender Offer.  The aggregate amount of funds the Company will utilise in relation to the Return of Capital will be approximately US$42 million, which is the approximate amount of the Third Quarter Dividend announced on 15 November 2023.

Details of the Return of Capital

On 15 November 2023, Diversified declared an interim dividend of US$0.04375 per ordinary share of £0.01 each in respect of the three-month period ended 30 September 2023, which was adjusted to US $0.875 per ordinary share of £0.20 each (the “Shares”) following the Company’s share consolidation as announced on 7 December 2023 (the “Entitlement”). The total amount of the Third Quarter Dividend is approximately US$42 million.

Qualifying Shareholders are not obliged to waive their Entitlement to the Third Quarter Dividend and tender any of their Shares if they do not wish to do so. Qualifying Shareholders who do not submit any instructions to waive some or all of their Entitlement amount in order to tender their Shares, and all non-Qualifying Shareholders, will remain unimpacted and will be paid their Entitlement to the Third Quarter Dividend on 28 March 2024; they do not need to take any action.

The purchase price to be paid by the Company in the Tender Offer will be 105% of the average market value per Share for the five business days immediately preceding 27 March 2024, being the expected date on which the Shares are to be purchased (the “Tender Price”) and will be announced by the Company via a Regulatory Information Service on the date preceding the closing date, expected to be 26 March 2024 (the “Closing Date”). The Company also expects to announce the GBP:USD exchange rate for the Third Quarter Dividend on or around 20 March 2024. As the Third Quarter Dividend has been declared in US dollars, such exchange rate will also determine the amount of the Third Quarter Dividend in pound sterling (GBP) for shareholders who wish to waive some or all of their Entitlement in order to participate in the Tender Offer. The Tender Offer is subject to certain customary conditions (including regulatory approvals, as applicable) and subject to the Tender Price being not less than £9.35. If any of the conditions to the Tender Offer are not satisfied by 10.00 a.m. (London time) on 27 March 2024, the Company reserves the right to withdraw the Tender Offer. If the Tender Offer is withdrawn, the Company shall not be obliged to effect the purchase of any tendered Shares under the Tender Offer. If the Tender Offer is withdrawn, all shareholders will be paid the same total amount of the previously declared Third Quarter Dividend in cash in full on 28 March 2024.

The Tender Offer is being made by the Company’s broker, Stifel, as principal, on the basis that all Shares that it buys under the Tender Offer will be purchased from it by the Company under its existing buy-back authority granted at the annual general meeting of the Company held on 2 May 2023. All Share purchase transactions by Stifel will be carried out through an on-market trade placed on the London Stock Exchange only. No Share repurchase transactions will be undertaken pursuant to this Tender Offer on the New York Stock Exchange. Shares purchased under the Tender Offer will be cancelled by the Company.

The Tender Offer will be subject to certain terms and conditions. Specific instructions and an explanation of the terms and the conditions of the Tender Offer are contained in the Circular and an offer to purchase in the United States filed as an exhibit to a Schedule TO the Company has filed with the U.S. Securities and Exchange Commission (the “Offer to Purchase”) and related materials that are made available to shareholders on the Company website, ir.div.energy.

The Tender Offer is only available to shareholders who are on the depositary interest register at 6.00 p.m. (London time) on 1 March 2024 (the “Qualifying Shareholders”). Further, shareholders with registered addresses in certain jurisdictions are not eligible for the Tender Offer. Therefore, all Qualifying Shareholders who wish to participate in the Tender Offer should ensure that their interest in the Shares is capable of being settled in CREST at 6.00 p.m. (London time) on 1 March 2024.

Only Qualifying Shareholders will be entitled to waive some or all of their Entitlement in order to validly submit tenders for the purchase of Shares at the Tender Price up to the amount of their waived Entitlement. A Qualifying Shareholder will not be entitled to tender Shares in excess of their respective Entitlement. Applications made by Qualifying Shareholders in excess of their respective Entitlement will be scaled back to their Entitlement. A Qualifying Shareholder who elects to waive only some of their Entitlement in order to validly submit tenders for purchase of Shares at the Tender Price will be paid the remainder of the Entitlement to the Q323 Dividend that they have elected to not waive pursuant to their TTE instructions in CREST on 28 March 2024.

Qualifying Shareholders who have sold, or otherwise transferred, Shares that they held as at the Record Date prior to the Closing Date will only be entitled to validly tender such Shares that they still hold as at the Closing Date. Any such Qualifying Shareholder’s waived Entitlement will be calculated as the total number of Shares validly tendered by them multiplied by the Tender Price, and they will be paid the remainder of the Entitlement on 28 March 2024.

If the amount of Entitlement that has been waived does not result in an exact number of Shares at the Tender Price, such Entitlement amount will be correspondingly reduced to purchase the nearest whole number of Shares in the Tender Offer at the Tender Price and the remaining portion of such Entitlement shall be deemed to have been waived by the Qualifying Shareholder and will be retained by the Company. In all circumstances, any such amount retained by the Company shall not exceed the Tender Price per Share.

None of the Company, the Directors, Stifel, or any of their respective affiliates makes any recommendation as to whether any Shareholder should elect to waive their Entitlement to the Third Quarter Dividend in order to tender their Shares pursuant to the Tender Offer, and no one has been authorized by any of them to make such recommendation. Each Shareholder must make their own decisions as to whether to elect to waive their Entitlement in order to participate in the Tender Offer or do nothing and receive their Entitlement to the Third Quarter Dividend.

Certain Information Regarding the Tender

The Tender Offer qualifies as a “Tier II” offer in accordance with Rule 14d-1(d) under the Exchange Act and, as a result, is exempt from certain provisions of otherwise applicable U.S. statutes and rules relating to tender offers.  U.S. and English law and practice relating to tender offers are different in certain material respects.  The Company intends to rely on the Tier II exemption from Rule 14e-1(c) on prompt payment where we will follow English law and practice.

The information in this press release describing the Tender Offer is for informational purposes only and does not constitute an offer to buy or the solicitation of an offer to sell shares of the Company in the Tender Offer. The Tender Offer will only be made pursuant to the Circular, the Offer to Purchase and other related materials filed as part of the Tender Offer Statement on Schedule TO, in each case as may be amended or supplemented from time to time. Shareholders should read such Circular and Offer to Purchase and related materials carefully and in their entirety because they contain important information, including the various terms and conditions of the Tender Offer.

The Circular and the Offer to Purchase in each case containing the full terms and conditions of the Tender Offer and instructions to shareholders on how to tender their Shares should they wish to do so and is available to shareholders on the Company’s website at ir.div.energy. A copy of the Circular has been submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism shortly.

To the extent permitted by applicable law and in accordance with normal UK practice, the Company, Stifel or any of their respective affiliates may make certain purchases of, or arrangements to purchase, Shares outside the United States before and during the period in which the Tender Offer remains open for participation, including sales and purchases of Shares effected by Stifel or its affiliates acting as market maker in the Shares on the London Stock Exchange. These purchases, or other arrangements, may occur either in the open market at prevailing prices or in private transactions at negotiated prices. In order to be excepted from the requirements of Rule 14e-5 under the Exchange Act by virtue of Rule 14e-5(b)(12) thereunder, such purchases, or arrangements to purchase, must comply with applicable English law and regulation, including the Listing Rules, and the relevant provisions of the Exchange Act. Any information about such purchases will be disclosed as required in the UK and the US and, if required, will be reported via a Regulatory Information Service and will be available on the London Stock Exchange website at www.londonstockexchange.com.

Shareholders may obtain a free copy of the Tender Offer Statement on Schedule TO, the Offer to Purchase and other documents that the Company will file with the Securities and Exchange Commission from the Securities and Exchange Commission’s website at www.sec.gov once available. Shareholders are urged to carefully read all of these materials prior to making any decision with respect to the Tender Offer, and this announcement should be read in conjunction with the full text of the Circular and the Offer to Purchase once available. Following the commencement of the Tender Offer, if you have any queries relating to the waiver of your Entitlement to the Third Quarter Dividend and participation in the Tender Offer, please contact Computershare Investor Services PLC on 0370 702 0151 (or +44 (0) 370 702 0151) if calling from outside the United Kingdom). Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. The helpline is open between 8.30 a.m. – 5.30 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

Expected Timetable of Events

The dates given in this announcement are London time and are based on the Company’s current expectations and may be subject to change. Any changes to the expected timetable will be announced via a regulatory information service.

Terms used and not defined in this announcement shall have the meanings given to them in the Circular.

I have published the full details again because it is important for shareholders to see the circular and the tender offer that they have as a choice at this dividend time. Whilst the company pay out the same either way but hope to get a favourable reaction from the share price. 

i3 Energy

i3 Energy has announced the following Q4 2023 operational and financial update.

Highlights:

• 2023 annual average production of 20,711 barrels of oil equivalent per day (“boepd”), which represents record annual corporate production and is at the high end of the Company’s 2023 guidance range of 20,000 – 21,000 boepd
• Q4 2023 production averaged 20,413 boepd
• 2023 drilling programme completed, delivering 12 gross (8.0 net) wells, which met or exceeded management’s expectations and were completed on budget despite a high inflationary environment
• In Q4, four gross oil focused wells (2.54 net) were drilled in i3’s Central Alberta core area
• Full year 2023 net operating income (“NOI”)1 (unaudited) is approximated at USD 93 million, in line with guidance, with year-end 2023 Net Debt2 expected to be approximately USD 23 million (unaudited).
• Dividends of £3.083 million were declared and paid during the fourth quarter, with total dividends of £13.298 million declared and £15.338 million paid in 2023. Additionally, the Q4 2023 dividend of £3.084 million was declared and paid in early 2024.

Majid Shafiq, CEO of i3 Energy plc, commented:
“The fourth quarter of 2023 rounded off a highly successful annual capital programme for the Company, with a dozen wells drilled, and which like our 2022 programme, in aggregate exceeded pre-drill expectations and was executed safely and in line with budget. We are very pleased that this programme, combined with our robust, low decline, asset base and a razor-sharp focus on operational efficiency, delivered very strong financial performance, despite a challenging commodity price environment and ensured that the company met its production and net operating income guidance for the year. This is a testament to the quality of our portfolio and the skill, expertise and dedication of our staff. Our strong production and financial performance supported our capital programme, debt re-payments, and dividend payments to shareholders of over £15 million throughout the year, and our extensive drilling inventory provides multiple options to maximise return on capital deployment. As we enter 2024 with continued weakness in commodity price forecasts, in particular for North American gas, our business strategy remains flexible between high rate of return organic drilling and inorganic growth opportunities. The Company is progressing several initiatives which will be incorporated into an optimised 2024 drilling and capital programme, and we look forward to updating the market on this during the course of March.”

i3 Energy delivered average production of 20,711 Boepd which beat the guidance of 20-21 Boepd after 12 wells were drilled which exceeded pre-drill estimates. No guidance yet for this year but one should assume that might come in March. 

If they continue to deliver with the drill bit ahead of expectations one should expect more dividends which make this stock attractive on total return calculations but at the moment show fewer signs of capital appreciation. 

Production Update

Production in Q4 2023 averaged 20,413 boepd, comprised of 63.9 million standard cubic feet of natural gas per day (“mmcf/d”), 5,180 barrels per day (“bbl/d”) of natural gas liquids (“NGLs”), 4,155 bbl/d of oil & condensate and 429 boepd of royalty interest production. The quarterly production represents a decrease of approximately 3% relative to Q3 2023, resulting from conservative capital management during the period of softening gas prices.

Corporate production for the second week of February 2024 averaged 20,042 boepd with 49% representing oil and NGLs. Although intermittent seasonal production curtailments have occurred in 2024, the continued performance of i3’s predictable, low-decline reserves, reflects the sustainable production base that the Company has acquired and developed.

Hedging Programme

i3 continues to employ a defensive risk management strategy, protecting approximately USD $41 million of 2024 NOI with current hedges in place as follows:

Operational Results

In total, i3’s 2023 Canadian drilling programme was comprised of 10 gross (7.5 net) operated wells and two gross (0.5 net) non-operated wells. The total 2023 capital expenditures of approximately USD 30 million (unaudited) served to efficiently delineate and develop its core areas of Central Alberta, Wapiti and the Clearwater. The well performance associated with the targeted formations, in aggregate, continues to meet or exceed management expectations. Further, the Company diligently managed the long-term performance of its high-impact Simonette Montney oil wells, drilled in 2022, further increasing the Company’s conviction and commitment to unlocking the value inherent in these prolific oil weighted assets.

The Q4 2023 programme, focused on Central Alberta, included the drilling, completion and tie-in of two gross (2.0 net) horizontal Glauconite oil locations, one gross (0.53 net) vertical Leduc oil well and a minor working interest (0.01 net) in a non-operated Belly River oil well.

Central Alberta

Based on the Company’s track record of successful Glauconite drilling in Central Alberta and the strong well results of industry peers in proximal acreage, i3 drilled, completed, equipped and tied-in two gross (2.0 net) 1-mile Glauconite oil wells from a single surface pad location. Resulting from upfront logistical work and efficient drilling, this two-well development was delivered approximately 13% under budget. The wells were brought on production at the end of December 2023 and have delivered strong performance while continuing to clean-up and recover load fluid.

The 102/03-05-043-02W5 was equipped with a hydraulic pumpjack and has produced peak oil rates of up to 150 bbl/d with associated gas compared to an expected type curve IP303 of 122 bbl/d, and is currently producing 120 boepd. The 102/14-08-043-02W5 initially flowed without artificial lift at peak oil rates in excess of 400 bbl/d compared to an expected type-curve IP30 of 124 bbl/d. Subsequently, this well has been equipped with a pumpjack and bottom hole insert pump and its last weekly average production is at 232 boepd.  Both wells are in line with expectations and have further optimization potential.

In Q4, i3 and its working interest partners drilled one gross (0.53 net) vertical Leduc oil well into the Homeglen Rimbey D-3 unit in Central Alberta.  This well was drilled into a structural high in the underlying Leduc formation, that targeted un-swept attic oil. The Leduc formation, accurately identified on 3D seismic, was intersected approximately 5-7 metres higher than offsetting producing wells. However, a 7-metre-thick tight dolomite cap was encountered which effectively negated the structural gain. The well was swabbed and produced light oil with a high water cut and is not deemed economic in the current price environment. i3 and its working interest partners will utilize the wellbore for ongoing observation and optimization of the Homeglen Rimbey Unit.

Serenity

The Company continues with its partner Europa Oil and Gas to evaluate commercialisation options for the Serenity discovery.

Environmental, Social and Governance (“ESG”)

Expanding on the ESG initiatives executed in 2022, i3 Energy has maintained its commitment to reducing its Scope 1 and Scope 2 carbon emissions. i3 replaced pneumatic pumps with solar-driven alternatives at 11 locations, which is expected to reduce methane emissions by an estimated 445t CO2e. Additionally, the electrification of 13 pumpjack engines in Carmangay and Retlaw are expected to further reduce emissions by an estimated 2,759 tCO2e per year. In a further move towards greenhouse gas reduction, the Company replaced natural gas-fired heaters with electric heaters at one of its Medicine River locations. In collaboration with an offset operator, i3 implemented an Alternative Fugitive Emissions Management Programme (ALT FEMP) at its locations in 2023, which images methane emissions from the air and is anticipated to contribute to a substantial reduction in fugitive emissions by over 50% compared to the previous year. Concurrently, i3 implemented two compressor consolidation projects which are expected to achieve annual emission reductions of 2,728 tCO2e and 681 tCO2e, respectively. These endeavours exemplify i3 Energy’s dedication to environmental sustainability and continual progress in ESG practices. In January 2024, the Company was also pleased to publish its 2022 ESG Report.

Return of Capital

The Company remains committed to delivering a sustainable dividend as part of its total return model. During 2023, £13.298 million dividends were declared and £15.338 million or 1.2825 pence per share were paid. Q4 2023 dividends of 0.2565 pence per share were declared in January and paid in February 2024. Subject to Board approval at the end of quarter, the Company expects to pay the Q1 2024 dividend of 0.2565 pence per share in early Q2 2024, with an announcement made in due course, which translates to a forward running yield of 11.5% based on the closing price of i3’s ordinary shares on 23 February 2024.

Year-End 2023 Reserves Update

i3’s year-end 2023 independent reserves evaluation is in progress and the Company expects to release its final numbers in late March, prior to the dissemination of its 2023 year-end financial statements.

Year-End 2023 and 2024 Quarterly Financial Reporting

As the Company’s Canadian shareholding has now increased beyond 10%, i3 is no longer a designated foreign issuer and therefore is no longer eligible for TSX continuous disclosure exemptions previously granted through National Instrument 71-102. As such, the Company will commence issuing TSX required quarterly financial reports for Q1 2024, including a Management Discussion and Analysis (MD&A). Additionally, an Annual Information Form (AIF) will be included as part of the Company’s 2023 year-end financial statements which will be issued by 31 March 2024.

Outlook

In lower commodity price environments, when drilling economics soften, i3 Energy evaluates opportunities in the M&A market, where higher returns on investment are often achievable. Accordingly, the Company is currently evaluating several options to enhance shareholder value which include strategic acquisitions and disposition of non-core assets to increase liquidity.

The capital programme will target the second half of the year, with wells brought on production ahead of stronger winter pricing. Considering the current weak forecast for North American gas prices, the drilling programme currently being planned will focus on oil well locations, but we retain the option to pivot to liquids rich gas wells should gas pricing improve. The Company currently has over 25 locations acquired and surveyed, across our portfolio of assets (including oil and gas wells), which will allow the Company to optimise capital allocation based on forecast H2 oil and gas prices.

Notes:

Unless otherwise denoted, all figures are referenced in USD ($) and assume a foreign exchange rate for the relevant period or point in time.

(1) Net operating income is defined as gross profit before depreciation and depletion, gains or losses on risk management contracts, and other operating income, which equals revenue from the sale of oil and gas and processing income, less production costs
(2) Net Debt is defined as borrowings and leases and trade and other payables, less cash and cash equivalents and trade and other receivables
(3) IP30( is the initial production rate through the first 30 days of a well

Molecular Energies

This morning I was able to interview Molecular’s Chairman Peter Levine, the link is below.

Core Finance Chairman Interview: Peter Levine of Molecular Energies

KeyFacts Energy Industry Directory: Malcy's Blog