WTI (June) $78.02 -$1.10, Brent (July) $82.38 -98c, Diff -$4.36 +12c
USNG (June) $2.47 +8c, UKNG (June) 72.0p, TTF (June) €30.18 +€0.63

Oil price

Oil fell yesterday, Jerome Powell speaking in Amsterdam still managed to worry markets by saying that rates would not go up in the short term but the next move would be unchanged, thanks Jez…

The API stats were good, after hours of course but crude drew 3.104m barrels and gasoline drew 1.269m, anything like that from the EIA this afternoon should help. 

Chariot

Chariot has just announced the results from the drilling of the RZK-1 well on the Gaufrette prospect, the first of a two well drilling campaign, in the Loukos Onshore licence onshore Morocco (Chariot, Operator 75%, ONHYM, 25%).

• The RZK-1 well was safely and efficiently drilled, on time and on budget, to a final measured depth of 961m through the Gaufrette Main target which was found on prognosis.
• Following comprehensive evaluation of the well data, including wireline logs, cuttings and gas data, preliminary interpretation confirms thick intervals of good quality reservoir exceeding pre-drill expectations, with multiple gas shows of various intensity, however these reservoirs are largely interpreted to be water-bearing and therefore are sub-economic.
• Further post-drill analysis will be conducted, alongside interpretation of the newly reprocessed 3D seismic data, to understand the results of The well will now be plugged and abandoned and the rig will then move to the second location of the campaign to drill the OBA-1 well at the Dartois prospect in the coming days, which is targeting a different independent prospect. An update will follow confirming commencement of these operations. 

Duncan Wallace, Technical Director of Chariot commented:
“Whilst the results of the Gaufrette well did not deliver a material gas accumulation, the presence of strong gas shows and excellent reservoir development is encouraging for future exploration in this area. We are looking forward to now drilling the Dartois well targeting a different reservoir system and trapping style to the Gaufrette prospect, with success potentially unlocking combined Best Estimate recoverable prospective resources of 20 Bcf on trend.”

I think it would be an error to draw anything from this initial well in the area and as Duncan Wallace says above there is still much to be excited about for the company’s other prospects locally. With the rig moving directly to drill the next prospect the excitement continues and with so much to look forward to both here and at Anchois, Chariot remains a very favoured Bucket List stock. 

Hunting

Highlights 

• Record $145 million OCTG order with the Kuwait Oil Company.
• Revenue expected to be recognised from late Q4 2024 and into 2025.
• Group sales order book has increased to a record c.$665 million (including this new order).
• Supports Hunting’s 2030 Strategy to deliver revenue and profit growth through OCTG and in geographies such as the Middle East.
• Given the quantum of this order, management now expects EBITDA to be towards the top end of its current guidance of $125-135 million for 2024.

Hunting PLC (LSE:HTG), the global engineering group, is delighted to announce that it has secured a $145 million OCTG order with KOC through our distributor in Kuwait.

The order comprises a large quantity of premium OCTG casing, to be supplied by Hunting via its end-to-end integrated OCTG supply chain in Asia Pacific. The casing will be threaded with Hunting’s proprietary SEAL-LOCK premium connection technology at its facilities across Asia Pacific, with revenue expected to be recognised from late Q4 2024 and into 2025. 

Hunting has leading-edge manufacturing capabilities across Asia Pacific, India and the Middle East and since 2019 has invested to establish a leading strategic supply chain, manufacturing capacity and connection technology offering to support the Group’s international OCTG growth ambitions and to support KOC and other key customers’ operational needs across this important region. Delivering the highest quality OCTG products on time together with Hunting’s unsurpassed service offering remains key to the Group’s success. 

Including this new order, the Group’s sales order book has increased to c.$665 million, which is the highest in the Company’s history and provides strong earnings visibility for the Group’s Asia Pacific operating segment and OCTG product group into 2025.

Given the quantum of this order, management now expects EBITDA to be towards the top end of its current guidance of $125-135m for 2024. Given the timing of revenue recognition and working capital movements, more detailed guidance for full year 2024 will be provided in the Company’s H1 2024 Trading Statement.

The order supports the Hunting 2030 Strategy to deliver revenue and profit growth through its OCTG product line, particularly in geographies such as the Middle East where drilling activity continues to be strong and is likely to be so to the end of the decade.

The order will be funded from the Group’s existing $150 million Asset Based Lending facility and, in addition, accelerated receivable solutions and bank acceptance bonds are also being put in place to shorten the overall cash conversion cycle. Previous guidance on working capital efficiency targets remains unchanged.

Hunting PLC’s next Trading Statement will be announced on Tuesday 9 July 2024.

Commenting on the KOC order win, Jim Johnson, Hunting’s Chief Executive, said: 
“We would like to thank KOC for this order and look forward to working with them over the coming months as we deliver on this material order. 

“This OCTG order win is the largest in the Company’s history and underscores our Hunting 2030 strategic ambitions, combining our leading premium connection technology and strong end-to-end integrated supply chain in Asia Pacific. The Group’s OCTG product team has worked incredibly hard to qualify the OCTG feedstock and connections technology with KOC and today’s announcement is testament to their stellar work collaborating with our many stakeholders.

“Furthermore, the order enhances Hunting’s order book to its highest ever backlog, which provides strong visibility on earnings for the OCTG product line and Group as a whole, thereby underpinning management’s confidence in the outlook.”

This is a sensational contract win but please don’t say that you weren’t warned about it, Hunting has made a great deal about firstly the OCGT offering, and that secondly the market in most of its key areas is very hot. This order is worth $145m indeed but I can guarantee that it will add more than that to the c.$665m order book overall.

Add to that the geography where the demand is very strong, and the backlog is as high as it has ever been so surely EBITDA will easily beat the guidance of $125-135m and justify continued investment. Hunting has doubled in the year to date and is up 113% on a year, I would not put anyone off adding new funds as the company has the best management in the sector and historically the rating has been a lot higher. I remain fully in on Hunting and hope that we will get an opportunity to visit the company before long.

Angus Energy

ORRI Payment

As previously announced on 22 February 2024, Angus Energy will settle its March 2024 royalty or ORRI (“Overriding Royalty Interest”) payments on Saltfleetby Field production in shares.

The Company will now issue a total of 27,448,470 Ordinary Shares to the ORRI holders (the “ORRI Shares”) at a price of 0.3544 pence each, being a 15% discount to the 30-day VWAP as at 26 April 2024, representing a value of £97,277.07.

Admission to trading on AIM

Application has been made to the London Stock Exchange for admission of the ORRI Shares to trading and it is expected that admission will become effective and dealings in the ORRI Shares will commence at 8.00 a.m. on 15 April 2024 (“Admission”).

Following the issue of the ORRI Shares, the Company will have 4,421,854,810 Ordinary Shares in issue, each share carrying the right to one vote.  The Company does not hold any Ordinary Shares in treasury.

Following Admission of the ORRI Shares, the above figure of 4,421,854,810 Ordinary Shares may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules.

 Nothing to add here today. 

i3 Energy

i3 Energy has announced its operating and financial results for the three months ended 31 March 2024. As previously stated, the Company’s Canadian shareholding has increased beyond 10% and, as a result, i3 is no longer a designated foreign issuer and therefore no longer eligible for certain continuous disclosure exemptions previously granted through National Instrument 71-102. As such, the Company has commenced issuing quarterly financial reports and preparing continuous disclosure in accordance with applicable Canadian securities laws. i3’s unaudited condensed interim financial statements for the three months ended 31 March 2024 and related Management’s Discussion and Analysis (“MD&A”) are available on i3 Energy’s website at https://i3.energy/ and filed on SEDAR+.

Highlights:

• Free cash flow (FCF)(1) for Q1 2024 was USD 15.0 million compared to USD 9.9 million for the same 2023 period.
• A new CAD 75 million reserve-based senior secured credit facility with the National Bank of Canada, comprised of a CAD 55 million revolving facility and a CAD 20 million operating loan facility.
• Repayment of approximately CAD 57 million, representing the outstanding balance of i3 Energy’s existing CAD 75 million loan facility (the “Debt Facility”) with Trafigura Canada Ltd., a subsidiary of Trafigura Pte Ltd (“Trafigura”).
• Average Q1 2024 production of 19,410 barrels of oil equivalent per day (“boepd”).
• The Company published its 2022 ESG Report, continued its CO2e emissions reduction initiatives with the electrification of 3 well sites, and downhole abandoned 4 wells.
• As part of i3’s commitment to its total shareholder return model, dividends of £3.084 million (USD 3.911 million) were declared and paid in Q1 2024.
• Post quarter-end, i3 entered into a definitive agreement to sell most of the Company’s royalty assets (the “Royalty Disposition”) for a total gross cash consideration of USD 24.81 million (CAD 33.50 million) before customary closing adjustments, which translates to 6.9 times 2024 forecasted cash flow and approximately USD 63,960 per flowing boepd.
• As at 31 March 2024, i3 had Net Debt(1) of USD 21.0 million, which was eliminated at the Close of the aforementioned Royalty Disposition.
• Post quarter-end, the Company further Closed the accretive disposition of a non-core, non-operated, shallow dry gas focussed Northern Alberta asset (Hangingstone), for realized proceeds of USD 0.3 million.

Majid Shafiq, CEO of i3 Energy plc, commented:
“Q1 2024 was a period of intense corporate activity during which we refinanced our existing debt with a non-amortising, traditional oil and gas reserves-based loan and laid the groundwork for monetising the majority of our non-core royalty production which significantly strengthened our balance sheet and increased liquidity. This financial restructuring supports the long-term sustainability of our total shareholder return model and sets the Company up for a busy operational period for the second half of the year, during which we will drill a diversified inventory of drilling locations across our Canadian portfolio, designed to grow production and advance development of some key assets. We look forward to updating the market as the year progresses.”

Nothing to add to this today, we have already been updated on things since the period end.

Financial and Operating Summary

(1) Non-IFRS measure. Refer to Note 1.

The Company experienced robust FCF(1) for Q1 2024 of USD 15.0 million. i3 incurred an earnings loss in the first quarter, primarily as a result of non-cash charges including, but not limited to, risk management contracts, depletion/depreciation/amortization, increased deferred taxes and the acceleration of deferred finance charges associated with the early expiration of the Debt Facility.  

Debt Refinancing

During the first quarter, the Company announced the successful establishment of a reserve-based lending facility (the “Credit Facility”). The new Credit Facility marked a significant step in transitioning i3’s capital structure, enhancing the Company’s financial flexibility through improved liquidity and enabling acceleration of its growth and income-based business plan.

The establishment of a CAD 75 million senior secured revolving credit facility with the National Bank of Canada was utilized to settle the Company’s existing CAD 75 million Debt Facility with Trafigura, without prepayment penalty, of which approximately CAD 57 million was outstanding at the time of the repayment. Secured against substantially all the assets and shares of i3 Energy Canada Ltd., the new Credit Facility, comprised of a CAD 55 million revolving facility and a CAD 20 million operating loan facility, has been established for i3 Energy’s wholly owned subsidiary, i3 Energy Canada Ltd.

The refinanced capital structure enhances the Company’s free cash flow profile through the elimination of the previously managed three-year, CAD 25 million per annum, straight-line amortization schedule, which can now be redeployed to accelerate the development of its extensive drilling inventory to enhance shareholder value.

Production Update

Production in Q1 2024 averaged 19,410 boepd, comprised of 60.0 million standard cubic feet of natural gas per day (“mmcf/d”), 4,814 barrels per day (“bbl/d”) of natural gas liquids (“NGLs”), 4,246 bbl/d of oil & condensate and 348 boepd of royalty interest production. The quarterly production represents a decrease of approximately 4% relative to Q4 2023, resulting from conservative capital management during the period of softening gas prices and further downtime primarily due to extreme cold in January 2024, which led to a loss of ~300 boepd for the month (or ~100 boepd for the quarter).

Hedging Programme

i3 continues to employ a defensive risk management strategy with current hedges in place protecting USD 44.8 million of net operating income in 2024, and covering 31%, 26%, 26% and 24% of the Company’s projected Q1, Q2, Q3 and Q4 2024 production volumes, respectively. i3’s 2024 hedges are as follows:

Environmental, Social and Governance (“ESG”)

Continuing with the ESG initiatives executed in 2023, i3 Energy has maintained its commitment to reducing the Company’s Scope 1 and Scope 2 carbon emissions. i3 electrified three well sites throughout key operating areas, converting combustion engines to electric drive engines on existing pumpjacks. The Company further executed Phase 1 of the previously announced Alternative Fugitive Emissions Management Programme (ALT FEMP), which images methane emissions from the air. The effect of this program, along with corrective actions applied, resulted in an annual emissions reduction of 3862 tCO2e. Phase 2 of the ALT FEMP is currently underway.

During the period, i3 also downhole abandoned 4 gross wells (2.78 net) and, in January 2024, the Company published its 2022 ESG Report. i3 remains dedicated to environmental sustainability and strives towards continued positive advancements in its ESG practices.

Return of Capital

The Company remains committed to delivering a sustainable dividend as part of its total return model. The Q4 2023 dividend of £3.084 million (USD 3.911 million) or 0.2565 pence per share was declared and paid in Q1 2024. The Q1 2024 dividend of £3.084 million (USD 3.911 million) or 0.2565 pence per share was declared in early April and subsequently paid in early May. Subject to Board approval, the Company expects to pay the Q2 2024 dividend of 0.2565 pence per share in early Q3 2024, which translates to a forward yield of 9.4% based on the closing price of i3’s ordinary shares on 10 May 2024.

Post Quarter-end Events

Partial Sale of Royalty Assets
Subsequent to the first quarter, i3 announced that its subsidiary, i3 Energy Canada Ltd. entered into a definitive agreement with a newly formed private royalty company to sell the majority of the Company’s royalty assets for a total gross cash consideration of USD 24.81 million (CAD 33.50 million) before customary closing adjustments.

The Royalty Disposition, involving most of the Company’s royalty assets, but not its core Simonette Royalty, translated to 6.9 times 2024 forecasted cash flow and approximately USD 63,960 per flowing boe/d, which represents a significant premium to the Company’s current market valuations.

The proceeds of the Royalty Disposition fully eliminated i3’s outstanding bank indebtedness and established a working capital surplus without materially impacting its working interest production base; which, together with forecasted cash flows and undrawn credit facility, provides the Company with significant liquidity to execute its growth and income strategies.

Partial Sale of Hangingstone
Post quarter-end, i3 Energy Closed a disposition encompassing most of its position in the Company’s non-core, non-operated, shallow dry gas focussed Northern Alberta Hangingstone asset, for realized proceeds of USD 0.3 million. The sub-economic asset produced net 115 boepd for the month of February 2024 and is forecast to return negative cash flows for the 12-month period of March 2024 to February 2025, based on strip pricing. The sale of these non-core assets is highly accretive to the Company’s Asset Retirement Obligations (“ARO”) standing, further reducing the Company’s total ARO by USD 1.2 million.

Outlook
Following the Company’s recent USD 24.8 million partial sale of its royalty assets, the elimination of all bank indebtedness and the establishment of a USD 55.6 million reserve-based credit facility, i3 is well positioned to execute its USD 50.9 million 2024 capital programme. The programme will be fully funded from existing Company resources and is designed to balance growth, financial discipline, and a sustainable long term-dividend through a predictable development-focused programme, all while positioning the Company to commence its Simonette Montney pad development drilling in Q1 2025.

The Company has an ongoing campaign of scouting, surveying and acquiring key surface locations to ensure a large inventory of drillable oil and gas locations, allowing it to pivot operationally to respond to commodity price movements and operational risks, as they occur.

The capital programme will be focused on the second half of the year, with 85% of the capital deployed over the balance of 2024. As such, the 2024 programme anticipates drilling operations will commence in late Q2, with continuous operations through to year-end. Should it be the case that the forward strip forecast for commodity prices deviates from the Company’s budgeted projections, the Company is well positioned to both reallocate its drilling locations to optimize economic returns or capitalize on strategic accretive acquisitions as they are identified.

The Company is extremely pleased with recent objectives completed and is excited to have realized increased liquidity on its balance sheet which, combined with stable cash flows, can be used to support both its organic and inorganic initiatives during the remainder of 2024.

The Company is pleased to present a snapshot of our Q1 2024 financial results below. i3’s unaudited condensed interim financial statements for the three months ended 31 March 2024 and related Management’s Discussion and Analysis (“MD&A”) are available on i3 Energy’s website at https://i3.energy/ and filed on SEDAR+.