The explosive I3E share price

As a reminder, I3 Energy is an oil & gas production business operating in Canada and the UK. With supply chain disruptions, inflation, and the conflict in Eastern Europe all landing simultaneously, oil prices have been climbing. And today, they currently stand at around $110 per barrel, versus $63 a year ago.

Seeing the I3E share price climb in line with these prices is hardly surprising. But it doesn’t seem to be the only catalyst behind its current momentum. With Western nations seeking to end their dependency on Russian oil, government-backed investments into North Sea oil production are on the rise – something that I3 Energy is benefiting from.

Meanwhile, management recently finished integrating its newly-acquired oil assets from Cenovus Energy. And subsequently, oil & gas production has reached record highs. At the end of 2021, the group produced on average 18,229 barrels per day. Skip ahead to the end of this year’s first quarter, and that number has jumped to 20,312.

With production growing by double-digits during a time of elevated oil prices and increased external investment in the industry, I’m not surprised to see the I3E share price climbing.

Taking a step back

As encouraging as the group’s progress has been, there are some risks to consider. First and foremost, the oil industry is notoriously cyclical. And with other companies ramping up production to capitalise on the higher prices, supply will eventually and inevitably catch up with demand.

In fact, this may already be happening. A quick glance at the derivatives markets shows that oil futures contracts for 2023 are pricing the commodity at around $86 per barrel. This essentially serves as a proxy forecast of where the market thinks oil prices will land next year. And while that’s still higher than 2021 levels, it could result in I3 Energy’s top line suffering, putting an end to its share price momentum.

The bottom line

All things considered, this company looks rather impressive. With production ramping up, management is successfully capitalising on the current favourable operating environment. Having said that, this already seems to be baked into the share price. And with oil prices expected to take a hit within the next 12 months, I’m not convinced the I3E share price can maintain its current momentum.

That’s why I’m keeping this stock on my watchlist for now.

The post The I3E share price is surging. Should I buy now? appeared first on The Motley Fool UK.

Somero has leapt after declaring that it enjoyed “stronger than anticipated trading” in the US at the end of the first half. This meant that the business — which manufactures concrete placing equipment such as screeds — said that trading for the full year would likely beat previous expectations.

The AIM company said that it now expects revenues of $110m in 2021, up $10m from its last forecast in May. Adjusted EBITDA, meanwhile, is tipped to come in at $35m versus $31m previously. And Somero expects to have net cash above $33m on its balance sheet at the year’s end.

Somero Enterprises jumps

Pleasingly, Somero Enterprises said that its better-than-expected momentum in recent months had carried over to the second half, too. It indicated that customer workloads are “at high levels” while project backlogs are extending into 2022.

Somero said that its robust trading in the US “is due in part to catch up on projects previously slowed by Covid restrictions” as well as “a healthy and active US non-residential construction market.” The company added that activity in the first six months of 2021 in the UK and Australia had met expectations.

i3 Energy raises funds to expand in Canada

i3 Energy’s (LSE: I3E) share price hasn’t fared nearly as well as Somero Enterprise’s in midweek trading. It continues to collapse from the 20-month highs recorded at the start of the week. And at 12.25p per share, the UK oil share was last dealing 15% lower on the day.

AIM-traded i3 Energy has dropped after successfully raising £40m through a share placing to fund expansion of its operations in Canada. The business has agreed to purchase certain assets from Cenovus Energy within the Central Alberta region for $53.7m.

Production tipped to soar

The acquisition will see the UK share acquire 8,400 barrels of oil equivalent barrels per day “of predominantly operated, conventional, low-decline production,” i3 Energy said, as well as “an extensive network of complementary midstream infrastructure to support long-term sustainable operations.”

Some 51% of this newly acquired production comprises oil and natural gas liquids. The assets also carry a large reserve base with proven and probable reserves (2P) of 79.5 million barrels of oil equivalent with a value of $193m.

i3 Energy said that the production, infrastructure, and 212,000 acres of land it will acquire “directly overlap” its own current asset base “and provide meaningful operational synergies which are expected to further enhance free cash flow.” The purchase will boost the company’s total production over the next 12 months by 84% to 18,470 barrels per day. Meanwhile net operating income will improve 70% over the period to $75m.

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i3 confirmed that the High Court approved the company’s plan to cancel its share premium account on Tuesday. This was the green light for the energy play to pay out a maiden dividend. The ex-dividend date for this is expected to fall during the week beginning 12 July.

In other news i3 has now executed a binding sales and purchase agreement for production from Canada’s Wapiti Elmworth acreage. The business announced plans to acquire 230 barrels of oil equivalent per day in mid-June with a view to boosting output to 310,000 barrels a day in the next year.

The total acquisition and capital cost will be $410,000, which equates to 0.56 times expected net operating income over the next 12 months. i3 predicts that the acquisition will complete during the third quarter.

A sinking UK oil share

Like that of i3 Energy, the Zephyr Energy (LSE: ZPHR) share price has also surged during the last 12 months. This UK oil share has increased 1,100% in value since this point last June. And it visited its highest since autumn 2017 at 7.85p per share this week.

Zephyr’s share price has plunged 14% on Wednesday to 6p, however, following the release of fresh drilling analysis. Zephyr — which invests in oil and gas projects in the Rocky Mountain area of the US — provided an update on its flagship project in the Paradox Basin, Utah. It said that analysis following the State 16-2 dual-use stratigraphic test well drilled earlier this year revealed that all 20 overlying reservoirs “are likely to be hydrocarbon filled to some degree”. Petrophysical analysis of several offset wells were also used to form this conclusion.

The company “has high-graded eight reservoirs which have adequate thickness for potential future development,” it said. And it added that the region could contain some 200 well locations across the eight overlying reservoirs. This depends on whether Paradox can be developed by way of a hydraulically stimulated resource play (HSRP). It’s a process that would allow broader project development across more than one reservoir.

“Cautiously optimistic and excited”

Zephyr chief executive Colin Harrington said that he was “cautiously optimistic and excited” about the findings. They indicate a risked contingent resource potential (net to Zephyr) of up to an additional 125m barrels of oil equivalent. This is based on an P50 midway estimate of around 1bn oil barrels on Zepher’s currently held acreage.

The UK oil share cautioned that “this estimate of the HSRP potential is preliminary and highly dependent upon developing better understanding of each zone’s reservoir pressure, fluid phase, geomechanical properties, permeability and a successful proof of concept hydraulic stimulation and production well.”

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i3 Energy’s share price even barged through the 10p per share barrier at some point today. At 10.3p it struck its most expensive since mid-April, propelled higher by news that it could shell out a maiden dividend as early as July.

Are dividends on the way?

In a fresh update today i3 Energy said that it expects the High Court to confirm the cancellation of its share premium account on June 29. The oil driller’s draft order to tear up its account was approved by the court last week.

A favourable decision later this month would clear “the way for i3 to make dividend distributions to its shareholders.”

i3 said that it was reclassifying the C$2m dividend as a special dividend instead of associating it with cash flow for the first quarter of 2021. The company plans to do this as “the company’s assets have outperformed the directors’ expectations”. This follows the acquisition of a large production package at the bottom of the market in 2020.

Should the High Court push the draft order through, i3 said that it will pay out the special dividend late next month.

Commenting on the company’s dividend plans, chief executive Majid Shafiq said that “the necessary share capital reduction is nearly behind us and we expect to commence returning value to our shareholders by way of a special dividend, with scheduled half-yearly dividend payments thereafter alongside our interim and annual reports.”

i3 expects to pay its first half-year dividend in September 2021. This payment will be worth up to 30% of free cash flow for the first half of the year.

i3 Energy to drill new wells, make acquisition

i3 Energy also announced plans today to drill two wells with a partner at the Wapiti Elmworth acreage in Canada. Operations are anticipated to begin shortly and conclude in the third quarter. They will incur a net cost of US$2.1m, the firm added.

“These oil-weighted wells are expected to initially increase i3’s production by circa 175 barrels of oil equivalent a day, and are estimated to return the full investment in 1.3 years based on current commodity strip pricing,” the UK energy share said.

i3 has also signed a letter of intent to acquire 230 barrels of oil equivalent per day of Wapiti production. After this, the energy business plans to conduct six reactivations. This should bring production to around 310 barrels a day inside the next 12 months. The production acquisition is expected to complete this quarter, and the total acquisition and capital cost is estimated at US$410,000.

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But with the price of a barrel of oil approaching $80, interest in the company’s North Sea Liberator field is intensifying, and the share price has soared in 2018. With 2017 results out Friday, the focus is on achieving first oil — and crucially, getting the funding for it.

Upgraded resources

Resources at Liberator have been upgraded to 11.7 MMboe, and the company estimates a pre-tax net present value of its 2P reserves at $328m, so the attraction for institutional investors seems strong.

During the year, the company raised £4.2m via convertible loan notes to fund early stage design and engineering work. Now it has apparently received non-binding terms for a $25m credit facility from UK-based lenders, and financing agreements with other investors look to be moving ahead.

Chief executive Neill Carson said: “The strong technical underpinning of Liberator combined with the deliverability of the project has attracted investment from private and institutional investors, in addition to drawing meaningful interest from senior lenders and potential joint venture partners.“

The company’s reported pre-tax loss of £2.9m was well ahead of 2016’s £404,000 loss, but at this stage that’s not really too meaningful — providing sufficient funding can be found to lead to first oil and then to profitability.

A couple of years ago I’d have said oil explorers like I3 Energy were to be firmly avoided, but improving sentiment driven by the appreciating oil price is making them look more attractive — though it’s still too risky for me.

Second wind

This time last year, 88 Energy (LSE: 88E) was riding high, but delays and disappointing updates at its Icewine #2 well spooked investors and the shares crashed. Yet since October 2017, we’ve been seeing a steady share price recovery, so it looks like the rising share price is having a beneficial effect here too.

Icewine #2 has been shut down for the Alaskan winter, but interest is picking up again after the company’s 29 May update told of good progress towards opening it up again.

Flow testing is scheduled to recommence on 11 June, and the retrieval of a wireline unit from the well has apparently confirmed that no debris has built up in the well during its closure. That’s good news, as is the result of pressure measurements. Pressure at the wellhead tested at just under 3,000 psi, with a pressure reading of 5,200 psi at 4,000 feet.

The new testing will employ nitrogen lifting, with the expectation that the removal of around 4,000 barrels of fluid will enable hydrocarbons to flow naturally.

With renewed hope and a rising oil price, would I buy?

Big risk

The problem is that investing in 88 Energy would be pretty much a 50/50 gamble for me. Should the renewed testing result in strong flow rates and good hydrocarbon recovery prospects, the share price could spike upwards — and we could be in for long-term profits.

But if flows prove disappointing, we could be looking at summer 2017 all over again and another share price collapse. And I don’t do coin-toss gambling, not where investment money is involved.

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