29 April 2024

i3 Energy plc

("i3", "i3 Energy", or the "Company")

Final Results for the year ended 31 December 2023

i3 Energy plc (AIM:I3E) (TSX:ITE), an independent oil and gas company with assets and operations in the UK and Canada, is pleased to announce the audited results for the year ended 31 December 2023.  A copy of the Company's financial statements will be made available shortly on the Company's website at https://i3/energy as well as filed under the Company's profile on SEDAR+ at www.sedarplus.ca and will be posted to those shareholders who make or have made a request to receive a paper copy.  The Annual General Meeting ("AGM") will be held at 11:00 am BST on 27^th June 2024 at the offices of WH Ireland Limited at 24 Martin Lane, London, EC4R 0DR.

 

CANADA			UK AND CORPORATE
Average daily production (BOE/d)	2023: 20,711 2022: 20,317 2021: 12,442 2020: 8,732			Group Revenue (£m)	2023: 146.3 2022: 208.4 2021: 86.8 2020: 13.0
2P reserves (MMBOE)	2023: 179.9 2022: 181.5 2021: 154.1 2020: 54			Group Profit after tax (£m)	2023: 15.1 2022: 42.0 2021: 25.1 2020: 11.7
PDP reserves (MMBOE)	2023: 47.1 2022: 49.1 2021: 46.2 2020: 18.1			Group NOI (£m) (1)	2023: 74.5 2022: 131.7 2021: 48.6 2020: 4.9
2P reserves Before-tax NPV 10 (USDm)	2023: 1,026 2022: 1,162 2021: 775 2020: 183			Group Adjusted EBITDA (£m) (1)	2023: 67.8 2022: 98.0 2021: 30.2 2020: (0.8)
				Dividends declared (£m)	2023: 13.3 2022: 17.4 2021: 3.4 2020: 0

(1) Non-IFRS measure. Refer to Appendix B

 

Achievements in 2023

Record Annual Production

·       Record annual production of 20,711 barrels of oil equivalent per day ("boepd"), at the high end of the Company's 2023 guidance range of 20,000 to 21,000 boepd and 2% above 2022 production.

·       Record production achieved despite loss of approximately 3,100 boepd in Q2 due to restrictions associated with the Alberta wildfires, unanticipated apportionment issues associated with the Pembina Peace Pipeline liquids line, debottlenecking projects and twenty scheduled operated turnarounds.

Shareholder Return

·       Total dividends of £13.298 million declared and £15.338 million paid in 2023.

Capital Programme

·       £23.2 million capital expenditure in 2023 delivered 12 gross (8.0 net) wells, which were completed on budget in a high inflationary environment.

Debt Re-financing

·       Successfully completed a CAD 100 million, 3-year, first lien Debt Facility with Trafigura Canada Ltd. (a subsidiary of Trafigura Pte Ltd.) and redeemed the H1 2019 Loan Notes in full.

Reserves Replacement

·       Managed to maintain Proven ("1P") and Proven plus Probable ("2P") reserves essentially flat, despite a significantly lower capital programme in 2023 relative to the prior year, with a very healthy 2P reserves life index of 23.0 years.

·       The Group now has over 390 gross booked drilling locations in its audited reserves and over 950 including un-booked locations.

Extensive Planned Maintenance Programme Executed

·       Scheduled turnaround programmes successfully completed on 20 operated facilities, on-time and on-budget.

ESG Performance

·       Completed the electrification of 25 pumpjacks in Carmangay and Retlaw to reduce use of diesel and propane for power generation, with a further two electrifications underway, which will eliminate 4,268 tonnes of CO2 ("tCO2") emissions annually.

·       Completed electrification of two natural gas generators, resulting in an annual emission reduction of 907 tCO2 equivalent ("tCO2e").

·       In 2023, we replaced 295 gas driven pneumatic pumps with solar powered pumps, which is expected to eliminate 8,971 tCO2 emissions annually.

·       Launched an alternative Fugitive Emissions Management Programme, utilising airborne methane imaging technology which is expected to reduce fugitive methane emissions by 50% relative to 2022.

·       Converted high-pressure natural gas driven pneumatics to compressed instrument air at three of i3's locations to reduce methane emissions equal to over 660 tCO2e annually.

·       Ongoing annual abandonment and reclamation programme abandoned 46 wells, 26 pipelines and decommissioned 16 well sites, representing approximately 12% of operated non-producing wells.

 

Outlook

A summary of key events which occurred after the reporting period are presented in note 24 to the financial statements. The Company's focus for the remainder of 2024 will be on three key areas:

1      The growth of i3's Canadian business through the deployment of capital into its large proven undeveloped reserves base, operational excellence to improve uptime and field performance, and strategic upsizing and/or repositioning of its core areas through M&A;

2      Maintaining flexibility to adapt to economic developments while maximizing total shareholder return; and

3      Conducting its operations safely and in an environmentally secure manner.

The Company continuously evaluates opportunities to strengthen its balance sheet whilst maintaining tight control of its costs and working capital position.

 

Majid Shafiq, CEO of i3 Energy plc, commented:

"i3 entered 2023 with strong momentum following a very successful Q4 drilling campaign in 2022, proceeding to drill and tie-in 8 wells in our Wapiti, Central Alberta and Clearwater acreage before the Spring break up period last March. However, as became common for 2023, the market was hit by volatile commodity prices, and, alongside natural disasters like the Alberta wildfires, and planned turnarounds and debottlenecking projects, i3 moved quickly to revaluate its capital programme and protect its balance sheet. We proceeded to focus on low-risk wells in our core production assets and appraisal wells in the Clearwater and are very pleased with the results, which were delivered on budget even in an inflationary cost environment.  Despite these challenges and due to our ability to adapt our portfolio and investment and drilling strategy quickly, i3 achieved record annual average production of 20,711 boepd. This is a testament to the quality of our low decline production base, our low-risk drilling inventory and the skills and dedication of our employees.

As reported post-period end, i3's 2023 audited reserves report showed little change in 1P and 2P reserves, reflecting successful operational management and the quality of the Company's portfolio, and was achieved despite the mid-year change in capital budget and programme. With more than 390 booked (gross) drilling locations, i3's reserves report exhibits a strong and diverse asset base which can support growth through the business and commodity cycles, and we look forward to advancing our growth initiatives in the near term.

Financially, i3 was well funded in 2023, supported by the negotiation of a new CAD 100 million facility with Trafigura early in the year, and the settlement of our outstanding £22 million Loan Notes. Post-period, the Company has since established a CAD 75 million non-amortising credit facility with the National Bank of Canada, which allowed the Company to repay the Trafigura loan facility. i3 has benefitted greatly from building a strong relationship with Trafigura, a sophisticated oil and gas trader, but with the Company's focus on Canadian growth, recognised the significance of having a Canadian bank support us in country. Also post-period, the Company sold its non-core royalty production for circa USD 25mm at a cashflow multiple far in excess of the Company's trading value, which combined with the new credit facility has significantly strengthened our balance sheet and provides financial flexibility to manage fluctuating market conditions.

i3 was pleased to return £15.338 million in dividends to investors in 2023 and remains committed to delivering shareholder value via cash returns and growth. Management continuously weighs the expected returns generated through organic portfolio development against potential acquisition opportunities, which we continue to actively evaluate. 

The Company looks forward to 2024 and beyond in a much-strengthened financial position, with a strong balance sheet, and growing relationships with providers of debt capital for growth. Our core asset base continues to perform consistently well and will underpin the development of the significant undeveloped reserve and resource potential in our portfolio. We look forward to executing a successful drilling programme in Canada in 2024, in what we believe will be a more positive pricing environment, growing production and continuing to return cash to shareholders to deliver on our total shareholder return model."

Qualified Person's Statement

In accordance with the AIM Note for Mining and Oil and Gas Companies, i3 discloses that Majid Shafiq is the qualified person who has reviewed the technical information contained in this document. He has a Master's Degree in Petroleum Engineering from Heriot-Watt University and is a member of the Society of Petroleum Engineers. Majid Shafiq consents to the inclusion of the information in the form and context in which it appears.

Enquiries:

 

i3 Energy plc Majid Shafiq (CEO)	c/o Camarco Tel: +44 (0) 203 757 4980
WH Ireland Limited (Nomad and Joint Broker) James Joyce, Darshan Patel, Isaac Hooper	Tel: +44 (0) 207 220 1666
Tennyson Securities (Joint Broker) Peter Krens	Tel: +44 (0) 207 186 9030
Stifel Nicolaus Europe Limited (Joint Broker) Ashton Clanfield, Callum Stewart	Tel: +44 (0) 20 7710 7600
Camarco Andrew Turner, Violet Wilson, Sam Morris	Tel: +44 (0) 203 757 4980

 

Notes to Editors:

i3 Energy is an oil and gas Company with a low cost, diversified, growing production base in Canada's most prolific hydrocarbon region, the Western Canadian Sedimentary Basin and appraisal assets in the North Sea with significant upside.

 

The Company is well positioned to deliver future growth through the optimisation of its existing asset base and the acquisition of long life, low decline conventional production assets.

 

i3 is dedicated to responsible corporate practices and the environment, and places high value on adhering to strong Environmental, Social and Governance ("ESG") practices. i3 is proud of its performance to date as a responsible steward of the environment, people, and capital management. The Company is committed to maintaining an ESG strategy, which has broader implications to long-term value creation, as these benefits extend beyond regulatory requirements.

 

i3 Energy is listed on the AIM market of the London Stock Exchange under the symbol I3E and on the Toronto Stock Exchange under the symbol ITE. For further information on i3 Energy please visit https://i3.energy

 

 

This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

 

Forward-Looking Statements

 

This press release offers our assessment of i3's future plans and operations as at April 29, 2024, and contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "should", "plan", "intend", "believe" and similar expressions (including the negatives thereof) are intended to identify forward looking information or statements.

The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: those relating to results of operations and financial condition; general economic conditions; industry conditions; changes in regulatory and taxation regimes; volatility of commodity prices; escalation of operating and capital costs; currency fluctuations; the availability of services; imprecision of reserve estimates; geological, technical, drilling and processing problems; environmental risks; weather; the lack of availability of qualified personnel or management; stock market volatility; the ability to access sufficient capital from internal and external sources; and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel. Risks are described in more detail in our Financial Review, which is available on www.i3.energy and on www.sedar.com. Forward-looking statements are provided to allow investors to have a greater understanding of our business.

You are cautioned that the assumptions used in the preparation of such information and statements, including, among other things: future oil and natural gas prices; future capital expenditure levels; future production levels; future exchange rates; the cost of developing and expanding our assets; our ability to obtain equipment in a timely manner to carry out development activities; our ability to fund future dividends; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; the availability of adequate and acceptable debt and equity financing and funds from operations to fund our planned expenditures; and our ability to add production and reserves through our development and acquisition activities, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them. The forward-looking information and statements contained in this document is expressly qualified by this cautionary statement. Our policy for updating forward-looking statements is that i3 disclaims, except as required by law, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-IFRS Financial Measures

 

i3 uses the following terms for measurement within this press release that do not have a standardized prescribed meaning under International Financial Reporting Standards ("IFRS") and these measurements may not be comparable with the calculation of similar measurements of other entities. The Company refers to these as Non-IFRS Measures or Alternate Performance Measures ("APMs"). APMs are not defined under IFRS and are not considered to be a substitute for or superior to IFRS measures. Other companies may not calculate similarly defined or described measures, and therefore their comparability may be limited. The Company continually monitors the selection and definitions of its APMs, which may change in future reporting periods. Refer to Appendix B for further discussion.   

Chairperson's and Chief Executive's Statement

Overview of the year

i3 Energy had a very busy 2023 navigating a challenging period in the energy sector and the broader capital markets.

Operationally, i3 commenced 2023 following a very successful drilling campaign in 2022, which allowed the Company to average 20,317 boepd for 2022 with peak production exceeding 24,000 boepd. Although commodity prices had softened through 2022, the forecast at year-end remained strong and the Company set a 2023 capital programme of USD 64 million, similar to the prior year, based upon average annual price assumptions for 2023 of USD 85/bbl for WTI and CAD 4.50/GJ for AECO gas (coinciding with the industry consensus). The Q1 scheduled component of the 2023 capital programme, including 8 gross (5.5 net) wells, was successfully drilled in the Company's Wapiti, Central Alberta and Clearwater assets and tied-in before the Spring break up period commenced. First half production and cashflow numbers were impacted by a weakening commodity price outlook and a series of other factors, including Alberta wildfires, unanticipated sales apportionment issues through third-party infrastructure, as well as scheduled turnarounds and debottlenecking projects. Ultimately for 2023, WTI oil and AECO 5A gas averaged USD 77.61/bbl and CAD 2.64/mcf respectively. These factors when combined with the continued softening commodity outlook, resulted in significantly lower full year forecasted cashflows than budgeted at the start of the year. The Company consequently re-calibrated its capital and dividend programme mid-way through the year to be constrained by full year forecast cash flow and issued revised full year production and cashflow guidance. Total budgeted capital expenditures for the year was reduced to approximately USD 30 million and the drilling programme was completed in Q4 with the drilling of 4 gross (2.5 net) wells in Central Alberta. The 2023 drilling programme targeted low risk oil wells in our core production assets and appraisal wells in our Clearwater acreage. We are pleased with the well results which were drilled on budget in a cost environment which was still inflationary. 

Seasonal wildfires in 2023 were worse and more prolonged than normal, and although none of our facilities (operated or non-operated) were damaged, periodical shut down of certain facilities was required as a precautionary measure, which negatively impacted our production volumes during May and June by 1,650 boepd and 385 boepd, respectively. Additionally, the Company conducted a major programme of planned maintenance activities in June which involved shutdown of 20 major operated facilities, which were completed successfully on time and on budget. In aggregate the wildfires, debottlenecking projects, turnarounds and unanticipated apportionment issues associated with the Pembina Peace liquids pipeline resulted in the loss of approximately 3,100 boepd in Q2. Despite this, our wells and facilities which were impacted by maintenance and unplanned shutdowns were ultimately brought back on-stream and at pre-shutdown levels.

We are very pleased that despite the Q2 production curtailments and a constrained capital programme the Company managed to achieve record annual average production in 2023 of 20,711 boepd, and as mentioned below, managed to keep oil equivalent reserves essentially flat. This is a testament to the quality of our low decline production base, our low-risk drilling inventory and the skills and dedication of our employees.

The Company's year end 2023 audited reserves on a 1P and 2P basis remained essentially flat year on year and reflects successful operational management and the results of the 2023 drilling programme. This was achieved with a limited capital programme and again points to the quality of the Company's oil and gas properties. The 2P reserves were evaluated with an NPV10 of USD 1.03 billion on a pre-tax basis with the longevity of the reserves demonstrated by a very healthy reserve life index of 23.0 years. With more than 390 booked (gross) drilling locations, i3's reserves report exhibits a strong and diverse asset base which can support growth through the business and commodity cycles, and we look forward to advancing our growth initiatives in the near term. Although gas prices weakened through 2023 and were a major factor in our operational decision making and financial results, we believe the mid-term outlook is positive due to the pending start-up of LNG exports from Canada's west coast from the LNG Canada facility which is expected to begin start-up activities in 2024.

During the first half of 2023, the Company settled its outstanding £22 million Senior Secured Guaranteed Loan Notes (the "Loan Notes"), which were due for repayment at the end of May. The Loan Notes were settled using the proceeds from a new CAD 100 million loan facility (the "Facility") established with Trafigura Canada Ltd., a subsidiary of Trafigura Pte Ltd. The Facility consists of a CAD 75 million facility, used to repay the loan notes and for general corporate purposes, and a CAD 25 million accordion. The Facility had a three-year amortisation period which served to strengthen the balance sheet as the loan was paid down. We are very pleased to have established a relationship with Trafigura, a sophisticated oil and gas trader and a potential partner for future production focussed growth.

After year-end, the Company established a CAD 75 million senior secured revolving credit facility with a Canadian chartered bank which was utilized to settle the Company's existing CAD 75 million Loan 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, comprises a CAD 55 million revolving facility and a CAD 20 million operating loan facility. The two-year term of the new Credit Facility is expected to be extended on an annual basis, subject to lender approval.

As per i3's total return model, the Company declared £13.298 million and paid £15.338 million in dividends in 2023. The Company continually evaluates the optimal way in which to deliver shareholder value. In addition to its distribution model, the Company weighs the expected return generated through organically drilling its extensive portfolio of development locations against potential acquisition opportunities and deploys capital accordingly to achieve the highest return on a risk adjusted basis. As is to be expected, the fall in commodity prices in 2023 resulted in lower asset transaction metrics in Canada. i3 continues to monitor the market and will participate in acquisitions should the Company find accretive opportunities that fit its strategy.

In the UK, in conjunction with our joint venture partner, the Company continues to evaluate options to develop the Serenity field.

i3 is committed to conducting its operations safely, responsibly and in accordance with industry best practices, and we continue to advance our health and safety policies and procedures as we integrate additional production assets. The Company's commitment to high ESG standards is central to maintaining its social licence to operate, creating value for all stakeholders, and ensuring long-term commercial success. Following the publication of our maiden annual sustainability report and establishing a baseline for our business we have continued efforts to reduce the carbon intensity of i3's operations through methane emission reductions and electrification projects, and these efforts will continue and expand as we evaluate additional initiatives to meet our net-zero targets.

Financial Discipline

The Board and Management are focused on delivering consistent value to shareholders. i3 is committed to its total shareholder return model which aligns production and asset value growth with dividend returns and protects this commitment through a conservative hedging programme. The Company has and continues to keep a substantial portion of its production hedged through risk management contracts to manage commodity price risk, with free cash post dividend payments deployed to either acquire production assets or develop our proven undeveloped (PUD) and 2P inventory dependent on which option delivers higher returns in the prevailing commodity price environment. As i3 continues to grow its portfolio, a proportion of all incremental production will be hedged in order to secure future cash flows, and the Company will remain commercial in monetising assets when third-party interest warrants consideration.

As part of our total shareholder return model, we commenced paying a dividend in 2021 and have grown dividends paid from £3.4 million in 2021, to £15.4 million in 2022 and 2023.

Operational flexibility and the short-term nature of forward capital commitments in Canada mean that the Company has considerable optionality to rapidly expand or reduce its capital programme to prudently manage its balance sheet to ensure risks are appropriately mitigated in volatile commodity markets.

Governance

The Board recognises its responsibility for the proper management of the Company and is committed to maintaining a high standard of corporate governance commensurate with the size and nature of the Company and the interests of its shareholders. The Quoted Companies Alliance has published a set of corporate governance guidelines for AIM companies, which include a code of best practice comprising principles intended as a minimum standard, and recommendations for reporting corporate governance matters. The Directors comply with the QCA Corporate Governance Guidelines for Smaller Quoted Companies so far as it is practicable having regard to the size and current stage of development of the Company. The Board currently comprises two Executive Directors (being the Chief Executive Officer and the President Canada) and four Non-Executive Directors (including the Chairperson).

The Board's decision-making process is not dominated by any one individual or group of individuals. The composition of the Board will be reviewed regularly and modified as appropriate in response to the Company's changing requirements. The Board has established an Audit and Risk Committee, Corporate Governance Committee, Health, Safety, Environment and Security Committee, Reserves Committee, and Remuneration Committee to ensure proper adherence to sound governance and decision making.

Environmental Stewardship

i3 is fortunate to operate in the UK and Canada which have some of the world's most stringent and rigorous environmental laws and regulations and the Company strives to meet or exceed all local, provincial or national operational, environmental, reporting and compliance obligations and abandonment and reclamation requirements. The Company is committed to conducting its operations responsibly and in accordance with industry best practices. i3's commitment to high ESG standards is central to maintaining our social licence to operate, creating value for all stakeholders, and ensuring long-term commercial success. i3 recognises the safety and well-being of our employees, local communities, and other key stakeholders as a priority, and considers climate change as having a material impact on our business.

To demonstrate the Company's commitment to long-term sustainable resource development, environmental stewardship and the well-being of employees and the communities in which i3 operates, i3 publishes annually an ESG report. The ESG report summarises the Company's ESG performance and key initiatives and its goals and ambitions with respect to greenhouse gas emission reductions, environmental stewardship, social policies and governance.

As part of its continued effort to reducing its Scope 1 and Scope 2 carbon emissions, in 2023 i3 replaced pneumatic pumps with solar-driven alternatives at 295 locations, which are expected to reduce methane emissions by an estimated 8,971t CO2e. Additionally, the electrification of 25 pumpjack engines in Carmangay and Retlaw are expected to further reduce emissions by an estimated 4,268 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. In our Simonette field two natural gas generators were electrified, resulting in an annual emission reduction of 907 tCO2e. i3 converted a number of high-pressure natural gas driven pneumatics to compressed instrument air reducing methane emissions by over 660 tCO2e in 2023.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.

i3 takes its abandonment and reclamation obligations very seriously and in 2023 it abandoned a total of 46 wells and decommissioned 16 well sites, as well as 26 pipelines representing approximately 12% of its operated non-producing well stock. In 2024, and in accordance with the Alberta Energy Regulator's decommissioning guidance, i3 expects to deliver a similar number of abandonment operations as achieved in 2023.

Looking ahead

The Company looks forward to 2024 and beyond in a much strengthened financial position, with a strong balance sheet, and growing relationships with providers of debt capital for growth. Our core asset base continues to perform consistently well and will underpin the development of the significant undeveloped reserve and resource potential in our portfolio. The Company looks forward to executing a successful drilling programme in Canada in 2024, growing production and continuing to return cash to shareholders to deliver on its total shareholder return model.

Looking beyond 2024, we have a high quality and diverse asset portfolio in Canada with immense unrealized upside potential. We will continue to focus our efforts on advancing these key assets to efficient and rapid commercialisation and value crystallisation. We will selectively target key assets and wells to optimise these developments and conversion of resources to reserves bookings. We are fortunate that we operate the vast majority of our producing assets and drilling inventory which allows us to control the timing and pace of development. We also own high working interests in our operated assets which also provides us with optionality on how to finance these developments.

Whilst we have an extensive inventory of high quality, high return drilling locations, we recognise that commodity price volatility and resulting market dislocations will provide opportunities to grow through low-cost mergers and acquisitions and we remain vigilant to take advantage of these opportunities as and when they arise.

We are committed to operating in a safe and socially responsible manner and the safety of our employees and contractors is of primary importance. We are proud of our green-house gas emission reduction initiatives and achievements in 2023 and we will endeavour to deliver year-on-year reductions in the carbon intensity of our production.  

As always, we extend gratitude to our shareholders for their ongoing support and to our employees for their relentless commitment to making i3 a success. Though we operate within a macro environment that is beyond our control, we believe we are doing the right things to create a very valuable business that can weather good times and bad.

i3 will continue to manage our Canadian and UK businesses in a manner that maximizes value creation and shareholder returns.

"John Festival" John Festival Non-Executive Chairperson 26 April 2024

"Majid Shafiq" Majid Shafiq Chief Executive Officer 26 April 2024

 

 

Consolidated Statement of Comprehensive Income

	Notes	Year Ended 31 December 2023	Year Ended 31 December 2022
		£'000	£'000
Revenue	6	146,314	208,436
Production costs		(71,348)	(76,418)
Gain / (loss) on risk management contracts	18	2,048	(18,990)
Depreciation and depletion	12	(38,232)	(34,339)
Gross profit		38,782	78,689
Administrative expenses	7	(9,861)	(15,038)
Loss on asset dispositions		-	(9)
Operating profit		28,921	63,642
Finance income		640	-
Finance costs	8	(8,663)	(7,865)
Profit before tax		20,898	55,777
Tax charge	9	(5,751)	(13,826)
Profit for the year		15,147	41,951
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Foreign exchange differences on translation of foreign operations		(4,222)	6,688
Other comprehensive (loss) / income for the year, net of tax		(4,222)	6,688
Total comprehensive income for the year		10,925	48,639
Earnings per share		Pence	Pence
Earnings per share - basic	11	1.26	3.60
Earnings per share - diluted	11	1.24	3.43

 

All operations are continuing.

The accompanying notes form an integral part of these financial statements.

Consolidated Statement of Financial Position

Assets	Notes	31 December 2023	31 December 2022
Non-current assets		£'000	£'000
Property, plant & equipment	12	205,667	236,465
Exploration and evaluation assets	13	63,133	62,060
Other non-current assets		-	74
Total non-current assets		268,800	298,599
Current assets
Cash and cash equivalents		23,507	16,560
Trade and other receivables	14	20,534	34,843
Income taxes receivable		205	-
Risk management contracts	18	1,701	1,111
Inventory		1,847	2,099
Total current assets		47,794	54,613
Current liabilities
Trade and other payables	15	(27,640)	(45,973)
Income taxes payable		-	(9,873)
Risk management contracts	18	(136)	(381)
Borrowings and leases	16	(14,001)	(27,241)
Decommissioning provision	17	(3,244)	(3,190)
Total current liabilities		(45,021)	(86,658)
Net current assets / (liabilities)		2,773	(32,045)
Non-current liabilities
Borrowings and leases	16	(20,568)	-
Decommissioning provision	17	(78,109)	(90,141)
Deferred tax liability	9	(9,817)	(11,667)
Other non-current liabilities		(84)	-
Total non-current liabilities		(108,578)	(101,808)
Net assets		162,995	164,746
Capital and reserves
Ordinary shares	19	120	119
Deferred shares	19	50	50
Share premium	19	-	48,646
Share-based payment reserve	20	6,892	6,311
Warrants - LNs	16	-	2,045
Foreign currency translation reserve		3,830	8,052
Retained earnings		152,103	99,523
Shareholders' funds		162,995	164,746

 

The accompanying notes form an integral part of these financial statements.

The consolidated financial statements of i3 Energy plc, company number 10699593, were approved by the Board of Directors and authorised for issue on 26 April 2024. Signed on behalf of the Board of Directors by:

 

"signed"

Majid Shafiq, Director

Consolidated Statement of Changes in Equity

		Ordinary shares	Share premium	Deferred shares	Share-based payment reserve	Warrants - LN	Foreign currency translation reserve	Retained earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2021		113	44,203	50	9,102	2,045	1,364	81,289	138,166
Total comprehensive income for the year		-	-	-	-	-	6,688	41,951	48,639
Transactions with owners:
Exercise of options	20	6	4,443	-	(3,883)	-	-	(6,324)	(5,758)
Share-based payment expense	20	-	-	-	1,092	-	-	-	1,092
Dividends declared in 2022	19	-	-	-	-	-	-	(17,393)	(17,393)
Balance at 31 December 2022		119	48,646	50	6,311	2,045	8,052	99,523	164,746
Total comprehensive income for the year		-	-	-	-	-	(4,222)	15,147	10,925
Capital reduction		-	(50,731)	-	-	-	-	50,731	-
Transactions with owners:
Exercise of options	20	-	40	-	-	-	-	-	40
Exercise of warrants	20	1	2,045	-	-	(2,045)	-	-	1
Share-based payment expense	20	-	-	-	581	-	-	-	581
Dividends declared in 2023	19	-	-	-	-	-	-	(13,298)	(13,298)
Balance at 31 December 2023		120	-	50	6,892	-	3,830	152,103	162,995

 

The accompanying notes form an integral part of these financial statements.

The following describes the nature and purpose of each reserve within equity:

Reserve	Description and purpose
Ordinary shares	Represents the nominal value of shares issued
Share premium account	Amount subscribed for share capital in excess of nominal value
Deferred shares	Represents the nominal value of shares issued, the shares have full capital distribution (including on wind up) rights and do not confer any voting or dividend rights, or any of redemption
Share-based payment reserve	Represents the accumulated balance of share-based payment charges recognised in respect of share options granted by the Company less transfers to retained deficit in respect of options exercised or cancelled/lapsed
Warrants - LNs	Represents the accumulated balance of share-based payment charges recognised in respect of warrants granted by the Company in respect to warrants granted to the loan note holders
Foreign currency translation reserve	Exchange differences arising on consolidating the assets and liabilities of the Group's non-Pound Sterling functional currency operations (including comparatives) recognised through the Consolidated Statement of Other Comprehensive Income.
Retained earnings	Cumulative net gains and losses recognised in the Consolidated Statement of Comprehensive Income

 

Note:  The issued share capital comprises of both ordinary and deferred shares and the total nominal value exceeds the required minimum issued capital of £50,000.

Consolidated Statement of Cash Flow

	Notes	Year ended 31 December 2023	Year ended 31 December 2022 * Restated
OPERATING ACTIVITIES		£'000	£'000
Profit before tax		20,898	55,777
Adjustments for:
Depreciation and depletion	12	38,232	34,339
Loss on asset dispositions		-	9
Finance costs	8	8,663	7,865
Unrealised (gain) on risk management contracts	18	(860)	(858)
Non-cash other income		-	(215)
Unrealised FX loss	7	15	110
Share-based payments expense - employees (including NEDs)	7	581	1,092
Expenditure on decommissioning oil and gas assets	17	(3,722)	(2,190)
Current tax expense	9	(7,423)	(10,002)
Changes in non-cash working capital - operating activities	4	(6,776)	14,728
Net cash from operating activities		49,608	100,655
INVESTING ACTIVITIES
Acquisitions		(133)	(531)
Additions to property, plant & equipment	12	(23,155)	(74,445)
Disposal of property, plant & equipment		381	621
Additions to exploration and evaluation assets	13	(1,281)	(12,327)
Tax credit for R&D expenditure	9	184	-
Changes in non-cash working capital - investing activities	4	(5,232)	8,556
Net cash used in investing activities		(29,236)	(78,126)
FINANCING ACTIVITIES
Exercise of warrants and options		42	635
Employee tax on exercised share options		-	(6,432)
Repayment of H1-2019 LN facility	16	(28,856)	-
Issuance of debt facility	16	44,481	-
Payment of deferred finance costs	16	(2,039)	-
Principal payments on debt facility	16	(8,636)	-
Interest and other finance charges paid	8	(3,513)	(2,330)
Lease payments	16	-	(74)
Dividends declared	19	(13,298)	(17,393)
Changes in non-cash working capital - financing activities	4	(1,758)	2,040
Net cash used in financing activities		(13,577)	(23,554)
Effect of exchange rate changes on cash		152	2,250
Net Increase in cash and cash equivalents		6,947	1,225
Cash and cash equivalents, beginning of year		16,560	15,335
CASH AND CASH EQUIVALENTS, END OF YEAR		23,507	16,560

* The classification of certain comparative lines has been restated - see Note 2. Additional cash flow information is provided in note 4. The accompanying notes form an integral part of these financial statements.

Notes To the Group Financial Statements

1        General information

i3 Energy plc ("the Company") is a Public Company, limited by shares, registered in England and Wales under the Companies Act 2006 with registered number 10699593. The Company's ordinary shares are traded on the Toronto Stock Exchange and the AIM Market operated by the London Stock Exchange. The address of the Company's registered office is New Kings Court, Tollgate, Chandler's Ford, Eastleigh, Hampshire, SO53 3LG.

The Company and its subsidiaries (together, "the Group") principal activities consist of oil and gas production in Western Canadian Sedimentary Basin ("WCSB") and of the appraisal of oil and gas assets on the UK Continental Shelf ("UKCS").

2        Basis of preparation

The financial statements of i3 Energy plc have been prepared in accordance with UK-adopted international accounting standards in accordance with the requirements of the Companies Act 2006 and in accordance with the requirements of the AIM rules.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The financial information is presented in Pounds Sterling (£, GBP), which is the Company's functional currency, and rounded to the nearest thousand unless otherwise stated. The functional currency of the Company's UK subsidiary, i3 Energy North Sea Limited, is GBP, and the functional currency of its Canadian subsidiary, i3 Energy Canada Limited, is CAD. A summary of period-average and period-end exchange rates is presented in the table below:

	Year ended 31 December 2023	Year ended 31 December 2022
Period-average GBP:CAD exchange rate	1.6778	1.6073
Period-end GBP:CAD exchange rate	1.6808	1.6283

 

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied unless otherwise stated.

Basis of Consolidation

The consolidated financial statements consolidate the audited financial statements of i3 Energy plc and the financial statements of its subsidiary undertakings made up to 31 December 2023.

Subsidiaries are entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses, and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. The use of this basis of accounting takes into consideration the Group's current and forecast financing position, additional details of which are provided in the going concern section of the Directors' Report.

 

Reclassification of comparative information

Following an increase in decommissioning expenditure in 2023, first payments of Canadian corporate income tax, and a review of the financial statements, the Group has elected to change the presentation and classification of certain items within the Consolidated Statement of Financial Position and the Consolidated Statement of Cash Flow. There has been no change to the reported total comprehensive income, net assets or net current assets, or total increase in cash and cash equivalents for the year ended 31 December 2022. These reclassification changes are as follows:

·      Income taxes payable of £9,873 thousand were previously presented within Trade and other payables. This liability is now presented as a separate line item of the Consolidated Statement of Financial Position. This reclassification had no impact on total current liabilities or net current liabilities.

·      Expenditure on decommissioning oil and gas assets of £437 thousand has been reclassified from investing activities to operating activities within the Consolidated Statement of Cash Flow.

·      Non-cash changes in working capital are now presented separately in each of the cash from or used in operating activities, investing activities, and financing activities sections of the Consolidated Statement of Cash Flow. This had no impact on the respective subtotals within each section. Further cash flow information is provided in note 4.

 

3        Significant accounting policies

Financial instruments

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and cash held on current account or on short-term deposits at variable interest rates with original maturity periods of up to three months. Any interest earned is accrued monthly and classified as interest income within finance income.

Trade and other receivables

Trade and other receivables are initially recognised at fair value when related amounts are invoiced then carried at this amount less any impairment of these receivables using the expected credit loss model. A provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of receivables is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Trade and other payables

These financial liabilities are all non-interest bearing and are initially recognised at the fair value of the consideration payable.

Loan Notes

These financial liabilities are all interest bearing and are initially recognised at amortised cost and include the transaction costs directly related to the issuance. The transaction costs are amortised using the effective interest rate method over the life of the Loan Notes.

Financial liabilities at Fair Value Through Profit or Loss ("FVTPL")

Financial liabilities at FVTPL comprise of the Group's risk management contracts and non-current accounts payable. Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration that may be paid by an acquirer as part of a business combination to which IFRS 3 applies, (ii) held for trading, or (iii) it is designated as at FVTPL.

 

A financial liability is classified as held for trading if:

·      it has been incurred principally for the purpose of repurchasing it in the near term; or

·      on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or

·      it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading or contingent consideration that may be paid by an acquirer as part of a business combination may be designated as at FVTPL upon initial recognition if:

·      such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

·      the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed, and its performance is evaluated on a fair value basis, in accordance with the Company's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

·      it forms part of a contract containing one or more embedded derivatives, and IFRS Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the 'other gains and losses' line item in the consolidated statement of comprehensive income.

Risk management contracts

Financial risk management contracts are measured and recognised in accordance with the Group's accounting policy for financial liabilities at FVTPL as described above. Physical risk management contracts represent physical delivery sales contracts in the ordinary course of business and are therefore not recorded at fair value in the consolidated financial statements. Settlements on these physical risk management contracts are recognised within realised gains or losses on risk management contracts at the time of settlement.

Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.

Leases

Lease liabilities are initially measured at the present value of lease payments unpaid at the commencement date. Lease payments are discounted using the incremental borrowing rate (being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions) unless the rate implicit in the lease is available. The Group currently uses the rate implicit in the lease as the discount rate for all leases. For the purposes of measuring the lease liability, lease payments comprise fixed payments.

Right-of-use assets are measured at cost, which comprises the initial measurement of the lease liability, plus any lease payments made prior to lease commencement, initial direct costs incurred and the estimated cost of restoration or decommissioning, less any lease incentives received. The right-of-use assets is depreciated on a straight-line basis over their expected useful lives. Right-of-use assets are subject to an impairment test if events and circumstances indicate that the carrying value may exceed the recoverable amount.

Lease repayments made are allocated to capital repayment and interest so as to produce a constant periodic rate of interest on the remaining lease liability balance.

 

Right-of-use assets are presented within property, plant, and equipment. Lease liabilities are presented within borrowings and leases. In the cash flow statement, lease repayments (both the principal and interest portion) are presented within cash used in financing activities, except for payments for leases of short-term and low-value assets and variable lease payments, which are presented within cash flows from operating activities.

Leases of low-value items (such as office equipment) and short-term leases (where the lease term is 12 months or less) are expensed on a straight-line basis to the Consolidated Statement of Comprehensive Income.

Inventory

Inventories comprise oil and gas in tanks and field parts and supplies, all of which are stated at the lower of production cost (including royalties, depletion and amortisation of plant, property, and equipment), and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less marketing costs. The cost of inventory is recognised in production costs and the royalty portion in royalties in the period in which the related revenue is recognised.

Equity

Equity instruments issued by the Company are usually recorded at the proceeds received, net of direct issue costs, and allocated between called up share capital and share premium accounts as appropriate.

Foreign currency

Transactions denominated in currencies other than functional currency are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate of exchange ruling at the balance sheet date. All differences that arise are recorded in the consolidated statement of comprehensive income. The functional currency of the Company is GBP, and the Group results and financial position are presented in GBP.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in a separate component of equity (attributed to non‑controlling interests as appropriate).

Taxation

Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity respectively.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

 

Deferred tax is calculated at the tax rates that are enacted or substantively enacted. Deferred tax assets and liabilities are not discounted.

Intangible assets - Exploration and evaluation expenditures (E&E)

Drilling costs and intangible licences

The Group applies the successful efforts method of accounting for oil and gas assets, having regard to the requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources. Costs incurred prior to obtaining the legal rights to explore an area are expensed immediately to the consolidated statement of comprehensive income.

Expenditure incurred on the acquisition of a licence interest is initially capitalised within intangible assets on a field-by-field basis. Costs are held, unamortised, within Petroleum mineral leases until such time as the exploration phase of the field area is complete or commercial reserves have been discovered. The cost of the licence is subsequently transferred into property, plant and equipment and depreciated over its estimated useful economic life.

Exploration expenditure incurred in the process of determining exploration targets is capitalised initially within intangible assets as drilling costs. Drilling costs are initially capitalised on a well-by-well basis until the success or otherwise has been established. Drilling costs are written off on completion of a well unless the results indicate that hydrocarbon reserves exist and there is a reasonable prospect that these reserves are commercially viable. Drilling costs are subsequently transferred into 'Drilling expenditure' within property, plant and equipment and depreciated over their estimated useful economic life.

Impairment

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. This includes consideration of the IFRS 6 impairment indicators for any intangible exploration and evaluation expenditure capitalised as intangible assets. Examples of indicators of impairment include whether:

(a) the period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future and is not expected to be renewed.

(b) substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned.

(c) exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area.

(d) sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount, which is the higher of its fair value less costs to sell and its value in use. Any impairment identified is recorded in the consolidated statement of comprehensive income.

Development expenditure

When the technical feasibility and commercial viability of extracting a mineral resource are demonstrable, the net capitalised costs incurred to date in respect of those reserves are reclassified as oil and gas assets within property, plant and equipment. This typically occurs when commercial reserves have been found and a field development plan has been approved. The costs are subsequently depreciated from the commencement of production as described in the accounting policy for property, plant and equipment.

 

Property, plant and equipment

Oil and gas assets - cost

Oil and gas assets are accumulated generally on a cost generating unit (CGU) basis and represent the cost of developing the commercial reserves discovered and bringing them into production, together with the intangible exploration and evaluation asset expenditures incurred in finding commercial reserves transferred from intangible exploration and evaluation assets. The cost of oil and gas properties also includes the cost of directly attributable overheads, borrowing costs capitalised and the cost of recognising provision for future restoration and decommissioning.

Oil and gas assets - depreciation and depletion

Oil properties, including certain related pipelines, are depreciated using a unit-of-production method. The cost of producing wells is amortised over proved plus probable reserves. Licence acquisition, common facilities and future decommissioning costs are amortised over total proved plus probable reserves. The unit-of-production rate for the depreciation of common facilities takes into account expenditures incurred to date, together with estimated future capital expenditure expected to be incurred relating to as yet undeveloped reserves expected to be processed through these common facilities.

Oil and gas assets - impairment

An impairment test is performed in accordance with IAS 16 Property, Plant and Equipment whenever events and circumstances arising during the development or production phase indicate that the carrying value of an oil and gas property may exceed its recoverable amount.

The carrying value is compared against the expected recoverable amount of the asset, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves. The cash-generating unit applied for impairment test purposes is generally the field, except that a number of field interests may be grouped as a single cash-generating unit where the cash inflows of each field are interdependent.

Any impairment identified is charged to the statement of comprehensive income. Where conditions giving rise to impairment subsequently being reversed, the effect of the impairment charge is also reversed as a credit to the statement of comprehensive income, net of any depletion that would have been charged since the impairment.

Non-oil and gas assets

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all property, plant, and equipment to write off the cost less estimated residual value of each asset over its expected useful economic life on a straight-line basis at the following annual rates:

·      Office equipment - 20% or straight line over the life of the equipment, whichever is the lesser

·      Field equipment - between 5% and 25%

All assets are subject to annual impairment reviews where indicators of impairment are present.

Property, plant, and equipment - disposals

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

 

Decommissioning provision

Liabilities for decommissioning costs are recognised when the Group has an obligation to plug and abandon a well, dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reliable estimate of that liability can be made. Where an obligation exists for a new facility or item of plant, such as oil production or transportation facilities, this liability will be recognised on construction or installation. Similarly, where an obligation exists for a well, this liability is recognised when it is drilled. An obligation for decommissioning may also crystallise during the period of operation of a well, facility or item of plant through a change in legislation or through a decision to terminate operations; an obligation may also arise in cases where an asset has been sold but the subsequent owner is no longer able to fulfil its decommissioning obligations, for example due to bankruptcy. The amount recognised is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. The provision for the costs of decommissioning wells, production facilities and pipelines at the end of their economic lives is estimated using existing technology, at future prices, depending on the expected timing of the activity, and discounted using a risk-free rate.

An amount equivalent to the decommissioning provision is recognised as part of the corresponding intangible asset (in the case of an exploration or appraisal well) or property, plant, and equipment. The decommissioning portion of the property, plant and equipment is subsequently depreciated at the same rate as the rest of the asset. Other than the unwinding of discount on or utilisation of the provision, any change in the present value of the estimated expenditure is reflected as an adjustment to the provision and the corresponding asset where that asset is generating or is expected to generate future economic benefits. If government assistance is obtained to reduce the liability, the carrying value of the decommissioning provision and the corresponding E&E or PP&E asset are reduced by the estimated amount of the extinguished liability.

Joint operations

The majority of the Group's exploration and production activities are conducted jointly with others and, accordingly, these consolidated financial statements reflect only the Group's interest in such activities.

Revenue

Revenue from contracts with customers is recognised, net of royalties, when or as the Group satisfies a performance obligation by transferring control of a promised good or service to a customer. The transfer of control of oil, natural gas, natural gas liquids and petroleum, and other items usually coincides with title passing to the customer and the customer taking physical possession. The Group principally satisfies its performance obligations at a point in time; the amounts of revenue recognised relating to performance obligations satisfied over time are not significant.

When, or as, a performance obligation is satisfied, the Group recognises as revenue the amount of the transaction price that is allocated to that performance obligation. The transaction price is the amount of consideration to which the Group expects to be entitled. The transaction price is allocated to the performance obligations in the contract based on standalone selling prices of the goods or services promised.

Contracts for the sale of commodities are typically priced by reference to quoted prices. Revenue from term commodity contracts is recognised based on the contractual pricing provisions for each delivery. Certain of these contracts have pricing terms based on prices at a point in time after delivery has been made. Revenue from such contracts is initially recognised based on relevant prices at the time of delivery and subsequently adjusted as appropriate. All revenue from these contracts, both that recognised at the time of delivery and that from post-delivery price adjustments, is disclosed as revenue from contracts with customers.

Royalty income is recognised as it accrues in accordance with the terms of the overriding royalty agreements.

Processing income is recognised at the time the services are rendered.

Finance income

Finance income consists of bank interest on cash and cash equivalents which is recognised as accruing on a straight-line basis, over the period of the deposit.

 

Share-based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company's estimate of equity instruments that will eventually vest. At each balance sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. When non-employee share options or warrants are exercised, the initial fair value ascribed to the instruments and recorded as a reserve is reclassified to share premium.

Business combinations

Acquisitions of business are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition‑date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition‑related costs are recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognised at their fair value at the acquisition date.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non‑controlling interests in the acquiree, and the fair value of the acquirers previously held equity interest in the acquiree (if any) over the net of the acquisition‑date amounts of the identifiable assets acquired, and the liabilities assumed. If, after reassessment, the net of the acquisition‑date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non‑controlling interests in the acquiree and the fair value of the acquirers previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Segmental reporting

In the opinion of the Board of Directors, being the Chief Operating Decision Maker, the Group has one class of business, being the exploration for, and the development and production of, oil and gas reserves and other related activities. The Group's primary reporting format is determined to be the geographical segment according to the location of the oil and gas asset, currently Canada and UK / Corporate.

Changes in accounting standards

The standards which applied for the first time this year have been adopted and have not had a material impact.

Standards which are in issue but not yet effective:

At the date of authorisation of these financial statements, the following Standards and Interpretation, which have not yet been applied in these financial statements, were in issue but not yet effective. The Group does not anticipate they will have a material impact.

i.      Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

ii.     Amendments to IAS 1 Classification of Liabilities as Current or Non-current

iii.    Amendments to IAS 1 Non-current Liabilities with Covenants

iv.    Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements

v.     Amendments to IFRS 16 Lease Liability in a Sale and Leaseback

 

The Group has not early adopted any of the above standards and intends to adopt them when they become effective.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements using accounting policies consistent with IFRS requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses. The preparation of financial statements also requires the Directors to exercise judgement in the process of applying the accounting policies. Changes in estimates, assumptions and judgements can have a significant impact on the financial statements.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively from the period in which the estimates are revised.

Critical Accounting Judgements

The following are critical judgements, apart from those involving estimations (which are presented separately below), that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognises in the financial statements.

Carrying value of intangible exploration and evaluation assets

At 31 December 2023, the Group held oil and gas E&E assets of £63.1 million (2022: £62.1 million), note 13. The carrying value of E&E assets are assessed for impairment when there is an indication that the asset may be impaired. In making this judgement the Management considers the indicators of impairment in the intangible exploration and evaluation asset accounting policies set out above. For its UK assets, management has considered the results of the 31 December 2022 impairment test which used a discounted cash flow model of a one well development of the Serenity field and has concluded that there were no developments in 2023 which would change the conclusions reached at the time, and therefore that no indicators of impairment were present. A one well development may be dependent on access to infrastructure at neighbouring fields which may not become available to the Group, and therefore the commercial development of Serenity is not certain.  

For its Canada assets, management has considered the recency of the land purchases, budgeted spend, the plans to further appraise the Clearwater play and the fact that there is no observable data which would suggest that the carrying value of the Clearwater play is below that of its value from successful development or sale, and have concluded that no indicators of impairment were present.

Carrying value of property, plant and equipment - oil and gas assets

At 31 December 2023, the Group held oil and gas PP&E assets of £205.6 million (2022: £236.4 million), note 12. These assets are subject to an annual impairment assessment under IAS 36 'Impairment of assets' whereby management is first required to consider if there are any indicators of impairment, and if so, management is then required to estimate the asset's recoverable amounts. The judgement over indicators of impairment considers several internal and external factors, including changes in estimated commercial reserves, changes in commodity prices, and changes in expected future operating and capital expenditure, decommissioning expenditure, the NPV10 of 2P reserves per the 31 December 2023 independent competent person's report, and increases in cost of capital which may indicate a higher discount rate is likely required in assessing the asset's recoverable amount. There is also judgement in defining the Group's cash-generating units, which is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. After considering the above, Management has concluded that there were no indicators of impairment of oil and gas PP&E assets as at 31 December 2023.

 

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Commercial hydrocarbon reserves estimates

Commercial hydrocarbon reserves are those that can be economically extracted from the Group's oil and gas assets. These estimates are based on information compiled by independent qualified persons, GLJ Ltd., as at 31 December 2023 and 31 December 2022 and consider a number of factors, including assumptions about future commodity prices, production rates, operating costs, exchange rates, and various geological and geophysical technical factors to model reservoir size, quality, and extractability. Reserve estimates may change from period to period. Changes to reserves estimates may have a material impact on the depletion charge for oil and gas PP&E assets, the decommissioning provision, the carrying value of deferred tax assets, and the Group's conclusions around indicators of impairment for oil and gas PP&E assets. The reserve reports are available at https://i3.energy/. Highlights from the 31 December 2023 estimates are provided in note 24.    

The Group estimates it commenced the year with 182 MMboe of proved plus probable reserves. A 2.0 MMboe increase/decrease to this estimate would have decreased/increased the oil and gas depletion charge for the period by £420 thousand, respectively.

Decommissioning costs

At 31 December 2023 the Group had recorded a decommissioning provision of £81.4 million (2022: £93.3 million). In estimating the amount of the provision, Management makes various assumptions around costs, time to abandonment and inflation rates, which are discounted at long term government bond rates, see note 17.

The most difficult, subjective, or complex assumptions include the inflation rate and the discount rate, which have been selected based on market rates published by the Bank of Canada. A 0.5% increase/decrease in the inflation rate would have increased/decreased the decommissioning provision by £12.4 million and £10.5 million, respectively. A 0.5% increase/decrease in the discount rate would have decreased/increased the decommissioning provision by £10.3 million and £12.3 million, respectively. A 2.0% increase/decrease in the inflation rate would have increased/decreased the decommissioning provision by £61.6 million and £29.8 million, respectively. A 2.0% increase/decrease in the discount rate would have decreased/increased the decommissioning provision by £29.2 million and £62.1 million, respectively.

Recognition and measurement of deferred tax assets

At 31 December 2023, the Group held deferred tax liabilities of £9.8 million (2022: £11.7 million) which result from temporary differences at the Group's Canadian operations. This liability has been reduced by certain deferred tax assets from deductible temporary differences at the Group's Canadian operations. In accordance with IAS 12 'Income Taxes', deferred tax assets shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. The Group has generated positive cash flows and profits from its Canadian operations in 2023 and expects to continue to do so in the future. Management has applied judgement in determining the extent to which it is probable that taxable profits will be available based on estimates of future profits, which include estimates of commercial reserves, oil, gas and NGL prices, operating and capital expenditure, and decommissioning expenditure. If future taxable profits differ from these estimates, the deferred tax asset associated with these deductible temporary differences could be derecognised and result in a deferred tax charge to the consolidated statement of comprehensive income.

 

4        Cash flow information

Included within cash and cash equivalents is £321 thousand of restricted cash (2022: £354 thousand), which relates to guarantees for product marketing. The debt reconciliation is shown in note 16.

A reconciliation of the changes in non-cash working capital balances for the year ended 31 December 2023 and their impacts on the various sections of the consolidated statement of cash flow is presented below:

	Trade and other receivables	Inventory	Trade and other payables	Income taxes receivable / (payable)	Other non-current liabilities	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Closing balance	20,534	1,847	(27,640)	205	(84)
Opening balance	34,843	2,099	(45,973)	(9,873)	-
Increase / (decrease) in cash	14,309	252	(18,333)	(10,078)	84	(13,766)
Generated from / (used in):
Operating activities	13,835	252	(10,869)	(10,078)	84	(6,776)
Investing activities	474	-	(5,706)	-	-	(5,232)
Financial activities	-	-	(1,758)	-	-	(1,758)
Increase / (decrease) in cash	14,309	252	(18,333)	(10,078)	84	(13,766)

 

A reconciliation of the changes in non-cash working capital balances for the year ended 31 December 2022 and their impacts on the various sections of the consolidated statement of cash flow is presented below:

	Trade and other receivables	Inventory	Trade and other payables	Income taxes payable	Other non-current liabilities	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Closing balance	34,843	2,099	(45,973)	(9,873)	-
Opening balance	25,503	665	(19,709)	-	(557)
Change	(9,340)	(1,434)	26,264	9,873	(557)
Non-cash gain on DPIB	-	-	-	-	518
Increase / (decrease) in cash	(9,340)	(1,434)	26,264	9,873	(39)	25,324
Generated from / (used in):
Operating activities	(8,543)	(1,434)	14,832	9,873	-	14,728
Investing activities	(797)	-	10,624	-	(1,271)	8,556
Financial activities	-	-	808	-	1,232	2,040
Increase / (decrease) in cash	(9,340)	(1,434)	26,264	9,873	(39)	25,324

 

5        Segmental reporting

The Chief Operating Decision Maker (CODM) is the Board of Directors. They consider that the Group operates as two segments, as follows:

·      UK / Corporate - That of Corporate activities in the UK and oil and gas exploration, appraisal and development on the UKCS.

·      Canada - That of oil and gas production in the WCSB.

Such components are identified on the basis of internal reports that the Board reviews regularly.

The following is an analysis of the Group's revenue and results by reportable segment in 2023:

 

	UK / Corporate £'000	Canada £'000	Total £'000
Revenue	-	146,314	146,314
Production costs	-	(71,348)	(71,348)
Loss on risk management contracts	-	2,048	2,048
Depreciation and depletion	(4)	(38,228)	(38,232)
Gross (loss) / profit	(4)	38,786	38,782
Administrative expenses	(3,199)	(6,662)	(9,861)
(Loss) on bargain purchase and asset dispositions	-	-	-
Operating (loss) / profit	(3,203)	32,124	28,921
Finance income	-	640	640
Finance costs	(5,590)	(3,073)	(8,663)
(Loss) / profit before tax	(8,793)	29,691	20,898
Tax (charge) for the year	(341)	(5,410)	(5,751)
(Loss) / profit for the year	(9,134)	24,281	15,147

 

The following is an analysis of the Group's revenue and results by reportable segment in 2022:

	UK / Corporate £'000	Canada £'000	Total £'000
Revenue	-	208,436	208,436
Production costs	-	(76,418)	(76,418)
Loss on risk management contracts	-	(18,990)	(18,990)
Depreciation and depletion	(4)	(34,335)	(34,339)
Gross (loss) / profit	(4)	78,693	78,689
Administrative expenses	(6,821)	(8,217)	(15,038)
(Loss) on bargain purchase and asset dispositions	-	(9)	(9)
Operating (loss) / profit	(6,825)	70,467	63,642
Finance costs	(5,179)	(2,686)	(7,865)
(Loss) / profit before tax	(12,004)	67,781	55,777
Tax (charge) / credit for the year	-	(13,826)	(13,826)
(Loss) / profit for the year	(12,004)	53,955	41,951

 

The following is an analysis of the Group's assets and liabilities by reportable segment as at 31 December 2023 and the capital expenditure for the year then ended:

	UK / Corporate £'000	Canada £'000	Total £'000
Total assets	56,041	260,553	316,594
Total liabilities	(35,606)	(117,993)	(153,599)
Capital expenditure - E&E	275	1,006	1,281
Capital expenditure - PP&E	-	23,155	23,155

The following is an analysis of the Group's assets and liabilities by reportable segment as at 31 December 2022 and the capital expenditure for the year then ended:

 

	UK / Corporate £'000	Canada £'000	Total £'000
Total assets	57,500	295,712	353,212
Total liabilities	(30,166)	(158,300)	(188,466)
Capital expenditure - E&E	5,650	6,677	12,327
Capital expenditure - PP&E	-	75,793	75,793

 

6        Revenue

All revenue is derived from contracts with customers and is comprised of the sale of oil and gas and processing income, net of royalties, as follows:

	2023 £'000	2022 £'000
Oil and condensate	95,628	113,003
Natural gas liquids	23,319	40,142
Natural gas	39,191	77,656
Royalty interest	3,263	4,890
Oil and gas sales	161,401	235,691
Royalties	(21,397)	(33,536)
Revenue from the sale of oil and gas	140,004	202,155
Processing income	5,819	5,995
Other operating income	491	286
Total revenue	146,314	208,436

All revenue is from the Group's Canadian operations.  Revenue from the sale of oil and natural gas liquids is recognised at the point in time when title transfers to the purchaser. Processing income is recognised at the time the service is rendered.

During the year ended 31 December 2023, three (2022: three) customers individually totalled more than 10% of total revenues, totalling 87% (2022: 81%) in aggregate and 40%, 26%, and 21%, individually (2022: 35%, 25%, and 32%).

7        Administrative expenses

	2023 £'000	2022 £'000
Directors' fees	345	323
Employee costs*	5,293	9,982
Professional fees**	1,918	1,830
Other	2,419	2,285
Realised FX (gain) / loss	(129)	505
Unrealised FX loss	15	113
Total administrative expenses	9,861	15,038

* Group staff costs comprised:

 

 

	2023 £'000	2022 £'000
Wages, salaries, and benefits	7,232	11,602
Cash pool LTIP awards	185	-
Social security costs	362	1,189
Contributions to retirement savings plans	331	304
Share-based payments expense - employees (including NEDs)	581	1,092
Total staff costs	8,691	14,187
Capitalised salaries and overhead recoveries	(3,398)	(4,205)
Charge to the profit or loss	5,293	9,982

i3 Energy plc had an average of two staff during the year ended 31 December 2023 (2022: two) and paid £1,073 thousand of wages, salaries and benefits and £102 thousand of social security costs (2022: £1,050 thousand and £137 thousand, respectively). The Non-Executive Directors of the Group are not considered staff, and their remuneration is disclosed in note 10.

On 9 November 2023 the Group granted £1,837 thousand of Cash pool LTIP awards which vest according to the same terms of the 9 November 2023 share option grant as disclosed in note 20. The resulting expense is recognised in administrative costs over the vesting term and presented within trade and other payables and other non-current liabilities depending on the expected time of payment.

The average number of persons employed by the Group, including Executive Directors, was:

Average number of persons employed	2023 Number	2022 Number
Operations	33	31
Corporate and administration	28	25
Total	61	56

** Included within professional fees are fees payable to the Company's auditor and its associates for the following:

	2023 £'000	2022 £'000
Audit services
The audit of the Company's annual accounts	142	130
Total audit fees	142	130
Advisory on certain employment matters	1	1
Procedures related to the Group's interim financial statements	3	3
Total	146	134

 

 

8        Finance costs

 

	2023 £'000	2022 £'000
Accretion of loan notes (note 16)	1,615	3,386
Cash interest expense on loan notes (note 16)	951	2,309
Unwinding of discount on decommissioning provision (note 17)	2,771	2,667
Interest on Debt Facility (Note 16)	2,258	-
Amortisation of deferred finance costs (Note 16)	667	-
Bank charges and interest on creditors	305	21
(Gain) / loss on financial instrument at FVTPL (note 15)	-	(518)
FX loss on Debt Facility (Note 16)	96	-
Total finance costs	8,663	7,865

9        Taxation

Taxation credit

The below table reconciles the tax charge for the year to the profit before tax per the consolidated statement of comprehensive income.

	2023 £'000	2022 £'000
Profit before income tax	20,898	55,777
Rate of Corporate Tax in Canada	23%	23%
Expected tax charge	4,807	12,829
Effects of:
Interest and other not deductible for SCT or EPL	1,155	1,993
Permanent differences	530	1,213
Foreign tax rate difference	(619)	(5,041)
Change in estimated pool balances	-	22
Derecognition of deferred tax asset	62	2,810
R&D tax credit received	(184)	-
Total income tax charge	5,751	13,826

 

 

Of which:	2023 £'000	2022 £'000
Current tax charge	7,239	10,002
Deferred tax (credit) / charge	(1,488)	3,824
Total income tax charge	5,751	13,826

The current tax charge of £7,239 thousand in 2023 resulted from taxable income in the Group's Canadian subsidiary, i3 Canada, which was payable on instalment throughout 2023 and into the first half of 2024. In 2023 the Group received £184 thousand in R&D tax credit refunds in the UK in respect of the 2020 and 2021 fiscal years which is included in the current tax expense.

 

In 2022 the Energy Profits Levy (EPL) was introduced at a rate of 25% with effect from 26 May 2022 and increased to 35% effective 1 January 2023. This, along with the Ring Fence Corporation Tax (RFCT) at 30% and the Supplementary Charge (SCT) of 10% brings the overall tax rate in the UK to 75%. The EPL will remain in effect until 31 March 2028, although in 2023, the UK governance announced that the EPL will switch off if commodity prices remain below threshold prices. The Group will not be impacted by the EPL until such time as taxable profits are generated in the UK. The combined corporate rate of taxation in Canada remained unchanged at 23%.

Deferred tax

The components of the net deferred tax asset and the movement during the year is summarised as follows:

 

	At 31 December 2022	Acquired during the year	Recognised in income	FX movement	At 31 December 2023
	£'000	£'000	£'000	£'000	£'000
UK:
Deferred tax assets:
Losses	37,520	-	847	-	38,367
Unrecognised deferred tax asset	(15,123)	-	(641)	-	(15,764)
Deferred tax liabilities:
PP&E	(22,397)	-	(206)	-	(22,603)
Net deferred tax asset	-	-	-	-	-
Canada:
Deferred tax assets:
Decommissioning provision	21,466	-	(2,088)	(667)	18,711
Losses	-	-	-	-	-
Other	234	-	(13)	(7)	214
Unrecognised deferred tax asset	(4,180)	-	279	130	(3,771)
Deferred tax liabilities:
Risk management contracts	(168)	-	(198)	6	(360)
PP&E	(29,019)	-	3,508	900	(24,611)
Net deferred tax liability	(11,667)	-	1,488	362	(9,817)
Net deferred tax liability	(11,667)	-	1,488	362	(9,817)

Deferred tax assets of £15,764 thousand and £3,771 thousand have not been recognised in respect of tax losses and allowances in the UK and Canada, respectively, due to uncertainty over the availability of future taxable profits to offset these losses against. The unrecognised deferred tax asset in Canada relates to the Group's successor mineral resource tax pools which can only be utilised against future income from certain properties acquired from Toscana in 2020.

The Group recognised a net deferred tax liability through a deferred tax credit of £1,488 thousand for changes in net deductible temporary differences in the year and £362 thousand for FX movements during the year. The deferred tax asset has been recognised in Canada to the extent that the Group anticipates probable future taxable profits against which the assets can be utilised.

 

 

The Group's estimated tax pools are summarised in the following table. All other tax pools held by the Group do not expire.

	31 December 2023 £'000	31 December 2022 £'000
UK:
Taxable losses	39,233	38,927
Mineral extraction allowances	52,705	52,466
Total	91,938	91,393
Canada:
Canadian exploration expense (CEE, deductible at 100% p.a.)	1,611	1,623
Canadian development expense (CDE, deductible at 30% p.a.)	33,502	37,870
Canadian oil and gas property expense (COGPE, deductible at 10% p.a.)	50,744	58,478
Undepreciated capital cost (UCC, deductible at 25% p.a.)	20,194	18,867
Other (deductible at various rates p.a.)	930	1,019
Total	106,981	117,857

 

10      Directors' remuneration

2023	Salary / Fees	Bonus	Share based payments	Total
	£'000	£'000	£'000	£'000
Executive Directors
Majid Shafiq *	500	167	-	667
Ryan Heath	304	99		403
Non-Executive Directors
Neill Carson	75	-	-	75
Richard Ames	75	-	-	75
Linda Beal	75	-	-	75
John Festival	120	-	-	120
Total	1,149	266	-	1,415
2022 Executive Directors	Salary / Fees	Bonus	Share based payments	Total
Majid Shafiq *	487	833	3,507	4,827
Graham Heath	702	668	2,596	3,966
Ryan Heath	295	535	2,511	3,341
Non-Executive Directors
Neill Carson	68	-	227	295
Richard Ames	68	-	227	295
Linda Beal	106	-	117	223
John Festival	81	-	223	304
Total	1,807	2,036	9,408	13,251
* Highest paid director

 

Share based payments represent the difference between the exercise price and the market value of i3 shares on the date of exercise, multiplied by the number of options exercised.

The bonuses in the table above are presented on a cash-paid basis. Historically, the annual bonus cycle spanned the 12-month period from 1 July to 30 June of the following year. This was adjusted to a calendar-year cycle in 2023, and accordingly, the bonuses in 2023 were prorated and paid for half a year, relative to a full year payment in 2022.  

Included in Graham Heath Salary / Fees in 2022 is a one-time compensation for loss of office payment of £417 thousand upon his retirement in September 2022.

During each of 2023 and 2022 the Group contributed £2 thousand and £9 thousand to Majid Shafiq's and Ryan Heath's retirement savings plans, respectively.

11        Earnings per share

From continuing operations

Basic earnings or loss per share is calculated as profit/(loss) for the year, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings or loss per share amounts are calculated by dividing losses or profits for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of shares that would be issued on the conversion of dilutive potential ordinary shares into ordinary shares.

The calculation of the basic and diluted earnings per share is based on the following data:

	Year Ended 31 December 2023	Year Ended 31 December 2022
Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to owners of i3 Energy (£'000)	15,147	41,951
Weighted average number of shares
Weighted average number of Ordinary Shares - basic	1,199,155,654	1,164,210,976
Effect of dilutive potential ordinary shares:
Share options	15,246,295	51,089,073
Warrants	2,850,547	9,048,113
Weighted average number of Ordinary Shares - diluted	1,217,252,496	1,224,348,162
Basic earnings per share (pence)	1.26	3.60
Diluted earnings per share (pence)	1.24	3.43

 

 

12        Property, plant, and equipment

	Oil and gas assets	Right of use assets	Other fixed assets	Total
Cost	£'000	£'000	£'000	£'000
As at 1 January 2022	250,033	109	72	250,214
Acquisitions	1,653	-	-	1,653
Additions	74,424	-	21	74,445
Decommissioning provisions incurred	1,369	-	-	1,369
Disposals	(1,386)	(28)	-	(1,414)
Changes to decommissioning estimates (note 17)	(40,233)	-	-	(40,233)
Decommissioning settlements under SRP and ASCP (note 17)	(731)	-	-	(731)
Transfer between asset classes	-	(88)	88	-
Exchange movement	12,585	7	3	12,595
As at 31 December 2022	297,714	-	184	297,898
Acquisitions	436	-	-	436
Additions	23,155	-	-	23,155
Decommissioning provisions incurred	195	-	-	195
Disposals	(709)	-	-	(709)
Changes to decommissioning estimates (note 17)	(8,283)	-	-	(8,283)
Exchange movement	(9,341)	-	(5)	(9,346)
As at 31 December 2023	303,167	-	179	303,346
Accumulated depreciation and depletion
As at 1 January 2022	(26,077)	(33)	(24)	(26,134)
Charge for the year	(34,301)	(17)	(21)	(34,339)
Disposals	-	12	-	12
Transfer between asset classes	-	42	(42)	-
Exchange movement	(968)	(4)	-	(972)
As at 31 December 2022	(61,346)	-	(87)	(61,433)
Charge for the year	(38,206)	-	(26)	(38,232)
Exchange movement	1,984	-	2	1,986
As at 31 December 2023	(97,568)	-	(111)	(97,679)
Carrying amount at 31 December 2022	236,368	-	97	236,465
Carrying amount at 31 December 2023	205,599	-	68	205,667

 

 

13        Exploration and evaluation assets (Intangible)

	Year Ended 31 December 2023 £'000	Year Ended 31 December 2022 £'000
At start of year	62,060	49,819
Additions	1,281	12,327
Exchange movement	(208)	(86)
At end of year	63,133	62,060

 

Included within E&E assets is the Group's UK P.2358 Licence, which commenced its four-year second term on 30 September 2020 and contains the Serenity discovery and the Liberator West and Minos High prospective areas. Following the 2022 farm out to Europa Oil & Gas Limited ("Europa"), i3 retains a 75% WI in Block 13/23c North (Licence P.2358) which contains the Serenity discovery and a 100% WI in Block 13/23c South (Licence P.2358), which contains the Minos High Prospect and Liberator discovery.

 

Also included within E&E assets are costs associated with land purchases and an appraisal well in the Clearwater play in Canada. 

 

Management conducted an assessment of indicators of impairment for its E&E assets as at 31 December 2023, concluding that no indicators of impairment were identified. Further discussion is provided in note 2.

 

14      Trade and other receivables

	31 December 2023 £'000	31 December 2022 £'000
Trade and accrued receivables	12,839	26,770
Joint venture receivables	4,732	5,563
Prepayments & other receivables	2,963	2,510
Total trade and other receivables	20,534	34,843

Trade and accrued receivables are all due within one year.

Joint venture receivables represent amounts due from operating partners for operating and capital activity in Canada and the UK.

The fair value of trade and other receivables is the same as their carrying values as stated above and they do not contain any impaired assets.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

 

15      Trade and other payables

	31 December 2023 £'000	31 December 2022 £'000
Trade creditors	5,736	15,383
Sales tax payable	170	378
Accruals	20,746	26,909
Cash pool LTIP awards - current liability	101	-
Dividends payable	-	2,040
Joint venture payables	887	1,263
Total trade and other payables	27,640	45,973

The average credit period taken for trade purchases is 60 days. No interest is charged on the trade payables. The carrying values of trade and other payables are considered to be a reasonable approximation of the fair value and are considered by the Directors as payable within one year.

Joint venture payables represent amounts due to operating partners for operating and capital activity in Canada.

16      Borrowings

Debt Facility

On 31 May 2023 i3 Energy plc established a CAD 100 million debt facility in the form of a Prepayment Agreement (the "Debt Facility") with Trafigura Canada Ltd., a subsidiary of Trafigura Pte Ltd (collectively, "Trafigura"). Concurrently, i3 Energy Canada Ltd. ("i3 Canada") entered an associated commercial contract related to i3 Canada's oil production. The Debt Facility has a three-year term, with interest payable monthly at 9.521% per annum, calculated on the outstanding portion of the loan. The Facility carries no penalty if repaid early and amortises monthly on a straight-line basis. Advances under the Facility can be repaid either with cash or by way of set-off against deliveries of crude oil under the commercial contract which has a minimum term of three years. The documentation establishing the Facility includes the option for a CAD 75 million advance which has been fully drawn by the Company and a CAD 25 million accordion facility amount, which can be made available during the Debt Facility's three-year term. The Debt Facility is secured by a first lien against substantially all the assets and shares of i3 Canada. The Company utilised a portion of proceeds from the initial advance to redeem the outstanding H1-2019 Loan Notes as discussed below.

The Debt Facility contains the following covenants:

i.      Global Coverage Ratio greater than 125% for the first 12 months and 140% thereafter. Global Coverage Ratio is the percentage of (a) the aggregate of: (i) the Cash balance of i3 Energy Canada  as at such date, (ii) the PV10 of the Proved Developed Producing Reserves (or, if agreed by the Buyer, acting reasonably, the Proved Plus Probable Developed Producing Reserves) owned by i3 Canada) using 85% of the Strip Price and curves, and (iii) the mark to market value (gain or loss) of the Secured Swap Agreements; to, (b) the Principal amount outstanding at each date of determination.

 

ii.     Liquidity Ratio greater than 1.10:1.00. Liquidity Ratio is the ratio of (a) the sum of the following for the next quarter: (i) the revenues of i3 Canada from the sale of hydrocarbons, (ii) any royalty or processing income of i3 Canada; (iii) the aggregate amount of all uncalled debt, equity and other capital that is the subject of a binding commitment in favour of i3 Canada from a person who is not an Affiliate; (iv) expected revenue from risk management contracts; and (v) all Cash of i3 Canada; to, (b) the sum of the following, all cash costs of i3 Canada in respect of the production, transportation and storage of Petroleum Substances including, without limitation, operating expenses, marketing expenditures, capital expenditures, taxes and interest expense and all distributions and payments of financial indebtedness made by i3 Canada for the next quarter.

 

 

iii.    Net Debt to EBITDAX less than 3.00:1.00. (a) Net Debt: means, on a consolidated basis and at any time, the aggregate amount of Financial Indebtedness of i3 Canada (excluding any intercompany Financial Indebtedness) net of free and available Cash and Cash Equivalents of i3 Canada. (b) EBITDAX: means, for any fiscal period and as determined in accordance with IFRS (on a consolidated basis) in respect of i3 Canada: (a) all Net Income for such period; plus (b) Interest Expense to the extent deducted in determining such Net Income; plus (c) all amounts deducted in the calculation of such Net Income in respect of the provision for income taxes; plus (d) all amounts deducted in the calculation of such Net Income in respect of non-cash items, including depreciation, depletion, amortization (including amortization of goodwill and other intangibles), accretion, deferred income taxes, foreign currency obligations, noncash losses resulting from marking-to-market any outstanding hedging and financial instrument obligations, non-cash compensation expenses, provisions for impairment of oil and gas assets and any other non-cash expenses for such period; plus (e) exploration expenses; and (f) losses attributable to extraordinary and non-recurring losses, in each case to the extent deducted in the calculation of such Net Income; less (on a consolidated basis), without duplication: (a) earnings attributable to extraordinary and non-recurring earnings and gains, in each case to the extent included in the calculation of such Net Income (including interest income); (b) to the extent included in the calculation of such Net Income, gains from asset sales; (c) all cash payments during such period relating to non-cash charges which were added back in determining EBITDAX in any prior period; and (d) to the extent included in such Net Income, any other non-cash items increasing such Net Income for such period, including non-cash gains resulting from marking-to-market any outstanding hedging and financial instrument obligations for such period.

 

iv.    Liquidity Threshold greater than CAD 10 million. i3 Canada shall ensure that, at the last day of each calendar month, it has a Cash balance in a bank account in an amount equal to or greater than CAD 10 million.

 

The Global Coverage Ratio, Liquidity Ratio, and Net Debt to EBITDAX are tested on the last day of each fiscal quarter. The Liquidity Threshold was initially required to be always maintained but was subsequently amended to be tested on the last day of each calendar month. The Group was in compliance with all covenants as at 31 December 2023. The Debt Facility was prepaid in full in March 2024 with cash on hand and proceeds from the Credit Facility, refer to note 24 for further information.

H1-2019 loan note facility

In May 2019, the Group completed a £22 million H1-2019 loan note facility ("H1-2019 LN"). The H1-2019 LNs have a term of 4 years, maturing on 31 May 2023 and bearing interest, payable on a quarterly basis at the Group's option (i) in cash at a rate of 8% per annum, or (ii) in kind at a rate of 11% per annum by the issuance of additional H1-2019 LNs. The Group elected to pay all interest in kind prior to 2022, and in cash for all quarters since. The H1-2019 LNs matured on 31 May 2023 and were repaid in full using proceeds from the Debt Facility issuance.

Interest expense and accretion expense on the H1-2019 LNs to 31 December 2023 was £951 thousand and £1,615 thousand respectively (note 8).

 

Borrowings reconciliation

	Leases	H1-2019 LN	Debt Facility	Total
	£'000	£'000	£'000	£'000
At 1 January 2022	69	23,855	-	23,924
Increase through interest (non-cash)	1	2,309	-	2,310
Accretion expense (non-cash)	-	3,386	-	3,386
Lease and interest payments (cash)	(74)	(2,309)	-	(2,383)
Exchange movement (non-cash)	4	-	-	4
At 31 December 2022	-	27,241	-	27,241
Issuance (cash)	-	-	44,481	44,481
Increase through interest (non-cash)	-	951	2,258	3,209
Accretion expense (non-cash)	-	1,615	-	1,615
Lease and interest payments (cash)	-	(951)	(2,258)	(3,209)
Principal payments (cash)	-	(28,856)	(8,636)	(37,492)
Additions in deferred finance costs (cash)	-	-	(2,039)	(2,039)
Amortisation of deferred finance costs (non-cash)	-	-	667	667
Exchange movement (non-cash)	-	-	96	96
At 31 December 2023	-	-	34,569	34,569

 

The classification as at 31 December 2023 is as follows:

	Leases	H1-2019 LN	Debt Facility	Total
	£'000	£'000	£'000	£'000
Current	-	-	14,001	14,001
Non-current	-	-	20,568	20,568
At 31 December 2023	-	-	34,569	34,569

 

The classification as at 31 December 2022 is as follows:

	Leases	H1-2019 LN	Debt Facility	Total
	£'000	£'000	£'000	£'000
Current	-	27,241	-	27,241
Non-current	-	-	-	-
At 31 December 2022	-	27,241	-	27,241

 

 

17      Decommissioning provision

	Year Ended 31 December 2023 £'000	Year Ended 31 December 2022 £'000
At start of year	93,331	125,523
Liabilities assumed through acquisitions	303	348
Liabilities incurred	195	1,369
Liabilities disposed	(328)	(213)
Liabilities settled	(3,722)	(2,190)
Liabilities settled under SRP	-	(731)
Change in estimates	(8,283)	(40,233)
Unwinding of discount (Note 8)	2,771	2,667
Exchange movement	(2,914)	6,791
At end of year	81,353	93,331

 

	31 December 2023 £'000	31 December 2022 £'000
Of which:
Current	3,244	3,190
Non-current	78,109	90,141
Total	81,353	93,331

 

A summary of the key estimates and assumptions are as follows:

	31 December 2023	31 December 2022
Undiscounted / uninflated cash flows (CAD, thousands)	200,745	206,613
Inflation rate	1.62%	2.09%
Discount rate	3.02%	3.28%
Timing of cash flows	1-50 years	1-50 years

 

Liabilities settled reflect work undertaken in the period. This includes wells decommissioned under Alberta's Site Rehabilitation Program ("SRP") whereby certain costs of settling the Group's liabilities were borne by the Government of Canada in 2022. Where liabilities were settled through the SRP a corresponding decrease to the decommissioning asset was recorded. The change in estimate for the year ended 31 December 2023 was primarily driven by changes in market interest and inflation rates as published by the Bank of Canada. The inflation and discount rates have been pinpointed as a key source of estimation uncertainty and are further discussed in note 3.

 

18      Risk management contracts

The Group enters risk management contracts to hedge a portion of the Group's exposure to fluctuations in prevailing commodity prices for oil, gas, and natural gas liquids. The Group's physical commodity contracts represent physical delivery sales contracts in the ordinary course of business and are therefore not recorded at fair value in the consolidated financial statements. The Group's financial risk management contracts have not been designated as hedging instruments in a hedge relationship under IFRS 9 and are carried at fair value through profit and loss. The financial risk management contracts are classified as Level 2 in the fair value hierarchy as defined by IFRS 13 'Fair value measurements' (note 22).

The principal terms of the risk management contracts held as at 31 December 2023 are presented in the table below.  

Type	Effective date	Termination date	Total Volume	Avg. Price
AECO 5A Physical Swaps	1 Aug 2023	31 Mar 2024	10,000 GJ/Day	CAD 2.7600 / GJ
AECO 5A Physical Swaps	1 Nov 2023	31 Mar 2024	15,000 GJ/Day	CAD 3.2267 / GJ
WTI Financial Swaps	1 Aug 2023	31 Mar 2024	500 bbl/Day	CAD 93.33 / bbl
WTI Financial Swaps	1 Jan 2024	31 Mar 2024	1,500 bbl/Day	CAD 96.47 / bbl
WTI Financial Swaps	1 Apr 2024	30 Jun 2024	1,750 bbl/Day	CAD 98.20 / bbl
WTI Financial Swaps	1 Jul 2024	31 Aug 2024	500 bbl/Day	CAD 101.50 / bbl
WTI Financial Swaps	1 Jul 2024	30 Sep 2024	250 bbl/Day	CAD 98.44 / bbl
WTI Financial Swaps	1 Sep 2024	30 Sep 2024	250 bbl/Day	CAD 102.18 / bbl
WTI Financial Collar	1 Jan 2024	31 Mar 2024	250 bbl/Day	CAD 100.00-121.32 / bbl
WTI Financial Collar	1 Apr 2024	30 Jun 2024	250 bbl/Day	CAD 100.00-107.00 / bbl
WTI Financial Collar	1 Jul 2024	30 Sep 2024	250 bbl/Day	CAD 100.00-108.00 / bbl
WTI Financial Collar	1 Jul 2024	30 Sep 2024	250 bbl/Day	CAD 100.00-111.00 / bbl
WTI Financial Collar	1 Jul 2024	30 Sep 2024	250 bbl/Day	CAD 100.00-112.00 / bbl
WTI Financial Collar	1 Jul 2024	30 Sep 2024	250 bbl/Day	CAD 100.00-112.10 / bbl
WTI Financial Collar	1 Jul 2024	30 Sep 2024	250 bbl/Day	CAD 100.00-113.80 / bbl
WTI Financial Collar	1 Sep 2024	30 Sep 2024	250 bbl/Day	CAD 100.00-107.00 / bbl
WTI Financial Collar	1 Oct 2024	31 Oct 2024	250 bbl/Day	CAD 100.00-111.15 / bbl
WTI Financial Collar	1 Oct 2024	31 Oct 2024	250 bbl/Day	CAD 100.00-113.10 / bbl
WTI Financial Collar	1 Oct 2024	31 Oct 2024	250 bbl/Day	CAD 102.00-111.45 / bbl

The Group's gains and losses on risk management contracts are presented in the following table. 

	2023 £'000	2022 £'000
Unrealised (gain) on risk management contracts	(860)	(858)
Realised (gain) / loss on risk management contracts	(1,188)	19,848
Total (gain) / loss on risk management contracts	(2,048)	18,990

 

 

The carrying value of the Group's risk management contracts are present in the following table.

	31 December 2023 £'000	31 December 2022 £'000
Current asset	1,701	1,111
Current liability	(136)	(381)
Net current asset	1,565	730

 

19      Authorised, issued and called-up share capital

	Issuance date	Ordinary shares	Deferred shares	Nominal value per Share	Ordinary shares	Deferred shares	Share premium before share issuance costs	Share issuance costs	Share premium after Share issuance costs
		Shares	Shares	£	£'000	£'000	£'000	£'000	£'000
At 31 December 2021		1,126,425,992	5,000	-	113	50	46,203	(2,000)	44,203
Issued on exercise of 5 pence options	Various	40,860,277	-	0.0001	4	-	2,038	-	2,038
Issued on exercise of 6.1 pence options	Various	7,994,653	-	0.0001	1	-	487	-	487
Issued on exercise of 11 pence options	Various	17,450,451	-	0.0001	1	-	1,918	-	1,918
At 31 December 2022		1,192,731,373	5,000	-	119	50	50,646	(2,000)	48,646
Issued on exercise of 11 pence options	9 Jan 23	116,667	-	0.0001	-	-	12	-	12
Issued on exercise of 0.01 pence warrants	25 Apr 23	9,051,927	-	0.0001	1	-	2,045	-	2,045
Cancellation of shares *	29 May 23	(25,503)	-	0.0001	-	-	-	-	-
Issued on exercise of 5 pence options	12 Oct 23	573,199	-	0.0001	-	-	28	-	28
Capital reduction **	13 Nov 23	-	-	-	-	-	(52,731)	2,000	(50,731)
At 31 December 2023		1,202,447,663	5,000	-	120	50	-	-	-

 

*  The cancellation of shares related to unclaimed shares from the Toscana acquisition which completed in 2020. The time limit to claim the shares had expired and 25,503 ordinary shares reverted to the Company to be held in treasury and were subsequently cancelled.

** On 13 November 2023 the Registrar of Companies registered the cancellation of i3's share premium account. The £50.7 million balance of the Group's share premium net of share issuance costs was accordingly transferred to retained earnings. This increased distributable reserves to enable the Company to continue paying dividends.

The ordinary shares confer the right to vote at general meetings of the Company, to a repayment of capital in the event of liquidation or winding up and certain other rights as set out in the Company's articles of association.

The deferred shares do not confer any voting rights at general meetings of the Company and do confer a right to a repayment of capital in the event of liquidation or winding up, they do not confer any dividend rights or any of redemption.

 

During the year ended 31 December 2023 the Company declared dividends as summarised in the following table:

Declaration date	Ex-Dividend date	Record date	Payment date	Dividend per share	Total Dividend
				(pence)	£'000
12 January 2023	19 January 2023	20 January 2023	10 February 2023	0.1710	2,040
8 February 2023	16 February 2023	17 February 2023	10 March 2023	0.1710	2,040
15 March 2023	23 March 2023	24 March 2023	14 April 2023	0.1710	2,040
12 April 2023	20 April 2023	21 April 2023	12 May 2023	0.1710	2,040
17 May 2023	25 May 2023	26 May 2023	16 June 2023	0.1710	2,055
2 October 2023	12 October 2023	13 October 2023	27 October 2023	0.2565	3,083
Total				1.1115	13,298

 

During the year ended 31 December 2022 the Company declared dividends as summarised in the following table:

Declaration date	Ex-Dividend date	Record date	Payment date	Dividend per share	Total Dividend
				(pence)	£'000
9 February 2022	17 February 2022	18 February 2022	11 March 2022	0.1050	1,183
9 March 2022	17 March 2022	18 March 2022	8 April 2022	0.1050	1,183
6 April 2022	14 April 2022	19 April 2022	6 May 2022	0.1050	1,183
11 May 2022	19 May 2022	20 May 2022	10 June 2022	0.1425	1,604
8 June 2022	16 June 2022	17 June 2022	8 July 2022	0.1425	1,700
6 July 2022	14 July 2022	15 July 2022	5 August 2022	0.1425	1,700
3 August 2022	11 August 2022	12 August 2022	2 September 2022	0.1425	1,700
7 September 2022	14 September 2022	15 September 2022	7 October 2022	0.1425	1,700
5 October 2022	13 October 2022	14 October 2022	4 November 2022	0.1425	1,700
2 November 2022	10 November 2022	11 November 2022	2 December 2022	0.1425	1,700
22 December 2022	5 January 2023	6 January 2023	27 January 2023	0.1710	2,040
Total				1.4835	17,393

 

 

 

20      Share-based payments

Employee and NED share options

During the year the Group had share based payment expense relating to share options of £581 thousand (2022: £1,092 thousand). Details on the employee and NED share options outstanding for the Group and Company during the period are as follows:

	Number of options	Weighted average exercise price	Weighted average contractual life
		(pence)
At 31 December 2021	143,960,375	7.48	9.22
5p options exercised during the period	(67,006,794)	5.00	8.54
6.1p options exercised during the period	(12,454,359)	6.10	8.54
11p options exercised during the period	(35,085,877)	11.00	9.09
Granted during the period	2,700,000	24.10	10.00
Forfeited during the period	(708,390)	11.00	8.84
At 31 December 2022	31,404,955	10.72	7.93
5p options exercised during the period	(573,199)	5.00	7.25
11p options exercised during the period	(116,667)	11.00	8.94
Granted during the period	21,509,470	12.55	10.00
Forfeited during the period	(2,757,490)	10,92	7.55
At 31 December 2023	49,467,069	11.57	9.19

 

On 9 November 2023, the Company issued options over a total of 17,959,470 ordinary shares to i3 staff and directors. The options were issued in accordance with the rules of the Company's Employee Share Option Plan at an exercise price of 11.3 pence per share. Of the options issued to employees of i3 Canada and i3 Energy plc, one-third of the options vest on achieving production of 26,000 boepd (this target to be adjusted downwards by the production volume associated with any i3 divestment in the period), one-third of the options vest on the acquisition of 5,000 boepd, and the final one-third of the options vest on the addition of 25 mmbbls of 2P reserves. Of the options issued to employees of i3 North Sea Limited, one-third of the options vest on FDP of Serenity, on-third of the options vest on acquisition of 2,500 boepd, and the final one-third of the options vest on addition of 10 mmbbls of 2P reserves. The options will otherwise vest one-third each year, on the anniversary of the grant, if not vested in accordance with the conditions above. The fair value was calculated using the Black Scholes model with inputs for stock price of 11.30 pence, exercise price of 11.30 pence, time to maturity of 10 years, volatility of 94%, the Risk-Free Interest rate of 4.275%, and a dividend yield of 9%. The resulting fair value of £676 thousand will be expensed over the expected vesting period.

On 26 July 2023, the Company issued options over a total of 550,000 ordinary shares to new employees of i3 Canada. The options were issued in accordance with the rules of the Company's Employee Share Option Plan at an exercise price of 12.78 pence, the closing price on 26 July 2023. The options have the same vesting conditions as those issued on 18 April 2023. The fair value was calculated using the Black Scholes model with inputs for share price of 12.78 pence, exercise price of 12.78 pence, time to maturity of 10 years, volatility of 96%, the Risk-Free Interest rate of 4.307%, and a dividend yield of 8%. The resulting fair value of £27 thousand will be expensed over the expected vesting period.

 

On 18 April 2023, the Company issued options over a total of 3,000,000 ordinary shares to the CFO, a Person Discharging Managerial Responsibilities of the Company. The options were issued in accordance with the rules of the Company's Employee Share Option Plan at an exercise price of 20.00 pence per share, the closing price on 18 April 2023. The fair value was calculated using the Black Scholes model with inputs for share price of 20.00 pence, exercise price of 20.00 pence, time to maturity of 10 years, volatility of 97%, the Risk-Free Interest rate of 3.742%, and a dividend yield of 10%. One-third of the options will vest upon achieving production of 26,000 boepd, one-third upon the addition of 5,000 boepd via acquisitions, and one-third upon the addition of 25 MMbbl of 2P reserves. The award shall vest as to one-third upon the first, second, and third anniversary of the grant date, to the extent the award has not otherwise vested in accordance with the above provisions. The resulting fair value of £179 thousand will be expensed over the expected vesting period.

In May 2022, i3 employees and directors elected to exercise options over an aggregate 114,547,030 ordinary shares of i3 Energy plc. The Company primarily settled in ordinary shares only the post-tax in-the-money value of the options (based on c28 pence per share), which resulted in the issuance of 66,305,381 ordinary shares which were admitted to trading on 6 June 2022. £635 thousand in proceeds was collected from employees who elected not to settle their strike price through a reduction in ordinary shares received. £6,324 thousand in employment tax was settled by the Company with the relevant taxation authorities on behalf of the employees which has been recorded within equity as a deduction from retained earnings. £6 thousand was recorded as an increase to the ordinary shares account, which represents the number of ordinary shares issued multiplied by their nominal value of £0.001 per share. £4,443 thousand was recorded as an increase to the share premium account, which represents the number of ordinary shares issued multiplied by the excess in the respective strike prices over the nominal value of the shares. £3,883 thousand has been recorded as a decrease to the share-based payment reserve, which represents the strike price settled through surrendered shares. 

Throughout 2022, the Company issued options over a total of 2,700,000 ordinary to new employees of i3 Canada. The options were issued in accordance with the rules of the Company's Employee Share Option Plan at exercise prices equal to the market price of i3 shares at the date of the grants, which ranged from 21.55 pence to 29.40 pence per share. One-third of the options will vest on each of the 12-month, 24-month, and 36-month anniversaries of the employment start dates. The fair values were calculated using the Black Scholes model with inputs for stock price and exercise price ranging from 21.55 pence to 29.40 pence per share, time to maturity of 10 years, volatility ranging from 100% to 104%, the Risk-Free Interest rate ranging from 1.90% to 3.15%, and a dividend yield ranging from 6% to 8%. The resulting fair value of £278 thousand will be expensed over the expected vesting period.

7,960,369 outstanding employee share options as at 31 December 2023 were fully vested and exercisable.

Warrants

Details on the warrants outstanding during the period are as follows:

	Number of warrants	Weighted average exercise price	Weighted average contractual life
		(pence)
At 31 December 2021	13,277,131	15.07	1.85
Expired in the period	(4,225,204)	47.34	NA
At 31 December 2022	9,051,927	0.01	0.42
Exercised in the period	(9,051,927)	0.01	NA
At 31 December 2023	-	-	-

 

EMI options

The Company operates an Employee Management Incentive (EMI) share option scheme. Grants were made on 14 April 2016 and 6 December 2016. The scheme is based on eligible employees being granted EMI options. The right to exercise the option is at the employee's discretion for a ten-year period from the date of issuance.

250,000 options were exercised on 1 October 2021 at a price of £0.11 per share. The remaining 250,000 options expired during the year. There were no EMI options outstanding at 31 December 2023.

21      Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Remuneration of Key Management Personnel

Directors of the Group are considered to be Key Management Personnel. The remuneration of the Directors is set out in note 10.

Ultimate parent

There is no ultimate controlling party of the Group.

22      Financial instruments, financial and capital risk management

Financial instruments

Fair value measurements

The Group carries risk management contracts, and prior to the redemption of the deferred invoice balance with BHGE in Q4 2022, non-current accounts payable at FVTPL. The fair value of the risk management contracts is determined by discounting at a risk-free rate the difference between the contracted prices and the published forward curves at the reporting date. The fair value of non-current accounts payable was determined by subtracting the value of the Warrant Shares, being the 5,277,045 Warrant Shares multiplied by the higher of (i) the quoted price of one i3 share at the reporting date, and (ii) the 5-day volume weighted average value of one i3 share during the 5-day dealing period to 17 September 2021, from the remaining Deferred Payment Invoice Balance. The risk management contracts and non-current accounts payable are classified as Level 2 valuations within the fair value hierarchy as defined by IFRS 13 Fair Value Measurement which is as follows:

·      Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

·      Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

·      Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There were no financial assets or liabilities measured at Level 1 or 3 or reclassified between Levels 1, 2 or 3 during the year. 

The fair value of the Group's financial assets and liabilities approximate to their carrying amounts at the reporting date.  The following tables combine information about the Group's classes of financial instruments and their fair value and carrying amounts at the reporting date.

 

 

As at 31 December 2023	Carried at FVTPL	Carried at amortised cost
Financial assets
Cash and cash equivalents	-	23,507
Trade and other receivables	-	20,534
Income taxes receivable	-	205
Risk management contracts (Level 2)	1,701	-
Total	1,701	44,246
Financial liabilities
Trade and other payables	-	24,640
Risk management contracts (Level 2)	136	-
Borrowings and leases	-	34,569
Other non-current liabilities	-	84
Total	136	59,293

 

As at 31 December 2022	Carried at FVTPL	Carried at amortised cost
Financial assets
Cash and cash equivalents	-	16,560
Trade and other receivables	-	34,843
Risk management contracts (Level 2)	1,111	-
Total	1,111	51,403
Financial liabilities
Trade and other payables	-	45,973
Income taxes payable	-	9,873
Risk management contracts (Level 2)	381	-
Borrowings and leases	-	27,241
Total	381	83,087

 

All financial assets and liabilities of the Company were carried at amortised cost at 31 December 2023 and 2022. The fair value of the Company's financial assets and liabilities approximate to their carrying amounts at the reporting date. 

Financial risk management

Financial risk factors

The Group's activities expose it to a variety of financial risks; market risk (including foreign currency risk and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

Risk management is carried out by the Board of Directors under policies approved at Board meetings. The Board frequently discusses principles for overall risk management including policies for specific areas such as foreign exchange.

 

a      Market risk

i        Foreign exchange risk

The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the UK pound sterling and the Canadian dollar and US dollar. Foreign exchange risk arises from recognised monetary assets and liabilities (USD and CAD bank accounts) where they may be denominated in a currency that is not the local functional currency. The Group mitigates is foreign exchange exposure by holding monetary assets and liabilities primarily in the local functional currency. All of the monetary assets and liabilities held by the Group's Canadian operations were held in CAD, the functional currency, and therefore there is no foreign exchange exposure in the Canadian operations. The UK operations did not hold significant monetary assets or liabilities in currencies other than UK pound sterling as at 31 December 2023 with the exception of the Debt Facility which is denominated in CAD. A 10% strengthening of GBP against CAD as at 31 December 2023 would have increased foreign exchange gains for the Group and Company by £3,247 thousand, and a 10% weakening of GBP to CAD would have increased foreign exchange losses for the Group and Company by £3,969 thousand. No comparable figures are provided as the Debt Facility was entered into in May 2023.

The Group is also exposed to exchange differences on translation of its foreign operations in Canada, which resulted in a loss of £4,222 thousand for the year ended 31 December 2023 (2022: gain of £6,529 thousand). A 10% strengthening of GBP against CAD as at 31 December 2023 would have resulted in a loss on translation of £16,344 thousand (2022: £7,073 thousand), and a 10% weakening of GBP to CAD would have resulted in a gain of £10,593 thousand (2021: £23,152 thousand). Profit after tax would not be impacted.

b      Credit risk

Credit risk arises from cash and cash equivalents and trade receivables from the sale of hydrocarbons. It is Group policy to assess the credit risk of new customers.

The Group considers the credit ratings of banks in which it holds funds in order to reduce exposure to credit risk. The Group will only keep its holdings of cash with institutions which have a minimum credit rating of 'A'. The Group sells hydrocarbons to reputable purchasers and are settled the month following their sale. Long-term deposits for decommissioning provisions are lodged with government bodies. The carrying value of cash and cash equivalents and trade and other receivables represents the Group's maximum exposure to credit risk at year end.

The Group considers that it is not exposed to major concentrations of credit risk.

The Group holds cash as a liquid resource to fund its obligations. The Group's cash balances are held in Sterling Canadian Dollar, and US Dollar. The Group's strategy for managing cash is to maximise interest income whilst ensuring its availability to match the profile of the Group's expenditure. This is achieved by regular monitoring of interest rates and monthly review of expenditure forecasts.

c      Liquidity risk

The Group relies upon debt and equity funding, and cash flow from its Canadian operations to finance operations. The Directors are confident that adequate liquidity will be forthcoming with which to finance operations. Controls over expenditure are carefully managed.

The Group ensures that its liquidity is maintained by a management process which includes projecting cash flows and considering the level of liquid assets in relation thereto, monitoring Balance Sheet liquidity and maintaining funding sources and back-up facilities.

 

The Group's expected cash flows for its financial liabilities are presented in the following table and includes undiscounted principal and expected interest payments.

	6 Months	6-12 months	1-2 years	2+ years	Total
	£'000	£'000	£'000	£'000	£'000
Trade and other payables	27,539	101	-	-	27,640
Borrowings and leases	9,027	8,667	16,249	6,347	40,290
Other non-current liability	-	-	50	34	84
At 31 December 2023	36,566	8,768	16,299	6,381	68,014
	6 Months	6-12 months	1-2 years	2+ years	Total
	£'000	£'000	£'000	£'000	£'000
Trade and other payables	45,973	-	-	-	45,973
Income taxes payable	9,873	-	-	-	9,873
H1 2019 LNs	22,000	-	-	-	22,000
H1 2019 cash and PIK interest	7,204	-	-	-	7,204
At 31 December 2022	85,050	-	-	-	85,050

 

d      Commodity price risk

Commodity price risk in the Group primarily arises from price fluctuations in markets for the Group's oil, gas and NGL products. Commodity prices can be volatile and may be impacted by various supply and demand factors which are outside the Group's control. Fluctuations in commodity prices could have a significant impact on future results of operations, cash flow generation, and development opportunities.

The Group manages commodity price risks by entering a variety of risk management contracts. Further details of risk management contracts at 31 December 2023 are provided in note 18, and of risk management contracts entered after the reporting period are provided in note 24.

The following table illustrates the impact on the Group's profit before tax and equity due to reasonably possible changes in commodity prices and their impact on the fair value of financial instruments, which pertain to the Group's financial risk management contracts, with all other variables held constant.

	Decrease in commodity price / increase in profit before loss and equity £'000	Increase in commodity price / (decrease) in profit before loss and equity £'000
Change in WTI - CAD 5.00 / bbl	1,793	(2,920)

 

Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to position as a going concern and to continue its development and production activities. The capital structure of the Group consists of borrowings and leases of £34,569 thousand at 31 December 2023 (2022: £27,241 thousand) (note 16), has capital, defined as the total equity and reserves of the Group of £162,995 thousand (2022: £164,746 thousand) and cash and equivalents of £23,507 thousand (2022: £16,560 thousand).

The Group monitors its level of cash resources available against future planned exploration and evaluation activities and may issue new shares in order to raise further funds from time to time.

23      Commitments

At 31 December 2023	1 year	2-3 years	4-5 years	5+ years	Total
	£'000	£'000	£'000	£'000	£'000
Operating	92	112	-	-	204
Transportation	1,810	1,418	349	4	3,581
Total	1,902	1,530	349	4	3,785

 

Transportation commitments relate to take-or-pay pipeline capacity in Alberta.  

The Group did not have any capital commitments as at 31 December 2023 or 2022.

24      Events after the reporting period

After 31 December 2023 i3 entered into various risk management contracts, as summarised below.

Type	Effective date	Termination date	Total Volume	Avg. Price
AECO 5A Financial Swaps	1 Apr 2024	31 Mar 2025	15,000 GJ/Day	CAD 2.5200 / GJ
AECO 5A Financial Swaps	1 Nov 2024	31 Mar 2025	5,000 GJ/Day	CAD 3.2000 / GJ
AECO 5A Physical Swaps	1 Apr 2025	30 Apr 2025	2,500 GJ/Day	CAD 2.7700 / GJ
AECO 5A Physical Swaps	1 Apr 2025	31 Dec 2025	7,500 GJ/Day	CAD 3.1167 / GJ
WTI Financial Swaps	1 Mar 2024	31 Mar 2024	250 bbl/Day	CAD 100.90 / bbl
WTI Financial Swaps	1 Apr 2024	30 Jun 2024	250 bbl/Day	CAD 100.15 / bbl
WTI Financial Swaps	1 Jul 2024	30 Sep 2024	250 bbl/Day	CAD 99.14 / bbl
WTI Financial Swaps	1 Oct 2024	31 Oct 2024	150 bbl/Day	CAD 97.32 / bbl
WTI Financial Swaps	1 Oct 2024	31 Dec 2024	1,200 bbl/Day	CAD 95.89 / bbl
WTI Financial Swaps	1 Nov 2024	30 Nov 2024	500 bbl/Day	CAD 103.40 / bbl
WTI Financial Swaps	1 Dec 2024	31 Dec 2024	500 bbl/Day	CAD 102.50 / bbl
WTI Financial Swaps	1 Jan 2025	31 Jan 2025	1,050 bbl/Day	CAD 99.03/ bbl
WTI Financial Swaps	1 Jan 2025	31 Mar 2025	200 bbl/Day	CAD 101.20 / bbl
WTI Financial Swaps	1 Feb 2025	28 Feb 2025	400 bbl/Day	CAD 102.33 / bbl
WTI Financial Swaps	1 Mar 2025	31 Mar 2025	400 bbl/Day	CAD 101.63 / bbl
WTI Financial Swaps	1 Apr 2025	30 Apr 2025	1,000 bbl/Day	CAD 102.49 / bbl
WTI Financial Swaps	1 Feb 2025	28 Feb 2025	400 bbl/Day	USD 76.55 / bbl
WTI Financial Swaps	1 Mar 2025	31 Mar 2025	400 bbl/Day	USD 75.95 / bbl
WTI Financial Collar	1 Apr 2024	31 May 2024	250 bbl/Day	CAD 90.00-110.65 / bbl
WTI Financial Collar	1 Nov 2024	30 Nov 2024	200 bbl/Day	CAD 100.00-112.55 / bbl
WTI Financial Collar	1 Dec 2024	31 Dec 2024	200 bbl/Day	CAD 100.00-110.15 / bbl
WTI Financial Collar	1 Jan 2025	31 Jan 2025	200 bbl/Day	CAD 100.00-110.50 / bbl
WTI Financial Collar	1 Jan 2025	31 Jan 2025	250 bbl/Day	CAD 100.00-110.00 / bbl
WTI Financial Collar	1 Feb 2025	28 Feb 2025	250 bbl/Day	CAD 100.00-112.25 / bbl
WTI Financial Collar	1 Mar 2025	31 Mar 2025	250 bbl/Day	CAD 100.00-110.45 / bbl
Conway Financial Swap	1 Jan 2025	31 Mar 2025	250 bbl/Day	USD 0.8325 / gal

 

 

In early-2024 the Company has declared dividends as summarised in the following table:

 

Declaration date	Ex-Dividend date	Record date	Payment date	Dividend per share	Total Dividend
				(pence)	£'000
9 January 2024	18 January 2024	19 January 2024	9 February 2024	0.2565	3,084
4 April 2024	11 April 2024	12 April 2024	3 May 2024	0.2565	3,084
Total				0.5130	6,168

 

On 11 March 2024 the Group announced a further reduction of capital following the transition of the Company standalone financial statements from FRS 101 to UK-adopted international accounting standards as described in further detail in note 2 and note 8 to the Company Financial Statements. This adoption resulted in a transition reserve of £148,517 thousand which will be capitalised by way of a bonus issue of newly created capital reduction shares with a nominal value of £0.0001 and share premium of £0.1234 for each share. Following the bonus issue, the standing credit of £148,397 thousand in the Company's share premium account will be cancelled. This is expected to occur within the first half of 2024 and will increase distributable reserves in the Company to facilitate the future payment of dividends (in cash or otherwise) to Shareholders, where justified by the profits of the Company, or to allow the redemption or buy-back of the Company's shares (or other distributions to Shareholders).

On 25 March 2024 the Group announcement the establishment of a CAD 75 million reserve-based lending facility (the "Credit Facility"). The Credit Facility agreement was entered into by i3 Canada with the National Bank of Canada and comprises a CAD 55 million revolving facility and a CAD 20 million operating loan facility. The two-year term of the Credit Facility is expected to be extended on an annual basis, subject to lender approval. The interest rate on the outstanding portion of the revolving facility depends on certain ratios and at inception will be Canadian Prime Rate plus 2.00%, with the option to change to Canadian Overnight Repo Rate plus 3.00%. The Credit Facility is secured against substantially all the assets and shares of i3 Canada. The Group initially drew CAD 27 million on the Credit Facility, which was used along with cash on hand to repay the Debt Facility with Trafigura without any prepayment penalty. The balance of undrawn credit will be available for general corporate purposes, including working capital requirements, acceleration of organic growth from i3's proven portfolio of development drilling locations, and to fund accretive acquisition opportunities.

On 25 March 2024 the Group announced the reserves of i3 Canada as of 31 December 2023. Highlights include Company Interest PDP reserves of 47MMboe, 1P reserves of 93MMboe, and 2P reserves of 180MMboe. Further details can be found on the Company's website at www.i3.energy.  

On 17 April 2024 the Group announced the partial sale of i3 Canada's royalty assets for a total gross cash consideration of CAD 33.5 million before customary closing adjustments. A portion of the proceeds on disposition were used to fully eliminate the Group's outstanding indebtedness on the credit facility. The balance, along with the fully undrawn amount of CAD 75 million on the Credit Facility, will be used for general corporate purposes and to support both its organic and inorganic initiatives.