Thankyou to Tony Norstrom for his email pointing out some errors and omissions

IMPORTANT Clarification 1: i3 Energy is not 40% oil, it is around 20-22% oil with the balance being NGL's. This is important because NGL's trade at a significant discount to oil. According to this link the discount to oil is between 30% and 50%: https://www.linkedin.com/pulse/natural-gas-liquids-ngl-less-loved-stepchild-alan-foum/ . I have therefore redone my PE calculation for 2022 using a production split of 20% oil and 20% NGL, with NGL's trading at a 50% discount. Keeping everything else the same the PE ratio rises from 3.6 to 6.5, which is a very substantial difference. As I stated in the video I was concerned that my spreadsheet seemed to produce earnings that were higher than they should be and I think that this was the cause. Thankyou to Tony for pointing this out.

I should also add that I had previously assumed that NGL's traded at a 10% discount to oil which was based on the discount of very light oil relative to Brent, and I used that number when doing a previous valuation calculation on Serica Energy. I will now revisit the Serica Energy calculation. Lesson learnt.

Clarification 2: Tony also points out that i3 has accumulated tax losses that should mean that it does not pay corporate taxes for a few years. On page 23 of the interims the company states that it has tax assets of £150m split, £75m in the UK and £80m in Canada. If we assume that the company pays no corporate tax next year then the PE ratio (after allowing for clarification 1) would fall back to 3.6. I was aware of the accumulated tax losses, and should have pointed them out in the video, but the aim of the calculation is to provide an idea of the steady state returns that the company could produce from normal operations and my inclination is therefore to ignore them. I will post a revised spreadsheet on our Discord channel and viewers are welcome to play around and make their own assumptions.

Clarification 3: Tony states that "Actual Decline rate is closer to 7-8%. 15% is the reserve consultants estimate / model". My impression from listening to the CEO interviews was that the natural decline rate was 15% but that i3 had reduced it to 7-8% through well workovers etc, all of which cost money. I will go back and listen to the CEO interviews, but if they have only cut the decline rate through well interventions then the economics of our original calculation should be roughly correct.

Other items:
"Also a couple of positives you could flag to further highlight the investment potential:
1) North & South Simonette planned developments could potentially add 30,000 boepd
2) Canadian LNG plant coming online in a couple of years that should improve gas pricing

Also other minor typos such as the placing for Cenovus which was done at 11p and not 7p"

Thankyou once again to Tony Norstrom. One of the aims of the channel is to access Private Investors with in-depth knowledge about individual companies, and to share that knowledge with the audience. As always we are happy to issue corrections whenever we get something wrong.


We discuss i3 Energy, the London listed oil and gas E&P with assets in the North Sea and Western Canada. The company had a good pandemic. It reinvented itself by buying production assets in Western Canada on the cheap, and is aiming to become a 20,000 boepd producer in 2022.

Email: info@portfoliomatters.co.uk
Discord: https://discord.gg/PaYgHPPdJb

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