Doc Jones - Research Report – Thu 11 Mar, 2021

Doc Jones research report on i3 Energy

As promised here is a recent research report from Doc Jones. This time he is looking into the oil sector and has found a Company he thinks is very undervalued.

I hope you all enjoy Doc’s report. Please send me any questions you have for Doc Jones by emailing me at or commenting below.

ITE.TO $ITE Who is i3 Energy?   I3 Energy is an UK exploration, development, and low-cost oil and gas producer that now owns 100% of a diverse asset portfolio including large contiguous holdings in several of Alberta’s most economic plays, acquired in a reverse takeover of owner/operator Gain Energy and Toscana Energy Trust for pennies on the dollar, and also owns two 100% UKCS blocks 13/23c and 13/23d containing the Liberator oil field, discovered by well 13/23d-8 in 2013, and the Serenity oil field discovered by well 13/23c-10 in 2019 that has a P50 STOIIP of 197 MMbbls.

That’s the Corporate profile but who they really are is a group of the most incredibly savvy investors I’ve ever seen who during the worst oil crash in history raided the Canadian oil patch and picked up cash-flowing producing oil and gas portfolios which include over 497k acres within Canada’s top tier oil plays from debt distressed producers for pennies on the dollar then went public on the TSX big board on Nov 2020 via a reverse takeover.  

Interestingly the Free Cash-Flow from those 2 acquisitions done in mid-2020 at current strip pricing exceeds their purchase price. Talk about a super changed return on investment.


Market Cap:  $105 Million CN$

Enterprise Value: $125-135 Million CN$

Shares out: 700 Million (sounds like a lot but the Enterprise Value is what’s important)

Share Price: $0.15

Net Debt: sub $20 Million

Dividend Yield 2021: 9-15% (based on strip pricing and the company’s press release to initiate a dividend Q1 2021 based on 20-30% of FCF )

Projected Free Cashflow 2021: +$50 Million (based on strip pricing, WCS, Edm. Sweet, Alberta Natural Gas, C5)

Insider Ownership: 20%

i3 Energy’s Assets OVERVIEW more information later on

Land Position In Alberta, Canada: 497K NET ACRES

Number of wells: over 467 NET PRODUCTION WELLS

Production: over 10’000 BOEPD, 43% Liquids, primarily premium-priced Edmonton Sweat Oil, 9000BOEPD or 90% of production has a break-even at $9.40 BOE (opex + royalties)

Reserves: 21 MMboe PDP and 59 MMboe 2P of long-life, low-decline reserves, and low decommissioning exposure = Total Reserves 89.1 Million BOE

NPV-10 of Total Reserves of current strip pricing = +$520.3 Million USD / $657 Million Canadian Dollars.

Alberta Asset Breakdown

1) Clearwater Oil Play, 29k Net Acres, over 160 drill locations (4 wells per section)

-Total unbooked recoverable reserves = 166.5 Million-222 Million Barrels of WCS Oil

-IIR’s that exceed 350% on wells that cost $1.4 million

2) Over 230k Acres developed with over +200 booked drilling locations in acreage, IRR’s +50%, paybacks sub 1.5 years at 55$WTI

3) Over 230k of undeveloped land in major basins

4) Owned infrastructure in core asset areas that provides egress optionality and expansion for low cap ex, including water rights.

5) North Sea UK Assets (100% ownership in 2 Blocks in the highly productive Captain Sands oil formation)

  1.  Serenity Discovery in October 2019, P50 STOIIP of 197 MMstb of Brent Oil based on conservative assumptions regarding oil column thickness. Recoverable Oil in access of 100 Million barrels at an estimated cost of $30, estimated field production 30k barrels per day.
  2. Liberator Field     100% operated working interest• Fluid and reservoir properties analogous to neighboring prolific Blake field in the Captain sands fairway• 2019 appraisal critically proved oil migration towards Liberator West where relief and column height could hold large in-place resources• Material upside in Liberator West of c.400 MMstb STOIIP to be appraised following Serenity, Up to 234 million barrels recoverable


3) an inherited $94MM TAX POOL that PROTECTS FUTURE CF by eliminating paying taxes on profits for the next few years enhancing cashflow
enhancing cashflow

NOTE: Add in all up: $ 520 Million NPV of P1, P2 Reserves + 1$ for each unbooked barrel identified: (midpoint of 180 million barrels from super cheap, super high IRR Clearwater) + (midpoint of 200 million barrels in the North Sea) + (No value for everything else, pipelines, No value for production that is generating in excess of 50 Million USD NOI in 2021) = 900 Million USD. Current market cap = 83 Million USD or Enterprise Value = $103 Million (net debt current approx: 20 million USD)


The company has mandated that it intends to pay out 20-30% of FCF in the form of a dividend beginning this quarter. Based on current strip pricing = $50 million in FCF, $10-$15 million net to investors or 9-15% yield (1.4-2.0 cents) at current price of $0.15. I expect they will air on the conservative side to have room increase once oil prices prove to remain strong. The average dividend-paying E&P in Canada pays a 1-2% yield, a compression to 2% = 400% upside in stock price. 

Dividend Timing

It is expected that the Company will declare its maiden dividend in Q1 2021 – subject to loan note holder, judicial, and shareholder approval – for payment in early Q2. As previously disclosed, the Company aims to distribute up to 30% of free cash flow as a dividend to shareholders. Intention to declare maiden dividend in Q1 2021

Note: in 2016 Toscana had a NAV of +$120 Million they bought it for $2.8 Million during covid oil crash/credit implosion

NOTE: THE ABOVE NEXT TWELVE MONTH, NTM EBITDA in USD was based on June 18th, 2020 strip pricing below…..the current price is up 50%, 70% respectively.   Look what they paid per flowing barrel less than $3000/flowing BOE, the industry average over the last 5 years prior to Covid 19 was above $20’OOO/flowing BOE.  

NOTE: P2 Reserves written down by prior owners will also come back YE 2021 due to higher PRICING compounding, adding, even more, the NPV and NAV value.

Consider what happens to free-cash-flow when your Net-backs per BOE on your low decline, low maintenance capital wells more than double. 

Simplified Example of how above compounds profit margins

If the sale price per barrel BOE is $30 and your cost is $20 = Net Back is $10 per BOE. If the sale price per barrel increases to $50 your cost is still $20 = Net Back of $30. The price you sell at increased 66% but the profit margin has increased 200%. That where we are today. Since NOI guidance prices have increased +25%, projected NOI for 2021 has more than doubled.

FYI the Gains Energy assets produce Edmonton Light Sweet Crude. The current price of Edmonton Light Sweet Crude is (WTI Price USD – $2.64 differential USD) =   $65.44 -$2.64 =  $62.80 USD/ $79.80 Canadian Dollar.

At today’s prices, I3 Energy trades at 0.8 to 1x forward 1 year Net Operating Income and at less than 20% of the NPV of their P1+P2 booked reserves.

“But wait, there’s more!”

Let’s dig into the assets I3 Energy

The Clearwater Oil Play  Internal Rate of Return (IRR) exceeds %350. 

Discovered just a few years ago, it is now the hottest play in Canada due to ultra low cost and supercharged high returns that generate IRR’s over 400%. Drilling techniques were the key to unlocking the Clearwater play. Operators are able to access large reservoir volumes using closely spaced open hole multi-laterals (currently four to eight) produced through one production string without having to use costly hydraulic fracturing technologies or thermal technologies (SAGD, CSS, etc.). With multiple legs, the relatively high permeability (1–900 mD) Clearwater reservoir is capable of producing economic volumes of 14–24° API gravity oil on primary production.

Shallow, simple, drill cheap and clean, low gas to oil ratio, low water ratio, tie-in, well pays out in 5-6 months, produces for years and years, POSITIVE CASHFLOW ELEPHANT

57.6 gross (45.9 net) sections of Clearwater rights (80% avg WI), Majority of acreage is held-by-production. One section = 640 acres or one square mile. So they have a lot of resources within their 45.9 square miles/ 29’376 Acres.

RESOURCE UNDER i3’s LAND: STOIIP of 24.2 MMbbls/section, Acreage position (45.88 net sections) supports STOIIP of 1.11 Bbbls (1.11 Billion Barrels of OIL

Primary recovery:

– Assuming primary recovery of 5% = 1.21 MMbbls/section @ 4 wells (8 legs per) = 300 mbbls per well

– Total recoverable reserves of 55.5 MMbbls

Secondary recovery:

– Assuming secondary recovery (EOR – water & polymer floods) of 10-15% = 2.4 – 3.6 MMbbls/section @ 4 wells (8 legs per) = 625 – 900 mbbls per well

– Total recoverable reserves of 111.0 – 166.5 MMbbls


These wells are incredibly cheap, 8-Leg Oil Wells costs just $1.4 Million and produces an IRR of +400% in today’s price environment and just a 30% decline rate, see below.

NOTE: WCS is currently  $53 USD

Here is confirmation of the economics from TVE.TO DEC 2020 presentation, they have been on a spending spree buying up everything they can get their hands to the tune of over $300 million in spending, and 55% of their drilling budget in 2021 is slated for the Clearwater Oil Play:

   EVEN BETTER: the above Economics by TVE.TO above use a net oil price for WCS of $47.06 USD, today WCS is above $53 USD and the above reflects only the NIPISI AREA of the play, which is Tier 2 in IRR’s.  The crown jewel of the whole Clearwater Play is the TIER 1 Acreage in the MARTEN’S HILL AREA where most of i3 Energy’s Acreage is located. It’s where the thickest oil pay zones are.

i3 Energy ownership below.

Here are the Economics is the 3 main areas of the Clearwater play:

At $25 UDS WCS oil the return in the Martin Hills exceeds 175% and wells pay-out in 9 months.


NORTH SEA UK:   Watch this Video:

OVER 600 MILLION BARRELS OF INTERNATIONALLY MARKETED BRENT OIL THAT GETS A PREM OVER WTI, with as much as 324 MILLION BARRELS RECOVERABLE. Production cost is modeled to be about $30 a barrel. Full development would be gross production of 60-80K b/d



Summary:   I3 Energy is a UNICORN. I honestly don’t think I’ll ever find this kind of windfall stock ever again in the oil/gas sector in Canada. I mean that sincerely, I begin my career investing in the oil sector 25 years ago, so I don’t say that lightly. Thankfully for the reader, i3 went silently public on the TSX big board in a reverse takeover of Toscana during the worst oil crash in history.  A time when fear made investors and Institutions sell cashflow generating assets at pennies on the dollar which i3 bought at historic multi-decade lows. The assets they bought are currently producing 2x the purchase price based on current strip pricing and offer decades of upside. They also will persevere the capital while JV’s are being shopped around for their highly profitable large oil discoveries in the North Sea.  The Clearwater Acreage alone is now worth more than the whole companies Enterprise Value and that’s just one piece of a very large economical asset pool.  There are many catalysts to reprice this stock 5-10x higher to an industry multiple.  1) Dividend announce in the next 3 weeks 2)First Q 2021 filling in April as a TSX public company when lazy investors will be able to see the value laid out for them on Sedar 3) JV in the North Sea That will unlock potential 4x their current production and billions in FCF over the proceeding decades 4) internally growing production in Canada from FCF, starting at a base of 10’000 boe/d it doesn’t take much capital to double production and FCF 5) macro environment set-up for higher oil and gas pricing due to US restrictions on drilling in the shale plays in the USA, restrictions on access to capital, the +decade long underinvestment in new production globally, OPEC+ restricting oil production, global depletion of 6-7% a year = we need to add 6-7 million barrels of production globally just to run in place, Canada’s NG export capacity under construction will enable 20% of all NG currently produced to be exported driving up prices…. to name a few…. 

  1. Debt light, FCF 2021 is +2x net debt
  2. High-Quality Asset Heavy
  3. High Liquids Production
  4. High-Quality FCF
  5. Low-Cost Producer
  6. Only JR. with jurisdictional Asset Diversity (Canada and UK)
  7. Leverage to international Brent Oil Market
  8. Policy to payout 20-30% of FCF in dividends to shareholders
  9. completely unknown to North American investors  
  10. NAV of +$900 Million USD, trades at a massive discount to every multiple used to evaluate Oil and Gas Companies in Canada
  11. Pays a healthy dividend that will grow
  12. WCS oil and EDM. SWEET are at/near 7 year highs in Canadian Currency
  14. UPSIDE TO MASSIVE OIL DISCOVERY, NORTH SEA, UK already +600 million barrels possible and up to 300 million barrels recoverable
  15. Announcement of a Reserve Backed Lending Facility to acquire more Producing Assets / Take out the remainder of Term loan / accelerate Clearwater Development 
  16. Dividend increase in Q2

Resources to watch

FINAL NOTE: I am long, how can I not be. I have no relationship with the company, no one pays me to research or post here or anywhere.  It’s a complicated story I encourage you to go through the filings, isolate each asset and put a value on each one, then add them up and then divide by 700 million. The answer will astound you. Remember to convert USD into Can$, it’s well over $2 a share Canadian.   Then model the cash flow per share from current production using current prices and basin differentials, it’s pretty close to 1x share price/ cash flow, what’s the norm 5x-10x.  Take the modeled free cashflow and x .2-.3 to achieve an annual dividend = 400-600% higher than the average. 

A final, final thought if they pay out 20-30% of FCF how much will they be able to grow production with the remaining 70-80% of FCF then, in turn,…. increase the dividend….

Best Regards,

Doc Jones

I’m a PRIVATE INVESTOR, enjoying early retirement after a long, successful, and fulfilling career as an investment professional with a focus on the resource sector (including oil and gas). I employ common sense, Fundamental, bottom-up analysis that incorporates but not limited to: currency exchange rates, cost of labor, raw materials cost, geology, Metallurgy, cost of capital, infrastructure, macro influencing factors, capital discipline by management, etc.

Twitter: drjimjonesceo

Research, research, research. I run a highly concentrated and focused portfolio.

If you want to invest alongside me, do your own due diligence, it’s your money, your responsibility, buy and sell for your own reasons not mine. It’s your money.

The best investment you can make is in your own education.

I am driven by the hunt for value and truth. This is my passion in life. I’m a big research nerd. Always double-check and only trust the numbers that you have vetted.

Commit to memory: “all ozs in the ground are NOT created equal” AND “All barrels in the ground are NOT created equal” understanding this basic principle will increase your wealth and your ability to sleep at night…


Doc Jones

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  1. On March 11, 2021 at 11:40 am,
    David says:

    Looks like no US symbol…at least I couldn’t identify one.

  2. On March 11, 2021 at 12:37 pm,
    Andrew says:

    Very informative article, looks like a great share. I will do my research but looks like a no brainer.

  3. On March 11, 2021 at 2:16 pm,
    blazesb says:

    Took a position in i3 today Doc. Thanks for your tireless efforts at ceo and now here. You do fundamental analysis so well that even i can follow it.