i3Energy deal adds Canadian production to North Sea promise

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What the company owns

I3 Energy PLC (LON:I3E) owns undeveloped discoveries in the North Sea, plus exploration acreage, and in June 2020 agreed to acquire Toscana Energy Income Corporation (TEIC) – which owns interests in thirteen “low-decline, long-life, light oil and gas fields” in Canada.

The to-be-acquired assets comprise over 25mln barrels of proved developed producing (PDP) reserves, plus over 65mln barrels of proved and probable (2P) reserves.

They produced an average of 1,065 barrels of oil equivalent per day (hoped) net to generate C$5.5mln of field net back. In 2019, the assets had an average break-even price of C$30.43 per boe.

The assets will also benefit from TEIC’s accumulated tax pools, amounting to US$89mln.

In all, the transaction is seen to be an opportunistic and value-adding acquisition of distressed assets.

In the North Sea, it owns the Serenity and Liberator development projects.

The former is estimated to host 197mln barrels and whilst 2019’s appraisal of the latter disappointed it is still though to have up to 400mln barrels of resource upside.

Both are 100% owned by i3 and will need to be advanced by further field appraisal and pre-development work. Farm-out transactions and partnering are among the possible option being pursued to take the projects forward.

In July it signed a binding agreement to acquire private Canadian oil and gas company Gain Energy through a reverse takeover for US$58.8mln.

Gain operates in the Western Canadian Sedimentary Basin, the same area of operation as Toscana, another Canadian company I3 agreed to buy two weeks ago.

How it is doing

In the year to June the firm reported a GBP6.61mln net loss, up from GBP4.36mln in the comparative period last year, with spending up due to professional fees attached to its acquisition activity. Some GBP2.11mln was spent on exploration and evaluation work, versus GBP3mln in 2019.

The period ended with GBP1.51mln of cash in the bank and since then the company raised GBP29mln through an equity placing, with proceeds earmarked to pay for the Gain asset acquisition and for working capital.

What the boss says: Majid Shaffiq, chief executive

“We are now a substantial production company with a full cycle E&P portfolio containing multiple options to create and return value to our shareholders.”

“We will continue our efforts in the remainder of 2020 and beyond to grow our production business and build the scale required to efficiently and effectively maximise and sustain value creation.”

“We maintain our strong belief that there is substantial value to be created from our North Sea licences and will continue in our efforts to partner with other industry peers to appraise and develop them.”

“We are very excited about our entry into Western Canada and believe it holds tremendous potential to deliver substantial near-term and progressively greater returns to i3’s shareholders. The Canadian transactions are expected to create a solid foundation to aggressively build upon, and we are very much looking forward to integrating our UK and Canadian teams together in the coming weeks.”


What the broker says

“i3 Energy absolutely nailed the timing; WTI dipped into negative trading around the time the company secured its acquisitions; the recovery in crude oil prices has been robust; we believe the commodity price outlook is compelling,” said analysts at house broker WH Ireland.

“Generally, i3 Energy’s assets are high-quality, conventional resources… We like the simplicity and low-declines of conventional resources vs unconventional shale-type resources.”

“Herd mentality, in our opinion, is causing a rush to the exits for oil & gas assets, while seemingly ignoring that combustion fuels have historically been a driving force behind the prosperity of wealthy countries and an important contributor to rising standards of living in developing countries.”

“Who better to buy underappreciated, high-quality assets at discounted prices than i3 Energy? We believe i3 Energy is in a particularly enviable strategic position and that its corporate skillset is particularly advantageous in the current market.”

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