TIDMI3E
RNS Number : 9675H
i3 Energy PLC
30 March 2020
30 March 2020
i3 Energy plc
("i3" or the "Company")
Strategic Production Acquisition & TSX Listing
i3 Energy plc, an independent oil and gas company with assets
and operations in the UK, is pleased to announce the following
update.
Highlights:
-- i3 has entered into an Option agreement to acquire all issued
and outstanding common shares of Toscana Energy Income Corporation
("Toscana" or "TEIC"), a TSX listed company
-- TEIC had 2019 year-end 2P Reserves of 4.65 MMboe (53% oil,
47% gas) with a reserve life index of 14.7 years
-- Toscana's 2019 production averaged 1,065 boepd and generated
C$5.5 million (US$3.9mm) in field netback from 13 low-decline,
long-life conventional fields producing at an average breakeven
price of C$30.43/boe (US$21.74/boe)
-- TEIC operates 69% of the producing wells in its portfolio at
an average net working interest of 67%
-- i3 is purchasing Toscana at a fraction of going market-based
valuations for WCSB oil and gas transactions; the total aggregate
consideration being paid by i3 for TEIC's debt and equity totals
approximately C$3.95 million (US$2.82mm) representing roughly 0.72x
Toscana's 2019 field netback, C$3710/boepd (US$2650/boepd), and
C$0.85/boe (US$0.61/boe)
o On March 27(th) , i3 used current cash resources to purchase
the rights and interests in Toscana's senior and junior debt
facilities (which were in default). i3 has acquired Toscana's
C$24.8 million senior facility for C$3.0 million and its C$3.2
million junior facility for C$0.4 million, with cash consideration
for each being paid 50% up front and 50% at year-end.
o Upon i3's exercise of the Option, Toscana shareholders will be
offered up to 4,399,224 i3 shares for TEIC's entire share capital,
representing dilution of approximately 4% to the Company's current
shareholders and having a market value at March 27(th) of
approximately C$0.55 million
-- Following exercise of the Option and on conclusion of the
Arrangement Agreement, i3 intends that its enlarged share capital
will also be listed on the TSX, satisfying the Company's obligation
under its existing Loan Notes to seek a secondary listing for its
shares
Majid Shafiq, CEO of i3 Energy commented:
"This is a highly significant acquisition opportunity for i3
which adds material, low cost per barrel, low-decline production as
well as a new growth business with a strong management team and
strategy in the Western Canadian Sedimentary Basin.
"In addition to diversifying our portfolio, this transaction
will help to stabilise our business with a steady revenue stream
while adding considerable upside potential from within Toscana's
Clearwater acreage - an opportunity which is comparable to the
growth potential of our Serenity discovery. We look forward to
welcoming the Toscana management team and staff to i3 and working
together to grow our business in the UK and Canada."
An updated corporate presentation has been posted to i3's
website ( http://www.i3.energy ) which further describes the
opportunity.
Production Acquisition Option
The Company is pleased to announce that it has entered into an
option agreement to acquire all of the issued and outstanding
common shares in the capital of Toscana Energy Income Corporation,
a Toronto Stock Exchange ("TSX") listed oil and gas corporation
with assets in the Western Canadian Sedimentary Basin ("WCSB") in
Alberta and Saskatchewan, Canada (the "Option"). The Option expires
on 30 June 2020 or such later date as agreed between the parties.
The acquisition would be consummated via a plan of arrangement and
the terms of the proposed transaction (the "Arrangement Agreement")
have been agreed with the Board of TEIC. Voting support agreements
have been obtained from the directors and management of Toscana.
The exercise of the Option is not expected to occur until after the
publication of audited 2019 year-end accounts for TEIC and i3. The
entering into of the Arrangement Agreement may possibly be
classified as a reverse takeover under the AIM Rules for Companies
and a determination will be made prior to i3's exercise of the
Option (the "RTO Determination"). If a positive RTO Determination
is made i3 will not be obliged to exercise the Option.
Toscana Energy Income Corporation
In its annual reserves report prepared by Sproule Associates
Limited ("Sproule"), TEIC's wholly owned operating subsidiary,
Firenze Energy Ltd., has 2019 year-end 2P reserves of 4.65 MMboe
(53% oil, 47% gas) with an after-tax NPV10 of C$40.3 million using
Sproule's 31 December 2019 forecast for oil and gas prices (further
detail may be found at
https://www.toscanaenergy.ca/2020/03/toscana-energy-announces-2019-reserves/
and within Toscana's 2019 Annual Information Form once made
available on its website ). Toscana's 2019 production was
approximately 1,065 boepd (55% 32deg+ API oil, 45% gas) from 13
low-decline, long-life, conventional fields, containing 255 gross
(175 net working interest) producing wells. In 2019, TEIC generated
C$5.5 million (US$ 3.9mm) in field netback (revenue minus royalties
minus opex) and produced at an average field break-even price of
C$30.43/boe (US$ 21.74/boe). Toscana's portfolio contains a number
of low-cost opportunities to enhance production from existing
producing fields, in addition to a significant land position atop
the Clearwater formation which, by most economic metrics, is a
highly-ranked oil play in the WCSB.
Key Terms of the Arrangement Agreement
Under the terms of the Arrangement Agreement, TEIC shareholders
will be offered i3 ordinary shares at an exchange ratio of 0.0281
i3 ordinary shares for each TEIC common share. Based on the current
fully-diluted share capital of TEIC, this will result in the
issuance of up to 4,399,224 i3 ordinary shares to shareholders of
TEIC (market value at March 27(th) of approximately C$0.55
million), representing dilution of approximately 4% to i3's current
shareholders. Entering into the Arrangement Agreement will be
subject to the outcome of the RTO Determination, and completion of
the plan of arrangement will be conditional on a vote in favour of
the arrangement resolution by 66 2/3% of TEIC's shareholders voting
at a general meeting. TEIC has granted a period of exclusivity
until 30 June 2020, during which TEIC will deal exclusively with i3
and not solicit an alternative proposal which would or could
reasonably be expected to interfere with or prevent the completion
of the Arrangement Agreement with i3. During the exclusivity
period, i3 has the right to match the terms of any unsolicited
proposal which is superior to that contemplated by the Arrangement
Agreement.
Senior and Junior Debt Purchase
As a result of accessing debt to acquire assets in a much
stronger commodity environment, TEIC has struggled for some years
and was in default under the terms of its debt facility agreements.
i3 has purchased the rights and interests in Toscana's C$24.8
million senior and C$3.2 million junior debt facilities using
current cash resources of C$3.0 million and C$0.4 million,
respectively, with the cash consideration being paid 50% up front
and 50% at year-end. The aggregate consideration being paid by i3
for TEIC's debt and equity totals approximately C$3.95 million (US$
2.82mm) and, in light of TEIC's 2019 production and reserves,
represents approximately 0.72x Toscana's 2019 field netback of
C$5.5 million (US$ 3.9mm), C$3710/boepd (US$2650/boepd), or
C$0.85/boe (US$0.61/boe), and is a fraction of going market-based
valuations for WCSB oil and gas transactions.
Secondary Listing
At such time as i3 exercises its Option and on conclusion of the
Arrangement Agreement, i3 intends that its enlarged share capital
will also be listed on the TSX, satisfying the Company's obligation
under its existing Loan Notes to seek a secondary listing for its
shares.
Strategic Rationale for the Transaction
i3 Energy believes it is necessary to diversify its asset
portfolio in order to spread and mitigate risk. Ideally this would
diversify multiple aspects of our business, including geological,
project life cycle, project capital intensity and capital market
risks, whilst also being both accretive to shareholders and
financeable based on our current balance sheet. We also believe it
is critical to add production to our asset portfolio to provide
internal free cash flow to grow the company and provide a near-term
return to our shareholders. Having considered a number of global
oil and gas basins and specific opportunities, including in the UK
sector of the North Sea in the context of our acquisition criteria,
we have concluded that the WCSB provides a unique, time-limited
opportunity to build a portfolio of production assets on superior
metrics not achievable elsewhere. A short to medium term lack of
infrastructure to transport Canadian oil and gas to international
markets in combination with depressed gas prices in North America
due to the growth in gas supply from shale gas drilling has led to
many small and mid-cap oil and gas producers, particularly those
with overleveraged balance sheets and heavily gas-weighted
portfolios, to become financially distressed and to have limited
access to the North American capital markets to fund maintenance
opex or growth capex. Many of these companies contain excellent,
long-life, low-decline production assets, with solid growth
potential that may be acquirable at attractive metrics.
Though world oil markets are highly volatile at present, TEIC
provides revenue from its long-life portfolio of assets which
contain a number of low-cost production enhancement opportunities
with the potential to add several hundred bopd in the near term or
at such time as commodity prices strengthen.
The TEIC portfolio also contains an asset with prolific growth
potential. TEIC's large land position in the Marten Hills and
Nipisi areas of Central Alberta sits atop the lower cretaceous
Clearwater formation, a conventional oil play producing 13deg to
23deg API crude oil. The Clearwater play has recently seen
significant capital investment and production growth; over 150
wells have been spud since the beginning of 2016 and current
production from the play is in excess of 20,000 bopd. In terms of
economic metrics, the Clearwater consistently ranks amongst the
best in Canada due to its low finding and development costs
resulting from shallow reservoir depth and simple, unstimulated
open-hole horizontal drilling programs, low initial decline rates
and low opex (due to minimal water production). TEIC's acreage
consists of 45.9 net sections (73 km(2) ), with each section
estimated by TEIC's management to have the potential to contain up
to 24 MMbbls of STOIIP. Recovery factors are estimated to range
from 5% for primary recovery to 15% using water and polymer
flooding. TEIC's acreage is well delineated by way of multiple
legacy gas wells which have penetrated the Clearwater oil
formation, and a drilling programme of 4 to 6 wells is being
planned for the Winter 2020/21 season. Further, due to restrictions
on mineral rights licensing in the region, i3 sees this acquisition
as providing the last near-term opportunity to garner a sizeable
position in the Marten Hills and Nipisi Clearwater fairway.
Following completion of the TEIC transaction, i3 intends to
leverage the TEIC platform and management team to execute an
M&A driven growth strategy to build a large, low capital
intensity, long-life production base in Canada. A portfolio of
accretive and material opportunities has already been identified
and is being evaluated to high-grade those which meet our
acquisition criteria.
On completion of the transaction and subject to regulatory due
diligence, John Festival will join the board of i3 as a
non-executive director. John is a chemical engineer with over 35
years of experience in the WCSB's oil and gas sector and has an
excellent track record of founding, growing and monetising oil and
gas ventures in Canada. He is currently the CEO of Broadview Energy
and was the President and CEO of Black Pearl Resources Inc. prior
to its acquisition by International Petroleum in December 2018 in a
stock and debt transaction valued at circa C$715 million. He was
previously the founder and President of BlackRock Ventures Inc.
which was established in 2001 and sold to Shell Canada for C$2.4
billion in 2006.
Toscana's 2019 Consolidated Statements of Net Loss and
Comprehensive Loss
Year ended
December 31 Year ended
December 31
2019 2018
-------------- --------------
CAD $ CAD $
-------------- --------------
Revenues and other income
Petroleum and natural gas revenue, net
of royalty expense 15,185,235 13,924,145
Royalty revenue - 1,223,168
Processing income 510,876 627,197
Other Income - 337,286
Gain (loss) on risk management contracts 67,346 (317,354)
-------------- --------------
Total revenues and other income 15,763,457 15,794,442
-------------- --------------
Expenses
Operating costs 10,954,962 12,575,036
Depletion and depreciation 6,234,595 6,823,526
Impairment 11,130,000 3,800,000
General and administrative 2,582,548 3,370,443
Share-based payments 94,500 84,700
Financing expense 3,290,835 3,825,827
Loss (gain) on disposal of assets and
other (953,804) 4,042,728
Gain on settlement with a creditor (176,190) -
Gain on debentures redemption, conversion
and amendments (13,257,760) (1,396,000)
Gain on acquisition of Cortona, net of
transaction costs - (381,785)
-------------- --------------
Total expenses 19,899,686 32,744,475
-------------- --------------
Net loss and comprehensive loss (4,136,229) (16,950,033)
-------------- --------------
Loss per share
Basic and diluted (0.04) (2.39)
ENDS
Qualified Person's Statement
In accordance with the AIM Note for Mining and Oil and Gas
Companies, i3 discloses that Mihai Butuc, i3's New Ventures
Manager, is the qualified person who has reviewed the technical
information contained in this document. He graduated as a Diplomat
Engineer, Geology and Geophysics from the University of Bucharest
in 1985 and is a member of the Society of Petroleum Engineers.
Mihai Butuc consents to the inclusion of the information in the
form and context in which it appears.
CONTACT DETAILS:
i3 Energy plc
Majid Shafiq (CEO) / Graham Heath (CFO) c/o Camarco
Tel: +44 (0) 203 7 81 8331
WH Ireland Limited (Nomad and Joint Broker)
James Joyce, James Sinclair-Ford Tel: +44 (0) 207 220 1666
Canaccord Genuity Limited (Joint Broker) Tel: +44 (0) 207 523 8000
Henry Fitzgerald- O'Connor, James Asensio
Mirabaud Securities Limited (Joint Broker) Tel: +44 (0) 203 167 7221
Peter Krens
Camarco
Jennifer Renwick, James Crothers Tel: +44 (0) 203 7 81 8331
Notes to Editors:
i3 is an oil and gas development company initially focused
on the North Sea. The Company's core asset is the Greater
Liberator Area, located in Blocks 13/23d and 13/23c, to which
i3's independent reserves auditor attributes 11 MMBO of 2P
Reserves, 22 MMBO of 2C Contingent Resources and 47 MMBO of
mid-case Prospective Resources . The Greater Liberator Area
consists of the Liberator oil field discovered by well 13/23d-8
and the Liberator West extension. The Greater Liberator Area,
along with the Company's Serenity Discovery located in the
northern half of Block 13/23c and for which it carries a STOIIP
of 197 MMbbls, are owned and operated on a 100% working interest
basis.
The Company's strategy is to acquire high quality, low risk
producing and development assets, to broaden its portfolio
and grow its reserves and production.
The information contained within this announcement is deemed
by the Company to constitute inside information under the
Market Abuse Regulation (EU) No. 596/2014.
Glossary of oil and gas terms, in accordance with standards
contained in the Canadian Oil and Gas Evaluation (COGE)
Handbook:
Proved Reserves Proved reserves are those reserves that can
be estimated with a high degree of certainty
to be recoverable. It is likely that the actual
remaining quantities recovered will exceed the
estimated proved reserves.
Probable Reserves Probable reserves are those additional reserves
that are less certain to be recovered than proved
reserves. It is equally likely that the actual
remaining quantities recovered will be greater
or less than the sum of the estimated proved
plus probable reserves.
2P Reserves Total Proved Reserves plus Total Probable Reserves
STOIIP Stock Tank Oil Initially In Place
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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