i3 Energy, an independent oil and gas company with assets and operations in the UK, has announced an update on the previously announced Gain Energy production acquisition
In reference to the Company's announcement of 23 June 2019 regarding the Letter of Intent to acquire production assets, i3 has now entered into a binding purchase and sale agreement ('PSA') for all the petroleum and infrastructure assets of Gain Energy, a private Canadian company with operations in the Western Canadian Sedimentary Basin ('WCSB').
- During 2019, the Assets produced at 11,020 boepd and generated ~US$34 million in field EBITDA (revenues minus royalties, opex and transportation) from 365 net wells across multiple low-decline, long-life, light oil and gas fields
- The Assets would add 26.4 MMboe PDP and 69.4 MMboe 2P reserves to i3's portfolio
- The consideration to be paid for the Assets is C$80 million (~US$58.8m), subject to adjustments (outlined below), representing acquisition metrics of approx. 1.7x 2019 field EBITDA, US$5,526/boepd, and US$0.85/boe of 2P reserves
- The Transaction is a reverse takeover under the AIM Rules for Companies and is subject to i3 shareholder approval. The Company's shares are currently suspended from trading on AIM until it either publishes a 'Readmission Document' detailing the Transaction or provides confirmation that the Transaction will not complete.
Transaction and Readmission
On 3 July 2020 (the 'PSA Date'), i3 entered a binding purchase and sale agreement with Gain to acquire 100% of its producing and non-producing petroleum assets in the Canadian provinces of Alberta and Saskatchewan. In Q4 of 2019, the Assets produced on average 10,645 boepd (47% liquids) to which Gain's independent reserve evaluator had attributed PDP reserves of 26.4 MMboe with a before-tax NPV10 of ~US$177 million, and 2P reserves of 69.4 MMboe with a before-tax NPV10 of ~US$397 million. In 2019, the Gain Assets produced ~US$34 million in field EBITDA (revenues minus royalties, opex and transportation) from 242 Gain-operated wells at an average working interest of 78% and 1,633 non-operated wells at an average working interest of 11%, and include 174k net developed acres and 186k net undeveloped acres of land. As part of i3's readmission process, the Company has commissioned GLJ Ltd. to update the reserves associated with the Assets. These details will become part of i3's Readmission Document when published.
Under the PSA, i3 will be acquiring the Assets free of all encumbrances (apart from industry standard or acceptable permitted encumbrances) for cash consideration of C$80 million (~US$58.8 million). In addition to normal interim period adjustments between the transaction effective date of 1 May 2020 and completion, the Consideration will be adjusted by an amount of interest accruing at Canadian Prime + 2% (totalling approximately 4.45%), and from 29 June 2020 until completion, the Consideration will be adjusted by C$500k (~US$368k) per calendar month accruing to compensate Gain for its management of the Assets.
The Company is closely following the global energy transition towards carbon neutral energy sources, and i3 intends to be a proactive participant in this critical endeavour. A major attraction of the Transaction is Gain's interest in the oil-producing Weyburn unit, the fourth largest carbon capture, utilization and storage ('CCUS') project in the world. For Gain's interest, the amount of CO2 annually sequestered is estimated to offset approximately 17,760 boepd of scope 1 greenhouse gas emissions. This figure is at present more than sufficient to cover the 10,645 boepd produced by the Gain Assets in Q4 2019 and will further offset additional production as it is added to i3's portfolio in the future.
The required details of the Transaction will become part of a Readmission Document. As the Transaction is classified as a reverse takeover in accordance with the AIM Rules for Companies, at the request of the Company, its shares were suspended on 23 June 2020 from trading on AIM and will remain so until either the publication of the Readmission Document setting out, inter alia, details of the Transaction, or until i3's confirmation that the Transaction will not complete.
Completion of the Transaction remains subject to i) financing to raise the cash consideration and working capital, ii) industry standard conditions precedent, and iii) i3 shareholder approval. The Company is in discussions with its investors and brokers and is seeking funding for the Consideration and general corporate purposes.
Source: i3 Energy