i3 Energy, an independent oil and gas company with assets and operations in the UK and Canada, has announced its audited results for the year ended 31 December 2020.
Highlights and Outlook
- Obtained a corporate foothold in Western Canadian Sedimentary Basin ('WCSB') production assets and management team through a debt acquisition of Toscana Energy Income Corporation ('Toscana' or 'TEIC') and entry into an Option agreement to acquire all issued and outstanding shares of TEIC
- i3 Energy paid CAD3.4 million (c.USD2.5 million), half in March 2020 and half at end-December, to acquire all of TEIC's outstanding debt and to assume the role of senior-secured lender to Toscana, which was in default under its CAD28 million (c.USD21 million) senior and subordinated credit facilities and was conducting a competitive strategic review process; i3 additionally issued 4,399,224 ordinary shares to TEIC shareholders at completion of the TEIC acquisition, concluded via a Plan of Arrangement in October
- i3 acquired TEIC's 2019 year-end 2P reserves of 4.65 MMboe (53% oil, 47% gas) with a reserve life index of 14.7 years, Q4 2019 production of 1,065 boepd at USD2,661/boepd and USD0.61/boe 2P
- Built on WCSB position with major acquisition of producing assets and infrastructure in Alberta and Saskatchewan from Gain Energy Ltd. ("Gain") contemporaneous with i3 entering an onward sale of Gain's Saskatchewan assets to Harvard Resources Inc, leaving i3 with all of Gain's Alberta assets post completion in September 2020
- The Gain Assets were acquired for CAD35 million (USD26 million) and provided i3 with approx. 9,000 boepd of long-life, low-decline production and 54 MMboe 2P reserves at highly attractive acquisition metrics of 1.1x next twelve months ('NTM') net operating income ('NOI' = revenue less royalties, opex and transportation and processing), USD2,876/boepd, and USD0.48/boe 2P
- Suspended trading on AIM to separately conclude the reverse take-overs ('RTO') of the Gain Assets and Toscana. i3 entered into a Management Services Agreement with Toscana to manage i3's enlarged Canadian portfolio and staff base between the closing of the Gain Asset RTO and the conclusion of its Plan of Arrangement with TEIC
- Placed 581,147,255 new ordinary shares at 5 pence per share for total fundraising of £29 million to acquire the Gain Assets and announced it would issue 75,184,252 options at an exercise price of 5 pence (subject to vesting conditions as disclosed in the Company's August AIM Readmission document) to staff and board of the enlarged group following its Readmission to AIM and the completion of the Gain Asset and Toscana transactions
- Concluded the Gain Asset and Toscana transactions in September and October, respectively, with the Company being listed thereafter on both AIM and the TSX
- Completed key amendments to i3's May 2019 Loan Notes, replacing obligations to enter a development funding facility for the Company's UK assets with obligations to achieve certain production and funding levels during 2020 and 2021 (these replacement obligations have been fully satisfied through i3's funding and acquisition of the Gain Assets). In exchange for the amendment, all 55,981,044 warrants associated with the May 2019 Loan Notes had their exercise price reset to £0.0001 per share, and the loan note amendments also required the repricing of 16,157,612 i3 management and director options to £0.0001 per share.
- Progressed farm-down process for Serenity and Liberator in the UK North Sea and conducted a site survey over future appraisal and potential development well locations.
The Company's focus for the remainder of 2021 will be on 4 key areas:
1- The growth of i3's Canadian business by way of operational excellence, capital deployment and strategic upsizing in core areas;
2- The farmout of its UK licences to conduct further appraisal drilling at Serenity and/or Liberator;
3- Dividend distributions to its shareholders of up to 30% of free cash flow and to return value to stakeholders as it is generated; and
4- Conducting its operations safely and in an environmentally secure manner
The Company continuously evaluates opportunities to strengthen its balance sheet whilst maintaining tight control of its costs and working capital position.
Majid Shafiq, CEO of i3 Energy plc, commented:
'2020 truly was a transformational year for i3. We entered the year on the back of a recently completed three well drilling programme on our UK licenses. Drilling on the Liberator discovery was disappointing but was offset by the discovery of the Serenity oil field. The beginning of the year was spent analysing the results and updating our geological models. We remain confident in the potential in the Liberator field and the Minos High prospect to the west, however we decided to focus our initial appraisal efforts on the Serenity field and commenced a farm-out process, which we hope to conclude in the near future and then commence planning for appraisal drilling to delineate the field.
The first few months of 2020 saw two massive market dislocations in the form of an unprecedented collapse in the oil price due to the breakdown of market sharing arrangements between the major national oil producers and the demand destruction caused by the advent of the global coronavirus pandemic. Amid this turmoil, we recognised a time-limited opportunity to acquire long-life production assets in Canada at market lows and set about sourcing deals which could be financed through the UK capital markets. We exited October having re-negotiated our existing debt obligations, completed two material transactions in Canada, conducted two reverse takeover re-admissions to the AIM market in London, listed the company on the Toronto Stock Exchange and financed these deals with an oversubscribed equity placing in extremely difficult market conditions.
The remainder of the year was spent aggregating our UK business, the Toscana corporate transaction and the asset base acquired from Gain Energy into one organisational structure. We emerged from 2020 as a cash-flow generating production business with a diverse portfolio of assets, able to support a regular dividend and with multiple catalysts for share price appreciation. Following shareholder and court approval of our balance sheet re-structuring we will soon pay our maiden dividend and commence a cycle of regular cash returns to our shareholders.
We see tremendous potential for growth, in Canada both organically through exploitation of untapped potential in our current asset base and through accretive acquisitions and in the UK through the drill bit. We also recognise that climate change is having and will have an increasing impact on the way we conduct our business and our ESG strategy will evolve as we progress through the energy transition to ensure we remain relevant to our shareholders and stakeholders.
Finally, I would like to pay tribute to our staff both in the UK and Canada, who worked tirelessly through very difficult circumstances last year to transform the company and bring about a massive change in its circumstances and prospects.'