I3 Energy’s Canadian acquisition to enhance production, strengthen financials

Summary

• Independent energy company I3 Energy announced the asset acquisition of Canadian energy company Cenovus Energy Inc to expand its production in central Alberta core are for CA$ 65 million.
• I3 Energy raised at least £40 million via a share placing at an issue price of 11 pence per share to help fund the deal.
• The deal will lead to stronger free cash flow, an enhanced reserve base, operational synergies and more.

AIM-listed energy company I3 Energy PLC (LON: I3E) (TSX:ITE) announced today its plan to acquire the assets of oil and gas company Cenovus Energy Inc. for CA$ 65 million through its wholly-owned Canadian subsidiary. The acquisition will expand its production in central Alberta, located in western Canada and is likely to result in huge operational synergies and anticipated low-decline production. It will also provide the company with a sizable reserve base coupled with development inventory for many years with a strong cash flow.

The company also announced that it has raised at least £40 million through share placement of new ordinary shares, with a face value of 0.01 pence per share, to retail shareholders to help fund the acquisition. The funds will be raised via the primary bid platform.

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Here are the details of the acquired asset and how the acquisition will benefit I3 Energy.

Cenovus Energy deal

I3 Energy has said that acquiring the Canadian oil and gas producing company will create operational synergies, scale and lead to its next twelve months (NTM) estimated net operating income (NOI) of US$ 31 million due to a predictable low-decline production outline.

The deal will also offer a large reserve base, including two proved and probable developing reserves of 27.5 mmboe at an NPV 10 of US$ 90 million and 2P reserves of 79.5 mmboe at an NPV10 of US$ 193 million, for I3 Energy. NPV10 is the net present value of the future net revenues of any proved reserves, which are discounted at 10 per cent per annum.

The asset acquisition includes the buying of certain conventional petroleum and infrastructure assets in central Alberta core are of i3Energy and will translate into the production of about 8,400 barrels of oil equivalent per day (boepd), which includes 51 per cent of oil and natural gas liquids (NGLs), thus helping I3 Energy to consolidate its Alberta core area.

Additionally, the buyout is also expected to create a strong free cash flow for the company. It also expects to have net debt of only US$ 27 million upon closing the deal, translating into around 0.36x of current net debt to NTM-NOI ratio.

The deal is also expected to be immediately accretive to the company. I3 expects its forecast production to increase by 30 per cent, NOI to rise by 20 per cent and its reserves to increase by 76 per cent in the 12-month period following the completion of the acquisition.

Accelerated book building results

The company has also announced that it has raised £40 million as part of its accelerated book-building process to help fund the acquisition. It placed up to 363,700,000 placing shares at an issue price of 11 pence per placing share.

The placing shares were priced at a 3 per cent discount of its 15-day moving average closing price of 11.4 pence per share. It also included the primary bid offer to retail investors. The placing and primary bid offer is subject to shareholder approval, which will be proposed at the company’s general meeting tentatively around 26 July.

Benefits of acquisition

The acquisition of Cenovus Energy Inc is a part of i3Energy’s strategic plan to take advantage of the recent market conditions and harnessing its market and financial position to create a cash-generative, all-weather portfolio by proficiently accumulating underfunded assets, which are well within the company’s core operating areas.

The acquisition is likely to provide a further financial boost to the company in the form of increased cash flow, production as well as reserve base, which would also help in its planned return of capital to shareholders.