i3 Energy plc, an independent oil and gas company with assets and operations in the UK, is pleased to announce the following update.
Toscana Transaction Highlights:
- i3 has executed its Option to acquire all of the issued and outstanding common shares of Toscana Energy Income Corporation ("Toscana" or "TEIC"), a TSX-listed oil and gas company (the "Toscana Acquisition")
- 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$4mm) in field netback (revenue minus royalties minus opex) from 13 low-decline, long-life conventional fields producing at an average break-even price of C$30.43/boe (US$22.38/boe)
- TEIC operates 69% of the producing wells in its portfolio at an average net working interest of 67%
- The total aggregate consideration being paid by i3 for TEIC's debt and equity totals approximately C$3.85 million (US$2.83mm) representing roughly 0.7x Toscana's 2019 field netback, C$3618/boepd (US$2661/boepd), and C$0.83/boe (US$0.61/boe)
- In March, i3 acquired the rights and interests in Toscana's C$28 million senior and junior debt facilities (which were in default) for C$3.4 million (US$2.5 million), with cash consideration paid 50% up front and 50% at year-end
- At completion, Toscana shareholders will receive 4,399,224 i3 shares for TEIC's entire share capital, representing dilution of approximately 4% to the Company's current shareholders
- At the conclusion of the Arrangement Agreement, i3 intends that its enlarged share capital will be listed on the TSX
- The acquisition is a reverse takeover under the AIM Rules for Companies and is conditional upon the approval of i3's shareholders
Potential Asset Acquisition Highlights:
- i3 has entered into a non-binding letter of intent (the "Proposed Acquisition") to acquire a package of producing Canadian oil and gas assets (the "Proposed Assets")
- In 2019, the Proposed Assets produced at over 10,000 boepd and generated over US$34 million in field netback from over 250 net wells across multiple low-decline, long-life, light oil and gas fields
- Upon completion, the Proposed Assets would add over 25 MMboe PDP and over 65 MMboe 2P to i3's portfolio
- Cash flow from the Proposed Assets would benefit from TEIC's US$89 million in accumulated tax pools
- The total proposed consideration to be paid for the Assets under the letter of intent is just under US$60 million, representing approximately 1.7x 2019 field netback and approximately 2x that forecasted for the next 12 months, ~US$5,500/boepd, and ~US$0.85/boe of 2P reserves
- As the Proposed Acquisition would also be a reverse takeover under the AIM Rules for Companies, and at i3's request, the Company's shares are being suspended from trading on AIM until i3 either publishes a "Readmission Document" detailing the Proposed Acquisition or provides confirmation that discussions have ceased
Majid Shafiq, CEO of i3 Energy commented:
"In March of this year we announced our entry in to the Western Canadian Sedimentary Basin via an option to acquire Toscana Energy Income Corporation, which was to provide a platform to execute on a strategy for the rapid growth of a Canadian onshore production portfolio via M&A. We announced today the exercise of that option and the entering into of an arrangement agreement to effect that transaction. The acquisition of the Proposed Assets would be the first follow-on transaction in our business plan and, would be transformational for i3, adding material, low-cost per barrel, low-decline production, with significant organic growth optionality."
Toscana Energy Income Corporation - Exercise of Acquisition Option
As disclosed in an RNS dated 30 March 2020, on 29 March 2020 i3 entered into an Option agreement to acquire all of the issued and outstanding common shares of Toscana Energy Income Corporation, a Toronto Stock Exchange ("TSX") listed oil and gas corporation with assets in Canada (the "Option"). The Option was set to expire on 30 June 2020.
i3 has now exercised its Option and the Toscana Acquisition will be consummated via, and is conditional upon, a plan of arrangement, the terms of which have been agreed between i3 and Toscana in the "Arrangement Agreement". Under the terms of the Arrangement Agreement, TEIC shareholders will receive 4,399,224 i3 ordinary shares, representing dilution of approximately 4% to i3's current shareholders. Voting support agreements have been obtained from the directors and management of Toscana. 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. On conclusion of the Arrangement Agreement, i3 intends that its enlarged share capital will also be listed on the TSX.
The acquisition is also a reverse takeover under the AIM Rules for Companies and is conditional upon the approval of i3's shareholders and the Company will be preparing a Readmission Document for the admission of the enlarged company to AIM following the Toscana Acquisition.
On completion of the transaction and subject to regulatory due diligence, a current member of the TEIC board, 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.
The Proposed Acquisition
The Toscana transaction has provided the Company with the intended benefit of seeking additional North American acquisitions by way of having an interest in a Canadian operator. i3 has entered a non-binding letter of intent for the Proposed Assets, a package of light oil and gas assets in Canada.
In 2019, the Proposed Assets produced over 10,000 boepd and have independently audited year-end 2019 reserves above 25 MMboe PDP and 65 MMboe 2P and year-end 2019 before-tax NPV10s above $175 million and $395 million, respectively. As global commodity prices have decreased substantially since the end of 2019, the Company is having the reserves and associated economics re-evaluated by a competent person, and this report will be included as part of the Readmission Document when final. Cash flow from the Proposed Assets would benefit from TEIC's US$89 million in accumulated tax pools. The total consideration to be paid for the Assets is just under US$60 million representing approximately 1.7x 2019 field netback and approximately 2x that forecasted for the next 12 months, ~US$5,500/boepd, and ~US$0.85/boe of 2P reserves. The Company is in discussions with its investors and brokers and is seeking funding for the consideration of the Proposed Acquisition and general corporate purposes.
The Company intends to move to a legally binding acquisition agreement for the Proposed Assets and include the required details of the Proposed Acquisition in the Readmission Document. As the Proposed Acquisition would be classified as a reverse takeover in accordance with the AIM Rules for Companies, at the request of the Company its shares will be suspended from trading on AIM as of today and will remain so until either the publication of a readmission document setting out, inter alia, details of the Proposed Acquisition or until confirmation is given that these discussions have ceased.