WTI (Sep) $74.37 -$2.28, Brent (Oct) $77.66 -$2.02, Diff -$3.29 +26c
UKNG (Sep) $2.24 +11c, UKNG (Sep) 95.37p +0.72p, TTF (Sep) €39.715 +€0.26

Oil price

So, oil fell sharply and after I wrote that the Secretary of State, Anthony Blinken had arrived in Qatar so did the Israelis and with a plan too. But, no Hamas and from what I could hear they are sticking out for more in the talks which spells danger. Oil has rallied modestly today as the world waits…

Diversified Energy Company

Diversified has announced the execution of a conditional purchase and sale agreement for the acquisition of operated natural gas properties located within eastern Texas from a regional operator. Notably, the Assets contain a significant Proved Developed Producing component, approximately $68 million, which will be purchased by Diversified. 

Concurrently, an active third-party development company with operations in the area will purchase an additional amount of undeveloped acreage with a value of approximately $19 million, the majority of which will be purchased by the third-party development company, with Diversified maintaining only a minority 5% interest for $1 million in consideration. The total purchase price to the Seller, inclusive of both the PDP assets and undeveloped acreage is approximately $87 million before customary purchase price adjustments. The Development company will pay cash consideration of approximately $18 million to directly to the Seller at the closing of the Acquisition.

The consideration for the acquisition of the Assets to be paid by Diversified will be funded through a combination of the issuance of new US-dollar denominated ordinary shares direct to the Seller in the amount of approximately $35 million and new and existing liquidity supported by the increased availability as the result of increased collateral associated with the Assets. The Company expects to close the Acquisition in the fourth quarter of 2024 and is subject to a break fee, should the Acquisition not occur.

Acquisition Highlights (Diversified Allocated Consideration)

• Total gross purchase price of $69 million, inclusive of ~$1 million (or 5%) of the retained undeveloped acreage, and before anticipated customary purchase price adjustments
• PDP gross purchase price of ~$68 million
• Estimated total Net Purchase Price of $64 million
• Anticipated close during the fourth quarter of 2024
• Net PDP purchase price represents a PV-18 valuation
• Current PDP net production of 21 MMcfepd (4 MBoepd)(a)
• Complements industry-leading corporate declines and capital intensity
• Primarily gas-weighted production with ~69% gas volumes(b)
• Provides opportunities for additional cost efficiencies utilizing Diversified’s Smarter Asset Management program and existing East Texas resources
• Estimated PDP production NTM EBITDA of ~$19 million(b) representing a 3.5x purchase multiple
• PDP Reserves of 70 Bcfe (12 MMBoe) with PV-10 of $89 million(c)

Commenting on the Acquisition, CEO Rusty Hutson, Jr. said:
“This purchase strengthens Diversified by expanding our footprint in our East Texas operating area, increasing our scale, and allowing for margin enhancement. Importantly, this acquisition extends our proven track record of completing disciplined transactions at attractive valuations. By joining resources with a development partner, we are highlighting our Company’s ability to creatively and thoughtfully structure transactions that add value and maximize cash flow generation for shareholders.”

Another excellent acquisition by DEC, hot on the heels of recent deals and at a typically attractively multiple of 3.5x EBITDA of c.$19m and a valuation of PV-18 for the PDP assets, excluding the undeveloped assets. I use the company’s maths as the fact that a joint bid has been made, combining their own purchase of  a significant Proved Developed Producing component, approximately $68 million, which will be purchased by Diversified. 

As before, a substantial amount of the deal is financed by DEC paper, some $35m which again highlights the flexibility of the company’s recent move to the US exchange. The involvement of a third party is also interesting and another sign of the managements flexibility in doing deals with imagination and flair. DEC will hold a very small, 5% stake or $1m in valuation terms which keeps residual parts of the deal going. 

The more of the deals that DEC do the more I like the way that these accretive acquisitions add to the value of the business and while there is still huge upside available in the share price yet to be assimilated by the markets I for one would not be betting against this great management team.

11 and undeveloped acreage is approximately $87 million before customary purchase price adjustments. The Development company will pay cash consideration of approximately $18 million to directly to the Seller at the closing of the Acquisition.

The consideration for the acquisition of the Assets to be paid by Diversified will be funded through a combination of the issuance of new US-dollar denominated ordinary shares direct to the Seller in the amount of approximately $35 million and new and existing liquidity supported by the increased availability as the result of increased collateral associated with the Assets. The Company expects to close the Acquisition in the fourth quarter of 2024 and is subject to a break fee, should the Acquisition not occur.

Assets Acquired at Attractive Valuations

The Acquisition’s estimated NTM EBITDA of ~$19 million represents a 3.5x purchase multiple and reflects an attractive valuation of PV-18 for the PDP assets, excluding the undeveloped acreage.

The Assets include 331 net PDP wells (total) and are expected to add 21 MMcfepd (4 MBoepd) of production and 70 Bcfe (12 MMBoe) PDP reserves with a PV-10 of $89 million. Additionally, the production profile of the Assets is highly complementary to the Company’s existing portfolio and operational strategy, with low annual production declines of ~15% for the next twelve months(b).

The Assets are in close proximity to the Company’s previously acquired East Texas assets and provide opportunities to realize synergies attributable to operating scale and asset density.

Chariot

Chariot has announced that the Stena Forth drillship has arrived on location and drilling operations have commenced on the Anchois East well (now named “Anchois-3”) at the Anchois gas project in the Lixus Offshore licence, offshore Morocco (Energean 45%, Operator, Chariot 30%, ONHYM 25%).

• Anchois-3 drilling and flow testing operations are expected to take approximately two months, with Chariot expected to be fully carried for the anticipated costs of the drilling campaign
• Anchois-3 is a multi-objective well with distinct operational phases:

Pilot Hole

• An initial pilot hole will be drilled with the main objective to evaluate the potential of the Anchois Footwall prospect, located in an undrilled fault block to the east of the main field, which has a 2U Prospective Resource estimate of 170 Bcf in the main O Sand target 

Main Hole

• A side-track will then be drilled to intersect and further evaluate the discovered gas sands in the Anchois field, with a current 2C Contingent Resource estimate of 637 Bcf, in the eastern part of the main fault block of the field. The deeper Anchois North Flank prospect will then be drilled, which has additional 2U Prospective Resource estimate of 213 Bcf and which will also de-risk the nearby Anchois South Flank prospect with a 2U Prospective Resource estimate of 372 Bcf

Flow Test

• Well flow testing will then be performed on selected encountered gas sands to evaluate reservoir and well productivity

Future Production Well

• The well will be suspended to enable it to be used as a potential future producer

Adonis Pouroulis, CEO of Chariot, commented:
“We are very pleased to commence this highly anticipated well at the Anchois gas field. We see significant upside potential and value from the prospective resources in the pilot hole and main hole targets which could increase the resource base to over 1Tcf and we look forward, on success, to moving towards a Final Investment Decision as quickly as possible. I’d like to thank the team for all their hard work across the planning, logistics and well design requirements to date and we look forward to providing further updates as we progress through the operational phases of this campaign.”

So, after the wait for the next move at Anchois the now renamed Anchois-3 is under way,  a +/- 60 day well with Chariot likely to be carried for the costs of the drilling campaign which has multiple objectives and in three separate targets and which hopefully will leave the well suspended to enable it to be used as a potential future producer.

The well starts with the initial Pilot Hole with the objective to evaluate the potential of the Anchois Footwall prospect  located in an undrilled fault block to the east of the main field, which has a 2U Prospective Resource estimate of 170 Bcf in the main O Sand target.

Following that a side-track will be drilled to evaluate the discovered gas sands in the Anchois field, with a current 2C Contingent Resource estimate of 637 Bcf, in the eastern part of the main fault block of the field.

Finally, the deeper Anchois North Flank prospect will then be drilled, which has additional 2U Prospective Resource estimate of 213 Bcf and which will also de-risk the nearby Anchois South Flank prospect with a 2U Prospective Resource estimate of 372 Bcf.

These works will provide significant interest in the Anchois development and as the market seems to wait for proof of discovery and that Chariot are carried the chances are that the next few weeks are going to be as important in their history as anything I have ever seen anyway… 

Contingent (2C) and Prospective (2U) Resources noted above are as independently estimated by NSAI in 2022. 

Southern Energy Corp

Southern Energy has announced its second quarter financial and operating results for the three and six months ended June 30, 2024. Selected financial and operational information is outlined below and should be read in conjunction with the Company’s unaudited consolidated financial statements and related management’s discussion and analysis for the three and six months ended June 30, 2024, which are available on the Company’s website at www.southernenergycorp.com and have been filed under the Company’s profile on SEDAR+ at www.sedarplus.ca. 

All figures referred to in this news release are denominated in U.S. dollars, unless otherwise noted.

SECOND QUARTER 2024 HIGHLIGHTS

• Petroleum and natural gas sales of $3.9 million in Q2 2024, an increase of 4% compared to the same period in 2023
• Average production of 15,465 Mcfe/d (2,578 boe/d) (95% natural gas) during Q2 2024, a decrease of 3% from the same period in 2023
• Generated $0.8 million of adjusted funds flow from operation in Q2 2024 ($0.00 per share – basic and fully diluted)
• Net loss of $2.6 million in Q2 2024 ($0.02 net loss per share – basic and fully diluted), compared to a net loss of $3.8 million in Q2 2023
• Average realized natural gas and oil prices for Q2 2024 of $2.26/Mcf and $80.06/bbl compared to $2.18/Mcf and $72.83/bbl in Q2 2023
• Entered into a fixed price swap derivative contract of 5,000 MMBtu/d for the period of May 2024 – December 2026 at a price of $3.40/MMBtu
• Monetized excess inventory equipment in Q2 2024 for net proceeds of $1.4 million
• Extended the maturity of the existing convertible debentures one year to June 30, 2025

Ian Atkinson, President and Chief Executive Officer of Southern, commented:
“The results in Q2 2024 underscore the Company’s strategic advantage stemming from the prime locations of its assets and sales points for natural gas. Despite a quarter of depressed natural gas pricing, where some basins received close to zero dollars for their natural gas, we achieved an average sale price of $2.26/Mcf, approximately a 20% premium over the Henry Hub benchmark pricing. Additionally, our financial hedge of 5,000 MMBtu/d at $3.40 that we entered into during Q2 2024, provides stable cash flow, enabling us to navigate this period of volatility without compromising our balance sheet.

“In Q2 2024, we extended the maturity of our convertible debentures to June 30, 2025. Combined with the extension of our senior secured term loan in Q1 2024, these actions were crucial steps in protecting our balance sheet while natural gas prices remain low. This strategic maneuver allows us to resume growth by completing our three remaining Gwinville drilled but uncompleted wells (“DUCs”) when natural gas prices improve. We remain focused on maintaining our low-cost structure to stay resilient through this period of natural gas price volatility.

“With strong summer heat throughout the U.S., increased power burn demand in July has brought storage levels back within the 5-year average. Additionally, as Corpus Christi and Plaquemines LNG export facilities begin ramping up feed gas demand, combined with the growing domestic demand from artificial intelligence data centers and electrification of vehicles, we believe the overall supply and demand balance of natural gas should improve gas prices heading into winter.

“We remain committed to leveraging our strategic advantages and maintaining operational efficiencies to drive growth and shareholder value.”

As explained by CEO Ian Atkinson above, the company has delivered against the current market conditions by skilful and ‘strategic’ advantages created by the company being in its prime locations of its assets and sales points for natural gas. As I said, above, natural gas prices were depressed to a point of being ‘close to zero’ in some basins in the quarter which makes the achievement even better. 

Against that, the average sales price of $2.26/Mcf was inspired and a 20% approximate premium over Henry Hub prices, plus the additional financial hedge of 5,000 MMBtu/d at $3.40 that was entered into during Q2 2024, provides stable cash flow, enabling Southern to navigate this period of volatility without compromising the balance sheet.

The extremely hot weather in the USA this summer has seen power use up and a decent draw in gas storage levels has seen prices tick forward and the longer term situation is a going to be better again. This is because AI and Bitcoin and EV usage, plus demand from abroad for LNG should see the price pick up. 

All of the above, with the strong skilful team at HQ plus a background of positive demand as gas becomes the transient fuel and pricing on the long term strip being strong I feel that there is a great deal of upside at Southern.

Financial Highlights

Operations Update

Southern continues to evaluate the timing of bringing the remaining three DUCs into production, with one completion expected in Q4 2024, followed by two completions in the first half of 2025. The remaining three DUC wellbores have been drilled in the Lower Selma Chalk (2) and City Bank formations.     

In response to continued low natural gas prices, Southern has been actively reducing and optimizing both operating costs and maintenance capital to maximize its field netbacks. The Company expects to continue these initiatives throughout 2024 but will undertake some low-cost well workovers and recompletions in Q3 2024 to be funded out of adjusted funds flow from operations. 

Strategic sales points for Southern’s natural gas realized a 20% premium over the average benchmark New York Mercantile Exchange (“NYMEX”) Henry Hub price in Q2 2024, helping to mitigate the challenges posed by the current pricing environment. 

Outlook

Southern has $10.0 million in unused capacity on its senior secured term loan, which can be utilized to complete the DUCs when natural gas prices improve or for counter-cyclical inorganic growth opportunities.    

As part of its risk management strategy, Southern continuously monitors NYMEX prices and basis differentials to mitigate some of the volatility of natural gas prices. The Company has taken advantage of the contango in the natural gas future strip by entering into a fixed price swap contract of 5,000 MMBtu/d for the period of May 2024 – December 2026 at a price of $3.40/MMBtu. Southern’s current commodity hedge program includes:

Southern will continue to monitor NYMEX prices and the basis differential prices and is prepared to hedge additional volumes in a tactical manner going forward.

Southern thanks all of its stakeholders for their ongoing support and looks forward to providing future updates on operational activities while continuing to create shareholder value.

Reabold Resources

Reabold has announced that it has agreed to increase its interest in LNEnergy Limited by a further 1.0% through the subscription of 17 new ordinary shares for a cash consideration of approximately £205,000, at a price of £12,047 per share. This will take Reabold’s total shareholding to approximately 27.1% of LNEnergy’s enlarged share capital.

LNEnergy has also agreed to grant Reabold a warrant to subscribe in cash, at the Company’s sole discretion, for a further approximately £747,000 worth of new ordinary shares at a price of £12,047 per share. The Warrant has an exercise period of six months and, if exercised, would take Reabold’s shareholding in LNEnergy to approximately 30.6% of its enlarged share capital.

LNEnergy is the manager and owner of a 20% interest in LNEnergy S.R.L. the Italian company which has applied for the Colle Santo gas field concession (with a 90% interest), and has an option to acquire the remaining 80% interest in LNEnergy SRL on or before 1 February 2025 (the “Option”), with an exercise price of US$11 million.

The Colle Santo gas field is a highly material gas resource with an estimated 65Bcf of 2P reserves1, with two production wells already drilled and flow-tested, making the field development ready. LNEnergy believes that the field has the potential to generate an estimated €11-12m of gross post-tax free cash flow per annum.

As at 30 September 2022, LNEnergy reported unaudited net assets of US$746,034. LNEnergy’s financial statements for the year ended 30 September 2022 did not include income statement items; however, its management accounts reported a loss for the 15 months ended 31 December 2023 of US$3.1 million and as at 31 December 2023, had net assets of US$888,348.

Stephen Williams, Co-CEO of Reabold, commented:
“We are extremely pleased once again to be able to increase our interest in LNEnergy. Through the agreed Warrant, Reabold will be able, at its discretion, to further increase its investment in LNEnergy as the regulatory process for Colle Santo progresses.

“The Colle Santo project holds significant gas reserves and can be a valuable source of domestic energy supply for Italy, notably in the form of LNG. We remain encouraged by progress through the regulatory process and we look forward to providing a further update to shareholders in due course.”

As Reabold await final approval for the concession they have very wisely topped up their stake in LNEnergy at a time when the valuation enables purchase of a bigger ‘slice’ that they could exercise post approval but at the pre-approval valuation. 

With a strong portfolio of assets Reabold are keeping going with this potentially company making gas field at Colle Santo where the Italian Government have, unlike their UK counterparts realised that domestic, low carbon transitory fuel is the future and not shutting everything down and becoming reliant on dirty imported hydrocarbons to heat and power their economy. 

Reabold have a good portfolio of assets at various stages of preparation for future development, I am confident that the share price is woefully short of its potential and Colle Santo is just one of them.

1 RPS estimate, September 2022

i3 Energy/Gran Tierra

The Boards of Gran Tierra and i3 Energy are pleased to announce that they have reached agreement on the terms of a recommended and final* cash and share offer by Gran Tierra for i3 Energy pursuant to which Gran Tierra will acquire the entire issued and to be issued share capital of i3 Energy (the “Acquisition“), intended to be effected by means of a court sanctioned scheme of arrangement between i3 Energy and the i3 Energy Shareholders under Part 26 of the Companies Act (the “Scheme“).

Under the terms of the Acquisition, each i3 Energy Shareholder will be entitled to receive:

• one New Gran Tierra Share per every 207 i3 Energy Shares held; and
• 10.43 pence cash per i3 Energy Share, (together, the “Consideration”)

In addition, each i3 Energy Shareholder will be entitled to receive:

• a cash dividend of 0.2565 pence per i3 Energy Share in lieu of the ordinary dividend in respect of the three month period ending 30 September 2024 (the “Acquisition Dividend”)

Following completion of the Acquisition, i3 Energy Shareholders will own up to 16.5 per cent. of Gran Tierra.

Based on Gran Tierra’s closing price of US$8.66 per Gran Tierra Share on the NYSE American on 16 August 2024 (being the last Business Day before the Offer Period began), the Acquisition implies a value of 13.92 pence per i3 Energy Share and approximately £174.1 million (US$225.4 million) for the entire issued and to be issued share capital of i3 Energy which represents:

(a)      a premium of 49.0 per cent. to the Closing Price of 9.34 pence per i3 Energy Share on 16 August 2024;

(b)      a premium of 49.7 per cent. to the volume weighted average price of 9.30 pence per i3 Energy Share for the 30-day period ended 16 August 2024;

(c)      a premium of 43.6 per cent. to the volume weighted average price of 9.70 pence per i3 Energy Share for the 60-day period ended 16 August 2024; and

(d)      a premium of 37.5 per cent. to the volume weighted average price of 10.12 pence per i3 Energy Share for the 180-day period ended 16 August 2024.

A Mix and Match Facility will also be made available to i3 Energy Shareholders in order to enable them to elect, subject to off-setting elections, to vary the proportions in which they receive cash and New Gran Tierra Shares to be issued. The maximum aggregate amount of cash to be paid and New Gran Tierra Shares to be issued under the terms of the Acquisition will not be varied or increased as a result of elections under the Mix and Match Facility, in accordance with Gran Tierra’s no increase statement made in accordance with Rule 32.2 of the Takeover Code. Gran Tierra reserves the right to scale back elections made for the New Gran Tierra Shares pursuant to the Mix and Match Facility if the issuance of such New Gran Tierra Shares would result in any i3 Energy Shareholder holding 10% or more of Gran Tierra’s issued share capital (on a non-diluted basis) following completion of the Acquisition.

If any dividend, distribution or other return of value in respect of the i3 Energy Shares other than the Acquisition Dividend is declared, paid, made or becomes payable on or after the date of this Announcement and prior to the Effective Date, Gran Tierra will reduce the cash consideration payable for each i3 Energy Share under the terms of the Acquisition by the amount per i3 Energy Share of such dividend, distribution or other return of value. Any exercise by Gran Tierra of its rights referred to in this paragraph shall be the subject of an announcement. In such circumstances, i3 Energy Shareholders would be entitled to receive and retain any such dividend, distribution or other return of value, which has been declared, made or paid or which becomes payable.

It is intended that, immediately following completion of the Acquisition, Gran Tierra will transfer the entire issued share capital of i3 Energy to its wholly owned, indirect subsidiary, Gran Tierra EIH. Gran Tierra EIH is the holding entity for Gran Tierra’s Colombian assets.

Following completion of the Acquisition, it is expected that the i3 Energy Shares will be cancelled from trading on the AIM market of the London Stock Exchange and delisted from the TSX and that Gran Tierra will, subject to Canadian Securities Laws, apply to have i3 Energy cease to be a reporting issuer in all jurisdictions of Canada in which it is a reporting issuer.

No Increase Statement

Gran Tierra considers the financial terms of the Acquisition comprising 10.43 pence per i3 Energy Share in cash, one new Gran Tierra Share per every 207 i3 Energy Share held, and the payment of the 0.2565 pence per i3 Energy Share Acquisition Dividend to be full and fair and therefore that the financial terms of the Acquisition will not be increased in accordance with Rule 32.2 of the Takeover Code. Under Rule 35.1 of the Takeover Code, if the Acquisition lapses, except with the consent of the Panel, Gran Tierra will not be able to make an offer for i3 Energy for at least 12 months.

Gran Tierra reserves the right to revise the financial terms of the Acquisition in the event: (i) a third party, other than Gran Tierra, announces a firm intention to make an offer for i3 Energy on more favourable terms than Gran Tierra’s Acquisition; or (ii) the Panel otherwise provides its consent.

Background to and reasons for the Acquisition

Over the last five years, Gran Tierra has looked to diversify into specific oil and gas basins where it is confident it can create shareholder value focused on operated, high-quality assets with large resources in place and access to infrastructure. The Western Canadian Sedimentary Basin (“WCSB”) being one of the basins on Gran Tierra’s priority list. The majority of the Gran Tierra team has worked in the WCSB and, with its headquarters located in Calgary, is well positioned to do so again.

Gran Tierra believes that the Acquisition offers significant benefits to both companies and their respective shareholders, including the following:

• A business with increased scale and relevance: The Acquisition will create an independent energy company of scale in the Americas with significant production, reserves, cash flows and development optionality. This increased scale is expected to facilitate access to capital, allow for optimised capital allocation, enhance shareholder returns and increase relevance to investors:
  • i3 Energy has guided to 2024 working interest production of 18,000 to 19,000 BOEPD from its Canadian assets with exit rate guidance of 20,250 – 21,250 BOEPD and Gran Tierra has announced 2024 guidance production of 32,000 to 35,000 BOPD (100 per cent. oil).
  • i3 Energy has 1P working interest reserves of 88 MMBOE as at 31 July 2024 and Gran Tierra had 1P working interest reserves of 90 MMBOE as at 31 December 2023.
  • i3 Energy has 2P working interest reserves of 175 MMBOE as at 31 July 2024 and Gran Tierra had 2P working interest reserves of 147 MMBOE as at 31 December 2023.
  • i3 Energy has an independently valued 2P net present value discounted at 10 per cent. (“NPV10“) (after tax) of C$994 million (approximately US$725 million) as at 31 July 2024 and Gran Tierra has an independently valued 2P NPV10 (after tax) of US$1.9 billion as at 31 December 2023. On a 1P (after tax) basis, i3 Energy’s NPV10 is C$469 million (approximately US$342 million) and Gran Tierra’s NPV10 is US$1.3 billion.
  • i3 Energy has announced full year 2024 EBITDA guidance of US$50 – 55 million after considering hedges and Gran Tierra has announced full year 2024 EBITDA guidance of US$335 – US$395 million in its low case (at US$70/bbl Brent oil pricing), US$400 – US$460 million in its base case (at US$80/bbl Brent oil pricing), and US$480 – US$540 million in its high case (at US$90/bbl Brent oil pricing).
  • i3 Energy has over 250 net booked drilling locations (374 gross booked drilling locations) associated with 2P reserves which, coupled with Gran Tierra’s substantial booked reserves, recent exploration discoveries and significant prospective acreage across Colombia and Ecuador, provides development and exploration upside potential to shareholders.
• Increased diversity across geographies and product streams: The Acquisition will create a more diverse international energy company operating across the Americas in regions with substantial oil and gas production, well-established regulatory regimes, stable contracts, access to markets and attractive fiscal terms. The Combined Group will offer a more diversified proposition to both i3 Energy Shareholders and Gran Tierra shareholders. Gran Tierra’s and i3 Energy’s Q2 2024 production imply an approximate geographic split of 62 per cent. Colombia, 36 per cent. Canada, and 3 per cent. Ecuador for the Combined Group, with a commodity mix of 81 per cent. liquids and 19 per cent. natural gas. The addition of new geographies and commodities, along with the exposure to an investment grade country, is expected to benefit the Combined Group in terms of increased development optionality, risk diversification and credit profile. The Combined Group would have approximately 1.4 million net acres in Colombia, 138 thousand net acres in Ecuador and 584 thousand net acres in Canada including 298 thousand net acres in Central Alberta, 102 thousand net acres in Wapiti/Elmworth, 50 thousand net acres in Simonette, and 69 thousand net acres in North Alberta (Clearwater).
• Optimised capital allocation and investment: The Combined Group will have exposure to high return projects across Canada, Colombia and Ecuador, enabling capital allocation and investment across the portfolio to be optimised, using Gran Tierra’s balance sheet strength to accelerate production and cash flow growth from i3 Energy’s 250 net booked drilling locations associated with 2P reserves and additional unbooked Canadian drilling locations and Gran Tierra’s high-impact exploration and low decline oil assets currently under waterflood. Gran Tierra further believes that the strength of the Combined Group will provide an excellent platform for future consolidation, both in Canada and internationally, with significant management expertise, free cash flow, a strong balance sheet and borrowing base potential.
• Balance sheet strength: Gran Tierra has a strong balance sheet and ample liquidity to fund growth projects and shareholder returns. As of 30 June 2024, Gran Tierra had twelve month trailing net debt to adjusted EBITDA of 1.3x and a cash balance of US$115 million. Approximately 70 per cent. of Gran Tierra’s debt is due in 2028 and 2029. The addition of i3 Energy’s production and cash flows would enhance Gran Tierra’s balance sheet and enable accelerated investment and shareholder returns. i3 Energy’s assets would add production, cash flows, reserves and a diversified drilling inventory in an investment grade country, Gran Tierra expects this enhanced scale and diversity to provide enhancements to the credit profile of the business and, ultimately, lower its cost of capital. As at 30 June 2024 i3 Energy had zero debt and a C$75 million undrawn credit facility.
• Increased trading liquidity and investor access: Gran Tierra maintains a primary listing on the NYSE American, where it trades significant volume, with additional listings on the London Stock Exchange and the TSX. With i3 Energy Shareholders expected to own up to 16.5 per cent. of Gran Tierra on completion of the Acquisition, the Acquisition is expected to provide enhanced trading liquidity for the Combined Group’s shareholders across exchanges and provide continuity of trading venues for i3 Energy Shareholders. Additionally, with increased scale, Gran Tierra expects to be increasingly relevant to a larger pool of international equity and credit investors, with the potential for this to have further benefits in terms of trading liquidity and valuation multiple expansion.
• Cash return for i3 Energy Shareholders with upside potential: Gran Tierra’s offer provides i3 Energy Shareholders with a significant premium, in cash, to the current value of their holdings with material upside potential through equity ownership of the Combined Group. Gran Tierra intends to use the Combined Group’s scale and enhanced financial capacity to accelerate development of i3 Energy’s Canadian assets as well as Gran Tierra’s existing Colombian and Ecuadorian assets and expects this to provide meaningful long-term returns to shareholders of the Combined Group. Since 1 January 2023 Gran Tierra has purchased approximately 11 per cent. of its Gran Tierra Shares outstanding from free cash flow.

Recommendation and irrevocable undertakings

The i3 Energy Directors, who have been so advised by Zeus Capital as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to the i3 Energy Directors, Zeus Capital has taken into account the commercial assessments of the i3 Energy Directors. In addition, the i3 Energy Directors consider the terms of the Acquisition to be in the best interests of the i3 Energy Shareholders as a whole. Zeus Capital is providing independent financial advice to the i3 Energy Directors for the purposes of Rule 3 of the Takeover Code.

Accordingly, the i3 Energy Directors intend to recommend unanimously that the i3 Energy Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the i3 Energy General Meeting as those i3 Energy Directors who hold i3 Energy Shares have irrevocably undertaken to do in respect of their own beneficial holdings of in aggregate 32,139,532 i3 Energy Shares representing approximately 2.7 per cent. of the existing issued ordinary share capital of i3 Energy on the Last Practicable Date (excluding any i3 Energy Shares held in treasury).

Gran Tierra has also received irrevocable undertakings to vote (or, in relation to the i3 Energy CFDs, to use best endeavours to procure votes) in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the i3 Energy General Meeting from the Polus Funds and Graham Heath in respect of a total of 238,537,465 i3 Energy Shares and 118,006,332 i3 Energy CFDs, which represent, in aggregate, approximately 19.84 per cent. and 9.81 per cent. respectively, of i3 Energy’s existing issued ordinary share capital on the Last Practicable Date (excluding any i3 Energy Shares held in treasury). Therefore, the total number of i3 Energy Shares and i3 Energy CFDs that are subject to irrevocable undertakings received by Gran Tierra from the Polus Funds and Graham Heath is 356,543,797 i3 Energy Shares and i3 Energy CFDs, representing in aggregate approximately 29.65 per cent. of i3 Energy’s existing issued ordinary share capital on the Last Practicable Date (excluding any i3 Energy Shares held in treasury).

Therefore, Gran Tierra has received irrevocable undertakings to vote (or, in relation to the i3 Energy CFDs, to use best endeavours to procure votes) in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the i3 Energy General Meeting from holders of 270,676,997 i3 Energy Shares and 118,006,332 i3 Energy CFDs, which represent, in aggregate, approximately 22.51 per cent. and 9.81 per cent. respectively, of i3 Energy’s existing issued ordinary share capital on the Last Practicable Date (excluding any i3 Energy Shares held in treasury). The total number of i3 Energy Shares and i3 Energy CFDs that are subject to irrevocable undertakings received by Gran Tierra is 388,683,329 i3 Energy Shares and i3 Energy CFDs, representing in aggregate approximately 32.32 per cent. of i3 Energy’s existing issued ordinary share capital on the Last Practicable Date (excluding any i3 Energy Shares held in treasury).

Transaction Structure and Timetable

It is intended that the Acquisition will be implemented by way of a court sanctioned scheme of arrangement under Part 26 of the Companies Act, further details of which are contained in the full text of this Announcement and full details of which will be set out in the Scheme Document to be published by i3 Energy in due course. However, Gran Tierra reserves the right, with the consent of the Panel, to implement the Acquisition by way of a Takeover Offer.

The Acquisition will be subject to the Conditions and certain further terms set out in Appendix ‎1 to this Announcement and to the full terms and conditions which will be set out in the Scheme Document, including the approval of the Scheme by the i3 Energy Shareholders, the sanction of the Scheme by the Court, the satisfaction of the NSTA Condition, the Minority Shareholder Protection Condition and the Competition Act Condition, and the approval of the TSX.

The Scheme Document will include full details of the Scheme, together with notices of the Court Meeting and the i3 Energy General Meeting and the expected timetable of principal events, and will specify the action to be taken by i3 Energy Shareholders. It is expected that the Scheme Document, together with the Forms of Proxy and Forms of Election (and/or where required, Letters of Transmittal) in relation to the Mix and Match Facility, will be published as soon as practicable and in any event within 28 days of the date of this Announcement (or such later date as may be agreed by Gran Tierra and i3 Energy with the consent of the Panel).

The Scheme is expected to become effective in Q4 2024, subject to the satisfaction or, where permitted, waiver of the Conditions and certain further terms set out in Appendix ‎1 to this Announcement.

Commenting on the Acquisition, Gary Guidry, President and Chief Executive Officer of Gran Tierra said:
“We are thrilled to announce this acquisition, which marks a significant milestone in diversifying our portfolio while strengthening our asset base. By integrating these high-quality, operated assets, including low-decline production, large resources in place and a substantial land base, we are not only enhancing our asset base but also aligning with our long-term strategic vision. We are excited to welcome the talented Canadian team to our company, as their expertise and dedication will be invaluable in driving our continued success. This acquisition is a testament to our commitment to sustainable and profitable growth and delivering consistent value to our shareholders.”

Commenting on the Acquisition, Majid Shafiq, Chief Executive Officer of i3 Energy, said:
“We believe that the Acquisition presents an exceptional opportunity for i3 Energy’s Shareholders. The Acquisition represents the culmination of a thorough process to realise the maximum value available for shareholders and offers significant upside potential; it expedites the realisation of fair value, with a cash premium and incremental upside through continued ownership in the Combined Group, without necessitating additional capital investment, time, or operational risk. This business combination will significantly enhance scale, thereby improving capacity to drive growth, production, and cash flows for the benefit of all shareholders and local stakeholders.”

I have put above the Gran Tierra announcement as i3 have put out 2 different announcements neither of which show a full agreed deal and this seems to be the full monty.

I wrote only recently that having sold a great deal of the asset portfolio the next stage of development for i3 would be discovered in the next six months, it seems that Gran Tierra has rather jumped the gun in its desire for the portfolio. 

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