Hi All
So where is I3E now?
We have a current MC 6.6m and share price of 6.1p
To summarise the current position:
I3E is an independent oil and gas company operating in the North Sea.
A core asset is the Liberator oil field in which it has a 100% interest.
They had a successful drilling campaign in 2019
https://www.investegate.co.uk/i3-energy ... 57429967U/ Liberator:
This has confirmed an extensive sand body (200+ feet), an oil water contact (OWC) matching the regional expectation at 5270 ft true vertical depth subsea (TVDSS), and an important residual oil column below the OWC. Collectively these mitigate the risk of oil migration westward to fill the A3 and A4 culminations and the Minos High structure in Liberator West, which the Company estimates to contain up to 400 million barrels (MMbbls) of stock tank oil initially in place (STOIIP).
Serenity:
Confirmation of an OWC at 5270 ft TVDSS supports i3's expectation of a substantial oil volume in Serenity (estimated at 197 MMbbls STOIIP). i3's modelling indicates a potential connection of Serenity to the Tain oil field, for which a field development plan is being prepared by the Tain operator.
Appraisal drilling on these was planned for late summer 2020.
So the crucial question is how do the finances stand?
At the beginning of the 2019 drilling season I3E had raised around £41m through a placing (£19m) at 37p and a loan facility of £22m
Drilling costs and expenses in 2019 were estimated at around £32-34m
Interest on the £22m loan is 8% (and can be paid in shares) and it lasts until 2023 but with the condition that I3E commit to a minimum of £16 million of equity which the Company can contribute through either the issue of new ordinary shares to investors or through the proceeds of a farm-out.
As a farm-out was not imminent this condition was extended from 6th December 2019 to April 30th 2020 – the cost was a further placement (and 15% dilution) worth £5m at 35p per share to the note-holders.
At this point (end of 2019 drilling) cash probably stood at around £7m.
With the Serenity discovery Dolphin who have the drilling contract bought in with a 10% farm-in in block 13/23c for which Dolphin will cover 22% of the costs. This was conditional on I3E having enough funds to fund its portion.
I3E then in March this year did a deal with Toscana (a distressed Canadian oil producer) to buy their debt and assets for £2.4m
Buying Toscana and its oil producing assets at a knock-down price looks like a good deal for I3E. Less so for Toscana as expressed by the more vocal share holders on the Canadian Stockhouse bullboards.
https://stockhouse.com/companies/bullbo ... orp?page=1 It is worth noting that the CEO of Toscana (Ryan Heath) is the brother of Graham Heath the CFO of I3E.
One other point is that I believe Toscana share holders get to vote on the deal with I3E. Many private investors are not happy and threaten to vote no. I’m not sure how this would effect things as Toscana is essentially worth nothing having defaulted on its debts and I3E has bailed them out as part of the deal.
This I calculate probably leaves £3-4m in the I3E kitty.
So the bottom line is that I3E doesn’t have the funds to meet its obligation to the loan note-holders.
Failure to do so is a breach of the agreed contract despite the loan maturing in 2023 and potentially could mean that immediate repayment is demanded.
Understandably I3E is pursuing the option of a further extension.
In these circumstance the loan note-holders have considerable leverage – how will they use this?
Bankrupting I3E is unlikely to be to their advantage. They also own shares as well as warrants in I3E.
Who are they?
One of the largest appears to be an European Investment Manager with assets under management in excess of £1 billion who agreed to subscribe for £12 million of the Loan Notes.
However they will want their pound of flesh which will reduce the value held by other shareholders probably by further dilution which is likely to be greater than before.
So what do I think is the most likely scenario here?
Liberator and Serenity are valuable assets and Dolphin are ready and willing to drill them. September 1st being the earliest date mooted.
Toscana has been bought at a knock-down price and will offer near term production and cash flow.
Forcing a debt repayment is not in the note-holders best interest. I suspect this will result in a placement and significant dilution for shareholders.
I3E will still need to secure a farm-in partner.
It is possible that one is about to step in imminently but this was obviously not the case on 30th April when the note-holders condition expired.
Buying Toscana 3 months ago would seem to indicate that I3E management are at least optimistic as to the likely outcome of a farm-out. Of course others might suggest that they are deluded.
However with the shares at 6p (MC 6.5m) the market appears to be giving a relatively big weighting to the possibility that the company will go under. This is a risk but with the asset potential and possibility of near-time production and cash-flow from Toscana it would not seem in the note-holders interests to push for this. Better for them to extract a greater proportion of i3E.
It looks likely that all will be revealed at the AGM on 30th June.
My opinion is that I3E will pull it off but at the price of further dilution for current shareholders. My guess would be perhaps around 30% dilution (finger in the wind job).
I do have a few shares in I3E bought at 35p so at 6p I am well underwater.
Having reviewed the company's position over the weekend I am tempted to average down.
I would welcome any thoughts or comments on my summary.
Regards
Iron