i3 Energy (I3E ) said it has entered a mutually beneficial agreement with Baker Hughes, a GE company ("BHGE") to amend a previously secured contract that it had entered into in 2019.
The independent oil and gas company with assets and operations in the UK and Canada previously entered into a £5.8m contract with GE Oil & Gas UK, for subsea trees and wellheads intended for the firm’s eventual development of its Liberator field, in 2017.
Later in July 2019, i3 subsequently announced that it had awarded Baker Hughes, a GE company, contracts for its H2 2019 drilling programme at its Liberator and Serenity assets.
Today’s news follows i3’s commitment to focus more closely on its Canadian assets and its Serenity asset in the UK. As a result of its desire to pay dividends to shareholders and to enter one or more farm-down agreements in the near-term, the Company highlighted to investors that it has agreed to a new mutually beneficial agreement with BHGE.
The Group outlined that the remaining balance of an equipment contract will be cancelled without penalty while i3 and BHGE re-confirm their commitment to work together as the Company progresses its Serenity appraisal and, with success, field development thereafter.
In particular, BHGE will see previously issued warrants converted into ordinary i3 shares worth a total of £527.71 while the company detailed that BHGE has also granted permission to i3 to restructure its balance sheet as required to make its intended dividend payments.
For any dividend payments associated with i3's 2021 cash flow, the Company will pay 10% of the value of such dividend payments to BHGE to a maximum of £229,000, the statement noted. Meanwhile, prior to 30 September 2021, i3 will pay to BHGE a fee of £145,383.
In addition, amendments will also be made to a deferred payment invoice balance which is expected to become official upon i3 securing a farm-out transaction for the Serenity project.
Commenting on the news, Graham Heath, CFO of i3, said, "We are pleased to have reached this important milestone which enables us to proceed with our promised dividend strategy, and we want to reiterate our appreciation for the supportive and creative relationships we continue to foster with our partners and creditors as we evolve the Company."
In this morning’s statement, i3 also highlighted to investors that all other consents have now been received from its relevant creditors, including its Majority Noteholders, to proceed with its intended reduction in share capital that it may pay its maiden dividend.
Shares in i3 Energy have increased by over 50% in value since the beginning of the year. The stock was trading 2.35% lower at 8.3p this morning following the announcement.
Reasons to I3E
i3 Energy’s strategy is to focus on the development of discoveries located close to existing infrastructure and the exploitation of producing fields, whilst maintaining limited exploration exposure.
Positive Drilling Results
i3 Energy has several positive re-rating catalysts from near-term drilling results from the existing asset portfolio.
Transitioning to Production with Dividend
Recently moved into production with low-risk growth opportunities in production at low marginal cost.
i3 previously stated that it expects to begin paying a dividend of between 20% and 30% of free cash flow annually prior to the end of 1Q21, and then up to 40% as its Canadian business expands.
Platform for Organic and Acquisitive Growth
Established a platform to transform the business over the next 12 months through organic production growth and complementary acquisitions.
Majid Shafiq, CEO of I3E said i3’s entry into the WCSB is “to provide a platform to execute on a strategy for the rapid growth of a Canadian onshore production portfolio via M&A.”
Alongside its acquisition of Toscana, i3 has continued to expand its Canadian assets, with CEO, Majid Shafiq, and in particular, has viewed 2020 as “a transformational year.”
In September 2020, the company told investors that it completed its acquisition of all the petroleum and infrastructure assets of Gain Energy for CAD$80m after raising around £29m in August in order to complete its proposed acquisition of the Gain Energy assets in Canada.
Meanwhile, i3 Energy also agreed to sell Gain's Saskatchewan portfolio to Harvard Resources Inc. for CAD$45m, around US$33m, immediately following the completion of its acquisition of Gain.
i3 believes the diversification of its portfolio will add ‘a quality production base to provide internal free cash flow to grow the enlarged group and provide a near-term return to its shareholders.’
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