i3 Energy shares soar as it confirms acquisition by Gran Tierra Energy
() , a Canada-focused oil producer, announced it has reached a final agreement with Gran Tierra Energy on the terms of a cash and share offer whereby Gran Tierra will acquire the entire share capital of .
Gran Tierra said its primary reason for acquiring is to diversify its portfolio with 'high-quality assets with large resources in place and access to infrastructure', with the Western Canadian Sedimentary Basin being one on Gran Tierra's priority list. Both companies expressed confidence that the enhanced scale of the combined group would benefit shareholders.
Under the terms of the acquisition, each shareholder will receive one Gran Tierra share for every 207 shares held and 10.34p cash per share, as well as a cash dividend of 0.2565p per share in place of the ordinary dividend for the 3 months to September 30, 2024.
Following the acquisition, shareholders will own up to 16.5% of Gran Tierra. Based on Gran Tierra's closing price of US$8.66 on August 16, 2024, the acquisition implies a value of 13.92p per share and approx. £174.1m for the entire issued share capital of .
The implied value represents a 49% premium to the closing price of on August 16, 2024, and a 37.5% premium to the volume-weighted average price of for the 180 days to August 16, 2024. shares jumped 26% on the news in early trade on August 20, 2024.
Following the acquisition, Gran Tierra will transfer the entire share capital of to its wholly-owned subsidiary Gran Tierra EIH. shares will be cancelled from trading on the AIM market of the LSE and delisted from the TSX. Gran Tierra has a primary listing on the NYSE with additional listings on the LSE and TSX.
View from Vox
i3 Energy confirms its acquisition by Gran Tierra Energy at a c. 50% premium to its last closing price, prompting a 26% jump in the price of on the morning of the announcement. Existing shareholders should further benefit from material upside enabled by merging 's mostly Canadian portfolio with Gran Tierra Energy's primarily Colombia and Ecuador-based portfolio.
The combined entity will have significantly enhanced scale, diversified across the Americas, improving capacity for growth, production and cashflow. For shareholders, the acquisition delivers a quick path to realising 's fair value through continued ownership in the combined entity (up to 16.5%) plus a significant cash premium, without necessitating additional investment.
The acquisition is in line with Gran Tierra's long-term diversification strategy. Given the terms of the deal, it is clear Gran Tierra believes in the long-term value and potential of 's operated assets. 's portfolio benefits from a stable, low-decline production profile, a significant resource over a large land base with a long reserve life, and an effective hedging strategy.
For 2024, i3 Energy has guided WI production of 18,000-19,000 boepd from its Canadian assets with exit rate guidance of 20,250-21,250 boepd. In comparison, Gran Tierra has guidance production of 32,000-35,000 bopd (100% oil). As of July 31, 2024 had 1P reserves of 88 mmboe and 2P reserves of 175 mmboe while Gran Tierra had 1P reserves of 90 mmboe and 2P reserves of 147 mmboe. On a 2P basis, 's NPV10 was US$725 and Gran Tierra's was US$1.9bn.
In terms of profit guidance, i3 Energy has a 2024 EBITDA guidance of US$50-55m after considering hedges, and Gran Tierra has a 2024 EBITDA guidance of US$335–395m in its low case (at US$70/bbl Brent oil), US$400-460m in its base case (at US$80/bbl Brent oil), and US$480-540m in its high case (at US$90/bbl Brent oil).
The combined group's Q2 production implies a geographic split of 62% Colombia, 36% Canada, and 3% Ecuador with a commodity mix of 81% liquids and 19% natural gas. Gran Tierra has a strong balance sheet and ample liquidity to fund growth projects across 's 250 net booked drilling locations associated with 2P reserves.
As of June 30 2024, Gran Tierra had 12-month trailing net debt-to-adjusted EBITDA of 1.3x, and a cash balance of US$115m. i3 Energy had zero debt and a C$75m undrawn facility.
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