Chris Heminway, Exec-Chair at Time To ACT, explains why now is the right time for the Group to IPO. Watch the video here.
Part 4 (Global Coverage Ratio - i)
This is the first debt covenant listed in note 12 of the 2023 Interim report:
I) Global Coverage ratio 140% – See definition in earlier post:
Cash Balance = £15m
PV10 PDP = $425m (£337m from 2022 YE reserves report))
Principle Debt Outstanding = £34m
Hedges 0 (I have the hedges slightly in the money in Q1 and slightly out of the money in Q2 but the numbers is small compared to above so will assume 0)
Ratio = (15+337+0)/34 = 1000%
So this covenant is not even in play – the value of the PDP reserves is significant and ensures that i3e is well covered and also indicates that there is potential to increase the borrowing under the right circumstances.
PART 3 (Liquidity Threshold - iv)
So these are the covenants associated with the the trafigura loan which i3e have told us are based on pretty much standard financial ratio's. Not overly strict or lenient but standard.
Taking a look at each in turn starting with the easiest iv) liquidity threshold - pretty self explanatory - they must maintain a minimum bank balance of CAD 10m at ALL times.
This is equivalent to about £6m. Closing cash balance as of the interim report (end June 2023) was just over £12m. Capex has been very light since end of June and I have them adding cash with a current balance of around £15m to £16m. So tick they meet this criteria and should also be in compliance when they get to do the next check at the end of March. This would also allow i3e to spend about £20m and still be in compliance (unused debt portion, cash minus the 6m minimum balance with a cushion)
Part 2:
iii. Net Debt to EBITDAX less than 3.00:1.00. (a) Net Debt: means, on a consolidated basis and at any time, the aggregate amount of Financial Indebtedness of i3 Canada (excluding any intercompany Financial Indebtedness) net of free and available Cash and Cash Equivalents of i3 Canada. (b) EBITDAX: means, for any fiscal period and as determined in accordance with IFRS (on a consolidated basis) in respect of i3 Canada: (a) all Net Income for such period; plus (b) Interest Expense to the extent deducted in determining such Net Income; plus (c) all amounts deducted in the calculation of such Net Income in respect of the provision for income taxes; plus (d) all amounts deducted in the calculation of such Net Income in respect of non-cash items, including depreciation, depletion, amortization (including amortization of goodwill and other intangibles), accretion, deferred income taxes, foreign currency obligations, noncash losses resulting from marking-to-market any outstanding hedging and financial instrument obligations, non-cash compensation expenses, provisions for impairment of oil and gas assets and any other non-cash expenses for such period; plus (e) exploration expenses; and (f) losses attributable to extraordinary and non-recurring losses, in each case to the extent deducted in the calculation of such Net Income; less (on a consolidated basis), without duplication: (a) earnings attributable to extraordinary and non-recurring earnings and gains, in each case to the extent included in the calculation of such Net Income (including interest income); (b) to the extent included in the calculation of such Net Income, gains from asset sales; (c) all cash payments during such period relating to non-cash charges which were added back in determining EBITDAX in any prior period; and (d) to the extent included in such Net Income, any other non-cash items increasing such Net Income for such period, including noncash gains resulting from marking-to-market any outstanding hedging and financial instrument obligations for such period.
iv. Liquidity Threshold greater than CAD 10 million. i3 Canada shall ensure that at all times it has a Cash balance in a bank account in an amount equal to or greater than CAD 10 million.
The Global Coverage Ratio, Liquidity Ratio, and Net Debt to EBITDAX are tested on the last day of each fiscal quarter. The Liquidity Threshold must be always maintained. The Group was in compliance with all covenants as at 30 June 2023.
(taken from note 12 of the 2023 interim report)
The Debt Facility contains the following covenants:
i. Global Coverage Ratio greater than 125% for the first 12 months and 140% thereafter. Global Coverage Ratio is the percentage of (a) the aggregate of: (i) the Cash balance of i3 Energy Canada as at such date, (ii) the PV10 of the Proved Developed Producing Reserves (or, if agreed by the Buyer, acting reasonably, the Proved Plus Probable Developed Producing Reserves) owned by i3 Canada) using 85% of the Strip Price and curves, and (iii) the mark to market value (gain or loss) of the Secured Swap Agreements; to, (b) the Principal amount outstanding at each date of determination.
ii. Liquidity Ratio greater than 1.10:1.00. Liquidity Ratio is the ratio of (a) the sum of the following for the next quarter: (i) the revenues of the i3 Canada from the sale of Petroleum Substances, (ii) any royalty or processing income of i3 Canada; (iii) the aggregate amount of all uncalled debt, equity and other capital that is the subject of a binding commitment in favour of i3 Canada from a person who is not an Affiliate; (iv) expected revenue from Permitted Swap Agreements; and (v) all Cash of i3 Canada; to, (b) the sum of the following, all cash costs of i3 Canada in respect of the production, transportation and storage of Petroleum Substances including, without limitation, operating expenses, marketing expenditures, capital expenditures, taxes and interest expense and all distributions and payments of financial indebtedness made by i3 Canada for the next quarter.
Or an expensive jolly ?
Do DEC respond to Investor emails - this is one that I sent them nearly 2 weeks ago:
"I have been looking at Diversified Energy as a potential investment and trying to understand the valuation and well retirement obligations. I have a number of questions:
1. I understand that DEC has about 69,000 wells . What is the split between inactive and active wells?
2. I was listening to a recent interview with the CEO of Pine Cliff Energy (Canadian Gas Company on the TSX). They run a very similar business model to DEC i.e. buy and operate legacy gas wells with low decline rates. They have a 7% decline rate and have a total of less than 7000 wells (active plus inactive). The question was asked of the CEO about their ARO’s and if they were a problem. His response was no and added the following:
a) Their % inactive wells as a percentage of total wells is one of the lowest if not lowest in Canada
b) They are very active in abandoning wells year on year and plugged over 400 last year. The CEO referred to a US Company, did not mention the name but it was obvious he was referring to DEC and highlighted the difference – 7000 total wells and 400 abandoned versus DEC with 69,000 wells and 200 abandoned. The numbers don’t appear to tally i.e. Pine Cliff are retiring wells at 20 time the rate of DEC. I have shares in a Company called i3e – they are gas weighted with a relatively low decline rate of 13-15% and they are also abandoning wells at a considerably higher rate than DEC.
So the question here is how can DEC be retiring 1/20th the number of wells as a peer such as Pine Cliff and not have a problem. My understanding is that this is one of the concerns impacting DEC’s valuation which otherwise should be multiples of the its current value.
Also an Interesting RNS from one of our Wressle Partners this morning - Union Jack Oil.
Yes very positive imo - the Irish Government had every excuse to cancel the licence had they so been inclined. Will be interesting to see what the Market makes of this.
4m barrels is just line fill - the has added 19 storage tanks which is about another 4m barrels.
Good news indeed - will take about 4m barrels to fill.
this is interesting also and perhaps highlights that the demise of oil is further away than is generally accepted:
https://oilprice.com/Energy/Energy-General/Toyota-Chairman-Questions-EV-Market-Future.html
First off - I think I'm correct in saying that he did not refer to i3e as a marginal holding - "non correlated" is what I heard, Secondly its logical to assume that he wouldn't be holding i3e if he didn't think it could out perform vis-a-vis other potential holdings.
Your a strange one Canuck - you're a holder or so you would have us believe but consistently put a negative spin on things and the when you do try to put out something positive - its based on false information ala your comment on i3e's cost structure. Surprising really that you apparently don't know the difference between "cash costs" and OPEX given that you appear to try to pass yourself off as some kind of fund manager on twitter ??
and for the record - I don't have any hang-ups about these 5p shareholders - I also managed to snag a few in the 5p range along with a few fellow shareholders here.
What is the latest on the Coup attempt ? All Paul what's his face had to do was present the requisition with the right supporting documents. He had the votes to force a requisition. I guess he figures he didn't have the votes to force through the changes he was looking for.
Https://videos.voxmarkets.co.uk/video/6957
i3e gets a mention from 48 minutes in along with PANR from 50 minutes.
Https://www.artberman.com/blog/beginning-of-the-end-for-the-permian/
where are the US going to find Oil to replace shale - Alaska perhaps !
Good article. In Goehring & Rozencwajg last article (Q3 update I think) - they were forecasting that shale would peak within the next 6 months.
That would be a tail wind for not only oil but Natgas also as a lot of gas is associated with Oil. Alaska is also mentioned in the article - I would think this is positive for Alaskan Oil and Companies such as Pantheon - where is the US going to replace shale oil from ?
Https://boereport.com/2023/05/30/boe-intel-q1-earnings-season-report-card-part-2/
I wish that were true but alas you're comparing Granny Smith Apples with Kiwano Melons and as everyone knows - you cannot compare Granny Smith Apples with Kiwano Melons.
The number you quote for i3e is OPEX and your comparing that with "Cash Costs" from a peer group. Did you not think to find out what they mean by "Cash Costs" - "Cash Costs" include SG&A and Interest.
If you're interested in a real comparison - BOEReport.com issued "report cards" on pretty much the entire Canadian Oil & Gas Space last year - you can probably still find them. The mean OPEX cost from memory sits at around S12/BOE whereas i3e sits just above $13 / BOE. So i3e is a fraction above average.
However, SG&A is another matter - i3e's cost at around $2.30 / boe is more than double many of its peers.
Do Shanta ever respond to emails - if they do you can ask them to address the question of whether the current offer represents value for shareholders during their Investor Presentation.
SpaceHoppa,
Not following the maths - maybe I'm missing something:
$1B finance - RKH share is $330m of which Navitas provide 2/3 via an interest free loan ($220m). Still leaves RKH to find $110m ? What am I missing.
I was expecting a much bigger SP reaction this morning. I hear they had to pull old Curly Hair off the 1st Tee this morning and get him back to the office to sign off on the RNS.
Canuck,
I think there were a couple of other factors at play there - the famous Doc Jones posted a couple of buys in the last week or so and was pumping the stock a few days before the dividend cut. It seems he's struggling a little from the early halcyon days of EMO which is not doing so great for him either since he was buying all the way up to CAD 3.00 and above. We've all had to eat a little humble pie from time to time - if anyone is in touch with him - maybe you can ask him what it tastes like ?