WHI Report - Part 28 Jul 2021 11:14
Accretive: Based on our analysis, shareholders have materially gained in wealth through the company’s acquisition and successful equity placing. The significant growth and value accretion metrics from the acquisition are provided in Table 1. (Deleted)
Step-change in Canadian markets: We cannot understate the importance of successfully securing a high-impact acquisition from Cenovus in the heartland of the Canadian oil patch. Cenovus (CVE; TSX & NASDAQ; Market Cap $US 18 billion) is a recognised senior oil producer with a significant North American presence. The deal will be noted in North American oil & gas markets and, we believe, will raise the profile of i3 Energy as a preferred acquirer – potentially favouring entry into further value accretive deal flow.
Funding: Based on the company’s successful track record and the value it has created to date for shareholders, we are not surprised by the support shown to i3 Energy by the institutional investors who participated in the placing (the company’s last placing of £29m was priced at 5p and closed on 11 August 2020). Nevertheless, we believe it is critical to appreciate that, based on our observations, capital scarcity remains a dominant theme in North American oil & gas markets. We believe i3 Energy’s proven ability to raise funding sets it apart from the pack and makes i3 Energy a preferred counterparty for potential vendors. Although we believe the mantra “cash is king” remains true across the commodity cycle, it takes on a literal accuracy in a winner-takes-all context where the number of motivated sellers is grossly imbalanced relative to the limited number of funded acquirers.
Scaling up: We see only positive benefits from increased scale for i3 Energy. An increased market cap and cash flow base will only add institutional appeal to the investment opportunity. At the operational level, we believe that scale will bring efficiency gains. The significant increase to i3 Energy’s cashflow resulting from the acquisition will allow the company to plan more extensive drilling programs. Importantly, we believe that i3 Energy is entering an operational scale where efficient debt finance starts to become available in Canada. Taking a mid-term view, we see a lot of scope for prudently levered debt funding to turbo charge growth. ? Low-decline production: The acquisition will increase i3 Energy’s production by circa 8,418 boe/d of low decline, stable production. Pro forma the acquisition i3 Energy’s production of circa 18,470 boe/d will consist of oil 19%, NGLs 28% and natural gas 53%. ? Synergies: i3 Energy anticipates increasing the acquired asset’s cash flow by up to 20% via synergies – a considerable uplift that would add further to the attractiveness of the acquisition. ? Low break-evens: The company estimates that its
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