Brokers noteBrokers note
I3 Energy RBL Facility Refinances Trafigura Amortising Facility & Year-end Reserves Update i3 Energy has announced that it has refinanced its Trafigura straight-line amortising facility with a traditional RBL facility provided by a Canadian chartered bank. We believe that i3 Energy’s shareholders stand to benefit considerably from the restructured balance sheet because it is significantly better adapted to the company’s needs, in our opinion. We believe the new RBL facility will free funds for growth and provide better long-term balance sheet stability, while significantly reducing interest costs. Critically, the change sets the scene for the company to provide capex and production guidance for the current year, expected in mid-April. We are holding our production estimates unchanged and reiterate our fair value estimate of 16.2p. We cannot over-emphasise the importance of the change announced today as we expect it to serve as an inflection point allowing for more of what shareholders want, namely, more growth and/or increased dividend payments. In respect of its year-end reserves update, the company reported strong results, which are detailed further in this note.
New credit facility: The company stated that its new $CAD 75m ($US 55m) credit facility consists of a $CAD 55m ($US 40m) revolving facility and a $CAD 20m ($US 15m) operating loan facility. The company stated that the two-year term of the RBL facility is expected to be extended on an annual basis. The company stated that it drew $CAD 27m ($US 20m) on the new facility, which combined with available cash, was applied to the repayment of the $CAD 57m ($US 42m) outstanding amount under the Trafigura facility (with no early repayment penalty). i3 Energy stated that it will pay interest at the Canadian Prime Rate (currently circa 7.2%) + 2.00% on amounts drawn under the new RBL facility.
Advantages of the new facility: i3 Energy was paying $CAD 25.0m ($US 18.3m) of principal outstanding per annum pursuant to the straight-line amortization feature of the Trafigura facility. Although that served to strengthen the balance sheet through the application of cash to debt repayment, it significantly reduced the financial flexibility of the company. We believe that i3 Energy, with its new facility, will likewise maintain a strong balance sheet while investing in high-growth, high value, highly cash generative projects – mainly drilling liquids rich wells. Conceptually, in our opinion, the new RBL facility is simply better adapted to the needs of i3 Energy, given the company is a growing junior oil & gas company with a very deep inventory of high quality undrilled well locations. We also highlight that, under the new revolving RBL facility, i3 Energy reduces the amount of its outstanding debt – and therefore the amount of interest it must pay – by applying its cash balance to reduce the amount of its drawn debt.