Part2Part 2
We believe that the interest rate i3 Energy will pay on its new RBL facility is lower than the fixed interest rate of the Trafigura facility (9.521%); additionally, i3 Energy under the new facility stands to benefit considerably from the widely expected lowering of interest rates in Canada, which will, we expect, improve the Canadian Prime Rate.
Stability: For reference, i3 Energy entered Canada in the summer of 2020 with a legacy balance sheet consisting of £22m of loan notes (as amended at the time). The Trafigura facility served to refinance those notes. The key point is that the company’s legacy balance sheet, extreme commodity price dynamics, COVID, dynamics within the Canadian banking community and the relative immaturity of i3 Energy in Canada in 2020 created very considerable challenges for i3 Energy – with some operational and financial decisions constrained by the parameters of financial instruments that were, in our opinion, not ideal. With today’s announcement, i3 Energy has effectively announced, in our opinion, that it has grown in a very short period of time into an entity that is now supported by a major Canadian chartered bank that is able to provide specialist financial support and products that are designed specifically for high-growth oil & gas companies. We have long held the view that that change would occur when i3 Energy’s production grew above the 20,000 boe/d threshold – which it has. Notwithstanding inevitable commodity price volatility, we believe shareholders can expect a much more stable strategic and financial direction from i3 Energy going forwards now that i3 Energy has successfully secured a solid, long-term funding arrangement that is fit-for-purpose.
Capex and production guidance: Today’s announcement sets the scene for i3 Energy to provide capex and production guidance for 2024, which is expected mid-April. That guidance will be of particular interest because it will be the first guidance provided by the company since securing a long-term fit-for-purpose debt facility to support its balance sheet. Key priorities that emerge from the forthcoming guidance inclusive of core drilling and growth priorities will have important long-term strategic implications.
M&A?: We believe that having a relationship with an established chartered Canadian bank will facilitate debt funding for potential acquisitions – potentially a real game-changer in terms of the fire-power and speed with which i3 Energy might opportunistically acquire value accretive and complementary assets.