8-K: Gran Tierra Energy to Acquire i3 Energy in Cash and Share Deal

Gran Tierra Energy Inc. has agreed to acquire i3 Energy plc in a cash and share deal, creating a diversified energy company with operations across the Americas.

Summary

• Gran Tierra Energy Inc. will acquire i3 Energy plc for a combination of cash and shares.
• i3 Energy shareholders will receive one Gran Tierra share for every 207 i3 shares, plus 10.43 pence in cash per i3 share, and a 0.2565 pence cash dividend per i3 share.
• The acquisition values i3 Energy at approximately £174.1 million (US$225.4 million) based on Gran Tierra's share price of US$8.66 on August 16, 2024.
• This represents a 49% premium to i3 Energy's closing price on August 16, 2024.
• i3 Energy shareholders will own up to 16.5% of Gran Tierra after the acquisition.
• The deal is expected to close in the fourth quarter of 2024.
• Gran Tierra has secured a US$80 million term loan facility from Trafigura to fund the cash portion of the acquisition.
• The combined company will have a diversified portfolio with approximately 62% of production in Colombia, 36% in Canada, and 3% in Ecuador.
• The combined company will have a commodity mix of 81% liquids and 19% natural gas.
• i3 Energy has 1P working interest reserves of 88 MMBOE and 2P working interest reserves of 175 MMBOE as of July 31, 2024.
• Gran Tierra has 1P working interest reserves of 90 MMBOE and 2P working interest reserves of 147 MMBOE as of December 31, 2023.
• i3 Energy has 2P net present value discounted at 10% (NPV10) of C$994 million (approximately US$725 million) as of July 31, 2024.
• Gran Tierra has 2P NPV10 (after tax) of US$1.9 billion as of December 31, 2023.
• i3 Energy has announced full year 2024 EBITDA guidance of US$50 55 million after considering hedges.
• Gran Tierra has announced full year 2024 EBITDA guidance of US$335 US$395 million in its low case, US$400 US$460 million in its base case, and US$480 US$540 million in its high case.
• i3 Energy has over 250 net booked drilling locations associated with 2P reserves.

Sentiment

Score: 8

Explanation: The document is very positive about the acquisition, highlighting the strategic benefits, financial advantages, and growth potential. The tone is optimistic and confident, suggesting a strong belief in the value creation potential of the deal.

Positives

• The acquisition creates a larger, more diversified energy company with operations across the Americas.
• The combined company will have a stronger balance sheet and increased access to capital.
• The acquisition provides i3 Energy shareholders with a significant premium to the current value of their holdings.
• The combined company will have a more diversified portfolio of assets, reducing risk.
• The acquisition is expected to create cost synergies and improve capital allocation.
• The combined company will have increased trading liquidity and investor access.
• The acquisition will allow Gran Tierra to accelerate the development of i3 Energy's Canadian assets.
• The combined company will have a strong management team with experience in both South America and Canada.

Negatives

• The acquisition is subject to various conditions, including shareholder and regulatory approvals.
• The acquisition may not be completed on a timely basis or at all.
• The combined company may not be able to realize the anticipated synergy benefits.
• The combined company may incur unanticipated costs or delays related to the acquisition.
• The integration of Gran Tierra's and i3 Energy's operations may be challenging.
• The acquisition will result in the reduction of i3 Energy's UK headcount.

Risks

• The acquisition may not be completed on a timely basis or at all due to failure to satisfy conditions.
• General business and economic conditions globally could impact the combined company.
• Industry trends and competition could affect the combined company's performance.
• Changes in government and other regulations could impact the combined company.
• Political and economic instability could affect the combined company's operations.
• Disruptions in business operations due to reorganization activities could occur.
• Interest rate and currency fluctuations could impact the combined company.
• The combined company may not be able to realize anticipated synergy benefits.
• The combined company may not be able to integrate operations successfully.
• The combined company may incur unanticipated costs or delays related to the acquisition.

Future Outlook

The combined company expects to accelerate development of i3 Energy's Canadian assets and Gran Tierra's existing assets in Colombia and Ecuador, and to provide meaningful long-term returns to shareholders. Gran Tierra intends to use the combined company's scale and enhanced financial capacity to accelerate development of i3 Energy's Canadian assets as well as Gran Tierra's existing Colombian and Ecuadorian assets and expects this to provide meaningful long-term returns to shareholders of the combined group.

Management Comments

• Gary Guidry, President and Chief Executive Officer of Gran Tierra, stated that the acquisition marks a significant milestone in diversifying their portfolio while strengthening their asset base.
• Majid Shafiq, Chief Executive Officer of i3 Energy, believes that the acquisition presents an exceptional opportunity for i3 Energy's shareholders, offering significant upside potential.

Industry Context

This acquisition reflects a trend of consolidation in the oil and gas industry, as companies seek to diversify their portfolios and achieve greater scale. The deal also highlights the growing importance of the Western Canadian Sedimentary Basin as a key area for oil and gas production.

Comparison to Industry Standards

• The acquisition of i3 Energy by Gran Tierra is a strategic move to diversify and expand its asset base, similar to other mid cap E&P companies seeking growth through acquisitions.
• The premium offered to i3 Energy shareholders is consistent with recent M&A transactions in the energy sector, reflecting the value of i3's assets and growth potential.
• Gran Tierra's focus on operated, high quality assets with large resources in place and access to infrastructure aligns with industry best practices for value creation.
• The combined company's production mix of 81% liquids and 19% natural gas is comparable to other diversified E&P companies operating in North and South America.
• The combined company's 2P reserves of 322 MMBOE and 2P NPV10 of US$2.6 billion are significant, placing it among the larger mid cap E&P companies.
• The use of a mix and match facility to allow i3 shareholders to vary the proportions of cash and shares received is a common practice in M&A transactions.
• The financing of the cash portion of the acquisition through a term loan facility is a typical approach for companies seeking to avoid diluting existing shareholders.
• The combined company's focus on ESG standards and community engagement aligns with the growing importance of sustainability in the energy industry.

Management Changes

Stakeholder Impact

• i3 Energy shareholders will receive a premium for their shares and have the opportunity to participate in the upside of the combined company.
• Gran Tierra shareholders will benefit from the increased scale, diversification, and growth potential of the combined company.
• i3 Energy employees in Canada are expected to be rehired by Gran Tierra, with their existing contractual and statutory employment rights fully safeguarded.
• i3 Energy employees in the UK will be made redundant as part of the relocation of i3 Energy's London headquarters and headquarter functions to Gran Tierra's headquarters in Calgary.
• The combined company will have a stronger financial position, which may benefit creditors and suppliers.
• The acquisition is expected to create a more sustainable and profitable business, which may benefit customers.

Next Steps

• i3 Energy will publish a Scheme Document with full details of the acquisition.
• i3 Energy shareholders will vote on the Scheme at a Court Meeting and a General Meeting.
• The Scheme must be sanctioned by the Court.
• The acquisition is expected to close in the fourth quarter of 2024.
• Gran Tierra will apply to have i3 Energy cease to be a reporting issuer in all jurisdictions of Canada in which it is a reporting issuer.

Key Dates

Keywords

acquisition, merger, oil and gas, energy, Gran Tierra Energy, i3 Energy, reserves, production, EBITDA, Canada, Colombia, Ecuador, takeover, shareholders, drilling locations