Company update

RNS Number : 1411Y

Igas Energy PLC

01 March 2017

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION

1 March 2017

IGas Energy plc (AIM: IGAS)

("IGas" or the "Company")

Company update

On 29 December 2016, IGas announced that it was in well progressed discussions with a strategic investor in respect of its capital restructuring options. 

IGas today announces that those discussions relate to a potential investment of US$35m of cash equity. The potential investment is dependent on the successful restructuring of the Company's secured and unsecured bonds.  Together these transactions (the "Potential Transaction") will result in a new capital structure for the Company.  The Company will also seek to raise additional equity funding and existing shareholders will be given the opportunity to participate in this additional fundraising. The placing price is expected to be c.4.5p.

The Company believes that the new capital structure would be sustainable in the current oil price environment and would enable IGas to capitalise on value accretive opportunities whilst also maintaining its valuable carry agreements, for the benefit of all stakeholders.  The Potential Transaction would be subject to a number of approvals, including shareholder approvals and secured and unsecured bondholder approvals as well as final approval by the strategic investor.

The Potential Transaction would be expected to result in a significant reduction in gross outstanding debt and a significant dilution of the existing shareholders, the precise extent of which will depend on a range of factors.  At the present time the Potential Transaction contemplates that:

(i)  the third party outstanding secured bonds (currently US$125.6m) will be restructured via partial re-purchase for cash, a partial equitisation of the secured bonds and the remaining balance to be exchanged into new secured bonds with amended commercial terms and extended maturity; and 

(ii)  the third party outstanding unsecured bonds (currently US$27.4m) will be fully equitised.

The repurchase and equitisation of secured and unsecured bonds would be subject to certain discounts to the par value of the bonds.

The Company owned outstanding secured and unsecured bonds (currently, US$10.5m and US$2.6m, respectively) will be cancelled in full.

Kerogen Capital has proposed a US$35m equity investment in the Company subject to the restructuring of the Company's secured and unsecured bonds on terms satisfactory to Kerogen Capital and agreement on the documentation of the Potential Transaction. The Company and Kerogen Capital will work together to finalise the terms of the Potential Transaction.  As previously mentioned, the Potential Transaction would be subject to a number of approvals, including the approvals of Kerogen Capital, both the secured and the unsecured bondholders as well as the shareholders. The terms of the Potential Transaction may require the consent of the Takeover Panel to the Company seeking a dispensation from Rule 9 in respect of the proposed size of the Kerogen Capital equity investment, which will also be conditional, if granted, on a vote of independent shareholders.

There can be no certainty that an agreement will be reached or that any transaction will be forthcoming.  As previously announced, the Company expects that it will remain compliant with its daily liquidity covenant until late March 2017, based on current forecasts.  As previously disclosed, the Company confirms that its current forecasts project non-compliance with its leverage covenants as at 31 December 2016.  The Company's position, following receipt of legal advice, remains that in the event of a breach of the leverage covenants, an equity cure provision exists within the bond agreements, such that a breach can be cured within 25 business days of the delivery of the compliance certificate for that period.  For the twelve months ending 31 December 2016, the compliance certificate must be delivered by 30 April 2017, and accordingly the latest date for any equity cure would be early June 2017.  The board expects completion of the Potential Transaction would resolve any leverage covenant breaches as at 31 December 2016 and remedy the forecast breach of the daily liquidity covenants either via agreement reached with its stakeholders or via an equity cure.

The Company also announced on 29 December 2016 that it had met with certain of the Company's bondholders and other potential strategic investors to discuss its capital restructuring options and valuation of the Company. During certain of these meetings the following information, which includes non-public information, was provided by the Company in order to progress the discussions.

The Company continues to hold significant cash resources of US$31.8 million as at 27 February 2017, and had a total gross carried shale work programme of c.US$230 million as at 31 December 2016.  The average production for 2016 was 2,355 boepd and the Company forecasts net production for 2017 to be c.2,500 boepd.

As previously announced, D&M, one of the world's leading reservoir engineers, has undertaken an analysis of the Company's reserves and resources.  This included a NPV10 (pre-tax) valuation of the Company's 2P reserves of US$277m as at 30 June 2016. In addition to this, the Company has applied certain adjustments to the NPV which were outside of the scope of D&M's analysis, including corporate overheads, insurance costs and projected tax charges. The D&M figure has been further adjusted based on a company assumption that c.US$9m of certain produced gas (which D&M had assumed would be available for sale) would be utilised by the Company on its assets to minimise operating costs.  In aggregate, these adjustments would indicate an adjusted 2P post tax and corporate cost NPV10 valuation of US$206m, having taken into account NPV adjustments of US$15m for overheads, US$6m for insurance costs, US$41m for estimated future tax charges and US$9m for gas sales, as stated above.

The Company engaged D&M to confirm the impact of alternative oil prices based on market consensus estimates on these 2P NPV10.  D&M has estimated that the net impact of market consensus forecast pricing (as at 30 October 2016 being average Brent pricing per barrel of 2017: US$55.0/bbl, 2018: US$63.0/bbl, 2019:US$67.4/bbl, 2020:US$70.0/bbl, 2021:US$71.4/bbl, inflated at 2% pa thereafter) would reduce D&M's pre-tax valuation by c.US$38m and IGas estimates a reduction of c.US$25m on a post-tax basis to US$181m.

The Company will continue to update the market as and when appropriate.

Stephen Bowler, CEO of IGas, commented:

"This potential investment recognises the underlying value in the IGas Group, both through its stable production assets, significant Shale acreage and c.US$230m carry from its partners.  Upon completion of the Potential Transaction, we would have a capital structure that we believe is sustainable in the current oil price environment and that will enable the Company to capitalise on value accretive opportunities. We look forward to working with Kerogen Capital and our existing stakeholders to finalise the terms of the Potential Transaction."

For further information please contact:

IGas Energy plc

Tel: [phone]

Stephen Bowler, Chief Executive Officer

Julian Tedder, Chief Financial Officer

Ann-marie Wilkinson, Director of Corporate Affairs

Investec Bank plc (NOMAD and Joint Corporate Broker)

Tel: [phone]

Sara Hale/Jeremy Ellis/George Price

Canaccord Genuity (Joint Corporate Broker)

Tel: [phone]

Henry Fitzgerald-O'Connor

Vigo Communications

Tel: [phone]

Patrick d'Ancona/Chris McMahon

Important Notice

This Announcement and the information contained in it is restricted and is not for release, publication or distribution, directly or indirectly, in whole or in part, in, into or from the United States of America (including its territories and possessions, any state of the United States of America and the District of Columbia, collectively the "United States"), Australia, Canada, Japan or South Africa or any other jurisdiction in which the same would constitute a violation of the relevant laws or regulations of that jurisdiction (each a "Restricted Territory").

This Announcement is for information purposes only and does not constitute, or form part of, any offer or invitation to sell or issue, or the solicitation of an offer to buy, acquire or subscribe for, shares or any other securities of the Company (or any other entity) or the solicitation of any vote or approval in any Restricted Territory or in any other jurisdiction in which the same would constitute a violation of the relevant laws or regulations of that jurisdiction or to any person to whom it is unlawful to make such offer, invitation or solicitation. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions. Subject to certain exemptions, the securities referred to herein may not be offered or sold in any Restricted Territory or for the account or benefit of any national resident or citizen of any Restricted Territory.  The Company's shares and any other securities referred to in this Announcement have not been and will not be registered under the United States Securities Act of 1933, as amended ("Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States, and may not be offered, sold or transferred, directly or indirectly, in the United States absent registration under the Securities Act or an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or jurisdiction of the United States. Any offering of shares or any other securities of the Company to be made in the United States will be made only to a limited investors pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and outside the United States in "offshore transactions" as defined in, and in reliance on, Regulation S under the Securities Act.

This Announcement has been issued by, and is the sole responsibility, of the Company. No representation or warranty express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Investec Bank plc or Canaccord Genuity or by any of their respective affiliates or agents as to or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

Investec Bank plc and Canaccord Genuity, which are authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority and the Prudential Regulation Authority, are acting for the Company and no one else and will not be responsible to anyone other than the Company for providing the protections afforded to their clients nor for providing advice in relation to any matter referred to in this Announcement.

No public offering of shares is being made in the United Kingdom, any Restricted Territory or elsewhere.  The distribution of this Announcement and the offering of the Company's shares in certain jurisdictions may be restricted by law. No action has been taken by the Company, Investec Bank plc or Canaccord Genuity that would permit an offering of such shares or possession or distribution of this Announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this Announcement comes are required by the Company, Investec Bank plc and Canaccord Genuity to inform themselves about, and to observe, such restrictions.

The information in this Announcement may not be forwarded or distributed to any other person and may not be reproduced in any manner whatsoever. Any forwarding, distribution, reproduction, or disclosure of this information in whole or in part is unauthorised. Failure to comply with this directive may result in a violation of the Securities Act or the applicable laws of other jurisdictions.

There are matters set out within this Announcement that are forward-looking statements. Such statements are only predictions, and actual events or results may differ materially.  For a discussion of important factors which could cause actual results to differ from forward-looking statements, refer to the Company's Annual Report and Accounts for the nine months to 31 December 2015. The Company does not undertake any obligation to update publicly, or revise, forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.  You should not place undue reliance on forward-looking statements, which speak only as of the date of this Announcement.  No statement in this Announcement is or is intended to be a profit forecast or profit estimate or to imply that the earnings of the Company for the current or future financial periods will necessarily match or exceed the historical or published earnings of the Company. The price of shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of the shares.

It is expected that any shares in the Company to be issued pursuant to the Potential Transaction will not be admitted to trading on any stock exchange other than to trading on AIM, a market operated by the London Stock Exchange.  This Announcement is not an offering document, prospectus, prospectus equivalent document or AIM admission document.  Investors should not subscribe for or acquire shares or other securities referred to in this Announcement on the basis of the information contained herein.  It is expected that no offering document, prospectus, prospectus equivalent document or AIM admission document will be required in connection with the Proposed Transactions and no such document has been or will be prepared or submitted to be approved by the Financial Conduct Authority or submitted to the London Stock Exchange in relation to the Proposed Transactions.

Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this Announcement.

Glossary

£ - The lawful currency of the United Kingdom

$ - The lawful currency of the United States of America

1P - Low estimate of commercially recoverable reserves

2P - Best estimate of commercially recoverable reserves

3P - High estimate of commercially recoverable reserves

AIM - AIM market of the London Stock Exchange

Bbl - An oil barrel

boepd - Barrels of oil equivalent per day

bopd - Barrels of oil per day

 

END

 

 

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