The UK shale gas group, which also produces over 2,000 barrels per day from conventional reservoirs, has today revealed plans to raise US$35mln from new strategic investor Kerogen Capital alongside a debt-for-equity deal with its lenders.
It means there’ll be dilution for existing shareholders, but, the deal allows the company to alleviate financial pressures and ease its debt burden.
The extent of the debt deal has yet to be confirmed, so shareholders don’t yet know how much new equity will be issued, but, Cannacord Genuity, in a note, suggests IGas would at least half its indebtedness down to at least US$60mln, from around US$120mln.
Significantly, the broker highlighted the positive impact of having Kerogen on board.
IGas in the basket with Hurricane Energy and Cuadrilla
Kerogen, which last summer raised US$830mln for its latest private equity energy fund, is a notable name on a number of oil and gas company’s registers – for example, it owns nearly a 30% of Hurricane Energy Plc (LON:HUR) and has a majority stake in AJ Lucus, which in turn owns 45% of UK shale pioneer Cuadrilla.
“The presence of Kerogen as a new strategic investor would be significant in our view,” Cannacord said.
The broker added: “We see its interest in IGas, which has a larger and more geographically diverse position in the UK shale play, as validation of its view of the long-term potential for UK shale gas and IGas's position.
“Activity in the UK shale gas play has been slow, but momentum is gathering with drilling, well stimulation, and testing of the play anticipated to begin later in 2017 with Cuadrilla and ThirdEnergy both operationally active.”
Elsewhere, WH Ireland commented: “Kerogen is contributing materially to the success of listed UK oil & gas growth companies.
“We note that equity holders are not being wiped out entirely and are being offered the opportunity to participate in the deal, we perceive this to be an act of goodwill given IGas is an obvious candidate to be taken private.”
A new sustainable structure
According to IGas, the new structure will be sustainable in the current oil price environment and will allow it to capitalise on value accretive opportunities whilst maintaining its valuable carry agreements (some US$230mln of work to be paid by well-funded partners).
Precise details of the dilution to shareholders have not yet been determined, as the quantum of the debt-for-equity swap is still to be finalised.
It is, however, currently anticipated that there’ll be a partial equitisation of the group’s secured bonds (presently there’s US$125.6mln outstanding) and the group’s unsecured bonds (US$27.4mln) will be fully equitised.
The debt will be converted to equity with some discount to the par value of the bonds. At the same time some US$13mln of bonds held by the company would be cancelled.
It is envisaged that the equity placing with Kerogen will be priced at around 4.5p per share (Tuesday’s close: 8.42p), and the company plans a further placing to offer other investors the opportunity to buy new shares at the same price.
IGas chief executive Stephen Bowler, in a statement, said: “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."
IGas Energy shares were down 2.39p, 27.8%, trading at 6.19p each on Wednesday.
-- Adds video link --