Canadian oil & gas player makes $225.4 million takeover bid for UK firm

Canada-headquartered oil and gas exploration and production company Gran Tierra Energy has made a move to bring i3 Energy, the UK-based oil and gas player, into its fold by pursuing a $225.4 million business combination that will not only diversify but also expand its asset portfolio.

Before confirming that it has received a firm offer from Gran Tierra Energy for its entire issued and to be issued share capital, i3 Energy said it was engaged in advanced discussions with the Canadian firm regarding a possible offer. Shortly afterward, both companies corroborated an agreement on the terms of a recommended and final cash and share offer, which will enable Gran Tierra to acquire the UK firm. This merger is intended to be effected by a court-sanctioned scheme of arrangement.

Commenting on the acquisition, Gary Guidry, President and Chief Executive Officer of Gran Tierra said: “We are thrilled to announce this acquisition, which marks a significant milestone in diversifying our portfolio while strengthening our asset base. By integrating these high-quality, operated assets, including low-decline production, large resources in place and a substantial land base, we are not only enhancing our asset base but also aligning with our long-term strategic vision.

“We are excited to welcome the talented Canadian team to our company, as their expertise and dedication will be invaluable in driving our continued success. This acquisition is a testament to our commitment to sustainable and profitable growth and delivering consistent value to our shareholders.”

Under the terms of the acquisition, each i3 Energy shareholder will be entitled to receive one new Gran Tierra share per every 207 i3 Energy shares held, 10.43 pence cash per the UK firm’s share, and a cash dividend of 0.2565 pence per i3 Energy share in place of the ordinary dividend in respect of the three months ending September 30.

Therefore, upon the completion of the acquisition, i3 Energy shareholders will own up to 16.5% of Gran Tierra. Based on the Canadian player’s closing price of $8.66 per share on the NYSE American on August 16, the acquisition implies a value of 13.92 pence per the UK company’s share and approximately £174.1 million or $225.4 million for the entire issued and to be issued share capital.

Following completion, Gran Tierra will transfer the entire issued share capital of i3 Energy to its wholly-owned, indirect subsidiary, Gran Tierra EIH, which is the holding entity for the Canadian player’s Colombian assets. The firm has looked to diversify into specific oil and gas basins over the last five years, focusing on operated, high-quality assets with large resources in place and access to infrastructure.

The Western Canadian Sedimentary Basin (WCSB) is one of the basins on Grand Tierra’s priority list. This acquisition is anticipated to create an independent energy company of scale in the Americas with significant production, reserves, cash flows, and development optionality. In light of this, the increased scale is expected to facilitate access to capital, allow for optimized capital allocation, enhance shareholder returns, and increase relevance to investors.

Moreover, i3 Energy has an independently valued 2P net present value discounted at 10% (NPV10) after tax of C$994 million (approximately $725 million) as of July 31, 2024, and Gran Tierra has an independently valued 2P NPV10 after tax of $1.9 billion as at December 31, 2023. On a 1P after-tax basis, the UK firm’s NPV10 is C$469 million (about $342 million) and the Canadian company’s NPV10 is $1.3 billion.

Both companies underline that the acquisition will create a more diverse international energy company operating across the Americas in regions with substantial oil and gas production, well-established regulatory regimes, stable contracts, access to markets, and attractive fiscal terms. The duo’s Q2 2024 production implies an approximate geographic split of 62% for Colombia, 36% for Canada, and 3% for Ecuador, with a commodity mix of 81% liquids and 19% natural gas.

The two players see the addition of new geographies and commodities, alongside the exposure to an investment-grade country, as a way to increase development optionality, risk diversification, and credit profile. The combined firm will have around 1.4 million net acres in Colombia; 138,000 net acres in Ecuador; and 584,000 net acres in Canada, including 298,000 net acres in Central Alberta; 102,000 net acres in Wapiti/Elmworth; 50,000 net acres in Simonette; and 69,000 net acres in North Alberta (Clearwater).

Bearing this in mind, i3 Energy intends to recommend to its shareholders to vote in favor of the business combination at the court meeting. The acquisition will be subject to several conditions, including the approval by the i3 Energy shareholders, the sanction of the merger by the court, the satisfaction of the NSTA condition, the minority shareholder protection condition, and the Competition Act. The merger is expected to become effective in Q4 2024.

Majid Shafiq, Chief Executive Officer of i3 Energy, noted: “The acquisition represents the culmination of a thorough process to realise the maximum value available for shareholders and offers significant upside potential; it expedites the realisation of fair value, with a cash premium and incremental upside through continued ownership in the combined group, without necessitating additional capital investment, time, or operational risk.

“This business combination will significantly enhance scale, thereby improving capacity to drive growth, production, and cash flows for the benefit of all shareholders and local stakeholders.”