IGas announces $35m investment and restructuring plan

Misson equipment

IGas site at MIsson, Nottinghamshire

The private equity company, Kerogen Capital, is proposing to invest US$35m in IGas, it was announced this morning. The deal depends on a restructuring of IGas’s bonds and may require approval from the Takeover Panel.

IGas chief executive, Stephen Bowler, 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.”

Kerogen specialises in the oil and gas sector and says it manages $2 bn in investment funds across the world. In November 2016, Kerogen agreed to waive and amend conditions in its finance agreements with A J Lucas, a major investor in Cuadrilla Resources.

In December 2016, IGas announced it was in talks with a potential strategic investor as it headed towards a predicted failure to meet its financial obligations. A company statement forecast it would not comply with leverage covenants as at 31 December 2016. It also forecast a breach of daily liquidity covenants in late March 2017.

IGas said the deal announced today could be reached before the deadline of early June for curing breaches of leverage commitments.

The IGas statement said the deal was subject to approval of its share and bondholders. It would result in significant reduction in outstanding debt, the statement said, but also a “significant dilution of existing shareholders”.

Under the deal, IGas said third party secured bonds (totalling US$125.6m) would be restructured by a partial re-purchase for cash, partial equitisation and exchange of remaining secured bonds for new ones with amended terms and extended maturity.

Third party unsecured bonds (US$27.4m) would be fully equitized.

Company owned secured and unsecured bonds (US$10.5m and US$2.6m) would be cancelled.

IGas said it would also seek to raise additional equity funding, including from existing shareholders. The placing price was expected to be about 4.5p.

The company said it held cash resources of US$31.8m at 27 February and a total gross carried shale gas work programme of US$230m. It said average production during 2016 was 2,355 barrels of oil equivalent per day. This was expected to rise slightly to about 2,500 in 2017.

IGas has been negotiating with Nottinghamshire County Council over conditions on a planning permission for shale gas drilling at Misson, in Bassetlaw. The conditions include a Section 106 legal agreement which was due to be concluded yesterday (28 February 2017).

A decision on IGas’s other Nottinghamshire site, at Tinker Lane, has been delayed because the county council asked for more information.

5 replies »

  1. If this goes through that’s iGas secured for the forseeable future. Their revenue stream is actually very healthy although previous mgmnt did run away with the cake.
    It is what it is, but it’s not going away like a lot of people on the anti side seemed to think it was.
    On a positive note the cap has now been removed for bringing court cases to stifle growth, ie the tax payer is no longer paying for the greenies holding up investment. You have to laugh at FoE, the setup of the company makes the tax dodging multi nationals look like angels in comparison.
    Looking fwd to Article 50 being passed this month.

  2. So, have I got this right, GottaBKidding, you are against “stifling growth”?

    If so these questions are for you to answer. I do not make them rhetorically, I mean them as real questions for you to answer.

    (1) How are do you make sure that the growth in question is not in the production of “bads” rather than goods?

    (2) Put in another way do you agree that it would be a very good idea to “stifle growth” if it was uneconomic growth in which the harms and costs exceed the benefits?

    (3) If the costs exceed the benefits of “growth” would it not be a good idea to have access to the courts to be able to challenge the harms imposed as externalities on future generations as well as on current generations?

    Related to this here is another question:

    (4) Is it your view that one should only have access to the law to test in a legal process whether harms exceed benefits (as in the Aarhus Convention) if one can afford to fund ones own legal costs against the government and/or against the governments friends in the fossil fuel industries? Is it right that only organisations with sufficient money have access to the courts on legal matters of this type?

    (5) If only those with money have access to the courts so as not to “stifle growth” where is the protection against uneconomic growth where the benefits are less than costs but because these benefits go to business friends of the government then investment is stimulated that on balance is not in the public interest?

    These are serious questions and I would be interested in your answers. They are not about issues of fact they are about issues of principle – and what your principles would be in these matters.

  3. All this really does is kick the insolvency can a little further down the road. IGas is in a race to conclude the newly Kerogen announced deal before June when leverage covenant implications kick in ( and liquidity covenants breaches too?) and it faces the option of 2 unpalatable situations – either meeting TEOG’s demands for an unwelcome restructure (said to include disposal of IGas’ conventional assets to TEOG) or risk wholesale early redemption of its bonds – and where will it find the money for that?

    If the Kerogen deal goes ahead, a critical question will be the balance between equity and debt, and the extent to which IGas can reduce its currently unsustainable interest charges (10% pa on its bonds currently!!). Whatever, IGas won’t be holding the upper hand in the negotiations.

    IGas’ protracted financial issues make a mockery of OGA’s so-called oversight and regulation of operators’ financial probity. IGas has regularly failed to fulfil OGA financial viability criteria in recent years, mainly in respect of gearing and interest cover, yet it still seems to be allowed to operate.

    The continued uncertainty over IGas’ future serves to reinforce the Notts Council decision to seek a bond for Springs Road – hopefully Notts will be sensible enough to seek several briefcases of legal tender notes, in preference to some form of insurance bond! It also sets the tone for the Tinker Lane planning decision (whenever that will eventually be) – if that application is granted, it has to surely be subject to a financial bond condition.

    Why would existing shareholders put more cash in? An argument for equity injection is obviously to protect existing equity, but that’s quite a gamble – backing a management team that has presided over a significant drop in share price and shareholder value, whilst at the same time not delivering on any of its strategies in respect of exploiting unconventional resources. Yesterday’s announcement of a further delay in the S106 Agreement for Springs Rd begs the question does IGas actually want to move forward with exploration, or does it merely want to obtain planning consent that it can sell on without the need to get involved in messy operational stuff?

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