Gran Tierra Energy – Acquisition of I3 Energy

[Petroleum economist]

Introduction
Gran Tierra announced this week the acquisition of I3 Energy. Gran Tierra pays $ 225.4 M (GBP 174.1 M) with 77% in shares and 23% in cash.
i3 Energy is UK based, but the production (18-19 K BoE/d) is 100% in Canada. I3 has some non-producing UK assets.

Economic modelling.
• Modelling wise this is a nightmare.
• Gran Tierra is Canada based, with production and taxing in Ecuador/Columbia and reporting in the USA in US dollars.
• I3 is UK based, with revenues and costs in Canadian dollars, but reporting in British pounds.
• I will save the economic modelling of the new GTE for a dark rainy day. For the time being will stick to my current model.

Analysis of the deal
Despite paying a premium of approx. 20% on top of the last share price, Gran Tierra seems to have done well in the negotiation.
In the merged company GTE gets 77% of the shares versus I3 only 23% while what it contributes in the various parameters is far lower:
• Proven reserves: GTE – 79 M BoE = 45%, I3 – 88 M BoE – 54%
• Production: GTE – 33 K BoE/d – 64%, I3 – 18.5 K BoE/d – 36%
• Equity: GTE - $ 421 M – 64%, I3 - $ 214 M – 34% (does not include the effect of the cash payment).

Gran Tierra does not rank high (57th) in my ranking due to a weak balance sheet, low reserves, high unit costs, etc. The acquisition should improve the ranking. By how much is a guess.