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IGas – in trouble?

Disclaimer: Shareinvestors is not authorised by the Financial Conduct Authority to give investment advice. Terms such as ‘Buy’, ‘Sell’ and ‘Hold’ are not recommendations to buy, sell or hold securities, these statements and other statements made by the author have the meaning only to express the author’s personal views on the quality of a security. Independent financial advice from an authorised investment professional should always be sought before making investments. CAPITAL AT RISK. Full Disclaimer here.


IGas is currently 17p a market cap of £51m, off the recent lows of circa 10p and I’m curious as to why this stock has bounced of late.

The driver I believe was based on some comments made from the government around giving more direct benefit to those in the community affected by fracking. Theoretically a supportive government should make things a lot easier for iGas once it is able to start sweating its assets.

IGas problem though is that it is years away from monetizing its shale assets, indeed its first exploration shale wells are not expected before 2017. Whilst it does have $255m of carries on its development pipeline it is operating very close to its financial covenants on its bonds. Cash was around £22.5m as at the end of April, but note 2016 CAPEX guidance of £10m and a further £10m of Interest payments due. With limited cashflow generated from operations then IGas could be out of cash by the end of the year or perhaps Q1 2017, based on my calculations.

IGas does have options which don’t involve the secured bondholders, 1) M&A, i.e. the whole company or individual assets and/or 2) an equity raise. Taking option 1 – IGas has £255m of Assets on the balance sheet, however buyers for UK oil and gas assets are limited and unconventional exploration I view as being unattractive at present. An equity raise I think is the more likely of the two options, this equity raise should partly be used to pay down a good chunk of the debt. Given the current market cap is £51m then a huge equity raise would be required, this would have to be at a discount to current market price to get it away.

With all of the above in mind it is no surprise to see the bonds trading (albeit illiquidly) at 78c in the $. There is also the mystery bond buyer, someone has been building a stake in the bonds which means we shouldn’t be surprised to see some sort of hostile move if and when the financial covenants are breached. The likely outcome is a debt for equity swap and in this scenario, equity is worth little or nothing, a token gesture could be offered to shareholders to ensure orderly proceedings. Look at Petroceltic or Gulf Keystone for an example of what is likely to happen.

SELL
Target <5p

Disclaimer – I have no positions in this stock and to my knowledge nor do any close family, friends nor associates. This post is purely my opinion and should not be taken as financial advice. I welcome any alternative comments and will consider adjusting posts based on information made available to me.

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IGAS

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2 thoughts on “IGas – in trouble? Leave a comment

  1. The debt for equity swap is looking more probable as we approach the 22 nd of sept when the interest payments are due there is 2.5 % amortisation as well to be paid . The key covenant that will alost definately be breached is the 4:2 cash to debt leverage . There isnt time to farm out nowhere to raise cash as it requires goverment approval.. Anyone investing big bucks via a placing may be requesting interest deferals etc to ensure the covenants do not get breached later on . With a probable black knight holding more than the 32.5 % blocking share holding any cash rescue is looking unlikely and if no rns by 22 nd the shareholders are looking to be exponentially diluted probably end up with 5 % if the current holding at 1p to 2p . My gues is from reading the last rns 14 th of june is they had a farm out or placing lined up that has been scuppered by the blocking boldholder unwilling to ament terms could well be the bloke behind ineos ( i forgot his name ) . Next two weeks will reveal all . I only just found this blog its the only think i can find on the internet talking about igas . Im short here will close out if theres a last minute resue .

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