2019 Year-End Financial Results and 2020 Budget, Production and Resource Guidance
February 11, 2020
International Petroleum Corporation (IPC or the Corporation) (TSX, Nasdaq Stockholm: IPCO) today released its financial and operating results and related management’s discussion and analysis (MD&A) for the year ended December 31, 2019.(1) IPC is also pleased to announce its 2020 capital expenditure budget of USD 149 million and its 2020 production guidance of between 46,000 and 50,000 barrels of oil equivalent (boe) per day (boepd).(2) 2019 year-end proved plus probable (2P) reserves and best estimate contingent resources (unrisked) are respectively 300 million boe (MMboe) and 1,089 MMboe.(2)(3)
Business Development Highlights
• In January 2020, IPC announced the proposed light oil acquisition of 2P reserves of 14.0 MMboe and 6.2 MMboe of contingent resources (best estimate, unrisked) as at December 31, 2019(2)(3), for total equity and debt consideration of USD 59 million. The acquisition of Granite Oil Corp. (Granite) will be IPC’s third acquisition in less than three years. Completion of the Granite transaction remains subject to satisfaction of certain conditions and is expected to occur in early March 2020.
2019 Financial and Operational Highlights
• Average net production of approximately 47,200 boepd for the fourth quarter of 2019.
• Full year 2019 average net production of approximately 45,800 boepd, in line with Q3 2019 guidance.
• Full year 2019 operating costs(4) per boe of USD 12.8, slightly ahead of Q3 2019 guidance.
• Capital expenditure for full year 2019 of USD 181 million, USD 4 million below Q3 2019 guidance with USD 3 million phased into 2020.
• Successfully delivered a 26 development well program in the Suffield area, Canada.
• Extensive Suffield area gas swabbing and well optimization program delivered during 2019.
• Onion Lake Thermal facility expansion and upgrades completed in Canada, as well as the addition of the new F-Pad wells.
• Third well pair at the Blackrod project, Canada, completed with approximately 1,400 metres of horizontal section; commencing steam injection in early 2020.
• Successful delivery of the Vert La Gravelle field Phase I redevelopment project, lifting Q4 2019 production in France by 28 percent relative to Q3 2019.
• Successfully delivered the three well infill drilling programme at the Bertam field in Malaysia and identified additional infill potential.
• 2P reserves as at December 31, 2019 increased to 300 MMboe, with a 2019 reserves replacement ratio of 89% excluding acquisitions and 173% including acquisitions.(2)(3)(5)
• Contingent resources (best estimate, unrisked) increased from 849 MMboe as at December 31, 2018 to 1,089 MMboe as at December 31, 2019.(2)(3)
| Three months ended December 31 | Year ended December 31 | ||||
| USD Thousands | 2019 | 2018 | 2019 | 2018 | |
| Revenue | 145,535 | 111,898 | 553,749 | 454,443 | |
| Gross profit | 43,245 | 26,311 | 152,904 | 146,864 | |
| Net result | 38,372 | 29,346 | 103,588 | 103,644 | |
| Operating cash flow(4) | 78,888 | 58,322 | 307,944 | 279,018 | |
| Free cash flow(4) | 4,432 | 34,864 | 89,308 | 203,282 | |
| EBITDA(4) | 77,353 | 58,032 | 302,513 | 264,041 | |
| Net Debt(4) | 231,503 | 276,761 | 231,503 | 276,761 | |
• Full year 2019 operating cash flow (OCF)(4) generation of USD 308 million, the highest annual OCF since IPC’s inception.
• Full year 2019 free cash flow (FCF)(4) generation of USD 89 million.
• Net debt(4) reduced from USD 277 million as at December 31, 2018 to USD 231.5 million as at December 31, 2019.
• Net debt(4) to EBITDA(4) ratio of less than 0.8 times as at December 31, 2019.
• In November 2019, IPC announced a share repurchase program, with the ability to repurchase up to approximately 11.5 million IPC shares over a twelve month period. Repurchased for USD 16.9 million and cancelled approximately 3.9 million IPC shares as at end December 2019 and a further approximately 2.9 million IPC shares were repurchased for USD 11.8 million, of which approximately 2.5 million shares were cancelled, as at end January 2020.
2020 Budget and Production Guidance
• 2020 average net production guidance of 46,000 to 50,000 boepd.(2)
• 2020 operating costs guidance at USD 13.7 per boe.(2)(4)
• Full year 2020 capital expenditure budget of USD 149 million, including USD 3 million of carry-over costs from 2019 and USD 10 million relating to the assets to be acquired in the Granite transaction.(2)
Mike Nicholson, IPC’s Chief Executive Officer, commented,
“Our focus since launching IPC in April 2017 remains unchanged: seeking to deliver operational excellence, demonstrating financial resilience, maximizing the value of our resource base and targeting growth through acquisition. With financial results delivered at the high end of guidance and the most active quarter of investment across all areas of operations, as well as the announcement of another corporate acquisition and the ongoing execution of IPC’s second share repurchase program, we continue to make excellent progress on all fronts in delivering on that strategy.
2019 Year-End Results
During the fourth quarter of 2019, our assets delivered average daily net production of 47,200 boepd, a four percent increase from Q3 2019. Full year 2019 average production was 45,800 boepd, in line with our Q3 2019 guidance. Record high net production levels above 49,000 boepd were achieved in early December 2019, marginally below the previously guided 50,000 boepd exit rate as the start-up of our A-20 well in Malaysia was moved into mid-January 2020. Our operating costs per boe for the fourth quarter was USD 12.4, resulting in a full year 2019 average operating costs per boe of USD 12.8, marginally below our Q3 2019 guidance.(4)
IPC delivered a very strong full year 2019 financial performance generating an operating cash flow of USD 308 million, at the upper end of Q3 2019 guidance and a full year net result of USD 104 million.(4) The Q4 2019 operating cash flow amounted to USD 79 million.(4) Free cash flow generation for the full year 2019 was USD 89 million (excluding the share repurchase program and before payment of the spin-off residual working capital liability to Lundin Petroleum).(4) This robust financial performance allowed IPC to fund its expenditure and share repurchase programs, whilst reducing net debt levels from USD 277 million at the end of 2018 to USD 231.5 million by the end of 2019.(4)
In Canada, during Q4 2019, the full year 2019 average net production levels at the Suffield area were two percent higher than 2018 levels demonstrating the positive impact of our ongoing oil drilling and gas optimization programs more than offsetting natural declines. Our N2N enhanced oil recovery (EOR) project and drilling program was completed as scheduled in 2019. In addition, preparatory work continued during Q4 2019 which is expected to allow our single rig drilling program to continue through 2020. At Onion Lake Thermal in Canada, facility optimization work completed earlier in 2019 that allowed for steam injection to commence at F-Pad during Q3 2019 and production ramp up through Q4 2019. Following completion of the ramp up of production, average production rates during December 2019 were just below 12,000 boepd in line with expectation. As we look forward, we plan to add another drilling pad during 2020 to increase production toward facility capacity levels of 14,000 boepd by year-end 2020.
In Malaysia, a world class uptime performance on the Bertam FPSO in excess of 99 percent continued during Q4 2019. F