IPC Announces First Quarter 2023 Financial and Operational Results

International Petroleum Corporation (IPC or the Corporation) (TSX, Nasdaq Stockholm: IPCO) today released its financial and operational results and related management’s discussion and analysis (MD&A) for the three months ended March 31, 2023.

Mike Nicholson, IPC's Chief Executive Officer, comments:

“We are pleased to announce another quarter of record average net daily production, as IPC achieved 52,800 barrels of oil equivalent per day (boepd) during the first quarter of 2023. Our financial results during the quarter are in line with the 2023 guidance announced at our Capital Markets Day in February as we continue to produce cash flows from our operations in Canada, Malaysia and France. During the first quarter, we announced and completed the acquisition of Cor4 Oil Corp. in Canada, expected to add approximately 4,000 boepd to our 2023 average net daily production. We also continue purchases of IPC common shares under the normal course issuer bid in accordance with our stated capital allocation framework. In addition, we are progressing the development of Phase 1 of the Blackrod project in Canada, with work to date in line with schedule and budget.”

During the first quarter of 2023, oil and gas prices weakened on demand concerns, as rising interest rates aimed at taming high inflation, stoked recessionary fears. This was further exacerbated by the unfolding banking crisis during the quarter. Brent prices averaged slightly over USD 80 per barrel during the quarter, down by around ten per cent compared with the fourth quarter of 2022. The surprise production cuts announced by OPEC+ in early April are a second pre-emptive move by the group, aimed at ensuring recent oil price weakness, is not sustained. While inventory levels have built back close to the five-year average levels, the OPEC+ cuts are expected by market observers to push the oil market back into deficit for the remainder of 2023. The first quarter 2023 West Texas Intermediate (WTI) to Western Canadian Select (WCS) crude price differentials averaged around USD 25 per barrel, USD 5 per barrel wider than our base case 2023 market guidance. Those market factors that have driven differentials wider such as the US Strategic Petroleum Reserve (SPR) releases, higher natural gas prices and refinery outages have now turned to provide more favourable tailwinds to Canadian differentials going forward. In addition, the expansion of the Trans Mountain pipeline (590,000 barrels per day of extra capacity linking Edmonton to the port of Vancouver) due in service in Q1 2024 as well as a reduction in Mexican heavy oil exports to the US as domestic refinery capacity increases by more than 200,000 barrels per day is expected to provide stronger support to WTI/WCS differentials going forward. Current WTI/WCS differentials have tightened to less than USD 16 per barrel for the remainder of 2023 and the whole of 2024 as a result of these favourable market developments. Gas markets weakened significantly during the first quarter of 2023. IPC’s average realised gas price was CAD 3.10 per Mcf compared with CAD 5.90 per Mcf during the fourth quarter of 2022. The recent weakness seen in North American gas prices, was to a large extent, driven by a much milder winter in Europe and the reduced demand for US LNG as a result. IPC was partially protected by AECO gas price hedges that were put in place when gas prices were much stronger in late 2022: 33.7 MMcf per day at CAD 6.26 per Mcf in Q1 2023 and at CAD 4.10 per Mcf from April to October 2023.

First Quarter 2023 Highlights and Full Year 2023 Guidance

During the first quarter of 2023, our assets delivered average net production of 52,800 boepd, above our high-end guidance for the quarter and a record high for IPC. This was made possible by the very high uptime performance across all our assets as well as the production contribution from our recent Cor4 acquisition in Canada. Given the very strong start to the year, full year 2023 average net production is expected to be towards the upper end of the guidance range of 48,000 to 50,000 boepd. (1) Our operating costs per boe for the first quarter of 2023 was USD 17.3, in line with our latest guidance. Full year 2023 operating costs per boe guidance of USD 17.5 to 18.0 per boe remains unchanged. (1,3) Operating cash flow (OCF) generation for the first quarter of 2023 was USD 76 million. Full year 2023 OCF guidance of USD 250 to 495 million (assumed Brent USD 70 to 100 per barrel) is unchanged. (1,3) Capital and decommissioning expenditure for the first quarter of 2023 was USD 55 million in line with guidance. Full year 2023 capital and decommissioning expenditure of USD 365 million is unchanged. (1) Free cash flow (FCF) generation was USD 16 million during the first quarter of 2023. Full year 2023 FCF guidance of USD -145 to 105 million (assumed Brent USD 70 to 100 per barrel) remains unchanged. (1,3) During the first quarter of 2023, IPC’s net cash position of USD 175 million was reduced to USD 67 million, largely driven by the funding of USD 62 million for the Cor4 acquisition and USD 46 million for the continuing share repurchase program (NCIB).(3) Gross cash on the balance sheet as at March 31, 2023 amounts to USD 378 million providing a significant war chest to pursue our three strategic pillars of returning value to stakeholders, pursuing value adding M&A and focusing on organic growth. In addition, IPC further strengthened its liquidity position during the first quarter by increasing its Canadian Revolving Credit Facility (RCF) from CAD 75 to 150 million.

Phase 1 Blackrod Project

Following the successful completion of FEED studies and the continued strong production performance from well pair three during 2022, IPC took the decision in Q1 2023 to advance the development of Phase 1 of the Blackrod project. Development capital expenditure to first oil is estimated at approximately USD 850 million (including inflation and contingencies). First oil of the Phase 1 development is estimated to be in late 2026, with forecast production of 30,000 bopd by 2028. The breakeven oil price estimated by IPC assuming a 10% discount rate is a West Texas Intermediate (WTI) price of approximately USD 59 per barrel. Using the December 31, 2022 price forecasts of our qualified independent reserves evaluator, Sproule Associates Limited (Sproule), the net present value as at that date, at a 10% discount rate (after tax), of Phase 1 of the Blackrod project is USD 807 million. IPC intends to fund the Phase 1 development with cash on hand and forecast FCF generated by its operations.(1,2) During the first quarter, the Phase 1 development early ground works and the final facility engineering activities have progressed in line with schedule and budget. Preparations to enter in the major central processing facility build contract are on track to be finalised in the second quarter. This is expected to provide a high degree of certainty for the fixed price element of the Phase I development capital expenditure which represents close to 50% of the overall Phase I budget to first oil.

M&A During Q1 2023, IPC announced and completed its fifth acquisition in five years. IPC acquired 15.9 MMboe of 2P reserves adjacent to our Suffield property in Alberta, Canada, through the Cor4 acquisition. This acquisition is forecast to add approximately 4,000 boepd to our Suffield area production in 2023. The producing assets are complementary to both our Suffield asset and a recent land acquisition on the same geological trend that IPC concluded in the fourth quarter of 2022. Following these acquisitions, we now have over 25 drilling inventory locations on the Ellerslie play fairway that extends from the west of our Suffield asset to our new land acquisition and into the properties acquired in the Cor4 acquisition. Three wells were successfully drilled and brought on production since the beginning of the year and we plan to drill another three wells on this exciting play in 2023. The Cor4 acquisition was completed on March 3, 2023 with the consideration funded using existing cash on hand.(1,2)

2023 Capital Allocation Framework

Normal Course Issuer Bid

In Q4 2022, IPC announced the renewal of the NCIB, with the ability to repurchase up to approximately 9.3 million common shares over the twelve-month period to December 2023. IPC repurchased in December 2022 and subsequently cancelled approximately 0.73 million common shares. By the end of March 2023, IPC purchased and cancelled a further approximately 4.76 million common shares under the NCIB. The average price of common shares purchased under the renewed NCIB during the period of December 2022 to March 2023 was SEK 102 / CAD 13.25 per share. As at March 31, 2023, IPC had a total of 132,069,946 common shares issued and outstanding, with no common shares held in treasury.

2023 Capital Allocation Plans

IPC’s capital allocation framework consists of distributing to shareholders a minimum of 40% of the FCF generated by the business, provided that IPC’s net debt to EBITDA ratio is at or below 1 time.(3) These shareholder distributions are planned to be implemented by continued share repurchases under the NCIB as well as the consideration by IPC of other forms of shareholder distributions, subject to further applicable regulatory and corporate approvals. Despite the higher level of capital investment, and notwithstanding the capital allocation framework described above, IPC plans to continue to purchase and cancel common shares under the NCIB to the remaining limit as at March 31, 2023 of 3.8 million common shares by the end of December 2023, resulting in the anticipated cancellation of 7% of shares outstanding as of December 2022. We believe a combination of materially growing our 2P reserves, production and asset value whilst reducing our share count is a winning combination for shareholders.

Environmental, Social and Governance (“ESG“) Performance

During the first quarter of 2023, IPC recorded no material safety or environmental incidents. As previously announced, IPC targets a reduction of our net GHG emissions intensity by the end of 2025 to 50% of IPC’s 2019 baseline and IPC remains on track to achieve this reduction. During the first quarter of 2023 IPC extended our commitment to remain at 2025 levels of 20 kg CO2/boe through to the end of 2027.