IPC First Quarter 2020 Financial Results and Corporate Update

IPC First Quarter 2020 Financial Results and Corporate Update

May 6, 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 for the three months ended March 31, 2020.

Corporate Update

  • In the April 2, 2020 press release, IPC revised its forecast 2020 net average production to be in the range of 30,000 to 45,000 barrels of oil equivalent (boe) per day (boepd), estimated operating costs for 2020 to be in the range of USD 12 to 13 per boe, and reductions in total forecast 2020 expenditure of between USD 125 and 190 million as compared to estimates announced at IPC’s Capital Markets Day (CMD) in February 2020.
  • Operational decisions that IPC has subsequently made allow it to revise the forecast 2020 expenditure reductions to between USD 175 and 190 million as compared to CMD estimates. This comprises USD 85 million in reduced capital and decommissioning expenditures and USD 90 to 105 million in reduced operating costs. As a result, IPC’s forecast 2020 net average production guidance range is 30,000 to 37,000 boepd. IPC’s estimated 2020 capital and decommissioning expenditures are USD 77 million and IPC’s forecast 2020 operating costs are in the range of USD 140 to 155 million, resulting in estimated 2020 unit operating costs in the range of USD 12 to 13 per boe.
  • Financial headroom under the current terms of IPC’s existing and new credit facilities has increased to in excess of USD 100 million.
  • Assuming average 2020 Brent oil prices of USD 25 per barrel and assuming Western Canadian Select (WCS) oil prices are at zero for the remainder of the year, IPC expects to utilize less than 40% of its existing financial headroom.
  • In March 2020, IPC announced the completion of the acquisition of Granite Oil Corp. (the Granite Acquisition), comprising light oil proved plus probable reserves of 14.0 million barrels of oil equivalent (MMboe) and 6.2 MMboe of contingent resources (best estimate, unrisked) as at December 31, 2019.

Q1 2020 Financial and Operational Highlights

  • Average net production of approximately 46,000 boepd for Q1 2020 (43% heavy crude oil, 20% light and medium crude oil and 37% natural gas).
  • First quarter 2020 operating costs per boe of USD 12.5, slightly ahead of Q1 2020 guidance.
  • In connection with IPC’s revised 2020 business plan, operational activities and capital expenditures have been reduced, deferred or cancelled in each region in response to the low oil price environment.
Three months ended March 31
USD Thousands 2020 2019
Revenue 80,536 147,420
Gross profit (12,436) 46,885
Net result (40,069) 33,142
Operating cash flow 21,481 83,056
Free cash flow (42,712) 52,064
EBITDA 19,009 81,675
Net Debt 302,473 256,962
  • Net debt increased from USD 291 million as at December 31, 2019 (including the cost of the Granite Acquisition) to USD 302.5 million as at March 31, 2020.
  • Operating cash flow generation for Q1 2020 amounted to USD 21.5 million, below the original CMD guidance as a result of the weakness in commodity prices towards the end of Q1 2020. This coincided with two cargo liftings in Malaysia in March 2020 when Brent prices averaged USD 32 per bbl and the falling commodity prices also impacted the revenues in France where pricing is based on one month forward Brent prices.
  • Under the previously announced share repurchase program, IPC repurchased for USD 17.6 million and cancelled approximately 4.4 million IPC shares during Q1 2020, in addition to the 3.9 million IPC shares cancelled in 2019. In order to conserve liquidity, IPC has suspended further share repurchases under the program.

Mike Nicholson, IPC’s Chief Executive Officer, commented,
“Given the extraordinary market situation that the oil and gas business is facing in response to the global Covid-19 outbreak, the resulting collapse in world oil demand, and the initial breakdown in co-operation among the OPEC+ group in dealing with the supply challenge, we have witnessed an unprecedented level of volatility and commodity price weakness during 2020. As a result of this, IPC announced on April 2, 2020 that we are taking decisive action to reset our 2020 expenditure plans in order to maximize the financial flexibility of the Corporation.

Since that announcement, we have seen encouraging steps taken by OPEC+, G20 nations and oil producers that we are confident should remove significant supply, helping to deal with the massive demand destruction that we have witnessed as well as the inevitable inventory build. We expect that these actions should flatten the curve of inventory builds and set a course to rebalance markets in the second half of 2020 and into 2021. Clearly though, the magnitude and pace of the recovery in oil demand will be critical in reducing the uncertainty around when oil prices will recover.

Reset of 2020 CMD Business Plan
Given that IPC operates the majority of our assets, IPC has the financial and operatio