IPC First Quarter 2021 Financial Results
May 5, 2021
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 three months ended March 31, 2021.
|Q1 2021 Financial and Operational Highlights|
|•||Average net production of approximately 43,700 barrels of oil equivalent (boe) per day (boepd) for the first quarter of 2021 (44% heavy crude oil, 19% light and medium crude oil and 37% natural gas)(1).|
|•||Average net production is above the high end of the 2021 Capital Markets Day (CMD) guidance range for the first quarter of 2021, with exceptional operational performance and high uptimes recorded across IPC’s portfolio.|
|•||Full year 2021 average net production is expected to be towards the high end of the forecast 41,000 to 43,000 boepd range(1).
|•||Operating costs(2) per boe of USD 14.4 for the first quarter of 2021, in line with CMD guidance.
|•||Capital and decommissioning expenditures of MUSD 12.0 for the first quarter of 2021, in line with CMD guidance.
|•||Exceptionally strong free cash flow (FCF)(2) generation of MUSD 49 for the first quarter of 2021, representing close to 10% of IPC’s market capitalization as at March 31, 2021.
|•||Increased working interest in the Bertam field, Malaysia to 100% from April 10, 2021.|
|•||Production sustaining Pad D’ at Onion Lake Thermal, Canada is on budget and scheduled to come on-line during the second quarter of 2021.|
|•||Proved plus probable (2P) reserves as at December 31, 2020 of 272 million boe (MMboe), with a reserves life index of 18 years(1).
|•||Contingent resources (best estimate, unrisked) as at December 31, 2020 of 1,102 MMboe(1).|
|•||Forecast cumulative FCF(2) for 2021 to 2025 of approximately MUSD 600 to MUSD 900, generating estimated average annual free cash flow yield over the five year period of between 24% and 36%(3).
|•||Operating cash flow (OCF)(2) generation for the first quarter of 2021 amounted to MUSD 68, above the higher end of the CMD guidance.
|•||Net debt(2) of MUSD 286 as at March 31, 2021.
|•||Net result of MUSD 27 for the first quarter of 2021.
|Three months ended March 31|
|Gross profit / (loss)||37,930||(12,436)|
|Operating cash flow(2)||67,721||21,481|
|Free cash flow(2)||48,951||(42,712)|
(1) See “Supplemental Information regarding Product Types” below and the Corporation’s annual information form for the year ended December 31, 2020 (AIF), available on the SEDAR website (www.sedar.com) or IPC’s website (www.international-petroleum.com).
(2) See “Non-IFRS Measures” below.
(3) Assumptions described in IPC’s press release of February 9, 2021, available on the SEDAR website (www.sedar.com) or IPC’s website (www.international-petroleum.com). Free cash flow yield based on IPC market capitalization at March 31, 2021 (28.3 SEK/share, 8.7 SEK/USD, 505 MUSD). See “Forward-Looking Statements” below.
Mike Nicholson, IPC’s Chief Executive Officer, commented,
“Market conditions for oil and gas producers have continued to improve during the first months of 2021. First quarter 2021 average Brent oil prices were above USD 60 per barrel, well in excess of fourth quarter 2020 prices that averaged around USD 45 per barrel.
Proactive supply management by the OPEC+ group, led by Saudi Arabia, is allowing the market rebalancing process to continue. The International Energy Agency (IEA) is now forecasting a net supply deficit in every quarter through 2021 which should set the scene for inventories to return back to longer term norms.
The pace of recovery in oil demand will be dependent on the continued roll out of the Covid-19 vaccination program to the wider population and the easing of restrictions on mobility. For a sustained recovery in oil prices, discipline and compliance on the supply side measures announced by OPEC+ enters a crucial phase, particularly when considering the timing of easing of the supply curtailments as demand recovers.
In Canada, first quarter 2021 Western Canadian Select (WCS) crude price differentials averaged below USD 13 per barrel and forward markets into 2022 and 2023 are pricing at around similar levels. Clearly the positive construction progress on both Enbridge’s Line 3 replacement as well as the TransMountain pipeline expansion project is providing a much more constructive outlook for Canadian oil market egress relative to the tightness we have witnessed over the past five years or so. IPC has positioned itself well to benefit from this.
Notwithstanding these positive tailwinds, we believe it is prudent to remain cautious with respect to our expenditure plans and therefore we are retaining our limited 2021 expenditure program. We are therefore well placed to deliver on our promise to generate strong free cash flow and to deleverage as we move through 2021.
That being said, the massive collapse in investment in our sector combined with the redirection of future capital investment away from upstream oil and gas in favour of renewable energy by the majors presents a huge opportunity for companies like IPC. We retain our opportunistic approach with respect to further Mergers and Acquisitions (M&A) activity and we have witnessed an uptick in market activity levels that we anticipate will continue in the months ahead.
First Quarter 2021 Highlights
During the first quarter of 2021, our assets delivered average net production of 43,700 boepd. This sits above the top end of our CMD guidance range for the first quarter and was largely driven by a combination of very high uptime performance across all assets as well as a lower than forecast cold weather impact on our Canadian gas production. As a result of strong start to 2021, we expect full year net average production to be towards the high end of our forecast 41,000 to 43,000 boepd range. Our operating costs per boe for the first quarter of 2021 was USD 14.4, in line with CMD guidance.
Operating cash flow generation for the first quarter of 2021 amounted to MUSD 68, stronger than our CMD high case (Brent USD 65 per barrel) forecast as a result of stronger than forecast production, tighter Canadian crude price differentials and stronger realized Canadian gas prices.
Capital and decommissioning expenditures during the first quarter of 2021 of MUSD 12.0 was in line with forecast, representing approximately one third of our full year forecast expenditure program of MUSD 37.
During the first quarter of 2021, free cash flow generation was exceptionally strong at MUSD 49 which represents close to 10% of IPC’s market capitalization as at March 31, 2021.
Net debt was reduced during the first quarter of 2021 by MUSD 35 to MUSD 286. Net debt to EBITDA drops to 1.8 times as at March 31, 2021 from 3 times as at December 31, 2020 (based on the trailing 12 months’ EBITDA) or to 1.1 times as at March 31, 2021 (based on an annualized Q1 2021 EBITDA).
Acquisition of additional Bertam interest in Malaysia
During April 2021, we were very pleased to acquire an additional 25% interest in the Bertam field on the withdrawal of our partner Petronas Carigali, taking IPC’s interest in the field to 100% effective from April 10, 2021. No consideration was paid by IPC for this additional interest and IPC agreed to assume minimal further future well decommissioning obligations estimated at around MUSD 1.0. Current net Bertam field production acquired is in excess of 1,250 bopd. Our commercial interest in the Bertam FPSO remains unchanged at 100%.
Environmental, Social and Governance (ESG) Performance
Health, Safety & Environmental performance remains a priority for all operational assets. Our objective is to reduce risk and eliminate hazards to prevent the occurrence of accidents, ill health and environmental damage, as these are essential to the success of our operations. During the first quarter of 2021, IPC recorded no material safety or environmental incidents.
In response to the Covid-19 pandemic, we remain focused on protecting the health and safety of our employees, contractors and other stakeholders, while also working to ensure business continuity. In the first quarter of 2021, IPC continued the health protocols implemented throughout the organization.”