IPC third quarter 2020 financial results and Sustainability Report
November 3, 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 nine months ended September 30, 2020. IPC also announces the release of its first Sustainability Report, which details the Corporation’s environmental, social, and governance (“ESG”) performance.
• Forecast 2020 net average production revised upwards to over 41,000 barrels of oil equivalent per day (boepd) from the prior guidance of 37,000 to 40,000 boepd.
• Capital and decommissioning expenditure guidance forecast for full year 2020 unchanged at MUSD 80.
• Continued financial flexibility with access to more than MUSD 100 of spare financial headroom as at the end of Q3 2020.
• First IPC Sustainability Report published.
Q3 2020 Financial and Operational Highlights
• Average net production of approximately 41,800 boepd for Q3 2020 (39% heavy crude oil, 21% light and medium crude oil and 40% natural gas).
• Strong production performance with a faster than forecast production ramp up and good reservoir performance at the major oil assets in Canada. Full year net average daily production now expected to exceed the high end of Q2 guidance.
• Operating costs of USD 12.4 per boe for Q3 2020, in line with Q2 2020 guidance. Full year forecast expected at the lower end of the range of USD 12 to 13 per boe.
|Three months ended September 30||Nine months ended September 30|
|Gross profit / (loss)||5,557||23,487||(23,416)||109,659|
|Operating cash flow||37,181||69,504||73,404||229,056|
|Free cash flow||22,766||9,989||(19,229)||84,809|
•Operating cash flow and free cash flow generation for the third quarter 2020 amounted to MUSD 37.2 and MUSD 22.8 as a result of stronger oil prices and increased production compared to the second quarter 2020.
• Free cash flow yield for Q3 2020 greater than 8%, calculated as the USD 22.8 million free cash flow for Q3 2020 as a percentage of IPC’s USD 280 million market capitalization as at September 30, 2020.
• Net debt decreased from MUSD 341.4 as at June 30, 2020 to MUSD 322.1 as at September 30, 2020.
• At the beginning of Q3 2020, the refinancing of IPC’s RBL credit facilities was successfully concluded. The International RBL facility size was increased to MUSD 140 and the maturity extended to the end of 2024. The Canadian RBL facility was refinanced at MCAD 350 and extended until end May 2022. In addition, in Q2 2020, a MEUR 13 credit facility was secured in France.
Mike Nicholson, IPC’s Chief Executive Officer, commented,
“During the third quarter of 2020, we began to see some positive results from the production curtailments implemented by OPEC+ and other oil producers in response to the collapse in oil demand driven by the Covid-19 pandemic. Those actions managed to flatten the curve of inventory builds towards the end of the second quarter. This in turn led to the oil market moving into deficit during the third quarter with a draw down in inventory levels as the rebalancing process commenced. As a result of the market tightening, average Brent oil prices increased from second quarter levels of around USD 30 per barrel to above USD 40 per barrel during the third quarter.
Clearly though, uncertainties remain with the onset of a second wave of Covid-19 infections. The full impact of new localized confinement measures being introduced creates a degree of uncertainty with respect to the pace and magnitude of the recovery in oil demand. For a sustained recovery in oil prices, discipline and compliance on the supply side measures announced by OPEC+ will be essential, particularly when considering the timing of easing of the supply curtailments.
As a result, we believe it is prudent to exercise caution with respect to future capital expenditure and growth plans, and we have no plans to increase our reset 2020 expenditure program. We expect to set a budget for 2021 with a focus on free cash flow generation and debt reduction.
Update of 2020 Business Plan
Given that IPC operates the majority of our assets, during the first half of 2020 we had the financial and operational flexibility to react swiftly to the situation and to positively position IPC to navigate through this period of low commodity prices. We reduced all remaining discretionary 2020 expenditures. In addition, during the second quarter of 2020, we took the decision to temporarily curtail oil production from those fields that were not expected to generate positive cash flows at the low pricing levels we were experiencing.
With the improvement in our business outlook, and in particular the strengthening of Canadian crude oil prices, we took the decision in late Q2 2020, to progressively bring back on stream our oil production from our Suffield Oil asset and our Onion Lake Thermal asset.
Third Quarter Performance
Our average third quarter net production of 41,800 boepd was above our Q2 2020 guidance which gives us average net production of 41,200 boepd for the first nine months of 2020. As a result of this strong recovery in production, we now expect IPC’s full year 2020 average net production to be above 41,000 boepd.
Operating cash flow generation for the third quarter amounted to USD 37.2 million, ahead of our Q2 2020 forecast as a result of stronger oil prices and higher than forecast production. Moreover, as a result of our spending reductions, operational choices and hedging program, IPC generated approximately USD 23 million of free cash flow during the third quarter of 2020, yielding greater than 8%.
Responsible operatorship and ensuring that we adhere to the highest principles of business conduct have been an integral part of how we do business since the creation of IPC in 2017. Over the past three years, IPC has rapidly grown our business with the completion of three acquisitions in Canada as well as significant investments in our French and Malaysian businesses.
In parallel, we have made a concerted effort to further develop and improve our sustainability strategy. An important part of this journey involves the measurement and transparent reporting of a broad range of ESG metrics. We are very pleased that IPC is today presenting to our stakeholders for the first time, our inaugural Sustainability Report.
The Sustainability Report 2019 details the Corporation’s ESG performance. The Sustainability Report 2019 advances the Corporation’s non-financial disclosures and provides stakeholders with relevant operational and sustainability context in which IPC operates, as well as the Corporation’s management approach and performance with respect to these areas. The report is available on IPC’s website at www.international-petroleum.com.
Highlights of IPC’s sustainability performance for 2019 include:
• Greenhouse gas (“GHG”) emissions stewardship with enhance energy efficiency at IPC’s onshore and offshore facilities avoiding the release of 150,000 t CO2e annually. IPC also restates our target announced at our Capital Markets Day in February 2020 to reduce our net GHG emissions intensity to the global average by the end of 2025, which will represent a 50% reduction relative to the Corporation’s 2019 baseline.
• Workforce drawn 98% from local hiring and composed of 29% women.
• 30% of the workforce at the Onion Lake asset are hired from the First Nations community and USD 14.3 million was spent with First Nation businesses.
In Q3 2020, IPC joined the United Nations Global Compact, a leading global initiative for good corporate citizenship. We support and are committed to upholding the 10 Principles of the UN Global Compact on human rights, labour, environment and anti-corruption, and will report on progress on an annual basis.”