IPC third quarter 2022 financial and operational results

November 1, 2022

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 and nine months ended September 30, 2022.

Mike Nicholson, IPC’s Chief Executive Officer, comments: “We are very pleased to announce that IPC achieved record quarterly average net production of 50,000 barrels of oil equivalent per day during the third quarter, with very strong operational performance across all our areas of operation. We produced strong cash flows from our business, ending the quarter with a net cash position of MUSD 89. This was achieved with no material safety or environment incidents during the quarter, and as we continue to work toward our net emissions intensity reduction target. Pricing for oil and gas, though stepped back from second quarter levels, remained high during the third quarter. We are confident that given forecast demand and the continuing under-investment in the oil and gas industry, this strong pricing should continue. We continue to work toward adding shareholder value through our well-balanced portfolio of light and heavy oil and gas assets and the development potential of the Blackrod project in Canada as well as shareholder returns under our capital allocation framework.”

Q3 2022 Business and Financial Highlights

Q3 2022 Achievements

  • Successful conclusion of IPC’s first Substantial Issuer Bid (SIB) returning MUSD 100 to participating shareholders and approximately 8.3 million common shares being purchased and cancelled in early July 2022.
  • Record spot production rates achieved during the third quarter under IPC operatorship at the Onion Lake Thermal and Ferguson assets in Canada.
  • Front End Engineering Design (FEED) studies on the Blackrod project, Canada progressing for scheduled completion by end 2022.
  • Release of IPC’s third Sustainability Report in August 2022.

Q3 2022 Results

  • Record average net production of approximately 50,000 barrels of oil equivalent (boe) per day (boepd) for the third quarter of 2022, above high end guidance (45% heavy crude oil, 21% light and medium crude oil and 34% natural gas).(1)
  • Net result of MUSD 91 for the third quarter of 2022.
  • Operating costs per boe of USD 15.7 for the third quarter of 2022, below latest guidance.(2)
  • Strong operating cash flow (OCF) generation for IPC of MUSD 172 for the third quarter of 2022.(2)
  • Capital and decommissioning expenditures of MUSD 47 for the third quarter of 2022 and MUSD 119 for the first nine months of 2022.
  • Strong free cash flow (FCF) generation for IPC of MUSD 117 for the third quarter of 2022.(2)
  • Net cash of MUSD 89 as at September 30, 2022 (after the funding of a further MUSD 47 of share repurchases during the third quarter).(2)

2022 Annual Guidance

  • Full year 2022 average net production expected to be above the upper end of the guidance range of 48,000 boepd.(1)
  • Full year 2022 operating costs guidance retained at between USD 16 to 17 per boe.(2)
  • Full year 2022 OCF guidance tightened to between MUSD 620 to 655 (Brent USD 85 to 100 per barrel for the remainder of 2022).(2)
  • Full year 2022 capital and decommissioning expenditures guidance retained at MUSD 170.
  • Full year 2022 FCF guidance tightened to between MUSD 425 to 460 (Brent USD 85 to 100 per barrel for the remainder of 2022).(2)

Reserves and Resources

  • Proved plus probable (2P) reserves as at December 31, 2021 of 270 million boe (MMboe), with a reserves life index of 16 years.(1,3)
  • Contingent resources (best estimate, unrisked) as at December 31, 2021 of 1,410 MMboe.(1,3)

 

Three months ended September 30   Nine months ended September 30
USD Thousands 2022 2021   2022 2021
Revenue 300,770 172,551 879,479 451,113
Gross profit / (loss) 140,489 58,636 421,298 130,852
Net result 90,503 30,557 276,542 79,141
Operating cash flow(2) 171,654 91,365 509,279 226,045
Free cash flow(2) 116,681 76,607 364,954 175,924
EBITDA(2) 174,328 89,223 513,829 220,667
Net Cas/Debt(2) 88,615 (161,199) 88,615 (161,199)

 

During the third quarter of 2022, oil and gas prices retreated from second quarter highs as the tailwinds of tight supply and demand balances combined with very low inventory levels were more than offset by the headwinds of recessionary fears and the impact on future demand, Strategic Petroleum Reserve (SPR) releases in the United States and Covid-19 lockdowns in China. Brent prices averaged USD 101 per barrel during the third quarter of 2022, lower than average second quarter Brent pricing of USD 114 per barrel.

In Canada, third quarter 2022 Western Canadian Select (WCS) crude price differentials to West Texas Intermediate (WTI) averaged USD 20 per barrel, USD 7 per barrel wider than the second quarter 2022. Forward markets into 2023 are also pricing the WCS differential to WTI wider at around USD 20 per barrel. Market commentators believe that a combination of higher natural gas prices for refiners, discounted Russian heavy barrels, US refinery outages as well as the SPR releases being mostly heavier barrels, are behind the increase in the WCS differential. IPC positioned itself well to mitigate this widening in the second half of 2022 with approximately two-thirds of our WCS differential exposure hedged at around USD 13 per barrel. In October 2022, IPC hedged the WCS/Argus WCS Houston (ARV) differential for 2023 for 12,000 bopd of Canadian oil production at USD 10 per barrel. This differential stands for the cost to transport a barrel of WCS quality oil from Hardisty (Alberta, Canada) to Houston (USA).

Gas markets remained relatively strong during the third quarter of 2022. IPC’s average realised gas price was CAD 5.80 per Mcf, well above the average second quarter AECO benchmark price of CAD 4.10 per Mcf as IPC benefitted from higher Empress pricing. Forward prices remain high at above CAD 5.00 per Mcf for 2023. IPC currently has no gas hedges in place.

IPC benefits from a well balanced mix of production comprising approximately 50% Canadian Crude, 33% Canadian Natural Gas and 17% Brent weighted oil in 2022. With synchronized strength in pricing across the entire energy complex, combined with delivering operational excellence above the high end of our third quarter forecast, IPC has again been able to deliver a very strong financial performance in the third quarter.

We have created significant value from acquisition for all of our stakeholders having concluded four acquisitions in the past four years and will remain opportunistic in our approach with respect to further M&A activity focusing on securing additional high quality resources, as well as maturing our significant contingent resource base in excess of 1.4 billion barrels.(3)

Third Quarter 2022 Highlights

During the third quarter of 2022, our assets delivered average net production of 50,000 boepd, above our high end guidance for the quarter and achieving a record high for IPC. This was made possible by the very high uptime performance across all of our assets as well as the production contribution from our 2022 investment program in Malaysia and Canada. With year to date average net production of 48,400 boepd, we expect full year 2022 average net production to remain above the upper end of the guidance range of 48,000 boepd.(1)

Our operating costs per boe for the third quarter of 2022 was USD 15.7, below our latest guidance. Year to date operating costs per boe was USD 16.5 and we are retaining our full year 2022 guidance of USD 16 to 17 per boe.(2)

Operating cash flow (OCF) generation for the third quarter of 2022 was USD 172 million. Full year 2022 OCF guidance is being tightened from USD 595 to 730 million (Brent USD 85 to 115 per barrel) to USD 620 to 655 million (Brent USD 85 to 100 per barrel for the remainder of 2022).(2)

Capital and decommissioning expenditure for the third quarter of 2022 was USD 47 million and USD 119 million for the first nine months of 2022. Full year 2022 capital and decommissioning expenditure guidance is retained at USD 170 million.

Free cash flow (FCF) generation was very strong at USD 117 million during the third quarter of 2022. Full year 2022 FCF guidance is being tightened from USD 395 to 530 million (Brent USD 85 to 115 per barrel) to USD 425 to 460 million (Brent USD 85 to 100 per barrel for the remainder of 2022). This represents between 33% and 35% of IPC’s current market capitalization.(2)(4)

During the third quarter of 2022, IPC’s net cash position was further strengthened with a build to USD 89 million, net of funding a further USD 47 million of share repurchases under our normal course issuer bid (NCIB) during the third quarter.(2)

IPC forecasts cumulative FCF for 2022 to 2026 of approximately USD 900 to 1,800 million (based on forecast Brent oil prices of USD 65 to 95 per barrel) generating estimated average annual FCF yield over the five year period of between 14% and 28%.(2)(4)

Share Repurchase Programs

Substantial Issuer Bid
As previously announced, we were very pleased to have concluded our first Substantial Issuer Bid (SIB) in line with our capital allocation framework to materially increase returns to shareholders in the higher oil price environment. IPC returned USD 100 million to participating shareholders, with our remaining shareholders benefiting from the cancellation of the repurchased shares, being approximately 5.5% of the total number of issued and outstanding shares. In early July 2022, IPC completed the repurchase of approximately 8.3 million common shares at CAD 15.50 (approximately SEK 122) per share under the SIB and the cancellation of these shares.

Normal Course Issuer Bid
Following the completion of the SIB, IPC continued to distribute value to our shareholders by restarting share repurchases under our previously announced NCIB. IPC implemented the current NCIB in December 2021. This program permits IPC to buy-back up to approximately 11.1 million shares, or approximately 7% of the total outstanding IPC shares at the time of launch, over the 12-month period up to December 2022. To date, IPC has purchased and cancelled approximately 9.3 million IPC shares under the NCIB at a total purchase cost of approximately USD 76 million. The average price of IPC shares purchased to date under the NCIB is approximately SEK 82 per share.

Since inception, IPC has repurchased a total of approximately 51 million IPC shares at an average price of SEK 56 per share. As at November 1, 2022, IPC had a total of 137,842,861 common shares issued and outstanding.

Environmental, Social and Governance (ESG) Performance

ESG 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 third quarter of 2022, IPC recorded no material safety or environmental incidents.

Notes:
(1) See “Supplemental Information regarding Product Types” in “Disclosure of Oil and Gas Information” below. See also the annual information form for the year ended December 31, 2021 (AIF) available on IPC’s website at www.international-petroleum.com and under IPC’s profile on SEDAR at www.sedar.com.
(2) Non-IFRS measure, see “Non-IFRS Measures” below.
(3)See “Disclosure of Oil and Gas Information“ below. Further information with respect to IPC’s reserves, contingent resources and estimates of future net revenue, are further described in the AIF.
(4) Estimated FCF generation is based on IPC’s current business plans over the period of 2022 to 2026. Assumptions include average net production over that period of approximately 47 Mboepd, average Brent oil prices of USD 65 to 95 per boe escalating by 2% per year, average gas prices of CAD 3.00 per thousand cubic feet, and average Brent to Western Canadian Select differentials as estimated by IPC’s independent reserves evaluator and as further described in the AIF. Free cash flow yield is based on IPC’s market capitalization at close October 28, 2022 (104.1 SEK/share, 11.0 SEK/USD, USD 1,307 million). IPC’s current business plans and assumptions, and the business environment, are subject to change. Actual results may differ materially from forward-looking estimates and forecasts. See “Forward-Looking Statements” below.

 

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Q3 2022 MD&A (regulatory)
01.11.2022, 303 KB