IPC Second Quarter 2023 Financial and Operational Results and Sustainability Report 2022

August 01, 2023

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 six months ended June 30, 2023. IPC also released its Sustainability Report 2022, which details the Corporation's environmental, social and governance (ESG) performance.

Mike Nicholson, IPC's Chief Executive Officer, comments: “We are pleased to announce another quarter of strong financial and operational results for IPC. For the second quarter of 2023, IPC produced an average of 51,800 barrels of oil equivalent per day (boepd). Given the strong average daily production over the first half of 2023, we expect to exceed the upper end of our 48,000 to 50,000 boepd guidance range for the full year 2023. Our financial results during the second quarter are in line with our 2023 guidance. We continue to progress the exciting development of Phase 1 of the Blackrod project in Canada, including signing the engineering, procurement and construction contract for the central processing facility, with cost levels and schedule in line with expectation, and a large contingency allowance remaining. In addition, we release today our fourth annual Sustainability Report, providing further information on our sustainability strategy and initiatives.”

Q2 2023 Business Highlights

  • Strong quarterly average net production of approximately 51,800 barrels of oil equivalent (boe) per day (boepd) for the second quarter of 2023 (49% heavy crude oil, 18% light and medium crude oil and 33% natural gas).(1)
  • Blackrod Phase 1 engineering, procurement and construction (EPC) contract for the Central Processing Facility (CPF) signed in Canada.
  • Successfully integrated the assets acquired in the Cor4 acquisition in Canada.(1)(2)
  • 1.57 million common shares purchased and cancelled during Q2 2023 under IPC’s normal course issuer bid (NCIB).
  • Published IPC’s fourth annual Sustainability Report (2022) and first standalone TCFD Report.

Q2 2023 Financial Highlights

  • Operating costs per boe of USD 17.0 for Q2 2023.(1)(3)
  • Operating cash flow (OCF) generation for Q2 2023 amounted to MUSD 84.(1)(3)
  • Capital and decommissioning expenditures of MUSD 62 for Q2 2023.(1)
  • Free cash flow (FCF) generation for Q2 2023 amounted to MUSD 16 (MUSD 65 pre Blackrod funding).(1)(3)
  • Net cash of MUSD 64 as at June 30, 2023.(3)
  • Net result of MUSD 32 for Q2 2023.

Reserves and Resources

  • Total 2P reserves as at December 31, 2022 of 487 million boe (MMboe), with a reserves life index (RLI) of 27 years.(1)(2)
  • Contingent resources (best estimate, unrisked) as at December 31, 2022 of 1,162 MMboe.(1)(2)

2023 Annual Guidance

  • Full year 2023 average net production forecast expected to exceed the upper end of 48,000 to 50,000 boepd guidance range.(1)
  • Full year 2023 operating costs guidance forecast remains unchanged at USD 17.5 to 18.0 per boe.(1)(3)
  • Full year 2023 OCF guidance tightened to between MUSD 320 to 390 (assuming Brent USD 75 to 90 per barrel for the remainder of 2023) from previous guidance of MUSD 250 to 495 (assuming Brent USD 70 to 100 per barrel).(1)(3)
  • Full year 2023 capital and decommissioning expenditures guidance forecast unchanged at MUSD 365, including MUSD 287 relating to Phase 1 of the Blackrod project.(1)
  • Full year 2023 FCF forecast range tightened to between MUSD -65 to 5 (assuming Brent USD 75 to 90 per barrel for the remainder of 2023) from previous guidance of MUSD -145 to 105 (assuming Brent USD 70 to 100 per barrel), after taking into account MUSD 287 of proposed 2023 Blackrod capital expenditures.(1)(3)(4)
Three months ended June 30 Six months ended June 30
USD Thousands20232022 20232022
Gross profit / (loss)52,747161,709117,130280,809
Net result32,025105,21771,588186,039
Operating cash flow(3)84,372192,515160,272337,625
Free cash flow(3)16,415151,79232,674248,273
Net Cas/Debt(3)63,54814,38263,54814,382

The pull back that we saw in oil and gas prices during the first quarter of 2023 stabilised during the second quarter with Brent prices averaging USD 78 per barrel compared with just over USD 80 per barrel during the first quarter. Demand concerns continue to weigh on oil markets, as rising interest rates aimed at taming high inflation, raise recessionary fears. The surprise production cuts announced by OPEC+ in early April were followed up with additional ‘voluntary cuts’ implemented by Saudi Arabia through July and August, a fourth pre-emptive move by the group, aimed at ensuring recent oil price weakness is not sustained. Inventory levels have moved back below the five-year average levels and market observers expect a deficit in the oil market for the remainder of 2023. Strategic Petroleum Reserve (SPR) releases in the US have come to an end and up to 12 million barrels are expected to be repurchased to begin refilling the SPR by the end of the year. The physical market certainly seems tighter than that priced in by the financial markets and many commentators believe oil prices will increase from the recent market trading range. We saw Brent prices trade in July occasionally over the USD 80 per barrel mark which had not been the case since April. The second quarter 2023 West Texas Intermediate (WTI) to Western Canadian Select (WCS) crude price differentials averaged around USD 15 per barrel, USD 10 per barrel tighter than first quarter levels and USD 5 per barrel tighter than our base case 2023 market guidance. Those market factors that have driven differentials wider such as the SPR releases, higher natural gas prices and refinery outages have now turned to provide more favourable tailwinds to the WTI/WCS 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 (due to 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 15 per barrel for the remainder of 2023 and the whole of 2024 as a result of these favourable market developments. IPC has taken the opportunity to lock in a WTI/WCS differential of approximately USD 14 per barrel for close to 50% of our forecast 2024 Canadian WCS forecast production volumes. Leveraging on the traditional lower costs for condensate in the summer season, we also locked in approximately 50%, or 3,000 barrels per day, of our Q3 2023 and Q1 2024 average daily condensate purchase forecast at WTI minus USD 1.60 per barrel. Gas market prices remained below our 2023 base case price guidance of CAD 3.50 per Mcf during the second quarter. IPC’s average realised gas price was CAD 2.44 per Mcf during the quarter, compared with CAD 3.60 per Mcf during the first quarter of 2023. The recent weakness seen in North American gas prices was to a large extent driven by a much milder winter in Europe and the resulting reduced demand for US LNG. 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 4.10 per Mcf from April to October 2023, which represents approximately 50% of our net long exposure.

Second Quarter 2023 Highlights and Full Year 2023 Guidance

During the second quarter of 2023, our assets delivered average net production of 51,800 boepd, above our high-end guidance for the second quarter in succession. 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 and our successful four well drilling program in France. Given the very strong first half performance averaging around 52,000 boepd, full year 2023 average net production is now expected to exceed the upper end of the guidance range of 48,000 to 50,000 boepd.(1) Our operating costs per boe for the second quarter of 2023 were USD 17.0, 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 second quarter of 2023 was USD 84 million, ahead of guidance as a result of the strong production performance and tighter WCS/WTI differentials. Full year 2023 OCF guidance of USD 250 to 495 million (assuming Brent USD 70 to 100 per barrel) is tightened to USD 320 to 390 million (assuming Brent USD 75 to 90 per barrel for the remainder of 2023).(1)(3) Full year 2023 capital and decommissioning expenditure forecast of USD 365 million is unchanged.(1) Free cash flow (FCF) generation was USD 16 million (USD 65 million pre Blackrod funding) during the second quarter of 2023. Full year 2023 FCF guidance of USD -145 to 105 million (assumed Brent USD 70 to 100 per barrel) is tightened to USD -65 to 5 million (assuming Brent USD 75 to 90 per barrel for the remainder of 2023).(1)(3)(4) IPC’s transformational growth program is estimated to generate FCF post growth investment of between USD 2.6 and 4.4 billion over the next ten years assuming average Brent oil prices between USD 75 to 95 per barrel. This represents more than 2 to 3 times IPC’s current market capitalisation.(1)(3)(4) During the second quarter of 2023, IPC’s net cash position of USD 67 million was reduced to USD 64 million, largely driven by the funding of USD 14 million for the continuing share repurchase program (NCIB) and other working capital movements.(3) Gross cash on the balance sheet as at June 30, 2023 amounts to USD 374 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. Furthermore, IPC’s CAD 150 million Canadian Revolving Credit Facility (RCF) remains undrawn.

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 WTI price of approximately USD 59 per barrel. Using the December 31, 2022 price forecasts of our independent qualified 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 our operations.(1)(2) During the second quarter, the Phase 1 development activities have progressed according to plan. The engineering, procurement and construction (EPC) contract for the major Phase 1 central processing facility was signed with cost levels and schedule in line with expectation. This contract provides a high degree of certainty for the largely fixed price element of the Phase 1 development capital expenditure which represents close to 65% of the overall Phase 1 capital expenditure budget to first oil. In addition, IPC has decided to lock in approximately 65% of the CAD/USD exposure through a combination of hedging and contractual arrangements to give greater certainty to the USD funding requirement for the Phase 1 project costs. Following these actions, more than 85% of the overall Phase 1 contingency (USD 110 million) remains available, a comfortable position to be in. However, we believe it is prudent to retain the total Phase 1 capital expenditure estimate to first oil of USD 850 million given the early stages in the project’s execution.

M&A During Q2 2023, IPC successfully integrated the acquired Cor4 assets into the Group following completion of the acquisition in March 2023. Four wells were successfully drilled and brought on production from the Ellerslie fairway since the beginning of the year and we plan to drill another two wells on this exciting play in 2023.(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 early December 2023. By the end of June 2023, IPC purchased and cancelled 7.1 million common shares under the NCIB. The average price of common shares purchased under the renewed NCIB during the period of December 2022 to June 2023 was SEK 101 / CAD 13.00 per share. As at June 30, 2023, IPC had a total of 130,497,085 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 June 30, 2023 of 2.2 million common shares by the end of November 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

IPC is committed to the continued advancement of our ESG practices in our sustainability focus areas. The Group’s six sustainability priorities are:

  • Ethics & Integrity
  • Rewarding Workplace
  • Health & Safety
  • Community Engagement
  • Climate Action
  • Environmental Stewardship

As part of our commitment to operational excellence, 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 second quarter of 2023, IPC recorded no material safety or environmental incidents. With respect to climate action, IPC has made notable progress over the past years. Our operational emission reduction efforts have resulted in a reduction of greater than 125,000 tonnes of CO2e emissions since announcing IPC’s climate strategy in 2020. IPC also signed its first virtual green power purchase agreement in 2022, contributing to a greater share of green energy in the Alberta electricity grid. In addition, IPC expanded carbon compensation efforts by offsetting a substantial share of the Group’s 2022 CO2e emissions, offsetting a total of 330,000 tonnes of CO2e for the year 2022. These initiatives put IPC on track to achieve a 50% reduction in our net emissions intensity by 2025, and the company announced this year at the 2023 Capital Markets Day (CMD) a commitment to extend the reduced net emissions intensity level through 2027.

Sustainability Reporting and Climate Disclosures

Alongside the publication of this second quarter 2023 financial report, IPC releases its fourth annual Sustainability Report and its first standalone TCFD Report. The Sustainability Report provides details on IPC’s approach to sustainability, highlighting specific initiatives, and measurable goals and targets related to the key focus areas set by the Group. The TCFD Report aligns with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and demonstrates our commitment to addressing climate-related risks and opportunities to our business. The Sustainability Report and the TCFD Report, including additional information on IPC’s efforts and performance across its sustainability priorities, are available on our website at www.international-petroleum.com.


See “Supplemental Information regarding Product Types” in “Reserves and Resources Advisory” below. See also the annual information form for the year ended December 31, 2022 (AIF) available on IPC’s website at www.international-petroleum.com and under IPC’s profile on SEDAR+ at www.sedarplus.ca. IPC completed the acquisition of Cor4 on March 3, 2023. The Financial Statements have been prepared on that basis, with revenues and expenses related to the assets acquired in the Cor4 acquisition included in the Financial Statements from March 3, 2023. Certain historical and forecast operational and financial information included in the MD&A, including production, reserves, operating costs, OCF, FCF and EBITDA related to the assets acquired in the Cor4 acquisition, are reported based on the effective date of the Cor4 acquisition of January 1, 2023.

See “Reserves and Resources Advisory“ below. Further information with respect to IPC’s reserves, contingent resources and estimates of future net revenue, including assumptions relating to the calculation of NPV, are described in the AIF. 2P reserves as at December 31, 2022 of 487 MMboe includes 471 MMboe attributable to IPC’s oil and gas assets and 15.9 MMboe attributable to the oil and gas assets acquired in the Cor4 acquisition.

Non-IFRS measure, see “Non-IFRS Measures” below.

Estimated FCF generation is based on IPC’s current business plans over the periods of 2023 to 2027 and 2028 to 2032, including net cash of USD 175 million as at December 31, 2022 less the Cor4 acquisition consideration of USD 62 million. Assumptions include average net production of approximately 50 Mboepd over the period of 2023 to 2027, average net production of approximately 65 Mboepd over the period of 2028 to 2032, average Brent oil prices of USD 75 to 95 per boe escalating by 2% per year, and average Brent to Western Canadian Select differentials and average gas prices as estimated by IPC’s independent reserves evaluator and as further described in the AIF. IPC’s market capitalization is at close on July 28, 2023 (USD 1,190 million based on 95.92 SEK/share, 130.5 million IPC shares outstanding and exchange rate of 10.55 SEK/USD. 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.