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IPC Third Quarter 2023 Financial and Operational Results; Share Repurchase Program Update; and Chief Executive Officer Succession

October 31, 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 nine months ended September 30, 2023.

Mike Nicholson, IPC's Chief Executive Officer, comments: “We are very pleased to announce another strong quarter for IPC. We produced an average of 50,200 barrels of oil equivalent per day (boepd) during the third quarter. Given the strong average daily production over the first nine months of 2023, we expect to exceed an average of 50,000 boepd for the full year 2023, above the high end of our guidance range. We continue to progress the exciting development of Phase 1 of the Blackrod project in Canada, with cost levels and schedule in line with expectation. We also expect to complete our current normal course issuer bid (NCIB) program in Q4 2023 and intend to seek Toronto Stock Exchange (TSX) approval to renew the NCIB for a further 12 months. Our current intention is to fully complete that renewed NCIB program during the course of 2024. Finally, I will be stepping down from executive management of IPC at the end of 2023 with William Lundin, currently Chief Operating Officer of the Corporation, assuming the role of President and CEO. I plan to stay closely involved with the bright future of IPC as a continuing member of the Board of Directors.”

Q3 2023 Business Highlights

  • Strong quarterly average net production of approximately 50,200 barrels of oil equivalent (boe) per day (boepd) for the third quarter of 2023 (55% heavy crude oil, 14% light and medium crude oil and 31% natural gas).(1)
  • Blackrod Phase 1 development progressing on schedule and budget.
  • Disposal of non-core properties in Canada for MUSD 17 (0.6 MMboe of 2P reserves; approximately 400 bopd of average current production).(1,2)
  • Successfully completed planned maintenance turnaround at the Bertam Field in Malaysia on scope, schedule and budget.
  • 1.31 million common shares purchased and cancelled during Q3 2023 under IPC’s normal course issuer bid (NCIB); annual program 90% complete.
  • IPC plans to seek TSX approval for the renewal of the NCIB for a further twelve months from December 2023 to December 2024, with IPC’s current intention to fully complete the renewed program.
  • Successfully completed USD 150 million tap issue under IPC’s existing 7.25% senior unsecured bond framework.
  • IPC succession plan sees William Lundin assume the role of President and CEO from January 1, 2024 as Mike Nicholson retires from executive management; Mike to continue as a Director of IPC and William to join the Board as a new Director.

Q3 2023 Financial Highlights

  • Operating costs per boe of USD 17.9 for Q3 2023.(1,3)
  • Operating cash flow (OCF) generation for Q3 2023 amounted to MUSD 119.(1,3)
  • Capital and decommissioning expenditures of MUSD 80 for Q3 2023.(1)
  • Free cash flow (FCF) generation for Q3 2023 amounted to MUSD 35 (MUSD 103 pre Blackrod funding).(1,3)
  • Net cash of MUSD 83 as at September 30, 2023.(3)
  • Net result of MUSD 72 for Q3 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)

2022 Annual Guidance

  • Full year 2023 average net production forecast unchanged at greater than 50,000 boepd.(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 340 to 365 (assuming Brent USD 80 to 90 per barrel for the remainder of 2023) from previous guidance of MUSD 320 to 390 (assuming Brent USD 75 to 90 per barrel).(1,3)
  • Full year 2023 capital and decommissioning expenditures forecast reduced from MUSD 365 to MUSD 330.(1)
  • Full year 2023 FCF forecast range tightened to between MUSD -15 to 5 (assuming Brent USD 80 to 90 per barrel for the remainder of 2023) from previous guidance of MUSD -65 to 5 (assuming Brent USD 75 to 90 per barrel), after taking into account MUSD 240 of proposed 2023 Blackrod capital expenditures.(1,3,4)
Three months ended September 30 Nine months ended September 30
USD Thousands20232022 20232022
Gross profit / (loss)93,429140,489210,559421,298
Net result71,68190,503143,269276,542
Operating cash flow(2)119,142171,654279,414509,279
Free cash flow(2)34,703116,68167,379364,954
Net Cas/Debt(2)83,09788,61583,09788,615

Oil prices rebounded during the third quarter with Brent prices averaging USD 87 per barrel compared with USD 78 per barrel during the second quarter. The strength we have seen in physical markets shone through, with recessionary fears on the back of higher interest rates taking a back seat during the quarter. However, more recent talk of higher interest rates for longer by the Federal Reserve Bank, led to oil prices retreating from a push towards USD 100 per barrel in late September, back towards USD 85 per barrel in early October. Looking forward, the decision by OPEC+ to extend their ‘voluntary cuts’ through the end of 2023, could set the stage for a large deficit and further draws on already below average inventories during the fourth quarter. Inventory levels now sit more than 100 million barrels below the five-year average levels. Heightened tensions, with the tragic outbreak of war in the Middle East, are exacerbating the situation and will no doubt lead to increased pricing volatility going forward. IPC has decided to commence the hedging of its benchmark oil price exposure for 2024. Around 25% of 2024 West Texas Intermediate (WTI) exposure has been hedged at a price of USD 81 per barrel. The third quarter 2023 WTI to Western Canadian Select (WCS) crude price differentials averaged around USD 13 per barrel, a USD 2 per barrel improvement on the second quarter. The fundamental outlook for 2024 differentials remains positive with the expansion of the Trans Mountain (TMX) pipeline (590,000 barrels per day of extra capacity linking Edmonton to the port of Vancouver) 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). That being said, a possible delay in start-up of the TMX pipeline from the first quarter to the second quarter of 2024 as a result of a tunnelling issue, has seen 2024 WTI to WCS differential widen to more than USD 17 per barrel. IPC took the decision to hedge 75% of our WCS differential exposure prior to news of the TMX pipeline potential delay, when market prices were more favourable averaging USD 15 per barrel. Gas market prices held stable during the third quarter at around CAD 2.50 per Mcf. During the third quarter, IPC continued to benefit from the 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.

Third Quarter 2023 Highlights and Full Year 2023 Guidance

During the third quarter of 2023, our assets delivered average net production of 50,200 boepd, above our high-end guidance for the third quarter in succession. Above high-end guidance performance in Canada was partially offset by some downtime from two production wells in Malaysia that are scheduled for workover intervention activity. This work is expected to be concluded by January 2024. Given the very strong performance during the first nine months of 2023 averaging around 51,600 boepd, full year 2023 average net production guidance remains unchanged at greater than 50,000 boepd, above our original high end guidance.(1) Our operating costs per boe for the third quarter of 2023 were USD 17.9, 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 third quarter of 2023 was USD 119 million, towards the high end of guidance, driven by strong production and tighter WTI to WCS differentials. Full year 2023 OCF guidance of USD 320 to 390 million (assuming Brent USD 75 to 90 per barrel) is tightened to USD 340 to 365 million (assuming Brent USD 80 to 90 per barrel for the remainder of 2023).(1,3) Full year 2023 capital and decommissioning expenditure forecast of USD 365 million is revised down to USD 330 million largely driven by rephasing of certain Blackrod capital expenditure from 2023 into 2024 and some additions relating to the workover of two wells in Malaysia.(1) Free cash flow (FCF) generation was USD 35 million (USD 103 million pre Blackrod funding) during the third quarter of 2023. Full year 2023 FCF guidance of USD -65 to 5 million (assumed Brent USD 75 to 90 per barrel) is tightened to USD -15 to 5 million (assuming Brent USD 80 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 third quarter of 2023, IPC successfully completed a tap issue of USD 150 million under IPC’s existing 7.25% senior unsecured bond framework issued at 7% discount to par value and therefore with net proceeds amounting to USD 139.5 million to further strengthen IPC’s cash position. Following the tap issue, IPC has USD 450 million of senior unsecured bonds outstanding with maturity in February 2027. IPC’s net cash position of USD 64 million as at June 30, 2023 was increased to USD 83 million as at September 30, 2023.(3) Gross cash on the balance sheet as at September 30, 2023 amounts to USD 542 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, during Q3 2023, IPC increased its Canadian Revolving Credit Facility (RCF) from CAD 150 million to CAD 165 million. The RCF remains undrawn as at October 31, 2023.

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. 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 third 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 in Q2 2023 and project work continued to progress during Q3 2023 with cost levels and schedule in line with expectation. In addition, IPC has locked in more than 70% 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.

M&A During the first nine months of 2023, IPC continued the successful integration of the acquired Brooks assets into the Group following completion of the Cor4 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 four wells on this exciting play in 2023, two more than originally planned.(1,2) During the third quarter, IPC agreed to dispose of a small package of non-core production and land assets in the John Lake and Fishing Lake areas in Canada. Total proceeds from the disposal amounted to USD 17 million. Current production associated with the assets was around 365 bopd. 2P reserves and NPV10 value as of January 1, 2023 were 0.6 MMboe and USD 7.7 million respectively. The John Lake disposal closed in Q3 2023 and Fishing Lake early October 2023.(1,2)

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 September 2023, IPC purchased and cancelled 8.4 million common shares under the NCIB. The average price of common shares purchased under the renewed NCIB during the period of December 2022 to September 2023 was SEK 101 / CAD 13.00 per share. IPC expects to complete the current NCIB program of 9.3 million common shares during Q4 2023. As at September 30, 2023, IPC had a total of 129,189,220 common shares issued and outstanding, with no common shares held in treasury.

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. The IPC Board of Directors has approved, subject to acceptance by the TSX, the renewal of IPC’s NCIB for a further twelve months from December 2023 to December 2024. We expect that the renewed NCIB program will permit IPC to purchase on the TSX and/or Nasdaq Stockholm, and cancel, up to a further 8.3 million common shares, representing approximately 6.5% of the total outstanding common shares (or 10% of IPC’s “public float” under applicable TSX rules) following completion of the current NCIB program. Despite the level of capital investment expected for 2024, in particular related to the Blackrod Phase 1 project, and notwithstanding the capital allocation framework described above, IPC’s current intention is to complete the renewed NCIB program during 2024. We continue to believe that 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

Alongside the publication of the second quarter 2023 financial report, IPC released its fourth annual Sustainability Report and its first standalone TCFD Report. IPC is committed to the continued advancement of ESG practices in its 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 IPC’s commitment to operational excellence, its 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 2023, IPC recorded no material safety or environmental incidents. With respect to climate action, as previously announced, IPC targets a reduction of net GHG emissions intensity by the end of 2025 to 50% of IPC’s 2019 baseline and IPC remains on track to achieve this reduction. During Q1 2023, IPC extended its commitment to remain at 2025 levels of 20 kg CO2/boe through to the end of 2027.

IPC Succession Plan

After nineteen years with the Lundin Group, Mike Nicholson, President and CEO has informed the IPC Board of his intention to step down from his executive position at the end of 2023. William Lundin, currently Chief Operating Officer of IPC (COO), will assume the role of President and CEO from January 1, 2024 and Nicki Duncan, currently Group Operations Lead, will assume the role of COO. The Board intends to increase the size of the Board to seven members and William will join as a new Director as of January 1, 2024, with Mike remaining on the Board.

Mike Nicholson said:

“IPC is generating robust cash flow from the base business, the balance sheet is stronger than ever, and our Blackrod growth project is progressing well, on schedule and budget. I firmly believe that our production and cash flow growth, coupled with continued share buy backs and opportunistic M&A, will continue to generate superior shareholder returns in the years ahead. I am excited to be handing over the reins to William Lundin, current COO of IPC, with such a bright future ahead of the company. Having had the pleasure of working side by side with Will for more than three years in his current role, I have been deeply impressed with his knowledge of value creation within the resource industry and the vision that we share to set the pace for our industry peers and to continue to outperform the competition. Will has amassed a vast amount of experience from working in field operations at Onion Lake Thermal and project management in the Canadian business, executive management within IPC, and strategic oversight in his various board positions across the Lundin Group. I know that Lukas Lundin would be very proud of Will’s progression to CEO. The COO role will be assumed by Nicki Duncan, currently IPC’s Group Operations Lead. I am delighted to remain as a Board Director and in this capacity look forward to my continued involvement in the amazing IPC success story.”

William Lundin said:

“It has been a privilege working alongside Mike. His contributions to IPC and Lundin Energy have been invaluable and we look forward to his continued support as a Director of IPC. I take great pride in having the opportunity to represent IPC as President and CEO and look forward in continuing to maximise value alongside a highly talented team. Our strategy remains intact to deliver shareholder returns, grow organically, and opportunistically seek accretive acquisitions. With a strong balance sheet, proven portfolio of high-quality producing assets delivering robust free cashflow to the business combined with transformational production growth to come from our Blackrod asset, the outlook for IPC is extremely bright.” Notes:

(1) 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 Brooks 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. (2) 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.(3)Non-IFRS measure, see “Non-IFRS Measures” below.(4) 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 October 27, 2023 (USD 1,330 million based on 114.85 SEK/share, 129.2 million IPC shares outstanding and exchange rate of 11.15 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.