International Petroleum Corporation

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Okay, so very good morning to everybody and welcome to IPC's year-end results and operations update presentation. My name is Mike Nicholson. I'm the CEO of IPC. Also joining me in presenting this morning is Christoph Nergerarian, the CFO, and we also have Rebecca Gordon, who's our VP of Investor Relations. I'll begin in the usual fashion with the operations update and then I'll pass across to to Christoph and he'll run through the financial numbers. It's going to be a much shorter presentation this morning than our usual quarterly presentations because we do, of course, have our Capital Markets Day presentation this afternoon at 2 p.m., which will go through all of the forward-looking guidance for 2022, our longer-term business plan update and an overview of all of the assets in the financial forecast. So we will have a Q&A session at the end of this call, but if I can ask it to be just constrained to any questions around the year end or the Q4 results, because we'll have a much more detailed Q&A session this afternoon. So to get started and with the first slide and the highlights for 2021, I think we can say it's been an exceptionally strong year for IPC. It's by far the strongest delivery in terms of our results across the board. If we look at production, our average production for the full year was 45,500 barrels of oil equivalent per day, and that's well in excess of the original high-end guidance that we gave to the market. Great delivery also on costs. Our operating costs for the full year were below guidance at $15 per barrel. And the capital budget, the revised capital budget, was in line with guidance at just under 50 million US dollars. With that strong production that we've seen and obviously strengthening commodity price environment through 2021, the company has been able to generate its best ever financial performance. And if we look at the cash flow numbers records in terms of our operating cash flow, just under 340 million US dollars and a free cash flow of in excess of our latest high in guidance, $263 million, which represents a very, very strong 26% free cash flow yield. Most of that free cash flow has gone in to strengthen the balance sheet and reducing our debt levels. The net debt at the end of last year was down to just $94 million. And in terms of our leverage, it's down at 0.3 times net debt to EBITDA. Notwithstanding the fact we had a limited capital budget in 2021, we still had a very impressive performance in terms of our reserves replacement. above 90% reserve replacement, which means our 2p reserves at the end of 2021 stand at still 270 million barrels of oil equivalent and a huge uplift in our contingent resources we'll cover that more in the presentation this afternoon but an addition of 300 million barrels of 2c resources which lifts now our total 2c resources to above 1.4 billion barrels of oil equivalent and a good continued focus on sustainability and we're well on track with our emissions reductions and carbon offset initiatives to meet our five-year target. And we're pleased to report that we didn't have any material incidents through the full year 2021. If we turn now and look into a bit more detail at production, fourth quarter production was 46,800 barrels of oil equivalent per day. That was above the high end of the guidance that we gave for the fourth quarter. and really rounds out 2021 with a very impressive four quarters in succession above the high in guidance that fed into our full year 2020 21 numbers with production at 45 500 barrels of oil equivalent per day and we've now got production lifted back up in excess of pre-COVID levels back in 2019. And if you look at the pie chart on the top right-hand side of this slide, you can see IPC has a nice balance of 48% Canadian oil, about a third Canadian gas, and the rest international light Brent oil, and obviously with the significant strength we've seen across. the entire energy complex has meant that we've been able to generate extremely strong financial performance. Turning to the cost side, fourth quarter operating costs per BOE was just above $15 per barrel. That rounds out 2021 with a full year OPEX per barrel of $15 per BOE. Our latest guidance was $15.50, so we also have a beat on on that latest guidance and capex the latest guidance that we gave to the market for the full year was fifty million dollars were two million dollars below that and that's largely a result of the refacing of some expenditure into two thousand and twenty two turning to the operating cash flow fourth quarter operating cash flow was a record For the company, average Brent prices in Q4 were $80 per barrel, and we generated $111 million in OCF. That means that for the full year, we generated $337 million of operating cash flow with Brent prices averaging over the full year $71 per barrel. That's a material beat to the high-end guidance that we gave at the beginning of the year, which was $220 million, assuming a $65 per barrel rent price. The reason for that performance is, of course, the higher oil price and the production above the top end of our guidance. We've seen also tighter Canadian WCS differentials. We've seen much stronger gas prices and also the lower OPEX and forecasts. So really strong performance across the board. And when you set that against a relatively limited capital expenditure budget, and we look at the free cash flow generation, again, it represents a highest ever free cash flow performance for the company. Fourth quarter free cash flow was 87 million US dollars, and our full year free cash flow was $263 million, representing a 26% free cash flow yield. And that's significantly in excess of the $155 million high-end guidance that we gave in our original Capital Markets Day presentation. If we turn now to the update on share repurchase programme and the bond issue, IPC announced in December our third share repurchase programme. That gives us the ability to repurchase up to just over 11 million shares through December 2022. Up to early February 2022, the company has purchased 2.6 million shares for a total cost of $16 million. That represents an average purchase price of around 55 sec a share. And if we look back at the aggregates of share repurchases since IPC's inception, we've bought back now close to 37 million shares at around thirty five sec per share. So a lot of value created from that share repurchase program. We're also pleased to announce in early January that we successfully issued a new three hundred million US dollar bond. It's got a five year term and we secured a seventy two point five percent coupon We can see the balance sheet is in great shape, is exceptionally strong, but we felt market conditions were favourable and we felt it was prudent to diversify our capital structure and funding. So I think it puts us on the front foot when we talk to the majors as they seek to rationalise their portfolios. transition from a position of strength and we hope to be able to conclude further value creative acquisitions. In terms of sustainability and ESG strategy on the on the health and safety side, very pleased to announce that we did not have any material safety incidents during 2021. We did have to continue to operate with our COVID-19 protocols and I think it's a huge credit to all of our operating teams on the ground that we haven't had any interruptions on any of our assets as a result of the COVID restrictions that we've had to endure. So big effort and a great delivery by the teams. In terms of our climate strategy and our sustainability report, we've got the commitment to reduce our net emissions intensity by 50% through the end of 2025. You can see from the chart on the bottom of this slide that in 2022 we'd reduce that to 33 kilograms per BOE. So we're well on track to meet that target of 20 kilograms per BOE by the end of 2025. We did publish alongside our second quarter results, our second annual sustainability report, and the reporting standards were uplifted. It was fully compliant with the global reporting initiative standards. And I would encourage everyone to take a read to show all the excellent work that's been done by all of our teams in Geneva, in Canada, in Malaysia and in France. So that rounds out my part of the presentation. I'll pass the call now to Christophe, who will walk through the financial numbers. So Christophe, over to you.

Thank you very much, Mike. So moving on to the financial highlights. And actually, I will start the financial highlights by talking about the operations, which have been, as Mike mentioned, absolutely stellar. Performance-wise, the uptime was very high across all of our assets. It is not just the high oil and gas prices which translate into the best financial results ever for IPC. The basis was the strong performance of all the teams and all the assets. And so production for the fourth quarter and the full year respectively at 46,800 BOE per day and 45,500 barrels of wet equivalent per day. That is very, very close to our best performance ever in 2019. But certainly, with strong oil and gas prices, the average of the dated Brent in the fourth quarter was just shy of $80. And that certainly translated into our best financial performance ever with an operating cash flow of $111 million for the fourth quarter. a third of the overall operating cash flow for the year 2021 at 337. Operating costs at 15 for the year and $15.1 per BOE for the fourth quarter is below the guidance and demonstrates that our costs of operations are really under control. With limited capex, that translated into very high free cash flow of $263 million, which were mainly used to reduce the debt down to $94 million at the end of last year. And so we now have a very strong balance sheet with a net debt to EBITDA leverage, which went from three times at the end of 2020 down to 0.3 times at the end of 2021. Moving on to the next slide about realized prices. So Brent on average was $71 in 2021, and the WTI was $3 below that at 68. I think what matters because we're producing most of our oil production from Canada, important to focus on the WTIWCS differential. And if you look back, it's been volatile, but on average very stable at minus $13 per barrel since 2019. And if you look at the realized price in 21, very happy to report that we sold on average all Malaysian crude at a $4 premium of Brent, while our French Brent linked oil production was selling on parity with Brent under the long-term contract with Total. In Canada, we continue to sell our surf-filled oil roughly at $1 discount to the WCS and $2.3 discount for our Onion Lake thermal oil production. This being said, going into 2022, we will be blending virtually 100%, starting from a few weeks from now. So not in Q1, but certainly in Q2 2022, we'll be blending 100% of our Onion Lake thermal production. So you can expect that we will be selling our Onion Lake production on par with the WCS going forward. Looking at the realized gas prices, I mean, We all know that gas prices have been very, very strong through almost any continent, and North America was an exception. In the fourth quarter, our realized price was just shy of five Canadian dollars per MCF and 3.7 CAD per MCF for the full year 2021. And we're very constructive moving into 2022. with gas prices remaining above four Canadian dollars per MCF. Looking at the next slide on operating cash flows and EBITDA, obviously a very nice comparison indeed. When you look back and compare 2021 to 2020, you can see the very strong financial performance. As a reminder, the operating cash flow, so our revenues minus OPEX minus cash taxes, when EBITDA is revenues minus OPEX minus GNA. Roughly, our GNA are $12 million a year, and our cash taxes, we only pay cash taxes in France, is $6 million. So that explains why there's that $6 million difference. And you can see the operating cash flow at $337 million, EBITDA at $331 million. for the full year, virtually three times higher, exactly three times higher for the EBITDA, and almost three times higher when you compare 2021 to 2020 for the operating cash flow. Operating costs are well under control, and they are below our previously guided level of $15.5, so it's $15 per BOE on average for the full year. And we did beat our own guidance thanks to a very strong production performance in the fourth quarter and marginally in the second half of 2021. So the costs are under control. Now, if you look back at 2021 compared to the previous period of 2018 to 2020, those OPEX per barrel are around $2.50 above what they used to be. That was mainly driven by increased energy costs, by increased gas prices, which net-net is a positive for IPC because we're producing more gas than we're consuming. And so slightly higher OPEX actually translate into a higher net back overall for the business, given our roughly 16,000 BOE per day of gas production in Canada. Looking at the net back, I think this slide is really important, and it's worth looking at the operating cash flow and the EBITDA net back for the fourth quarter. We're talking about $25 to $26 per BOE of net back, and that happened in the context of an average brand price of $80. As we all know, today the brand price is $90 to $12. And if you compare that net back to the full year 21, it was $20 for the operating cash flow and the EBITDA. And if you look back further at 2020, on average, the net back then was between $7 and $8 per barrel. So you can see that our business is very talky to oil prices and to the upside. And it's probably, we will be talking about net back this afternoon when we talk about our projection and our forecast for 2022. But you can certainly expect that in current oil prices, our net back would be even higher than $25 per barrel. Looking at the cash flows, I mean, I love this slide because it just gives you the scale of our operating cash flow when you compare it to what we have to cover and pay for with our operating cash flow, which was CapEx. So $337 million of operating cash flow took over $46 million of capex, $11 million of GNA, and $15 million of financial costs. And that puts in perspective why we were able to reduce the debt so much. So we generated $263 million of free cash flow, $227 million was used to reduce the debt, and the rest is the funding of an increased working capital need. Again, it's a positive. This working capital need just means that by the end of 21 compared to the end of 2020, we are producing more oil and gas in a higher oil price environment. So that's a positive. It just means that when that working capital unfolds in the first quarter in 22, we will cash in more revenues than back in the first quarter of 2021. Looking at the G&A and financial items, so G&A are flat at around $12.5 million per year. It's flat compared to the prior year of 2020, and it's flat at around $0.7 per BUE. On the financial costs, you can see that the fourth quarter is way less than 25% of the full year 2021. It just shows that our debt was reducing fairly quickly, and so our interest cost burden was getting smaller every quarter, as you would expect. Looking at the graphic presentation of our financial results, you can see that we generated a cash margin of $340 million. a gross profit of 210, and the highest net profit for the business ever in 2021 at 146 million US dollars. Our balance sheet is in great shape. The total size of our balance sheet has reduced by 60 million dollars. This is the natural depreciation and depletion of our oil and gas assets and our FPSO. The two points worth noting on the balance sheet is the steep reduction in financial liabilities, obviously in our debt outstanding, as well as the increase in current assets. This is just what I was talking about. It's the result of increasing receivables, just a reflection of our higher production at the end of 2021 in a higher oil price environment compared to the end of 2020. Looking at the hedging, I will actually start by the last point. We don't have any hedge covenants anymore because we changed our capital structure. I'll come back to that on the next slide. We have no oil hedges in place for Brent-linked production in Malaysia nor France. We just have some hedges. for Canadian gas and our Canadian oil production. On the oil hedging, even though the differential has been fairly stable, it has on average, it's been volatile. And so we decided to hedge 60% of the WTI WCS differential in Canada at minus 13 to provide to avoid facing the volatility that we've seen in the market over the last three years. You can see on the graph that the level of 13, which actually was the average in each of the year 2019, 20 and 21, provides a solid basis for the business going forward. And on the back of very strong gas prices, the best realized since IPC decided to go to Canada, We've actually had roughly 25% of our production in first quarter at the Echo was 440, but all realized price because we're sitting at a slight premium to Echo. So 25% of our Canadian gas is actually hedged at 4.6 Canadian per MCF and 35% of the second and third quarter of our Canadian gas sales hedged at around four Canadian dollar per MCF at all selling points. On the capital structure, Mike touched upon it, we have issued unsecured bonds worth $300 million at a coupon of $725, and that was issued a few days ago, and so we used the bond proceeds to repay our two revolving bank facilities. which are no longer outstanding we repaired and cancelled those two so the bonds are five year they are unsecured provide us with a lot of flexibility in the way we want to run our business and on top of that we have a fully unutilized revolving credit facility of 75 million cats so we have a very strong balance sheet low leveled we are sitting on roughly 200 million us dollars of cash And that positions our business very well to be able to seize any M&A opportunities should we like what we can find these days on the market. So that's the new capital long-term structure for the business. And I hand over back to Mike. Thank you.

Okay, thank you very much, Christophe. Just to come back again and recap on the 2021 highlights, we talk a lot about excellence and operational excellence within IPC, and I think it's been a huge credit to all of our teams in Canada, in Malaysia, and in France for delivering such a an exceptional performance through 2021. They've managed to deliver production above 45,000 barrels a day, which was in excess of the original high-end guidance that we gave at the beginning of the year. Costs were below guidance at $15 per barrel, and we're able to deliver the capital program at just under $50 million. And of course, in a rising commodity price environment, That put the company in a position to really capture the benefits of the rising commodity price environment that we've seen and has put the company on track to generate record financial performance and cash flow generation. And if we look at our operating cash flow, we generated just under 340 million US dollars. 263 million US dollars of free cash flow, which represents a 26% free cash flow yield based upon our current market capitalization. As Christoph has shown in his presentation, the company is in great shape in terms of balance sheet strength, a very low net debt of $94 million. The leverage is 0.3 times net debt to EBITDA. So of course, we start 2022 on the front foot with a lot of firepower to continue to grow our business. The teams also did a phenomenal job in terms of reserve and resource replacement and additions in a year where the capital budget was relatively limited. 91% reserve replacement ratio, keeping our 2p reserves at 270 million barrels of oil equivalent and a 300 million barrel addition to our contingent resources, lifting our undeveloped contingent resources now to in excess of 1.4 billion barrels, which gives us a huge amount of fuel for future reserve replacement and additions. And we're still well on track with our sustainability strategy to reduce our net emissions intensity by 50% through the end of 2025 through a combination of operational emissions reductions and carbon offsetting. And everyone was kept safe. We didn't have any material incidents to 2021, which again is a huge credit to all of our teams on the ground. So that rounds out the highlights for the fourth quarter and the full year 2021. We've obviously got our our Capital Markets Day presentation this afternoon at 2 p.m., where we'll go into a lot more detail on the strategic update and the short and long-term plans for the companies. But we'll turn the call now back to the operator and take any questions, if there are any, on the Q4 results. Thank you.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find it's answered, before it's your turn to speak, you can dial 02 to cancel. And our first question comes from the line of Theodore Nielsen of SV1 Markets. Please go ahead. Your line is open.

Theodore Nielsen Thank you. Good morning, Michael and Christoph. A few questions from me, if I may. specifically on operation cost per barrel for Q4 and maybe 2021 as a whole. How was that impacted by higher and increasing energy prices through the year? Second question is on your share repurchase. Just wonder what will trigger that you will pay cash dividends in additional or maybe swap repurchase program with cash dividends. and and then my third question maybe that's related to like capital markets today if the better i'll give it a try and that is on slide eight you show um your ambition over using co2 emissions i just just wonder will that have any impact impacts are you do you pay any co2 taxes in canada that's all thanks okay thank you i'll take the first one yeah i know indeed the

It's no secret that energy electricity costs have increased and we're obviously using quite a bit of electricity. We have many wells, many pumps in Canada. We're also buying gas to inject some steam in the ground at Onion Lake Thermal. So that has played an important part in increasing our OPEX from 2020 to 2021, roughly by two to three Although 2020 was a very low point in the cycle for obvious reasons. But so a good part of that increase was coming from energy costs, electricity, and gas prices. And they've increased over the year, last year. Now, as I was saying, net-net, it it is positive fun enough for the business because we're producing roughly 100 million scuff a day of gas in Canada and we're producing much more than we're using so overall it's a net increase to our to our to IPC net back yeah thanks Christophe and on the I mean on the on the dividend question Theodore I mean I think for the time being we've obviously set out the

David Sloan- The capital allocation framework will get into more details on that in the CMD presentation this afternoon and what we've committed to is is distributing 40% in excess of $55 per barrel Brent and We have, of course, got the share buyback scheme in place at this point in time. So that's the initial return mechanism. But of course, if we see continued sustained high commodity prices, it does give us the flexibility as we move through 2022 to look at other return forms such as such as dividends. And then in terms of your question on CO2 taxes, we do pay carbon tax in Canada. The CO2 tax currently is 50 Canadian dollars per tonne, and that's forecast to rise to $170 per tonne by 2035. And the carbon tax is baked into all of our numbers, all of our financial forecasts. And when we talk about our NAV, And in our NAV per share calculations, all of those Canadian carbon taxes are baked into all of the valuations that we disclose. So I hope that answers your third question.

Yes, absolutely. Thank you.

Okay. Thank you very much, Theodore.

Thank you. And currently we have one further question on the phone. So just as a reminder to participants, if you do wish to ask a question, please dial 01 now. The next question comes from the line of Mark Wilson at Jefferies. Please go ahead. Your line is open.

Yes, good morning and excellent results once again, guys. Congratulations on that. Thank you for the clarity on the tax question. It is actually taxes I'd like to ask you about. Christophe confirmed on the call that you don't pay any cash taxes in Canada. So could you remind us why that is the case? And should we view or how should we view any potential change to that situation going forward, either from your current tax structure or through any legislation that could be expected in Canada? Thanks.

Yeah, no, thanks indeed. In 21, we paid taxes in France and that's it. We were in the lucky position where on the back of the acquisitions, concluded in Canada through assets and corporate acquisitions. We've inherited very significant tax losses from the predecessors' companies' investments, and as a result, we are not paying taxes in Canada. So it's not based on any change in legislations or anything other than you can see that corporate taxes in France and Canada have reduced by 2% to 3%, which is obviously positive to the business. Now, looking forward, it's a factor of where oil prices will be. We don't expect to pay too much taxes next year either on the back of the tax losses now. The sooner we pay, the better, because that means our prices would remain where they are. But very, very small cash tax take for the business in twenty twenty to expect it as well.

And Mark, just just a follow up to that and all the long term cash flow guidance that we give for the that we've put out there this morning for the five year business plan. all of the detailed canadian tax loss positions are built into to those five-year forecasts so those are net of all of those tax losses and allowances that we have across all the business units and the new presentation which includes all of those balances will be uploaded today just before capital markets day so you'll be able to see where the allowances are as well mark all right okay so would it would i be able to ask just um for a non-accountant

what is the tax loss position in Canada and within your current range, 65 to 95? Yeah, Mark.

Yeah, Mark, there'll be a full detailed presentation published this afternoon on the website that will give you all of the information.

And I'll mention it in Capital Markets Day as well, Mark, but let's put that one off for this afternoon so everyone's got the opportunity to hear it.

Great. Okay. Thank you.

Thank you. And currently there are no further questions on the phone, so I'll hand back to our speakers for any questions from the web.

Okay, well, thank you very much, everyone. I think it's been a tremendous 2021 for IPC. I think 2022 has gotten off to an even better start and we look forward to to presenting our plans for 2022 and the five-year business plan this afternoon at 2 p.m. So thank you very much for your attention. Thank you.

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