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spk04: Good day and thank you for standing by. Welcome to the International Petroleum Corporation Q3 Report 2022 audio conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link at any time during the conference. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Nicholson, CEO. Please go ahead.
spk00: Thank you very much, Operator, and a very good morning to everybody. And welcome to IPC's third quarter results and operations update presentation. My name is Mike Nicholson. I'm the CEO. And joining me on the call this morning is Christoph Nerger-Arjen, the CFO, and also Rebecca Gordon, who is our VP of Investor Relations and Corporate Planning I'll begin in the usual fashion by walking through the highlights of the operations for the third quarter, then I'll pass across to Christoph and he'll run through the financial numbers and then we'll come back and at the end of the call will of course be the opportunity for us to take your questions. So without further ado, to launch into the highlights from the third quarter of 2022 and on production. It's really been a phenomenal quarter of delivery from all of our teams in Canada, in Malaysia and France, and we've achieved a new record average quarterly production of 50,000 barrels of oil equivalent per day. And that was actually above the high in guidance that we'd given at the beginning of the year for the third quarter. And given the very solid year to date production, we now expect our full year average production to be in excess of 48,000 barrels of oil equivalent per day, which was previously our high in guidance. With a really good operational delivery, we're seeing a solid delivery also on operating costs, our Q3 OPEX. was $15.70 per BOE, slightly below our Q3 forecast on the back of that strong production. And we're retaining our full year operating cost guidance of between 16 and 17 US dollars per barrel. In terms of our capital expenditure program, no changes from the second quarter. That's maintained at 170 million US dollars for the full year. And when we look at the cash flow numbers, again, another very solid performance. Third quarter operating cash flow was just above 170 million US dollars. And when we deducted the investment and we look at our third quarter free cash flow, it amounted to 117 million US dollars, which was a 9% free cash flow yield. Our full year 2022 free cash flow guidance has now been tightened. We're now looking at a range for the rest of the year on Brent prices between 85 and 100 US dollars per barrel. And under those price scenarios, we expect full year free cash flow to be between 425 and 460 million US dollars. Obviously, with a very solid cash flow generation, the liquidity position continues to strengthen, and we ended the quarter in a net cash position of close to $90 million. And that's post a shareholder return of close to $170 million since the beginning of January. On the hedging side, no changes to the 2022 hedges were still hedged. 60% of our Canadian oil production. The WCS differential is hedged at $13 per barrel through Q4. And we have put in place an additional layer of hedges for 2023. We've hedged approximately 50% of the Canadian WCS to ARV differential at $10 per barrel. That's the transportation component of the differential and Christoph will go into that in a bit more detail in his presentation. No benchmark hedges on Brent oil prices on the WTI or on the gas for 2023, but we have also taken the opportunity, given the strong US dollar, to lock in some of our Canadian and Euro exposure, given the strength of the dollar, hedging approximately three quarters of our operating cost exposure in Canada and in our French business. And we do also intend to hedge a similar amount of the Malaysian ringgit in the coming weeks. On the ESG side, no material safety or environmental incidents to report. And in August, we did also publish alongside Our second quarter results, our third annual sustainability report. And one of the headlines in that report is that we're very much on track to achieving our 50% net emissions reduction target by 2025. Also in terms of our shareholder returns framework, we completed the substantial issuer bid in July. That was a $100 million share repurchase. And we bought back and canceled 8.3 million shares. And we're back working with our NCIB, which has well progressed. And from the beginning of that program in December of last year, we've bought back and canceled 9.3 million shares. So to turn to the next slide, a little bit more details on our production. Third quarter production, as I mentioned, was a record high. of 50,000 barrels of oil equivalent per day. It's the second consecutive quarterly record for the company and it's really been driven by high production uptimes across all of our assets and also really starting to see the benefits from the recent development activity on that $170 million investment program for this year. In Canada, strong performance across all of our assets and we've seen new production records achieved at both our Ferguson property and Onion Lake Thermal, you know, come back to those. And likewise, internationally, we've really seen a solid operational performance both in France and Malaysia. So really huge credit to all of our teams on the ground. This next slide. Just shows the quarterly production, as I mentioned, two quarters in succession, you can see that we've actually achieved record production and every quarter in 2022 we've actually produced above our top end guidance. That means, of course, with with nine months under our belt and year-to-date average production sitting at 48,400 barrels of oil equivalent per day and you can see from the production chart on a couple of slides earlier and early Q4 we're trending above 50,000 barrels a day we feel very confident that we're going to be able to achieve full year numbers in excess of our original high-end guidance of 48,000 barrels of oil equivalent per day On the cash flow side, if we look at the year-to-date operating cash flow for the first nine months, we generated just under $510 million with an average Brent price of $106 per barrel. So you can see we're well on our way to achieving the high end of our original Capital Markets Day forecast guidance. We've tightened slightly the full year operating cash flow guidance. We're looking at Brent oil prices for the remainder of 2022 of between $85 and $100 per barrel Brent. And within that range, we expect to generate somewhere between $620 and $655 million of operating cash flow. No changes to our capital expenditure program. You will recall that on our second quarter call, we increased our guidance from $130 to $170 million. We don't see any need to revise that capital expenditure program further. Still on track to spend $170 million. Malaysia is largely behind us. The majority of the Canadian investment program is behind us. And we're really just getting started with the Ville-Perdue West drilling program in France with a spud over the weekend. So when we look at the free cash flow guidance for the company, you can see for the first nine months, we've generated $365 million. So again, we're well on our way to getting close to the high end. which is pretty impressive when you consider that we've added an additional 40 million of capex to our investment plans in 2022. So when we now look at the new full year forecast range of 85 to 100 dollar Brent, we're expecting to generate between 425 million U.S. dollars, and 460 million US dollars. And that represents a free cash flow yield of between 33% and 35% of IPC's market capitalization, which I think you'll find screens extremely favorably across the rest of the industry peer group. So one of the things that we've been busy deploying that significant free cash flow is on our capital allocation framework. And in particular, on our share repurchase program, we've had two programs running through 2022. The first, which was actually started in December 2021, is our normal course issuer bid. And we restarted that program in July following the completion of our substantial issuer bid. In total, we've repurchased 9.3 million shares. And through the end of October, those shares have been canceled. And the cost of the NCIB program has been $76 million. And the average share repurchase price under that program has been 82 sec per share. We announced obviously alongside our second quarter results, that we'd successfully completed a substantial issuer bid that was concluded in July. It was done under a 100 million US dollar Dutch auction and the purchase price for that SIB was $15.50 Canadian per share and we repurchased under that program and canceled 8.3 million shares. So if we reflect on the capital allocation framework that we presented Back in February, in total, we've repurchased an aggregate of $176 million. That's been returned to remaining shareholders through the end of October. That represents 11% of the shares of IPC that were outstanding have now been cancelled, and it's significantly in excess of our shareholder returns framework. and up to $100 per barrel said we would return up to 158 million US dollars. And when we reflect on this next slide on our history of share repurchases since the company was established back in 2017, you can see that now in aggregate, we've repurchased a total of 51.4 million shares. And the average share repurchase price David Sloan- Under all of those programs has been around 56 SEC per share and at yesterday's closing price, that means that remaining shareholders have benefited from a 240 million dollar increase and through those share repurchase programs and and now with just 21% dilution. The company has materially transformed itself. You can see production has increased five-fold since we started. We've increased reserves nine times. We've improved the quality and extended the longevity of our reserve life by eight years, added 1.4 billion barrels of contingent resource, and more than quadrupled our operating cash flow with value-adding acquisitions in excess of $1.8 billion, and all that with only $20 1% dilution. So that just goes to show the value of those multiple share repurchase programs that we have concluded. And on this next slide, when you look at IPC through what we think is a fairly conservative value lens, the 2p value at the beginning of this year of just our 270 million barrels of 2p reserves using $70 long-term real Brent prices, which was our reserve auditors price deck in January and shows the net asset value of our 2p reserves is 2.4 billion US dollars. And with the share price yesterday around 104 sec per share, that represents the stock trading at about a 46% discount to just our 2p reserves with not a single dollar of value attached to our 1.4 billion barrels of contingent resources. So to turn now and just do a quick walk through each of the assets, starting in Canada with our Suffield Oil property. We've seen stable production in the third quarter of 2022. The idea here is just to really offset the historic declines through development work and optimization. And in the fourth quarter, we're getting ready to finalize an investment program where we're going to drill two production wells and two alkaline surfactant polymer injection wells on our end-to-end enhanced all recovery project that's been very successful. And on the back of those results, we plan to complete that activity in the fourth quarter. And we're also gonna drill a couple of additional conventional oil wells, as well as two disposal wells in the fourth quarter. And that was included in the capital increase plans that we announced alongside our fourth quarter results. On the subfield gas side, it's been another very solid quarter with strong realized prices in Canada. Our average realized sales price in Canada was $5.75 Canadian per MCF. We can see, if you look at the production chart on the bottom right-hand side of this slide, we started to see a small uptick in production. That's largely been driven by a combination of increased capital expenditure on well re-completions, and we initially announced that we were going to do 110 re-completions alongside our Q2 results. That's now been upsized to 127 gas well re-completions, and we're also running one of our most active swabbing campaigns, as you can see on the chart on the bottom left-hand side of this slide, targeting in excess of 12,000 swabs. So, low decline, high gas prices, really good cash flow generation from our Suffield gas property. Turning now to Onion Lake Thermal, and if you look at the production chart on the bottom of this slide, you can see that we've been reaching record production levels through the third quarter of 2022. In actual fact, on certain days, we've seen us actually exceed for the first time ever are 14,000 barrels a day nameplate capacity at Onion Lake Thermal. And that's on the back of, we've recently drilled two new infill wells and the rates that we're seeing from those infill wells are certainly exceeding the pre-drill expectations. Not contributing to production this year, but the new PAD-L, which you can see on the call out from the map on the top middle of this slide, That's on track and on schedule, and we expect to start seeing the production contribution from that new PADEL in the second half of 2023. And alongside the CAPEX increase in our Q2 presentation, we are also investing in some additional facilities optimization through the second half of this year that should give us a little bit extra production capacity at Onion Lake Thermal. So really solid performance there. Turning now to the Ferguson property, this was the granite acquisition that we acquired in early 2020. Obviously we had to pause all development activity when we were faced with the the COVID crisis. 2022 is the first year that we've really ramped up the development activity on this asset since we acquired the property. Initially started with a 13 well development program that was upsized alongside our second quarter results to 16 new wells. Those wells have now been drilled and completed and most of them put onto production. And you can see the ramp up in production. to in excess of 2,000 barrels a day through August and September. And as we speak, we've actually seen spot rates close to 3,000 barrels per day for the first time since IPC took over operatorships. Again, a phenomenal job by the team to have delivered on that Ferguson development program this year. In terms of our Black Rod project, nothing really material to report since the second quarter. We're still progressing our feed studies with respect to a phase one development of 20 to 30,000 barrels a day, looking at developing just the first 220 million barrels of the 1.3 billion barrels of contingent resources. that we have in place, still expecting to get the results of the feed studies by the end of this year, and that will inform any decisions on taking forward a phase one development in early 2023. So that's Canada. Turning now to IPC's Malaysian business. Again, you can see net production levels close to record highs. You have to go back to 2019 until you see similar levels of net production. That's been driven by high facility uptime and strong base well performance. also saw some really strong premiums on some of our Brent cargo sales in Malaysia through the third quarter. And the red bars on the bottom right-hand side of the slide just highlight the development activity and the production uplift from the Q1A15 drilling program and the three ESP upgrades that we completed in the first quarter. So solid production ads and a strong pricing environment with really good margins through the third quarter in our Malaysian business. Turning now to France, again, very steady performance on the production side. You can see on the bottom left-hand side of this chart, VGR 113, our long reach horizontal well, still continues to outperform expectations and I'm really pleased to report that we commenced just over the weekend our drilling campaign. This is a three well drilling program which aims to tap some undrained potential on the western flank of our Ville Perdue field that started in late October and we should start to see the production results from that program as we come into the first quarter of 2023. And then on the sustainability and ESG side, we helping safety wise, no material incidents year to date in terms of our climate strategy. we're well on track to achieving our net 50% emissions intensity reduction through 2025. You can see that in our 2021 sustainability report, which was published in July, we're down to 20 kilograms per BOE of net CO2 intensity. And that was published in our third annual sustainability report, which was for the first time fully compliant with the GRI standards. and it was fully aligned with the TCFD disclosure initiative. So that concludes the operations part of the presentation. I'll hand the call now across to Christophe, and he'll walk you through the financial numbers. So Christophe, over to you.
spk01: Thank you very much, Mike, and indeed a pleasure to report again a record quarter. and an all-time high in terms of average production for the quarter at 50,000 barrels of oil equivalent per day for the third quarter 2022. So with an average brand price, which was just above $100 per barrel for the quarter and operating costs per barrel under control, we've posted very, very strong EBITDA and operating cash flow again for this quarter. Not quite the best, but the second best with operating cash flows and EBITDA in excess of $170 million for this quarter. And that translates year-to-date into operating cash flows and EBITDA at around $510 million for the first nine months. As Mike mentioned, we're on track to spend around 170 million capex, which is our new capex guidance for the year. And so consequently, in the third quarter, it was a bit higher than our initial capital markets day, which was guiding only 130 million capex for the year. Now, in terms of free cash flow, it is quite remarkable that we generated in excess of $116 million for this quarter, bringing the year-to-date free cash flow at $365 million. That is very clear that all these cash flows have transformed the balance sheet of IPC. And we now stand with a cash position $400 million, and a net cash position, net essentially of the $300 million bonds of close to $90 million at the end of September. The realized oil prices were very strong again, but there's a dual reality in two different markets. Typically in Malaysia, very, very strong market, with crude oil from Bertram in high, high demand, which helped us generate realized prices in excess of $15 on top of the dated brands. So very strong dynamic there for cargos or two cargos in that third quarter. France, as usual, was selling on parity with dated brands. In Canada, A slightly different picture there with still very strong realized oil prices with WCS in excess of $70. But you can notice that the WTI-WCS differential for the first time in two and a half years has widened again. And that is really the result of two main elements. which both are going to reverse. The first element is a situation where you have, like every year, planned maintenance of refineries. The difference is that you had some unplanned maintenance as well, which shut in some refining capacity in the US. And so that has weighed on the WCS demand and so widened the diff. The second element, which is also going to reverse soon, was the release from the United States strategic petroleum reserves. The United States government announced 180 million barrels release from the US strategic reserves back in March, and we're coming to an end. It's going to coincide more or less with the midterm elections in the States where all of the 180 million barrel release will have been released. And most of that release was heavy barrels competing directly with our WCS Canadian barrels. So that widening differential at $20 in the third quarter and actually closer to 25 or even higher, as we speak, we believe is going to reverse when those two elements of maintenance, refinery maintenance in the States and release from the U.S. strategic reserves are going to come to an end very soon in the next few weeks. Otherwise, generally, you can see that both at Southfield and Onion Lake, we're sitting on parity with the WCS. The gas prices have been extremely strong. I mean, when you look year to date with a realized price of 6.22 Canadian dollars per MCF, this is almost exactly twice as much as the gas price we used for our budget and our capital markets day. So this really tells you a lot compared to where we stood almost 12 months ago, the gas prices are twice as high. And the second element, which is absolutely critical to understand here, is that we have seen some logistical issues again in Alberta with some technical challenges to inject in gas storage as much volumes as was needed. But what's very critical to understand is that the gas We're selling on the Alberta-Saskatchewan border, closer to the end market because all of the gas exported or leaving Alberta, if you wish, goes to the end user market, which is New York, Toronto, and Chicago. And so we're immune or vastly immune from any of those logistical challenges Alberta is going through. our gas realized prices were very strong and should continue to be very strong. There's a relatively mild weather as we speak, so the gas prices are just a bit below the Q3 reported numbers, but no doubt it's going to increase again in the winter season. Looking now at the operating cash flow and EBITDA, I think it's worth mentioning that 2021 was not a bad year at all. But when you look at how it compares to 2022, it's very telling and shows how exceptional, both on the operational and the financial side, the results have been and still are in 2022. With just for the third quarter, operating cash flow and EBITDA twice as much as the prior year. And year to date, as I mentioned, EBITDA and operating cash flows at around 510 million US dollars. Looking at the operating costs, very happy to report that we're well on track to deliver operating costs per barrel for the full year in between the range we've guided of between 16 and 17 US dollars per barrel of oil equivalent. We are below this quarter on the back of very strong operational performance. So despite some electricity cost increase, some inflation here and there, so we initially had to increase our guidance. Our initial budget was in the low 15 US dollar per BUE. We've re-guided at between 16 and 17 dollar, and we're on track to be there for the full year on average. Looking at the net back, it's always a very interesting way to look at our business. And we compare extremely well against our capital markets day, even at the high end of the guidance. We had operating cash flow and EBITDA net back around 36 US dollar per BOE. And here today, for the first nine months, we're actually closer to 39, between 38.5 US dollar per BOE for operating cash flow and close to 39 for EBITDA so really a strong performance. Looking at the cash flows and how it's impacted or that I really like this chart and I think the scale is very important because you see how this massive operating cash flow generated during the first nine months has been used and has been deployed so we've used the 510 million operating cash flow to spend around $120 million on development capex and exploration evaluation, around between $20 and $25 million on G&A and finance costs, and $170 million on share buyback, on capital return to shareholder. And despite returning all this cash to shareholders, we still improved our net cash or net debt position by $180 million, moving from, at the beginning of this year, an opening net debt position of $94 million moving into a net cash position at close to $90 million at the end of September. On the finance cost, I mean, nothing special to report. Our capital structure has not changed much. So it's really what we're paying our coupon under the bonds. We've come back to that. And worth mentioning that our G&A remain under control with our cash G&A at around $0.7 per BUE. Looking at the financial results, you see that we generated revenues of close to $880 million. Actually, before royalties, the revenues are $960 million. So with $356 million of production costs, we generated a cash margin of $523 million, gross profit of $421 million, and the net profit for the first nine months of this year end at $276.5 million for the first nine months. On the balance sheet, I just talked about the cash position we're in, $400.5 million of cash at the end of September. The other point which is probably worth mentioning is the higher compared to the end of last year, at the end of September, we had higher current assets, which is just the reflection of the higher cost, the higher oil and gas prices environment we're in, meaning that we're going to cash in more revenues. So it's a positive to see those increased current assets. And on the flip side, We have also higher current liabilities, which means that we're just being more active in terms of spending on both the OPEX and all of the CAPEX program Mike touched upon, which increases those current liabilities. In terms of capital structures, I just mentioned no change. I think it's fair to say that it was probably a very good move to go and tap the bond market when we did almost nine months ago in anticipation of all the US base rates hike. As we see today, the base rates have increased by probably two to 3% already and are still expected to marginally be increased again. And so that provides us with a very, very strong balance sheet one. to a lot of cash, and that's down to us now to optimize the way it's going to be allocated between our three strategies, our three pillars, which is the return to shareholder, remaining opportunistic on the M&A front, but also funding organic growth potentially in the future with BlackRod. In terms of hedges, I mean, If you take a step back and look at where we stand on our business, we have no immediate debt maturities. Our bonds are maturing in February 2027. We have manageable levels of capex. And if you look at the forward curve on the oil, both on the Brent or WTI, we have a very steep backwardation where we're losing around 10 US dollar over the next 12 months. We have no pressure to hedge from a business standpoint. The forward curve with a steep backwardation is not really helping. So we've decided so far to remain unhedged and leave that exposure to our shareholders. We have no benchmark hedges in terms of brand WTL, WCF. We have no longer gas hedges either, which means that we will continue to benefit from the strong gas prices which we see on the market. Now, what we've done is we've recently decided to hedge around 50% of the so-called WCS ARV. So the ARV is the other name for the WCS price in Houston. What we've hedged is the transportation portion of the WTI-WCS differential. We wanted to ensure that this transportation cost in 2023, we're hedged against. Now there's still a quality and demand differential, which is the WTI-ARV differential, which has widened. recently that's as you can expect and as you would expect we are following that very closely and should that differential tighten again which we expect is going to happen as a combination of the refineries going out of the maintenance cycle and the US strategic release coming to an end when that differential is going to tighten we will monitor it very closely to look at hedging it for next year. As Mike mentioned as well, and that's the results and other results of the US base rates hike the US dollar has appreciated quite a bit against all of our operating currencies, be it Canadian dollar, Euro, or Malaysian ringgit. So we've already hedged more than 50% of our Euro denominated spend for 2023. Same in Canada, and we're actively looking at doing the same and locking in some quote-unquote cheap ringgit in Malaysia for Malaysian business. So that's the end of the financial section. And Mike will nicely conclude.
spk00: Yeah, thank you. Thank you very much, Christophe. Amazing set of numbers. So just to come back and recap on the highlights from a very strong third quarter production, During the third quarter was above high-end guidance at 50,000 barrels of oil equivalent per day, a record high for the company. And we now expect full-year production to be in excess of our original high-end guidance of 48,000 barrels of oil equivalent per day. Retaining no change to the OPEX guidance, retained at 16 to 17 US dollars per barrel, no change to the CAPEX program, so your CAPEX expected at 170 million US dollars. And when we look at the free cash flow generation, a very strong free cash flow generation in the third quarter, $117 million, or a 9% free cash flow yield and full year free cash flow of between 425 and 460 million US dollars. As Christoph showed, the balance sheet's in great shape, sitting at the end of September with close to $90 million of cash, of net cash. And in terms of the sustainability, strategy well on track to our carbon reduction targets and no material incidents reported through 2022. Finally, The share repurchase program under our capital allocation framework, we've returned more than our commitment with $100 million of SIB completed and the NCIB ongoing. And we expect so far 11% of our shares outstanding have been repurchased this year. So really the final slide, which shows I think IPC from the results that you can see with 425 to $460 million of free cash flow forecast for just 2022 alone, well on track to drifting towards the high end of that five year free cash flow guidance range of $1.8 billion. or between 75 and 95, between $1.2 to $1.8 billion, which gives you a range of between 18% and 28% per annum average annual free cash flow yield. And of course, that continues to give the company an amazing platform to continue to target our three pillars of value creation for shareholders, which is continued stakeholder returns, and continued opportunistic approach with respect to M&A and also starting to unlock the significant 1.4 billion barrels of contingent resources that we have on our books. So that concludes the presentation for this morning. We can now take the opportunity to open up and take any questions that you have.
spk04: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. We will now take the first question.
spk05: And it comes from the line of Theodore Nielsen from SB1M.
spk07: Good morning, Mike, Christoph and Rebecca, and congrats, we'll get another strong quarter. I have three questions. First on Black Rod, of course, that's a very, very important project for you and also the growth going forward. Could you provide an update on the expected cap external, so maybe in light of that, discuss what you see on general industry cost inflation. Second question is, of course, I know we discussed this before, but Your balance sheet is, of course, very strong, $400 million in gross cash. What should we expect you to spend the debt on, or should we expect you to run the company with the net cash? My third and final question is on the production going into 2023. It looks like now production will be above 50,000 barrels per day by year, and then should we expect...
spk00: full year 23 production crew to be able 50 000 barrels per day thanks yeah thanks thanks very much teodor so to to take your first question on on black rod and and and the capex is it is really a little bit too early i think as i mentioned in in our presentation and that the feed studies are expected to be complete by the end of by the end of this year and of course that's going to That's going to drive the final capex estimate and what the team in Canada are looking at is different options with respect to how quickly we want to move the project and how many wells we want to drill pre-first oil. So there'll be some choices as well about scope as to whether we want to ramp up production earlier than was in the original guidance from about 12 months ago. So we really, I'm afraid we'll have to wait for the conclusion of those feed studies and we'll be in a position in early 2023 to give the firm guidance on phase one CapEx for Blackrod. In terms of your cost inflation question, if we cast our mind back to the second quarter results when we increased our our CapEx guidance from 130 million to 170 million. We had put in that that increased guidance, a provision of 10 million for inflationary uplift, which is about 6% on the original CapEx budget that we started off with at the beginning of this year. So that really gives you, again, we don't see any need to change that right now. And so that gives you a kind of general estimate of certainly what we've seen across our business. On the cash position, you know, you mentioned cash of $400 million. Obviously, you know, the company is in a very solid balance shape. And I think really the simple answer is to how we plan to deploy the cash that we've got is on those three strategic pillars. I think it makes sense to continue shareholder returns. We've created a lot of value from M&A and one of the reasons that we went to the debt capital markets, as Christophe mentioned, is we thought it was timely to get ahead of interest rate rises and But more so, it gives us significant collateral that when we're talking to the majors and we're looking at acquisitions in the $500 billion category, that we can certainly show that we've got the financial capability to do those types of acquisitions. And that does tend to differentiate ourselves from some of the weaker companies in our peer group. And then you mentioned production's obviously currently in excess of 50,000 barrels a day. It's too early to guide on 2023 production. We still need to look at what the base investment program will be. I think that's perhaps a little bit on the high side. Obviously, everything's running at technical potential and all the projects are just coming on stream. And we typically always add some allowance for downtime. and planned turnarounds. So I think it's too early, but probably that's a little bit on the high side for next year would be my first blush reaction.
spk08: Okay, thank you. That's good.
spk05: Thank you. Thanks, Peter. Thank you. We will now take the next question.
spk04: And it comes from the line of Lars Dolman from Aramea. Please go ahead. Your line is open.
spk02: Hi, team. Congratulations on the extremely strong performance operationally and also extend my best to your colleagues who are not on the phone today. I have actually two questions. One is on the operational side is we're now about 50,000 or around 50,000 BOE a day. took the capex a 40 million increase, if I remember correctly, from the summer to speed up the capex program this year a bit and pull it forward from next year. So on the capex side next year and notwithstanding that, Rock, is it fair to say that next year the capex wouldn't be higher than this year on the existing asset base and in connection with that also? On the hedge side, probably a question for Christoph, is what do you actually try to achieve exactly with the hedge with the Houston one on the WCS? And last but not least is we see the normal course issue a bit. It's still ongoing and you only can buy Canadian shares and it's very slow because obviously turnover is very low in Canada. When should we expect the next normal course issuer bet then to come out? And if we look at the numbers now, because you can only do 10% of the free float, as the free float gets smaller, how do you think about the capital allocation generally? Because even if you do another 10% normal course issuer bid, we are running into the issue that that is not the same amount of dollars anymore that we had, obviously. And do you think about paying out cash dividends? Thank you.
spk00: Yeah, thanks, Lars. Let me take the first and the third questions, and then Christoph can take your differential. hedging question. So yeah, in terms, you're obviously right, we did increase the CAPEX budget by 40 million to $170 million and accelerated some projects from last year. And in the absence of a black rod investment decision, I think if you go back to our Capital Markets Day five-year business plan guidance, Then, yeah, you do see a drop off in capex for 2023. Now, we obviously have to go through all the project ranking exercise and decide on the investment program for next year. But if you refer back to our existing public disclosures, then the answer would be the base business should be below the 170 for this year. On the share buybacks and the shareholder returns and not being able to perhaps repurchase as much this year as next year as this year under a new NCB, that's right. If we've retired 11% of the shares, we can only repurchase 7% of the shares outstanding. So that does reduce the the amount that we can repurchase under the NCIB. But the SIB, which was successfully concluded this year with 100 million US dollars is a very flexible mechanism. So that's always an option for us to use that to top up any NCIB share repurchase returns. We've not decided to go forward with dividends at this stage. I think when the slider showed in the presentation on our discount to the 2P NAV, and that doesn't include anything for BlackRod. We still think that there is far more value that can be created through share repurchases as opposed to dividends at this point in the company's life.
spk01: And Christophe, on the hedge. So what we've done, if you look at the WTI WCS differential, as I was trying to explain, there are two components. One is the transportation costs from Hardesty to Houston. And the other one is what the market dynamics are on the U.S. Gulf Coast with regards to refining capacity and refining need. So locally, the market is less in demand of WCS because of the refineries maintenance and the U.S. strategic release. So we've not hedged that portion. We've only hedged the transportation portion of the WCI, WCS. Because we see very, very little downside. It's trading at $10 right now, and it's flat at $10 next year. So we just wanted to protect ourselves against any issues around the pipeline egress system. Officially, the Trans Mountain pipeline is due to come on stream next summer. We have very good reasons to believe it will be delayed by probably another six months. So we wanted to hedge ourselves from a pure transportation perspective. And as I mentioned, we believe that when the maintenance season is over and when the U.S. strategic reserves stop to happen by the end of this month, as guided by the U.S. administration, we believe that the DIF will tighten again at least for a portion of next year. So we might keep hedging that.
spk02: Understood. And are you looking also throughout the winter, opportunistically, as you did last time, to hedge on the gas side? If you see for the summer something, very strong prices next summer, would you look at that?
spk01: Yeah, we remain very open to that.
spk02: Okay. Thanks, guys, again. Very good job. Thanks, Lars.
spk04: Thank you. We will now take the next question. And it comes from Ruben de Waal from Jefferies. Please go ahead. Your line is open.
spk03: Good morning, everyone, and great to see another strong quarter, so well done, guys. I just had a quick one on BlackRod. I was just wondering, what are the parameters that go into estimating some of the numbers that you've got on slide 15? So, for example, the 540 million capex number and the production for phase one. I was wondering, do you have like a number of wells in mind or a number of where where pales that kind of inputs for these numbers? Thank you.
spk00: Yeah, yeah, yeah, thanks. Yeah, thanks, Ruben. Yeah, so that was the the basis of assumption for that phase one capex was to develop the first 217 million barrels of of 2C resources. David Sloan- And it was looking at pre drilling one full pad and of wells, such that we would start to achieve first oil with a ramp up through 2026 initially ramping to 20,000 bars a day and and then. future drilling that would see us get to 30,000 barrels a day a couple of years later in 2028. So that's what we call our first decision gate forecast. And as the development concept is refined and we look at optionality, of course, there are some options to look at accelerating some of that drilling. prior to first oil, it would give you more capex to first production, but likewise, it would give you a ramp to 30,000 barrels a day more quickly. So those are the bookends of the scope of the project that we're trying to frame before making that final decision.
spk03: Okay. Thank you very much. Very clear.
spk04: Thank you. We will now take the next question. One moment, please. And it comes from the line of David Johansen from . Please go ahead. Your line is open.
spk08: Hi. Very happy shareholder here. I have two questions. Yeah. Thanks a lot. I'm very impressed. Monster results, as always. I have two questions, and they are a bit more strategic in nature. First, I want to say that I'm very happy with the discipline you've showed regarding M&A. It's better doing no deal than doing a bad deal. However, since it has been so hard to find good deals for acquisitions, have you considered buying shares in other attractively priced listed oil and gas companies? I'm sure you have a good understanding of peers that you respect from capital allocation point of view that could be attractively priced in the stock market second question might come a bit out of left field but i would love to hear your thoughts on this i was just wondering whether you had looked into the possibility of issuing preferred stock to further strengthen your already strong balance sheets I was just thinking that your debt servicing capacity is extremely high and the pricing of preferred perpetual equity capital in Stockholm is around 7% to 10%, which compares very well to your earnings yield under most scenarios and also with the attainable in the debt market for non-perpetual money. Thank you so much.
spk00: Okay, thank you, David. I'll take the first question and then Christoph. will answer the preferred stock question. So, I mean, the short answer, would we buy shares in other companies? The answer is yes. If we can find the right opportunity, we have done. We acquired Black Pearl Resources and we acquired Granite All Corporation. And those were company acquisitions. So I think the short answer is yes. Of course, the The challenge is, can we find companies that have a similar value proposition to IPC in terms of where they trade that relative to their discount to NAV or where they trade relative to their free cash flow yield? And there are very few companies out there that trade on the same metrics that we do. So clearly, it's more tricky to do that. I don't see us taking minority shares in companies. I think investors can can do that themselves. I think where we can add value through acquisitions is if we have control rather than having a minority interest in a company. So that would be the qualifying statement to that point. And then, Christophe, on the prep shares.
spk01: On the prep shares, I mean, we've not looked into those precisely, David. The reality is that, as you say, we have a very strong balance sheet, which is still relatively unlevered. So we could still raise that against our existing assets. And given that when it comes to M&A, we look at producing assets, arguably we would be able to also raise debt on any M&A target. So that's still a lot of money to play with before issuing any form of stock, I would say. But yeah, certainly I don't think raising and finding money for the right projects should be an issue.
spk08: Thank you so much. Those were my questions. Good luck. Thank you.
spk04: Thank you. There are no further questions at this time on the phone lines. If we continue with the web questions.
spk06: Yes, we've got a couple of questions that have already been answered on the web, but just a couple here. One from Tom Eric from Peresso. Is cost inflation driving CapEx higher?
spk00: Yeah, I think I already took that one in one of the answers. As I said, our experience this year is David Sloan- And I clearly we're in a higher inflationary environment, and I think I think the teams have done done a great job in terms of. David Sloan- The opex we've been able to keep our opex guidance unchanged on capex we did put an inflationary provision of 10 million. alongside our second quarter results. So that's about 6% of our total budget for 2022. So that's the quantum that we experienced on our 22 capital plans.
spk06: Okay, great. Thanks, Mike. And we'll just bring in one more question from Nick Christoph. We haven't achieved gas price, but strong in the quarter that previously sold at parity with M-Press. Could you explain a little bit about the discount to Emprex in 2023?
spk01: Yeah, thanks, Nick. Very good question. The market was a bit choppy, as you may have seen on our graph. The ECHO was low, Emprex was high. We had a few contracts. We had some hedges in place where we locked in ECHO. So that's why basically we didn't achieve quite the empress price because of the lingering gas hedges we had in place for Q3. But as you've noticed, there are no longer outstanding gas hedges for Q4 and forward. So we remain opportunistic for the future, but there are nothing outstanding as we speak. So, yeah, lingering gas hedges was the reason for Q3.
spk06: Yeah, thank you very much everyone for tuning in for a very solid third quarter performance and we look forward to
spk00: to presenting next in early February in our year-end results in our 2023 Capital Markets Day presentation. So we'll talk again then. Thank you, everybody. Thank you.
spk04: Thanks, everyone. That does conclude our conference for today. Thank you for participating. You may all disconnect.
spk05: To raise your hand during Q&A, you can dial star 1 1.
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