International Petroleum Corporation

Okay, so a very good morning to everybody and welcome to IPC's year-end results and financial update presentation. My name is Mike Nicholson. I'm the CEO. Also joining me this morning is Christoph Nergararian, the CFO, and Rebecca Gordon, who's our VP of Investor Relations and Corporate Planning. I'll begin with the highlights from the full year 2023. It will be a much shorter presentation for me this morning than usual. I'll just be focused really on the 2023 results in terms of the operations update and all of our forward-looking projects. business plan that we announced this morning. That will all be covered in much more detail in our Capital Markets Day presentation, which is due to start this afternoon at two o'clock. So to get started with the highlights from 2023, it was really, truly an exceptional year for IPC, a record performance across all of the business. And if we start by looking at the investment year, We originally guided full-year capital investment of $170 million. We ended up spending slightly less than that, $163 million, and we did have some carryover. We expect the balance of that capital expenditure to be concluded as part of our 2023 work programme. in terms of production it was a record high for ipc and in the third quarter you'll recall that we touched 50 000 barrels of oil equivalent per day our original guidance was on the high side was 48 000 so to come in at 48 600 barrels of oil equivalent per day in excess of that high-end guidance Good delivery on the cost front, our operating costs were $16.60 per BOE. And that combination of record production and very, very strong commodity prices meant that the company was able to generate its highest ever cash flow. Operating cash flow for the full year was $623 million. And after the investment program, the free cash flow that the company generated, $430 million. And that represents a just shy of 30% free cash flow yield. Extremely attractive compared with the rest of our peer group. Turning to the balance sheet with such a strong operational and financial performance, the balance sheet has really transformed in the last 12 months. We started the year with a net debt position just below $100 million. And notwithstanding the significant share buyback program and investment program that we delivered through 2023, we're still able to finish the year in a net cash position with $175 million. taking into account the bond cash that we raised, the gross cash resources that the company has, just under half a billion dollars. So the company has never been in as good financial shape as we are today. We'll talk a lot more on this this afternoon. An absolutely huge increase in our 2P reserves, 80% increase in our 2P reserves. It means that we've replaced 13 times or 1,300% reserves replacement, largely driven by Blackrod and supplemented by the acquisition of Core4, which we announced yesterday. And we'll be given a lot more details on that in our Capital Markets Day presentation. And finally, on the sustainability side, been a very good performance. We're still on track with our carbon net emissions intensity reduction to get down by 50% through 2025. I was very pleased that we didn't have any material incidents to report through 2022. So just to go into a little bit more detail on the production side and put the record production into context, if you go back to 2017 when IPC started, we were producing then 10,000 barrels of oil equivalent per day. And then through a series of acquisitions, you can see that we've built production to 46,000 BOE per day in 2019. We took the decision to scale back some production in 2020 as a result of the pandemic and to shut in some higher marginal cost barrels. But I think what's been impressive is the fast recovery from COVID. We pushed back up to pre-COVID heights, 46,000 barrels a day in 2021. And in 2022, we've been able to reach new heights. So above the 48,000 barrels a day high in guidance, delivering full year production numbers just below 49,000 barrels of oil equivalent per day. And that's a huge credit to all of the IPC teams in Canada, in France, and in Malaysia for their continued excellence in operational delivery. Turning now to the cost side, again, very good discipline on both the OPEX and capital expenditure side. Fourth quarter operating cost was just below $17 per barrel. That was in line with expectation and guidance our full year. The guidance that we gave to the market was we expected our operating costs to come in the range of between $16 to $17 per BOE and you can see we're pretty much spot on the midpoint at $16.60 per BOE for the full year. And as I mentioned on the highlights, it was a very active investment year through 2022. We're investing in all of our assets in France and in Malaysia and in Canada. Our latest guidance on our budget was we expected to invest around $170 million. We have had some carryover of that investment program into this year, into 2023. So 7 million slips into this year's budget. So the full year capital expenditure was 163 million US dollars. And if we go back and cast our mind back to 12 months ago when we were standing here and we were looking at the guidance for the operating cash flow that our assets would generate, we had quite a wide bandwidth in terms of oil prices. On the low side, we were looking at $55 per barrel Brent. On the high side, we were looking at up to $100 per barrel Brent. Obviously, oil prices were pretty close to $100 per barrel for the full year. The cash flow guidance that we gave to the market 12 months ago, that price was 600 to 635 million US dollars. When you look at the $623 million of operating cash flow that the company delivered, that was net of a windfall tax of around $11 million. So really, we would have been right at the top end of that guidance with the exception of the the windfall tax in France, which wasn't baked into our numbers a year ago. And when we look at the post the capital investment program, it was by far the largest free cash flow generation that IPC has ever delivered. The top end guidance that we gave again 12 months ago was between 460 to 480 million US dollars. What we did during the year is obviously we increased our capital expenditure budget by 33 million dollars and we paid the windfall tax of 11 million dollars. So again, really delivering cash flow right at the top end of that guidance and a 29% free cash flow yield based upon our market cap at the end of January and extremely favorable metric when you compare that with our peers in the industry. And one of the things that we've been able to do, which again I think has differentiated IPC, is return a huge amount of that cash flow generation back to our shareholders last year. We came out at the Capital Markets Day with our capital allocation framework that said provided the balance sheet is in good shape and our leverage metrics are below one times, then we're going to distribute 40% of all incremental free cash flow above $55 per barrel. And based upon the estimates that you can see at $100, we said that should be around $146 million returned to shareholders. We've gone far in excess of that commitment. The first was through our normal course issuer bid. which we started just over 12 months ago. We've purchased 10.3 million shares under that programme from December 2021 through December 2022. We followed that up with a summer in July with the first time to do what's called a substantial issuer bid. Essentially, it was a Dutch auction where we returned $100 million back to shareholders and we bought back 8.3 million shares. So really, 2020 was a year for IPC of delivery on that capital allocation framework. We bought back in total and canceled 12% of the company's shares. And that amounted to $187 million of share buybacks, so well in excess of the $146 million that we originally committed to return. And finally, my last slide on the sustainability side, and we're well into our ESG journey now, very pleased again that we had another good year on the health and safety side with no material incidents to report. In terms of our climate strategy, you can see from the chart on this slide that we're well on our way to achieving that target, which was a net reduction on our emissions intensity by 50% through 2025. you can see in our 2021 report we're already down to 28 kilograms per boe and i feel very confident that we're going to be able not only to achieve that but as you'll hear this afternoon to go beyond that commitment and that we have currently And we published alongside our second quarter results, our third annual sustainability report, fully GRI compliant, aligned with the TCFD climate related initiatives. So continuing to improve on our non-financial disclosures. So all in all, a very good year. I'll pass across to Christoph now to walk you through some pretty exciting nice financial numbers. So, Christophe, over to you.

Thank you very much, Mike. And yeah, indeed, it's very pleasing to be here this morning in front of you to discuss our year-end 2022 financial highlights because This year has been for sure exceptional for IPC. In terms of production, another very strong quarter. This fourth quarter, 2022, was a production in excess of 49,000 barrels of oil equivalent per day, capping a very strong performance for the whole year, where we posted an average production of 48.6 thousand BOE per day. just above the high end of the range, which is a true demonstration of what our teams on the ground across all countries have been able to deliver. The average dated Brent was a bit lower, just below $90 for the quarter, but still averaged in excess of $100 per barrel for the full year. And so with our operating costs within the range we guided for the full year at 16.6 USD per barrel of oil equivalent, we posted very, very strong operating cash flow again this quarter at close to 115 million USD and more than 620 million for the full year. $125 million of EBITDA just for this fourth quarter and $640 million for the full year. For the CAPEX, we spent $44 million this quarter and $163 million for the full year, so just shy of our guided $170 million. But that is mostly due to some carryover of some work into Q1 2023. So I think if you only needed to remember two numbers, that would be the free cash flow for the overall year at $430 million for 2022. and our cash position which at year-end was 487 gross and 175 million dollars of net cash at year-end. The oil prices were lower in this fourth quarter, and the WTI-WCS differential widened to $26 per barrel. But fortunately, we had over 60% of Canadian oil production hedged, and so we posted $20 million hedging gain in the fourth quarter because we hedged that differential at $13 per barrel for the fourth quarter. So good hedging management and I'll talk about our hedging position later on for 2023. So if you look at the full year As I said, Brent was in excess of $100. We sold on average our Malaysian barrels at $11 above Brent, the French barrels slightly below Brent, and the Suffield and Onion Lakes or Canadian oil barrels we sold in line with the WCS. In terms of gas price, that's been very, very volatile, as we all recognized. It's been sky high during the third and some extent the fourth quarter, where we realized almost six Canadian dollars per MCF during the fourth quarter. And on average for the year, we realized in excess of six Canadian dollars per MCF. So almost twice as much as what we had in our original budget due to the war in Ukraine, obviously the supply disruption from Russian gas to Europe. Europe needing to fill up its storage and pushing gas prices up across the globe, including in North America and in Canada. The situation today is that the storage levels are pretty high in Europe. The winter is mild, and so there's less tension on the market. In Canada as well, the gas prices have come off a bit and are closer to three. canadian dollar per mcf but i wouldn't be surprised if if that spiked again in the future the this slide speaks for itself i mean very very significant operating cash flow and ebitda in 2022 in excess of 620 and 600 almost 640 million respectively almost twice as much as what we posted in in the prior year In terms of operating costs, on average, we delivered right within the range of what we guided for the full year, between $16 and $17 per BOE. And you can see that the evolution quarter to quarter reflects The lower production in the first quarter when we had to shut in production while we were drilling one of our wells offshore Malaysia. And then with production increasing in Q2, Q3, lower operating costs per barrel in Q4. gas prices being quite high, that increased some of our input costs for the Onion Lake thermal operations, and we had a bit more activity as well, resulting in a slightly higher OPEX per barrel in the fourth quarter, but still within the range, as I said, for the full year. In terms of net back, I think it's very important. So between $25 and $28 per BUE net back for the operating cash flow and the EBITDA respectively, and very strongly the best ever for the full year for business at $35 and $36 per BOE net back for operating cash flow and EBITDA for the full year. That's as usual one of my favorite slides and that's the consequence really of our capital allocation strategy. You can see how we've been using and deploying our capital. We generated 620 million of operating cash flow. And we spent 160 million on CAPEX and really drove production up from 46,000 in 2021 to in excess of 48,000 this year. very limited amounts on on GNA and cash financial item less than 30 million and then even more on share buyback in excess of 180 million more than what we spent on on capex in 2022 and despite or thanks to this capital allocation from capex to share buyback we also ended the year in a very very strong balance sheet position with by moving the balance sheet from a position of being in a net debt position of 94 at the beginning of 22 and closing with a net cash position of 175 million well i can mention it here if you look at our financial items you can see that in the fourth quarter our net interest expense is almost zero which is a bit counterintuitive when you think that we're paying seven and a quarter coupon on 300 million dollars of bonds but given the market dynamics we we're sitting on close to 500 million us dollars of cash and we're depositing that cash uh with our banks and uh we're yielding four and a half percent on those deposits so receiving 4.5% on our cash deposits for $480 million is the exact equivalent of spending 7.25% coupon on our $300 million bonds. So, effectively, the cost of carry for our bonds as we speak is zero. The G&A remain under control and in line with the previous quarters at below $1 per barrel, actually $0.8 per BOE. So, when you summarize the year, with in excess of 1.1 billion dollars of revenues and production cost in line with the guidance at 16.6 dollars per BOE. We generated a cash margin in excess of 650 million gross margin of in excess of 500 million and the highest net profit ever for the company just shy of 340 million dollars. The balance sheet is in a very strong position as you can see here, showing a cash of 487 million. You can see our bonds on the liability side at 300 million dollars and the equity increasing as a result of our net profit. The capital structure of the company has not changed over the last quarter. The bulk of it is the $300 million bonds at 7.25% coupon with interest payable twice a year and maturing in February 2027. We have this small French loan, which we are amortizing every quarter. And in Canada, we have a liquidity, a revolving facility, which we are not using at all for 75 million CAD. And as I just mentioned, our current cash deposit receives 4.5% interest, resulting in a zero cost of carry for current bonds, putting the balance sheet in a very strong position. allowing us, as Mike mentioned, for instance, to be very quick in seizing market opportunities, M&A opportunities like the core for acquisition we released yesterday and we'll give you more information this afternoon. So to conclude this presentation on the hedging side, we mentioned that we've hedged roughly 60% or 12,000 barrels a day of our Canadian oil production. We've hedged the transportation effectively costs, so from hardest in Canada, to the US Gulf Coast, that WCS to ARV, we've had that $10. It's not speculative, it's really just to protect us against any issues or problems on pipeline transportation. And for instance, in December, there was an issue on one of the pipeline transporting Canadian oil to the US. And the result was a widening of that transportation costs in January. And so, because we were protected with that hedges, that paid out quite significantly in the first months of this year. On the gas side, we were prudent in hedging some of our gas production, so in excess of 30 million SCF a day of gas for Q1, in excess of six Canadian dollars per MCF, for the winter part, so for Q1, and for the so-called summer strip from April to October this year. We've hedged as well in excess of 33 million SCUF a day at just above four Canadian dollars per MCF. So that compares very, very well to the current forward curve. Obviously, those hedges position are well in the money as we speak. We have no specific covenants from our bank facilities or any of our financial arrangements, so we have no hedges in place for WTI or WCS or Brent, other than what I just mentioned for that transportation part. We did put when the US dollar was extremely strong towards the end of last year, we bought forward some euro to cover some of our OPEX in France and some CAD to cover some of our OPEX and CAPEX in Canada. Those trades are well within the money as well because the dollar or those currencies re-appreciated a bit against the dollar. So that was quite timely as well in terms of hedges. So you can find all of those details in our financials which have been released and are available on our website. Thank you very much.

okay thank you very much christoph um amazing set of numbers i think you can all agree so really just the final slide to conclude again and and to remind everyone of the highlights for for 2022 a record exceptional year for for ipc and and a huge congratulations to all of our teams for delivering such an amazing performance um investment 163 million dollars that targeted growth in all of our producing assets in France, in Malaysia, and in Canada. Record levels of production above the high end of guidance at 48,600 barrels of oil equivalent per day. Inline operating costs right in the middle of guidance at $16.60 per BOE. And that combination of record production and the strong commodity price environment that Christophe talked about delivered $623 million of operating cash flow, $430 million of free cash flow or close to 30% of the entire market value of the company in just one year. Obviously that financial performance meant that we have the strongest ever balance sheet and Christoph showed you that we're sitting on a net cash of $170 million. But more importantly, with the financial arrangements that we have in place, we've got close to half a billion dollar war chest to continue to fund the growth in our business and create value for our shareholders. The reserve increase is quite unheard of in our industry, 80% increase in one year, 1,300% reserve replacement, up to 487 million barrels of oil equivalent. We'll be talking a lot more about that in our Capital Markets Day presentation this afternoon. and again a very good performance on the ESG side where we continue to meet our climate and net emissions intensity reduction objectives. So that rounds out a phenomenal year and as I said at the beginning of the presentation we can of course take questions but we'll ask those please just to relate to to last year's results we've got a lot of material to get through at the capital markets day and we'll be giving a full business update and operations update and long-term business plan update at two o'clock this afternoon at our capital markets day so i hope you can tune in to to that presentation but for now we'll pass across and see if there are any questions you can ask questions via the the website or we can also take questions from the uh from the telephone line Yeah.

Thank you. To ask a question over the telephone, please signal by pressing star one on your telephone keypad. That is star one for questions over the telephone. And our first one comes from Theodore Nielsen of SB1 Markets. Please go ahead.

Good morning, Mike, and good morning, Christoph. Congrats on yet another strong quarter. I tried to limit my questions to the fourth quarter results. Just for the first question, could you just remind us of the OPEX impact of gas prices? I would actually expect OPEX to decline slightly in fourth quarter compared to third quarter, given the gas prices. So that's the first one. The second question is on the cash balance. You now reported a very strong cash balance, almost 30% of the balance is now cash. Should we expect it to be that way going forward? And then just the second question, cash balance. Christophe, you mentioned 4.5% interest rate. Where can I get that risk-free? I'm curious. Thanks, that's all.

Thank you. Yeah, so in the fourth quarter, our realized gas price is slightly lower than in the third quarter, but actually because we use ECHO. ECHO was higher. We're selling at a premium to ECHO, and that premium goes up and down. But if you look, ECHO was actually higher in the fourth quarter. So that drove OPEX per barrel slightly higher in the fourth quarter. So that's the reason. In terms of cash, I don't think we have a policy to keep half a billion dollars of cash on the balance sheet. The flip side is we're trying to remain very disciplined in the way we deploy capital between organic, inorganic growth or share buyback. But a part of this answer, I guess, will be answered this afternoon when we look at our capital allocation going forward and how the capex spent and Black Rod will impact our cash position in 2023. at different oil prices. And as for the deposit, frankly, we were very pleasantly surprised. I hope not all our Canadian banks and international banks are listening, but effectively with no risk, with like one-week deposit, risk-free rates, both in Canadian and US dollar, actually, just in excess of 4.5%. everything being quote we would expect that to actually even go further high higher if if you see further rates hike from from central banks okay thank you thank you once again that is star one for questions over the telephone

We currently have no further telephone questions.

Okay, we just have one question via the web. So, Christoph, perhaps another one for you here. What was the reason for the widening M-PRESS echo differential in August and October? That's from Ruben from Jefferies.

Yeah, thanks, Reb. So the way it works, as you know, Suffield is in the southeast part of Alberta, and we're selling our gas literally on that Alberta-Saskatchewan border. And what that means is at times where you have storage issues or logistic challenges within the province of Alberta, having ourselves access to that selling point on the border which is downstream to the logistical challenges in the province and closer to the end market which are Toronto, New York, Chicago gives us a premium which can be significant where you have typically the last summer you had some injection issues where The system as a whole had faced compression challenges, couldn't inject as much gas as wanted, weighing down on the eco price, whereas the Empress was trading significantly higher.

And maybe just a follow-up, Christa. We obviously benefit from, because we purchase the ecogas for our Onion Lake Thermal property, but essentially we're selling our suffuel gas at the empress price, so we get the benefit of that arbitrage. Correct.

We do have one more question. It's on the moving parts of the increase in the Black Rod CapEx. We do have a specific slide that we will present you this afternoon on how that's changed and what parts are contingency and cost inflation versus the plateau production coming forward. So we will present that this afternoon, Mark. Hang on. And we'll speak to that at 2 o'clock is our Capital Markets Day. So that's all the web questions, yeah?

Okay, very good. Thank you very much for everyone for tuning in and it has been an incredible year for the company. I hope you can all tune in to the Capital Markets Day presentation at two o'clock this afternoon. You're going to see an incredible future also for IPC. So thank you very much for everybody for tuning in.

Thank you.

Thanks, everyone.