International Petroleum Corporation

A very good morning to everybody and welcome to IPC's first quarter results and operations update presentation. My name is Mike Nicholson. I'm the CEO of IPC. And joining me this morning presenting the financial numbers is Christoph Nergerarian. And we also have Rebecca Gordon, who is our vice president of corporate planning and investor relations. I'll start in the usual form by running through the highlights and the operations update, and then I'll pass across to Christoph, who will walk you through the detailed financial numbers. And then at the end of both our presentations, of course, there will be the opportunity to ask questions. And we can take questions from those joining on the conference call, and you can also send in your questions via email. By the Internet sorry so to get started with the highlights from from the first quarter and in terms of our production performance, it was a record. And production level we achieved average production of just under 53,000 barrels of oil equivalent per day, and that was actually above the high end guidance that we gave back in our. February capital markets day. And as a result of that really good start to the year, we're now expecting our full year production numbers to be towards the upper end of that guidance range of 50,000 barrels of oil equivalent per day. In terms of operating costs, very much in line with our guidance, Q1 came in at $17.30 per barrel, so we're retaining the full year guidance at $17.50 to $18.50 per BOE. Big year in terms of our investment program with the sanction of Blackrod. First quarter capital expenditure was very much in line with expectation, $55 million. And we expect our full year capital expenditure forecast of $365 million to be maintained. Cashflow generation, first quarter operating cashflow was very much in line with guidance at 76 million US dollars. And when we look at the full year forecast that we gave back in February, assuming at the lower end rent $70 per barrel, and at the upper end, $100 per barrel, that also remains unchanged at between 250 and 495 million US dollars. First quarter free cash flow was a positive $16 million, and likewise with our OCF guidance, the full year free cash flow guidance remains unchanged at minus $145 million, assuming $70 Brent, and up to $105 million, assuming $100 Brent prices on average for the full year. The balance sheet's in great shape, and Christophe will walk you through in greater detail. Net cash position of just under $70 million, and when you look at the balance sheet with the gross cash, with the bond proceeds included, we're sitting on just under $380 million. We have seen weakening in gas prices in Canada and Christophe's got a slide on that in his part of the presentation. We are in a good place in the sense that we put in place in late 2022 when gas prices were very strong and 50% of our net production at favourable prices of in excess of $4 per MCF. No hedges on the benchmarks on on our Brent or our WTI exposure. And we've got about 50% of our Canadian oil production for the transportation component and hedged at $10 per barrel. Excellent. ESG performance, no material safety or environmental incidents to report during the first quarter and very much on track to achieve our 50% net emissions reduction target by the end of 2025, which was further extended through the end of 2027 back in the first quarter in February of this year. We approved a continued share repurchase program, the normal course issuer bid back in December of 2022, making great progress and getting through that program. Five and a half million shares have been repurchased through the end of the first quarter. So that program is essentially 60% complete. So really good start to 2023. And if we turn now and walk through production in a little bit more detail, as I mentioned, in the highlights, a record quarterly production of 52,800 barrels of oil equivalent per day in the first quarter. And if you look at the chart on the right hand side of the slide, you can actually see our CMD low and our CMD high guidance and what we can take away from that is pretty much every day through the first quarter, we were in excess of that high-end guidance. And that was really driven by a combination of factors in Canada, an extremely strong performance from our Suffield oil and gas producing assets, which now includes the core four acquisition. I think the decision to acquire that additional production and defer some of the discretionary capital investment that we could have undertaken really gave us some wind in our sails to ramp those production levels up much more quickly than would have been possible had we not made that acquisition. And you're also going to see later in the presentation a very strong performance in our Onion Lake Thermal property. On the international side, the Bertam field continues to produce extremely well. We've been running a well optimization program and again, another quarter of facility uptime in excess of 99%, which is just extraordinary. So congratulations to the whole team in Malaysia. In France, we completed our drilling program, our three wells on Ville-Purdue West and one well our sidetrack on Merese. No production contribution from those wells in the first quarter, but we do expect to see some of that production coming through in our second quarter numbers. So when we look at the first quarter production of just under 53,000 barrels of oil equivalent per day, clearly well in excess of the high end guidance. And that's why we feel comfortable already at this time in the year to now re-guide with an expectation that we expect our full year production numbers now to be towards the high end of that 50,000 barrels of oil equivalent per day production level. Turning to operating cash flow, our first quarter OCF was 76 million US dollars and slightly below the midpoint guidance that we gave back in our February capital markets day and underpinning that guidance was an $85 per barrel all price forecast and a $5 Brent to WTI differential and a $20 per barrel WCS differential. And the fact that Brent prices were slightly weaker, $81 per barrel in the first quarter, and differentials were $5 wider than our midpoint guidance and in line with guidance taking into account those lower realizations on both benchmark prices and the WCS differential. So no need to change the full year guidance between 250 and 495 million US dollars. On the capital expenditure front, it's a record investment year for us this year, particularly having taken a decision to sanction our BlackRod phase one development in aggregate $365 million US dollars across the business. The investment program in France is essentially complete in a minimal program that we have in Malaysia. The BlackRod phase one works are progressing in line with schedule and budget, and the drilling program in both Canada and in France very much in line with budget, $55 million spent in the first quarter, and we still remain on track for that full year forecast. In terms of the free cash flow, post the significant investment in Blackrod at the $70 per barrel level, we're forecasting minus $145 million of free cash flow, and at $100 per barrel Brent, a positive US$105 million of free cash flow. First quarter, free cash flow again very much in line with guidance, US$16 million, and we do expect our capital expenditure to ramp up over the remainder of the year, so still no need to change the full year guidance numbers that we have here. And then what are we doing with the free cash flow that the business is generating? We announced our shareholder return framework back in our February capital markets day. Our commitment is as long as the balance sheet is in good shape and we define that as a leverage ratio. of net debt to EBITDA below one turn, then 40% of free cash flow is to be returned to shareholders. Significant free cash flow being generated from the base business before our Blackrod project between $140 million and just under $400 million through a $70 to $100 per barrel Brent oil price range. Significant capital expenditure, though, in Blackrod this year, just under $2 hundred and ninety million dollars means essentially the base business plus the Blackboard phase one development is fully funded at around eighty five dollars per barrel. But I think importantly, because of the financial strength that the company started the year with and we got the approval to to continue and notwithstanding the big investment commitment this year to buy back up to 7% of our shares under the normal course issuer bid programme. And you can see we have made significant progress under that programme, having repurchased 5.5 million shares since the start of December when that programme was announced at an average share price of around 102 sec per share. And we do intend to fully complete that 7% share repurchase through the end of November this year. And this next slide just shows in aggregate the material value that we have created through the successive share repurchase programs. The only dilutive transaction that IPC has undertaken was the business combination with Black Pearl resources back in December of 2018. But since then, we're now on our fifth share repurchase program. In aggregate, we've bought back more than 57 million shares and the average purchase price has been just over 60 sec per share. And when we're looking at the share price, which was trading around 100 sec per share, that means that we've created in excess of $220 million in value from those share repurchase programs. And now we're above 20% dilution at the beginning of this year with the fifth share repurchase program. At the end of the first quarter, we now stand at only 16% dilution. And that's quite impressive when we consider that we've grown our production fivefold since we started the company. We've multiplied reserves 16 times, materially extended the longevity of our reserve life by 19 years, added more than a billion barrels of contingent resources, quadrupled operating cash flow and added in excess of $3 billion in net asset value, all with just 16% dilution and a plan to continue to buy back our stock in the years ahead. And the reason that we really favor share buybacks is just because of the significant discount that we still see to where just the value of our 2P reserves are trading. If we look at the year-end reserves value between an NPV8 and an NPV10, we're looking at a net asset value of between 4.2 and 3.5 billion USD. US dollars, and that represents the 10% discount rate, 270 sec per share. So trading that a 65% discount to our 2p reserves value, assuming a 10% discount rate and not a single dollar of value attached to our in excess of a billion barrels of undeveloped contingent resources, very much why we favor continued share buybacks. whilst we materially grow the business through investing in our BlackRod project and we think that's a winning combination for our shareholders. So turning now to the assets and I'll start with our BlackRod phase one development project. IPC has a 100% working interest in this project just as a recap and of course we took the decision to sanction our phase one development back in Back in February, capital expenditure estimated to get to first oil is 850 million US dollars, and we expect first oil in late 2026. Phase one is targeting only the first 220 million barrels of an in excess of 1.2 billion barrel resource pool. And the phase one development should see production ramp up to a production plateau of 30,000 barrels per day. And of course, there will still be in excess of a billion barrels of future phases remaining to be developed. And very much still early days, of course, but in terms of scope and schedule and budget, very much on track. And we are expecting to sign the major CPF contract early in the second quarter. So that will give us a much higher degree of certainty on a large proportion of the fixed price element of this contract. So that will be certainly reduce, I guess, or increase the certainty levels of that overall capital expenditure budget. And if you just look at the call out of the picture on the top right hand side, of the slide here, you can see that the road construction, the civil works is already underway. At the top of the picture, you can see there's a temporary bridge that we've got in place there. And that's to allow us to replace that bridge across the creek and to put in place a much bigger capacity bridge. So good to see from the drone footage that the construction is very much underway on the phase one of this project. As I say, in terms of schedule, civil works have started. The big ticket item is going to be the facilities, manufacture and construction, the CPF. And we do expect to conclude that contract during the second quarter. But still very much on track to have steam in the ground in late 2025 and first oil in late 2026. So now turning to the producing assets at Onion Lake Thermal, very strong performance. If you look at the production plot on the bottom of this slide, you can see that it was a record production level for Onion Lake Thermal during the first quarter. The main activity in this field in 2023 is putting into production our padel, which you can see on the call out on the map on the top right-hand side. of this slide, that padel should be adding production capacity of in excess of 4000 barrels per day. We do have some facility optimisation ongoing. So we're looking at putting in additional tank storage at Black Rod and also looking to optimise the produce water handling and it will be the first time that we have more production capacity than our 14,000 barrels a day facility capacity. So it's going to be interesting to see if we can sustain productions at those facility capacity levels, and then that will lead us to start to look at the potential for upsizing the Onion Lake Thermal facility capacity in excess of 14,000 barrels per day over the next couple of years. Turning to the Suffield asset, again, it's been a very strong performance on the oil and gas side during the first quarter. starting with the gas on the bottom right-hand side of the slide. There was some moderate gas freeze-offs, so slightly lower production decline than we'd forecast. And so we do expect to see production kind of bounce back in the second quarter as we get past the winter freeze-offs. But I think the big news in the first quarter was the material increase in production with the acquisition of our core four assets which have actually been performing well ahead of expectation. I think in our guidance we said we expected production on average to be above 4,000 barrels per day and you can see that we're actually well in excess of 5,000 barrels per day and that's because some of the new wells that have been drilled you know, came on stream pretty quickly and ramped up slightly faster than we had forecast and producing very much in line with expectations. And I'll give some more colour around that on this next slide. So yeah, here, just as a recap, and this is slide showing the core four acquisitions. So that was the area, if you look on the map on the top right-hand side of the slide, the areas highlighted in green were all the properties that came with the core four acquisition. The blue block was a new license that IPC signed up for in late 2022. And really the target, for that land acquisition and the corporate acquisition was that Ellerslie play fairway. And we really are off to a very encouraging start. In our budget, just as a recap for 2023, we had planned to drill in total six Ellerslie oil production wells. Five of those are expected to be in the newly acquired core four area. one within the Ellerslie block that we acquired. Three of those wells on the Core 4 property have now been completed and put into production during the first quarter. And if you look at the chart on the bottom left-hand side of this slide, you can see our sanction case and our actual production from those wells and some really good flush production early when we put those wells on stream and now and with cleanup and stabilization still producing an aggregate in excess of 600 barrels per day from those three wells. And that's really encouraging start because we picked up also, in addition to that, in excess of 30 elderly targets in that drilling play fairway, which means that we should be able to sustain production rates at similar levels to those that we have if we're drilling five to six wells per year over the next four to five years. So a really good start and happy with the initial results from CORE4. Turning now to the other assets and firstly our Malaysian business. Just as a recap, you go back to 2021 and there's been multiple successes with our Bertam field. We first acquired the 25% interest back in April of 2021. We then moved forward with the A15 drilling campaign and the pump upgrade campaign, and that combined with very high facility uptime of 99%, I mean that we've still been able to sustain rates at around 5,000 barrels per day to the company. What's been interesting is actually if you look at the production performance on the bottom right-hand side of this slide, over the last five months as we've been working on well optimization, we've seen really a kind of pullback on the water cut development from the main production wells, mainly in the northeastern part of the field, which is some of the most recent wells that we've drilled in excess of 60%. of our production actually comes from the more recent infill drilling campaign. And just as an example, the A15 well that we drilled and put into production in the first quarter of last year paid back in under five months. So really good returns from these investments. So with that kind of water cut stabilizing, it's a little bit too early, but certainly the team in Malaysia are looking at whether there's upside potential mainly in that northeastern part in the field and there's no new wells assumed in any of our forecasts or our reserve numbers and but perhaps if we start to see this this trend continue then maybe there's some some further upside potential in the northeastern part of the bertam field turning to to france now you can see um steady low decline there 90 of our our 2p reserves in France are developed and producing. We did have very stable high uptime from all the major producing assets. The production depth that you can see on the bottom right hand side of this chart was really as a result of the political protests in France arising from the Macron proposed pension reforms. There were strikes that were causing disruption to the refinery that we sell our oil to in the harvest. So there was a temporary impact on our production that's now been fully turned around and we're back up to to pre-protest levels. The big news, of course, is that we've completed during the first quarter the drilling of three wells on our Ville Perdue West field. Those wells are now in cleanup phase and expected to ramp up through the second quarter. And we also successfully completed the sidetrack of our Mersey 3H well. That is now just expected to be put into production later in May. So we should see in the second half of the second quarter, the production contribution coming through from those French investments. But very much great job by the drilling team in France. All of those wells delivered in line with our budget expectations. And then my last slide before turning over to Christoph on sustainability and ESG, on the health and safety and environmental side, no material safety incidents or environmental incidents year to date. And then if we just look at the graph on the bottom left-hand side and our climate strategy to reduce our net emissions intensity by 50% through the end of 2025, you can see already last year we were down to 20%. eight kilograms per BOE on track to meet that 2025 target. And we have extended that by a further two years through to the end of 2027. So that concludes the operations update. I'll pass across now to Christoph to walk you through the financial numbers. So Christoph, over to you.

Thank you very much, Mike. Good morning, everyone. So moving on to the next slide on the financial highlights. So this quarter saw a record production at close to 53,000 barrels of oil equivalent per day. That's the highest ever performance from all of our IPC assets, which have been performing very, very well across the board. It's not just one asset overperforming. It's been a constant performance across our portfolio. So oil and gas realized prices were a bit lower than the previous quarters and $4 lower than our base case guidance. Now, as Mike touched upon, if you looked at the net back we guided at our capital markets day, if you applied the average price for oil and gas and apply those netbacks, you will then find exactly or very, very close to our operating cash flow and a bid there for this quarter of $76 million. The operating costs stood at just in excess of $17 per BOE. And so we keep the guidance for the full year at in between $17.5 and $18 per BOE. We spent close to $55 million on CapEx and so generated a free cash flow for a quarter of $16 million. Our net cash position from the end of last year to the end of March went from $175 million down to $67 million, and that was mostly driven – I'll come back to that – in a few slides, that was mostly driven by the acquisition of Core 4, obviously, and the share buyback program, which is well advanced, more than 60%, as Mike mentioned. In terms of realized prices, if we look more into the details, we can see that the Brent averaged 81.2 USD per barrel over the first quarter and the WTI priced $5 below that. So the differential between the Brent and the WTI was in line with our initial guidance when we guided for base case at our capital markets day. an $85 brand price and $80 for the WTI. The main difference in realized prices was the WCS because the WTI WCS differentials to that $25 for the first quarter. Now, it's important to remember how the WCS pricing works. It's the it's the month prior which defines the current month's pricing. So typically, the WCS prices in Q1 were driven by the actual prices of the WCS in December, January and February. And as we know, the December differentials were a bit wide, so that impacted as well Q1. Now, on the very positive, on the flip side, we can see much tighter differentials now actually Even if you look at the next few quarters until the end of this year and even into next year, you can see that the WTI WCS is below 15, actually even below $14 per barrel. So we remain confident that we should be at or below the average of $20 we guided previously. Otherwise, in terms of realized prices in France and Malaysia, no big changes. We're still selling our crude in Malaysia at a very decent premium, $7 in the first quarter, and in line with the WCS in Canada. In terms of realized gas prices, kind of the same story there. Realized prices at 3.6 Canadian dollars per MCF for the first quarter. That was significantly lower than the previous few quarters from 2022. Now, we had some very good hedges in place. We hedged 50% of our net gas production in this first quarter in excess of 6 Canadian dollars per MCF. So that generated very significant head revenues of 6 million US dollars. Operating cash flows and EBITDA again driven by the wider differential in this quarter was half of the first quarter from 2022 when the Brent in the first quarter of 2022 was in excess of 100 and differential much tighter. As I mentioned, operating costs, we feel comfortable to confirm the guidance for the full year in between $17.5 and $18 per BOE. Looking at the netbacks, that's interesting. And I will focus on the operating cash flow and the EBITDA netback at $16 per BOE. So that is actually $5 below our base case. And it's totally consistent with the fact that, again, this quarter Brent and WTI were $4 below, WCS was $9 below our guidance. And so that's reflected into this $5 reduction in operating cash flow and EBITDA netback. Again, the recent developments are very positive, and so we expect to do much better in the current quarter and in the following quarters. Looking at the net cash, I briefly touched upon that. If you look at the acquisition of Core4, That was for 62 million US dollars. There was 2.8 million dollars of cash in the company, so the net acquisition cost of 59. We spent close to 46 million US dollars on share buyback already. So that explains most of the reduction in cash flows. You can see here the 54 million dollars of development capex. The GNA, which remained very small, and under control at below $1 per BOE. And a change in working capital which includes, for instance, some finance costs because we paid some coupons in the first quarter but only accrued for three months. So there's a bit of lag there. Totally understandable. Otherwise, it's interesting to note it's a very small amount, but the cash financial item is virtually zero. And that is explained by the fact that we can make between five and actually five and a half percent on our cash deposits, whether it's in US dollar or Canadian dollar. And so that almost fully offsets our cost of debt. GNA and a financial item, so I touched upon that. GNA, as I said, is well under control and remains below $1 per barrel of oil equivalent. Looking at the financial results, you can see here the results, it's important to note that the Core 4 acquisition in the IFRS numbers are only reported, are only taken into account from the acquisition date, which was very early March, which is not the case for the production. The production is a pro forma, includes Core 4 from the beginning of the year. but the gross profit of 64 million and the net profit of $40 million here exclude the first two months of Core 4. On the balance sheet, you can see the increase in oil and gas properties, which was driven by the capex we spent on our base business and the acquisition costs of Core 4. In terms of the capital structure, there was no change or no major change. We still have $300 million worth of bonds at 7.25% for the coupon with the maturity in February 2027. As some of you may have noticed, we announced earlier in March that we we organized some fixed income bond investors meeting to test the the market to support us to issue a 200 million dollar tap we don't need the money obviously the the the balance sheet is in very strong shape now we wanted to see if we could raise more quote unquote cheap capital and by cheap i mean given that we have very high deposit rates When we approached the market, it was when the Silicon Valley Bank was going down, and so we decided to pull again because we don't need more money. We still have the French loan, no change here, and it amortizes until 2026. The important point is we increased the Revolver credit facility from 75 to 150 million Canadian dollars. The maturity was as well extended from February 24 to May 25. So this facility is fully committed, fully available, fully in drone. In terms of hedging, we hedged, as we told you before, we hedged the transportation cost for Canadian oil, production of 12,000 barrels a day between Hardesty and Houston. This hedge paid off at the beginning of the first quarter, and now we're roughly $2 outside the money. The gas hedging was very profitable. I mentioned more than $6 million revenues from the gas hedges in the first quarter. And those hedges remain in the money for the next while from April to October. We also had some positive contribution from our FX hedges because the dollar was extremely strong earlier when we bought forward some euros to pay for the french opex and some canadian dollar to pay for the canadian opex thank you very much that concludes my part and i let i will let mike conclude

Yeah, thank you very much, Christoph. So just to conclude in summary with the highlights from Q1 of 2023, another quarter of record production for the company, just under 53,000 barrels of oil equivalent per day, driven by the very high uptime performance from the base assets and the good performance from the core four acquisitions. So we now expect full year production levels to be upwards towards that 50,000 barrels of oil equivalent per day, upper limit. OPEC is very much in line with guidance, no change there. Likewise with capital expenditure and on track for our full year, $365 million budget. And as Christophe mentioned, the first quarter OCF numbers were very much in line with guidance and consensus. Of course, they were impacted largely by the wider differentials but we've seen a 10 improvement as we move into the second quarter so that bode well for the remainder of 2023 and no change to our free cash flow guidance very strong balance sheet still in a net cash position notwithstanding the fact that we acquired core 4 for more than 60 million dollars and we bought back more than 45 million dollars worth of stock during the first quarter and still in a gross cash position of $378 million. So a very robust balance sheet indeed. And on the sustainability side, the carbon reduction, programme as well on track and we had no material safety or environmental incidents. And last but not least, 60% of the way through our proposed share repurchase scheme and five and a half million shares repurchased and we plan to conclude the full 7% share repurchase program through the end of November 2023. So that concludes the presentation part. We can now turn over to the operator and we can take any questions that you might have.