IPC Announces Second Quarter 2024 Financial and Operational Results and Releases Sustainability Report

International Petroleum Corporation (IPC or the Corporation) (TSX, Nasdaq Stockholm: IPCO) today released its financial and operational results and related management’s discussion and analysis (MD&A) for the three and six months ended June 30, 2024. IPC also released its Sustainability Report, which details the Corporation's environmental, social and governance (ESG) performance.

William Lundin, IPC's President and Chief Executive Officer, comments: “We are pleased to announce another positive quarter of production and operational performance, in line with our guidance. IPC achieved an average net daily production during the second quarter of 48,400 barrels of oil equivalent per day (boepd), with our operating cash flows strengthened by robust oil prices. At the same time, we also continue to purchase IPC common shares under the normal course issuer bid, having now completed two-thirds of the current 2023/2024 program and on track to complete the program by December. We are also pleased to report that the Blackrod Phase 1 development in Canada continues to progress in line with schedule and budget, with a substantial amount of work advancing during this 2024 peak investment year as we continue to forecast first oil in late 2026.”

Q2 2024 Business Highlights

• Average net production of approximately 48,400 boepd for Q2 2024 was in line with the guidance range for the period (50% heavy crude oil, 17% light and medium crude oil and 33% natural gas).⁽¹⁾
• Progressing development activities on Phase 1 of the Blackrod project which remains on schedule and on budget.
• 2.2 million IPC common shares purchased and cancelled during Q2 2024 under IPC’s normal course issuer bid (NCIB) and continuing with target to complete the full 2023/2024 NCIB this year.

Q2 2024 Financial Highlights

• Operating costs per boe of USD 14.7 for Q2 2024, below guidance.⁽³⁾
• Operating cash flow (OCF) generation of MUSD 102 for Q2 2024, ahead of the guidance range.⁽³⁾
• Capital and decommissioning expenditures of MUSD 86 for Q2 2024, in line with guidance.
• Free cash flow (FCF) generation for Q2 2024 amounted to MUSD 8 (MUSD 75 pre-Blackrod Phase 1 project funding).⁽³⁾
• Gross cash of MUSD 369 and net debt of MUSD 88 as at June 30, 2024.⁽³⁾
• Net result of MUSD 45 for Q2 2024.

Reserves and Resources

• Total 2P reserves as at December 31, 2023 of 468 MMboe, with a reserves life index (RLI) of 27 years.⁽¹⁾⁽²⁾
• Contingent resources (best estimate, unrisked) as at December 31, 2023 of 1,145 MMboe.⁽¹⁾⁽²⁾

2024 Annual Guidance

• Full year 2024 average net production guidance range maintained at 46,000 to 48,000 boepd.⁽¹⁾
• Full year 2024 operating costs expected to be at the low end of the guidance range of USD 18 to 19 per boe.⁽³⁾
• Full year 2024 OCF guidance estimated at between MUSD 327 and 350 (assuming Brent USD 70 to 90 per boe for the remainder of 2024).⁽³⁾
• Full year 2024 capital and decommissioning expenditures guidance forecast maintained at MUSD 437.
• Full year 2024 FCF guidance estimated at between MUSD -146 and -123 (assuming Brent USD 70 to 90 per boe for the remainder of 2024), after taking into account MUSD 362 of forecast full year 2024 capital expenditures relating to the continued development of Phase 1 of the Blackrod project.⁽³⁾

Market conditions for oil commodities continued to improve following the first quarter of 2024, with Brent prices averaging USD 85 per barrel in the second quarter compared to USD 83 per barrel during the first quarter. Proactive supply management by the OPEC+ group, led by Saudi Arabia, continues to impact the balancing of the market. The OPEC decision in early June to extend official production cuts to end 2025 and to gradually unwind some of the voluntary cuts by the end of September 2024, subject to market conditions, signalled what may be a continued commitment to sustain higher oil prices. Global inventories have remained largely unchanged through the second quarter, with OECD levels remaining below the five year average, and market observers expect a deficit in the oil market for the remainder of 2024. With tight physical markets supported by cooling global inflation, strong crude prices are expected to persist for the second half of the year. Around 50% of IPC’s forecast 2024 oil production is hedged at USD 80 per barrel West Texas Intermediate (WTI) or USD 85 per barrel Dated Brent through the third quarter to end 2024.

With the Trans Mountain expansion (TMX) pipeline commencing operations in the second quarter of 2024, the WTI to Western Canadian Select (WCS) crude price differentials averaged around USD 14 per barrel, approximately USD 5 per barrel lower than the first quarter differential average of USD 19 per barrel. Crude exports from the new TMX pipeline are ramping up off the coast of British Columbia, with deliveries to the US West Coast and Asia creating new end destinations for Canadian heavy oil. This, combined with some curtailed volumes in the Western Canadian Sedimentary Basin due to forest fires, are driving tighter differential forecasts for the third quarter of 2024. Our base case market guidance for the WTI/WCS differential remains unchanged at USD 15 per barrel for 2024. Approximately 70% of our forecast 2024 Canadian WCS production volumes are hedged at WTI/WCS differentials of USD 15 per barrel.

Natural gas prices remained below our 2024 base case guidance of CAD 2.13 per Mcf for the second quarter. IPC’s average realized gas price was CAD 1.2 per Mcf during the second quarter, compared to CAD 2.5 per Mcf average for the first three months of the year. Western Canada gas storage levels sit above the five year range in anticipation for the Shell-led LNG Canada project start-up in British Columbia. Natural gas prices are anticipated to stay supressed until the additional export capacity is on stream from the LNG Canada project.

Second Quarter 2024 Highlights and Full Year 2024 Guidance

IPC delivered average daily production rates of 48,400 boepd for the second quarter, in line with our 2024 Capital Markets Day (CMD) production forecast. High uptimes were achieved across all major producing assets in our portfolio during the quarter and the business benefited from the recently drilled oil wells within our Southern Alberta assets and the new wells brought on stream from sustaining Pad L at the Onion Lake Thermal (OLT) asset in Canada. With strong aggregate IPC production of 48,600 boepd on average for the first half of the year, IPC is well positioned to deliver within the production guidance of 46,000 to 48,000 boepd for the full year.⁽¹⁾

Operating costs in the second quarter of 2024 were USD 14.7 per boe, lower than our guidance. The lower costs were largely driven by lower energy input costs within our Canadian assets. In the third quarter of 2024, a two week planned maintenance shutdown is scheduled at the OLT asset as well as a multi-day planned maintenance shutdown at the Bertam field. Full year 2024 operating costs are expected to be at the low end of the guidance range of USD 18 to 19 per boe.⁽³⁾

Operating cash flow (OCF) generation for the second quarter of 2024 was USD 102 million, ahead of guidance due to lower operating costs and stronger oil benchmark prices than forecast. Full year 2024 OCF guidance is revised to USD 327 to 350 million (assuming Brent USD 70 to 90 per barrel for the remainder of 2024).⁽³⁾

Capital and decommissioning expenditure for the second quarter was in line with plan at USD 86 million. Our full year 2024 capital and decommissioning expenditure guidance is unchanged at USD 437 million.

Free cash flow (FCF) generation was USD 8 million (or USD 75 million pre-Blackrod Phase 1 development funding) during the second quarter of 2024. Full year 2024 FCF guidance is revised to USD -146 to -123 million (or USD 216 to 239 million pre-Blackrod Phase 1 development funding) assuming Brent USD 70 to 90 per barrel.⁽³⁾

Net debt was increased during the second quarter of 2024 by approximately USD 27 million to USD 88 million, largely as a result of funding the normal course issuer bid (NCIB) share repurchase program.⁽³⁾ The gross cash position as at June 30, 2024 was USD 369 million. Furthermore, IPC’s CAD 180 million Revolving Credit Facility (RCF) has been extended to maturity in May 2026.

With a robust balance sheet and strong cashflow generation from the producing assets, IPC is strongly positioned to deliver on our three strategic pillars of organic growth, shareholder returns and pursue value adding M&A.

Blackrod Phase 1 Project

The Blackrod asset is 100% owned by IPC and hosts the largest booked reserves and contingent resources within the IPC portfolio. After greater than a decade of pilot operations, subsurface delineation and commercial engineering studies, IPC sanctioned the Phase 1 development in the first quarter of 2023. The Phase 1 development targets 218 MMboe of 2P reserves, out of the 1.28 billion boe of full field 2P reserves and best estimate contingent resources, with a multi-year forecast capital expenditure of USD 850 million to first oil planned in late 2026. The Phase 1 development is planned for plateau production of 30,000 bopd which is expected by early 2028. As at January 1, 2024, the net present value (NPV10) of the Blackrod Phase 1 development is USD 981 million and Phase 1 has an estimated WTI breakeven price of less than USD 55 per barrel.⁽¹⁾⁽²⁾

2024 marks a peak investment year at the Blackrod Phase 1 project for IPC, with USD 362 million planned to be spent in the year. Project progress has advanced according to plan, with approximately USD 163 million spent through the first half of 2024. All major third party contracts have been executed, including but not limited to, engineering procurement construction (EPC) agreements for the central processing facility (CPF), well pad facilities, midstream agreements for the input fuel gas, diluent and oil blend pipelines, drilling rig and stakeholder agreements. All major long lead items have been procured and pre-operations onboarding is under way as the asset undergoes rapid change from a pilot steam assisted gravity drainage (SAGD) operation to a commercial SAGD operation. It is IPC’s core operational philosophy to responsibly develop and commission projects with staff that are going to manage and operate the asset to ensure the transition from development to operations is seamless.

As at the end of the second quarter of 2024, just under half of the Blackrod Phase 1 development capital had been spent since the project sanction in early 2023. All major work streams have progressed as planned and the focus remains on executing to the detailed sequencing of events as facility modules are safely delivered and installed at site. The total Phase 1 project guidance of USD 850 million capital expenditure to first oil in late 2026 is unchanged. IPC intends to fund the remaining Blackrod Phase 1 development costs with forecast cash flow generated by its operations and cash on hand.

Stakeholder Returns: Normal Course Issuer Bid

In the fourth quarter of 2023, IPC announced the renewal of the NCIB, with the ability to repurchase up to approximately 8.3 million common shares over the period of December 5, 2023 to December 4, 2024. Under the 2023/2024 NCIB, IPC repurchased and cancelled approximately 1.2 million common shares in December 2023 and a further 3.7 million common shares during the first half of 2024. The average price of common shares purchased under the 2023/2024 NCIB during the first half of 2024 was SEK 126 / CAD 16 per share.

As at June 30, 2024, IPC had a total of 123,271,885 common shares issued and outstanding and IPC held no common shares in treasury. As at July 26, 2024, IPC had a total of 123,271,885 common shares issued and outstanding and IPC held 1,027,147 common shares in treasury.

Notwithstanding the record level of capital investment forecast for 2024, IPC confirms its intention to continue to purchase and cancel common shares under the 2023/2024 NCIB to the remaining limit as at July 1, 2024 of 3.4 million common shares by early December 2024. This would result in the cancellation of 6.5% of shares outstanding as at the beginning of December 2023. IPC continues to believe that reducing the number of shares outstanding while in parallel investing in material production growth at the Blackrod project will prove to be a winning formula for our stakeholders.

Environmental, Social and Governance (ESG) Performance

Alongside the publication of our second quarter 2024 financial report, IPC releases its fifth annual Sustainability Report. The Sustainability Report provides details on IPC’s approach to sustainability highlighting specific initiatives related to the key focus areas set by IPC. The Sustainability Report is available on IPC’s website at www.international-petroleum.com.

During the second quarter of 2024, IPC recorded no material safety or environmental incidents.

As previously announced, IPC targets a reduction of our net GHG emissions intensity by the end of 2025 to 50% of IPC’s 2019 baseline and IPC remains on track to achieve this reduction. During the first quarter of 2024, IPC announced the commitment to remain at 2025 levels of 20 kg CO₂/boe through to the end of 2028.⁽⁴⁾

Notes:

1. See “Supplemental Information regarding Product Types” in “Reserves and Resources Advisory” below. See also the annual information form for the year ended December 31, 2023 (AIF) available on IPC’s website at www.international-petroleum.com and under IPC’s profile on SEDAR+ at www.sedarplus.ca.
2. See “Reserves and Resources Advisory“ below. Further information with respect to IPC’s reserves, contingent resources and estimates of future net revenue, including assumptions relating to the calculation of NPV, are described in the AIF.
3. Non-IFRS measures, see “Non-IFRS Measures” below and in the MD&A.
4. Emissions intensity is the ratio between oil and gas production and the associated carbon emissions, and net emissions intensity reflects gross emissions less operational emission reductions and carbon offsets.