Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- International Petroleum Corp (IPCFF, Financial) delivered a strong Q2 with a net production average of 48,400 barrels of oil equivalent per day, in line with guidance.
- Operating costs for the quarter were below $15 per barrel of oil equivalent, driven by lower energy input costs at Canadian assets.
- The company generated robust operating cash flow of USD102 million and positive free cash flow of USD8 million despite significant CapEx spend.
- The balance sheet remains strong with net debt at USD88 million and gross cash resources of USD369 million.
- No material safety incidents were reported in the quarter, and the company issued its fifth sustainability report, showing progress towards emissions reduction goals.
Negative Points
- Despite strong performance, the company still forecasts a negative free cash flow for the full year 2024, ranging between minus USD146 to minus USD123 million.
- The company experienced reduced gas optimization activity due to lower natural gas prices, impacting overall production efficiency.
- CapEx spend was slightly lower than expected in Q2 due to weather conditions, potentially affecting project timelines.
- The company remains exposed to weak gas prices, which are expected to persist for the next two to three months.
- Despite significant share buybacks, the company continues to trade at a steep discount relative to its intrinsic value, indicating potential undervaluation by the market.
Q & A Highlights
Q: Can you walk us through the potential upside to the Blackrod first oil guidance? It looks like the project is proceeding according to plan or maybe ahead of plan.
A: We are trending in accordance with plan for Blackrod, with allowances in place for schedule and budget contingencies. While there might be a slight advancement, such as a month ahead of expectation, it won't be quarters. We maintain our original sanction guidance for schedule and budget.
Q: How should we think about buybacks for next year? Should we expect you to spend all free cash flow on buybacks for 2025?
A: We have committed to completing the 2023-2024 normal course issuer bid program. Shareholder returns are a key strategic pillar, and we intend to continue buybacks as long as we trade at a significant discount to our underlying value. Detailed plans for 2025 will be shared after our budgeting process later this year.
Q: Could you walk us through the moving parts in the cash flow guidance apart from oil and gas prices?
A: The narrowed free cash flow guidance reflects known Q1 and Q2 results. The main differences are around OpEx and maintenance activities, particularly in Suffield gas. We anticipate ramping up maintenance when gas prices improve, which has allowed us to narrow and improve the guidance.
Q: Is there anything specific about getting down to the original number of shares outstanding from when you were spun out?
A: Our strategic focus is on maximizing shareholder value. If we continue to trade at a discount, we will keep buying back shares. If we start trading closer to our intrinsic value, we will consider transitioning to a dividend-paying company.
Q: How do you plan to maintain a lower CO2 level with the Blackrod project in the portfolio?
A: We have a four-pillar approach to emissions reduction, including operational projects and carbon offsets. Blackrod's overall intensity is around 80 kilograms per boe, but we are investigating larger-scale emission reduction projects like carbon capture and storage, which could further reduce emissions.
Q: How do you compare incremental CapEx opportunities with buying back more shares?
A: We balance capital allocation between organic growth, shareholder returns, and M&A. This year is a peak investment year, and we are reducing some base business activity to accommodate shareholder returns. We remain opportunistic in M&A but prioritize maximizing shareholder value.
Q: Will you consider hedging OpEx costs?
A: We already hedge some OpEx costs, particularly on the FX side for our Canadian operations. This is a prudent way to secure good results for the year.
Q: Would you be willing to hedge more production for the rest of the year and for 2025 if you see the right prices?
A: We constantly evaluate the market. Given the significant CapEx for Blackrod, we might hedge more production at around $80 Brent to secure operating cash flow until Blackrod's first oil. Next year is the final big CapEx year for Blackrod.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
