International Petroleum Corporation (IPC) has reported a robust performance in the second quarter, with net production averaging 48.4 thousand barrels of oil equivalent per day, aligning with the company's guidance.
IPC's operating costs were below $15 per barrel of oil equivalent, prompting a reduction in the full-year operating expense (OpEx) forecast. Capital expenditure (CapEx) for the quarter was $86 million, largely directed towards the advancement of the Blackrod Phase 1 development.
The company generated an operating cash flow of $102 million and achieved a positive free cash flow of $8 million. IPC's net debt stands at $88 million, offset by gross cash resources amounting to $369 million.
The company has also made strides in its hedging strategy and environmental commitments, alongside a share repurchase program that is on track for completion before year-end.
Key Takeaways
- IPC reported net production in line with guidance and reduced OpEx forecast for the year.
- CapEx of $86 million was primarily allocated to the Blackrod Phase 1 development.
- Operating cash flow reached $102 million, with a positive free cash flow of $8 million.
- Net debt was reported at $88 million, with substantial gross cash resources of $369 million.
- Hedging strategies are in place for WTI to WCS differential and International Brent linked production.
- The company is progressing towards its net emissions intensity reduction goal.
- IPC is on track to meet its full-year production guidance and expects to complete its share repurchase program by year-end.
Company Outlook
- Full-year production guidance remains stable at 46,000 to 48,000 barrels of oil equivalent per day.
- Operating cash flow for the year is projected to be between $327 million and $350 million.
- CapEx guidance for the year is set at $437 million, with $127 million already generated in free cash flow in the first half.
- Blackrod Phase 1 development is on schedule and budget, with first oil expected in late 2026.
- IPC's net asset value is over $3 billion, with plans to finalize share repurchases by the end of the year.
Bearish Highlights
- Realized gas prices remained weak despite strong oil prices.
- The company experienced a reduction in cash position by approximately $150 million, although it was offset by increased investment in oil and gas assets.
Bullish Highlights
- IPC showed strong investment activity with $212 million spent on CapEx and abandonment costs in the first half of the year.
- The company's balance sheet remains stable with robust cash flow generation.
- IPC has locked in supportive exchange rates against a backdrop of a weak Canadian dollar.
Misses
- Despite strong operational performance, the company spent more than its operating cash flow on CapEx.
Q&A Highlights
- CEO William Lundin discussed the share buyback program and the potential transition to a dividend-paying company based on share price performance.
- The company aims to reach a 20 kilogram per barrel CO2 target by 2025 and maintain it through 2028.
- IPC is balancing organic growth, shareholder returns, and M&A opportunities, with no imminent deals but a continuous search for opportunities.
- IPC is considering hedging operational costs and potentially oil prices for 2025, depending on market conditions.
IPC, trading under the ticker IPCO on the Toronto Stock Exchange, remains committed to delivering strong results and maximizing value for its shareholders while maintaining a focus on sustainable and environmentally responsible operations.
Full transcript - None (IPCFF) Q2 2024:
Operator: Welcome, everybody, to IPC's Second Quarter Results Update Presentation. I'm William Lundin, the CEO. And joining me and presenting today is Christophe Nerguararian, our CFO. So, I'll start in the usual format by touching on the highlights in the quarter, as well as provide an operational update at our assets. Then Christophe will expand in more detail on our financial numbers. Following that, we will go into a Q&A session where the questions can be submitted via the operator on conference call or via the web. So, the second quarter results for IPC were very strong yet again. We delivered a net production average in Q2 of 48.4 thousand barrels of oil equivalent per day, which was in line with our guidance. Our full-year production average for the year is 46,000 barrels of oil equivalent per day to 48,000 barrels of oil equivalent per day, so that remains unchanged from the beginning of the year and we're well on track to deliver within that production guidance. Operating costs for the quarter settled just below $15 per barrel of oil equivalent, largely driven from lower energy input costs at our Canadian assets. And as a result of this, we are reducing our OpEx guidance for the full year, expecting it to be at the low end of the range of $18 per BOE to $19 per BOE. On the organic growth front, our full-year forecast is $437 million for 2024. In the second quarter, we spent $86 million in CapEx, with just shy of $70 million going towards the Blackrod Phase 1 development within the second quarter. The strong production, good cost control and healthy oil prices translated into robust operating cash flow generation to the tune of $102 million. The full-year forecast for OCF is between $327 million to $350 million between $70 Brent and $90 Brent. We had positive free cash flow generation in the quarter of $8 million, despite the significant CapEx spend and excluding the growth CapEx spend associated with the Blackrod Phase 1 development at $75 million in free cash flow generation. So, the full forecast for 2024 between minus $146 million to minus $123 million between $70 Brent and $90 Brent. The balance sheet remains in good shape with our net debt to end Q2 at $88 million and the gross cash resources available to the company are $369 million and that's excluding our Canadian credit facility that we have in place. On the hedging front, specifically on the oil side, we have roughly 70% of the WTI to WCS differential hedged at $15 a barrel, for the full year. And for the second half of the year, we have 50% of our International Brent linked production hedged at $85 Dated Brent as well as $80 WTI for our Canadian crude exposures that represents about 50% go forward. On the environmental sustainability, social and governance point, we had no material safety incidents within the quarter, so very pleased to report that. We also issued our fifth sustainability report this quarter alongside our results. We're well on track to achieve our net emissions intensity reduction goal, which is to half our net emissions intensity come 2025, which has been extended to the end of 2028, where we will maintain 20 kilogram per BOE from 2025 through to the end of 2028. On the share repurchase front, we have continued to repurchase and cancel out our shares. As of the end of June, just shy of 5 million shares had been repurchased under our normal course issuer bid program, representing around 60% completion. So, we are well on track to complete our NCIB program before expiry in December of this year. Moving on to our production, again the quarterly production for Q2 was 48.4 thousand barrels of oil equivalent per day as displayed on the production chart on the right side of the slide. Our assets are really characterized by low decline nature. We've had stable production performance across all major key assets and we've also benefited from some short cycle investment opportunities, namely in Southern Alberta where we've invested for some wells in Ferguson, as well as within the greater Suffield area which I will expand on within the asset specific slides. We do have a bit of reduced gas optimization activity, largely as a result of the lower natural gas prices and the assets outside of Canada continue to deliver stable production. Again, the Bertam field in Malaysia delivered high uptimes in excess of 99%, and France assets continue to deliver solid production. So, our guidance is maintained at 46,000 barrels of oil equivalent per day to 48,000 barrels of oil equivalent per day for the full year. Total year-to-date production through the first six months is 48.6 thousand barrels of oil equivalent per day, so we sit well positioned to deliver within our full-year corporate production guidance figure. Operating cash flow through the first six of the months of the year was $191 million, which puts us well on track to deliver our operating cash flow guidance that we stated at the beginning of this year with the first half actuals as well as the hedges that have been implemented or forecast operating cash flow for the full year is expected to be between $327 million to $350 million between $70 Brent and $90 Brent. That assumes a $5 discount between Brent to WTI and a $15 discount between WTI to WCS. On the capital expenditure fronts is a peak investment year for the company. We've guided a capital expenditure amount of $437 million inclusive of abandonment expenditure. As things stand today, we're well on track to deliver within that guidance, so that amount remains unchanged. We've spent $212 million in the first six months of the year, with about $163 million of that going towards a transformational Blackrod project. So, you can see the majority of our capital expenditure is going towards Canada this year, largely allocated towards the Blackrod asset. The free cash flow front for the first half of the year, excluding our growth investment towards Blackrod, generated $127 million in free cash flow, really highlighting the robust cash flow generation ability of our producing assets within the IPC portfolio. When including the Blackrod growth CapEx, the total free cash flow through the first half of the year is minus $36 million. And similarly to the OCF, our free cash flow forecast for the full year has tightened. Again, excluding the Blackrod growth CapEx investment, we're expecting to generate between $216 million and $239 million in free cash flow for the year. And when including the growth CapEx at Blackrod, we expect to be between minus $146 million to minus $123 million in free cash flow between $70 Brent and $90 Brent. On the share repurchase front, an excess of 66 million shares have been repurchased and canceled since the company was formed in 2017. The average price of those shares that have been repurchased and cancelled is SEK68 per share. Where we trade today is around SEK149 per share, so that translates into a significant amount of value created through our share buybacks. And as I had stated at the beginning of the presentation, we are well on track to complete our 2023, 2024 normal course issuer bid program, which is shown on the waterfall chart. So, as of the end of Q2, we purchased 4.9 million shares and taking into account the shares that have been repurchased in July were closer to actually 6 million shares being repurchased at this very point in time. So, very much on track to complete this normal course issuer bid program. Only 9% share dilution since the company was formed. And when you take a look at the metrics in terms of the overall business enhancements that have taken place, it's seriously impressive with an increase of five-fold under production since the company was formed. 2P reserves is 16 times higher, added nearly 20 years to our reserve life index, as well as greater than a billion barrels of contingent resources and a significant amount of net asset value. Moving on to our NAV slide, so, as of the beginning of this year, the 2P net asset value for the company stands in excess of $3 billion, represents a fair share price of SEK244 per share or CAD32 per share. So, where we trade today, it is a very much a steep discount relative to the underlying value of the company and really underpins the strategy with our shareholder distribution going towards share buybacks as we trade at a material discount relative to our intrinsic value. And I think it's also important to note as we continue to march towards first oil with Blackrod, the value of the business is going to continue to appreciate as we get closer to that date, provided oil prices stay similar to what the year-end '23 price deck was. Moving on to our Blackrod Phase 1 development progress, so a lot of activity. It continues to take place at the site. Very pleased to share that this project remains on track with first oil expected in late 2026 and very much on budget, which is $850 million to first oil. So, since this project was sanctioned in the beginning of 2023, we spent in excess of $400 million at this project and the value of work done has translated into the money that has been spent, which is absolutely fantastic. And on the facility engineering and fabrication front, everything is progressing in accordance to plan. There's been a lot of packaged equipment that has been delivered to site. Over 27,000 heavy loads have been delivered this year alone. In excess of 250,000 man hours has also been burned at site. So, there's a lot of activity taking place. On the drilling front, it's advancing ahead of schedule. We've completed the drilling activities for our first production pad, which is 14 well pairs. All of the utility wells have also been drilled at this point in time, and the rig has now moved on to the next pad to drill the next set of well pairs. We're also pleased to share that all our third party pipeline agreements have been executed as of the end of Q2. Namely, the TransCanada pipeline agreements have been secured with the input fuel gas, as well as the export production line being committed to. So, those agreements and pipelines are on track to be installed within the overall schedule. So, as you can see on the background of the picture of this slide, the Blackrod asset is really transforming in front of us from a pilot operation to a world class commercial SAGD operation. You can see the pipe racks were recently installed. There are a number of steam boilers equipment in place. You have, in the middle of the picture, our turbines and our heat recovery units also set up there. The large towers in the background are evaporation towers. So, lots of activity taking place. On the bottom left hand side of the slide, the picture shows the drilling rig with operations undergoing there, as well as on the construction tank farm side. To the right, we've had a number of our important tanks erected, and that progress continues to march forward as well. The foundational and structural work continues to advance in accordance with plan. Moving on to the schedule as I had updated in Q1 and again now, at this point in time, lots is happening on all the key scopes at the Blackrod asset. On the civil side, our pad sites have been prepared where the remaining drilling is going to take place. Roadworks are continuing to take place to ensure the road is ready for commercial use. All the foundation and structural support for the central processing facility continues to move forward in parallel with heavy equipment showing up to site. The drilling side of things, again, as I had mentioned, is moving well on track as planned, and our key infrastructure being our gas natural gas pipeline, our diluent pipeline which will blend with the crude that's produced as well as the transport production outlet line. All those main agreements have been committed to and continue to move on track with the plan. Again, first oil expected in late 2026. On Onion Lake Thermal, we had another good quarter of stable production performance at this asset, in excess of 13,000 barrels of oil equivalent per day. The main highlight of the activity this year is continuing to tie in wells from our sustaining Pad L. As of the end of Q2, five wells had been tied in and there's still another three that are to be tied in which is expected to take place through the second half of this year. We do have a planned maintenance shutdown to take place in Q3 in September. That is going to be two weeks long and every -- everything is prepared for that shutdown. Under the Suffield area assets, again, another quarter of robust production from the assets on the oil side. Specifically, we drilled three out of the five planned Ellerslie wells with results very encouraging. And two more wells are going to be drilled with spudding activities just taking place the other day for the remainder well -- remaining wells that are planned to be drilled. On the Suffield gas production, there is a little bit of reduced optimization activity during the seasonal low gas price period. We do plan to ramp that up post summer as prices should pick up marginally going into the fall part of the year. On our other assets in Canada, you can see on the production plot, we've had a step-up in our production there and that's largely attributed to the three wells that we drilled at our Ferguson property. Those results have given us a nice boost to the production at that asset. We also have a polymer flood ongoing at our Mooney asset within the Phase 2 area that has not been on polymer flood yet. So, we expect some production growth as well within the second half of the year as well as going into 2025 from the Mooney asset. In Malaysia, another excellent quarter of high uptime and strong production results, averaging around 4,000 barrels of oil per day through the second quarter are wells that were worked over in the beginning of the year, namely in the Northeast region, A20 and A15 continue to deliver rates that are supporting the overall field production as well as a continued focus is ongoing and studies work looking into this northeast structure to evaluate further infill potential within the Malaysian asset. We did have two liftings from our Bertam field which really helped to support the strong cash flow generation in the second quarter. Moving on to France, again stable production from the Paris basin and Aquitaine basins. We continue to work up the next wave of development opportunities on the back end of the good results from the program that was completed in the prior year. On the sustainability front, as I had stated at the beginning of the presentation, very pleased to share there were no material safety incidents in the second quarter or in the full start of this year which we take a lot of pride in given that we operate all the assets within the IPC portfolio. Also, as I had touched on, we're well on track to achieve our net emissions intensity reduction goal. And, again, we issued our fifth sustainability report alongside our Q2 results which we encourage the audience to read which was a big piece of work and a really, really quality report done by the sustainability teams within IPC. So, with that, I'll pass it over to Christophe for the financial highlights.
Christophe Nerguararian: Thank you very much, Will. Good morning to everyone. Thank you for listening in during this holiday season. So, very good set of results indeed, and I would say again for this quarter. So, it was a solid production in line just slightly above our guidance, but there were strong oil prices and maybe even more importantly relatively tight differential. Even though most of our differential exposures 70% is hedged, we benefited for the remaining 30% of tight differential. So, that contributed clearly to the very good financial performance this quarter despite being in a reasonably weak gas price environment which on it's -- on the flip side helps and helped reduce our operating cost per barrel. I'll come back to that. So, on the back of a very good operational performance and strong realized oil prices, the operating cash flow this quarter stood at $102 million and EBITDA at $104 million. So, CapEx this quarter was a bit lower, and some of that is explained at $86 million. So, it's a total of $212, so we're almost at 50% of our annual guidance, just 49%. And the reason why we spent a bit less in the second quarter, for instance, is that some weather didn't help progress as much some elements as we expected on Blackrod, but that's just happening now in July. So, it's really just moving from June to July. So, you cannot give too much importance to some of this understanding. And I think the key message, it certainly doesn't mean that we're late on Blackrod. As Will mentioned before, we're exactly on track and we feel good about the timing. What's very notable, as Will mentioned as well, is that despite that heavy investment this quarter, we still generated positive cash flow of close to $8 million and posted net profit of $45 million. The net debt is at $88 million. And if, for those of you who recall, I mentioned at the previous financial quarter release that the cash burning rate of the first quarter was not representative of what was going to happen for the rest of the year. And so that's exactly what happened during this second quarter where we've burned way less cash than we did in the first quarter. And I'll come back to the reconciliation of the net debt over the first six months. In terms of realized oil prices, as I mentioned, strong oil prices with Brent averaging $85 per barrel this quarter. We continue to benefit from a reasonably strong premium in Malaysia for the two cargoes we lifted this quarter. There will be only one in the third quarter. We continue to sell our French production on parity with Brent. And as I touched upon, the differential narrowed in the second quarter to $13 per barrel to minus $13.5 barrel. And that was the result of really the seasonality. As you know it, the differential tends to be much tighter during the summer months and as well the ramp up of the Trans Mountain pipeline which finally came on stream. And you can see that Suffield and Onion Lake heavy oil production sales on parity with the WCS as well. In terms of gas prices. So, as I mentioned as well, one of the key reasons for having posted fairly low operating cost per barrel is that the gas prices have been fairly weak this quarter; and to be transparent, as you know, are continuing to be weak in the beginning of this third quarter. And as you can see on that graph where the blue line represents the US Henry Hub in US dollar per MMbtu and the dark red is the echo, the Canadian gas price. And you can see clearly for Q2, sort of a decorrelation. It was -- it has been very correlated over the last three and a half years, and now decorrelates. And so there's a specific divergence in Canada right now, and it's really driven by several factors. We had a very mild weather in winter, the past winter in Canada. So, at the end of the winter season, the storage were more full than they usually are. There's been some side production of gas. So, given the ramp up of the TMX (TSX:X) and the strong oil prices, some Canadian oil producers have increased or ramped up some of their projects, and gas has been produced as a by-product making sort of the oversupply even more stringent. So, hopefully, all of that is going to go away when Canada LNG comes on stream should start commissioning by the end of this year. So, we expect gas prices to be much stronger in 2025, but they should remain quite weak for the next two months to three months. In terms of financial results, if you compare the operating cash flow or the EBITDA for the first six months of this year, compared to the first six months in 2023, you can see that $191 million of operating cash flow and EBITDA, in each case, that was $30 million more than the performance in 2023. And if you look back, actually the production was higher for the first six months in 2023, but the differential and the realized oil prices this year are much stronger. So, that explains the best -- the better financial performance. In terms of operating cost per barrel. So, you see that we are keeping our guidance at between $18 to $19. But really, these operating costs during the first six months have been around $16. So, it's fair to say that everything being equal, we anticipate to be at the low end of that range. There might be a bit of conservatism here. In the third quarter, there will be some maintenance at our Onion Lake thermal asset. So, we will lose production for around a couple of weeks. So, that will increase the operating cost per barrel. In the fourth quarter, we have some maintenance and workovers included in this -- in this forecast. If we don't perform all of those workovers and maintenance, the operating cost per barrel might be lower than what we're showing here, which would result in us being at the low end of the range that we've maintained. Looking at the netback, so we've posted in the second quarter a very impressive operating cash flow and EBITDA netback of in excess of $23 per barrel of oil equivalent. And that is significantly higher than the base case that we guided for the full year at our Capital Markets Day. So, really, really strong performance, which is more than $4 per BOE better than the base case we had at our Capital Markets Day. If you look at the next slide and the way we reconcile the opening net cash position with the closing net debt position. So, several very interesting message here. So, the first point is that the performance, the production was very strong. The financial performance was very good, translating into a very healthy operating cash flow of $191 million. But as we all know, this year and the first six months made no exception, have been a very strong investment period. So, we've spent $212 million on CapEx and abandonment costs. And so that's actually higher than our operating cash flow. Yet, even if we are spending more than our operating cash flow in Capex, we are still dedicating a significant amount of our cash towards compensating and rewarding our very patient and happy shareholders. So, you can see here that we spend $46 million this quarter alone on buying back our shares. And as Will mentioned, it's been a continuous effort over the last few years, and we believe that by continuously buying back our undervalued shares, we are creating a ton of money for shareholders. As you can see here, the last amount here to reconcile the opening and closing cash and debt position, there's a significant change in working capital. And that was driven mainly by the CapEx, which was not paid yet at the end of last year in Malaysia and Blackrod, where we have lots -- we had lots of activity in December on Blackrod, more than in June and we've prepared some taxes and insurance cost on Blackrod as well this -- during this period, which adds to this change in working capital. In terms of finance costs on the next slide, very stable, not much to report. We're continuing to be making around 5% or 5.5% on our bank account deposits, which is very good and partially compensates the coupon we're paying under our bonds. In terms of G&A, we are spending roughly $4 million a quarter. So, the G&A remains under control at below $1 per barrel of oil equivalent. The financial results are a very healthy cash margin revenue minus cost of $200 million, gross profit of $128 million for the first six months, and a net result just shy of $80 million for the first six months. The balance sheet, the size of the balance sheet, has not evolved much, but I think it's pretty obvious what's happening if you look on the asset side of the balance sheet. We've reduced significantly the cash position from -- by around $150 million and increased the value of oil and gas assets. So, it's really just this common theme of investing, investing and investing again in our assets and creating value through spending and developing our Phase 1 Blackrod project. In terms of capital structure, not much to report. Maybe the only change is that we've extended our Canadian revolving credit facility by one year. So, now the maturity of this CAD180 million facility is May 2026. It still is undrawn in terms of cash, but we issued under that revolving credit facility another CAD35 million of letters of credit. And that is in support of the contracts we entered into with TC Energy (NYSE:TRP) to build the gas pipeline, the gas lateral, which will bring gas, which we need to steam water and inject steam in the ground at Blackrod, and as well the lateral, to export our oil production from the Blackrod CPF once we've blended it with condensate. We're looking at ways to actually move these letters of credit outside of that RCF to maintain an even higher liquidity. I'll come back to that in the third quarter results. Working on it. In terms of hedging, we didn't really change much. So, we still have roughly 50% of our WTI exposure hedged at $80. So, unfortunately, we're in the money as we speak. In terms of differential, we've hedged around 70% of our exposure at minus $15. So, we lost some money in Q2, we made some money in Q1, and we're just about breaking even right now in the third quarter. And the Brent, we've hedged around half of our exposure at $85 Brent and, unfortunately, as we speak, we're in the money as well right now. In terms of FX, the Canadian dollar weakness continues, but we were very happy we were able to lock in fairly supportive levels in the past. So, very weak CAD prices. Not as -- not as weak as they are right now, but still reasonably weak compared to our budget and projections. And so our revenues are in dollars, our costs are in local currencies. So, by hedging those currencies at a better rate than our base case or budget, we lock in some profit for the full year. So, that concludes my comments on a very, very good quarter, both on the production and financial side. Back to you, Will.
William Lundin: Thank you, Christophe. So, in summary, a strong quarter for IPC with majority of our guidance remaining unchanged. So, we have spent $212 million in CapEx through the first six months of the year. Guidance is $437 million for the full year 2024. Production through the first six months has averaged 48.6 BOEs per day, and stable operating costs just shy of $16 a barrel of oil equivalent, expecting to be at the low end of our guidance range for the full year between $18 per barrel and $19 per barrel. Robust cash flow generation of $191 million in cash flow generated from the business and minus $36 million in free cash flow through the first six months of a year as at an average Brent price of $84 a barrel. So, strong balance sheet in place with net debt just shy of $90 million and a gross cash position of $360 million as of the end of June of this year. On track to complete our normal course issuer bid program with just under 5 million shares repurchased by the end of June and going to complete that program plan two, where there's a total of 8.3 million shares to be repurchased under that program by December, early December of 2024. Sustainability focus, again, no material safety incidents in the quarter. We have our fifth sustainability report issued and really enhancing our role on financial related disclosures as it relates to our sustainability journey. So, with that, that wraps up the update presentation. So, we will open it up to questions starting from the operator. Thank you.
Operator: [Operator Instructions] And our first question comes from Teodor Nilsen from SB1 Markets. Please go ahead.
Teodor Nilsen: Good morning. Thanks for taking my questions and congrats on a strong report. Three questions from me. First, on Blackrod first order guidance. Can you just walk us through potential upside to that guidance? It looks like the project is proceeding according to plan or maybe ahead of plan. Second question is on buybacks for next year. How should we think around buybacks? Should we expect you to spend all free cash flows on buybacks for 2025 and then establish a new buyback program, or should we expect free cash flow to be spent on other things than buybacks? And the third question that is on the cash flow guidance and the range provided. Could you just walk us through the moving parts in that guidance apart from oil and gas price? Thank you.
William Lundin: Okay. Thank you, Teodor. I will take the first two questions and hand it over to Christophe for the cash flow guidance and final question. As it relates to Blackrod first oil which is expected in late 2026, it is fair to say at this point in time we are trending in accordance with plan. When we sanction this project, we did put the number of allowances in place with respect to the schedule as well as the budget in relation to implementing contingencies. This asset is located in Northern Alberta, so is subject to weather that can cause impacts or delays. And Christophe also did mention that we were slightly below our spend in Q2 and a part of that was due to wet conditions and sloppier conditions. So, for activity at site when it can be like that, activity is subdued somewhat. And so that's really why we have these allowances in place to account for known and unknowns as such. So, at this point in time, we sit comfortably to deliver within our overall planned schedule. If everything comes together perfectly, there might be a month ahead of expectation, but it's not going to be quarters at this point in time, and there's still a lot of activity to take place through the second half of this year and especially going into 2025 as well. So, we look to maintain our original sanction guidance from a schedule and budget perspective. For the buybacks for next year and 2025, we've only committed to complete the 2023, 2024 normal course issuer bid program at this point in time, which expires in December of 2024. As shareholder returns and stakeholder returns is a key strategic pillar for the company alongside organic growth and M&A, it's very much a core focus for the company to maintain shareholder returns. And as I had noted in the presentation, because we trade at a significant discount to our underlying value, we intend to continue our returns in the form of buybacks. But as we get through our detailed work program and budgeting for 2025, we progress through later this year and we have our meeting with the Board of Directors and we go through our plans for next year, that'll be the point in time where we're in a place to share our intention with next year's buyback program.
Christophe Nerguararian: Yeah. Thank you. Thank you, Teodor. And for many more details, we could take that offline. But, essentially, when you look at our free cash flow guidance, it's narrowed because, obviously, we have now the benefit of knowing what Q1 and Q2 are. And there's the main impact. The CapEx is the same to go from operating cash flow to free cash flow, the interest expense are essentially the same. Differences around -- is around OpEx and some swabbing activity around [surface] (ph) gas in the current environment where the gas prices are a bit low. We're spending less maintenance on surface fuel gas. We're getting ready to ramp that up again when gas prices are stronger, hopefully, in Q4, and that's the main reason why we were able to narrow and improve the guidance at the high end of the range for the free cash flow for the full year at between negative $146 million at $70 and negative $123 million at $90 for the remainder of the year.
Teodor Nilsen: Okay, thank you.
Operator: Thank you. And up next, we take a question from Mark Wilson from Jefferies. Please go ahead.
Mark Wilson: Thanks. Good morning, gents. Yeah, excellent results once again on operations and financials. So, a couple for me. First, on the buyback. You pointed out just how much you've reduced the dilution. You're now just 9% above that original shares outstanding from when you were spun out. Is there anything particular we should read in to getting down to the same amount of original shares other than the obvious per share value that is added? Is there anything specific about getting back to that number?
William Lundin: Thanks, Mark. In relation to our buyback program and the share repurchase slide that we show within our disclosures, as we end this year, if we complete our normal course issuer bid program and if we do renew the next program in December 2024 for the 2025 program, if we were to complete that, we would be in a position where there would be no share dilution come end 2025 since the company was formed in early 2017. Is that over -- our overall ambition to get to that level? The answer is, no, to that again as the strategic framework that we have in place and the strategic pillars that we focus on being organic growth, shareholder returns and M&A and shareholder returns, it's a key focus. And provided we continue to trade at that significant discount, we'll continue to buy back our shares. But if we're in a position where we start trading closer to our intrinsic value, we will go to a dividend paying company. But most important thing that we're focused on is really maximizing the value for our shareholders and to be in a position as a company where we're going to be turbo charging our cash flow through production growth at Blackrod, enhancing the overall value while reducing the share count really makes for an intriguing and really compelling value proposition as a company. And so, there's a possibility that we continue to do more share buybacks beyond Blackrod coming on stream. If we continue to trade at a discount or if we compress and we start trading closer to our intrinsic value, we'll begin to return value to shareholders in the form of dividends.
Mark Wilson: That's great. Thank you. And, obviously, that's the next slide. You say you're at 47% discount now. Closer to that intrinsic value would be what sort of discount to ask about?
William Lundin: Yeah, no, it's a good question. We don't have a specific discount metric that we adhere to where if we got to get to 20%, then we go to dividends in terms of a discount to our net asset value. We'd like to see that compress closer to a direct correlation to that amount as well. As I had stated earlier in the presentation, as we walk forward, every day we're spending more money on Blackrod to sunken CapEx behind us. We unwind that discount. It's going to be more and more valuable. So, we see -- we believe in oil prices and think it's going to be strong going forward and we think the underlying value of the business is going to continue to appreciate through time as well. So, we would like to see our trading levels be at a premium and believe that's where we should be relative to our intrinsic value. However, if that's not going to be the case, then we're going to buy back our cheap stock all day, which we believe is a winning formula for our shareholders.
Mark Wilson: That's great. It's very clear. And then if I may just ask one more. Just change tack. You published your fifth sustainability study. Thank you for that. We'll be having a look at that today. But one question that stands out to me. So, you're going to get to your 20 kilogram CO2 per barrel target and maintain it through '28. Blackrod is coming on stream. It's a SAGD project. It's probably the first greenfield SAGD in years. You could tell us that. How is it you're able to maintain a lower CO2 level with that project in the portfolio? And maybe if you could tell us what is the actual intensity per barrel of that project? Thank you.
William Lundin: Thanks, Mark. Yeah, that's correct. Within our sustainability report, we do have a section within the Blackrod project specifically highlighting our operational excellence and responsible development that's taking place within that development as well as within our overall climate strategy highlighted within the sustainability report. We really have a four pillar approach to our opera -- our emissions reduction initiatives, which consists of operational emission reduction projects, small and large projects, as well as utilizing the carbon offset market. So, as things stand today, there are a number of small and large projects that are being reviewed and investigated by the company. As well, we have partnerships with First Climate and have secured offsets to be able to utilize against our emissions intensity. And so, with the combination of operational emission reductions as well as utilizing the voluntary carbon offset market, we put ourselves in a position to be able to follow through on our plans, which is to reach 20 kilogram per BOE come 2025 and to maintain that level through to the end of 2028. And as we continue to work through larger scale emission reduction projects and initiatives, that will be a key focus and a key theme that the company continues to look at. But until we have a tangible plan to sanction something that's really going to reduce our emissions like a carbon capture and storage investment into one of our thermal assets, we want to have that project sanction matured and put in place before we start taking into account emission reductions associated with that. So, in true IPC fashion, everything we put out right now has a strong plan behind it. And as we continue to investigate these larger scale emission reduction projects, if we're in a position where it economically makes sense and fiscal support is, is going to be where it needs to be, then we're going to be in a place to make a material change to our overall emissions and drop them even further than what's forecasted. And for Blackrod, specifically, it is, heavy crude that's in the ground. So, it requires a lot of energy to produce that crude. And the overall intensity for the project, for the life of the project, is around 80 kilogram per BOE roughly for that asset, which, of course, doesn't take into account any future carbon capture and storage initiatives that, again, are under investigation.
Mark Wilson: Got it. Thank you. Very clear. I will hand it over.
William Lundin: Thanks, Mark.
Operator: [Operator Instructions] And we now move on to Tom Erik Kristiansen from Pareto with our next question. Please go ahead.
Tom Erik Kristiansen: Thanks for taking my question, and congrats, Will and Christophe, on another good quarter. Just looking forward a bit, how do you compare incremental CapEx opportunities going forward with buying back even more shares than you're already doing? And further to that, on M&A, do you see opportunities in the M&A market that can compare to the expected returns of functioning at second phase at Blackrod? Thanks.
William Lundin: Thanks, Tom Erik, and as it relates to our capital allocation plans and trying to have a balance in terms of the organic growth investment alongside our shareholder returns, and maintain an opportunistic approach to grow through M&A, this year is, of course, a peak investment year for the company being a guidance of $437 million. We do have a number of projects that are short cycle mature and ready to be sanctioned. However, we're making the decision as a company, as we have at the start of this year, to reduce some of the base business activity in order to accommodate shareholder returns. And so the way that we've looked at this despite some natural production decline by way of reducing our share count, the relative production per share figures shouldn't be too different than what it was from the year prior. So, it's really a balance of attack of trying to maintain discipline on the capital and overall expenditure front and maintaining shareholder returns and trying to be in a position where we're not going to put our overall balance sheet at risk and stretch ourselves too far. So -- so, overall, way that we look at our capital allocation as a company. And on the -- on the M&A -- on the M&A front, we don't have any imminent deals that were in the thick of it at this point in time. There has been some activity that we've noticed in Canada and we've looked at a few different processes and opportunities, but there hasn't been the right asset or company that has really struck our interest. However, we remain opportunistic and are constantly screening different opportunities. And so you -- it's all going to be coming down to looking at -- it would be cheaper to invest in our own portfolio or more economic to do so, or more economic to buy back our own shares or buy an asset. If there's something that's transformational, we do not want to dilute our shareholders. However, if the right opportunity presents itself as we had done so with the BlackPearl transaction, we got to -- we got to remain opportunistic as a company to maximize the value looking forward.
Tom Erik Kristiansen: Okay, thanks.
Operator: Thank you. And as there are currently no further telephone questions, I'd like to hand the call back over to the presenters for any questions from the webcast.
Rebecca Gordon: Okay, so the first question that came from the web is to Will. Could production increase in Malaysia in the future?
William Lundin: Yeah. Malaysia has been the gift that keeps on giving, for lack of a better term, very, very strong operational performance from this asset, an exceptional team in place there that are managing the field there and the FPSO. At this time, we don't hold any wells within our 2P reserves or any undeveloped locations, but we hold several locations within our contingent resources. And as I had stated, within the Malaysian portion of the Q2 update presentation, there is a specific target that we're honing in on within the Northeast structure. So, provided if we are to make a strategic decision and drill another well in Malaysia, that would be the main driver in order to increase the production within the Bertam field.
Rebecca Gordon: Another question on OpEx to Christophe. Will you consider hedging OpEx costs?
Christophe Nerguararian: Well, so I don't know what that means, hedging OpEx, but, yeah, we can clearly hedge some of it on the gas front. What we've done already is on the FX side. We've hedged 50% for Canadian OpEx [indiscernible], actually a bit more like two-thirds. So, yeah, we're doing it already and it's, I believe, a good idea and a prudent way to secure good results for the whole year.
Rebecca Gordon: Would you be willing to hedge more production for the rest of the year and for 2025 if you see the right prices? And which main factors are you taking into account in order to do so beside prices?
Christophe Nerguararian: Yeah, it's a very good question, and it's a debate that, frankly, we constantly have. If you look at IPC since inception, with the exception of 2024, we've never hedged the benchmark. We've never hedged WTI or the Brent. And the reason is that when we don't have very significant CapEx or very significant debt maturities, we believe we want to leave the way you manage the oil price risk to our shareholders. Now, in 2024 in particular, given how large the investment is, we felt it was prudent to hedge a portion of our WTI and Brent exposure. And we're certainly looking at the market very closely for next year and at the right price, which would probably be around $80 Brent, which was our base case level this year and might be again our base case for next year even if we've not finalized our budget for next year. Those are the kind of levels where we would probably consider doing a bit more hedge to secure the operating cash flow to -- until Blackrod first oil. And next year is on next -- is the final big CapEx here for Blackrod.
Rebecca Gordon: Okay, that's all the questions we have time for today, so I'll pass back to you, Will.
William Lundin: Okay, thanks very much. And so that concludes our quarterly update presentation. Thanks to everyone who's tuned in today and I look forward to continuing to deliver strong results for the company going forward. Thank you.
Christophe Nerguararian: Thank you.
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