International Petroleum Q2 Earnings Call Highlights

International Petroleum TSE: IPCO said second-quarter production and operating costs were in line with guidance as the company reached first oil at its Blackrod development, marking a transition toward higher production and free cash flow later in 2026.

President and Chief Executive Officer William Lundin said average production totaled 42,200 barrels of oil equivalent per day in the second quarter. The company maintained its full-year production guidance of 44,000 to 47,000 BOE per day and operating-cost guidance of $18 to $20 per BOE. Second-quarter operating expenses were $19.10 per BOE.

IPC reported operating cash flow of $67 million for the quarter and $134 million for the first six months of 2026. Free cash flow was positive $4 million in the quarter, which Lundin said was the company’s first quarter of positive free cash flow since 2023 as spending on the Blackrod build-out declined.

Blackrod First Oil Achieved Ahead of Schedule

The company achieved first oil at Blackrod at the end of May, ahead of its prior schedule and within the project’s $855 million growth-capital budget. Lundin described Blackrod as IPC’s largest organic growth project since its formation in 2017.

Five well pairs are currently online at the Canadian thermal project, with additional pairs expected to be converted when required conformance conditions are met. Blackrod Phase One is designed to reach plateau production of 30,000 barrels of oil per day. The company said it has regulatory approval for production of up to 80,000 barrels per day at the asset.

Lundin said Blackrod’s Phase One has 311 million barrels of 2P reserves, with an estimated net present value of about $1.4 billion using a 10% discount rate and the company’s year-end 2025 reserve auditor price assumptions. IPC cited a Jan. 1, 2026, break-even price of $47 per barrel of WTI for the project.

The company expects production growth to become more visible during the second half of the year, with a larger contribution in the fourth quarter as Blackrod moves from an inventorying period toward consistent sales. IPC’s current production mix is approximately 70% oil and 30% natural gas, but management expects production to become more oil-weighted as Blackrod ramps up.

Despite first oil arriving ahead of schedule, Lundin said the company is keeping its full-year production forecast unchanged because Blackrod will require about 40 well pairs online to deliver its 30,000-barrel-per-day plateau rate. He said field performance has been positive and IPC expects to reach at least the midpoint of its guidance range, with potential to exceed it.

Cash Flow Outlook and Capital Spending

IPC maintained its 2026 capital spending forecast, including decommissioning spending, at $163 million. The company spent $49 million in the second quarter and approximately $120 million in the first half, or roughly three-quarters of the annual budget.

The capital budget had been increased during the first quarter from the company’s original Capital Markets Day plan, largely due to the sanctioning of short-cycle investments in France and the Suffield area following stronger commodity prices. Lundin said IPC retains flexibility to adjust its program during the second half because it operates all assets in its portfolio.

For the full year, IPC forecasts operating cash flow of $230 million to $330 million and free cash flow of $10 million to $110 million, based on Brent crude prices of $70 to $90 per barrel for the remainder of 2026. The assumptions also include a $5 Brent-to-WTI differential and a $14 WTI-to-WCS differential.

Senior Vice President of Corporate Planning and Investor Relations Kristof Nagueryan said the company expects operating cash flow in the third quarter to be in line with or below second-quarter levels because of workover and other operating activity. However, he said the fourth quarter should show a stronger increase in free cash flow as Blackrod production ramps up further.

IPC expects operating costs per BOE to rise temporarily in the third quarter due to production-enhancement activity, before declining in subsequent quarters as Blackrod volumes increase. Nagueryan said the company expects full-year costs to remain within the $18-to-$20-per-BOE guidance range.

Oil Pricing, Hedging and Balance Sheet

Average dated Brent pricing exceeded $100 per barrel during the second quarter, while management cited average dated Brent, WTI and WCS prices of $104, $92 and $78 per barrel, respectively. Approximately 40% of IPC’s oil-production exposure had been hedged during the quarter, limiting the company’s full participation in higher benchmark prices.

As of July 1, IPC no longer has benchmark WTI or Brent hedges in place. The company retains hedges tied to Canadian heavy-oil differentials, transportation costs and natural gas prices. Nagueryan said the differential and transportation hedges were in the money, with about $6 million of positive mark-to-market value.

Management said it intends to take a lighter approach to benchmark oil hedging as major Blackrod capital requirements recede and the company has no near-term debt maturities. Nagueryan said IPC will focus more on securing transportation economics and WTI-WCS differentials, while remaining cautious on hedging dated Brent or WTI prices.

Net debt stood at $509 million at quarter-end, down about $4 million from the prior quarter. IPC had more than $150 million of undrawn credit availability. Its capital structure includes $450 million of 7.5% bonds maturing in 2030 and a Canadian revolving credit facility equivalent to $250 million, of which C$100 million was drawn at the end of the quarter.

Capital Allocation and Portfolio Plans

IPC said it has repurchased 77 million shares since inception at an average price of SEK 79, or C$11, per share. The company can repurchase up to 6.5 million additional shares through its normal course issuer bid, representing 10% of the free float.

Lundin said management is monitoring liquidity and market conditions before becoming more active under the repurchase program. He also said a dividend is less likely in the near term because management believes share-price appreciation offers greater potential for shareholder value creation at current levels.

On portfolio strategy, Lundin said IPC sees continued cash-generating potential in its existing international and Canadian assets and has no imminent divestment processes. The company remains open to acquisitions if a suitable opportunity arises, but said any transaction would be measured against internal organic opportunities and share repurchases.

IPC did not provide a timeline for sanctioning Blackrod Phase Two, saying future expansions remain within contingent resources and are being evaluated. The company expects to release its detailed 2027 budget at its 2027 Capital Markets Day.

About International Petroleum (TSE:IPCO)

International Petroleum Corp is an international oil and gas exploration and production company. It is engaged in the exploration, development, and production of oil and gas. Geographically, the company holds a portfolio of oil and gas production assets and development projects in Canada, Malaysia and France. It is based in Canada and derives revenue from the sales of gas, crude oil, and natural gas liquids, of which key revenue is derived from the sales of crude oil.

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