Hello, and welcome everyone to IPC's third quarter results update presentation. I am William Lundin, the President and CEO, and here today with Christophe Nerguararian, our CFO, as well as Rebecca Gordon, our SVP of Corporate Planning and Investor Relations. I will start with the highlights and touch on an operational update per region. Then Christophe will expand on the financial highlights for the quarter. After the presentation, we will take questions which can be submitted from those tuned in through conference call or online via the web. Starting with the highlights, our Q3 production was in line with forecast at 44,000 barrels of oil equivalent per day, and our full year guidance for 2026 is maintained and unchanged at 44,000-47,000 barrels of oil equivalent per day.
Operating costs per unit production settled in at $21 for the period in Q3, and our full year OpEx is also maintained at $18-$20 for 2026. On the heels of successfully delivering the Blackrod phase I project, we are very pleased to see steadily growing production from this asset, with nameplate production of 30,000 barrels of oil equivalent per day expected by the end of 2027. Capital expenditure guidance has been upped to $185 million for 2026, mainly due to the sanctioning of additional projects that are thermal assets in Canada, which I will elaborate on in the subsequent slides. The company generated strong operating cash flow for Q3 at $79 million, and the rest of the year outlook has been updated to reflect the higher pricing environment.
2026 full year operating cash flow forecast is at $275 million-$350 million, assuming $80-$110 per barrel Brent for the remainder of the year. Free cash flow was up materially for Q3 relative to the prior quarter. Notwithstanding the added capital, we generated $27 million in free cash flow in Q3, and our full year free cash flow guidance is amended to $35 million-$110 million. Our net debt saw a good step down from the prior quarter, currently standing at $473 million in net debt at the end of September. Leverage in the form of net debt to EBITDA has reduced by approximately 10% from Q2 to Q3. We have access to around $200 million of liquidity availability through our Canadian bank syndicate.
A non-core asset sale took place in the quarter, and we are pleased with that valuation, representing a net book gain of CAD 62 million. IPC benefited from being fully exposed to Brent and WTI prices for the third quarter, and we remain unhedged going forward with respect to those benchmark oil prices. There are some differential hedges in place for the rest of 2026 between WTI and WCS, and also into 2027. Christophe will provide more detail on that in his section of the presentation. We have repurchased 1.3 million shares under this NCIB program, and we have the intention to renew the next NCIB program in December.
Moving on to the production and operating cost guidance, as can be seen on the production chart at the bottom of this slide, we have a great track record of delivering within guidance, and we remain confident to do so for the full year 2026. Noting the full year average of 44,000- 47,000 barrels of oil equivalent per day is a full year average. The first three quarters were in line with guidance for those reporting periods, and we are thrilled to see the higher production quarterly average come through Q4, which will pull our overall production guidance within the range for the year. As Blackrod ramps up, our weighting towards oil will increase relative to the current production mix average for 2026, which of course should translate into higher cash flow generation in the future.
It has really been an amazing evolution of oil prices throughout this year, which has translated into increased operating cash flow for the company compared to the opening year Capital Markets Day OCF guidance. $214 million is the year-to-date operating cash flow as of the end of September, with a sizable range for the rest of the year between $275 million- $350 million, and only a couple months really left to the end of 2026. This demonstrates the torque IPC has to higher commodity prices. For the low case for the rest of the year, we assume a Brent price of $80 with a Brent to WTI differential of $5, and a WTI to WCS differential of $22 for the quarter, noting October was already set in the mid to high teens, and November and December we assume a $25 differential from WTI to WCS.
For the high case of Brent, we are assuming $110 per barrel with a Brent to WTI differential slightly wider at $10 a barrel, and the same assumption on the differential for WCS to WTI. In light of the high oil commodity pricing environment, as well as taking advantage of our operatorship as we have done in the past, we have added some incremental projects to our 2026 capital expenditure program. Raising the full year aggregate capital spend from prior forecast level of $163 million to $185 million, inclusive of decommissioning spend. On the international side, we completed the drilling campaign in France, and in Canada, we completed some capital activity at our properties in Southern Alberta.
Two infill wells at Onion Lake Thermal were recently drilled, and we expect those to be tied in at the end of the year with the production contribution to come in at the end of the year and into the new year. As well, additional resource maturation works at Blackrod has also been included as we look to grow the bookable volumes at this asset. That activity will also commence at the end of this year and follow into 2027. Year-to-date free cash flow is a positive $14 million, with year-to-date prices of $94 Brent and a differential from Brent to WTI of $10, and between WTI and WCS of $14, as shown in the brackets. The full year free cash flow is estimated at $35 million to $110 million for the rest of 2026.
Very pleased to be returning to positive free cash flow generation as we inflect from the building out of Blackrod phase I to production ramp-up in harvest mode. Since the company's formation of International Petroleum Corp in 2017, IPC has repurchased in aggregate 78 million shares at a fraction of our current share price. When comparing the average repurchase price of all those shares compared to our current share price, that represents in excess of $1.3 billion in value created. We repurchased, again, 1.3 million shares under the 2025, 2026 NCIB program, and we intend to renew the next program in the beginning of December. As we grow production and cash flow, we believe the compounding effect from share buybacks is an attractive form of shareholder returns.
We're laser-focused on maximizing our per-share metrics, and we look forward to updating this slide in the new year when our production figure has a six handle in front of it as a result of the anticipated growth in production. Blackrod, as previously announced, the phase I project was delivered ahead of schedule and on budget. The team are doing an excellent job at site, managing the climbing throughput through the state-of-the-art central processing facility. Current spot rates, as shown on the production graph below, are in excess of 10,000 barrels per day, with 12 well pairs that were online at the end of Q3 and around 18 well pairs online now as we speak. We're maintaining the guidance of plateau production rates of 30,000 barrels of oil per day expected to be achieved by end 2027.
The map on the right shows the pad drainage patterns with the denoted drilled wells contributing to the initial production volumes. To recap, these are 1,400-meter-long horizontal wells with 50-meter well spacing, so significant amount of drainage points, and we're seeing solid conformance thus far. Further to the phase I progress at Blackrod, we announced some additional resource maturation works to commence at the end of 2026 and continue into early 2027. This will support additional resource conversion to reserves towards the Northeast area of this field. With the heightened M&A activity around SAGD assets in Canada, along with the exciting fiscal term improvements and enhancements, the backdrop for Blackrod and IPC has never been better as we look to grow phase I and beyond.
As a recap, we have 100% working interest and 100% ownership of Blackrod, which has a total recoverable volume of over 1.4 billion barrels, inclusive of 2P plus 2C volumes. We have regulatory approval to produce up to 80,000 barrels of oil per day. phase I targets the 30,000 barrels of oil per day. Blackrod reservoir is a massive uniform sandstone that's very homogeneous, with no vertical baffles or barriers. It's predictable, scalable, and very much repeatable. We're super excited to unlock this transformational asset. Onion Lake Thermal production for the third quarter was in line with the guidance for the period at this asset. We did drill a couple more infill wells during the quarter, as can be seen on the graphic to the right, and we expect those to contribute closer to the end of this year and into the beginning of 2027 when they're put on stream.
Moving to the Suffield area assets, which continue to deliver really stable production. We stand to benefit from the four production wells that we recently drilled in the Brooks area, just adjacent to the Suffield block within the Suffield area, and early indications look very positive. Internationally, France and Malaysia have been exposed to extremely strong Brent pricing year- to- date. Notably, it has been a record premium year for Bertam, and in France, we recently completed four sidetracks with positive results, as we can see. The first well that was drilled is delivering strong rates of around 500 barrels of oil per day. This can be seen in the bottom right production plot. That well is close to 1-km long horizontal drain. It is one of the longer horizontal wells in the basin.
We are very pleased to see this production response in the FAB field that did not have any horizontal producers, particularly within this field previously, so pleased with that. With that, I will hand it over to Christophe to expand on the financial highlights for the quarter.
Thank you very much, Will. Good morning, everyone. Indeed, a very good quarter, both from an operational performance front and supported by very high oil prices. Production during this quarter was 44,000 barrels of oil equivalent per day, 43 year-to-date on average. During that third quarter, we saw the oil prices rebound very significantly in September, with dated Brent averaging close to $97 per barrel during this quarter. We are maintaining the guidance for operating cost per barrel of oil equivalent for the whole year.
They were a bit higher during this quarter due to some workovers in Malaysia, and also the fact that bringing the first production on stream at Blackrod with some fixed elements in the OpEx there, on a unit basis at Blackrod, the costs are a bit higher, but of course, they are going to trend lower and lower as we head into Q4 and subsequently in 2027. The operating cash flows and EBITDA for the third quarter was in excess of $79 million, with some capital expenditure at $37 million that translated into a very healthy free cash flow for the second quarter in a row at $27 million for this quarter. The net results sits just shy of $60 million, helped by the positive gain on the asset disposal at Mooney.
All of that translated into an improved, i.e., a reduced net debt at the end of the quarter at $473 million. Of course, you can see here that the realized prices were very strong, especially in Q3. We have seen very significant dated Brent premium on top of the ICE Brent, and that meant a very strong realized price in Malaysia when we sold the cargo in September at a very, very high premium to the Brent.
Otherwise, in France, we are continuing to sell on parity with Brent, and that goes the same for Suffield and Onion Lake in line with WCS. It has been a bit patchy, the first sales at Blackrod, but we will give you more information when we move into Q4 and 2027, and you should expect also Blackrod to sell on parity with WCS. Gas prices remain relatively weak, of course, during this third quarter.
That includes the months of July and August, which are traditionally, from a seasonal perspective, a bit weak, some weak months from a gas perspective. I think one of the positive elements here for the mid to long term is the new government in British Columbia that has expressed its strong support and willingness to improve the infrastructure between British Columbia and Alberta from a gas pipeline infrastructure perspective, and also the willingness to support the gas industry across those two provinces. That should bode well for the future gas prices. If you look at the year-to-date operating cash flow and EBITDA, you can see here that we are both, for nine months, the year-to-date numbers are well in excess of $200 million, both on the EBITDA and operating cash flow, and posting better results than last year for the comparable period.
In terms of operating costs, as I mentioned earlier on, some slightly higher costs during this quarter that was anticipated with the increased workload in Malaysia, and also the first barrels at Blackrod, which are a bit more expensive to produce. But all of this, you can see, is going to improve going into Q4, and we are expecting the trend of OpEx per barrel reduction to continue moving into 2027. In terms of netback, we can see here a cash margin in excess of $20 per barrel in the third quarter, and operating cash flow and EBITDA just shy of $20 during this quarter. So very, very strong cash flow generation during this quarter.
From a liquidity perspective going forward, there was an announcement in Canada called, or so called the productivity mega deduction, which is a Canadian federal measure that is going to allow all companies in Canada to expense 100% of the CapEx spent in Canada from the 15th of September this year. So this is going to improve further the liquidity by allowing us to depreciate 100% of our CapEx in Canada from the 15th of September this year. Looking at the net debt, so it is reduced from the end of 2025 from $484 million down to $473 at the end of September, and you should expect that trend to continue.
Our leverage is around slightly under 1.8 times, if you compare our net debt to our 12 months trailing EBITDA at the end of September, and you should expect that to continue to improve, i.e. reduce until the end of this year and moving into 2027. Just a comment here, you can see that we are back to a more of a normal stage where our operating cash flow more than cover all of our CapEx, and that liquidity buffer is going to increase further with Q4 and going into 2027. You can see here the positive impact of our sale of assets with more than $50 million year -to- date, and we bought back shares for $27 million, so 1.3 million shares, which we bought back and canceled mostly in Q3.
Looking at the financial items, that is very stable, quarter to quarter with around $10 million in bonds coupon and revolving credit facility interest, very stable month-on-month and quarter-on-quarter. The G&A remain very stable as well, slightly in excess of $4 million per quarter or around $1 per barrel of oil equivalent. The financial results for the first nine months, you can see here close to $600 million of revenues for the first nine months, a cash margin of close to $220 million, gross profit of $128 million, translating into a solid net profit of $83 million for the first nine months. The balance sheet, you can see here in big aggregates, you can notice the increased current assets as well as the increased current liabilities. This is really a reflection of increased production and increased value in our production.
The receivables are very significant at the end of September because we sold a cargo in Malaysia and we are increasing our sales in Canada with Blackrod, so increased current assets from the future receivables. The same goes with liabilities with quite important activity still in Canada. The capital structure is very stable. We repaid our French loan in the second quarter, so we were really left with $400 million of bonds. The coupon here is 7.5%, and as you may recall, we will have a mandatory $25 million repayment or amortization under the bond starting in April 2028, so after plateau, and that will continue every six months. The Canadian RCF, which is roughly for total amount of $250 million, we had less than $50 million drawn at the end of September, so in excess of $200 million of liquidity.
In terms of hedges, no new hedges, but if you, on the oil front, but if you look forward, so during the second half of 2026 and the fourth quarter, we have some hedges for the differential at -$ 12.50, which is going to generate gains again in the fourth quarter. We also have some transportation differential hedged for around 10,000 barrels at -$ 7.50 for 2027. We decided to hedge because the local currencies in where we operate in Canada, France, and in Malaysia, those local currencies were relatively weak compared to the U.S. dollar and were spending our OpEx in local currencies, so we decided to hedge for 2027 roughly between 40% and 50% of our OpEx going forward. With that, I let Will conclude this good quarter.
Thanks very much, Christophe, and indeed a strong quarter for the company. Overall here to conclude, production guidance is maintained for 2026 with major growth expected as Blackrod progressively ramps up production. Year-to-date production is around 43,000 barrels of oil equivalent per day, and we expect a 50% increase to that level in corporate rates by 2028. We have huge resource upside with over 0.5 billion barrels of 2P reserves and excess of 1.2 billion barrels of 2C resource as certified by an independent reserve auditor at year-end 2025. Strong cash flow in 2026 with a range of $275 million-$350 million for the year, and a clean balance sheet with good access to liquidity of over $200 million in reducing leverage.
Differentiated shareholder returns in the form of buybacks with a whopping reduction of more than a quarter of our absolute shares outstanding when comparing to our current shares outstanding against the amount that was at the beginning of 2022. There's been major growth in our portfolio, has been achieved through accretive M&A, a total of five acquisitions. As previously mentioned, a non-core asset disposal took place in the quarter for gross proceeds of CAD 70 million. I would like to thank all the members of the Mooney Asset team for doing a great job under the IPC tenure and wish you all the best for the new company that the asset has been transferred over to.
Mooney had minimal book value assigned upon the business combination with BlackPearl Resources, delivered around $30 million in free cash flow since 2019, and had a net gain of $45 million with an effective date sale in May, and the transaction closed the beginning of August. On the ESG side, our sustainability report was issued in August, making our seventh successive annual report. So that concludes our presentation, and I'll pass it now to the operator to initiate our Q&A segment of the presentation.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We will now take our first question from Christoffer Bachke of Clarksons Securities. Your line is open. Please go ahead.
Good morning, guys. Christoffer from Clarksons here, and congratulations on a strong quarter. I have a couple questions today. First is on the Blackrod, the ramp-up, and with the production now exceeding 10,000 barrels a day, how is the actual well performance tracking against your initial expectations, and what do you see as the main risk to reaching the 30,000 plateau level by the end of 2027? As a follow-up on that, and given, of course, the encouraging early results, what are the key milestones you need to see before moving forward with the phase II, and how quickly could the potential development progress?
Okay, thanks very much for the questions there, Christoffer. As you noted, the Blackrod production is in excess of 10,000 barrels per day, of course, which I highlighted as well on the presentation. Overall, well performance has been fantastic, as we've been seeing each of the well pairs have been contributing in line, if not slightly ahead of their type curve estimates for those well pairs. That's been very positive to see and something that we've always pounded the table about this asset, that there was a significant amount of delineation and pilot well pair testing prior to making the commercial decision. To see this translating into fruition in terms of the production performance is very satisfying. Looking forward to reaching the plateau production rates of 30,000 barrels per day.
We don't see this as any major risks to getting there beyond standard oil field risks of ramping the asset up. We got a lot of penetrations, reservoirs performing well. The topsides and facilities are working well. This facility is ultimately designed to handle 30,000 barrels of oil and 90,000 barrels of steam. As we're progressively ramping up those levels, it's all hands on deck between the operator teams on there to make sure the plant is functioning properly, which we're pleased to see is the case through the start of operations there. As we look forward to future phase expansion, of course, as I had announced, we are increasing some of the resource maturation works at this asset.
We also are carrying out some early engineering studies for the debottlenecking expansion project at the Blackrod phase I asset, and there is further growth optionality to build an entirely new central processing facility at this asset. Having 100% working interest, positive indications on phase I ramping up, puts us in a great place overall for planning for that next phase expansion. As we continue into 2027, we look to see production volumes ramp up as well as cash flow generation, and we'll be continuing to mature the opportunity set and growth projects, be monitoring commodity prices in our overall balance sheet, which, subject to all of those elements working in the right direction, should put us in a place to make a future phase expansion. At the earliest, we would say, in probably beginning of 2028, subject to all those elements that I had mentioned.
The last one, if I may, and that's on M&A. I'm just curious to hear how you're assessing potential acquisition opportunities in the current market and whether you would prioritize opportunities within your existing core regions or consider expanding into new geographies in that sense.
Yeah, on the M&A side of things, we always say, M&A is in our DNA. We are opportunistic, and we don't have any limitations in terms of geographical sandbox that we have to stay strict to. We're opportunistic at our core, and we're really focused on accretive acquisitions that can maximize value for our shareholders. With us being very long resource and having an excess of 1.2 billion barrels of contingent resource, with the lion's share of that sitting at Blackrod, we're very much grounded when we're looking at growing through M&A to ensure that the opportunity set that we already have within, that we're not diluting that and doing a transaction for the sake of doing a transaction. We have been actively involved in several processes in Canada and elsewhere in Southeast Asia this year.
None have translated into a successful result, as of course, that would have otherwise been made public. It's been a remarkable year on the M&A landscape, especially for peers of our similar size. We've seen in Canada the Headwater combination with Tamarack Valley. We've seen BlueNord go to Vår Energi, a company based in the North Sea there. We've seen Capricorn also been sold as well, Egypt to DNO. There's been a lot of activity, and of course, notably Athabasca recently went to Cenovus, who just acquired MEG Energy. It's been very active on the M&A landscape, and especially as it looked at the oil sands assets in Canada, there's clearly a scarcity of sizable new major assets, and to have Blackrod within the portfolio is a huge cornerstone growth element to the portfolio.
No, definitely. Thank you very much, Will. That's all for me.
Thank you. We will now take our next question from Teodor Sveen-Nilsen of SB1 Markets. Your line is open. Please go ahead.
Good morning, Will and Christophe. Thanks for taking my questions, and congrats on a strong quarter. A few questions from me. First, on the Mooney asset sale, could you remind us of the 2C resource that was booked on that asset? I assume there were no 2P booked on it. Second question, that is on the small additional CapEx that you guide for this year. How should we think around production impact of that CapEx? My third question, that is on exit rate production for this year. Of course, you expect higher production in Q4 than in Q3, and also year- to- date, but how should we think around the production level going into January 2027? Thanks.
Thanks, Teodor. I will touch on the Mooney. I might have to ask you to repeat the production question after I answer the Mooney question, as I did not hear it fully through the microphone there. But Mooney was an asset not necessarily core within the portfolio. In terms of volumes, it had around 4 million barrels of 2P reserves assigned to it, so translates into a circa $12 per barrel in the sale proceed, which is quite accretive relative to the rest of the portfolio and 2P volumes traded across our enterprise value. On the production side, do you mind repeating the question there, Teodor?
Yeah. Well, there were actually two questions on production. The first was the additional CapEx that you spent this year. Should we expect that to impact production anything going into 2027? The second question, that was on expected exit rate production this year.
Thanks for that. That was very clear. Yes, the additional CapEx elements that we have added in Q1 that was announced, and now in Q3, some drilling in Southern Alberta. We talked about the Brooks 4-well campaign. We have done some infills at Onion Lake Thermal as well. Of course, the France program, as I had highlighted, is starting to contribute now. But the majority of these investments are more back-end weighted with production contributions and running into 2027. With respect to exit rates, we have not guided a particular exit rate. Of course, there is a pretty wide range to exit the year, largely from the Blackrod asset. But what I can say is we expect to be in excess of 50,000 barrels of oil equivalent per day, for sure, exiting this year.
Okay. Understood. Thanks.
Thank you.
Thank you. Once again, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. We will pause for a brief moment. Thank you. We will take a follow-up question from Teodor Sveen-Nilsen. Your line is open. Please go ahead.
Yeah. Thanks. Just one question on M&A. You highlighted there has been a very active M&A environment globally the past quarters, and totally agree on that one. Should we think of IPC being a net buyer or a net seller over the next few years?
Yeah. I would not put us in one particular categorization. Of course, we remain steadfast to maximizing our value for our shareholders, and we are opportunistic at our core, and it is a very volatile industry, of course, that we are in. So, subject to market environment pricing, it depends, and of course, willing sellers of assets and value expectations. We are generally opportunistic, and we consider ourselves to be ruthless capital allocators. Provided a right opportunity comes forward for an asset coming to market or a company in particular, if it fits the bill of what we think to be a complementary asset within our portfolio, we will take a close look at that, but be grounded by ensuring any acquisition that we make is accretive or it is absolutely transformational that takes us to the next level.
On the disposition side, we are not running any active sales processes. We are opportunistic at our core here, so that is how we look to approach the A&D side of the business.
Understood. Sounds reasonable. Are there any regions that we should rule out that you are looking at in a potential expansion scenario?
No.
Okay. That is fair. Thank you. That is all for me. Thanks.
Thank you. We have no further questions. Thank you. I will now hand it over to the company.
Thank you very much, operator. Just a couple of questions here, very detailed on 2027 on the asset level and free cash flow. Obviously, at the moment, we are going through our budget process, and we will present all of those numbers on our Capital Markets Day next year in the detail that is requested. Just moving on to some other questions here. Christophe, question from Jonas from Clarksons. A question in relation to hedging. Beyond some hedges related to the differential, you have limited direct oil price hedges. Will you be considering putting on hedges given the current elevated oil price environment and also considering potential future investments in Blackrod?
Yeah. No, that is a very good question and one which is being discussed inside the company at this stage. Up to now, we have taken the view that the market is quite volatile, but the prices are very dislocated and pretty strong. We have limited, we have no significant debt maturities into 2027, and we are expecting to have also a limited CapEx program, at least immediately in 2027. For those two main reasons at this stage, we have decided not to hedge any benchmark oil prices. We follow the backwardation of the oil curve very closely, and if we believe that there are really good opportunities, we may consider it. At this stage, the policy of the company has been stated very clearly. Absent any significant debt maturities or significant CapEx, we are not going to hedge benchmark oil prices.
Okay. Thanks, Christophe. Will, how do you prioritize balance between different capital allocation priorities?
Yeah, it is a great question, and as we are transforming and inflecting here to a period of generating much more free cash flow as we have completed successfully the build-out of Blackrod, we have quite a good optionality set in terms of organic growth potential, shareholder returns, and M&A. Those key capital allocation and strategic pillars for the company are one that we constantly review and look to strike the best balance subject to the market conditions in order to maximize our value ultimately. We are not strict with our shareholder return framework, but we look with the climbing production volumes, with further growth optionality in the portfolio, and shareholder returns reinitiating this year, we feel like we are poised to be able to really do it all.
Great. Perhaps quite a topical question to finish off, Will, from David Lindskog, and it is, has AI changed the way you work in any way, thinking in terms of well optimization drill programs, and can it have a material impact on your business?
Yeah, for sure. I mean, IPC, I would characterize us more as a fast follower rather than a company that is going to be implementing R&D and early-stage technologies. However, with that being said, there has been an amazing evolution of artificial intelligence and platforms that really can drive efficiency and overall day-to-day business activity across all industries. We are definitely partaking in some of those platforms that help drive those efficiencies as it comes to drilling and the application towards our assets specifically with data management, data interrogation. That is something that is definitely under review and being looked into. I think as time progresses and this artificial intelligence continues to evolve and come stronger and stronger, it is going to undoubtedly bring additional efficiency to the business all around.
Okay, very good. That is the questions we have time for today, so thanks everyone for tuning in.
Yeah, thanks everyone for tuning in to the third quarter results update presentation. We are very pleased with our results, and it is a really exciting backdrop for IPC to be in this position where we are growing production to record production levels for the company in the imminent future here. We are fully exposed to benchmark oil prices in Brent and WTI in the landscape where it is one of the biggest energy supply shocks of all time. We feel like we are very, very strongly positioned relative to the peer group to be able to perform very well. So thanks for tuning in, and we will look forward to update at the following presentation for our year-end results and Capital Markets Day in early February 2027. Thank you.