EUROPEAN BUSINESS: William, could you start by sharing a little about the history of IPC and your operations worldwide? We’d love to hear more about your near-term plans and focus areas, and what investors should look out for in the coming quarters?
With pleasure, International Petroleum Corporation is a fully integrated E&P company with operated assets located in Canada, France, and Malaysia. The company is publicly listed on the TSX and the NASDAQ Swedish Stock exchange under the ticker symbol IPCO. International Petroleum was originally created in the late 1980s by my late Grandfather, and founder of the Lundin Group, Adolf Lundin. This company subsequently merged with Sands Petroleum in the late 1990s to form Lundin Oil which was later taken over by Talisman in the early 2000s. A new company was born called Lundin Petroleum in 2001, later re-branded to Lundin Energy, which grew to be one of the largest independent oil and gas producers in the Nordics prior to its oil and gas assets being sold to Aker BP in 2022 for a consideration in excess of USD 10 billion. In 2017, IPC was re-created and inherited the Non-Norwegian assets in Europe and Southeast Asia byway of spinoff from Lundin Energy.
IPC has a simple mandate to increase long-term shareholder value through growth. This is exactly what the company has delivered. Since the company’s inception in 2017, the business has increased production levels 5x, reserves have grown by greater than 16x, contingent resources upsized by 1.1 billion boes, operating cashflow increased >4x and the overall Net Asset Value (NAV) has increased by > USD 3 billion in six short years.
The entrepreneurial spirit and long-term value creation strategy is core to all Lundin Group companies and IPC is a textbook example. We operate a diverse portfolio of upstream energy assets in stable and fiscally attractive jurisdictions, our core focus is to maximize the value of the existing asset base through operational excellence supplemented by an opportunistic approach to growing through Mergers and Acquisitions (MnA). Our prudent approach to running the business in a responsible manner ensures optimal stakeholder value growth.
As of the start of 2023, the company’s balance sheet is very healthy with close to USD 0.5 billion dollars of cash resources available. We have nearly 0.5 billion barrels of proved plus probable (2P) reserves which equates a 27-year Reserves Life Index (RLI) based on our mid-point production guidance of 49 kboepd. This deep inventory is a key differentiator amongst our industry peers and is due to the low-decline and low-cost nature of our asset base contained within the IPC portfolio.
IPC has been very active on the business development front over the past six years with 5 accretive acquisitions and 1 divesture successfully executed. We remain opportunistic to growing through MnA and the focus always starts with the geology – there must be high quality delineated reservoirs that are ideally already in production to ignite our interest to potentially acquire an asset or company.
Were focused on high free cash flow generation which allows for meaningful shareholder distributions. Since IPC’s formation back in 2017, greater than 50 million shares have been purchased and cancelled by the company. This is a core strategic pillar for the company to continue returning value to shareholders in the form of distributions – and the most impactful way to achieve this currently is through share buy backs.
IPC is in a very strong position by being operator and having 100% working interest in all our assets. This gives us the liberty and autonomy to create our short and long-term work programs that seeks to unlock maximum value potential. A bold decision was undertaken by the company this year to advance commercial development at one of our Canadian assets called Blackrod, which is currently a pilot operation that is planned to have its production levels increase by a magnitude of > 30x. This will consume some of our FCF over the next 3 years prior to start-up, but it sets us up for enormous cash flow generation in the not-too-distant horizon.
EUROPEAN BUSINESS: ESG is an increasing important issue for almost every industry, particularly for oil & gas companies. How does your company build ESG and sustainability into daily operations? Any IPC’s sustainability practices, and approach you’d like to highlight?
To exist for an extended period of time in any business, especially within the O&G sector, operating in a socially responsible manner is fundamental to achieving this. Whether it be through community engagement, local hiring, host-nation government relations, ethical treatment of staff, minimizing environmental footprints, the Lundin Group companies since the 1970s have always treated these matters with the utmost importance. IPC is no different in that. What has changed over the last decade is the level of reporting requirements on Environment, Social and Governance matters.
Above all else, safety is the most critical aspect in our company. Complex work scopes are undertaken daily to maintain operations and develop oil and natural gas resources. Having a strong safety culture and robust operating philosophy is paramount to ensuring that all operational staff get back home to their families the same way that they had left to start that day or extended shift. A small example of what we do to stay proactive on mitigating safety incidents from occurring is through leading indicators – the more hazards identified and job inspections that are produced (within reason) the less likely a hazardous situation is to occur. If each operator identifies a minimum number of leading indicators per month, a random ballot draw is done, and a token or gift is provided to incentivize the teams.
In IPC, all our operated regions have close to 100% local staff with minimum expats which is great from a local job’s creation standpoint, but it also mitigates the need for high-cost foreign professionals (expats). We focus on local hiring and sourcing of goods and services at all our assets.
The most sought out ESG metric in our industry is direct and indirect carbon dioxide equivalent emissions. A major shift towards a ‘greener economy’ has sparked policy makers to enact aggressive emission reduction goals without tangible plans underpinning the ‘net zero’ targets. This has had a direct knock-on effect to fossil fuel energy supply which we’ve already witnessed the ramifications that it can have byway of creating an energy crisis. I’m of the firm belief that oil and gas demand will continue to grow for the foreseeable future and be a critical part of the energy mix going forward, alongside renewable and nuclear sources. It’s very important to make a concerted effort to reduce our carbon footprint, IPC has committed to reduce its net emission intensity by 50% come 2025 & we recently announced that will be extended through 2027.
There are several criteria to measure ESG, for example in safety and emission reductions, and that is factored into managements’ compensation considerations. IPC is currently in the top quartile amongst industry peers when it comes to ESG ratings and we aspire to further improve our score in that domain.
EUROPEAN BUSINESS: Investors are facing one of the most challenging backdrops in recent years amid slowing economic growth, rising inflation, geopolitical conflicts, and COVID, could you share us your insights of the oil & gas market going forward, and how can the company cope with challenges?
Global markets are in a unique position due to the recovery from a one in a hundred-year pandemic event, geopolitical tensions, and rising rates. Recession fears are on most people’s radar, but I never count out the human race to navigate through such challenges. A lot of relocation took place during Covid-19 in the US, many who lived in cosmopolitan cities like New York and LA moved to different states such as Texas where a dollar stretches farther and instead of living in a single bedroom apartment you can afford a multi-bedroom house and a vehicle. This boosts the demand side for petroleum products. China has gone through a prolonged period of reduced economic activity but with recent manufacturing data reported it’s clear they’re returning to a level of normality. Emerging markets underpin future demand, by 2050 Lagos is expected to be the most populated city in the world. In North America and Europe, we may be able to get to greener economy but developing nations require reliable and affordable energy to unlock economic prosperity. I therefore believe in long-term demand for O&G and with the heightened scrutiny on fossil fuel extraction driving a lack of investment over the past decade, the supply side is going to be challenged to meet this demand. These ingredients are going to set us up for what I believe to be a multi-year bull cycle for oil and gas commodities. However, it is a volatile industry, prices will be erratic at times and with this in mind we always set discipline budgets that provide flexibility to add or drop work scopes to keep us resilient.
EUROPEAN BUSINESS: William, tell us about yourself and your journey with Lundin Group of Companies. Can you tell us more about your role at IPC? What’s a typical day at work like?
Being raised by my late-father Lukas Lundin, the family business and life were very much intertwined. There was no shortage of mining and petroleum discussions at our family gatherings during my uprising. The primary resource space always interested me and there was never a doubt that I wanted to pursue my career in this space. I have an engineering background and spent time working at various mining deposit sites in North and South America during my summers in school. Following university graduation, I immediately started working in the Canadian oil patch with BlackPearl Resources as a field operator. Following this I spent some time as project engineer in Calgary working for IPC and subsequently took on a senior executive position with the same company as Chief Operating Officer based in Geneva, Switzerland.
The company’s headquarters are strategically located in an ideal time zone whereby I work with our team in Malaysia in the morning, France in the middle of the day, and Canada in the afternoon. With the support of our operational teams, I’m responsible for all technical aspects within the company, that involves assembling work programs and budgets on a short- and long-term basis. In the short-term we focus on operational excellence and maximizing the value of our assets through execution of our capital programs as well as optimizing the production base through existing operations. For the long-term we’re consistently preparing and ranking projects in our portfolio to ensure the next wave of developments target the best economic returns and meet the corporate objectives. I report directly to our CEO, Mike Nicholson, and one of the most important parts of the job is to ensure our executive team is briefed in the most simplistic way that encompasses sufficient detail to allow for accurate and consistent messaging to our internal and external stakeholders.
EUROPEAN BUSINESS: As a third generation, how much weight is there on your shoulders to carry forward the family legacy? What are the most valuable experience and lesson you’ve picked up from the first and second generation of your family about managing business?
It’s common knowledge that family-run businesses typically fall apart when it gets down to the third generation. This adds fuel to the fire for the relatives and I that are working in the family business, we are highly competitive individuals that naturally operate with a chip on our shoulders as there’s a lot of scrutiny that comes alongside working in a business where the former generations have established material success. I take a lot of pride in outworking my competition to demonstrate that we’re not in this because of the name, we’re in this because we love working in the industry and truly believe were providing a genuine service to society in delivering the raw materials that are needed to advance civilization.
Biggest takeaways from my experience with Adolf, Lukas, Ian, and the professionals that work closely with the family business, is to empower the people, think big and long-term, stay optimistic and take calculated risks.