International Petroleum: A Missed Opportunity or a Growing Concern?

International Petroleum Corporation (IPC) released its full-year 2024 earnings on February 16, 2025, missing analyst expectations for both revenue and earnings per share (EPS). The company's revenue missed estimates by 5.3%, while EPS missed by 26%. This article explores the reasons behind IPC's earnings miss and its potential impact on the company's long-term growth prospects.

Revenue Miss: Lower Prices and Production Costs

IPC's revenue decreased by 6.6% compared to the previous year, primarily due to a 15% decline in oil prices. Additionally, the company's profit margin decreased from 20% in 2023 to 13% in 2024, driven by lower revenue and higher operating costs. The company's operating costs per boe increased by 10% compared to the previous year, which also contributed to the decrease in profit margin.

Blackrod Phase 1 Project Expenses

The significant investment in the Blackrod Phase 1 development project in Canada led to higher capital and decommissioning expenditures. In 2024, the company spent over two-thirds of the forecast capital expenditure of USD 850 million for this project. While the project is expected to generate strong cash flows in the future, the initial investment has impacted IPC's earnings in the short term.

Impact on Long-Term Growth Prospects

IPC's earnings miss in 2024 has raised concerns about the company's long-term growth prospects. The decrease in revenue and profit margin, combined with higher operating costs and significant investment in the Blackrod Phase 1 project, has led to reduced cash flows and potential delays in returns. However, IPC remains well-positioned for future growth, with a strong balance sheet and a strategic focus on organic growth, stakeholder returns, and mergers and acquisitions (M&A).

Strategies for Improvement

To improve production efficiency and drive future growth, IPC plans to implement the following strategies:

1. Organic Growth: Progress the development of Phase 1 of the Blackrod project in Canada, which remains on schedule and on budget. This project is expected to increase peak production to 30,000 bopd by 2028 and contribute to the company's reserves replacement ratio.
2. Stakeholder Returns: Continue purchasing and cancelling IPC common shares under the normal course issuer bid (NCIB), reducing the outstanding number of common shares and returning value to shareholders.
3. M&A: Review potential opportunities in Canada and internationally, with a principal focus on progressing the Blackrod Phase 1 development as well as developing its existing asset base in Canada, France, and Malaysia.

Conclusion

International Petroleum's earnings miss in 2024 is primarily attributed to lower revenue, higher operating costs, and significant investment in the Blackrod Phase 1 development project. While the earnings miss raises concerns about the company's long-term growth prospects, IPC remains well-positioned for future growth, with a strong balance sheet and strategic focus on organic growth, stakeholder returns, and M&A. By implementing the planned strategies, IPC aims to improve its production efficiency, increase its reserves replacement ratio, and drive value creation for its stakeholders.