On March 6, 2025, S&P Global Ratings revised its outlook for International Petroleum (TSX:IPCO) Corp. (IPC) to negative from stable due to lower oil prices and anticipated cash flow outspend. The ratings agency also confirmed IPC’s ’B’ issuer credit rating and ’B+’ issue-level rating on its senior unsecured notes.

S&P Global Ratings lowered its price assumption for West Texas Intermediate (WTI) oil for the remainder of 2025 and beyond. This change led to a forecast that IPC’s credit measures would fall below previous expectations and remain somewhat weak for the rating. The agency also anticipates that IPC will spend significantly more than its internal cash flow generation this year, due to a large growth capital expenditure budget and expected share repurchases.

The negative outlook is based on expectations of weak credit measures through 2025 due to lower oil price assumptions. S&P Global Ratings also expects IPC’s capital spending and shareholder rewards to significantly exceed its projected cash flow generation.

The revised outlook comes amid a softer oil price environment, with expectations for increasing OPEC supply and slowing demand. Proposed U.S. tariffs on Canadian energy imports also have the potential to widen Canadian heavy oil differentials if no exemptions are made. IPC’s daily average production is primarily Canadian heavy oil, which makes up about 70% of its production.

S&P Global Ratings now expects IPC’s operating performance to weaken somewhat compared to its last review, leading to reduced funds from operations (FFO). The company is expected to generate about US$165 million of FFO annually in 2025-2026, down from the previous expectation of about US$225 million annually over the same period.

IPC is maintaining its large growth spending plan for its Blackrod Phase 1 project, with an estimated US$220 million of the company’s projected 2025 capex related to Blackrod. As a result, IPC is projected to generate a free operating cash flow (FOCF) deficit of about US$170 million in 2025. Despite the anticipated negative FOCF in 2025, the company is expected to continue repurchasing shares under its normal course issuer bid (NCIB) in 2025, creating a negative discretionary cash flow (DCF) of about US$250 million.

S&P Global Ratings expects IPC to improve its production and cash flow in 2026, with first oil from Blackrod Phase 1 expected in 2026. The company’s total capex is forecasted to decline significantly to about US$140 million in 2026 from about US$320 million in 2025, and IPC is expected to start benefiting from the Blackrod project in late 2026 when it achieves first oil. IPC’s production is expected to increase to just under 50,000 barrels of oil equivalent per day (boe/d) in 2026 from about 44,000 boe/d in 2025.

While IPC’s liquidity is expected to remain adequate, its material capex program and anticipated share buybacks will reduce its cash balance. The company had about US$247 million of cash on hand as of Dec. 31, 2024, but it’s expected to have spent most of this cash by year-end 2025 to fund the outflows exceeding its cash flow generation this year. IPC is likely to use borrowings from its C$180 million revolving credit facility (RCF; undrawn as of Dec. 31, 2024) to fund any additional short-term cash shortfalls.

The negative outlook also considers the refinancing risk associated with IPC’s senior unsecured bonds, which mature on Feb. 1, 2027. S&P Global Ratings expects management to look to refinance these notes over the next 12 months. However, given the expectations for lower FFO over the forecast period and negative FOCF generation this year, IPC’s liquidity could become significantly constrained if the notes become current.

S&P Global Ratings could lower the rating on IPC over the next 12 months if its cash flow generation deteriorates or its leverage increases such that its two-year average FFO to debt approaches 20% with no near-term improvement or its liquidity weakens. The agency could revise its outlook on IPC to stable over the next 12 months if the company’s FFO to debt remains above 20% over the forecast period with adequate liquidity, and if the company makes progress toward refinancing its senior unsecured notes.