CALGARY, Alberta – InPlay Oil Corp. (TSX: IPO) (OTCQX: IPOOF) (“InPlay” or the “Company”) is pleased to announce its financial and operating results for the three months ended March 31, 2020. InPlay’s condensed unaudited interim financial statements and notes, as well as management’s discussion and analysis (“MD&A”) for the three months ended March 31, 2020 will be available at “www.sedar.com” and our website at “www.inplayoil.com”.
Financial and Operating Results:
|(CDN) ($000’s)||Three months ended
|Oil and natural gas sales||13,092||19,210|
|Per share – basic and diluted||0.05||0.13|
|Adjusted funds flow(1)||3,418||9,054|
|Per share – basic and diluted(1)||0.05||0.13|
|Comprehensive income (loss)||(100,497||)||1,035|
|Per share – basic and diluted||(1.47||)||0.02|
|Exploration and development capital expenditures||11,632||14,763|
|Basic & diluted weighted-average shares||68,256,616||68,256,616|
|Daily production volumes|
|Crude oil (bbls/d)||2,432||2,723|
|Natural gas liquids (bbls/d)||807||500|
|Natural gas (Mcf/d)||9,271||9,084|
|Crude oil & NGLs ($/bbls)||38.53||58.28|
|Natural gas ($/Mcf)||2.06||2.82|
|Operating netbacks ($/boe)(1)|
|Oil and natural gas sales||30.07||45.06|
|Realized gain (loss) on derivative contracts||0.00||0.05|
|Operating netback (including realized derivative contracts)||12.52||26.40|
(1) “Adjusted funds flow” or “AFF”, “adjusted funds flow per share, basic and diluted”, “adjusted funds flow per boe”, “operating income”, “operating netback per boe” and “operating income profit margin” do not have a standardized meaning under International Financial Reporting Standards (IFRS) and GAAP and therefore may not be comparable with the calculations of similar measures for other companies. “Adjusted funds flow” adjusts for decommissioning expenditures from funds flow. Please refer to “Non-GAAP Financial Measures” and “BOE equivalent” at the end of this news release and to the section entitled “Non-GAAP Measures” in our MD&A for details of calculations, rationale for use and applicable reconciliation to the nearest IFRS measure.
First Quarter 2020 Financial & Operations Overview
Production averaged 4,784 boe/d in the first quarter of 2020 with approximately 340 boe/d of production down during the month of January due to extremely cold weather and with the new wells drilled in the quarter being brought on at restricted rates due to the rapid commodity price decline through March. This is a one percent increase compared to the 4,737 boe/d produced over the first quarter of 2019. Operating costs over the first quarter were $14.67/boe, five percent lower than $15.38/boe in the fourth quarter of 2019.
The commodity price collapse as a result of the COVID-19 crisis heavily impacted our financial results for the first quarter of 2020. Oil prices were significantly lower over the first quarter with WTI prices averaging $46.17 USD/bbl, compared to $54.81 USD/bbl for the first quarter of 2019. This was amplified during March (when InPlay brought on new production) when WTI averaged $30.45 USD/bbl. NGL prices also continued to remain at multi-year lows as the Company’s realized NGL prices averaged $12.84 CDN/bbl in the first quarter of 2020 compared to $28.29 CDN/bbl over the same period in 2019, largely due to continued weakness in propane and butane pricing. During the first quarter of 2020, InPlay achieved AFF of $3.4 million ($0.05 per basic share).
InPlay’s capital program for the first quarter of 2020 consisted of $11.6 million of development capital focused on one (1.0 net) extended reach horizontal (“ERH”) well in Willesden Green and three (3.0 net) one-mile horizontal wells in Pembina. InPlay also built a water disposal facility in Pembina that has reduced operating costs and is expected to payout in less than a year at current future commodity pricing.
We are extremely pleased with the positive results achieved from the continued drilling program in our Central Pembina Cardium area. The average initial production (“IP”) rates and related oil and liquids percentages for our three wells completed in October 2019 and three wells completed in February 2020 are as follows:
|IP 30||IP 60||IP 180|
|October 2019 Wells||164 boe/d (97%)||179 boe/d (95%)||182 boe/d (90%)|
|February 2020 Wells||199 boe/d (96%)||204 boe/d (95%)||N/A|
These rates are well ahead of corporate type curves despite the recently completed wells being produced at restricted rates. Drilling in the Pembina Cardium has lower capital costs than Willesden Green due to its shallower depth. The less capital intensive nature coupled with our top-of-class cost structures (which we have reduced by 25% since our last Pembina program in 2018) attributed to our new drilling and completion techniques provides the Company with increased top-tier Pembina inventory in a normal pricing environment. Average costs for the three one mile Pembina wells drilled during the first quarter were approximately $1.89 million per well for drilling, completions and tie in operations. These most recent wells were drilled and completed during frigid winter conditions when service availability was tight and costs tend to be higher, but were still consistent with the three October wells which cost an average of $1.78 million in more favorable drilling conditions. These wells were completed and brought on production in the last week of February and given the commodity price collapse as a result of the COVID-19 crisis, they are being produced at restricted rates in order to preserve production and reserves for a more favorable oil price environment.
There has been recent optimism in demand improving from the lows in April as countries are looking to cautiously open their economies from strict isolation measures imposed by governments. This combined with the announced reductions in production that started May 1 from OPEC+ and production curtailments by producers worldwide, suggests that storage may not fill as quickly or to capacity as initially predicted. InPlay remains steadfast on its focus of managing the current crisis and is performing daily monitoring of the economic environment, production economics, government assistance programs and cost cutting initiatives. Management will continue to take actions with the objective of preserving liquidity and managing production and reserves in order to preserve and realize higher value in improved future pricing environments.
In mid-March the Company quickly started implementation of operating and corporate cost reduction initiatives as a response to the unprecedented low pricing environment. At that time the Company estimated that these initiatives would result in approximately $7.0 million in savings over the remainder of 2020 compared to our original forecast announced in January 2020. Our focus and initiatives have continued on this front and we are pleased to report that we now estimate reductions with these controllable costs of between $8.0 – $9.0 million in an extremely low price environment. This equates to approximately a 25% – 30% reduction and we estimate that we could retain up to 10% cost reductions in a return to a normal pricing environment.
InPlay recently received acknowledgment of receipt of its application for the Canadian Emergency Wage Subsidy. We are continuing to work with our banking syndicate in pursuing the recently announced federal support programs through the Export Development Bank of Canada (“EDC”) and Business Development Bank of Canada (“BDC”). As previously mentioned in our press release dated April 23, 2020, the Company believes that we are well positioned to meet the requirements of the EDC and BDC liquidity support programs.
Given the contango in the forward price curve and the favorable economics of deferring production, InPlay has nominated oil sales in June at approximately 20% of our pre-curtailment capacity. Our focus is firmly on ensuring operations continue to be conducted safely, efficiently and in a manner that will result in minimal start up issues and costs. Oil wells with higher natural gas rates will be prioritized to keep on production in order to take advantage of the current strong natural gas pricing. As well plans are to fill our excess oil storage capacity in order to sell at anticipated higher future prices. Our production estimate for June sales is approximately 2,300 boe/d at 50% natural gas compared to the first quarter corporate average of 32% natural gas. When pricing recovers, InPlay will reduce curtailments and sell oil out of storage.
We thank our employees and all of our service providers for their commitments and efforts in this unprecedented time as well as our directors for their ongoing commitment and dedication. Finally, we thank all of our shareholders for their continued interest and support.