CALGARY, Alberta – InPlay Oil Corp. (TSX: IPO) (OTCQX: IPOOF) (“InPlay” or the “Company”) is pleased to announce that it has entered into a non-binding term sheet (the “BDC Term Sheet”) with the Business Development Bank of Canada (“BDC”), in partnership with our syndicate of lenders, for a non-revolving term facility of up to $25 million with a four year term. The Company is also announcing its financial and operating results for the second quarter. InPlay’s condensed unaudited interim financial statements and notes, as well as management’s discussion and analysis (“MD&A”) for the three and six months ended June 30, 2020 will be available at “www.sedar.com” and our website at “www.inplayoil.com”.
Subsequent to the end of the second quarter, on July 15, 2020 the Company announced the completion of its Credit Facility redetermination at $65 million, maturing on May 31, 2021. On July 30, 2020 the Company entered into the BDC Term Sheet with the BDC under their Business Credit Availability Program (“BCAP”) which, subject to the entering into of definitive agreements, will provide the Company with a non-revolving $25 million, second lien, four year term facility (the “BDC Term Facility”). The Export Development Canada (“EDC”) and BDC programs were initially announced to provide pre-COVID-19 financially viable companies with additional liquidity to continue operations and development activity through the pandemic and allow them to return to pre-COVID-19 operating levels in a time frame that can be managed with improved crude oil and commodity pricing. The BDC Term Facility will provide InPlay with significant additional long term liquidity at reasonable interest rates to withstand the impacts of the COVID-19 pandemic and allow the Company to pursue development opportunities that generate long-term, sustainable net asset value per share growth for our shareholders into the recovery phase. InPlay quickly assessed the program when first announced and were early in initiating discussions with both BDC and Export Development Bank of Canada (“EDC”) regarding their programs. InPlay is pleased to become one of the first companies to be approved for a term sheet through the program, validating our financial strength while also confirming the comments made in our April and May 2020 press releases stating we believed based on the criteria put forward that InPlay was a financially viable Company prior to the COVID-19 pandemic. The Company appreciates the support of the BDC and our syndicate of lenders to make this partnership possible.
As a result of crude oil demand improving from the lows seen in April, combined with the reductions in production from OPEC+ and production curtailments by producers, commodity prices have improved earlier than initially expected. Since the end of the second quarter the Company has begun the process of bringing back on our operated shut-in and curtailed production as well as starting to service wells that have been down as long as they have payouts of approximately six months. We anticipate production returning to close to our production capacity levels in late August with average September production forecasted to approximate pre-COVID production rates, including oil inventory of approximately 28,000 to 30,000 barrels which will opportunistically be sold into the spot market prior to year-end.
InPlay has been extremely successful in obtaining approved applications under the Alberta government’s Site Rehabilitation Program (“SRP”). The Company’s diligence in submitting these applications quickly as well as our detailed grant requests has resulted in greater than $1.0 million being received from the program to date. InPlay was allocated a significantly higher portion of the total amount of this program in comparison to our percentage of Alberta oil and gas production. The Company also expects to receive additional grants in subsequent phases of the SRP. As these programs are completed, these amounts will be reflected as a reduction in our decommissioning obligation liability. We thank our operations team and key service providers in their diligence and attentiveness to this program which resulted in well received applications and significant benefit from the program.
Second Quarter 2020 Financial & Operations Results
InPlay was proactive and promptly reacted to the dramatic and unprecedented drop in crude oil pricing in March by immediately suspending its 2020 development capital program, quickly implementing cost cutting initiatives in the field and office and initiating temporary production curtailments and shut-ins resulting in production declines to approximately 65% of estimated capacity. This resulted in average production of 3,154 boe/d in the second quarter of 2020 compared to 5,179 boe/d in the second quarter of 2019.
The Company’s operations are well positioned to make adjustments when facing these extreme volatile commodity price environments. The Company looked at all wells in detail taking into account fixed and variable costs, safety concerns, as well as shut-in and startup costs to determine which wells could be temporarily shut in or curtailed and fully restarted with minimal incremental costs. Further initiatives were also undertaken to reduce costs and scale back discretionary expenditures which allowed the Company to achieve lower operating and G&A costs during the quarter of $4.1 and $0.8 million ($14.18 per boe and $2.73 per boe) respectively compared to $6.7 and $1.8 million ($14.32 per boe and $3.81 per boe) in the second quarter of 2019. This is a significant achievement given the presence of fixed costs being incurred over a significantly lower production base. Improved commodity prices began to materialize in June and allowed us to start bringing on curtailed production easily meeting our sales nominations while continuing to fill inventory storage levels. As of June 30, 2020 approximately 24,000 barrels of oil were in storage allowing the Company to sell this production in the future at advantageous pricing levels.
The commodity price collapse due to demand destruction as a result of the COVID-19 crisis heavily impacted financial results for the second quarter of 2020. Oil prices were significantly lower over the second quarter with WTI prices averaging $27.85 USD/bbl, compared to $59.84 USD/bbl for the second quarter of 2019. Revenue was most affected in April at the apex of the crisis when we had to meet sales volumes that were previously nominated at the beginning of March prior to the crisis. This resulted in a net realized price of only $17.06 CDN/bbl for our crude during the month of April. Reacting to the distressed crude oil pricing environment, InPlay began reducing sales nominations in May and June. NGL prices also continued to remain at multi-year lows over the quarter as the Company’s realized NGL prices averaged $11.66 CDN/bbl in the second quarter of 2020 compared to $19.67 CDN/bbl over the same period in 2019, largely due to the benchmarking of these prices on low WTI pricing during the quarter and continued weakness in propane and butane pricing. With these dramatic reductions in commodity prices during the second quarter of 2020, InPlay incurred an adjusted funds flow (“AFF”) deficit of $1.3 million over the quarter.
The Company’s COVID-19 response also included multiple cost cutting measures highlighted by a 20 percent reduction in field and office salaries as wells as cost reductions in all areas of our operations. InPlay has also taken advantage of certain provincial and federal government programs in response to the COVID-19 crisis. The Company received approximately $0.3 million under the Canada Emergency Wage Subsidy (“CEWS”) during the second quarter of 2020. These cost cutting measures and our curtailed operations resulted in savings of approximately $3.4 million in the second quarter of 2020 compared to our original January 2020 budget.
Financial and Operating Results:
|(CDN) ($000’s)||Three months ended
|Six months ended
|Oil and natural gas sales||5,167||19,995||18,259||39,205|
|Per share – basic and diluted||(0.02||)||0.12||0.03||0.25|
|Adjusted funds flow(1)||(1,279||)||8,755||2,139||17,808|
|Per share – basic and diluted(1)||(0.02||)||0.13||0.03||0.26|
|Comprehensive income (loss)||(6,188||)||(7,629||)||(106,685||)||(6,594||)|
|Per share – basic and diluted||(0.09||)||(0.11||)||(1.56||)||(0.10||)|
|Exploration and development capital expenditures||488||4,688||12,120||19,451|
|Basic & diluted weighted-average shares||68,256,616||68,256,616||68,256,616||68,256,616|
|Daily production volumes|
|Crude oil (bbls/d)||1,523||2,739||1,977||2,731|
|Natural gas liquids (bbls/d)||561||665||684||583|
|Natural gas (Mcf/d)||6,424||10,647||7,847||9,870|
|Crude oil & NGLs ($/bbls)||20.99||61.41||31.66||59.90|
|Natural gas ($/Mcf)||2.03||1.00||2.05||1.83|
|Operating netbacks ($/boe)(1)|
|Oil and natural gas sales||18.00||42.43||25.28||43.68|
|Realized gain (loss) on derivative contracts||(1.05||)||0.00||(0.42||)||0.03|
|Operating netback (including realized derivative contracts)||(0.07||)||23.81||7.52||25.05|
(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.
The Company is cautiously optimistic for the remainder of 2020 and expects that commodity pricing will start gaining momentum in 2021 and beyond as the lack of capital spending on oil and gas projects on a worldwide scale will lead to declining production and ultimately result in demand exceeding supply. Commodity prices have improved quicker than originally anticipated and all cost structures have decreased as a result of internal cost cutting measures and external market conditions. Success in obtaining additional long term financing with the BDC Term Facility is expected to provide us with ample liquidity to get through this difficult period and the potential to resume our development capital program prior to the end of 2020. At current commodity prices and with lower cost structures, the Company has the ability to commence a capital program on projects that are budgeted to payout in 1 to 1.5 years, based on comparable well performance. Subject to the anticipated closing of the BDC Term Facility, we are currently working on plans to resume our 2020 capital program, depending on pricing, in the fourth quarter of 2020. The Company expects to provide capital guidance for the remainder of 2020 in the near future.
InPlay remains steadfast on managing the current crisis, daily monitoring of our rapidly changing environment and prudently reacting to changing circumstances. Management will continue to take action with the objective of diligently managing costs, preserving liquidity and will make capital spending decisions considering commodity prices and liquidity levels.
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 and lending partners for their continued interest and support.