CALGARY, Alberta – InPlay Oil Corp. (TSX: IPO) (OTCQX: IPOOF) (“InPlay” or the “Company”) is pleased to announce that its Board of Directors has approved a $23 million capital program for 2021 with forecast average production of 5,100 – 5,400 boe/d (69% oil and liquids).
InPlay enters 2021 coming out of one of the most challenging years that our industry has experienced as a result of the price capitulation (with 2020 West Texas Intermediate (“WTI”) averaging USD $39.30/bbl) and capital retraction that occurred following the demand destruction caused by the COVID-19 pandemic. The Company reacted swiftly in 2020 by taking the following actions: eliminating capital programs, implementing initiatives to reduce costs, deferring the servicing of wells that went down, curtailing production and shutting in marginally economic wells in order to avoid selling proved developed producing reserves at a loss. Also of significance, steps were taken to secure additional funding to provide long term liquidity. These efforts are expected to result in corporate and operating cost reductions of approximately $8 million, or approximately 25%, compared to our original January 2020 (pre COVID-19) budget and we estimate retaining up to 10%, of the full 25% of these cost reductions, going forward.
InPlay was able to secure a $25 million senior second lien four-year term loan facility with the Business Development Bank of Canada (“BDC”) and our syndicate in October. This significant injection of liquidity and the improvement in commodity prices allowed InPlay to re-activate its development program starting in the fourth quarter of 2020. As a result, we are now expecting to achieve production in excess of pre-COVID (2019) levels in the first quarter of 2021, estimated currently at approximately 5,300 boe/d based on field estimates. Our ability to access this additional long-term funding and the subsequent re-activation of our development program illustrates the support that our banking syndicate partners have in InPlay returning to pre-COVID production and reserve levels and to achieve long term financial stability and profitable growth.
The Company continued to exhibit its drilling and completions proficiency and operational expertise in its limited operations during the year, achieving pacesetting drilling and completion times for horizontal Cardium wells in both the Willesden Green and Pembina core areas. Management’s continued focus on capital and operating cost improvements relating to the Company’s recently expanded high-quality drilling inventory continues to allow InPlay to deliver top-tier capital efficiencies in 2021.
Fourth Quarter 2020 Operations Update
In the fourth quarter the Company resumed its development program drilling three (3.0 net) extended reach horizontal (“ERH”) wells in Willesden Green which were completed and placed on production at the end of 2020 and one (0.2 net) ERH Nisku well which was drilled and will be completed and brought on production in the first quarter of 2021. As a result of changes in well design and continued advances in completion technology, in addition to exceptional project execution, this three well program was among the most cost-effective and efficient programs to date in Willesden Green. Drilling these three wells took 7.9, 8.3, and 8.8 days respectively compared to our previously experienced drilling times of 9.0 – 9.5 days. This sets a new industry standard for pacesetter drill times in the area with InPlay now drilling 4 of 5 of the fastest ERH wells in the area to date. Completions and equipping of the wells were also executed efficiently on time and under budget leading to drilling, completions, and equipping cost savings of approximately $800,000 per well. Total drilling, completion, and equipping costs were under $2.4 million per well, equating to a 25% reduction, versus previous costs of $2.9 – $3.3 million per well significantly enhancing the economics and capital efficiencies in the area.
Efforts toward restoring economic production that had been temporarily curtailed in April continued through the fourth quarter. Currently, there remains approximately 150 boe/d (75% light oil and liquids) of production requiring servicing, of which the majority is expected to be brought back on production in 2021 with commodity price improvements.
Current production, which includes approximately one week of early clean up production from the three new Willesden Green ERH wells, is estimated at 5,300 boe/d (70% light oil and liquids) based on field estimates.
2021 Capital Program Overview
The Company’s Board of Directors has approved a development capital program for 2021 of $23 million. This capital budget and forecast is relatively unchanged to the one presented to the BDC and our syndicate of lenders in October 2020 which supported securing the $25 million term loan. This capital spending program is supported by a robust hedging program through the first half of 2021 with approximately half of our anticipated crude oil production hedged. As demonstrated in the past, the Company will continue to remain flexible, adaptable and react promptly to changing commodity prices throughout the year to adjust the capital program if deemed appropriate. InPlay’s objective is to generate Free Adjusted Funds Flow (“FAFF”) (1) which is expected at current commodity prices.
InPlay’s planned capital program is forecasted to result in 2021 annual average production of 5,100 to 5,400 boe/d (69% light oil & liquids) delivering estimated organic annual production growth of approximately 28% to 35% over 2020. Based on this program, the 2021 adjusted funds flow (“AFF”) (1) forecast is $30.5 to $33.5 million, representing an approximate 280% to 320% increase relative to estimated 2020 AFF. Estimated FAFF of $7.0 to $10.0 million is forecast in 2021, intended to be used for debt reduction. Net debt to earnings before interest, taxes and depletion (“EBITDA”) (1) for 2021 is forecast to be 1.7 – 1.9 times. The 2021 operating income profit margin (1) is forecast to be approximately 59%, as a result of improving reduced operating costs and higher forecasted future strip commodity prices.
In 2021, InPlay plans on drilling approximately 8.0 net ERH Cardium wells in Pembina and Willesden Green and completing the 0.2 net Nisku ERH well drilled in 2020. Initial plans for the first quarter, consist of three ERH wells to be drilled on our recently acquired Pembina lands, with the remaining five wells to be drilled in both the Willesden Green and Pembina areas over the balance of the year. InPlay has been approved and will start the Alberta Energy Regulator’s Area Based Closure (“ABC”) program with plans to spend approximately 4 – 5 % of our forecast AFF on decommissioning efforts throughout the year.
The Company’s 2021 guidance is based on a current future commodity price curve with an annual average WTI price of US $49.50/bbl, $2.45/GJ AECO and estimated foreign exchange of $0.78 CDN/USD.
InPlay has continued to execute upon an active hedging program, entering into various near-term crude oil and natural gas derivative contracts, directed at reducing the Company’s potential exposure to volatile oil prices, thereby backstopping initial high rate production from our capital development program. The following hedges are currently in place:
|Hedged Gas (GJ/d)||4,000||2,000||2,000||2,000|
|Hedged price ($/GJ)||$2.64||$2.34||$2.34||$2.34|
|Hedged Oil (bbl/d)||1,750||1,500||–||–|
|Hedged price – ($USD WTI/bbl)||$45.00||$45.32||–||–|
|Crude Oil WTI Costless Collar||250||250||–||–|
|Hedged price – ($USD WTI/bbl)||($34.50 – $50.15)||–||–|
(1)AFF, FAFF, Net Debt/EBITDA and operating income profit margin are Non-GAAP Measures. See “Reader Advisories – Non-GAAP Financial Measures”.
We are very excited about our upcoming year of operations and will look forward to continue reporting our results throughout the year. As well, we would like to thank all of our employees and service providers for their continued efforts as well as our directors for their ongoing commitment and dedication.
About InPlay Oil Corp.
InPlay, based in Calgary, Alberta, has been engaged in the business of exploring for, developing and producing oil and natural gas, and acquiring oil and natural gas properties in western Canada since it commenced operations as a private company in June 2013. InPlay has concentrated on exploration and development drilling of light oil prospects in the Province of Alberta in a focused area of Central and West Central Alberta.
The InPlay management team has worked closely together for several years in both private and public company environments and has an established track record of delivering cost-effective per share growth in reserves, production, AFF, and funds flow. InPlay will continue to implement its proven strategy of exploring, acquiring, and exploiting assets with a long-term focus on large, light oil resources. The InPlay management team brings a full spectrum of geotechnical, engineering, negotiating and financial experience to its investment decisions. An updated corporate presentation will be posted to InPlay’s website in due course. Additional information about the Company can be found on SEDAR and on InPlay’s website at: www.inplayoil.com.