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, 2021. 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, 2021 will be available at “www.sedar.com” and our website at “www.inplayoil.com”.
First Quarter 2021 Financial & Operating Highlights
- Successful development program highlighted by drilling 3.0 net Extended Reach Horizontal (“ERH”) wells on our newly acquired Pembina asset. The three wells are in early stages of post completion cleanup and have a combined average first month production rate of 890 boe/d(1) (75% light oil; 5% NGLs) based on field estimates, significantly higher than our forecast.
- Achieved average production of 4,965 boe/d(1) (70% light oil and NGLs), an increase of 4% compared to 4,784 boe/d(1) (68% light oil and NGLs) in the first quarter of 2020 and an increase of 17% compared to 4,259 boe/d(1) (68% light oil and NGLs) in the fourth quarter of 2020.
- Targeted light oil drilling has resulted in our highest weighting of light oil and NGLs at 70% of total production, with the increase all attributed to light oil.
- Generated adjusted funds flow (“AFF”)(2) of $6.1 million ($0.09 per basic and diluted share), an increase of 79% compared to $3.4 million ($0.05 per basic and diluted share) in the first quarter of 2020 and an increase of 86% compared to $3.3 million ($0.05 per basic and diluted share) in the fourth quarter of 2020.
- Increased operating netbacks(2) by 113% to $26.66/boe compared to $12.52/boe in the first quarter of 2020 and by 69% compared to $15.81/boe in the fourth quarter of 2020.
- Realized an operating income profit margin(2) of 60% compared to 42% in the first quarter of 2020 and 48% in the fourth quarter of 2020, returning to more historical pre-COVID levels.
- Drilling activity and other optimization projects during the quarter are estimated to add an additional 10% to Proved Developed Producing (“PDP”) reserves from Proved Developed Non-Producing (“PDNP”) and Proved Undeveloped (“PUD”) reserves as assigned in the December 31, 2020 reserve report.
Notes:
- See “Reader Advisories – Production Breakdown by Product Type”
- “Adjusted Funds Flow”, “Operating Income Profit Margin” and “Operating Netback” 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. Please refer to “Non-GAAP Financial Measures” 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.
Outlook
The commodity price recovery in the past year has been remarkable and occurred quicker than InPlay and most in the industry expected. We are pleased to report that InPlay is ahead of schedule on our road to recovery, already reaching our goal of quickly returning to 2019 pre-COVID production levels of 5,000 boe/d. The Company is on track to generate record levels of production and AFF in 2021 resulting in substantial Free Adjusted Funds Flow (“FAFF”)(2) to pay down the increase in debt that occurred in 2020. InPlay is on a faster pace than anticipated to achieve a target of one times Net Debt/EBITDA(2). This is in addition to achieving a record level of reserves in all categories as at December 31, 2020. All of these accomplishments were achieved without share dilution and places InPlay in the strongest position we have ever been to execute our strategy of top tier light oil growth per share and strong FAFF. We are excited that with increased financial flexibility, we have the option of reducing debt levels and exploring accretive acquisition opportunities such as our last acquisition in the fourth quarter of 2020.
The three 1.5 mile ERH Pembina wells drilled during the quarter are performing exceptionally well, are in the early post-completion clean-up stage and produced at a combined rate of approximately 890 boe/d (75% light oil; 5% NGLs) over the first 30 days (“IP 30”) based on field estimates. These rates significantly exceed both our internal forecasted production volumes and those assigned in our 2020 year end reserve report. Performance to date on these ERH wells, while early, is similar to our previous six wells drilled in Pembina, which now have up to one and a half years of production history. These previously drilled wells exceeded our internal forecasted average initial production (“IP”) 365 day rate by approximately 43% on average and produced at a higher oil weighting than the Company average. This was achieved despite these wells being temporarily curtailed in the second and third quarter of 2020 due to the historically low commodity prices caused by the COVID-19 demand destruction. We are extremely enthused by the positive results achieved from the Cardium drilling program in Pembina and look forward to the continued development of the assets acquired in the October 2020 strategic acquisition.
Based on the consistent performance of the Pembina assets and the recent results, the Company continues to refine our 2021 drilling program. Currently, while the total number of wells planned in 2021 remains unchanged, InPlay expects to shift focus towards the Pembina area, accessing the completed Pembina multi-well battery built in the first quarter. The revised program would initially target wells directly offsetting the successful first quarter 2021 Pembina wells mid-year, subject to spring breakup conditions and the availability of equipment and services.
At this time, InPlay reiterates its guidance for 2021 of estimated annual average production of 5,100 to 5,400 boe/d(1)(3) (69% light oil & NGLs), representing annual organic production growth of approximately 28% to 35% over 2020 levels. The Company is forecasting a 2021 operating income profit margin(2)(3) of approximately 64% and a net debt to 2021 EBITDA(2)(3) of 1.3 – 1.5 times at year end. Solid operational results exiting the first quarter along with stable commodity pricing that has trended higher, combined with the termination of punitive hedges at the end of the second quarter (which were put in place in 2020 to protect the balance sheet and capital program), are very positive catalysts for InPlay’s future success. We are very excited about the remainder of 2021 which is anticipated to be a record year for the Company based on our forecast for financial and operational results.
Notes:
- See “Reader Advisories – Production Breakdown by Product Type”
- “AFF”, “FAFF”, “Net Debt/EBITDA” and “operating income profit margin” are Non-IFRS Measures and do not have a standardized meaning under International Financial Reporting Standards (IFRS) and GAAP and may not be comparable with the calculations of similar measures for other companies. 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.
- See table in the Reader Advisories for key budget and underlying material assumptions related to the Company’s 2021 capital program and associated guidance.
Financial and Operating Results:
(CDN) ($000’s) | Three months ended March 31 |
|||||
2021 | 2020 | |||||
Financial | ||||||
Oil and natural gas sales | 20,001 | 13,092 | ||||
Funds flow | 6,093 | 3,235 | ||||
Per share – basic and diluted | 0.09 | 0.05 | ||||
Per boe | 13.63 | 7.43 | ||||
Adjusted funds flow(1) | 6,105 | 3,418 | ||||
Per share – basic and diluted(1) | 0.09 | 0.05 | ||||
Per boe(1) | 13.66 | 7.85 | ||||
Comprehensive (loss) | (7,536 | ) | (100,497 | ) | ||
Per share – basic and diluted | (0.11 | ) | (1.47 | ) | ||
Exploration and development capital expenditures | 12,209 | 11,632 | ||||
Property acquisitions | 19 | – | ||||
Net debt | (79,780 | ) | (63,713 | ) | ||
Shares outstanding | 68,256,616 | 68,256,616 | ||||
Basic & diluted weighted-average shares | 68,256,616 | 68,256,616 | ||||
Operational | ||||||
Daily production volumes | ||||||
Light and medium crude oil (bbls/d) | 2,665 | 2,432 | ||||
Natural gas liquids (bbls/d) | 802 | 807 | ||||
Conventional natural gas (Mcf/d) | 8,994 | 9,271 | ||||
Total (boe/d) | 4,965 | 4,784 | ||||
Realized prices | ||||||
Light and medium crude oil & NGLs ($/bbls) | 55.75 | 38.53 | ||||
Conventional natural gas ($/Mcf) | 3.22 | 2.06 | ||||
Total ($/boe) | 44.76 | 30.07 | ||||
Operating netbacks ($/boe)(1) | ||||||
Oil and natural gas sales | 44.76 | 30.07 | ||||
Royalties | (2.79 | ) | (2.09 | ) | ||
Transportation expense | (0.94 | ) | (0.79 | ) | ||
Operating costs | (14.37 | ) | (14.67 | ) | ||
Operating netback | 26.66 | 12.52 | ||||
Realized (loss) on derivative contracts | (6.81 | ) | 0.00 | |||
Operating netback (including realized derivative contracts) | 19.85 | 12.52 |
- “Adjusted funds flow” or “AFF”, “adjusted funds flow per share, basic and diluted”, “adjusted funds flow per boe”, “operating income” and “operating netback per boe” 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” at the end of this news release and to the section entitled “Non-GAAP Measures” in the Company’s MD&A for details of calculations, rationale for use and applicable reconciliation to the nearest IFRS measure.
First Quarter 2021 Financial & Operations Overview
InPlay’s capital program for the quarter consisted of $12.2 million of development capital focused on three (3.0 net) 1.5 mile ERH wells in Pembina and completing one (0.2 net) Nisku ERH well drilled in late 2020. This capital spending included the construction of a multi-well battery in Pembina that will accommodate our full cycle development of the area with the potential to drill up to 25 ERH locations over the next three years with minimal future infrastructure capital requirements. In addition, fourteen successful optimization and reactivation projects were completed, which combined with the 3.2 net wells drilled are estimated to add an additional 10% to Proved Developed Producing (“PDP”) reserves from Proved Developed Non-Producing (“PDNP”) and Proved Undeveloped (“PUD”) reserves as assigned in the December 31, 2020 reserve report.
Production averaged 4,965 boe/d(1) (70% oil & NGLs), an increase of 4% compared to the first quarter of 2020 which averaged 4,784 boe/d (68% oil & NGLs)(1) and an increase of 17% compared to 4,259 boe/d(1) (68% light oil and NGLs) in the fourth quarter of 2020. This production growth was achieved notwithstanding the impact of approximately 110 boe/d of lost average quarterly production due to extremely cold weather in February and non-operated production downtime. In addition, we expected our three 1.5 mile Pembina wells to begin production in early March but these were delayed to month end. Although these wells produced at an average combined rate of 890 boe/d(1) (75% light oil; 5% NGLs) in their first month, the timing of production resulted in minimal oil being sold during the first quarter of 2021. While we would have liked to have shown a higher first quarter production rate with these wells online for the entire month of March (Q1 2021 production would have increased by approximately 290 boe/d), we are pleased that the initial production from these wells is being sold into a higher pricing environment in the second quarter of 2021.
Commodity prices were strong during the quarter, recovering from unprecedented lows in 2020 due to the impacts of the COVID-19 pandemic. West Texas Intermediate (“WTI”) prices averaged $57.84 USD/bbl compared to $46.17 USD/bbl in the first quarter of 2020 and $42.66 USD/bbl during the fourth quarter of 2020. Natural gas prices continued to remain strong with AECO daily index prices averaging $2.99/GJ compared to $1.93/GJ in the first quarter of 2020. February 2021 natural gas prices were exceptionally strong at $3.77/GJ, a level not seen since 2014.
Given the strength in commodity prices during the quarter, InPlay generated AFF(2) of $6.1 million representing a 79% improvement relative to the $3.4 million realized in the pre-COVID first quarter of 2020. Operating costs averaged $14.37/boe and were slightly better than operating costs in the first quarter of 2020 of $14.67/boe. Operating costs were impacted slightly due to the extremely cold weather affecting field operations, an unexpected plant turnaround, and significantly higher power costs as a result of increased power demand placed on the electrical grid system.
Efforts to protect the Company’s balance sheet and capital program were put in place in 2020 through a comprehensive hedging program which successfully achieved that objective. With the subsequent dramatic increase in commodity prices, the Company realized hedging losses of approximately $3.0 million, negatively affecting AFF. The majority of these punitive hedges from 2020 expire at the end of the second quarter, with the Company’s hedging position for the second half of the year being primarily collars at more favorable pricing levels in line with current pricing.
We would like to express our appreciation to all of our employees, service providers and directors for their efforts in aiding the Company in managing the COVID-19 pandemic. We would also like to thank all of our shareholders and lending partners for their backing of the Company during those difficult times and we are excited about the positive road ahead.
For further information please contact:
Doug Bartole President and Chief Executive Officer InPlay Oil Corp. Telephone: (587) 955-0632 |
Darren Dittmer Chief Financial Officer InPlay Oil Corp. Telephone: (587) 955-0634 |
Notes:
- See “Reader Advisories – Production Breakdown by Product Type”
- “Adjusted Funds Flow” does 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. Please refer to “Non-GAAP Financial Measures” 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.