InPlay is currently producing at record production levels of 9,600 boe/d(2) (57% light oil and NGLs) based on field estimates. In Willesden Green, three (2.9 net) Extended Reach Horizontal (“ERH”) wells were brought on production approximately ten days ago and an additional two (1.9 net) ERH wells will be brought on production in the next few days. These wells are currently in the early clean-up stage and should achieve peak production over the next 30 to 60 days. The Company’s current plans from our original capital program is to drill one (0.95 net) additional two-mile well in Willesden Green.
Given the strong operational results in 2022 to date, InPlay expects to be in the upper half of our full year 2022 production guidance which equates to 9,150 to 9,400 boe/d(2). This forecast is estimated to deliver production growth of 28% to 31% on a per share basis (83% to 92% on a debt adjusted per share basis (1)) which is expected to be top-tier amongst light oil peers.
InPlay has elected to drill additional extended reach wells in 2022 (and fewer one-mile wells) than originally planned, including two two-mile ERH wells which achieved exceptional efficient drill times. The Company is also expecting increased industry activity levels in the first quarter of 2023. With our strong balance sheet, InPlay plans to take advantage of utilizing our preferred contractors and is now tactically planning to start 2023 expenditures in late 2022 by initiating preliminary construction work and adding two horizontal (2.0 net) Belly River light oil wells to the 2022 capital program. These wells are expected to be brought on production late in the fourth quarter positioning the Company for significant production increases in 2023. The Belly River is a producing play which we have not drilled in since 2016 and plans are to utilize the technologies and expertise developed in our Cardium play over the years. These wells have a high light oil weighting (approximately 90% – 95% light oil) that receives a premium to our benchmark Mixed Sweet Blend (“MSW”) pricing. The Company also plans to invest in environmental initiatives by constructing a third vapour recovery unit for additional emission conservation. As a result, the Board of Directors have approved an increased 2022 development capital budget of $70 to $72 million.
Outlook and Long-Term Forecast (3)
InPlay is continuously evaluating market conditions including current recession concerns in order to maximize shareholder returns. Even with the current volatility, commodity prices continue to remain historically strong in part due to the weak Canadian dollar, resulting in high rates of return on capital investment and short payout periods. It is InPlay’s belief that long-term commodity pricing will remain strong due to the lack of industry wide capital spending over recent years, restrictive government regulations and mandates and unstable global geopolitics leading to a multi-year bull cycle in crude oil prices. The Company is continuing to rapidly pay down debt and is in the best operational and financial position in our history while remaining focused on our disciplined strategy.
InPlay is pleased to provide a forecast to the end of 2025. The Company’s strategy is to continue to provide top-tier light-oil weighted growth, maintaining a strong financial position while providing significant FAFF and sustainable returns to shareholders. Our strategy is to provide organic production growth in a range of 6% – 10%. At a WTI price of US $80/bbl or better, we target 10% production growth and with WTI pricing of approximately US $60/bbl, production growth of 6% is targeted. This is demonstrated in our forecast to 2025 which would provide a meaningful return to shareholders.
The table below outlines the highlights of the four year forecast based on the following WTI pricing scenarios:
|Production (boe/d)(2)||9,150 – 9,400||9,900 – 10,400||10,650 – 11,200||11,300 – 11,900|
|Capital ($ millions)||70 – 72||69 – 71||75 – 77||80 – 82|
|Net wells||17.5||17.5 – 18.5||18.5 – 19.5||21.0 – 22.0|
|DAPPS Growth (%)(1) *||83 – 92||46 – 59||40 – 45||30 – 35|
|AFF ($ millions)(4)||139 – 143||134 – 140||136 – 142||133 – 139|
|FAFF ($ millions)(1)||67 – 73||63 – 71||59 – 67||51 – 59|
|Working Capital (Net Debt) at Year-end ($ millions)(4)||(12) – (16)||43 – 50||97 – 103||141 – 147|
|Annual Net Debt / EBITDA(1)||0.1 – 0.2||(0.3) – (0.4)||(0.7) – (0.8)||(1.0) – (1.1)|
|EV / DAAFF(1)*||1.5 – 1.6||1.2 – 1.3||0.8 – 0.9||0.5 – 0.6|
* Assumes a $2.50 share price
This forecast shows the high quality deliverability and return of our assets evidencing the sustainability of the Company with increasing positive working capital and minimal leverage.
Return of Shareholder Capital
InPlay’s trailing 12 month net debt to earnings before interest, taxes and depletion (“EBITDA”) ratio was less than 0.5 times at the end of the second quarter and is forecast to be 0.1 – 0.2 times at the end of 2022. With this threshold achieved, in addition to the continued generation of FAFF, elimination of debt and generation of positive working capital forecasted through to 2025, the Company is committed towards providing a return of capital to shareholders. The Company believes that our share price is currently significantly undervalued and the prudent first step in enhancing returns to shareholders is a share buyback program which the Company’s Board of Director’s has approved for implementation and will be subject to regulatory approval. With this in place the Company will be able to acquire common shares at opportunistic times and share prices.
As outlined above in the long term forecast, the Company is forecasting to generate material FAFF resulting in a growing positive working capital balance through to 2025. Our strategy for the accumulating additional FAFF is to provide returns to shareholders through potential share buybacks, dividends, increased tactical capital investment and accretive strategic acquisitions.
Given the significant volatility in both commodity prices and market conditions experienced in recent weeks, the Company and its Board of Directors will continue to monitor and evaluate the timing and implementation of additional returns to shareholders.
The Company has been disciplined in maintaining operational flexibility by quickly adapting to changing market conditions and commodity price fluctuations in making business decisions. This same prudent approach is currently being followed. Management would like to thank our employees, board members, lenders and shareholders for their support and we look forward to continuing our journey of deleveraging and delivering strong returns to shareholders in a sustainable, prudent and responsible manner.
For further information please contact:
President and Chief Executive Officer
InPlay Oil Corp.
Telephone: (587) 955-0632
Chief Financial Officer
InPlay Oil Corp.
Telephone: (587) 955-0634
- Non-GAAP financial measure or ratio that 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 and Other Financial Measures” contained within this press release.
- See “Production Breakdown by Product Type” at the end of this press release.
- See “Reader Advisories – Forward Looking Information and Statements” for full details and key budget and underlying assumptions related to our 2022 capital program and associated guidance and long-term forecast.
- Capital management measure. See “Non-GAAP and Other Financial Measures” contained within this press release.
Non-GAAP and Other Financial Measures
Throughout this press release and other materials disclosed by the Company, InPlay uses certain measures to analyze financial performance, financial position and cash flow. These non-GAAP and other financial measures do not have any standardized meaning prescribed under GAAP and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered alternatives to, or more meaningful than, financial measures that are determined in accordance with GAAP as indicators of the Company performance. Management believes that the presentation of these non-GAAP and other financial measures provides useful information to shareholders and investors in understanding and evaluating the Company’s ongoing operating performance, and the measures provide increased transparency and the ability to better analyze InPlay’s business performance against prior periods on a comparable basis.
Non-GAAP Financial Measures and Ratios
Included in this document are references to the terms “free adjusted funds flow (“FAFF”)”, “Net Debt to EBITDA”, “Production per debt adjusted share (“DAPPS”)” and “EV / DAAFF”. Management believes these measures and ratios are helpful supplementary measures of financial and operating performance and provide users with similar, but potentially not comparable, information that is commonly used by other oil and natural gas companies. These terms do not have any standardized meaning prescribed by GAAP and should not be considered an alternative to, or more meaningful than “profit (loss) before taxes”, “profit (loss) and comprehensive income (loss)”, “adjusted funds flow”, “capital expenditures”, “corporate acquisitions, net of cash acquired”, “working capital (net debt)”, “weighted average number of common shares (basic)” or assets and liabilities as determined in accordance with GAAP as a measure of the Company’s performance and financial position.
Free Adjusted Funds Flow (“FAFF”)
Management considers FAFF per share important measures to identify the Company’s ability to improve its financial condition through debt repayment, which has become more important recently with the introduction of second lien lenders, on an absolute and weighted average per share basis. FAFF should not be considered as an alternative to or more meaningful than AFF as determined in accordance with GAAP as an indicator of the Company’s performance. FAFF is calculated by the Company as AFF less exploration and development capital expenditures and property dispositions (acquisitions) and is a measure of the cashflow remaining after capital expenditures before corporate acquisitions that can be used for additional capital activity, corporate acquisitions, and repayment of debt or decommissioning expenditures or potentially return of capital to shareholders. FAFF per share is calculated by the Company as FAFF divided by weighted average outstanding shares. Refer to the “Forward Looking Information and Statements” section for a calculation of forecast FAFF.
Net Debt to EBITDA
Management considers Net Debt to EBITDA an important measure as it is a key metric to identify the Company’s ability to fund financing expenses, net debt reductions and other obligations. EBITDA is calculated by the Company as adjusted funds flow before interest expense. When this measure is presented quarterly, EBITDA is annualized by multiplying by four. When this measure is presented on a trailing twelve month basis, EBITDA for the twelve months preceding the Net Debt date is used in the calculation. This measure is consistent with the EBITDA formula prescribed under the Company’s Senior Credit Facility. Net Debt to EBITDA is calculated as Net Debt divided by EBITDA. Refer to the “Forward Looking Information and Statements” section for a calculation of forecast Net Debt to EBITDA.
Production per Debt Adjusted Share
InPlay uses “Production per debt adjusted share” as a key performance indicator. Debt adjusted shares should not be considered as an alternative to or more meaningful than common shares as determined in accordance with GAAP as an indicator of the Company’s performance. Debt adjusted shares is a non-GAAP measure used in the calculation of Production per debt adjusted share and is calculated by the Company as common shares outstanding plus the change in working capital (net debt) divided by the Company’s current trading price on the TSX, converting working capital (net debt) to equity. Debt adjusted shares should not be considered as an alternative to or more meaningful than weighted average number of common shares (basic) as determined in accordance with GAAP as an indicator of the Company’s performance. Management considers Debt adjusted share is a key performance indicator as it adjusts for the effects of capital structure in relation to the Company’s peers. Production per debt adjusted share is calculated by the Company as production divided by debt adjusted shares. Management considers Production per debt adjusted share is a key performance indicator as it adjusts for the effects of changes in annual production in relation to the Company’s capital structure. Refer to the “Forward Looking Information and Statements” section for a calculation of forecast production per debt adjusted share.
EV / DAAFF
InPlay uses “enterprise value to debt adjusted AFF” or “EV/DAAFF” as a key performance indicator. EV/DAAFF is calculated by the Company as enterprise value divided by debt adjusted AFF for the relevant period. Debt adjusted AFF (“DAAFF”) is calculated by the Company as adjusted funds flow plus financing costs. Enterprise value is a capital management measures that is used in the calculation of EV/DAAFF. Enterprise value is calculated as the Company’s market capitalization plus working capital (net debt). Management considers enterprise value a key performance indicator as it identifies the total capital structure of the Company. Management considers EV/DAAFF a key performance indicator as it is a key metric used to evaluate the sustainability of the Company relative to other companies while incorporating the impact of differing capital structures. Refer to the “Forward Looking Information and Statements” section for a calculation of forecast EV/DAAFF.
Capital Management Measures
Adjusted Funds Flow
Management considers adjusted funds flow to be an important measure of InPlay’s ability to generate the funds necessary to finance capital expenditures. Adjusted funds flow (“AFF”) is a GAAP measure and is disclosed in the notes to the Company’s consolidated financial statements for the year ending December 31, 2021 and the most recently filed quarterly financial statements. All references to AFF throughout this document are calculated as funds flow adjusting for decommissioning expenditures and transaction and integration costs. This item is adjusted from funds flow as decommissioning expenditures are incurred on a discretionary and irregular basis and are primarily incurred on previous operating assets and transaction costs are non-recurring costs for the purposes of an acquisition, making the exclusion of these items relevant in Management’s view to the reader in the evaluation of InPlay’s operating performance. The Company also presents AFF per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of profit (loss) per common share.
Working Capital (Net Debt)
Working capital (Net Debt) is a GAAP measure and is disclosed in the notes to the Company’s consolidated financial statements for the year ending December 31, 2021 and the most recently filed quarterly financial statements. The Company closely monitors its capital structure with a goal of maintaining a strong balance sheet to fund the future growth of the Company. The Company monitors working capital (net debt) as part of its capital structure. The Company uses working capital (net debt) (bank debt plus accounts payable and accrued liabilities less accounts receivables and accrued receivables, prepaid expenses and deposits and inventory) as an alternative measure of outstanding debt. Management considers working capital (net debt) an important measure to assist in assessing the liquidity of the Company.