InPlay Oil Corp. is pleased to announce its financial and operating results for the three and nine months ended September 30, 2020. InPlay’s condensed unaudited interim financial statements and notes, as well as management’s discussion and analysis (“MD&A”) for the three and nine months ended September 30, 2020 will be available at “www.sedar.com” and our website at “www.inplayoil.com”. An updated presentation will also be available on our website early next week.
Third Quarter 2020 Financial & Operations Results
Production averaged 3,742 boe/d (69% oil & liquids) in the third quarter of 2020 up 19% compared to the second quarter of 2020 which averaged 3,154 boe/d (66% oil & liquids). As commodity prices began to recover during the third quarter of 2020 the Company gradually eased temporary production curtailments and shut-ins implemented as a response to the commodity price capitulation due to the COVID-19 pandemic. Increasing production throughout the third quarter resulted in average production of 4,268 boe/d (70% oil & liquids) in September 2020. Currently there is approximately 245 boe/d (80% oil and liquids) including roughly 110 boe/d of non-operated production that is still shut in and requiring servicing that does not yet meet our payout criteria. As crude oil prices continue to recover the majority of this production is expected to be brought back onstream.
While oil prices have begun to recover from unprecedented lows experienced during the second quarter of 2020, low commodity prices continued to impact the Company’s financial performance during the third quarter. West Texas Intermediate (“WTI”) prices averaged $40.93 USD/bbl compared to $27.85 USD/bbl in the second quarter of 2020 and $56.45 USD/bbl during the third quarter of 2019. Natural gas prices however were stronger in relation to 2019 with natural gas AECO daily index prices increasing 147% averaging $2.12/GJ in the third quarter of 2020 compared to $0.86/GJ in the third quarter of 2019. Despite weak crude oil prices InPlay still generated adjusted funds flow (“AFF”) of $2.0 million during the third quarter of 2020 representing a 227% improvement relative to the second quarter of 2020.
The Company continued to perform extremely well operationally in a very challenging environment. As a result of initiatives in response to COVID-19 to reduce costs and scale back discretionary expenditures, the Company achieved lower total operating and general and administrative (“G&A”) costs during the third quarter of 2020 of $5.0 million and $0.9 million respectively compared to $6.3 million and $1.6 million in the third quarter of 2019. The Company started incurring costs associated with servicing wells that went down and despite the presence of fixed costs being incurred over a significantly lower production base, InPlay’s aggressive cost cutting campaign resulted in only a minor increase in operating expenses per boe ($14.42 in Q3 2020 vs. $13.47 in Q3 2019) and an impressive reduction in G&A per boe ($2.74 in Q3 2020 vs. $3.34 in Q3 2019). This reduction in the third quarter of 2019 included $0.2 million from the Canada Emergency Wage Subsidy (“CEWS”). Amounts received from the CEWS program in the fourth quarter and going forward are expected to be negligible.
Fourth Quarter Activities Update
Business Development Bank of Canada (“BDC”) Term Facility
As announced on November 2, 2020 the Company finalized the definitive agreements with the Business Development Bank of Canada (“BDC“) and our current syndicate of lenders providing a $25 million nonrevolving, second lien senior secured four-year term loan facility (the “BDC Term Facility“) maturing on October 30, 2024. The term loan was fully funded to the Company on November 2, 2020 and the proceeds will be used by InPlay for working capital and general corporate purposes. This program was implemented to provide pre-COVID viable companies with liquidity to enable a return to pre-COVID production and reserve levels in a normal crude oil pricing environment and we are proud of the fact that we acted quickly and were the first oil and gas Company to successfully close a financing under the BDC program. We feel this demonstrates the support and belief that BDC and our other senior lenders have in InPlay to return to pre-COVID production levels and to achieve long term financial stability and growth.
Strategic Cardium Asset Acquisition
Also as previously announced, the Company successfully closed a strategic acquisition in our core Pembina Cardium area of operations for a total cost of approximately $1.9 million (net of adjustments) adding the following to our Pembina asset base:
InPlay is excited about this acquisition as we believe it provides potential for upside similar to our recent successful results in Pembina that have exceeded our production expectations and which also included drilling three of industry’s fastest one-mile wells in the play to date with our top pacesetter well being drilled in 4.1 days. Based on cost reductions, technological improvements in all of our operations and the strong recent production results in Pembina, this asset immediately competes with our top-tier locations in terms of potential economics and strong returns.
Financial and Operating Results:
|(CDN) ($000’s)||Three months ended
|Nine months ended
|Oil and natural gas sales||10,846||17,395||29,105||56,600|
|Per share – basic and diluted||0.03||0.09||0.05||0.34|
|Adjusted funds flow(1)||2,008||6,886||4,146||24,694|
|Per share – basic and diluted(1)||0.03||0.10||0.06||0.36|
|Per share – basic and diluted||(0.04)||(0.02)||(1.60)||(0.12)|
|Exploration and development capital expenditures||382||8,082||12,502||27,533|
|Basic & diluted weighted-average shares||68,256,616||68,256,616||68,256,616||68,256,616|
|Daily production volumes|
|Crude oil (bbls/d)||1,973||2,580||1,976||2,680|
|Natural gas liquids (bbls/d)||598||748||655||639|
|Natural gas (Mcf/d)||7,029||10,509||7,572||10,085|
|Crude oil & NGLs ($/bbls)||39.51||54.17||34.23||57.96|
|Natural gas ($/Mcf)||2.32||0.84||2.13||1.48|
|Operating netbacks ($/boe)(1)|
|Oil and natural gas sales||31.50||37.22||27.29||41.47|
|Realized gain (loss) on derivative contracts||(2.18)||0.00||(0.99)||0.02|
|Operating netback (including realized derivative contracts)||11.67||19.44||8.85||23.11|
|(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.|
Securing the BDC Term Facility, closing the strategic Cardium asset acquisition and implementing our fourth quarter 2020 capital program places the Company in a strong position and provides the Company with the liquidity required to return to pre-COVID levels of production, reserve values and revenues in a reasonable time frame alongside expected increasing commodity pricing. The Company will now be able to continue with its strategy of generating organic growth and free cash flow through our top-tier drilling inventory and pacesetting drilling results or potentially taking advantage of the current economic environment through strategic A&D activity. These actions complemented by our solid low decline asset base will support continued growth in production and free cash flow as commodity prices recover.
The fourth quarter of 2020 includes a planned development capital program that begins with the drilling of three 100% working interest ERH Cardium wells in Willesden Green and construction of the associated required infrastructure. The Company expected drilling to start by the end of October but the local County has implemented road bans that have delayed the start by approximately another two weeks. With the latest delay we now believe that it will be difficult to see production from these wells in 2020 but still anticipate annual average 2020 production close to 4,000 boe/d (approximately 68% oil & liquids). InPlay anticipates that its current base production along with the addition of production from the upcoming three wells will bring production back to 2019 pre-COVID levels of approximately 5,000 boe/d in the first quarter of 2021.
The Company has started planning its capital program for 2021 which will be determined through the balance of the current year and released in early 2021. The size of InPlay’s 2021 capital program remains subject to expected crude oil demand recovery and resulting commodity pricing improvements. When drilling begins in 2021 current expectations are that it will start on our most recently acquired Pembina asset.
We would like to express our sincere appreciation to all our employees and our service providers for their sacrifices, commitments, and efforts in this unprecedented time. As well as gratitude to our Directors for their ongoing commitment and dedication to help us manage through this extremely difficult environment of which we believe we are now on the road to recovery. Finally, we thank all of our shareholders and lending partners for their continued interest and support toward the continued development and growth of the Company.
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