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InPlay Oil Reports Fourth Quarter 2019 Results, Reserves

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   |    Wednesday,March 18,2020

InPlay Oil Corp. reported its Q4 and full year 2019 results.

2019 Highlights:

• Generated AFF⁽¹⁾ of $32.5 million ($0.48 per basic and diluted share) during 2019, an increase of 20% compared to $27.0 million ($0.40 per basic and diluted share) in 2018.
• InPlay has always been focused on the prudent and efficient deployment of capital.  This is evident in the exceptional finding and development costs incurred, and associated recycle ratios, in developing new reserves, and the strong capital efficiencies in adding new producing barrels.  These metrics are expected to be top tier amongst our light oil peers:
  °  Finding and development (“F&D”)⁽²⁾ and finding, development and acquisition (“FD&A”)⁽²⁾ costs of $13.98/boe, $7.92/boe, and $7.82/boe for PDP, TP and TPP reserve categories respectively.
  °  Strong recycle ratios⁽²⁾ of 1.6 (PDP), 2.9 (TP) and 2.9 (TPP)
  °  Generated capital efficiency⁽²⁾ of $18,387 per boe/d in 2019 which substantially equals our average of $18,390 over the last three years.
• Averaged annual 2019 production of 5,000 boe/d, an increase of 7% compared to 4,653 boe/d in 2018, achieving our annual production guidance of 5,000 – 5,200 boe/d which was increased in August 2019 due to the excellent drilling results during the year which exceeded our expectations.
• Production growth was achieved notwithstanding the sale of approximately 250 boe/d of non-core producing assets late in 2018 and an 11% reduction to originally forecasted 2019 capital spending.
• Continued focus on efficiencies resulted in operating cost rates decreasing 10% to $14.36/boe in 2019 compared to $16.02/boe in 2018.
• Operating income profit margin⁽¹⁾ of 55% was generated in 2019 compared to 52% in 2018, an increase of 6% which was achieved even with a 9% decrease in our overall realized prices per boe received over the same respective periods.
• Achieved PDP reserve growth of 4% and TPP reserve growth of 1% resulting in 120% and 113% replacement of production respectively.
• Returns on the reduced capital program resulted in 15% reduction in the Company’s annual Net Debt / AFF⁽²⁾ ratio of to 1.7 times for 2019 compared to 2.0 times in 2018.

2019 Financial & Operations Overview

InPlay delivered another year of exceptional operational results while successfully responding to commodity price challenges facing the industry. InPlay achieved organic drill bit production growth of 7% over 2018 despite an 11% reduction in originally planned capital spending to accommodate lower commodity prices than originally forecasted. The Company continues to focus on operational efficiencies which resulted in a 10% reduction to operating costs to $14.36/boe in 2019 from $16.02/boe in 2018 and a 6% increase in operating income profit margin to 55% in 2019 from 52% in 2018 (which had higher realized prices).  Prudent decision making on the timing of capital expenditures, continued drilling proficiency in our Willesden Green and Pembina core areas and a strong focus on operational efficiencies allowed InPlay to generate AFF in excess of capital spending and increased AFF by 20% to $32.5 million in 2019 from $27.0 million in 2018. This growth in the year was achieved without any share dilution and positioned the Company with a solid net debt / adjusted funds flow ratio of 1.7 for 2019 compared to 2.0 in 2018.

InPlay’s 2019 capital program consisted of $32.1 million of development capital, focused on drilling wells in our Willesden Green and Pembina Cardium areas, and was less than AFF for the year.  The Company drilled 10 (5.2 net) extended reach horizontal (“ERH”) wells and three (3.0 net) one-mile horizontal wells during the year ended December 31, 2019, amounting to an equivalent of 22 gross horizontal miles (11.8 net horizontal miles) and completed two (2.0 net) ERH wells that were drilled in the fourth quarter of 2018. Eight (4.8 net) ERH wells were drilled in Willesden Green and three (3.0 net) horizontal wells were drilled in Pembina.

The results noted above were achieved in light of negative market factors that affected Natural Gas Liquids (“NGLs”) prices during 2019.  Revenues were impacted by multi-year lows in NGL prices beginning at the start of the second quarter of 2019 which caused a 50% reduction in realized NGL prices to $19.02/boe in 2019 from $38.27/boe in 2018, following continued propane and butane price reductions. These lower NGL prices in addition to lower WTI prices resulted in a 9% reduction in total realized prices in 2019 compared to 2018.  InPlay prudently reacted to these deteriorating prices by reducing 2019 capital expenditures by 11% compared to our initial forecast in order to generate AFF that was in line with total capital expenditures.

Message to Shareholders: "InPlay’s strategy has always been to operate a smart, prudent, and well run junior light oil focused Company that has the ability to provide growth through its strong technical expertise and generate top tier efficiencies in finding reserves and adding production.  This has been done while being flexible in executing our capital program and in operations where we have continually been reacting to the extremely volatile commodity price environment that our industry has endured over the last six plus years.

"The Company continued to deliver exceptional operational and financial results, delivering 7% production per share growth in 2019 over 2018, achieving our annual average production guidance of 5,000 – 5,200 boe/d, notwithstanding the sale of 250 boe/d in the fourth quarter of 2018.  This average production was achieved while reducing our planned capital expenditures by 11% in the fourth quarter of 2019 which resulted in spending less than adjusted funds flow (“AFF”)⁽¹⁾ for 2019, adhering to our approach of being adaptable and maintaining financial flexibility.  A 10% reduction in operating costs per boe and an increased operating income profit margin⁽¹⁾ of 6% in 2019 over 2018 was achieved, generating a 20% increase in AFF for the year over 2018 to $32.5 million in 2019.  These results were achieved within a reduced pricing environment resulting in a corporate realized price of $41.11/boe in 2019 compared to $45.00/boe in 2018, due to lower West Texas Intermediate (“WTI”) and natural gas liquids (“NGL”) pricing in the year.

"InPlay continued to leverage our proven track record of drilling efficiency and operational expertise, setting industry pacesetting drilling times for horizontal wells in our Willesden Green and Pembina core areas. Production results and costs continued to be better than our expectations. The Company is focused on project economics where we drill, complete and equip wells, and build adaptable, fit for purpose, modular infrastructure for the full development of a specific area. The results of our project based economics combined with our technical expertise and focused execution of our capital projects provided expected top tier efficiencies including finding and development costs of $13.98, $7.92 and $7.82 in proved developed producing (“PDP”), total proved (“TP”) and total proved plus probable (“TPP”) reserve categories respectively. This equates to recycle ratios of 1.6, 2.9 and 2.9 in all three respective categories and achieves capital efficiencies in adding producing barrels of $18,387 per boe/d in 2019 which matches our three year average of $18,390 per boe/d.  These are all expected to be competitive with top tier efficiencies amongst our light oil peers.

"The beginning of 2020 was looking very promising for the energy industry with stability in world oil prices and several industry agencies predicting that demand would outpace supply at some point during the upcoming year. These are unprecedented times and conditions have changed quickly with concerns of demand destruction due to the COVID – 19 outbreak. In addition, a crude oil price war was initiated between certain OPEC+ members resulting in a quick and severe drop in world oil prices. InPlay’s response to these events will be to continue its approach of maintaining prudence and financial flexibility with a focus on preserving value and the balance sheet. Refer to the Outlook section for further details of our reaction and plans, to address the current economic situation.

"InPlay is a nimble, focused Company that has always reacted quickly to volatility in challenging environments. The current situation we are facing is no exception. The Company will be diligent and responsive to react quickly and resume our capital program once the pricing environment improves. As we face these difficult circumstances we would especially like to thank our many dedicated shareholders, our dedicated staff and our strong and vested Board of Directors for their guidance and support."

2019 Reserve Highlights

The strong performance of the Company’s assets, specifically in the Willesden Green and Pembina areas is highlighted by increased PDP year-end reserves by 4% to 8,718 mboe. Following are the 2019 year-end reserve highlights derived from the Sproule Report:

Reserves:

• PDP increased 4% to 8,718 mboe (63% light crude oil & NGLs)
• TP decreased 2% to 18,573 mboe (69% light crude oil & NGLs)
• TPP increased 1% to 27,295 mboe (71% light crude oil & NGLs)