InPlay Oil Reports Q2 2019 Results

InPlay Oil Corp. reported its Q2 2019 results.

Highlights:

• Achieved record average quarterly production of 5,179 boe/d (66% light oil and liquids) in the second quarter of 2019, an increase of 18% compared to 4,396 boe/d (69% light oil and liquids) in the second quarter of 2018 and an increase of 9% compared to 4,737 boe/d (68% light oil and liquids) in the first quarter of 2019.

• Year to date production growth of 13% was attained with average production of 4,959 boe/d (67% light oil and liquids) in the first half of 2019 compared to 4,405 boe/d (70% light oil and liquids) in the first half of 2018. Production growth was achieved notwithstanding the sale of approximately 250 boe/d ofnon-core producing assets in October 2018.

• Generated AFF(1) of $8.8 million ($0.13 per basic and diluted share) representing a 19% increase over the second quarter of 2018 total of $7.4 million ($0.11 per basic and diluted share). These results were achieved despite a 12% decrease in West Texas Intermediate (“WTI”) prices, a 13% decrease in AECO daily gas prices as well as a 53% decrease in the Company’s realized Natural Gas Liquids (“NGLs”) prices over the same respective periods.

• Continued focus on efficiencies resulted in operating costs decreasing 18% to $14.32/boe in the second quarter of 2019 from $17.38/boe in the second quarter of 2018. This decrease, combined with lower royalty rates largely from lower Alberta par prices, resulted in operating netbacks(1) of $23.81/boe in the second quarter of 2019.

• Operating income profit margin(1) of 56% was generated in the second quarter of 2019 compared to 55% in the second quarter of 2018, even with the lower realized light oil, natural gas and NGL prices received over the second quarter of 2019 compared to the second quarter of 2018.

• Net debt decreased by $3.7 million to $56.3 million at the end of the second quarter of 2019 from $60.0 million at the end of the first quarter of 2019 given the significant AFF(1) generated during the quarter net of exploration and development (“E&D”) capital expenditures even with the drilling of two wells in June originally scheduled to be drilled in July.

Second Quarter 2019 Capital & Operations Overview

InPlay forecasted minimal capital spending for the second quarter of 2019 during the spring break-up period where we had AFF of $8.8 million and E&D capital expenditures of $4.7 million. Low second quarter industry activity in Canada provided InPlay access to preferred services and with our Company’s sound financial position we decided to accelerate the drilling of two (2.0 net) 1.5 mile extended reach horizontal (“ERH”) wells which were originally scheduled to be drilled in the third quarter. These two wells were drilled in 9.0 and 9.2 days respectively, continuing our industry pacesetting times for 1.5 mile ERH wells, but more importantly achieving drilling costs of $1.4 million per well.

Production for the quarter averaged 5,179 boe/d (66% light oil and liquids), a quarterly record for the Company, which is a significant accomplishment given the substantial third-party infrastructure turnarounds and downtime encountered at six third-party natural gas processing facilities from mid-March until the end of June. The Company is very pleased with this result as it exceeds the high end of our previous annual average production guidance of 4,900 – 5,100 boe/d.

Total light oil and liquids weighting as a percentage of production was 66% in the second quarter of 2019 in comparison to 69% in the second quarter of 2018 and 68% in the first quarter of 2019. Third-party natural gas processing infrastructure downtime affected the Company as Cardium associated gas production had to be moved along many different routes and to facilities yielding a lower percentage of natural gas liquids while incurring lower natural gas shrinkage. The downtime also put significant back pressure on all other oil wells in the impacted area temporarily restricting their inflow rates.

E&D capital expenditures of $4.7 million were incurred in the second quarter of 2019, primarily from the advanced drilling of the two (2.0 net) ERH wells in June which were completed and brought on production in late July 2019, in addition to further facility upgrades in Willesden Green to accommodate increased production from two new strong wells and to re-route natural gas to different facilities.

Natural gas and NGL prices were significantly lower over the second quarter with natural gas AECO daily index prices averaging $0.98 CDN/GJ, compared to $1.12 CDN/GJ for the second quarter of 2018 and $2.49 CDN/GJ in the first quarter of 2019. The Company’s realized NGL prices averaged $19.67 CDN/bbl compared to $42.15 CDN/bbl and $28.29 CDN/bbl over the same two respective periods following reduced propane prices and reduced Butane pricing relative to WTI. The month of June was particularly burdened with extremely low prices with the AECO daily index price averaging $0.46 CDN/GJ and the Company’s average realized NGL price at $17.75 CDN/bbl.

Outlook

InPlay has had a very strong first half of 2019. Following the July completion of the two (2.0 net) Willesden Green ERH wells drilled in the second quarter the remaining 2019 capital program is planned to be spent on approximately 4.0 - 5.0 net additional Cardium wells.

The latest two Willesden Green 1.5 mile ERH wells that were drilled in June, offsetting our two wells drilled in March that were among the top producing Cardium wells in the province during their first three months of production, are currently producing at similar rates to the March wells at this stage. Total drilling, completion and equipping costs for these new wells came in at $3.25 million each which is our lowest realized costs to date. They were expected to be on production in mid-July but completions were deliberately delayed to avoid additional costs due to very wet weather.

InPlay reiterates its 2019 forecasted E&D capital expenditure program of $36 million and given the continued successful well results supports an increase of our annual average production guidance to 5,000 – 5,200 boe/d (67% - 70% light oil and liquids) and exit production guidance to 5,500 – 5,700 boe/d (67% - 70% light oil and liquids), generating annual average production growth of between 8% - 12% and exit production growth of between 12% - 16%. This is anticipated to result in top tier organic light oil and liquids growth among our light oil peers for 2019.

Volatility in commodity prices continues with forward WTI prices averaging between US$54.00/bbl and US$58.00/bbl and AECO prices averaging approximately $1.50 - $1.70/Mcf over the second half of 2019. Edmonton light sweet differentials have narrowed and are currently in the $3.00 to $4.00 USD/bbl discount to WTI range for the third quarter of 2019 reflecting that the Alberta Government’s production curtailments have been effective in keeping differentials down maximizing pricing for the Provinces revenues and companies while the crude oil storage in Alberta has dropped to multi-year lows. Within this commodity price environment, InPlay continues to be well positioned to generate top tier returns and capital efficiencies.

The strong level of technical expertise and significant experience in the Cardium that the Company has have allowed us to achieve excellent production results with some of the shortest drilling days to date while continually lowering costs resulting in some of the top monthly producing wells in the Cardium. Our Cardium assets continue to provide a stable, high return development plan for the Company. Complimenting this is our East Basin Duvernay asset which provides a long term strategy and represents one of the most exciting emerging light oil plays in the Western Canadian Sedimentary Basin.

We thank our employees and directors for their ongoing commitment and dedication and we thank all of our shareholders for their continued interest and support. We are excited about the strong operational results we have achieved to date and we look forward to reporting upcoming results from our ongoing development program.