InPlay Oil Corp.is pleased to announce its financial and operating results for the three and six months ended June 30, 2021.
Second Quarter 2021 Financial & Operating Highlights
- Achieved record quarterly production of 5,386 boe/d(1) (68% light oil and NGLs), an increase of 71% compared to 3,154 boe/d(1) (66% light oil and NGLs) in the second quarter of 2020 and an increase of 8% compared to 4,965 boe/d(1) (70% light oil and NGLs) in the first quarter of 2021.
- Continued new well production performance in excess of forecasts with the 3.0 net Extended Reach Horizontal (“ERH”) wells drilled in the first quarter of 2021 on our newly acquired Pembina asset having a combined average 120 day initial production (“IP”) rate of 1,390 boe/d(1) (74% light oil and NGLs) based on field estimates.
- Increased operating netbacks(2) by 3279% to $33.11/boe from $0.98/boe in the second quarter of 2020 and by 24% from $26.66/boe in the first quarter of 2021.
- Realized a quarterly record operating income(2) and operating income profit margin(2) of $16.2 million and 64% respectively compared to $0.3 million and 6% in the second quarter of 2020 and $11.9 million and 60% in the first quarter of 2021.
- Generated adjusted funds flow (“AFF”)(2) of $8.2 million ($0.12 per basic and diluted share) compared to an AFF deficit of $1.3 million ($0.02 deficit per basic and diluted share) in the second quarter of 2020 and an increase of 35% compared to $6.1 million ($0.09 per basic and diluted share) in the first quarter of 2021.
- Reduced operating expenses to a quarterly record $12.51/boe compared to $14.18/boe in the second quarter of 2020 and $14.37/boe in the first quarter of 2021.
- Realized net income of $59.1 million ($0.87 per basic share; $0.85 per diluted share) compared to a net loss of $6.2 million ($0.09 per basic and diluted share) in the second quarter of 2020 and a net loss of $7.5 million ($0.11 per basic and diluted share) in the first quarter of 2021.
- Decreased net debt by 5% during the second quarter of 2021 from March 31, 2021 while also managing to achieve production growth of 8% over the same respective period. InPlay’s second half (“H2”) 2021 program as planned is forecasted to result in net debt reduction of $17 - $19 million.
Outlook and Increased Guidance
The Company’s decision to reinvest in the Pembina Cardium has been extremely successful. Results exceeding our expectations have been realized in Pembina since we resumed drilling in this area in late 2019. The three 100% Pembina Cardium 1.5 mile wells drilled in the first quarter of 2021 on our lands acquired in the fourth quarter of 2020 have performed exceptionally to date. These wells continue to flow without artificial lift, have produced an average of approximately 55,000 boe per well (73% light oil and NGLs) over their first 120 days and have paid out in three to four months. Their production rates have continued to substantially exceed both our internal forecasted production volumes and reserves assigned to these locations in our December 31, 2020 independent reserve report.
The Company finished drilling another three well pad in early July directly offsetting the Pembina wells drilled in the first quarter of 2021. These new wells came on production in late July and have produced an average of approximately 462 boe/d(1) per well (83% light oil and NGLs) over their first 15 days of production. The wells are showing initial early results exceeding the Pembina wells drilled in the first quarter of 2021 which had an average production rate of 297 boe/d(1) over the first 30 days. The three latest wells are cleaning up and currently producing 567 boe/d(1) on average per well (79% light oil and NGLs), based on field estimates. Based on current performance, the Company anticipates these wells to pay out in a similar time frame to our Pembina wells drilled in the first quarter of 2021. InPlay’s current corporate production is approximately 6,500 boe/d(1) (68% light oil and NGLs), based on field estimates.
InPlay’s strong results in the first half of 2021 and continuing in the second half of 2021 from the Pembina drills have allowed the Company to increase its 2021 annual average production guidance to between 5,500 and 5,750 boe/d(1) (68% light oil and NGLs) from our previous guidance of 5,100 to 5,400 boe/d (69% light oil and NGLs). The drilling program for the remainder of the year has not changed from drilling 5.0 net operated horizontal wells. A major scope change has occurred where instead of drilling three 1.0 mile wells in Willesden Green and two 1.5 mile wells in Pembina, the Company is now planning to drill five 1.5 mile wells in Pembina given the strong results and short payouts of the recent Pembina wells. Also, these locations are expected to provide the highest reserve additions in all categories with management expectations that reserves will significantly exceed current reserve bookings as well as adding new locations in 2021. The Company will participate in an additional two (0.4 net) non-operated wells due to increasing partner activity in the second half of 2021. Total capital expenditures for 2021 is anticipated to be $29 million resulting in forecast AFF(2) increased to an annual record $44.5 - $47.5 million and forecast Free Adjusted Funds Flow (“FAFF”)(2) increased to $15.5 - $18.5 million, which will be used to pay down debt. Based on a current market capitalization of $76 million (based on the Company’s August 10, 2021 closing share price), 2021 forecasted FAFF equates to a 20% - 24% FAFF yield(5) for equity investors. Quarterly AFF in each of the third and fourth quarter of 2021 is expected to exceed AFF generated during the first half of 2021.
InPlay is expected to have lower debt exiting 2021 than that previously forecasted, close to our pre-pandemic 2019 debt levels. InPlay’s fourth quarter 2021 annualized net debt to earnings before interest, taxes and depletion (“EBITDA”) ratio(5) is now forecast to be 0.7 to 0.9 times, the lowest in our history. InPlay’s decision to redirect capital to longer, more capital efficient Pembina Cardium wells will allow the Company to capitalize on these top-tier locations in the strong current pricing environment, where the wells are expected to pay-out quickly in an estimated three to six months, assuming West Texas Intermediate (“WTI”) oil prices of US$60 to US$70. The Company has approximately 26 additional drilling locations on our new Pembina Cardium asset(4). As we have previously demonstrated, the Company will continue to remain flexible, adaptable and react promptly to commodity price volatility and will adjust the capital program if necessary.
The Company’s 2021 guidance is based on a current future commodity price curve with an annual average WTI price of US $64.50/bbl, $3.35/GJ AECO and estimated foreign exchange of $0.80 CDN/USD.
We are very excited about the remainder of 2021 which is anticipated to be a record year for the Company based on our updated forecast for financial and operational results(3). We are also excited that a strong second half of 2021 puts InPlay in an even stronger position to continue to deliver measured production and FAFF growth throughout 2022.
Second Quarter 2021 Financial & Operations Overview
InPlay’s production for the second quarter of 2021 was a record quarterly production rate for the Company averaging 5,386 boe/d(1) (68% light oil & NGLs). Production increased 71% compared to the second quarter of 2020 which averaged 3,154 boe/d(1) (66% light oil & NGLs) and increased 8% compared to the first quarter of 2021 which average 4,965 boe/d(1) (70% light oil and NGLs). The Company’s strong results in Pembina have allowed InPlay to achieve record quarterly production only one year after the beginning of the COVID-19 pandemic.
The Company’s capital program for the quarter consisted of $4.7 million of development capital focused primarily on the drilling operations of an additional three (3.0 net) 1.5 mile ERH wells in Pembina offsetting the three wells drilled in the first quarter of 2021, with drilling concluding in June on two wells and early July for one well.
InPlay continues to benefit from our record levels of production being sold into one of the strongest commodity pricing environments we have seen in years. WTI prices remained strong in the second quarter of 2021 averaging $66.07 USD/bbl compared to $27.83 USD/bbl in the COVID-19 impacted second quarter of 2020. Strong natural gas prices continued in the second quarter of 2021 with AECO daily index prices averaging $2.93/GJ compared to $1.89/GJ in the second quarter of 2020. Realized NGL prices averaged $30.27/bbl compared to $11.66/bbl for the second quarter of 2020.
Record production levels and strong prices resulted in InPlay generating strong AFF(2) of $8.2 million compared to a $1.3 million deficit generated in the COVID-19 impacted second quarter of 2020 and an increase of 35% compared to $6.1 million in the first quarter of 2021. AFF was negatively impacted by hedging losses realized during the quarter from hedges put in place in 2020 to protect the Company’s balance sheet and capital program. The majority of these out of the money hedges from 2020 expired at the end of the second quarter.
InPlay achieved record low operating costs of $12.51/boe in the second quarter of 2021, improving from the second quarter of 2020 of $14.18/boe. Improvements in operating costs on a per boe basis reflect continued focus on operational efficiencies and fixed operating costs being incurred over a larger production base.
As a result of improvements to forecasted commodity pricing and the strong recent well results of the Company, InPlay also realized a reversal of property, plant and equipment impairment which was originally booked in the first quarter of 2020 at the onset of the COVID-19 pandemic. An impairment reversal of $58.3 million was realized during the second quarter of 2021, resulting in net income of $59.1 million ($0.87 per basic share; $0.85 per diluted share) during the quarter compared to a net loss of $6.2 million ($0.09 per basic and diluted share) in the second quarter of 2020.
As previously announced, the Company renewed its Senior Credit Facility on June 30, 2021 at $65 million on a fully conforming, revolving basis. The return of InPlay’s Senior Credit Facility to its pre-COVID structure is further evidence of the strong financial position of the Company. InPlay currently has access to $90 million of overall lending capacity which places InPlay in an enviable liquidity position relative to our peers.