InPlay Oil Corp press release
InPlay Oil Corp. Announces Record 2022 Financial, Operating and Reserves Results Highlighted by 58% Production Growth, 11% Proved Developed Producing Reserves Growth and 59% Net Debt Reduction
TSX - Toronto Stock Exchange · Oil · Natural Gas · Natural Gas Liquids · Canada
Canada NewsWire
CALGARY, AB , March 15, 2023 /CNW/ - InPlay Oil Corp. (TSX: IPO) (OTCQX: IPOOF) ("InPlay" or the "Company") announces its financial and operating results for the three and twelve months ended December 31, 2022 , and the results of its independent oil and gas reserves evaluation effective December 31, 2022 (the "Reserve Report") prepared by Sproule Associates Limited ("Sproule"). InPlay's audited annual financial statements and notes, as well as Management's Discussion and Analysis ("MD&A") for the year ended December 31, 2022 will be available at " www.sedar.com " and our website at " www.inplayoil.com ".
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2022 Financial and Operations Highlights:
Achieved record average annual production of 9,105 boe/d (1) (57% light crude oil and NGLs), an increase of 51% on a debt adjusted per share basis compared to 5,768 boe/d (1) (65% light crude oil and NGLs) in 2021. Implemented a monthly base cash dividend of $0.015 /share in November 2022 representing only 11% to 13% of forecasted 2023 annual adjusted funds flow ("AFF") (3) and is forecast to be sustainable at WTI pricing of US$55 /bbl through 2025. InPlay also instituted a Normal Course Issuer Bid ("NCIB") in October 2022 , further enhancing our return to shareholder commitment. Generated record annual AFF (3) of $131 million ( $1.51 per weighted average basic share (4) ), an increase of 178% (125% on a per share basis) compared to $47 million ( $0.67 per weighted average basic share) in 2021. Reduced net debt (3) to $32.9 million , a 59% reduction compared to December 31, 2021 ( $80.2 million ) and a 28% reduction compared to September 30, 2022 ( $45.6 million ). Exited 2022 at 0.2x net debt to earnings before interest, taxes and depletion ("EBITDA") (2) achieving the lowest annual leverage ratio in corporate history. Generated record free adjusted funds flow ("FAFF") (2) of $53 million . Increased operating netbacks (2) by 33% to an annual record $45.90 /boe from $34.63 /boe in 2021. Realized annual record operating income (2) and operating income profit margin (2) of $153 million and 64% respectively compared to $73 million and 64% in 2021. Recognized net income of $83.9 million ( $0.97 per basic share; $0.92 per diluted share). Renegotiated our Senior Credit Facility to a fully conforming revolving credit facility with an increased total lending capacity and borrowing base of $110 million , providing significant liquidity to be used for tactical capital investment and strategic acquisitions. Released our inaugural Sustainability Report highlighting the Company's significant environmental successes and reaffirming the Company's commitment to environmental stewardship while safely and efficiently developing our assets.
2022 Reserve Highlights:
Reserves increased across all categories with organic reserves growth, more than offsetting production, in a year without acquisition/disposition ("A&D") activity. Achieved record NPV BT10 reserve and net asset values ("NAV") (5) : InPlay added new light oil weighted production at a capital efficiency (6) of $16,529 per boe/d in a high inflationary environment tracking the three year average of $15,418 per boe/d. Successful organic development resulted in strong reserve replacement: Net Abandonment and Reclamation Obligations spending was $4.5 million , reducing our liability by 4% through the successful abandonment of 31 wellbores and the reclamation of 97 well sites.
Message to Shareholders:
InPlay had a successful year executing our strategy by delivering top-tier production growth, significant debt reduction and meaningful returns to shareholders. Efficient operations and our high quality asset base allowed the Company to generate 51% organic debt adjusted production per share growth. A record $131 million of AFF and $53 million of FAFF was generated during the year and was utilized to reduce net debt 59% from year end 2021 reducing our leverage ratio to 0.2x net debt to EBITDA for 2022. This positioned the Company to implement a return to shareholder strategy commencing with our base monthly dividend and the initiation of a share buyback program. The $0.015 monthly dividend is estimated to be only 11% to 13% of forecasted 2023 AFF based on our 2023 guidance. The Company has maintained one of the lowest debt levels across our industry and peer group, allowing the dividend to be sustainable in a scenario where WTI dropped to US$55 /bbl through to the end of 2025. The Company's significant reserve value and FAFF generation capabilities place InPlay in an advantageous position to capitalize on tactical investment opportunities. InPlay's 2023 capital program has shifted towards higher oil weighted properties to allow InPlay to capitalize on the positive outlook for crude oil prices compared to the uncertainty surrounding natural gas prices in the upcoming year.
InPlay had a strong year in 2022 replacing reserves and increasing per share net asset value solely through organic growth in a year where InPlay had no significant A&D activity. This was highlighted by a 31% growth in debt adjusted PDP reserves and 72% growth in PDP NAV ( $3.18 per share) demonstrating the Company's ability to create value. InPlay also exited the year with a TP NAV per share of $7.20 and a TPP NAV per share of $10.11 highlighting the compelling value of our assets.
Outlook and Operations Update:
InPlay's capital program for the first quarter of 2023 was initiated late in December 2022 with the drilling of the first of two (1.6 net) Extended Reach Horizontal ("ERH") Willesden Green wells on a single pad to take advantage of the availability of services and get ahead of what is expected to be the busiest quarter of activity for the industry in years. These wells were brought on production in early February and the average initial production ("IP") rates over the first 30 days for these flowing wells were 579 boe/d (73% light crude oil and NGLs).
The Company also drilled another two (1.6 net) ERH Willesden Green wells which were recently brought on production in early March. The average initial production ("IP") rates for these wells over the first 11 days has been 968 boe/d (85% light crude oil and NGLs).
These four wells were drilled in close proximity and have delivered initial production rates significantly above internal expectations despite being somewhat curtailed due to the high fluid rates and high back pressure in the gathering system in the area, which has also backed out production from older lower pressured offsetting wells. Our first of two upgraded gas facilities in the area is expected to come online in late March which will alleviate back pressure on the gas gathering system. This new facility coupled with natural declines and lower fluid rates as water cuts drop are expected to allow all wells to flow at more optimal levels. This is expected to reduce decline rates throughout the second quarter.
Two (0.3 net) non-operated ERH wells in Willesden Green were brought on production in February. Drilling operations have begun on an additional two (2.0 net) ERH well pad in Pembina which is expected to be brought on production in early April.
InPlay's capital program for the first half of 2023 includes plans to upgrade two operated gas facilities in Willesden Green, including the first project discussed above, providing InPlay with operated facility capacity that it controls to facilitate production growth and reduce field pressures in the current and upcoming years.
In the first quarter of 2023, the Company had natural gas production curtailments of approximately 4.5 mmcf/d starting February 15 th from a third party natural gas facility due to capacity constraints. The impact of this curtailment is not expected to be significant to InPlay as the Company had previously shifted drilling plans away from this area in 2023 due to its higher gas weighted production and the high gas processing fees being charged compared to other regions. The Company responded by shutting in wells with the highest gas weighting, maximizing oil production and AFF in the strong oil pricing environment. Natural decline of production in this field, limited drilling plans from the Company and other operators in the area as well as alternative options currently being finalized are expected to alleviate the impact of this production curtailment. Our estimates of impacted production due to this curtailment is approximately 475 boe/d (68% natural gas) in the first quarter of 2023.
InPlay anticipates that the exceptional well results to date in 2023 and its upcoming drilling program will fully offset the impact of the temporary gas production curtailments and as a result, InPlay continues to reiterate its 2023 annual average production guidance of 9,500 – 10,500 boe/d (1) . When considering the impacted production is predominantly gas, and the outperforming new drills have a high oil weighting, the net impact to AFF is anticipated to be minimal. With the continued value add from our high return asset base, a pristine balance sheet and a very low leverage ratio, the Company is optimistic about the potential for continued value add opportunities and increasing returns to shareholders in the upcoming year and beyond.
Financial and Operating Results:
| (CDN) ($000's) | Three months ended December 31 | Year ended
December 31 | | | | | 2022 | 2021 | 2022 | 2021 | | Financial | | | | | | Oil and natural gas sales | 58,161 | 37,255 | 238,590 | 113,854 | | Adjusted funds flow (3) | 30,271 | 17,149 | 130,805 | 47,028 | | Per share – basic (4) | 0.35 | 0.23 | 1.51 | 0.67 | | Per share – diluted (4) | 0.33 | 0.22 | 1.44 | 0.66 | | Per boe (4) | 34.19 | 27.87 | 39.36 | 22.34 | | Comprehensive income | 20,736 | 55,191 | 83,896 | 115,071 | | Per share – basic | 0.24 | 0.74 | 0.97 | 1.65 | | Per share – diluted | 0.23 | 0.71 | 0.92 | 1.61 | | Capital expenditures – PP&E and E&E | 13,647 | 6,024 | 77,603 | 33,434 | | Property (dispositions) | - | - | (2) | (84) | | Net Corporate acquisitions (2) | (321) | 38,287 | 180 | 38,287 | | Net debt (3) | (32,963) | (80,196) | (32,963) | (80,196) | | Shares outstanding | 86,952,601 | 86,214,751 | 86,952,601 | 86,214,751 | | Basic weighted-average shares | 87,106,339 | 74,338,118 | 86,895,314 | 69,798,836 | | Diluted weighted-average shares | 91,229,513 | 77,669,551 | 91,137,173 | 71,681,264 | | | | | | | | Operational | | | | | | Daily production volumes | | | | | | Light and medium crude oil (bbls/d) | 3,909 | 3,156 | 3,766 | 2,981 | | Natural gas liquids (boe/d) | 1,532 | 933 | 1,402 | 782 | | Conventional natural gas (Mcf/d) | 25,090 | 15,590 | 23,623 | 12,030 | | Total (boe/d) | 9,623 | 6,687 | 9,105 | 5,768 | | Realized prices (4) | | | | | | Light and medium crude oil & NGLs ($/bbls) | 90.21 | 79.83 | 100.26 | 70.08 | | Conventional natural gas ($/Mcf) | 5.63 | 5.04 | 5.74 | 4.01 | | Total ($/boe) | 65.69 | 60.56 | 71.79 | 54.08 | | Operating netbacks ($/boe) (2) | | | | | | Oil and natural gas sales | 65.69 | 60.56 | 71.79 | 54.08 | | Royalties | (11.72) | (7.53) | (11.55) | (5.51) | | Transportation expense | (1.26) | (1.09) | (1.18) | (1.11) | | Operating costs | (14.78) | (12.51) | (13.16) | (12.83) | | Operating netback (2) | 37.93 | 39.43 | 45.90 | 34.63 | | Realized gain (loss) on derivative contracts | 0.17 | (5.67) | (1.97) | (6.20) | | Operating netback (including realized derivative contracts) (2) | 38.10 | 33.76 | 43.93 | 28.43 |
2022 Financial & Operations Overview:
Production averaged 9,105 boe/d (57% light crude oil & NGLs) in 2022, an annual record for the Company and a 58% increase compared to our previous record of 5,768 boe/d (65% light crude oil & NGLs) in 2021. Production averaged 9,623 boe/d (57% light crude oil & NGLs) in the fourth quarter of 2022, a quarterly record for the Company and a 44% increase in comparison to the fourth quarter of 2021. There was a build of 6,100 barrels of oil inventory at year end compared to the end of the third quarter.
InPlay's capital program for 2022 consisted of $77.6 million of development capital. The Company drilled, completed and brought on production six (6.0 net) ERH wells in Pembina, ten (9.3 net) operated ERH wells and one (0.2 net) non-operated ERH well in Willesden Green and two (2.0 net) Belly River wells. This activity amounted to the drilling of 19 gross (17.5 net) wells for an equivalent of 29.0 gross horizontal miles (26.7 net horizontal miles), our most active year to date. Other capital activity for the year consisted of construction of a modular multi-well oil production facility in Willesden Green to accommodate current and future drilling in the area and construction of two Vapor Recovery Units to increase gas conservation and reduce greenhouse gas emissions. InPlay accelerated the start of its 2023 capital program at the end of 2022 initiating drilling operations on a two well pad in Willesden Green and proactively starting facility and pipeline construction in the fourth quarter of 2022 to bring on production promptly after the completion of wells drilled in the first quarter.
The Company continues to focus on operational efficiency and is proactive in reducing the impact of the inflationary pressures and supply chain disruptions that are impacting the oil and gas industry. Despite the rising costs of services, steel and fuel costs, in addition to third party facility disruptions and processing fee increases, InPlay kept operating costs flat on a boe/d basis year over year even through this significant inflationary period, achieving an annual operating income profit margin (2) record of 64% throughout 2022. Our record production levels and operating netbacks of $45.90 /boe resulting in annual record AFF of $131 million ( $1.51 per weighted average basic share) during 2022, an increase of 178% compared to 2021. This significant AFF generation was used in lowering net debt by 59% to $32.6 million compared to December 31, 2021 and achieved the lowest annual leverage ratio in our corporate history of 0.2 net debt to EBITDA. In addition, InPlay recognized net income of $83.9 million during 2022, which equates to $0.97 per basic share and $0.92 per diluted share. The record setting financial results in 2022 dramatically improved InPlay's financial situation, allowing for the implementation of our return to shareholder strategy highlighted by the base monthly dividend, and places the Company in a strong position to capitalize on strategic opportunities going forward.
| Notes: | | | 1. | See "Production Breakdown by Product Type" at the end of this press release. | | 2. | 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. | | 3. | Capital management measure. See "Non-GAAP and Other Financial Measures" contained within this press release. | | 4. | Supplementary financial measure. See "Non-GAAP and Other Financial Measures" contained within this press release. | | 5. | See "Corporate Reserves Information" and "Net Asset Value" for detailed information from the Reserve Report and associated NPV and NAV calculations. | | 6. | "FD&A", "recycle ratio", "reserve replacement", "reserve life index" and "capital efficiency" do not have standardized meanings and therefore may not be comparable to similar measures presented for other entities. Refer to section "Performance Measures" for the determination and calculation of these measures. |
2022 Reserves Overview:
As a result of the Company's continued efficient operational execution and deployment of development capital combined with the high quality of our asset base, InPlay generated reserve growth in all reserve categories compared to 2021. PDP reserves per debt adjusted share increased by 31% in 2022 to 17,653 mboe, TP reserves increased by 20% per debt adjusted share to 46,464 mboe and TPP reserves increased by 20% per debt adjusted share to 61,842 mboe. This reserve based growth more than replaced our 2022 production, with 153% of production being replaced on a PDP basis, 117% on a TP basis and 136% on a TPP basis. This reserve replacement is a strong achievement in a year without A&D activity and hyperinflation, evidencing the long-term sustainability of our current asset base.
This significant reserve growth and improvements to commodity prices resulted in record setting reserve net present values of future net revenues before tax ("NPV BT") and net asset values per basic share ("NAVPS") at December 31, 2022 . The Company improved NPV BT10 reserve values to $282 million (PDP), $631 million (TP) and $884 million (TPP) using a three independent reserve evaluators average pricing and cost forecast and foreign exchange rates as at December 31, 2022 as used in the Reserve Report. This equates to Net Asset Values of $276 million and $3.18 NAVPS (PDP), $626 million and $7.20 NAVPS (TP) and $879 million and $10.11 NAVPS (TPP) (1) , representing 72% (PDP), 46% (TP) and 36% (TPP) growth for each category respectively on a per share basis over 2021.
| Note: | | | 1. | See "Net Asset Value" below for detailed calculations. |
Corporate Reserves Information:
The following summarizes certain information contained in the Reserve Report. The Reserve Report was prepared in accordance with the definitions, standards and procedures contained in the COGE Handbook and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Additional reserve information as required under NI 51-101 will be included in the Company's Annual Information Form ("AIF") which will be filed on SEDAR by the end of March 2023 .
| December 31, 2022 | Light and Medium | | Conventional | Oil | BTAX NPV | Future Development | Net
Undeveloped | | Reserves Category (1)(2)(3)(4)(5) | Crude Oil | NGLs | Natural Gas | Equivalent | 10 % | Capital | Wells | | Mbbl | Mbbl | MMcf | MBOE | ($000's) | ($000's) | Booked | | | | | | | | | | | | Proved developed producing | 6,883.0 | 3,210.5 | 45,354 | 17,652.5 | 281,527 | 347 | - | | Proved developed non- producing | 208.4 | 53.1 | 844 | 402.1 | 6,614 | 602 | - | | Proved undeveloped | 14,369.0 | 3,836.5 | 61,225 | 28,409.6 | 342,759 | 433,398 | 173.8 | | Total proved | 21,460.4 | 7,100.1 | 107,423 | 46,464.2 | 630,900 | 434,347 | 173.8 | | Probable developed producing | 1,877.9 | 829.3 | 12,065 | 4,717.9 | 61,418 | 355 | - | | Probable developed non-producing | 51.1 | 12.8 | 229 | 102.1 | 983 | 602 | - | | Probable undeveloped | 6,254.6 | 1,194.6 | 18,649 | 10,557.2 | 190,810 | 85,084 | 26.6 | | Total probable | 8,183.6 | 2,036.7 | 30,943 | 15,377.2 | 253,211 | 86,040 | 26.6 | | Total proved plus probable (6) | 29,644.0 | 9,136.8 | 138,366 | 61,841.5 | 884,110 | 520,387 | 200.4 |
| | | | Notes: | | | 1. | Reserves have been presented on a gross basis which are the Company's total working interest (operating and non-operating) share before the deduction of any royalties and without including any royalty interests of the Company. | | 2. | Based on an arithmetic average of the price forecasts of three independent reserve evaluator's (Sproule Associates Limited, McDaniel & Associates Consultants Ltd. and GLJ Ltd.) then current forecast at December 31, 2022, as outlined in the table herein entitled "Pricing Assumptions". | | 3. | It should not be assumed that the NPV amounts presented in the tables above represents the fair market value of the reserves. There is no assurance that the forecast prices and costs assumptions will be attained and variances could be material. The recovery and reserves estimates of InPlay's light and medium crude oil, natural gas liquids and conventional natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual light and medium crude oil, conventional natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein. | | 4. | All future net revenues are stated prior to provision for interest, general and administrative expenses and after deduction of royalties, operating costs, estimated well abandonment, decommissioning and reclamation costs and estimated future capital expenditures. Future net revenues have been presented on a before tax basis. | | 5. | The Company has included abandonment, decommissioning and reclamation costs for all active and inactive assets including non-producing and suspended wells, facilities and pipelines. December 31, 2022 reserve NPV values are also inclusive of currently enacted carbon taxes. | | 6. | Totals may not add due to rounding. |