CALGARY, Alberta, March 18, 2020 (GLOBE NEWSWIRE) — InPlay Oil Corp. (TSX: IPO) (OTCQX: IPOOF) (“InPlay” or the “Company”) is pleased to announce its financial and operating results for the three and twelve months ended December 31, 2019, and the results of its independent oil and gas reserves evaluation effective December 31, 2019 (the “Sproule 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, 2019 will be available at “www.sedar.com” and our website at “www.inplayoil.com”.
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 Highlights:
Notes:
Financial and Operating Results:
| (CDN) ($000’s) | Three months endedDecember 31 | Year endedDecember 31 | ||||||
| 2019 | 2018 | 2019 | 2018 | |||||
| Financial (CDN$) | ||||||||
| Oil and natural gas sales | 18,425 | 12,716 | 75,025 | 76,419 | ||||
| Funds flow | 7,592 | 1,441 | 30,984 | 25,800 | ||||
| Per share – basic and diluted | 0.11 | 0.02 | 0.45 | 0.38 | ||||
| Per boe | 16.51 | 3.12 | 16.98 | 15.19 | ||||
| Adjusted funds flow(1) | 7,846 | 1,721 | 32,541 | 27,040 | ||||
| Per share – basic and diluted(1) | 0.11 | 0.03 | 0.48 | 0.40 | ||||
| Per boe(1) | 17.06 | 3.73 | 17.83 | 15.92 | ||||
| Comprehensive income (loss) | (18,892 | ) | (7,887 | ) | (26,842 | ) | (8,598 | ) |
| Per share – basic and diluted | (0.28 | ) | (0.12 | ) | (0.39 | ) | (0.13 | ) |
| Exploration and development capital expenditures | 4,574 | 6,954 | 32,106 | 50,206 | ||||
| Property acquisitions/(dispositions) | 14 | (17,305 | ) | 93 | (21,470 | ) | ||
| Net debt | (55,170 | ) | (53,670 | ) | (55,170 | ) | (53,670 | ) |
| Shares outstanding | 68,256,616 | 68,256,616 | 68,256,616 | 68,256,616 | ||||
| Basic & diluted weighted-average shares | 68,256,616 | 67,987,162 | 68,256,616 | 67,911,962 | ||||
| Operational | ||||||||
| Daily production volumes | ||||||||
| Light and medium crude oil (bbls/d) | 2,466 | 2,937 | 2,626 | 2,756 | ||||
| Natural gas liquids (boe/d) | 869 | 573 | 697 | 492 | ||||
| Natural gas (Mcf/d) | 9,978 | 9,065 | 10,058 | 8,431 | ||||
| Total (boe/d) | 4,998 | 5,021 | 5,000 | 4,653 | ||||
| Realized prices | ||||||||
| Light and medium crude oil & NGLs ($/bbls) | 52.54 | 35.09 | 56.59 | 60.49 | ||||
| Natural gas ($/Mcf) | 2.51 | 1.66 | 1.74 | 1.53 | ||||
| Total ($/boe) | 40.07 | 27.53 | 41.11 | 45.00 | ||||
| Operating netbacks ($/boe)(1) | ||||||||
| Oil and natural gas sales | 40.07 | 27.53 | 41.11 | 45.00 | ||||
| Royalties | (2.32 | ) | (2.43 | ) | (3.19 | ) | (4.72 | ) |
| Transportation expense | (0.67 | ) | (1.00 | ) | (0.81 | ) | (0.83 | ) |
| Operating costs | (15.38 | ) | (15.26 | ) | (14.36 | ) | (16.02 | ) |
| Operating netback | 21.70 | 8.84 | 22.75 | 23.43 | ||||
| Realized gain (loss) on derivative contracts | 0.00 | (0.66 | ) | 0.01 | (2.42 | ) | ||
| Operating netback (including realized derivative contracts) | 21.70 | 8.18 | 22.76 | 21.01 | ||||
| (1) “Adjusted funds flow”, “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. | ||||||||
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.
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:
F&D and FD&A Costs per boe(1):
Recycle Ratios(1):
Reserve Replacement(1):
Sustainability(1):
Growth was achieved in year-end reserves, however decreases in WTI, natural gas and NGL pricing combined with additional Abandonment, Decommissioning and Reclamation (“ADR”) costs recognized as a result of changes to the Canadian Oil and Gas Evaluation Handbook (“COGEH”) resulted in reductions to 2019 year-end reserve net present values (“NPV”) of future net revenues and year-end net asset values (“NAV”)(2):
NAV based on NPV before tax discounted at 10% (“NPV 10 BT”)(3):
These results were accomplished despite the following changes in Sproule’s year over year price assumptions:
Notes:
Corporate Reserves Information:
The following summarizes certain information contained in the Sproule Report. The Sproule Report was prepared in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (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 2020.
| December 31, 2019 | Light and Medium | Conventional | Oil | BTAX NPV | Future Development | NetUndeveloped | |
| 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 | 4,002.8 | 1,486.7 | 19,370 | 8,717.8 | 108,937 | – | – |
| Proved developed non-producing | 165.9 | 16.8 | 289 | 230.9 | 3,743 | 560 | – |
| Proved undeveloped | 6,082.3 | 1,042.8 | 14,998 | 9,624.7 | 76,427 | 166,649 | 81.7 |
| Total proved | 10,251.0 | 2,546.3 | 34,657 | 18,573.4 | 189,108 | 167,209 | 81.7 |
| Probable developed producing | 1,041.1 | 370.6 | 4,839 | 2,218.4 | 21,159 | – | – |
| Probable developed non-producing | 157.6 | 26.2 | 410 | 252.1 | 5,142 | 102 | – |
| Probable undeveloped | 4,235.2 | 621.6 | 8,366 | 6,251.2 | 88,880 | 57,723 | 26.6 |
| Total probable | 5,434.0 | 1,018.5 | 13,616 | 8,721.7 | 115,182 | 57,825 | 26.6 |
| Total proved plus probable(6) | 15,684.9 | 3,564.7 | 48,273 | 27,295.1 | 304,289 | 225,034 | 108.3 |
Notes:
Net Asset Value:
| December 31, 2019 | ||||||||
| BTAX NPV 5% | BTAX NPV 10% | |||||||
| ($000’s) | $/share(5) | ($000’s) | $/share(5) | |||||
| PDP NPV(1)(2) | 110,235 | 1.62 | 108,937 | 1.60 | ||||
| Undeveloped acreage(3) | 62,155 | 0.91 | 62,155 | 0.91 | ||||
| Net debt(4) | (55,170 | ) | (0.81 | ) | (55,170 | ) | (0.81 | ) |
| Net Asset Value (basic) | 117,220 | 1.72 | 115,922 | 1.70 | ||||
| December 31, 2019 | ||||||||
| BTAX NPV 5% | BTAX NPV 10% | |||||||
| ($000’s) | $/share(5) | ($000’s) | $/share(5) | |||||
| TP NPV(1)(2) | 226,373 | 3.32 | 189,108 | 2.77 | ||||
| Undeveloped acreage(3) | 62,155 | 0.91 | 62,155 | 0.91 | ||||
| Net debt(4) | (55,170 | ) | (0.81 | ) | (55,170 | ) | (0.81 | ) |
| Net Asset Value (basic) | 233,358 | 3.42 | 196,093 | 2.87 | ||||
| December 31, 2019 | ||||||||
| BTAX NPV 5% | BTAX NPV 10% | |||||||
| ($000’s) | $/share(5) | ($000’s) | $/share(5) | |||||
| TPP NPV(1)(2) | 385,824 | 5.65 | 304,289 | 4.46 | ||||
| Undeveloped acreage(3) | 62,155 | 0.91 | 62,155 | 0.91 | ||||
| Net debt(4) | (55,170 | ) | (0.81 | ) | (55,170 | ) | (0.81 | ) |
| Net Asset Value (basic) | 392,809 | 5.75 | 311,274 | 4.56 | ||||
Notes:
Future Development Costs (“FDCs”):
FDCs decreased by $18.5 million on a Total Proved basis and $14.6 million on a Proved plus Probable basis.
| Future Development Capital Costs (amounts in $000,000’s) | ||
| Total Proved | Total Proved + Probable | |
| 2020 | 36.6 | 41.2 |
| 2021 | 45.5 | 55.6 |
| 2022 | 43.4 | 55.7 |
| 2023 | 41.7 | 51.8 |
| Remainder | – | 50.7 |
| Total undiscounted FDC | 167.2 | 255.0 |
| Total discounted FDC at 10% per year | 139.1 | 182.8 |
Note: FDC as per Sproule Report based on Sproule forecast pricing as at December 31, 2019
Performance Measures:
| 2017 | 2018 | 2019 | 3 Year Avg | |||||
| Average crude oil price WTI US$/bbl | 50.95 | 64.76 | 57.02 | 57.58 | ||||
| E&D Capital ($000’s)(1) | 40,679 | 20,251 | 30,689 | – | ||||
| Production boe/day – Full Year | 3,972 | 4,653 | 5,000 | 4,542 | ||||
| Production boe/day – Q4 | 4,185 | 5,021 | 4,998 | 4,735 | ||||
| Operating netback $/boe – FY(2) | 21.89 | 23.43 | 22.75 | 22.69 | ||||
| Proved Developed Producing | ||||||||
| Total Reserves mboe | 7,911 | 8,348 | 8,718 | 8,326 | ||||
| Reserves additions mboe | 2,057 | 2,135 | 2,195 | 2,129 | ||||
| FD&A (including FDCs) $/boe(2) | 19.77 | 9.49 | 13.98 | 14.34 | ||||
| FD&A (excluding FDCs) $/boe(2) | 19.77 | 9.49 | 13.98 | 14.34 | ||||
| Recycle Ratio(3) | 1.1 | 2.5 | 1.6 | 1.6 | ||||
| Reserves Replacement(4) | 142 | % | 126 | % | 120 | % | 128 | % |
| RLI (years)(5) | 5.2 | 4.9 | 4.8 | 4.9 | ||||
| Total Proved | ||||||||
| Total Reserves mboe | 17,473 | 18,859 | 18,573 | 18,302 | ||||
| Reserves additions mboe | 2,345 | 3,084 | 1,540 | 2,323 | ||||
| FD&A (including FDCs) $/boe(2) | 27.88 | 16.94 | 7.92 | 18.63 | ||||
| FD&A (excluding FDCs) $/boe(2) | 17.35 | 6.57 | 19.93 | 13.15 | ||||
| Recycle Ratio(3) | 0.8 | 1.4 | 2.9 | 1.2 | ||||
| Reserves Replacement(4) | 162 | % | 182 | % | 84 | % | 140 | % |
| RLI (years)(5) | 11.4 | 11.1 | 10.2 | 11.3 | ||||
| Proved Plus Probable | ||||||||
| Total Reserves mboe | 26,084 | 27,063 | 27,295 | 26,814 | ||||
| Reserves additions mboe | 3,048 | 2,678 | 2,057 | 2,594 | ||||
| FD&A (including FDCs) $/boe(2) | 26.17 | 15.96 | 7.82 | 17.81 | ||||
| FD&A (excluding FDCs) $/boe(2) | 13.35 | 7.56 | 14.92 | 11.77 | ||||
| Recycle Ratio(3) | 0.8 | 1.5 | 2.9 | 1.3 | ||||
| Reserves Replacement(4) | 210 | % | 158 | % | 113 | % | 156 | % |
| RLI (years)(5) | 17.1 | 15.9 | 15.0 | 15.9 | ||||
In 2019, InPlay’s successful exploration, development and acquisition/disposition capital program achieved a capital efficiency of $18,387 per boe/d and a three year average of $18,390 per boe/d.(6)
Notes:
Pricing Assumptions:
The following tables set forth the benchmark reference prices, as at December 31, 2019, reflected in the Sproule Report. These price assumptions were provided to InPlay by Sproule and were Sproule’s then current forecast at the effective date of the Sproule Report.
SUMMARY OF PRICING AND INFLATION RATE ASSUMPTIONS (1) as of December 31, 2019 FORECAST PRICES AND COSTS
| Year | WTICushingOklahoma($US/Bbl) | CanadianLight Sweet 40o API($Cdn/Bbl) | CromerLSB 35o API($Cdn/Bbl) | Natural Gas AECO-C Spot($Cdn/MMBtu) | NGLsEdmonton Propane($Cdn/Bbl) | NGLs Edmonton Butanes($Cdn/Bbl) | EdmontonPentanesPlus($Cdn/Bbl) | Operating Cost Inflation Rates%/Year | Capital Cost Inflation Rates%/Year | Exchange Rate (2)($Cdn/$US) |
| Forecast(3) | ||||||||||
| 2020 | 61.00 | 73.84 | 73.84 | 2.04 | 25.07 | 37.72 | 76.32 | 0.0% | 0.0% | 0.76 |
| 2021 | 65.00 | 78.51 | 77.51 | 2.27 | 31.84 | 43.90 | 80.52 | 1.0% | 1.0% | 0.77 |
| 2022 | 67.00 | 78.73 | 77.73 | 2.81 | 32.43 | 47.74 | 80.00 | 2.0% | 2.0% | 0.80 |
| 2023 | 68.34 | 80.30 | 79.30 | 2.89 | 33.26 | 48.69 | 81.68 | 2.0% | 2.0% | 0.80 |
| 2024 | 69.71 | 81.91 | 80.91 | 2.98 | 34.12 | 49.67 | 83.38 | 2.0% | 2.0% | 0.80 |
| 2025 | 71.10 | 83.54 | 82.54 | 3.06 | 34.99 | 50.66 | 85.13 | 2.0% | 2.0% | 0.80 |
| 2026 | 72.52 | 85.21 | 84.21 | 3.15 | 35.88 | 51.67 | 86.90 | 2.0% | 2.0% | 0.80 |
| 2027 | 73.97 | 86.92 | 85.92 | 3.24 | 36.78 | 52.71 | 88.72 | 2.0% | 2.0% | 0.80 |
| 2028 | 75.45 | 88.66 | 87.66 | 3.33 | 37.71 | 53.76 | 90.57 | 2.0% | 2.0% | 0.80 |
| 2029 | 76.96 | 90.43 | 89.43 | 3.42 | 38.65 | 54.84 | 92.45 | 2.0% | 2.0% | 0.80 |
| 2030 | 78.50 | 92.24 | 91.24 | 3.51 | 39.61 | 55.93 | 94.38 | 2.0% | 2.0% | 0.80 |
| Thereafter Escalation rate of 2.0% | ||||||||||
Notes:
Outlook:
InPlay began the 2020 capital program drilling one (1.0 net) ERH horizontal Willesden Green well and three (3.0 net) horizontal Pembina wells in the first quarter of 2020. The Company also recompleted and commissioned a water disposal well in Pembina which is expected to provide long term savings in the area. All wells drilled in the first quarter have been completed and placed on production albeit at lower ramp up rates than would normally occur, as a result of the current low oil price.
In January of 2020, the Company’s Board of Directors had approved a 2020 capital program of $35 million which was less than projected AFF on WTI futures pricing of $57 USD/bbl. With the significant drop and volatility in world crude oil prices as a result of the COVID – 19 outbreak and the corresponding oil price war, consistent with past practices the Company will manage its spending and adjust the capital program accordingly throughout 2020 and no longer has plans for capital spending of $35 million. InPlay has completed its first quarter capital program and only minimal capital spending is expected over the second quarter during spring break-up. As such, no major capital spending decisions are being made at this time. Capital planning decisions for the second half of 2020 and any updated forecasts will be made in due course in consideration of forecasted AFF reflecting the prevailing commodity prices at that time.
The Company’s low decline rate, strong operating netbacks, top-tier capital efficiencies, lack of drilling commitments and primarily operated capital program provide flexibility in this volatile market. Efforts have been initiated to optimize operations in order to minimize costs and preserve value for the Company. All operations will be thoroughly vetted to optimize corporate cash flows which may include shutting in any wells that that will not generate positive cash flow under current prices (net of fixed cost considerations). Further operating and corporate cost efficiencies will also be pursued in consideration of the current pricing environment.
For further information please contact:
| Doug Bartole President and Chief Executive Officer InPlay Oil Corp. Telephone: (587) 955-0632 | Darren Dittmer Chief Financial Officer InPlay Oil Corp. Telephone: (587) 955-0634 |
Reader Advisories
Non-GAAP Financial MeasuresIncluded in this press release are references to the terms “adjusted funds flow”, “adjusted funds flow per share, basic and diluted”, “adjusted funds flow per boe”, “operating income”, “operating netback per boe” and “operating income profit margin”. Management believes these measures are helpful supplementary measures of financial and operating performance and provide users with similar, but potentially not comparable, information that is commonly used by other oil and natural gas companies. These terms do not have any standardized meaning prescribed by GAAP and should not be considered an alternative to, or more meaningful than, “funds flow”, “profit (loss) before taxes”, “profit (loss) and comprehensive income (loss)” or assets and liabilities as determined in accordance with GAAP as a measure of the Company’s performance and financial position.
InPlay uses “adjusted funds flow”, “adjusted funds flow per share, basic and diluted” and “adjusted funds flow per boe” as key performance indicators. Adjusted funds flow should not be considered as an alternative to or more meaningful than funds flow as determined in accordance with GAAP as an indicator of the Company’s performance. InPlay’s determination of adjusted funds flow may not be comparable to that reported by other companies. Adjusted funds flow is calculated by adjusting for decommissioning expenditures from funds flow. This item is adjusted from funds flow as decommissioning expenditures are incurred on a discretionary and irregular basis and are primarily incurred on previous operating assets, making the exclusion of this item relevant in Management’s view to the reader in the evaluation of InPlay’s operating performance. Adjusted funds flow per share, basic and diluted is calculated by the Company as adjusted funds flow divided by the weighted average number of common shares outstanding for the respective period. Management considers adjusted funds flow per share, basic and diluted an important measure to evaluate its operational performance as it demonstrates its recurring operating cash flow generated attributable to each share. Adjusted funds flow per boe is calculated by the Company as adjusted funds flow divided by production for the respective period. Management considers adjusted funds flow per boe an important measure to evaluate its operational performance as it demonstrates its recurring operating cash flow generated per unit of production. For a detailed description of InPlay’s method of calculating adjusted funds flow, adjusted funds flow per share, basic and diluted and adjusted funds flow per boe and their reconciliation to the nearest GAAP term, refer to the section “Non-GAAP Measures” in the Company’s MD&A filed on SEDAR.
InPlay also uses “operating income”, “operating netback per boe” and “operating income profit margin” as key performance indicators. Operating income should not be considered as an alternative to or more meaningful than net income as determined in accordance with GAAP as an indicator of the Company’s performance. Operating income is calculated by the Company as oil and natural gas sales less royalties, operating expenses and transportation expenses and is a measure of the profitability of operations before administrative, share-based compensation, financing and other non-cash items. Management considers operating income an important measure to evaluate its operational performance as it demonstrates its field level profitability. Operating netback per boe is calculated by the Company as operating income divided by average production for the respective period. Management considers operating netback per boe an important measure to evaluate its operational performance as it demonstrates its field level profitability per unit of production. Operating income profit margin is calculated by the Company as operating income as a percentage of oil and natural gas sales. Management considers operating income profit margin an important measure to evaluate its operational performance as it demonstrates how efficiently the Company generates field level profits from its sales revenue. For a detailed description of InPlay’s method of the calculation of operating income, operating netback per boe and operating income profit margin and their reconciliation to the nearest GAAP term, refer to the section “Non-GAAP Measures” in the Company’s MD&A filed on SEDAR.
Forward-Looking Information and Statements This news release contains certain forward–looking information and statements within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends”, “forecast” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: the recognition of significant additional reserves under the heading “Corporate Reserves Information”, the future net value of InPlay’s reserves, the future development capital and costs, the life of InPlay’s reserves and the net asset values disclosed under the heading “Net Asset Value” including the value ascribed to undeveloped acreage; production estimates including 2020 annualized forecasts; targeted 2020 annual organic production growth; light oil and liquids weighting estimates; future oil and natural gas prices; the assumption that adjusted funds flow will equal or be less than capital expenditures; future liquidity and financial capacity; future results from operations and operating metrics; future costs, expenses and royalty rates; future interest costs; the exchange rate between the $US and $Cdn; future development, exploration, acquisition, development and infrastructure activities and related capital expenditures, including our planned 2020 capital program, suspension thereof and future updates thereto the number of wells to be drilled, completed and tied-in and the timing thereof; the amount and timing of capital projects; forecasted spending on decommissioning; our belief that we will deliver top tier returns, capital efficiencies, production growth and production per share growth; the potential for long-term savings resulting from our water disposal well at Pembina; the potential of our Duvernay project and extension of our land holdings; and methods of funding our capital program. Forward-looking statements or information are based on a number of material factors, expectations or assumptions of InPlay which have been used to develop such statements and information but which may prove to be incorrect. Although InPlay believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because InPlay can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which InPlay operates; the timely receipt of any required regulatory approvals; the ability of InPlay to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which InPlay has an interest in to operate the field in a safe, efficient and effective manner; the ability of InPlay to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and cost of pipeline, storage and facility construction and the ability of InPlay to secure adequate product transportation; future commodity prices; expectations regarding the potential impact of COVID-19 and oil price wars including planned reductions or suspension of our 2020 capital program; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which InPlay operates; and the ability of InPlay to successfully market its oil and natural gas products.
The forward-looking information and statements included herein are not guarantees of future performance and should not be unduly relied upon. Such information and statements, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to defer materially from those anticipated in such forward-looking information or statements including, without limitation: changes in our planned 2020 capital program; changes in commodity prices; the potential for variation in the quality of the reservoirs in which we operate; changes in the demand for or supply of our products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of InPlay or by third party operators of our properties; increased debt levels or debt service requirements; inaccurate estimation of our oil and gas reserve and resource volumes; limited, unfavorable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time-to-time in InPlay’s disclosure documents.
The internal projections, expectation or beliefs underlying InPlay’s 2020 capital program and associated guidance for 2020 is subject to change based on ongoing results, prevailing economic circumstances, commodity prices and industry conditions. InPlay’s outlook for 2020 and beyond provides shareholders with relevant information on management’s expectations for results of operations, excluding any potential acquisitions, dispositions or other strategic transactions that may be completed in 2020 or beyond. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted and InPlay’s guidance may not be appropriate for other purposes.
In early 2020, the Company disclosed guidance for 2020 including its forecast capital program, net wells planned to be drilled, forecast annual average production, AFF and operating income profit margin. Given the planned suspension of the capital program for the second quarter (which may be extended further), the Company has elected to withdraw this FLI as this forecast is no longer applicable given the significant declines and volatility in the spot price for oil for various reasons linked to the Coronavirus pandemic and other conditions impacting worldwide oil prices.
The forward-looking information and statements contained in this news release speak only as of the date hereof and InPlay does not assume any obligation to publicly update or revise any of the included forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Information Regarding Disclosure on Oil and Gas Reserves and Operational InformationOur oil and gas reserves statement for the year ended December 31, 2019, which will include complete disclosure of our oil and gas reserves and other oil and gas information in accordance with NI 51-101, will be contained within our Annual Information Form which will be available on our SEDAR profile at www.sedar.com on or before March 31, 2020. The recovery and reserve estimates contained herein are estimates only and there is no guarantee that the estimated reserves will be recovered. In relation to the disclosure of estimates for individual properties, such estimates may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. The Company’s belief that it will establish additional reserves over time with conversion of probable undeveloped reserves into proved reserves is a forward-looking statement and is based on certain assumptions and is subject to certain risks, as discussed below under the heading “Forward-Looking Information and Statements”.
This press release contains metrics commonly used in the oil and natural gas industry, such as “finding, development and acquisition costs”, “finding and development costs”, “operating netbacks”, “recycle ratios” and “recycle ratio”, “reserve replacement” and “reserve life index or “RLI”. Each of these terms are calculated by InPlay as described in this press release. These terms do not have standardized meanings or standardized methods of calculation and therefore may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons. Such metrics have been included herein to provide readers with additional information to evaluate the Company’s performance, however such metrics should not be unduly relied upon.
Finding, development and acquisition (“FD&A”) and finding and development (“F&D”) costs take into account reserves revisions during the year on a per boe basis. The aggregate of the costs incurred in the financial year and changes during that year in estimated future development costs may not reflect total finding and development costs related to reserves additions for that year. Finding, development and acquisition costs have been presented in this press release because acquisitions and dispositions can have a significant impact on our ongoing reserves replacement costs and excluding these amounts could result in an inaccurate portrayal of our cost structure. Exploration & development capital means the aggregate exploration and development costs incurred in the financial year on exploration and on reserves that are categorized as development. Exploration & development capital excludes capitalized administration costs and exploration costs incurred acquiring Duvernay lands with no reserves assigned Acquisition capital amounts to the total amount of cash and share consideration net of any working capital balances assumed with an acquisition on closing.
Management uses these oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare InPlay’s operations over time, however such measures are not reliable indicators of InPlay’s future performance and future performance may not be comparable to the performance in prior periods. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this press release, should not be relied upon for investment or other purposes, however such measures are not reliable indicators on InPlay’s future performance and future performance may not be comparable to the performance in prior periods.
Test Results and Initial Production RatesTest results and initial production rates disclosed herein, particularly those short in duration, may not necessarily be indicative of long term performance or of ultimate recovery. A pressure transient analysis or well-test interpretation has not been carried out and thus certain of the test results provided herein should be considered to be preliminary until such analysis or interpretation has been completed.
BOE equivalent Barrel of oil equivalents or BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of 6:1, utilizing a 6:1 conversion basis may be misleading as an indication of value.
