InPlay Oil Corp.(“InPlay” or the “Company”) announces its financial and operating results for the three and nine months ended September 30, 2024. InPlay’s condensed unaudited interim financial statements and notes, as well as Management’s Discussion and Analysis (“MD&A”) for the three and nine months ended September 30, 2024 will be available at “www.sedarplus.ca” and our website at “www.inplayoil.com“. Our corporate presentation will soon be available on our website.
Commodity prices continue to be volatile however InPlay views them to be robust long-term. Currently, crude oil and refined product inventories in the United States and globally are at low levels. Oil demand is projected to grow, and we believe there is potential for demand to exceed growth forecasts as declining interest rates in developed countries should drive more consumer spending. OPEC+ continues to show restraint to ensure pricing supports their budget requirements, and most U.S. shale producers’ commentary this quarter emphasized capital discipline and prioritizing free cash flow opposed to growth in 2025. Additionally, a significant increase in LNG export capacity in North America is expected, including the first Canadian LNG facility expected to become operational in 2025. With the support of expanded LNG export capacity, Canadian producers are looking forward to significantly stronger natural gas prices in 2025 and beyond, as the average AECO natural gas price for the third quarter of 2024 ($0.65/GJ) was the lowest average quarterly price on record dating back to 1988.
InPlay has resumed operations and development in Pembina Cardium Unit 7 (“PCU7”) and is excited to return to this area with strong initial results from our first wells drilled in the area since May 2022. Development of this area is no longer facility constrained after InPlay entered into a long-term gas handling agreement providing guaranteed access to natural gas processing capacity. Four (4.0 net) extended reach horizontal (“ERH”) wells were drilled in PCU7 during the third quarter, with one well on production in September and a three-well pad coming on production in October. The three-well pad has outperformed internal expectations with average initial production (“IP”) rates per well of 480 boe/d(1) (66% light crude oil and NGLs) over the first 22 days.
Operational enhancements in drilling and completions since our last wells drilled in PCU7 (spring 2022) led to significant cost reductions, with the all-in cost of our latest three-well pad coming in approximately 25% lower than our forecast. The Company is confident these cost savings will be achieved in the area moving forward, and with a significant portion of our 2025 capital budget anticipated to be allocated to PCU7, InPlay will benefit from continued enhanced capital efficiencies. The area’s strong production rates and lower declines compared to other Cardium assets, combined with improved capital costs, allows PCU7 to yield high returns and the strongest capital efficiencies in the Company’s asset portfolio.
InPlay’s drilling program for the year is complete, with 12.6 net wells brought on production. Disciplined capital allocation, cost savings, and efficient operations in Pembina have resulted in 2024 exploration and development expenditures forecasted to be approximately $63 million, coming in $2.5 million below the mid-range of our $64 – $67 million budget. We anticipate the fourth quarter to be our strongest quarter of production driven by the strong performance of our new wells, optimization success, and improved third-party facility runtimes. With minimal capital expenditures planned for the fourth quarter and all wells on production in October, the fourth quarter is projected to deliver our highest quarterly free adjusted funds flow (“FAFF”)(3) of the year.
InPlay’s current production, based on field estimates, is approximately 9,740 boe/d(1) (58% light crude oil and NGLs). Annual production forecast remains unchanged at 8,700 – 9,000 boe/d(1) (58% – 60% light crude oil and NGLs) with AFF(2) forecasted to be $70 to $73 million, based on realized prices to date and forecast strip pricing through the end of the year, and estimated FAFF(3) of $7 to $10 million. The Company’s leverage metrics are expected to remain among the lowest in our peer group, with a forecasted net debt to EBITDA(3) of 0.7x – 0.8x for 2024.
To further enhance our strong balance sheet, InPlay has hedged approximately 50% of our natural gas and light crude oil production for the fourth quarter of 2024. In the first quarter of 2025, InPlay has hedged approximately 45% of natural gas production and 30% of light crude oil production. These hedges are all currently in the money, having been implemented at favorable pricing levels and are designed to mitigate risk, safeguard the Company’s capital program and provide stability during periods of commodity price volatility. Refer below for a summary of the Company’s commodity based hedges.
The fourth quarter of 2024 is expected to be the strongest operating and financial quarter of 2024 and we are excited about 2025. The improved capital efficiencies achieved in the third quarter of 2024 are expected to carry over to our future Cardium development. Due to InPlay’s significant investment in facilities over the past two years, minimal facilities capital is expected for 2025, therefore, the Company is well positioned to deliver a disciplined and efficient 2025 capital budget. In 2025, InPlay will be focused on maximizing FAFF, debt repayment, and maintaining a low leverage ratio relative to our peers, allowing the Company to take advantage of opportunities that may arise. We look forward to providing our 2025 capital budget in early 2025.
We extend our gratitude to our staff, contractors, and suppliers for their ongoing dedication. We also thank our Board of Directors and shareholders for their steadfast guidance and support.
Third Quarter 2024 Financial & Operations Overview:
During the third quarter, the Company executed an active capital program, investing $25.2 million in exploration and development. This activity included the completion and tie-in of one (1.0 net) Belly River well drilled in the second quarter, drilling and completing two (2.0 net) Willesden Green wells brought on production in late August and one (1.0 net) Pembina ERH well brought on production in September. A three (3.0 net) Pembina ERH well pad was drilled in September and completed and brought on production in October. Additionally, as previously discussed in our second quarter press release, the Company incurred drilling costs on a Glauconite well where drilling challenges resulted in casing issues that led to the termination of operations. InPlay continues to evaluate options for this well.
The one (1.0 net) Belly River well drilled in the second quarter began production in July and was in the cleanup phase with water cuts decreasing over time as anticipated. This well has outperformed internal expectations with average initial production (“IP”) rates of 84 boe/d(1) (99% light crude oil and NGLs) over the first 90 days and is currently producing 152 boe/d(1) (98% light crude oil and NGLs).
The Company invested $1.5 million this quarter in its successful downhole optimization program ($4.4 million year to date), which includes lowering pumps in horizontal oil wells and adding pumpjacks to certain flowing wells with plunger lift installations. This approach has yielded low-decline production adds at strong capital efficiency rates. Results have reduced the drilling capital needed to maintain production and further improves the Company’s capacity to generate FAFF. The Company intends to continue this program by taking advantage of routine well servicing opportunities to lower pumps on selected wells and earlier installation of pumpjacks to newer wells that are flowing.
Quarterly production averaged 8,206 boe/d(1) (57% light crude oil and NGLs), compared to 8,657 boe/d(1) (59% light crude oil and NGLs) in the second quarter of 2024. Revenue and adjusted funds flow (“AFF”) were impacted by lower commodity prices specifically with the lowest quarterly average AECO natural gas price seen in over 35 years averaging $0.65 per GJ, compared to $2.46 and $1.12 per GJ in the third quarter of 2023 and second quarter of 2024. WTI prices averaged $75.10 US per bbl, 9% and 7% lower than the third quarter of 2023 and second quarter of 2024 respectively. AFF totaled $13.1 million ($0.15 per basic share). The Company issued $4.1 million ($12.3 million in the first nine months of 2024) in dividends during the quarter as part of our return to shareholder strategy.
Third quarter production was impacted by approximately 480 boe/d mostly due to third party facility downtime, and a strategic decision to delay capital spending to bring on new production into the stronger winter natural gas pricing season. The production that was down due to issues at third-party facilities was back online by early October and we have experienced minimal downtime since. The Company currently has approximately 100 boe/d of high gas-weighted production shut-in and anticipates bringing this production back online over the next few months with higher gas prices.
Third quarter operating costs include costs associated with the clean-up of a pipeline leak at a non-operated property. The majority of the expected clean costs were incurred by the end of the quarter and amounted to a $0.5 million net to InPlay or $0.70/boe during the quarter.
