InPlay: How Much Value Is Left After CAD 452 Million of Abandonment Liabilities
The bond-presentation deck frames InPlay around roughly CAD 1.4 billion of 2P NPV10 and about CAD 1.19 billion of NAV after net debt, but the audited statements also carry CAD 452.4 million of decommissioning liabilities. This follow-up explains why both views can coexist, and why the value actually reachable by equity is narrower than the asset-side framing suggests.
Where The Gap Opens
The main article argued that the Israeli bond bought InPlay time, but did not erase the abandonment burden. This follow-up isolates the link that matters most. On one side, the bond deck speaks in asset language: 126.3 million boe of 2P reserves, about CAD 1.4 billion of BT NPV10, and roughly CAD 1.19 billion of net asset value after CAD 215 million of year-end net debt. On the other side, the audited statements end 2025 with CAD 452.4 million of decommissioning liabilities, CAD 222.1 million of bank debt, and only CAD 370.1 million of shareholders’ equity.
Those numbers do not actually contradict one another. They measure different layers of the same economics. The presentation asks the reader to look at asset quality and reserve coverage. The decommissioning note forces the reader to look at future closure costs, discount-rate sensitivity, and how much of that asset value can realistically make its way to common equity.
Three non-obvious findings matter immediately:
- First: of the jump from CAD 94.5 million to CAD 452.4 million, only CAD 196.7 million came in with the Pembina assets themselves. Another CAD 191.1 million was created by revaluing the acquired liability at lower discount rates.
- Second: this is not a write-a-check-tomorrow liability. Only CAD 5.0 million is expected within one year, but the obligation stretches across 6 to 52 years and corresponds to CAD 889.1 million of inflation-adjusted undiscounted future cash flows.
- Third: the deck and the annual report are not using the same discount language. Slide 21 uses BT NPV10 and a forecast year-end net debt figure of CAD 215 million, while Note 11 values decommissioning at risk-free rates of 2.6% to 3.9% with 2.5% inflation.
That is why the right question is not whether CAD 452 million "wipes out" CAD 1.4 billion. The real question is which part of that asset value still belongs to equity after debt, closure costs, assumption risk, and financing constraints.
The CAD 452 Million Did Not Come Only From Buying More Assets
The easiest reading of Note 11 is that Pembina simply brought a very large abandonment obligation into InPlay. That is true, but incomplete. Note 5 shows that the Obsidian acquisition added CAD 196.7 million of decommissioning liabilities as part of the acquired assets and liabilities on closing. That is already a very large burden, but it still does not explain the full move.
Note 5 adds the crucial detail. On the April 7, 2025 acquisition date, the fair value of the acquired decommissioning obligation was measured using a 7.4% credit-adjusted risk-free discount rate. By June 30, 2025, that same liability had been remeasured using risk-free discount rates of 2.5% to 3.4%, depending on settlement timing. The result was an additional CAD 191.1 million of decommissioning liability, with a matching increase in property, plant and equipment. In other words, almost half of the 2025 jump did not come from more wells or more sites by itself. It came from a change in discounting.
This is the key point. Reading CAD 452.4 million as proof that the acquired asset base is simply loaded with closure costs misses half the story. A large part of the move came from the fact that this is a very long-dated obligation, so its present value is extremely sensitive to the discount rate used to measure it. When the discount rate dropped, the present value surged.
Note 11 reinforces that reading. At year-end, the company assumed 2.5% inflation through settlement and risk-free discount rates of 2.6% to 3.9% across a 6 to 52 year horizon. That produced a discounted liability of CAD 452.4 million, but also CAD 889.1 million of inflation-adjusted undiscounted future cash flows, or CAD 549.6 million on an uninflated undiscounted basis. So this is a real economic burden, but it sits far out over time. It can look huge on the balance sheet without being an immediate cash wall of the same magnitude.
The Deck And The Annual Report Speak Different Languages
Slide 21 of the bond deck does something very simple. It shows BT NPV10 reserve value of CAD 666 million at the PDP level, CAD 1.021 billion at the Total Proved level, and CAD 1.408 billion at the Total Proved and Probable level. It then places CAD 215 million of year-end net debt against those values and arrives at net asset value of CAD 451 million, CAD 806 million, and CAD 1.193 billion, respectively. Slide 26 repeats the same message at a higher level: a long-life asset base, roughly 126 million boe of 2P reserves, about CAD 1.4 billion of NPV10, and a "conservative" balance sheet with "low" leverage.
That framing is not false. It is just incomplete. It tells the story from the asset side. Note 11 tells the story from the liability side, and Note 5 explains why bridging the two requires caution.
| Layer | What the number says | Timing and assumptions | What it actually tells you |
|---|---|---|---|
| Presentation, Slide 21 | BT NPV10 of CAD 666 million to CAD 1.408 billion, and NAV of CAD 451 million to CAD 1.193 billion | Pro-forma reserves effective March 31, 2025, plus forecast year-end net debt of CAD 215 million | Asset-side framing, meaning what the reserve base looks like against net debt |
| Audited Note 11 | Discounted decommissioning liability of CAD 452.4 million | Year-end 2025, 2.5% inflation, risk-free discount rates of 2.6% to 3.9%, settlement over 6 to 52 years | The present value of future closure obligations sitting on the balance sheet |
| Audited Note 11, undiscounted cash view | CAD 889.1 million of inflation-adjusted undiscounted future cash flows | Same operating assumptions, but without discounting | The long-tail economic burden over the life of the assets, not the near-term bill |
| Midroog rating analysis | Only reasonable financial flexibility, about CAD 66 million of undrawn committed lines, and ARO equal to roughly 41% of the balance sheet as of September 30, 2025 | Credit lens, not an equity valuation | Whether the company has enough financing room to live with the burden |
What matters most is not which figure is "higher". It is that the two sides are built on very different discount structures. On the asset side, the presentation uses NPV10. On the liability side, Note 11 uses risk-free rates of 2.6% to 3.9%, while the acquired liability itself had been marked at 7.4% on the acquisition date. That mismatch explains why the balance-sheet burden can swell very quickly even without a dramatic operating change.
It also explains why a shortcut such as "CAD 1.193 billion minus CAD 452 million" is not the right bridge. That arithmetic feels precise, but it can easily double count the same closure burden or mix two measurement systems that were never meant to be plugged together mechanically. But stopping at the CAD 1.193 billion presentation NAV is the opposite mistake, because that ignores the fact that equity still has to pass through a sensitive closure liability, financial debt, and financing lines that are ultimately linked to reserves and commodity prices.
How Much Value Is Actually Reachable By Equity
This is the real question. Even if one accepts the reserve framing in the presentation, the value that is actually reachable by common equity is narrower than the Slide 21 NAV. At year-end 2025, shareholders’ equity stood at CAD 370.1 million, below the CAD 452.4 million decommissioning liability. That does not mean equity has been "wiped out", because the liability runs over decades and only CAD 5.0 million is expected within a year. But it does mean the balance sheet is already carrying a closure burden larger than the accounting equity base.
The sensitivity math makes that constraint more obvious. A 1% decrease in the risk-free rate increases the liability by CAD 80.5 million. A 1% increase in inflation adds another CAD 80.7 million. Either one is roughly one-fifth of year-end equity. So even without a change in production, oil prices, or drilling outcomes, the equity cushion can move materially through the assumptions alone.
The counter-thesis here is fair. Midroog explicitly says the obligation does not create immediate cash pressure in the short to medium term, and assumes decommissioning cash outlays of CAD 4 million to CAD 5 million in 2025 and 2026, rising to CAD 15 million to CAD 20 million in 2027. That is exactly why it is wrong to read the CAD 452 million as a near-term cliff.
But that more reassuring reading does not eliminate the problem. It only puts it in the right place. InPlay runs with essentially no cash, relies on bank facilities, and continues to pay dividends. In that setup, abandonment is not a tomorrow-morning liquidity event, but it is a persistent filter on accessible equity. It limits how easily a theoretical reserve NAV can turn into value that common shareholders can truly capture.
That is why the more conservative reading is this: Slide 21 is an asset starting point, not an equity answer. For that asset value to become reachable value, the company has to clear three tests at the same time. First, reserves and commodity prices have to hold up so that asset coverage does not erode. Second, the abandonment estimate cannot keep inflating through discount-rate and inflation changes. Third, financing has to stay open enough for the liability to remain a long-tail burden rather than turning into an earlier funding problem.
Conclusion
The current thesis: CAD 452.4 million of decommissioning liabilities does not prove that InPlay’s reserve value is fake, but it does prove that the presentation NAV is far from free equity.
In a sharper reading, Pembina did not just make InPlay bigger. It also changed the type of risk equity holders are carrying. The story is no longer just about the size of the reserve base and the cash flow it might generate. It is now about a longer and more fragile bridge from reserves to accessible value. That bridge includes bank debt, a low-cash policy, a closure liability that is highly sensitive to discounting, and the embedded assumption that funding will remain available against a still-healthy reserve base.
The strongest counter-thesis is that the market may be overstating the balance-sheet meaning of the number. This is a long-dated obligation, not an immediate cash bill, and the company does have a long-life reserve base behind it. But as long as equity remains smaller than the decommissioning liability, and as long as a 1% move in discounting or inflation can shift the liability by tens of millions, it is hard to treat the presentation NAV as a number equity holders can simply adopt at face value.
What will decide the read in the near term is not another slide about 2P NPV10. It is three simpler tests: the next reserve update, the behavior of the abandonment estimate under a moving rate and inflation environment, and the company’s ability to keep reducing debt without giving up capital discipline. That is where the real answer on accessible value will show up.
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