InPlay Oil - April 2017

Suite 920, 640 -5th Ave SW Calgary, AB T2P 3G4
Phone 587.955.9570  •  Website: www.inplayoil.com
Content updated periodically  • Dated April 24, 2017

Ticker Symbol: IPO-T

View All Posts Tagged IPO-T

FINANCIAL HIGHLIGHTS

Shares Outstanding

62.4M

Market Capitalization

$121M

Q4/16 Actual Production

3,600 boe/d

Enterprise Value

$153M

Junior Cap Company

Current Price (04/21/17)

$1.94

Attractive Purchase

Under $2.00

Table-Pounding BUY

Under $1.80

12 Month Target

$3.60/share

Bull Market Peak

$6.00/share

BACKGROUND

This junior oil company was founded in November 2012 and commenced oil and gas operations in June of 2013. Its focus is on the Cardium and Duvernay oil potential in western Alberta. Gross undeveloped acres at year end 2015 were over 75K providing over 200 drilling locations and over 10 years of drilling inventory. IPO has a vibrant U.S. following so it has qualified to trade on the OTC market OCTQX for easier trading by its lower 48 shareholders.

INVESTMENT PARAMETERS: PEOPLE

The InPlay Oil team is headed by Doug Bartole who was formerly President at Vero Energy (started in 2005), which sold out to Torc Oil and Gas in late 2012. InPlay is backed by two very deep pocketed institutional investors: JOG Capital and Sprott Resource Corp., who collectively own 45% of the outstanding shares. Manpower at IPO is 22 full time employees at head office and 5 field personnel for a total headcount of 27 employees. Major Shareholders include JOG Capital (21M) and Sprott Resources (7.1M).

TitleManagementShares Owned
President & CEODoug Bartole260K
VP Business DevelopmentGordon Reese133K
CFODarren Dittmer124K
TitleManagementShares Owned
VP ExplorationKevin Yakiwchuk75K
VP OperationsThane Jensen111K

Source: www.sedi.ca April 2017

INVESTMENT PARAMETERS: PROJECTS

InPlay is a Calgary-based Oil and Gas Exploration Company focused on the Cardium and Duvernay resource plays in the Greater Pembina and Willesden Green areas SW of Edmonton. IPO brings strong technical skills to bear, using the latest cost-effective technology of monobore drilling with sliding sleeves. The Cardium play has repeatability, low declines, large reserves and long production life potential. IPO has been very acquisitive adding assets from Bellatrix and Anderson Energy Inc. in Q4/16. The corporate base decline rate is estimated by IPO at 22% but this will rise to the 26-28% range as they accelerate drilling activity. New production additions are coming on at around $17,000 per flowing boe.

Cardium and Belly River Oil Resource Projects

IPO was producing 4,100 boe/day in total with the largest contributions from the Pembina (2,675 boe/d) and Willesden Green (1,025 boe/d) areas in Q1/17. Over 78% of production was from the Cardium formation. In 2017 they expect to drill 11-12 wells and in 2018, 15-17 wells. The Belly River produced 675 boe/d in early 2017 and for a spend of $1.5M per year volumes should stay flat and generate more than $7M a year of cash flow. Drilling costs at Pembina are $1.8M per well to a depth of 1,600 meters, with 30-day IP rates averaging over 220 boe/d. At Willesden Green drilling costs are $2.1M to 2,000 meters, and 30-day IP rates exceed 210 boe/d. Drill times are down to eight days on their one mile long horizontal wells.

Duvernay Oil Resource Projects

This area will get minimal capex in 2017 as they watch competitors (private companies) de-risk the play. IPO may need to drill one vertical well to hold on to expiring acreage. The wells may cost $1.5M and they will log and core it resulting in holding nine sections going forward. They have 50 drillable locations now in inventory. Drilling for this light oil target with horizontal wells would cost $4-5M per well. IPO will hold back on an active horizontal program in this core area until energy prices stabilize at much higher levels and they can afford to spend this larger amount per well. The total depth here is 2200 meters.

InPlay Oil Producing Areas

InPlay Oil - April 2017
InPlay Oil - April 2017

Source: www.inplayoil.com

INVESTMENT PARAMETERS: FINANCIAL CAPACITY

  • IPO was active in Q1/17, drilling 11 gross wells. They brought on three wells in early February of 2017 and hope to bring on four – five more wells during Q2/17, as access to fracking units has been slower for smaller producing entities.
  • IPO has a healthy balance sheet with a $60M line of credit from CIBC and ATB. At year end they used only $31.5M on the line. With the success of the winter program and the upcoming production lift, they may see their credit facility lifted to $80M, giving them more capacity to drill in Q4/17 when we see crude pricing start rising in the new bull market.
  • Net Asset Value at Dec/31/16 was $2.01/share. IPO trades significantly below its Q4/16 Book Value of $3.00/share.
  • Our 12 Month Target of $3.60 is based on 6.5x (below their 1P RLI of 12 years) our Q4/17 annualized cash flow estimate of $0.56/share. IPO would be an Attractive Purchase under $2.00/share, and a Table Pounding BUY at under $1.80/share. Our 3-5 year Bull Market Peak Target Value is $6.00 per share, providing lots of exciting upside as they undertake their program.
  • Our 3-5 year Bull Market Peak scenario is for IPO to be producing greater than 7,000 boe/d, have CFPS of >$1.60 per share and trade at over $6.00 a share.

Balance of Evidence

POSITIVES

  • IPO has taken advantage of distress sellers and added to their core areas. We expect that they will add materially to production via the drill bit as the acquisition mode will be less likely as commodity prices improve later this decade and transaction values rise sharply.
  • We see IPO growing to 5,000-6,000 boe/d without any further acquisitions over the next 2-3 years. In a pricing environment of US$70/b or higher (which we expect to occur in 2019), IPO could show CFPS of >$1.00 share and be worth >$5/share. With low declines, this would be a great asset for a dividend model acquisitor. In an environment of US$100/b for WTI, IPO could cash flow in the 2020-2022 period in excess of $130M on 8,000 boe/d and have CFPS of $2.00/share (depending on future dilution) and be worth in excess of $10/share.
  • The IPO team have sold their prior companies and are attuned to shareholder needs. An exit strategy by the end of the decade is possible.

ISSUES OF CONCERN

  • IPO has operating costs that need to come down. In Q2/16 operating costs were $18.20/boe and the company is focused on bringing them down post the Anderson deal to $15.00 or less in 2017. We would like to see these costs below $14.00/boe over time.
  • IPO took a $12.2M impairment charge in 2016 and a $25.1M charge in 2015. If crude oil prices decline below US$40/b, they may face additional impairment charges.
  • Access to capital for growth has been tough for small cap companies. So far, IPO has not been impacted by access to capital.
  • Some competitors are doing longer reach wells that are getting more than double the production (480-500 boe/d) doing 1.5 mile versus the 1 mile horizontals currently being done by IPO, with a greater number of fracks. IPO is waiting to see sufficient data to decide if this is an attractive and economically efficient procedure for their operations (if they hold contiguous land to support such longer reach wells).

INPLAY OIL CORP. (IPO-T)

InPlay Oil - April 2017

Source: stockcharts.com

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