InPlay Oil Corp T.IPO

new price target $3.15 from Eight Capital

[Jamez007]

Target Revisions
		Index

 

InPlay Oil Corp. (IPO-t: c$1.06)			September 9, 2021
BUY Target: C$3.15 (from C$2.75)		Phil Skolnick / [phone] [e-mail] Christopher True / [phone] [e-mail]
Raising target price as Pembina Cardium continues to outperform
Note: All figures are in C$ unless otherwise noted IPO: Price/Volume Chart Source: Factset Company Description InPlay is a small-cap E&P focused on Cardium development along with a position in the emerging central Alberta Duvernay play.	IPO-T announced last night that it continues to see better than expected results from its 2021 drilling program in the Pembina Cardium asset acquired in Q4/20. The release is another key de-risking moment for the stock, in our view, and we believe this success will contribute to notable upward YoY reserve growth at the end of 2021.  We reiterate our BUY rating and are raising our target price by 15% to C$3.15 due to the following: 1. The first three 100% w.i. Pembina Cardium wells drilled in Q1/21 continue to flow without artificial lift and outperform the company's internal forecasted production volumes by 64% (Figure 1).  2. Performance of the next three 100% Pembina Cardium wells brought on production at the end of July have exceeded that of the first three wells to date. The average combined IP30 of these new wells was approximately 1,530 BOE/d (78% light oil and NGLs), based on field estimates. Additionally, per IPO, these wells are currently producing at an average combined rate of approximately 1,737 BOE/d (71% light oil and NGLs). 3. Per IPO, the continued outperformance is expected to generate another record quarterly production result in Q3/21 at an expected average rate of roughly 6 MBOE/d (67% light oil and NGLs). This represents roughly 11% growth over the previous record set in Q2/21 and is almost 2% above Consensus. 4. Drilling will start on the final two 100% Pembina Cardium wells for 2021 in the upcoming days and these wells are expected to be on production in the second half of October. Per IPO, this activity is forecasted to result in another record quarterly production rate in Q4/21. Owing to the aforementioned plus the low decline on base production and the additional two wells to come on production, IPO anticipates that its production will be on the high end of management's recently increased 2021 annual average production guidance of 5,500 to 5,750 BOE/d (68% light oil and NGLs). 5. The results give IPO the confidence to preliminarily guide for production to average 6,300 to 6,550 BOE/d (67% light oil and NGLs) for 2022, which would represent 12%-16% organic growth over IPO’s 2021 annual guidance and is 7%-11% above Consensus. Of note, we believe this guidance could prove to be conservative given we estimate Q4/21 production to average about 6,500 MBOE/d. On STRIP pricing, and based on a preliminary capex plan of $38-$40 million (15%-20% above the Street) to drill a potential 12-13 horizontal wells, the company sees estimated 2022 FCF of $32.5-$35.5 million representing a FCF yield of 45%-49%. As such, management forecasts the company's net debt/2022E EBITDA to fall to 0.3x-0.4x as total net debt declines by an estimated $34 million YoY. Figures 2 and 3 provide details of IPO's guidance. 6. Shares trade at only 2.5x and 1.3x 2021E and 2022E EV/DACFs at STRIP despite the operational success and high estimated FCF yield. Our target is based on a 50/50 weighting of 2.5x (up from a prior 2.25x due to de-risking) 2022E EV/DACF target multiple and 1x our risked estimated NAVPS. Risks to our target include commodity prices, cost inflation, and well results.