IPOOF - InPlay Oil (IPOOF)(IPO:CA) - 2021-1Q Operating Results Leverage Drilling Success
First quarter production results surpassed elevated expectations. Results were generally in line with our elevated expectations. Production levels rose to 4,965 BOE/day, up 17% q-t-q and above our 4,809 estimate. Wells drilled in the Pembina Basin last year are producing well above expectations leading management to shift drilling to that area (including 3 wells drilled this quarter) where the company made a recent tuck-in acquisition. The shift is making light oil a larger component of production at a time of high oil prices.Realized prices were slightly below expectations. Realized oil prices were C$55.75/BBL, a sharp rise over previous quarters but below our C$60.49 estimate. Basin discounts were larger than expected and will need to improve in upcoming quarters to meet management's guidance for the year. Natural gas and NGL prices were in line with expectations. No new hedges were added leaving more than half of expected oil production hedged for the second quarter (at prices ranging from US$42-50) but nothing hedged beyond that. Realized prices should rise in upcoming quarters if oil prices hold at current levels.Operating costs were above expectations, but should fall in upcoming quarters. Operating costs were C$14.37/BOE versus our estimate of $13.75. We do not find higher-than-expected costs concerning. Management has given guidance of $11.50-$13.50 for the year. Given strong production numbers from recently drilled wells, we would expect costs to decline as production volumes rise. Management reiterated guidance regarding costs, as well as production levels and prices, in what is now feeling like conservative guidance. Management reiterated production guidance of 5,100-5,400 Boe/d even as it has surpassed exit rate capacity of 5,000. With the 3 first-quarter wells producing 890 and 5 more wells planned in 2021, production is well on track towards guidance. Similarly, Adjusted Funds Flow guidance of C$39-42 looks achievable if prices hold as 1Q AFF of $6.1 grows with higher volumes and the roll off of hedges.We continue to rate the shares Outperform with a $1.50 target ($2.00 for IPA.to). Read More >>