IPO:CC - InPlay Oil (IPOOF)(IPO:CA) - Doubling Our Price Target On Higher Production And Energy Prices
Fourth-quarter and 2021 results were generally in line with expectations and previous management guidance. Adjusted funds flow rose 532% in response to higher energy prices, a 45% increase in production volumes, reduced operating costs per unit produced and lower financing costs. Management raised its guidance for AFF in 2022 to $141-$150 million from $111-117 million as it raised its assumed energy prices towards current levels. A previously-announced boost in drilling following a tuck-in acquisition last fall is coming to fruition and will help grow production in 2022.Higher energy prices are good but InPlay is really a story of improved operating results. The company drilled two wells this quarter in lands acquired in the Prairie Storm acquisition and both are producing above expectations. It also drilled three wells in existing Pembina territories that are also producing above expectations. The company enters the second quarter with the drilling program six weeks ahead of schedule. At current prices, InPlay is recovering the cost of drilling in a matter of months, so an accelerated schedule is a big positive.Asset-based valuations are soaring. Higher energy prices combined with successful drilling and the recent acquisition mean a large jump in reserves. Proved reserves increased 64% with non-proved reserves increasing at an even higher rate. PV-10 valuations rose to double digits per share and energy prices have only gone higher since the calculations.We are raising our 12-month price target to $6 from $3.00 to reflect higher energy prices. With operating results being reported near expectations, we are not making changes to production volumes or operating costs. However, we are adjusting our oil and gas price assumptions to reflect more current prices. Importantly, we are raising our long-term WTI oil price assumption to $60/Bbl and our Henry Hub gas price assumption to $3.50 from $3.00 to match changes made to other companies under coverage. The result is an increase in our estimated fair value for the stock and corresponding price target. Read More >>