IPOOF - InPlay Oil (IPOOF)(IPO:CA) - Estimates and Price Objective Raised After Outstanding Quarter

On August 11, InPlay reported impressive operating and financial results on the heels of favorable recent drilling. In our note dated August 12, we discussed the success of three recent wells in the Pembina Basin that have led management to raise production and cash flow projections. The company raised projections by approximately 10%, the second time they have raised guidance this year. In addition, they redirected drilling towards the Pembina basin and predicted that they will lower debt even as they increase capital expenditures.More production and high energy prices means higher earnings and cash flow. We are raising our 2021 production rate to 5,625 boe/d which puts us in the middle of the latest guidance range of 5,500-5,750 boe/d. Should future drilling in Pembina prove as successful as recent drilling, we would not be surprised to see management raise guidance again. We are also raising our WTI 2021 forecast to $65 from $60 in line with management assumptions and historic and current prices for the year. We have also raised NGL and natural gas price assumptions given recent strength. We now project EBITDA of $35 million (previously $15 million) and Adjusted Fund Flow of $41 million (was $21 million) slightly below management guidance of $41.5-$47.5 million. We now look for 2021 EPS of $0.01 (excluding charge reversal gain of $0.87) versus our old $(0.25) est.Higher earning and cash flow mean higher valuation. We are raising our twelve-month price objective to $2.00 from $1.50 to reflect higher cash flow. Our price target equates to a $2.50 estimate for the shares of IPO traded on the Toronto exchange. Our modeling pushes out higher energy prices for a few more years, but still assumes long-term WTI oil prices of $50, Henry Hub natural gas prices of $2.50, and NGL prices of $25. Our rating remains Outperform. Read More >>