IPOOF - InPlay Oil (IPOOF)(IPO:CA) - Now Is a Good Time to Look At InPlay
Our price objective was increased 150% last March due to higher energy prices and improved company fundamentals. On March 24th, we raised our P.O. on the shares of IPOOF to $1.50 from $0.60 ($2.00 from $0.45 for the shares of IPO.TO). The increase reflected higher near-term oil prices, lower basin differentials, a better currency exchange rate, decreased operating cost assumptions, improved free cash flow generation and the ability to pay down debt, growth in the company's proved reserve position, and a shift in valuation metrics with the passing of 2020.Since that time, energy prices have moved even higher. WTI spot prices have risen to approximately $66.50/BBL from $58.56/BBL on March 24th. Western Canada Select (WCS) prices have also risen and now trade near $53/BBL (C$64.60). A $13 differential compares favorably to a differential near $17 at this time last year. Natural gas spot prices are also higher, reaching a current price near $2.95/mcf versus a price of $2.57/mcf on March 24th. Western Canada natural gas prices (AECO) have risen similarly and now trade at $2.45/mcf (C$3.00/mcf).InPlay will report earnings tomorrow (May 6th) before market open. We expect favorable announcements in March to carry over into strong operating results. InPlay is knocking it out of the park in terms of operations. Finding costs are low and decreasing as the company drills at a faster pace. Flow rates are beating IPOOF's type curve. Operating costs have fallen another 10% this year to $11.50-$13.50/bbl with higher production. Management is holding the line on administrative costs. Combined with higher energy prices, the company will soon start generating high levels of free cash flow that it can use to pay down debt or expand operations.The shares rose on the March announcements but have stagnated since then despite higher energy prices. The shares of IPOOF are up a modest 15% since March 24th. In fact, the price is still below the price at the beginning of 2020, before a drop in oil prices sent energy stocks on a sharp decline. Today, oil prices are 10% above where they were at the beginning of 2020 and InPlay's company fundamentals have improved dramatically. We believe the shares should be higher and think another positive operating report tomorrow could be the catalyst needed to move the shares higher. Read More >>