IPOOF - InPlay Oil (IPOOF)(IPO:CA) - Outstanding quarter due to operational improvements
Production is soaring due to the performance of recently drilled wells. InPlay reported average production of 5,380 boe/d in the June quarter, up 71% versus last year and above our forecast of 5,167 boe/d. The jump in production reflect strong performance by three Pembina wells drilled in the first quarter that continue to blow through type curve projections. Well flow shows no signs of decreasing after 120 days and the wells have paid for themselves in 3-4 months. In addition, three new wells in Pembina came on in July and are even outperforming the wells drilled in the first quarter. Management announced that it now plans to replace three wells planned for the Willesden Green with wells in the Pembina play.High production means high cash flow and earnings. Adjusted funds flow (AFF) for the quarter was $8.2 million ($0.12) up 730% y-o-y and 34% sequentially and above the $6.4 million ($0.09) in our models. Net income was $0.8 million ($0.02) after excluding nonrecurring items, well surpassing previous periods and our forecast of ($0.7 million) or ($0.01). Realized prices and operating netbacks were generally inline with expectations. Operating costs per unit fell more than expected due to the higher-than-expected production. Debt levels are now expected to drop even as the company raises its capital budget.As expected, management raised guidance. We started getting the feel after the first quarter that management was being overly cautious regarding production and cash flow guidance after the success of the first three wells. Management responded by raising 2021 production guidance by approximately 10% (5,500-5,750 boe/d up from 5,100-5,400) and AFF guidance by a similar rate ($44.5-$47.5m up from $39.0-$42.0m). Both numbers have now been raised twice since initial guidance was given towards the end of last year. We will review our 5,360 boe/d and $21.3m forecasts as we update our models. Should the three wells drilled in July continue to perform well, we would not be surprised to see guidance raised again.Rating remains outperform with a US$1.50 price target. We are encouraged by the strong operating performance at InPlay and are maintaining our rating and price target. Read More >>