InPlay Oil (IPOOF) Q2 Results - August 12

[dan_s]

Second Quarter 2019 Financial & Operating Highlights

Achieved record average quarterly production of 5,179 boe/d (66% light oil and liquids) in the second quarter
of 2019, an increase of 18% compared to 4,396 boe/d (69% light oil and liquids) in the second quarter of
2018 and an increase of 9% compared to 4,737 boe/d (68% light oil and liquids) in the first quarter of 2019.
Compares to my Q2 production forecast of 4,975 boe per day.

Year to date production growth of 13% was attained with average production of 4,959 boe/d (67% light oil
and liquids) in the first half of 2019 compared to 4,405 boe/d (70% light oil and liquids) in the first half of
2018. Production growth was achieved notwithstanding the sale of approximately 250 boe/d of non-core
producing assets in October 2018.

Generated AFF of $8.8 million ($0.13 per basic and diluted share) representing a 19% increase over the
second quarter of 2018 total of $7.4 million ($0.11 per basic and diluted share). These results were achieved
despite a 12% decrease in West Texas Intermediate (“WTI”) prices, a 13% decrease in AECO daily gas
prices as well as a 53% decrease in the Company’s realized Natural Gas Liquids (“NGLs”) prices over the
same respective periods. AFF = "Adjusted Funds Flow from Operations".

Continued focus on efficiencies resulted in operating costs decreasing 18% to $14.32/boe in the second
quarter of 2019 from $17.38/boe in the second quarter of 2018. This decrease, combined with lower royalty
rates largely from lower Alberta par prices, resulted in operating netbacks of $23.81/boe in the second
quarter of 2019.

Operating income profit margin of 56% was generated in the second quarter of 2019 compared to 55% in
the second quarter of 2018, even with the lower realized light oil, natural gas and NGL prices received over
the second quarter of 2019 compared to the second quarter of 2018.

Net debt decreased by $3.7 million to $56.3 million at the end of the second quarter of 2019 from $60.0
million at the end of the first quarter of 2019 given the significant AFF generated during the quarter net of
exploration and development (“E&D”) capital expenditures even with the drilling of two wells in June
originally scheduled to be drilled in July.
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Solid quarter and the company is now on-track to exceed the high end of their full-year production guidance.

[dan_s]

I have updated my forecast/valuation model for InPlay and posted it to the EPG website.

> InPlay raised their production guidance for 2019 by 100 Boepd to a range of 5,000 - 5,200 Boepd. I expect them to beat the high end like they always do.
> Cash flow from operations should cover all drilling & completion costs going forward.
> Production should accelerate in Q4 to an exit rate of approximately 5,700 Boepd (~68.5% liquids). I am expecting production to average 6,200 Boepd in 2020.
> Natural gas and NGL prices were terrible in Alberta in Q2, but should improve heading into year-end; especially if Alberta has a cold winter. InPlay's NGL prices were about half of what they were in Q1 because of 3rd party processing plant problems that s/b corrected now.
> Alberta oil prices firmed up in Q2 to $71.55Cdn/bbl for InPlay; almost $10/bbl higher than in Q1.

Despite all of their strong operating results in Q2 and increased production guidance, I've lowered the multiple of operating cash flow used in my model to value the stock. I'm doing this just to align with the negativity over the Canadian Juniors and upstream companies in general. My valuation of IPO.TO adjusts to $2.58, which converts to a valuation of IPOOF to $1.94US/share. < This compares to First Call's valuation of IPOOF of $1.42US.

As I post this, IPOOF is trading for $0.4713S per share. < This is just 1.2 X my operating cash flow per share forecast for 2019 and less than 1.0 X my CFPS forecast for 2020.