Small-Cap Growth Portfolio Update - July 3

Post Reply
dan_s
Posts: 34467
Joined: Fri Apr 23, 2010 8:22 am

Small-Cap Growth Portfolio Update - July 3

Post by dan_s »

I will be updating all of the Small-Cap Growth Portfolio forecast/valuation models today and tomorrow using my lower natural gas price deck ($6.00 for Q3, $7.00 for Q4 and $5.00 for 2023).

My valuations for Ero Copper (ERO) and Hemisphere Energy (HMENF) stay at $19.50 and $3.90 because they don't sell any gas.

My valuation of InPlay Oil (IPOOF) declines by $0.20 to $7.45US. It closed at $2.33US on July 1.
Only ~18% of InPlay's revenues are from ngas sales and their hedges do lower the impact of ngas prices changes.

Since we published an updated profile on InPlay in early June, First Call's price target has increased from $5.04Cdn to $6.70Cdn per share, which translates to $5.36US for IPOOF.

InPlay is going to report outstanding Q2 results with production up ~10% quarter-over-quarter to ~9,100 Boepd. Their operating cash flow should increase by more than $10Cdn million quarter-over-quarter and they are on pace to generate over $90Cdn million of FCF this year. Like Hemisphere, InPlay should be virtually debt free very soon. InPlay's bank debt was $71.7Cdn million on 3-31-2022 and they have no near-term debt problems.

InPlay has a lot of "running room" with several hundred low-risk / high-return horizontal development drilling locations within their current leasehold. If WTI stays over $100/bbl, InPlay's new wells payout in less than 5 months. They have a clear path to production of 12,000 Boepd within 12-months.

The Company might start paying dividends in 2023, but with so much "low-hanging fruit", I'd like to see them accelerate their drilling program. They may also make another accretive acquisition late this year. Doug Bartole's team is solid and they have a lot of options with so much FCF.

IMO InPlay has HUGE upside in the East Basin Duvernay Shale play (see slide 20 of their May presentation). None of the Duvernay's upside is in my current valuation.

IPOOF has very low risk from where it trades now and it has A LOT OF UPSIDE. If WTI averaged $60/bbl for the next 18 months, my valuation would still be double the current share price.

Note that my updated model for InPlay is in Canadian dollars. It has been posted to the EPG website.
Dan Steffens
Energy Prospectus Group
Post Reply