InPlay Oil (IPOOF) Update - Aug 31

[dan_s]

We will be sending out an updated profile on InPlay late today. I was slightly disappointed in the small decline in their production from Q1 to Q2, but now that I know why it happened my valuations goes back to $4.25Cdn per share. In fact, my valuation will go higher if they hit my Q3 production estimate and if capex is now being funded entirely by cash flow from operations.

Q2 production was down because of 3rd party processing facility issues, which have been resolved and a few wells had to be shut in for several days because of offset well completions. Plus, the weather in Alberta is always crappy in Q2. I now expect InPlay's full year production to be at the high end of their guidance (4,500 to 4,600 Boepd) and I expect them to end 2018 with an exit rate over 5,100 Boepd. This compares to Q2 production of 4,396 Boepd.

The "Big News" will be the initial production rates on their Duverney shale well in the Huxley area. The Duverney Shale is the "Permian Basin of Canada".
See how big the Duverney is here: https://www.shaleexperts.com/plays/duve ... rview?menu

From InPlay's Q2 Report:
"InPlay’s first Huxley Duvernay well was completed and equipped in the quarter with initial flow back production starting in June and currently in the cleanup phase. Additional acreage was acquired by InPlay at the Crown land sale in the quarter for $1.4 million, resulting in the addition of 12 sections (7,680 acres) to the company’s core Huxley area and current Duvernay land holdings. This added contiguous acreage to the company’s existing land position and increases their holdings in the area by 33 percent to 48.25 sections (30,880 acres)."

This is a sizeable acreage position for a company of this size. They have room for up to 300 extended reach horizontal wells (7,500 to 10,000 ft laterals) within their blocks. Estimated Ultimate Recoveries are 250,000 to 400,000 barrels of oil per well. Estimated completed well costs are approximately $5Cdn million. Light oil is selling for over $80Cdn per barrel these days in Alberta. BTW the royalty is only 5% on Crown Lands in Alberta, so NRIs are much higher up there. A 300,000 BO well should net the company approximately $20Cdn million over its life and these wells come on strong and should payout in about 1.5 years.

Doug Bartole has a solid team and their plan is to prove up a lot of recoverable reserves (all out of cash flow from their low-risk Cardium play) and sell the company in ~3 years.

Read the profile and spend some time on their website. I think you will see why I added it to our Small-Cap Growth Portfolio.

[dan_s]

I have posted the updated profile and forecast model for InPlay Oil to the EPG Website (under the Small-Cap tab).

My valuation on page 1 is $4.00Cdn per share and it closed at $1.47Cdn today.

See page 7 for the Net Asset Value per share based on their December 31, 2017 3rd Party reserve report.
The 2018 year-end reserve report will show a much higher value for Proved Reserves (P1).

The big upside is what is shown on page 10.

[John.A.Hunt]

Sept. 13th InPlay Oil posted to their website in the "News" section the early returns of their first horizontal Duvernay completion. Sounds good so far.

[dan_s]

InPlay is definitely moving in the right direction. They have HUGE upside in the Duvernay, which is Canada's Permian Basin.

Operational Update from September 13, 2018 press release
InPlay continues to realize strong results from its high impact Cardium development program in the greater
Willesden Green area. By targeting the bioturbated Cardium within the Willesden Green area, InPlay’s well
results continue to exceed internal type curve estimates and show some of the best initial production results to
date of all Cardium wells drilled in the area.

The following is a summary of results from the three 1.5 mile InPlay horizontal wells drilled on our newly
acquired lands that were placed on stream in the third quarter and which have a minimum of thirty days of
production (all production results based on field estimates).
> The first horizontal well (1.0 net) had an initial production rate (“IP”) IP 30 of 767 boe/d (86% light oil and liquids).
> The second horizontal well (0.2 net) on production had an IP 30 of 1,002 boe/d (82% light oil and liquids).
> The third horizontal well (1.0 net) came on production in August and had an IP 30 of 336 boe/d (90% light oil and liquids) is continuing to clean up and
currently producing an average of approximately 427 boe/d (89% light oil and liquids) in September.

InPlay’s first horizontal Duvernay well (1 mile lateral) was completed in May 2018. The typical clean-up phase
of horizontal Duvernay wells is generally characterized by an extended clean-up period whereby oil cuts as a
percentage of produced fluids tend to increase as injected frac fluids are recovered from the reservoir. InPlay is
pleased to report that the behavior of the Company’s first well to date is consistent with successful offsetting
wells drilled in the area. Upon completion, InPlay allowed the well to flow back for a period of six weeks with
oil cuts increasing to approximately 25%. Following the initial flow back, InPlay shut the well in for a six week
soak period intended to support the clean-up phase and increase produced oil cuts as performed by leading offset
Duvernay operators in the Huxley sub-basin. As anticipated, the soak period has translated to a continued
improvement in oil cuts which have averaged 40% over the past 10 days while producing at an average rate of
165 bbl/d of oil based on field estimates. The trend in increasing oil cuts is consistent with trends observed in
offsetting wells in the area which tend to ultimately reach a stabilized oil cut between 70% to 90%. The Company
continues to closely monitor all activity around our lands. Initial results suggest that our Crown land position in
this area will lead to a valuable long term light oil resource play. InPlay plans to continue to follow a conservative
development program at a measured pace over the near term.

InPlay is excited about the accelerated development program planned for the remainder of the year which is
expected to result in top tier organic light oil growth amongst peers. InPlay’s current land position, asset base
and strengthened balance sheet positions InPlay for continued operational and financial success into 2019 and
beyond and we look forward to providing further updates on our progress prior to year-end.