InPlay Oil (IPOOF) Q2 Results - Aug 15

[dan_s]

August 14, 2023 - Calgary Alberta – InPlay Oil Corp. (TSX: IPO) (OTCQX: IPOOF) (“InPlay” or the
“Company”) announces its financial and operating results for the three and six month’s ended June 30, 2023.
InPlay’s condensed unaudited interim financial statements and notes, as well as Management’s Discussion and
Analysis (“MD&A”) for the three and six months ended June 30, 2023 will be available at “www.sedar.com”
and our website at “www.inplayoil.com”. Our corporate presentation will soon be available on our website.
Second Quarter 2023 Financial & Operating Highlights

 Realized average quarterly production of 8,474 boe/d (57% light crude oil and NGLs) in light of significant
production restrictions with shut ins due to the Alberta Wildfires and third party facility restrictions which
also temporarily reduced the Company’s liquids yield in the quarter. < Beat my Q2 forecast of 8,300 Boepd 57.8% liquids

 Generated strong quarterly adjusted funds flow (“AFF”) of $21.8 million ($0.25 per basic share, an
increase of 2% from the first quarter of 2023 despite a decrease in production. < Beat my Q2 forecast of $16.6 million Adj operating CF

 Generated free adjusted funds flow (“FAFF”) of $9.0 million resulting in a 9% reduction to net debt from
March 31, 2023.

 Maintained balance sheet strength with a low net debt to earnings before interest, taxes and depletion
(“EBITDA”) ratio of 0.4 on a trailing twelve month basis, down from 0.5 in the second quarter of 2022,
providing the financial capability to deliver consistent returns to shareholders with the dividend sustainable
through to the end of 2025 in a stress test price environment of US $55/bbl WTI. < I may be moving InPlay and Hemisphere to our High Yield Income Portfolio because they have super strong balance sheets, steady production growth, and more than enough free cash flow to increase dividends in 2024.

 Returned $4.0 million ($8.0 million in the first six months of 2023) directly to shareholders through our
monthly base dividend.

 Achieved net income of $4.3 million ($0.05 per basic share; $0.05 per diluted share). < In line with my forecast.

 Renewed the Company’s fully conforming revolving Senior Credit Facility at $110 million. < Future production growth can be fully funded by operating cash flow, but it is wise to have the liquidity of a credit facility so they can pick up some nice bolt on acquisitions.
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Doug's team has done a great job and InPlay has a clear path to production of over 12,000 Boepd by the end of 2024. We've more than doubled our money on IPOOF, but it has a lot more upside for us. My valuation was $6.00US before these good Q2 results.

[Fraser921]

The market knocked them down 5 % on "good results"

[ChuckGeb]

I haven’t doubled my money. I am down 21% on entry point a year ago. I guess timing is everything.

[dan_s]

Every stock was down yesterday. InPlay has a lot of running room and they should report significant production growth over the next two quarters.

We should get a bullish storage report from EIA today, so I expect a lot of green on the screen when the market opens. API reported a big draw from crude oil yesterday afternoon.

[dan_s]

This is why I expect InPlay to report much better results in Q3 and Q4:

"Production for the three months ended June 30, 2023 averaged 8,474 boe/d(1) (57% light crude oil and NGLs)
and was 6% lower compared to the three months ended June 30, 2022. Production, as felt by many Canadian
producers, was negatively impacted over the second quarter as a result of several factors. The third party natural
gas processing facility constraints which began on February 15, 2023 continued into and throughout the second
quarter. Shut ins were required with our properties in the Drayton Valley area for a fifteen day period as a result
of the Alberta Wildfires. Turnarounds occurred at a number of third party facilities, including a 23 day
turnaround at a large midstream deep-cut facility. Lastly, extended road bans following Spring breakup resulted
in a three week delay in completion operations and the start of production on a three well pad. These events had
an impact of approximately 1,350 boed over the second quarter of 2023. The Company’s light oil and liquids
weighting of 57% during the second quarter was impacted by the turnaround of the deep-cut third party NGL
facility, resulting in less NGLs stripped from natural gas production."

"Despite these production curtailments experienced in the quarter, InPlay generated AFF of $21.8 million ($0.25
per basic share) and FAFF of $9.0 million in the quarter reducing net debt by 9% from March 31, 2023. Net
income of $4.3 million ($0.05 per basic share) was earned during the quarter."
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InPlay only completed three new horizontal wells during Q3 and all three were completed in June. Per the Company: "Three (2.9 net) Willesden Green ERH wells were brought on production in June and had average initial production (“IP”) rates per well of 424 boe/d (70% light crude oil and NGLs) over their first 30 days." < I expect InPlay to report Q3 production near 9,500 Boepd and Q4 production near 10,500 Boepd.

[dan_s]

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

My valuation for IPOOF stays at $6.00US.

First Call's price target is $5.56Cdn, which translates to $4.11US. < IPOOF is currently trading at $1.87US.

Q2 production was impacted by wildfires, weather and midstream facilities issues. Most of those problems have been resolved and InPlay is going to complete several high-rate horizontal wells in Q3 and Q4. The Company's 2023 exit rate should be ~10,500 Boepd and I believe they have a clear path to over 12,000 Boepd in 2024.

InPlay pays monthly dividends of $0.015Cdn/share. $0.18/$2.53Cdn share price is annualized yield of 7.1%. I am going to move it to our High Yield Income Portfolio. Strong balance sheet, clear path to steady production growth, lots of "running room" and more than enough free cash flow on the horizon to raise the dividends.

Based on InPlay's 12/31/2022 3rd party reserve report, the Company's 2P PV10 Net Asset Value was $8.34Cdn/fully diluted share heading into 2023. This year's drilling program should increase their 2P reserves.

There is nothing in my valuation for their large leasehold position in the East Basin Duvernay Shale play. At today's oil price, it should have significant value.

[mkarpoff]

You are expecting ipoof to be a possible double from here. Many in the high growth portfolio have much lower % expectations for growth. Why then, just because they currently have a decent div, are you moving the company(s) to the yield portfolio?
In a similar vein, could you give a little more coverage to companies with the DVN profile; former growth companies that, simply because of their divs, are no longer in the growth portfolio? They kind of seem like they are almost forgotten.

[dan_s]

There is only one of me. I need a clone.
My top priority is always the Sweet 16.

We will be publishing updated profiles on all of the companies in the Small-Cap and the High Yield Income portfolio next month.

I think all of the companies in the High Yield Income Portfolio have share price upside. Up until recently, it has outperformed the Sweet 16. InPlay is a good fit because it has a super strong balance sheet, steady production growth and 7% dividend yield. I expect InPlay and Hemisphere to increase their dividends in 2024.

BTW a lot of our members are keen on dividends, so moving InPlay to the HY portfolio may push the share price higher.