InPlay Oil (IPOOF) Notes from Apr 23 Luncheon

[dan_s]

Bottomline: InPlay is in Great Shape and the stock should be a double for us within a year. I have updated my valuation to $4.35US for IPOOF. IPO.TO is trading at $2.495Cdn ($1.78US) this morning. Dividend yield is ~7.2%

Notes from yesterday.
The CEO of InPlay Oil, Doug Bartole made an impressive presentation at our luncheon yesterday. 
> The Company's balance sheet is "pristine" with Net Debt to EBITDA now under 0.4x. The Company "has never been in better financial shape."
> "Running Room": It has over 300 low-risk horizontal development drilling locations within current leasehold that is primarily HBP. Based on pre-drill type curves, these HZ wells should reach payout within 8-10 months after being completed (IRR's all over 100%) if WTI stays over $80US/bbl (today InPlay gets over $100Cdn/bbl for their oil).
> Q1 new wells were completed in March, so expect a nice increase in production and free cash flow in Q2.
> No new wells until after "Spring Break-Up" (mid-June) to save on well costs.
> Expect 10-12 new horizontals wells in 2H 2024. If oil prices stays over $100Cdn/bbl, I expect two more HZ wells to be added to this year's drilling program in Q4. 2024 exit rate should exceed 10,000 Boepd with mix of 46% oil, 16% NGLs and 38% natural gas.
> Completion of the TMX pipeline has significantly increased the oil prices that InPlay and all of our Canadian companies are receiving.
> Primary Reason for my increased valuation: InPlay is now developing a new zone (Belly River) that is ~90% light oil.  In addition to more oil, their Belly River wells have better decline curves; production holds up for a year before going on decline and rate of decline is slower.  With WTI at $80US/bbl payout is in 9 months; IRR of 116% based on the type curves. < 58 new Belly River HZ drilling locations (Big Increase to P2 reserves at end of 2024).
> InPlay sells oil at WTI price and converts it to Canadian dollars. $80US / 0.74 = $108 less $5Cdn differential today. < My forecast is now based on realized oil prices of $105Cdn in Q2 and $110Cdn in Q3 and Q4 2024.
> Doug thinks there is a good chance for differentials to go to zero this summer because pipeline access has improved in pipes going south because the heavy oil producers are moving their oil west on TMX.

I do expect the monthly dividends to stay at $0.015 ($0.18 per year) for current yield of 7.2% in 2024. Higher than expected free cash flow will be used to drill more wells and/or buyback stock.

My updated forecast model has been posted to the EPG website.

IPOOF is selling below book value and there is no justification for the current price.