InPlay Oil (IPOOF) Update - Jan 18

[dan_s]

InPlay Oil will be hosting an EPG luncheon in Houston mid-April.

InPlay Oil Corp. Announces 2023 Capital Budget Highlighting Record Operational Guidance and Appointment of New Board Member
Wed, January 18, 2023 at 7:00 AM CST·

CALGARY, AB, Jan. 17, 2023 /CNW/ - InPlay Oil Corp. (TSX: IPO) (OTCQX: IPOOF) ("InPlay" or the "Company") is pleased to announce that its Board of Directors have approved a capital program of $75 – $80 million for 2023 which is forecasted to deliver annual average production of 9,500 – 10,500 boe/d(1) (58% – 61% light oil and NGLs). < CapEx program compares to my 2023 Operating Cash Flow forecast of $115 million.

InPlay's record-setting financial and operational performance in 2022 has the Company entering 2023 in a very strong financial position allowing for the continued execution of our core strategy of providing top-tier light-oil weighted production per share growth with significant free adjusted funds flow ("FAFF") generation, while delivering sustainable returns to shareholders through our base dividend and share buyback initiatives. The Company exited 2022 with its lowest ever level of net debt to earnings before interest, taxes and depletion ("EBITDA"), estimated at approximately 0.2x, with significant liquidity from our $110 million credit facility providing InPlay with the ability to opportunistically capitalize on strategic opportunities. Strong drilling results from the development of our top-tier drilling inventory and the positive outlook for crude oil and NGL prices has InPlay well positioned to deliver continued strong operational and financial results in 2023.

2023 Capital Program Overview

The Company's Board of Directors have approved a capital program for 2023 of $75 – $80 million. InPlay believes that the macro outlook for oil prices is more positive than the macro outlook for natural gas prices and as such the Company has pivoted its 2023 capital program towards higher oil weighted properties. Through the acquisition of Prairie Storm in the fourth quarter of 2021 and the development of a high productivity and high rate of return gassier area in Pembina through 2021 and early 2022, InPlay's natural gas weighting increased however, revenues generated in 2022 at higher year over year prices from natural gas sales only increased by approximately 5% over 2021 to 20% of total corporate revenue as natural gas represents a small portion of our overall revenue. While InPlay benefited from strong natural gas pricing in 2022, the Company is now focused on increasing its light oil weighting to take advantage of that commodity and maximizing funds flow. The Company's adjustment to higher oil weighted locations is forecast to result in approximately 14% - 24% oil production growth in 2023 which will benefit in generating strong Adjusted Funds Flow ("AFF") even in an uncertain natural gas pricing environment. The 2023 capital program will see InPlay drill approximately 15.0 – 16.0 net Extended Reach Horizontal ("ERH") Cardium wells, the most in the Company's history. In addition, InPlay plans to drill a minimum of 2.0 net wells in the Belly River which currently produces approximately 90% light oil.

InPlay's 2023 capital program is forecasted to deliver the following:

Annual average production of 9,500 – 10,500 boe/d (58% – 61% light oil & NGLs), focused on drilling higher oil weighted plays, delivering; < This higher oil production will increase my stock valuation.

Operating income profit margin of approximately 62%;

AFF of $126 – $138 million;

FAFF of $46 – $63 million;

Base dividend of $15 – $16 million generating a total payout ratio of approximately 70% at the current monthly dividend rate of $0.015/share ($0.18/share annualized) ; and

Ample unallocated FAFF which can be used to fund additional return of capital to shareholders or opportunistically applied to potential tactical capital investments.

InPlay's natural gas takeaway capacity has tightened in Willesden Green throughout 2022 due to actively drilling with strong results. As InPlay focuses its drilling program in the oil-weighted Willesden Green Cardium in 2023, the Company plans to invest capital in facility infrastructure to accommodate current and future drilling. The Company plans to build and upgrade two operated gas facilities in Willesden Green in the first half of 2023 which will provide InPlay with operated facility capacity that we control to facilitate production growth in the upcoming years.

The first quarter of 2023 is expected to be our most active quarter to date with plans to drill seven (6.2 net) ERH Cardium wells along with two (0.3 net) non-operated ERH wells. InPlay's capital program for the first quarter of 2023 was partially accelerated into 2022 with drilling operations beginning on a two-well pad in Willesden Green as well as the commencement of pipeline and facility construction.

In reacting to the drop in forward looking natural gas prices, the Company also entered into natural gas hedges securing swaps on 10,000 GJ/day of 2023 summer gas (April – October) at an average price of $3.96 per GJ.

The Company reacted quickly to the drop in forward natural gas prices with refinements to our 2023 capital program and will continue to remain flexible, adaptable and react promptly to changing commodity prices throughout the year. The Company's strong financial position allows for continued strong growth to be projected going forward and the base dividend to be sustainable in a flat $55 WTI price environment through 2025 with net debt to EBITDA not exceeding approximately 0.4 times.

2022 Update

InPlay's fourth quarter capital program consisted of drilling one (0.95 net) ERH well in Willesden Green that was brought on production in October and two (2.0 net) Belly River wells that were brought on production late in November. In addition, the Company accelerated certain capital initially planned as part of its 2023 capital program, beginning drilling operations on a two-well pad in Willesden Green and proactively starting facility and pipeline construction in the fourth quarter of 2022 to bring on production promptly after the completion of wells drilled in the first quarter. This accelerated drilling program and additional facility construction, in addition to some additional costs incurred on certain fourth quarter drilling programs, results in estimated exploration and development capital expenditures of $76 - $78 million for 2022.

Annual average production for 2022 is forecasted to be approximately 9,150 boe/d (56% – 57% light oil & NGLs) which is at the lower end of our prior production guidance. Production at one property in Pembina was hampered by significant downtime as a third party gas facility optimized its operations to increase capacity. Increased production volumes at this facility has also led to elevated line pressure which has impacted the efficiency of all the wells which are on plunger lift resulting in a reduction of approximately 435 boe/d (73% light oil & NGLs) during the fourth quarter. Additionally, production was affected by severe cold weather hampering field operations and delays in getting initial production on stream with certain new wells. The 2022 capital program included a number of wells predominantly in a prolific area of Pembina with a higher gas weighting resulting in a forecasted light oil and liquids weighting of between 56% – 57%.

Appointment of New Board Member

InPlay is pleased to welcome Mr. Regan Davis to its board of directors effective immediately. Mr. Davis is a professional engineer with over 30 years of experience in the oil and gas industry. He most recently served as the Chief Executive Officer of STEP Energy Services until his retirement on September 30, 2022 where he was a co-founder and led the company through multiple acquisitions, expansion into the United States and an initial public offering. Mr. Davis has an extensive resume with exploration and production companies including management and board positions. He was named Ernst & Young's Entrepreneur of the Year in 2006, 2014 and 2017. Mr. Davis holds an ICD.D designation and he has held board positions with various public, private, and charitable organizations.

InPlay is proud of the progress made to further strengthen the Company's financial position and asset base. InPlay has grown from a private company formed in June 2013 into a strong, low leveraged and sustainable public company providing top-tier returns to shareholders, while surviving a world-wide pandemic and commodity price collapse. We would like to thank all of our employees, service providers, shareholders and directors for their support throughout this journey. Please view our latest corporate presentation available at www.inplayoil.com.

[dan_s]

I have updated my forecast/valuation model for InPlay based on the information and 2023 guidance in the press release above. The increased percentage of liquids production in 2023 increases my valuation of IPOOF by $0.20 to $6.40US per share. ($8.53Cdn per share valuation for IPO.TO compares to First Call's price target of $6.75Cdn).

IPO.TO closed at $3.13Cdn today. < Dividends of $0.18Cdn/year for yield of 5.75%.

InPlay's 2023 drilling program is "Front End Loaded", so I expect them to report strong production growth from Q1 to Q2. They are also going to report a year-end 2022 3rd party reserve report that shows the Company's PV10 Net Asset Value of just their P1 reserves that will be over $5.00US per share.

InPlay has lots of "running room" with several hundred of low-risk Tier One development drilling locations.

2022 results should be approximately $73.8Cdn million net income ($0.85/share) and operating cash flow of approximately $123Cdn million ($1.41/share).

InPlay is almost debt free with lots of running room. There is NOTHING to justify this stock trading for under 2.5 X CFPS.