The oil industry has been on a rollercoaster ride over the past few years. First, after COVID-19 struck in early 2020, crude oil prices plummeted from $60 to less than $20 per barrel. Then, after the initial demand shock, prices rebounded from around $50 to over $80 in 2021. Supply and demand concerns moved oil to over $90 in early 2022, and of course, the Russian invasion of Ukraine sent prices reeling to $130.
Like many energy companies, InPlay Oil Corp. (TSE: IPO) (OTCQX: IPOOF) struggled to survive demand destruction following the COVID-19 pandemic in 2020. Since then, the company has had a remarkable turnaround and grown production by 80% from 2019 to current levels. This robust production is now yielding solid results as the stock tops its peer group in growth.
In this article, we’ll take a closer look at InPlay Oil and why investors may want to take a second look at the stock.
Unique from the Start
InPlay Oil isn’t a typical oil and gas business. Before founding InPlay, President and CEO Doug Bartole, P. Eng., ICD.D, ran publicly-traded Vero Energy from 2005 to 2012 where he grew production organically close to 200% and sold it at an opportune time. He also served in management and engineering roles at True Energy, Husky Energy, and Renaissance Energy. In fact, the majority of the company’s management team has a strong engineering and technical background, especially with experience in their area of focus.
The company is also focused on becoming an environmental leader with plans to release their inaugural sustainability report this summer. In the past, the company successfully reduced its CO2 emissions by 20% year-over-year in 2021 and estimates similar results in 2022, as well as uses a rigorous pipeline integrity program resulting in no spills in the past few years.
Strong Growth, Low Leverage
InPlay Oil reported record production of 5,768 boe/d in 2021, representing 45% growth over 2020. At the same time, the company’s operating income profit margin rose from 40% in 2020 to 64% in 2021, while adjusted fund flows soared 532% to $47 million in that time frame. The best is yet to come when looking at the remarkable results in the charts below. Management expects production to continue growing to 8,900 to 9,400 boe/d in 2022—a remarkable estimated 90% on a debt-adjusted share basis.
The company’s operational and technical expertise and high-quality assets also drove top-quartile reserve adds and capital efficiencies throughout the business. And thanks to financial diligence and aggressive deleveraging, its net debt to EBITDA ratio fell to 1.5x in 2021, with management aiming for a further reduction to near zero in 2022.
Given its low leverage ratios, the company evaluated and made accretive acquisition opportunities in recent months. For example, the company’s Prairie Storm Resources Corp. acquisition added low-decline production, sizable economic drilling inventories, quick payout inventory, and increased reserve life. The team also made other smaller purchases.
The Market is Catching On
Eight Capital Corp. believes that InPlay offers one of the highest debt-adjusted returns with the lowest valuation multiple among its coverage group. According to the analyst, applying a 2x average EV/DACF multiple to the stock would equate to an $8.16 share price—a substantial premium over the current market price.
InPlay Oil Corp. (TSE: IPO) (OTCQX: IPOOF) continues to deliver top-tier organic growth in cash flow among its peers, resulting in the most sustainable and lowest debt position in ist history. Last year, the company broke records with production that was 15% above 2019—its pre-COVID levels. And these trends are just the beginning.
The company’s management team is focused on generating strong shareholder returns and believes 2022 will be another record year for the company. With their current, conservative forecast, the company expects to generate 2022 AFF of $141 to $150 million and 2022 FAFF of $83 million to $92 million, resulting in a positive working capital position by year-end.