Crude oil prices rose more than 50% in 2021, helping send inflation to its highest levels since the 1980s. During the first quarter of 2022, crude oil prices spiked to around $130 per barrel, and Russia’s invasion of Ukraine continues to send shockwaves throughout the market. While prices have fallen from their highs, they remain well above $100 per barrel in recent weeks.
In this article, we’ll look at why oil prices are likely to remain elevated for some time and how to capitalize on these higher prices with cost-effective domestic producers, such as InPlay Oil Corp. (TSE: IPO) (OTCQX: IPOOF).
Moving Toward Energy Independence
Russia’s invasion of Ukraine adds to a long list of petro-aggressions, driving America and its European allies to pursue long-term energy independence. While renewable energy plays a central role, the fact that Europe continues to buy oil and natural gas from Russia underscores that fossil fuels will still play a critical role in the global economy for the foreseeable future.
The U.S. already reached energy independence back in 2011 and became the world’s third-largest producer of crude oil in 2014—after Saudi Arabia and Russia. While the COVID-19 pandemic hurt oil prices and sent domestic production lower, the sharp rise in energy prices in the wake of Russia’s invasion of Ukraine has domestic production coming back online.
Western governments are also seeking to increase oil production and reduce dependence on Russian oil, but like in most industries, there are ongoing supply chain issues. At the same time, many domestic producers are going to find it difficult to ramp up production and prices continue to be volatile. As a result, investors may want to look toward cost-effective producers capable of profitability in various market conditions.
InPlay Oil’s Advantage
InPlay Oil Corp. (TSE: IPO) (OTCQX: IPOOF) has grown production by 80% since 2019, reaching a record 5,768 boe/d in 2021. 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 addition, its net debt to EBITDA ratio fell to 1.5x in 2021.
Management expects production to continue growing to between 8,900 to 9,400 boe/d in 2022, representing a remarkable estimated 90% growth rate on a debt-adjusted share basis. Meanwhile, the team aims to further reduce its net debt to EBITDA ratio to near zero this year, opening the door to strategically acquire accretive opportunities.
While the company remains relatively under Wall Street’s radar, there’s evidence that the market is catching on to its strong performance and potentially-discounted share price. For example, Eight Capital Corp. believes that the stock offers one of the highest debt-adjusted returns with the lowest valuation multiple among its coverage group and a target price of $11 per share.
Looking Ahead
Crude oil prices remain elevated and domestic producers are well-positioned to profit, with Western governments increasingly aware of energy independence. InPlay Oil Corp. (TSE: IPO) (OTCQX: IPOOF) is already capitalizing on these trends and continues to show top-line growth along with strong free cash flow growth reaching the bottom line.
For more information, visit the company’s website or download their investor presentation.
