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Enerplus Corp. First Quarter 2020 Results

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   |    Friday,May 08,2020

Enerplus Corp. reported its Q1 2020 results.

The Company reported first quarter 2020 cash flow from operating activities of $122.7 million and adjusted funds flow of $113.2 million. First quarter net income was $2.9 million, or $0.01 per share and adjusted net income was $21.1 million, or $0.09 per share.

Highlights:

• Achieved first quarter production of 98,209 BOE per day, including liquids of 54,390 barrels per day
• Maintained low financial leverage; net debt to adjusted funds flow ratio was 0.8 times at quarter-end
• Strong liquidity with cash of $142 million and an undrawn US$600 million bank credit facility at quarter-end
• Robust commodity hedging position with forecast hedging gains of approximately $150 million in 2020, based on recent forward strip oil prices
• Solid execution resulted in an 11% reduction to well costs year to date in North Dakota, compared to 2019
• Lower expected run rate cash costs driven by workflow improvements and reduced cash compensation for Enerplus' Board of Directors, executives and employees
• Significant operational flexibility to reduce production levels to protect against selling oil at negative margins and preserve shareholder value
• Advantaged position for future capital deployment with 27 net drilled uncompleted wells in inventory in North Dakota

Ian Dundas, CEO, said: "Under extremely challenging conditions, Enerplus delivered a solid operational quarter which has left the company well positioned to navigate the ongoing market uncertainty. We remain focused on protecting our people and supporting our communities, while delivering strong safety and operational performance across our business. The decisive actions we have taken over the last few months to reduce spending and lower our cost structure have enhanced our resilience. The resourcefulness of our people has been key to our ability to respond quickly."

COVID-19 Response

In response to the coronavirus ("COVID-19") pandemic, Enerplus introduced additional measures to enhance employee and community safety, while ensuring the continuity of its business. The Company directed all staff who are able to work from home to do so, and adopted new working practices through leveraging technology and strong collaboration. At its field operations, Enerplus implemented procedures to allow for effective physical distancing for employees and contractors. Enerplus' senior leadership team has been operating under a dedicated emergency response plan, including increased engagements with the Company's Board of Directors, to address short term needs and plan for longer term business continuity.

Production

Production in the first quarter of 2020 was 98,209 BOE per day, an increase of 11% compared to the same period a year ago, and 9% lower than the prior quarter. Crude oil and natural gas liquids production in the first quarter of 2020 was 54,390 barrels per day, an increase of 20% compared to the same period a year ago, and 9% lower than the prior quarter. The lower quarter-over-quarter production was due to the Company's 2019 investment profile with limited capital activity in the fourth quarter, along with Enerplus' decision to shut-in, abandon and reclaim its non-core natural gas asset at Tommy Lakes in Canada in the first quarter of 2020.  

Financial Highlights

Enerplus reported adjusted funds flow for the first quarter of 2020 of $113.2 million compared to $168.8 million in the first quarter of 2019. The Company reported adjusted net income for the first quarter of 2020 of $21.1 million ($0.09 per share) compared to $72.5 million ($0.30 per share) in the first quarter of 2019. The year-over-year decrease in adjusted funds flow and adjusted net income was due to lower crude oil and natural gas prices in the first quarter of 2020.

Enerplus' first quarter 2020 realized Bakken oil price differential was US$5.26 per barrel below WTI, compared to US$3.25 per barrel below WTI in the first quarter of 2019. The wider Bakken differential was primarily a function of the year-over-year production growth in the basin. The Company's realized Marcellus natural gas price differential was US$0.38 per Mcf below NYMEX during the first quarter of 2020 compared to US$0.13 per Mcf above NYMEX in the first quarter of 2019. The wider year-over-year Marcellus differential was driven by low winter natural gas demand in the first quarter of 2020.

In the first quarter of 2020, Enerplus' operating costs were $8.84 per BOE, transportation costs were $3.95 per BOE and cash general and administrative expenses were $1.37 per BOE.

Exploration and development capital spending in the first quarter was $163.6 million. The Company also spent $2.5 million repurchasing 340,434 shares and paid $6.7 million in dividends during the first quarter.  As previously announced, Enerplus has suspended its share repurchase program given the deterioration in market conditions in order to prioritize the Company's financial strength and liquidity.

Enerplus ended the first quarter of 2020 with a strong balance sheet and significant liquidity. The Company had total debt of $656.7 million, cash of $142.1 million and was undrawn on its US$600 million bank credit facility. The Company's net debt to adjusted funds flow ratio was 0.8 times at quarter-end.

Asset Activity

Williston Basin production averaged 49,521 BOE per day (80% oil) during the first quarter of 2020, an increase of 27% compared to the same period a year ago, and 8% lower than the prior quarter. The Company drilled 18 gross operated wells (99% average working interest) and brought 11 gross operated wells (82% average working interest) on production during the first quarter.

The Company's operational performance in North Dakota has tracked ahead of expectations year to date. Drilling cycle times have averaged 11 days per well for 10,000 foot laterals (spud to rig release), with eight of the last 11 wells drilled in 10 days or less. This compares to Enerplus' 2019 average of 12.6 days per well. The Company's 2020 well completion operations have also outperformed expectations. Combined, this strong drilling and completion execution resulted in an average well cost of US$6.8 million year to date, an 11% reduction compared to the Company's 2019 average.

Marcellus production averaged 216 MMcf per day during the first quarter of 2020, an increase of 3% compared to the same period in 2019, and 7% lower than the prior quarter. The Company participated in drilling 15 gross non-operated wells (7% average working interest) and brought 10 gross non-operated wells (4% average working interest) on production during the quarter.

Canadian waterflood production averaged 8,209 BOE per day (94% crude oil) during the first quarter of 2020, a decrease of 12% compared to the same period in 2019, and 4% lower than the prior quarter. The Company drilled 10 producer/injector wells (100% working interest) at its Giltedge field in the first quarter.

Outlook

Enerplus has taken proactive steps to preserve shareholder value as a result of the significant decline in crude oil prices. As previously announced, the Company has reduced its 2020 capital budget by 45%, to $300 million and lowered its cost structure through workflow improvements, vendor service cost reductions, project deferrals and reduced cash compensation for its Board of Directors, executives and employees.

Enerplus also began reducing production levels across its Williston basin and Canadian operations in April to protect against selling oil at negative margins. The Company's April production was approximately 91,500 BOE per day, including 49,700 barrels per day of crude oil and natural gas liquids, exceeding the Company's April outlook. In May, Enerplus began curtailing further production. Currently, the Company estimates that approximately 25% of its liquids volumes are curtailed, which excludes its recently completed seven-well pad in North Dakota that the Company has chosen not to produce until oil prices improve. Based on current regional pricing dynamics, Enerplus does not anticipate curtailing production beyond current levels through the rest of the second quarter.

Capital activity and production expectations in Enerplus' Marcellus natural gas position remain unchanged relative to the Company's original 2020 plans. Enerplus expects its Marcellus production to average approximately 185 to 200 MMcf per day through the remaining three quarters of 2020. The Company also expects its full year 2020 Marcellus natural gas price differential to average US$0.45 per Mcf below NYMEX.

Notwithstanding the potential variability in production levels in 2020 due to curtailments, the Company estimates its 2020 unit operating expenses will average approximately $8.25 per BOE, compared to its original forecast of $8.50 per BOE.

As previously announced, the Company has withdrawn its 2020 corporate guidance as a result of the significant ongoing uncertainty in oil prices.

Enerplus will remain disciplined with its production management and capital allocation during this period of heightened oil price volatility. The Company currently has 27 net operated drilled uncompleted wells in inventory in North Dakota enabling rapid future capital deployment.

Average Daily Production

Summary of Wells Drilled

Summary of Wells Brought On-Stream

Price Risk Management

Enerplus has an average of 24,800 barrels per day of crude oil hedged through financial derivative contracts for the remainder of 2020.

In addition to its financial derivative contracts, Enerplus has fixed physical differential sales agreements for approximately 13,000 barrels of oil per day at an estimated price of WTI less US$5.00 per barrel for the remainder of 2020.