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Enerplus Corp. First Quarter 2022 Results

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   |    Monday,May 09,2022

Enerplus Corp. announced financial and operating results for the first quarter of 2022, along with an increase to its return of capital plans, and updated guidance.

The Company reported first quarter 2022 cash flow from operating activities and adjusted funds flow⁽¹⁾of $196.0 million and $261.9 million, respectively, compared to $28.7 million and $100.9 million, respectively, in the first quarter of 2021. Cash flow from operating activities and adjusted funds flow increased from the prior year period primarily due to improved realized commodity prices and higher production.

Highlights:

• Adjusted funds flow⁽¹⁾ was $262 million in the first quarter, which exceeded capital spending of $99 million, generating free cash flow⁽¹⁾ of $163 million
• Estimated 2022 free cash flow⁽¹⁾ is $675 million based on rest of year prices of $85 WTI and $5.00 NYMEX
• Increasing total 2022 cash returns to shareholders to a minimum of $350 million or 50% of annual free cash flow, whichever is greater, through dividends and share repurchases
• Increased quarterly dividend by 30% to $0.043 per share
• Production guidance for 2022 increased to 96,000 - 101,000 BOE per day (from 95,500 - 100,500 BOE per day) due to strong operational execution and optimizations
• Capital spending guidance for 2022 revised to $400 - $440 million (from $370 - $430 million) primarily due to inflationary impacts
• Realized 2022 Bakken oil price expected to be at par with WT

Ian C. Dundas, President and CEO, commented: "Our strong operating performance year to date is continuing to support a robust production outlook. Enerplus remains well positioned to execute its 2022 plan which is expected to deliver record free cash flow and meaningful cash returns to shareholders."

"In conjunction with this outlook, we are enhancing our 2022 return of capital plan by committing to a minimum of $350 million or 50% of free cash flow, whichever is greater, returned to shareholders through dividends and share repurchases."

Dundas continued, "High commodity prices and supply chain tightness are creating inflationary pressures across the industry. We are not immune to these pressures. However, actions we took last year to secure services, equipment and supplies have significantly mitigated the impacts and are enabling us to execute our operating plan efficiently, with no plans to increase activity levels or chase higher, less efficient growth.

1Q22 Summary

Production in the first quarter of 2022 was 92,196 BOE per day, an increase of 25% compared to the same period a year ago, and 10% lower than the prior quarter. Crude oil and natural gas liquids production in the first quarter of 2022 was 56,011 barrels per day, an increase of 42% compared to the same period a year ago, and 14% lower than the prior quarter. The higher production compared to the same period in 2021 was primarily due to the Company's 2021 Bakken acquisitions and development program. The lower production compared to the prior quarter was due to the planned sequencing of the Company's completions program in North Dakota which included a break in onstream activity between early November 2021 through late March 2022, and the divestment of Montana and Russian Creek interests in the fourth quarter of 2021.

Enerplus reported first quarter 2022 net income of $33.2 million, or $0.13 per share (diluted), compared to net income of $10.3 million, or $0.04 per share (diluted), in the same period in 2021. Adjusted net income⁽¹⁾ for the first quarter of 2022 was $145.8 million, or $0.58 per share (diluted), compared to $43.9 million, or $0.18 per share (diluted), during the same period in 2021. Net income and adjusted net income were higher compared to the prior year period primarily due to higher production and benchmark commodity prices and stronger commodity price realizations during the first quarter of 2022.

Enerplus' first quarter 2022 realized Bakken oil price differential was $0.35 per barrel below WTI, compared to $3.19 per barrel below WTI in the first quarter of 2021. The improved year-over-year Bakken differential was due to an improvement in the supply and demand balance, excess pipeline capacity in the region, and strong prices for crude oil delivered to the U.S. Gulf Coast. Given the constructive outlook for Bakken crude oil prices and strong realizations year to date, Enerplus expects its 2022 realized Bakken oil price to be at par with WTI, compared to $0.50 per barrel below WTI previously.

The Company's realized Marcellus natural gas price differential was $0.01 per Mcf above NYMEX during the first quarter of 2022, compared to $0.15 per Mcf below NYMEX in the first quarter of 2021. Realized Marcellus differentials are expected to widen for the remainder of the year due to the seasonal impact on natural gas prices in the region. As a result, Enerplus' full-year 2022 Marcellus differential guidance is unchanged at $0.75 per Mcf below NYMEX.

In the first quarter of 2022, Enerplus' operating costs were $10.03 per BOE, compared to $7.71 per BOE during the first quarter of 2021. The increase in per unit operating expenses was due to the Company's higher crude oil weighting in its production mix, contracts with price escalators linked to WTI and the Consumer Price Index, and increased well service activity.

Capital spending totaled $99.0 million in the first quarter of 2022. The Company paid $7.9 million in dividends in the quarter and repurchased 3.1 million shares at an average price of $11.87 per share, for total consideration of $37.2 million. Subsequent to March 31, 2022, and up to and including May 4, 2022, Enerplus repurchased 1.5 million shares at an average price of $12.61 per share, for total consideration of $18.9 million.

Enerplus ended the first quarter of 2022 with total debt of $595.0 million and cash of $22.7 million.

Asset Highlights

Williston Basin production averaged 57,343 BOE per day during the first quarter of 2022, an increase of 51% compared to the same period a year ago, driven by Enerplus' 2021 acquisitions and ongoing development. Williston Basin production was 15% lower than the prior quarter due to the planned sequencing of the Company's completions program which included a break in onstream activity between early November 2021 through late March 2022, and the divestment of Montana and Russian Creek interests in the fourth quarter of 2021. The Company brought two operated wells (100% working interest) on production from a six-well pad at the end of March 2022. The remaining four wells were brought on production subsequent to the quarter-end. Enerplus drilled 14 gross operated wells (12 net) during the first quarter and is continuing to operate two drilling rigs. The second quarter is expected to be Enerplus' most active operational quarter in 2022 with approximately 18 - 21 net wells projected to be brought on production.

Marcellus production averaged 162 MMcf per day during the first quarter of 2022, approximately flat compared to the same period in 2021 and the prior quarter. Canadian waterflood production averaged 5,495 BOE per day during the first quarter of 2022, approximately flat compared to the same period in 2021, and 4% lower than the prior quarter.

Shareholder Returns

Assuming commodity prices of $85 per barrel WTI and $5.00 per Mcf NYMEX for the rest of 2022, Enerplus expects to generate approximately $675 million of annual free cash flow⁽¹⁾, representing a reinvestment rate⁽¹⁾ of less than 40%. Enerplus remains committed to both returning a significant portion of free cash flow to shareholders and reducing debt.

Enerplus' board of directors has approved an increase to the Company's 2022 return of capital plan to a minimum of $350 million or 50% of annual free cash flow, whichever is greater, through dividends and share repurchases.

In connection with this plan, the board has approved a 30% increase to the Company's quarterly dividend to $0.043 per share payable on June 15, 2022 to shareholders of record on May 27, 2022. The increased dividend is equal to approximately $40 million on an annualized basis.

The remaining $310 million or greater of shareholder returns in 2022 are expected to be delivered via the Company's share repurchase program, based on current market conditions. Enerplus plans to repurchase its remaining 8.0 million share authorization under its normal course issuer bid ("NCIB") by the end of July 2022 and renew its NCIB in August 2022 for approximately 10% of the outstanding shares.

Enerplus' approach to share repurchases continues to be grounded in its assessment that its intrinsic value, based on its mid-cycle commodity price view, is not adequately reflected in its current trading value. If this view changes such that Enerplus believes share repurchases no longer represent an attractive capital allocation opportunity, the Company will distribute the capital to shareholders through dividends to ensure it meets its shareholder returns commitment.

The remaining 50% of 2022 free cash flow not allocated to shareholder returns is expected to be directed to reinforcing the balance sheet.