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Enerplus Corp. Q4, Full Year 2022 Results; Bets Big on Bakken for 2023

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   |    Tuesday,February 21,2023

Enerplus Corp. reported its fourth quarter and full year 2022 results. It also released its 2023 operating plans and guidance.

Enerplus reported fourth quarter 2022 cash flow from operating activities and adjusted funds flow of $316.6 million and $315.4 million, respectively, compared to $283.5 million and $258.5 million, respectively, in the fourth quarter of 2021. Full year 2022 cash flow from operating activities and adjusted funds flow was $1,173.4 million and $1,230.3 million, respectively, compared to $604.8 million and $712.4 million, respectively, in 2021.

2022 Highlights:

• Generated adjusted funds flow of $1,230.3 million in 2022, which exceeded capital spending of $432.0 million, generating free cash flow⁽¹⁾ of $798.3 million.
• Reduced net debt by 65% from year-end 2021, ending 2022 with net debt of $221.5 million.
• Returned $452.5 million to shareholders through dividends and share repurchases, representing 57% of 2022 free cash flow.
• Reduced shares outstanding by 11% during 2022, compared to year-end 2021.
• Delivered 2022 average production of 100,326 BOE per day, 9% higher than 2021 (17% higher than 2021 on a per share basis).
• Completed the divestment of substantially all its Canadian assets during 2022 for total consideration of $278.9 million (CDN$380.4 million), before purchase price adjustments.
• Replaced 112% of 2022 net production through net proved reserves additions (U.S. SEC Standards) and 139% of 2022 gross production through gross proved plus probable reserves additions (Canadian NI 51-101 Standards). See separate news release issued today

CEO Ian C. Dundas commented: "Enerplus delivered strong operational and financial results in 2022 marked by production outperformance, effective cost control, and robust free cash flow generation. Our liquids production increased 10%, exceeding expectations, while our solid execution and procurement dampened the impacts of inflation allowing us to operate within our original capital guidance range. We generated approximately $800 million of free cash flow, returning over half to shareholders and reducing our net debt by 65%. This performance has left us well positioned in 2023 where our focus will remain on developing our high-quality Bakken position under a capital efficient operating plan expected to deliver attractive free cash flow and continued value creation."

2023 Guidance

Enerplus' 2023 capital spending guidance is $500 to $550 million, which is allocated approximately 95% to North Dakota, 2.5% to the Marcellus and 2.5% to the DJ Basin.

Consistent with its five-year outlook, the Company expects to deliver approximately 3% to 5% annual liquids production growth in 2023 after adjusting for the sale of substantially all of its Canadian assets in the fourth quarter of 2022 with associated production of 6,400 BOE per day (78% liquids). The Company's 2023 liquids production guidance is 57,000 to 61,000 barrels per day.

Activity in Enerplus' non-operated Marcellus natural gas position is expected to be significantly lower in 2023 with capital spending anticipated to be down over 70% year-over-year. Enerplus expects to participate in drilling 2.0 to 2.5 net wells and completing 1.0 to 1.5 net wells in 2023. As a result of the limited activity, Marcellus production is projected to be 8% lower in 2023, compared to 2022.

Overall, the Company's 2023 total production guidance is 93,000 to 98,000 BOE per day.

Operating cost guidance in 2023 is $10.75 to $11.75 per BOE, reflecting an increase from 2022 due to inflation adjusted contract prices and general cost escalation, increased gas processing volumes due to improved capture rates, and higher well-service activity.

Cash tax guidance in 2023 is 5% to 6% of adjusted funds flow before tax based on a commodity price environment of $80 per barrel WTI and $3.50 per Mcf NYMEX. Based on the same commodity price assumptions, Enerplus expects to generate approximately $475 million of free cash flow in 2023.

Under a two-rig program, Enerplus expects to drill 55 to 60 gross operated wells (86% average working interest) and bring 45 to 55 gross operated wells (87% average working interest) on production in North Dakota during the year. The Company expects its 2023 total well costs to increase approximately 10% year-over-year to $7.8 million, largely due to inflationary pressures. In addition, Enerplus has allocated a portion of its North Dakota budget to refrac opportunities in Dunn County and non-operated activity.

Enerplus also plans to drill and bring on production 4 gross operated wells (46% working interest) in the DJ Basin in 2023.

2023 capital spending is expected to be weighted approximately 60% to the first half of the year.

The table below summarizes Enerplus' 2023 guidance.

2023 Differential/Basis Outlook⁽¹⁾

4Q22 Summary

Total production for the fourth quarter of 2022 was 106,915 BOE per day, an increase of 4% compared to the same period in 2021. Liquids production in the fourth quarter was 65,356 barrels per day, an increase of 1% compared to the same period in 2021. Strong well performance supported the higher year-over-year production in the fourth quarter of 2022 despite weather downtime in North Dakota in December and the divestment of the company's Canadian operations in the quarter. The Company's fourth quarter production was in line with its total and liquids production guidance of 105,000 to 110,000 BOE per day and 64,000 to 68,000 barrels per day, respectively.

In the Williston Basin, Enerplus drilled ten operated wells (88% average working interest) and brought five operated wells on production (96% average working interest). Williston Basin production averaged approximately 72,100 BOE per day (70% crude oil) in the quarter. Marcellus production averaged 181 MMcf per day in the quarter.

Enerplus reported fourth quarter 2022 net income of $330.7 million, or $1.43 per share (diluted), compared to net income of $176.9 million, or $0.68 per share (diluted), in the fourth quarter of 2021. Excluding certain non-cash or non-recurring items, fourth quarter 2022 adjusted net income⁽¹⁾ was $181.1 million, or $0.78 per share (diluted), compared to $130.0 million, or $0.50 per share (diluted), during the same period in 2021. The increase in net income and adjusted net income was primarily due to higher production and commodity prices.

Enerplus' fourth quarter 2022 Bakken crude oil price differential was $1.05 per barrel above WTI, compared to $0.88 per barrel below WTI for the same period in 2021. Bakken crude oil prices continued to trade at a premium to WTI due to excess pipeline capacity in the region, as well as continued demand for crude oil delivered to the U.S. Gulf Coast region. Enerplus' fourth quarter 2022 Marcellus natural gas price differential was $1.18 per Mcf below NYMEX, compared to $1.70 per Mcf below NYMEX for the same period in 2021. The narrower differential was due to stronger regional prices entering the winter season in 2022.

Operating expenses in the fourth quarter of 2022 were $9.68 per BOE, compared to $8.46 per BOE in the same period in 2021. The increase in per unit operating expenses was primarily due to the impacts of contracts with price escalators linked to WTI and the Consumer Price Index, as well as increased well service activity and costs. Cash general and administrative ("G&A") expenses were $1.15 per BOE in the fourth quarter of 2022, compared to $1.12 per BOE in the prior year period.

Current tax expense was $3.1 million in the fourth quarter.

Capital spending totaled $85.6 million in the fourth quarter. The Company paid $12.2 million in dividends during the quarter and repurchased 9.8 million common shares at an average price of $17.24 per common share for a total cost of $169.0 million.

Enerplus ended the fourth quarter with net debt of $221.5 million and had a net debt to adjusted funds flow ratio of 0.2 times.

FULL YEAR 2022 SUMMARY

Total production for 2022 was 100,326 BOE per day, an increase of 9% compared to 2021. Liquids production in 2022 was 61,698 barrels per day, an increase of 10% compared to 2021. The higher year-over-year production was due to development activity in North Dakota and the Marcellus, strong well performance, and the benefit of a full year of production from the Company's acquisitions in North Dakota. The Company's 2022 production was in line with its total and liquids production guidance of 99,750 to 101,000 BOE per day and 61,500 to 62,500 barrels per day, respectively.

Enerplus reported full year 2022 net income of $914.3 million, or $3.77 per share (diluted), compared to net income of $234.4 million, or $0.90 per share (diluted), in 2021. Excluding certain non-cash or non-recurring items, 2022 adjusted net income⁽¹⁾ was $707.1 million, or $2.91 per share (diluted), compared to $315.7 million, or $1.21 per share (diluted), in 2021. The higher net income and adjusted net income was primarily due to higher production and commodity prices.

Enerplus' 2022 Bakken crude oil price differential was $1.09 per barrel above WTI, compared to $2.15 per barrel below WTI in 2021. Bakken differentials strengthened throughout the year due to excess pipeline capacity in the region as regional production growth remained muted despite strong physical prices for crude oil delivered to the U.S. Gulf Coast. Enerplus' 2022 Marcellus natural gas price differential was $0.72 per Mcf below NYMEX, compared to $0.81 per Mcf below NYMEX in 2021, due to both inventory and supply concerns, particularly in Europe, given the reduction in natural gas supply from Russia slightly offset by lower Northeast U.S. demand during the fall shoulder season.

Operating expenses in 2022 were $9.99 per BOE, compared to $8.69 per BOE in 2021. The increase in per BOE operating expenses was primarily due to the impacts of contracts with price escalators linked to WTI and the Consumer Price Index as well as increased well service activity and costs. Cash G&A expenses in 2022 were $1.17 per BOE, compared to $1.14 per BOE in 2021.

Current tax expense was $28.1 million in 2022.

Capital spending totaled $432.0 million in 2022, in line with the Company's guidance of $430 million. The Company paid $41.6 million in dividends in 2022 and repurchased 27.9 million common shares at an average price of $14.71 per common share for a total cost of $410.9 million.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) UPDATE

Enerplus continued to make progress on its ESG initiatives in 2022. Based on preliminary estimates and relative to its 2021 baseline, the Company reduced 2022 methane emissions intensity by 9% and scope 1 and 2 greenhouse gas ("GHG") emissions intensity by 16%. The Company continues to work towards its longer-term environmental targets, including methane intensity reduction targets of 30% and 50% by 2025 and 2030, respectively, and a scope 1 and 2 GHG emissions intensity reduction target of 35% by 2030, in each case relative to the applicable 2021 baseline. As part of its emissions reduction strategy, Enerplus is participating in an electrification project in North Dakota and has allocated approximately $10 million towards the project in 2023 (included in the Company's capital spending guidance).

Since 2020, Enerplus has achieved a three-year average of an 80% reduction in Lost Time Injury Frequency ("LTIF") relative to its 2019 baseline. Enerplus is targeting a 25% reduction in LTIF on average from 2020 to 2023, relative to its 2019 baseline.

Return of Capital

As previously announced, Enerplus expects to return at least 60% of free cash flow generated in 2023 to shareholders through dividends and share repurchases. Based on current market conditions, the Company expects to continue to prioritize share repurchases for the majority of its return of capital plans due to its assessment that its intrinsic value is not adequately reflected in its current trading value. Despite an expected 2023 free cash flow profile weighted to the second half of the year, Enerplus intends to accelerate a portion of its second half free cash flow into its return of capital plans during the first half of 2023.

Subsequent to December 31, 2022 and up to and including February 22, 2023, Enerplus repurchased 1.4 million common shares at an average price of $16.65 per common share for a total cost of $23.7 million. As at February 22, 2023, Enerplus had 6.5 million shares remaining for repurchase under its normal course issuer bid authorization which can be renewed in August 2023 for up to 10% of the public float (within the meaning under the TSX rules).

Enerplus announced a quarterly cash dividend of $0.055 per share payable on March 15, 2023, to all shareholders of record at the close of business on March 6, 2023. This quarterly dividend represents $48 million on an annualized basis.

Remaining free cash flow not allocated to return of capital is expected to be directed to reinforcing the balance sheet.

Updated 5-Year Outlook (2023-2027)

Enerplus has updated its five-year outlook to include 2027 and to reflect the ongoing inflationary environment. The Company's outlook continues to be underpinned by a focus on strong and safe operational execution, low financial leverage and attractive free cash flow generation. The plan is also supported by over ten years of high-returning drilling inventory in North Dakota.

The Company projects annual capital spending of $500 to $550 million and is expected to deliver 3% to 5% annual liquids production growth. The five-year outlook is expected to have an average reinvestment rate of approximately 50% based on commodity price assumptions of $80 per barrel WTI and $4.00 per Mcf NYMEX⁽¹⁾

Board Retirements

Enerplus would like to acknowledge Susan (Sue) MacKenzie and Robert (Bob) Hodgins for their long standing service to the Enerplus Board. Each have notified the board of directors that they intend to retire at the end of the current term and will not stand for re-election.