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Enerplus Corp. Second Quarter 2021 Results

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   |    Monday,August 23,2021

Enerplus Corp. reported its Q2 2021 results.

Cash flow from operating activities for the second quarter was $136.9 million and adjusted funds flow was $184.3 million, compared to $90.6 million and $70.0 million, respectively, in the second quarter of 2020. Cash flow from operating activities and adjusted funds flow increased compared to the same period in 2020 due to higher production and commodity prices during the second quarter of 2021.

Highlights:

• Successfully closed the strategic acquisition of assets in the Williston Basin from Hess Corporation on April 30, 2021
• Achieved record production in the second quarter of 115,351 BOE per day, 26% higher than the prior quarter
• Adjusted funds flow was $184.3 million in the second quarter, which exceeded capital spending of $129.9 million, generating free cash flow of $54.4 million
• Annual average 2021 production guidance revised to 112,000 to 115,000 BOE per day, including 69,500 to 71,500 barrels per day of liquids, reflecting higher mid-points, with no change in 2021 capital spending guidance
• Increasing return of capital to shareholders: quarterly dividend increased 15% to $0.038 per share; reinitiating share repurchase program
• Capital efficiencies continuing to improve: well costs in North Dakota are tracking US$5.7 million per well, a 25% reduction compared to 2019
• 2021 Bakken crude oil price differential guidance strengthened to US$2.35 per barrel below WTI (from US$3.25)
• Estimated 2021 free cash flow of over $450 million based on current forward strip commodity prices
• Net debt to adjusted funds flow ratio estimated to be at or below 1.0x by year-end 2021 based on current forward strip commodity prices

"Our second quarter results reflect the increasing scale of our business and continued strong operational momentum," said Ian C. Dundas, President and CEO. "We delivered record production, capital efficiency gains along with an increasing free cash flow profile. The 15% increase to our quarterly dividend-our second dividend increase this year-and resumption of our share repurchase program underscores our commitment to providing increasing capital returns to shareholders. While we are prioritizing debt reduction in the near term, we will continue to evaluate returning incremental free cash flow to shareholders and are well positioned to meaningfully enhance our shareholder returns upon achieving our $400 million debt reduction target."

Q2 Summary

Production in the second quarter of 2021 was 115,351 BOE per day, an increase of 32% compared to the same period a year ago, and 26% higher than the prior quarter. Crude oil and natural gas liquids production in the second quarter of 2021 was 71,693 barrels per day, an increase of 49% compared to the same period a year ago, and 46% higher than the prior quarter. The increased production compared to the same period in 2020 was due to the contribution from the Company's Williston Basin acquisitions in 2021 and lower production during the second quarter of 2020 due to reduced activity and temporarily curtailed volumes in response to the low crude oil prices.

Enerplus reported a second quarter 2021 net loss of $59.7 million, or $0.23 per share, compared to a net loss of $609.3 million, or $2.74 per share, in the same period in 2020 which included non-cash impairments. The net loss recognized in the second quarter of 2021 was primarily due to non-cash mark to market losses related to commodity derivative instruments. Adjusted net income for the second quarter of 2021 was $67.9 million, or $0.26 per share, compared to an adjusted net loss of $41.2 million, or $0.19 per share, during the same period in 2020. Adjusted net income was higher compared to the same period in 2020 due to higher commodity prices and increased production.

Enerplus' second quarter 2021 realized Bakken oil price differential was US$2.76 per barrel below WTI, compared to US$4.36 per barrel below WTI in the second quarter of 2020. Bakken crude oil differentials improved relative to the prior year period due to increased U.S. refinery demand and significant available pipeline capacity in the basin.

The Company's realized Marcellus natural gas price differential was US$0.89 per Mcf below NYMEX during the second quarter of 2021 compared to US$0.49 per Mcf below NYMEX in the second quarter of 2020. The weaker second quarter 2021 differential reflected significant unplanned regional pipeline maintenance.

In the second quarter of 2021, Enerplus' operating expenses were $8.43 per BOE, compared to $6.84 per BOE during the same period in 2020. Operating expenses in the second quarter of 2020 were impacted by price-related production curtailments and lower well servicing activity.

Second quarter transportation costs were $3.45 per BOE and cash general and administrative ("G&A") expenses were $1.04 per BOE.

Enerplus recorded a current tax expense of $4.2 million in the second quarter of 2021 related to U.S. federal taxes as a result of higher expected income in 2021.

Exploration and development capital spending was $129.9 million in the second quarter of 2021. The Company paid $11.0 million in dividends in the quarter.

Enerplus closed its strategic acquisition of certain assets in the Williston Basin from Hess Corporation on April 30, 2021, for total cash consideration of US$312 million, subject to customary purchase price adjustments.

At the end of the second quarter of 2021, the Company had total debt of $1,208.1 million and cash on hand of $75.3 million. Enerplus made principal repayments of US$81.6 million on its 2009 and 2012 senior notes during the quarter.

Asset Activity

Williston Basin production averaged 72,390 BOE per day (73% crude oil) during the second quarter of 2021, an increase of 64% compared to the same period a year ago, and 53% higher than the prior quarter. During the second quarter the Company drilled four gross operated wells (100% working interest) and brought 23 gross operated wells on production (83% average working interest). Enerplus continued to drive capital efficiency improvements through faster drilling and completions cycle times and other efficiencies. Enerplus set a company record in the second quarter drilling a two-mile lateral section in 48 hours (lateral spud to total depth). Total well costs in North Dakota are now expected to average US$5.7 million per well in 2021, a reduction of 25% compared to 2019 levels and well below the 2021 target of US$6.1 million.

Marcellus production averaged 192 MMcf per day during the second quarter of 2021, a decrease of 3% compared to the same period in 2020, and 6% lower than the prior quarter.

Canadian waterflood production averaged 7,240 BOE per day (95% crude oil) during the second quarter of 2021, an increase of 14% compared to the same period in 2020, and 2% lower than the prior quarter.

Cash Flow Priorities

Enerplus expects to allocate approximately 90% of its free cash flow, after dividends, to debt reduction. The Company is targeting a net debt to adjusted funds flow ratio at or below 1.0x assuming a $50 per barrel WTI oil price environment, representing a debt reduction target of approximately $400 million from second quarter 2021 levels. Enerplus estimates it will achieve its debt reduction target by mid-2022 based on current forward strip commodity prices. The remaining approximately 10% of free cash flow, after dividends, is expected to be allocated to incremental capital returns to shareholders, including potential dividend increases and share repurchases. The Company will continue to evaluate this free cash flow allocation as it makes progress on its debt reduction target with the expectation of increasing the allocation of free cash flow to shareholders once its debt target is achieved, assuming a supportive commodity price environment.

Given the Company's significant increase in cash flow generation following its strategic acquisitions in the first half of 2021, Enerplus believes the business can support a higher dividend while continuing to prioritize debt reduction. As a result, the Board of Directors has approved a 15% increase to the Company's quarterly dividend to $0.038 per share payable on September 15, 2021 to shareholders of record on August 31, 2021. This is Enerplus' second dividend increase year to date and represents a 27% increase, on an annualized basis, from the Company's dividend level at the start of the year.

Enerplus also received approval from its Board of Directors to commence a Normal Course Issuer Bid ("NCIB"), subject to approval by the Toronto Stock Exchange ("TSX"). The proposed renewal will be for 10% of the public float (within the meaning under the TSX rules).

Five Year Outlook

Enerplus has updated year one (2021) of its five-year outlook to reflect year to date commodity prices and the forward strip for the remainder of the year. The years 2022 to 2025 continue to be based on US$50 to US$55 per barrel WTI flat oil price assumptions. Based on this, the Company has increased the estimated cumulative free cash flow over this period to approximately $1.5 to $2.0 billion.

2021 Guidance Update

Enerplus revised its 2021 average production guidance to 112,000 to 115,000 BOE per day, including liquids production of 69,500 to 71,500 barrels per day due to outperformance year to date. Capital spending guidance is unchanged.

Enerplus narrowed its 2021 Bakken crude oil price differential guidance to US$2.35 per barrel below WTI, compared to US$3.25 per barrel below WTI previously. The improved differential guidance is due to strong year to date pricing and additional firm capacity on the Dakota Access Pipeline ("DAPL") secured in connection with the pipeline's expansion. Enerplus now has approximately 10,000 barrels per day of firm transportation on DAPL.

As a result of ongoing pipeline maintenance in the Marcellus, Enerplus widened its 2021 Marcellus natural gas price differential to US$0.65 per Mcf below NYMEX, compared to US$0.55 per Mcf below NYMEX previously.

The Company expects to incur current income tax expense of US$5 million to US$7 million in 2021.

A summary of the Company's 2021 guidance is provided below.