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Enerplus Corp. Third Quarter 2021 Results; Preliminary 2022 Budget

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   |    Monday,November 08,2021

Enerplus Corp. announced its third quarter 2021 operating and financial results, preliminary 2022 capital budget and an increase to its share repurchase program and dividend.

Cash flow from operating activities for the third quarter was $226.6 million and adjusted funds flow was $255.7 million, compared to $137.0 million and $83.1 million, respectively, in the third 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 third quarter of 2021.

Preliminary 2022 Budget

Enerplus' preliminary 2022 capital budget is approximately $500 million, expected to result in average production of approximately 122,000 BOE per day, including 75,000 barrels per day of liquids.

Over 80% of the capital budget is expected to be allocated to North Dakota with drilling and completions activity focused on the Fort Berthold Indian Reservation, Little Knife and Murphy Creek areas.

Enerplus has secured approximately 75% of its total well cost structure in 2022 for its North Dakota program, helping to protect against inflationary pressures. Through solid execution, Enerplus expects its total wells costs in 2021 to average US$5.7 million, 10% lower than 2020 despite recent inflationary pressures. In 2022, based on the Company's current inflation expectations, Enerplus expects its total well costs in North Dakota to increase by 5% to 7% year-over-year.

The Company plans to announce its comprehensive 2022 budget in January 2022.

Q3 Highlights:

• Adjusted funds flow was $255.7 million in the third quarter, which exceeded capital spending of $80.2 million, generating free cash flow of $175.5 million
• Achieved record production in the third quarter of 123,454 BOE per day, 7% higher than the prior quarter and 36% higher than the prior year period following Enerplus' strategic acquisitions in the first half of 2021
• Annual 2021 production guidance revised to 113,750 to 114,750 BOE per day due to outperformance, an increase to the guidance midpoint of 750 BOE per day despite volumes sold in connection with the Williston Basin divestment
• Continued volume growth in the fourth quarter with expected production of 124,500 to 128,500 BOE per day
• 2021 capital spending guidance now $380 million (from $360 to $400 million)
• Increased estimated 2021 free cash flow to approximately $540 million based on current forward strip commodity prices
• Net debt to adjusted funds flow ratio expected to be below 1.0x by year-end 2021
• Closed the previously announced divestment of non-strategic interests in the Williston Basin on November 2, 2021

Preliminary 2022 Budget Highlights:

• Expected 2022 capital spending is approximately $500 million, representing a reinvestment rate of 44% based on current forward strip commodity prices
• Expected annual 2022 production is 122,000 BOE per day, including 75,000 barrels per day of liquids
• Estimated 2022 free cash flow is $640 million based on current forward strip commodity prices
• Increased share repurchase program to $200 million, representing 7% of Enerplus' market capitalization, commencing in the fourth quarter of 2021
• Increased quarterly dividend by 8% effective with the December 15, 2021 payment

Ian C. Dundas, President and CEO, said: "We continue to deliver strong performance in 2021. We extended our core Bakken inventory through accretive acquisitions, generated over $290 million in free cash flow through the first nine months of the year and we anticipate another $250 million in free cash flow in the fourth quarter. We also expect to end the year with a net debt to adjusted funds flow ratio below one times. Looking ahead into 2022, we have a sustainable plan expected to generate meaningful free cash flow underpinned by compelling development economics. We remain committed to returning capital to shareholders which we have continued to demonstrate with today's announcement of our accelerated share repurchase program and third dividend increase in 2021."

Q3 Summary

Production in the third quarter of 2021 was 123,454 BOE per day, an increase of 36% compared to the same period a year ago, and 7% higher than the prior quarter. Crude oil and natural gas liquids production in the third quarter of 2021 was 78,512 barrels per day, an increase of 49% compared to the same period a year ago, and 10% higher than the prior quarter. The increased production compared to the same period in 2020 was primarily due to the Company's development activity in the Williston Basin and contribution from its acquisitions in 2021.

Enerplus reported third quarter 2021 net income of $112.0 million, or $0.44 per basic share, compared to a net loss of $112.8 million, or $0.51 per basic share, in the same period of the prior year due to increased production and higher commodity prices during the current period and non-cash impairments recorded in same period in 2020. Adjusted net income for the third quarter of 2021 was $107.4 million, or $0.42 per basic share, compared to $17.7 million, or $0.08 per basic 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' third quarter 2021 realized Bakken oil price differential was US$2.09 per barrel below WTI, compared to US$5.37 per barrel below WTI in the third quarter of 2020. Bakken differentials improved relative to the prior year period due to increased refinery demand and significant excess pipeline capacity in the region.

The Company's realized Marcellus natural gas price differential was US$0.45 per Mcf below NYMEX during the third quarter of 2021 compared to US$0.72 per Mcf below NYMEX in the third quarter of 2020. The improvement was due to increased natural gas demand and lower storage levels in 2021.

Third quarter operating expenses were $9.89 per BOE, compared to $7.78 per BOE during the same period in 2020. Operating expenses in the third quarter of 2021 increased from the prior year period due to a temporary increase in well service activity and higher water handling charges as a result of contracts with price escalators linked to WTI, as well as the increased liquids weighting in the Company's production mix.

Third quarter transportation costs were $3.61 per BOE and cash general and administrative ("G&A") expenses were $0.95 per BOE.

Enerplus recorded a current tax recovery of $1.2 million in the third quarter of 2021 related to the reduction of estimated U.S. taxes in 2021.

Exploration and development capital spending was $80.2 million in the third quarter of 2021. The Company declared $9.8 million in dividends in the quarter and repurchased 1,657,650 common shares under its normal course issuer bid ("NCIB") at an average price of $7.75 per share for total consideration of $12.9 million.

Enerplus received a $5.7 million distribution associated with a privately held investment in the third quarter which was reflected as an investing activity in the Condensed Consolidated Statements of Cash Flows.

In the third quarter Enerplus announced the divestment of its interests in the Sleeping Giant field (Montana) and the Russian Creek area (North Dakota) which closed on November 2, 2021. The total cash consideration was US$115 million, subject to customary purchase price adjustments. In addition, Enerplus will receive up to US$5 million in contingent consideration if WTI averages over US$65 per barrel in 2022 and US$60 per barrel in 2023. The production associated with Enerplus' working interest in these properties was approximately 3,000 BOE per day (76% tight oil, 1% natural gas liquids, and 23% natural gas).

At the end of the third quarter of 2021, the Company had total debt of $1,101.8 million and cash on hand of $54.1 million.

Asset Activity

Williston Basin production averaged 80,561 BOE per day (74% crude oil) during the third quarter of 2021, an increase of 65% compared to the same period a year ago, and 11% higher than the prior quarter. During the third quarter, the Company drilled eight gross operated wells (100% working interest) and brought 16 gross operated wells on production (63% average working interest).

Marcellus production averaged 192 MMcf per day during the third quarter of 2021, an increase of 4% compared to the same period in 2020, and flat with the prior quarter.

Canadian waterflood production averaged 7,562 BOE per day (94% crude oil) during the third quarter of 2021, a decrease of 2% compared to the same period in 2020, and 4% higher than the prior quarter.

2021 Guidance Update

Capital spending guidance was updated to $380 million, the midpoint of the previous range of $360 to $400 million.

Enerplus revised its annual 2021 production guidance to reflect outperformance in North Dakota and the Marcellus which is expected to more than offset the impact to 2021 production from its Williston Basin divestment during the fourth quarter. Total production is expected to average 113,750 to 114,750 BOE per day, including liquids production of 69,750 to 70,750 barrels per day. Fourth quarter production is expected to average 124,500 to 128,500 BOE per day, including liquids production of 80,000 to 83,000 barrels per day.

Given improved pricing year to date and ongoing commodity market strength, 2021 Bakken and Marcellus differential guidance was narrowed to US$2.00 per barrel below WTI and US$0.55 per Mcf below NYMEX, respectively.

As a result of higher third quarter operating expenses, full year 2021 operating expenses are expected to average $8.80 per BOE. Operating expenses in the fourth quarter are also expected to average $8.80 per BOE as workover activity is expected to return to normalized levels.

Cash G&A expense guidance was reduced to $1.15 per BOE.

Current income tax expense guidance was reduced to US$3 million in 2021.

Cash Returns

With visibility to achieving its net debt reduction target in the fourth quarter of 2021 and a strong free cash flow outlook in 2022, Enerplus' Board of Directors has approved an acceleration of the Company's return of capital plans through an expanded share repurchase program and an 8% dividend increase.

Enerplus expects to commence the execution of a $200 million share repurchase program in the fourth quarter of 2021 under its existing normal course issuer bid. Repurchases are expected to be funded out of fourth quarter 2021 and first quarter 2022 free cash flow, representing approximately 50% of forecasted free cash flow over this period based on current forward strip commodity prices. Enerplus believes the market price of its common shares are trading in a range that does not adequately reflect their underlying value based on mid-cycle commodity prices and, as a result, considers share repurchases to be a compelling investment opportunity.

Enerplus is increasing its quarterly dividend to $0.041 per share payable on December 15, 2021 to shareholders of record on November 30, 2021. This is Enerplus' third dividend increase year to date following its strategic acquisitions in North Dakota and represents a 37% increase, on an annualized basis, from the Company's dividend level at the start of the year. This dividend per share increase is expected to maintain the Company's current annual dividend expenditure at approximately $39 million following the execution of its share repurchase program. Enerplus estimates its dividend is fully funded from free cash flow down to approximately US$40 WTI.

Enerplus remains committed to returning a significant portion of free cash flow to shareholders and will continue to evaluate further cash returns in 2022. Excess free cash flow which is not returned to shareholders will be allocated to reinforcing the balance sheet.

Director Retirement

Enerplus today announced the planned retirement of Elliott Pew from its board of directors prior to year-end 2021. Mr. Pew has been a valued member of the board of directors since his appointment in 2010, including serving as Board Chair between May 2014 and May 2020.

"On behalf of the board, I would like to thank Elliott for his dedication and leadership," said Mr. Dundas. "Elliott has been a highly-engaged director throughout his tenure and the board and company have greatly benefitted from his guidance."