Quarterly / Earnings Reports | Third Quarter (3Q) Update

Enerplus Details Q3 2019 Results

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   |    Friday,November 08,2019

Enerplus Corp. reported its Q3 2019 results.

Cash flow from operating activities for the third quarter was $159.8 million and adjusted funds flow was $175.3 million. Third quarter net income was $65.2 million, or $0.28 per share, and adjusted net income was $61.9 million, or $0.27 per share.

Highlights:

• Third quarter total production was 107,181 BOE per day, up 6% quarter-over-quarter
• Third quarter liquids production was 60,121 barrels per day, up 14% quarter-over-quarter
• 2019 production guidance tightened to 100,000 to 101,000 BOE per day (from 99,000 to 102,000 BOE per day) with liquids production of 54,250 to 54,750 barrels per day (from 54,000 to 55,500 barrels per day)
• Third quarter capital spending was $151.5 million; 2019 capital spending guidance is now $625 million (from $610 to $630 million)
• Repurchased 7.1 million shares during the third quarter for $64.8 million
• Since initiating its share repurchase program, Enerplus has repurchased 24.2 million shares, or approximately 10% of shares outstanding
• Maintained strong financial flexibility; ended the third quarter with a net debt to adjusted funds flow ratio of 0.7 times

Ian C. Dundas, President and Chief Executive Officer, said: "In the third quarter of 2019, we continued to build on our track record of strong execution and financial discipline. We grew our high-return production in North Dakota by 18% quarter-over-quarter, maintained our focus on costs, and returned over $70 million to shareholders through share repurchases and dividends. Year to date, we have now returned approximately $200 million to shareholders. Our 2019 plan remains on track to deliver 9 to 10% annual liquids production growth and 15% on a per share basis, while maintaining our low financial leverage."

Q3 Summary

Production

Production in the third quarter increased by 6% from the prior quarter to average 107,181 BOE per day, including oil and natural gas liquids production of 60,121 barrels per day, an increase of 14% from the prior quarter. The sequential production growth was driven by North Dakota volumes which increased 18% from the prior quarter. Natural gas production decreased 2% quarter-over-quarter, averaging 282 MMcf per day.

Capital activity in the fourth quarter is expected to be approximately 30% lower compared to the third quarter and will be primarily related to drilling in North Dakota. Enerplus expects modestly lower sequential production in the fourth quarter and is providing fourth quarter production guidance of 103,000 to 107,000 BOE per day with liquids production of 58,000 to 60,000 barrels per day.

Adjusted Funds Flow and Adjusted Net Income
Adjusted funds flow for the third quarter was $175.3 million compared to $186.0 million in the previous quarter. Third quarter 2019 adjusted net income was $61.9 million ($0.27 per share) compared to $74.3 million ($0.32 per share) in the previous quarter.

Pricing Realizations and Cost Structure
Enerplus' third quarter 2019 realized Bakken oil price differential was US$3.61 per barrel below WTI, 20% weaker compared to the prior quarter. With wider Bakken oil differentials expected to persist through the fourth quarter, Enerplus is revising its full-year Bakken differential guidance to US$3.60 per barrel below WTI (from US$3.25 per barrel below WTI). The Company continues to manage differential risk through fixed physical sales and in the fourth quarter has 24,800 barrels per day of Bakken oil production sold at US$2.69 per barrel below WTI.

The Company's realized Marcellus natural gas price differential averaged US$0.44 per Mcf below NYMEX during the third quarter, a 23% improvement from the prior quarter. Enerplus is maintaining its full-year 2019 Marcellus differential guidance at US$0.35 per Mcf below NYMEX.

Third quarter operating expenses were $7.06 per BOE, transportation expenses were $3.96 per BOE and cash G&A expenses were $1.19 per BOE. Combined, these expenses were 7% lower compared to the previous quarter. Enerplus is reducing its full-year 2019 guidance for cash G&A expenses to $1.40 per BOE (from $1.45 per BOE).

Capital Expenditures and Balance Sheet Position

Exploration and development capital spending in the third quarter was $151.5 million and was associated with drilling 16.9 net wells and bringing 13.3 net wells on production across the Company's operations. Enerplus has revised its full-year 2019 capital spending guidance to $625 million (from $610 to $630 million).

At the end of the third quarter, Enerplus had total debt of $618.4 million, cash of $97.0 million and was undrawn on its $800 million bank credit facility. The Company's net debt to adjusted funds flow ratio was 0.7 times. Subsequent to the quarter, Enerplus renewed its bank credit facility to October 31, 2023 and amended it to a U.S. dollar denominated facility of US$600 million.

Share Repurchases

The Company repurchased 7.1 million shares during the third quarter for total consideration of $64.8 million. Subsequent to the quarter and up to November 6, 2019, the Company repurchased 2.7 million shares for a total consideration of $23.6 million and has now repurchased the maximum number of shares under its existing NCIB (7% of the public float within the meaning under the TSX rules). Enerplus today announced that its Board of Directors has approved an increase to the maximum number of shares that may be repurchased under the NCIB to 10% of the public float, representing an additional 7.1 million shares, until the expiry of its NCIB on March 25, 2020. Enerplus will continue to evaluate future share repurchases as a function of the value and returns underpinning the investment, alternative capital allocation opportunities and the Company's financial capacity.

Since initiating its share repurchase program in the third quarter of 2018 up to and including November 6, 2019, the Company has repurchased and cancelled 24.2 million shares, representing approximately 10% of shares outstanding, for total consideration of $257.8 million.

Asset Activity

Average Daily Production

Summary of Wells Drilled

Summary of Wells Brought On-Stream⁽¹⁾

Williston Basin

Williston Basin production averaged 54,800 BOE per day (83% oil) during the third quarter of 2019, including 51,646 BOE per day in North Dakota (84% oil), an increase of 18% from the prior quarter. The Company drilled 17 gross operated wells (88% average working interest) and brought 11 gross operated wells (72% average working interest) on production during the third quarter.

Marcellus

Marcellus production averaged 228 MMcf per day during the third quarter, down 2% from the previous quarter. The Company participated in drilling six gross non-operated wells (6% average working interest) and brought 13 gross non-operated wells (7% average working interest) on production during the quarter.

DJ Basin

Enerplus brought five gross operated wells (88% average working interest) on production in the third quarter in the DJ Basin. The Company continued to vary its completion design on these wells utilizing both higher and lower proppant and fluid intensities, aiming to further understand the associated well performance and cost structures. Enerplus is encouraged by the early stage production performance of the wells which are in line with the Company's expectations.

2019 Guidance

The Company's updated guidance, with changes noted, is provided in the table below.

Price Risk Management

Enerplus continues to manage price risk through commodity hedging. Enerplus has an average of 24,500 barrels per day of crude oil protected for the remainder of 2019 and 16,000 barrels per day protected in 2020.

For natural gas, Enerplus has entered into offsetting swaps through October 31, 2019, effectively locking in gains of US$0.51 per Mcf on the Company's original NYMEX hedges through this term.