RE:should you buy Enerplus?Copied from TD
"Event
Acquires Additional ND Bakken Assets. Articulates 5 Year Plan Impact: POSITIVE Enerplus announced another sizable acquisition in the ND Bakken, following the January agreement to acquire Bruin (see here). In the latest deal, Enerplus has agreed to acquire 6,000 BOE/d, 62.7 mmBOE of 2P reserves and ~123 net sections of land (Dunn County) at a cost of US$312 million (May close). The asset includes 110 ERF-identified core drilling locations and 120+ incremental locations. The deal will be funded with cash (US$150mm) and its undrawn credit facility. In conjunction with the acquisition, ERF rolled out a five-year plan and framework for future capital priorities. Through 2025, Enerplus has articulated a plan to spend ~$500mm/yr (60-70% of CF), grow liquids 3-5%/yr and generate cumulative FCF of ~$1.5B ($300mm/yr). Over the longer-term, Enerplus intends to target D/CF <1x, reinvest <75% of CF and return capital to shareholders with sustainable dividend increases (and potentially buy-backs). Our View:
We estimate the asset generates ~US$50 million of CF at $55/bbl WTI. Based on this assumption, the metrics equate to ~6x annualized CF ($4.98/2PBOE). However, this is not the best metric for comparative valuation purposes given its growth potential. We understand that Enerplus intends to allocate significant capital to this property (~$85mm/yr in 2022+) to triple the volumes over the next several years. We estimate that the purchases price minus cumulative CF (net of capex), improves from 6x currently to 3.0x in 2022E and 1.4x in 2023E.
This deal is materially accretive to Enerplus’ core drilling inventory. The added locations expand Enerplus run-rate inventory to ~10 years (from ~7-8 years). If we include the ERF-identified upside locations this deal expands ERF's drilling inventory by >50% to 670 locations. Inventory life has been a point of contention for some and this should be sufficient to ease concerns. TD Investment Conclusion We remain constructive on Enerplus for its quality assets combined with long track record of successful execution and low debt. Despite these positive attributes, it continues to trade at a material discount to other oil-weighted peers (including WCP, CPG, VET). We are increasing our target to $10/shr.