Enerplus Corp.
(ERF-T, ERF-N) C$7.01 | US$5.74
DPS Bump, Efficiencies Improve, to Benefit from Announced M&A
Event
Reports Q1 Results. Guidance Unchanged
Impact: NEUTRAL
Q1 as Expected, Business Improved Through Previously Announced M&A:
Q1 production averaged 91.7 mBOE/d and CFPS was $0.50. This compared with TD (89.3 mBOE/d / $0.52/share) and consensus (91.1 mBOE/d / $0.50/share). The CFPS delta vs. our estimate was due to a higher ARO spend in the quarter.
Our View: Looking ahead, with a full quarter of production contribution from both the previously announced corporate acquisition of Bruin and the acquisition Hess assets (along with ERF capex), we forecast volumes growing to >120 mBOE/d in Q3. Given the FCF provided by Bruin assets and the inventory provided by the Hess assets, Enerplus today is a notably different (and improved) company than in Q1 - and it got there without issuing equity.
Dividend Increased 10%: Enerplus announced that it will increase the dividend by 10% and is transitioning to a quarterly payment (from monthly).
Our View: We forecast the increased dividend level will only consume 4% of CF and 12% of FCF (after sustaining capex) in 2022E. Across our coverage group, very robust FCF generation from the E&Ps had been the overarching theme of Q1 reporting. Enerplus is among a pack of first movers to direct some of this growing FCF directly to shareholders via increased dividends - other E&Ps in this group include COG-US, PDCE-US, CLR-US, CNQ-T, EOG-US, IMO-T, and PXD-US.
Bakken Efficiencies Continue to Improve: On the efficiency front, Enerplus indicated that it expects Bakken well capital costs (2-mile) to improve to US$6.1mm/ well (down 20% from 2019).
Our View: Based on public data, 12-month cumulative well results are little changed since 2019 at ~200,000 bbls of oil (~550 bbls/d IP365). This capital change implies a $/BOEPD improvement to ~$11,000 BOE/d (from $14,000/ BOEPD).
Management Conference Call Today at 11 am ET: 1-888-390-0546 #35089571
TD Investment Conclusion
We remain constructive on Enerplus for its quality assets, combined with a long track record of successful execution and low debt. Despite these positive attributes, it continues to trade at a material discount in 2022E to other oil-weighted peers (including WCP, CPG, and VET).