Enerplus Corp.
(ERF-T, ERF-N) C$15.48 | US$12.19
Planned Canadian Divestitures; Moving to U.S. Reporting Standard
Event
Provides operations update, announces plans to divest Canadian assets (non- core) and intention to move to U.S. dollar reporting, with volumes presented net of royalties.
Impact: SLIGHTLY POSITIVE
Q4/21 Production at the High End of Guidance: Enerplus pre-released Q4/21 production of 128 mBOE/d. This was ahead of consensus (126 mBOE/d) and at the upper end of guidance. Notably, we estimate North Dakota averaged ~83 mBOE/d (~65% of corporate volumes).
Our View: This was a strong Q4 result that, in part, was boosted by the timing of Bakken well tie-ins (eight in November). Looking ahead, we anticipate that the cadence of tie-ins in 2022 will translate into production ebbing in Q1/22E before ramping up in H2/22.
Intends to Kick off a Sale Process for Canadian Assets: Enerplus will market its 9,100 BOE/d of Canadian production (~79% oil). Based on annualized Q3/21A, these properties generated CF of $109mm (WTI of ~$70/bbl). Capex on these assets through the first nine months of 2021 was negligible at $13mm ($17mm annualized), with volumes declining by ~9% over this period. Based on TD-estimated sustaining capex of $25 million, this equates to FCF of ~$85 million per annum.
Our View: Given oil prices combined with investor emphasis on FCF over growth, this appears to be an ideal time to exit the properties. Valuing the assets using a 25% FCF yield or 3.0x CF, we estimate that it could fetch ~$330 million. Although we provide this as a rough estimate, we acknowledge that the ARO specific to the Canadian assets has not been disclosed.
Transitioning to U.S. Dollar Reporting and Production Volumes Net of Royalties: This will likely create some noise with Q4/21 results, but we view this as positive, given it will make for a more direct comparison with its U.S. peers. We will revise our estimates to reflect this change in conjunction with YE-2021 results (February 24).
TD Investment Conclusion
Enerplus remains a top pick among North American conventional producers. Its core Bakken asset generates strong IRRs, will deliver modest growth, and offers significant running room. Meanwhile, DAPL issues have subsided. Continued divesture of non-core assets should further highlight the strength of this core relative to its peers.