Enerplus Corporation 2021—A Banner Year
Our view: Enerplus remains our favorite intermediate producer given its consistently solid execution, balance sheet strength and bolstered scale in North Dakota post its two acquisitions last year. The company now follows US convention of reporting its production after the deduction of royalties and financial statements in US dollars. We are reaffirming an Outperform rating on Enerplus with a one-year target price of $16 per share.
Key points:
Enerplus Corporation delivered impressive fourth-quarter results amid net production of 102,800 boe/d (toward the high end of its pre-released range). The company repurchased $113.3 million (11.2 million shares at $10.08 per share) of its common shares in the fourth-quarter, and plans to execute a further $100 million buyback under its NCIB.
Reaffirmed Guidance. Enerplus provided formal 2022 guidance which points toward mid-point production of 98,000 boe/d (including oil & liquids of 60,000 bbl/d) in the context of a $400 million ($370-$430 million) capital program. The company plans to allocate 83% ($332 million) of its 2022 investment towards North Dakota.
Free Cash Flow. We peg Enerplus’ free cash flow (before dividends) at $814 million in 2022 under our base outlook ($98 WTI, $3.85 Henry Hub). This would equate to a free cash flow yield of 29% in 2022.
Operations wise, Enerplus’ Williston Basin fourth-quarter production rose 4% sequentially to 67,590 boe/d. The company has locked-in 75% of its costs in North Dakota and added a second rig which it plans to run until the second-half of 2022. The company’s D&C costs in North Dakota dropped 10% year/year in 2021 to $5.7 million per well.
Favorable Reserve Update. On the reserve front, Enerplus added 244 million boe of proven net reserves in 2021 at an all-in F,D&A cost (including future development costs) of $9.33/boe. Overall, Enerplus' year-end 2021 net proven reserves rose 163% to stand at 339 mmboe.
ESG wise, the company expects (based on preliminary estimates) to have reduced its 2021 Scope 1 and 2 GHG emissions intensity by 25% and its methane emissions intensity by over 20% (vis-a-vis 2019 levels). Enerplus’ longer-term environmental targets include a 50% reduction in GHG emissions intensity by 2030 and a 50% reduction in freshwater use per well completion corporately by 2025.
Relative Valuation. Enerplus is trading at a 2022 debt-adjusted cash flow multiple of 2.5x and free cash flow yield of 29%. We believe the company should trade at an average/above average multiple given its consistent operating performance, capable leadership team and strong balance sheet, partly off-set by portfolio concentration. Please see our Global Integrated & E&P Comparative Valuation update for a comparative valuation analysis under futures prices across our global coverage universe.