Enerplus Corp.
(ERF-N, ERF-T) US$12.28 | C$15.55
TD Model Updated to Reflect New Reporting Methodology
Event
TD Updating Model Following Q4 Results and YE Reserves
Impact: NEUTRAL
Production Data Pre-Released, CFPS Estimates Not Directly Comparable to TD/Consensus: Early February, Enerplus pre-released Q4/21 production and announced that it would look to divest its non-core Canadian assets. In conjunction with the prior release, Enerplus announced its intention to report financial results in USD and production results net of royalties. While this makes for easier comparison to the U.S. peers, it made for a noisy quarter relative to TD/consensus estimates which are based on its historical reporting standard (i.e., CAD and pre-royalties). We have revised our model, our financial estimates and target price are now presented in USD, and our production estimates are presented net of royalties
2022 Return of Capital to be Biased to NCIB: Enerplus recently (November) increased its dividend by 8%, this equates to an annualized yield of 1.1% and consumes 6% of 2022E estimated FCF. Although Enerplus has refrained from articulating a formulaic return of capital strategy, it does intend to maximize its increased NCIB. In 2022E, we estimate this could result in 7% of the company's shares being repurchased. Although not yet in place, in our view, it is likely Enerplus renews its NCIB in August resulting in a further reduction in share count. For consistency purposes among our coverage, our forecast includes only share repurchases once they are firmly committed to.
Already Strong Balance Sheet Could Be Enhanced With Canadian Asset Sales:
As previously articulated, Enerplus intends to market for sale its Canadian production ~9 mBOE/d that generates TD-estimated CF of C$109mm and FCF of C$85 million at US$70 WTI. Should this fetch in the range of C$330 million (25% FCF yield), this could put the company in a net cash position prior to YE under a strip pricing scenario (depending on pace of NCIB participation in H2/22E).
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. Continued divestiture of non-core assets should further highlight the strength of its core assets relative to its peers.