CIBCThey have a $20.00 target. GLTA
EQUITY RESEARCH
April 13, 2022 Company Update
ENERPLUS CORPORATION
Investor Day Recap: Not Balkin’ About Runway In The Bakken
Our Conclusion
We came away from Enerplus’ Bakken and Investor update with a positive
bias. The current drilling density of Enerplus’ Bakken assets is lower than
some of its Bakken peers, which we believe provides ample running room for
well over the next decade. The economics of its prospects also look robust at
current pricing, with payback periods in less than six months on nearly all
areas. While we are not making any estimate revisions on the back of the
update, we maintain a positive stance towards the shares given ERF carries
an attractive trading multiple, has an enhanced return of capital position with
its NCIB, carries modest growth targets, and has appealing asset exposure.
Key Points
Current asset level returns are significant across ERF’s Bakken
position and the capital allocation framework remains focused on
sustainability and shareholder returns. Our recent estimate on strip
pricing demonstrates free cash flow approaching ~US$900MM in 2022,
which would see ERF exit 2022 in a net cash position if not deployed.
Management reiterated a return to outsized growth as unlikely, despite
compelling economics on its assets could justify doing so, along with excess
Bakken egress capacity and no current balance sheet constraints.
Remaining Bakken running room is likely underappreciated for ERF.
While the Bakken is typically seen as being a mature shale play,
management estimates >18,000 drilling locations are remaining at
>US$70/Bbl WTI. Productivity mapping also demonstrated ERF’s inventory is concentrated around the core of the play, and ERF’s reduced drilling density demonstrates ~15 years of drilling locations in the core/extended core of the play. While the economics at Little Knife screen as being the best in the portfolio, Fort Berthold still carries the bulk of future drilling inventory for the business, and we remain intrigued at the option value in the Williams and Murphy properties which could benefit from future technology gains.
Basin egress has shifted from a headwind to a tailwind, with ample
takeaway capacity on both crude and natural gas likely to protect
realizations. This has not always been the case for the Williston Basin,
which has had to make quick use of rail capacity in order to access stronger
crude pricing. There are currently 33 rigs running in the Bakken, with
management highlighting a sustained rig count of 50 to 2026 still would not
test basin takeaway capacity. Production volumes have been slow to recover
in the Bakken, with a steady drawdown of drilled but uncompleted (DUCs)
wells, and a reduced drilling pace by Bakken operators. Given U.S. DUCs
have declined for 20 consecutive months, an increase of drilling rigs is likely
needed. That said, even if this were to occur, given the significant drawdown
of DUCs, an increased rig count seems unlikely to cause a concurrent rise in
production volumes until DUC inventories are further restored