Enerplus Corp.
(ERF-N) US$13.04
Bumps Dividend and Production Guidance. Updates RoC Strategy Event
Q1/22 Results; Return of Capital Update; Bumps Production Guide (Despite Outages)
Impact: POSITIVE
Operational Results Largely as Anticipated: Enerplus reported production of 92.2 mBOE/d, which was in line with TD (91.0 mBOE/d) and consensus (91.7 mBOE/ d). Volumes slipped 10% from Q4/21 levels given that flush production from a new Bakken pad boosted Q4/21 figures and the company did not bring on a subsequent pad until the end of Q1. This was planned and anticipated. Q2/22 will be very active, with 18-21 net Bakken wells scheduled to be brought on stream. CFPS of $1.02 was in line with TD ($1.01) and modestly ahead of consensus ($0.98)
Acknowledged Cost Inflation; Bumps Production Guidance Despite Outages:
Enerplus acknowledged inflationary pressures in its 2022 capital guidance. It increased its capex budget to $400mm-$440mm with the midpoint up $20mm (5%). Likely unrelated to the capital revision, ERF increased its production guidance midpoint by 0.5 mBOE/d to 96-101 mBOE/d. The guidance revision is impressive considering extreme winter storms in April knocked out ~20% of Bakken volumes that month (~1 mBOE/d hit to FY production).
Base Dividend Bumped 30%: Enerplus increased its quarterly dividend to $0.043/ share. The base dividend equates to an annualized yield of 1.3% and consumes ~6% of FCF under our lower-than-strip commodity price assumptions.
Further Solidifies Return of Capital Plan: Enerplus had previously articulated a plan to maximize and renew its NCIB. In today's release, it committed to cash returns to shareholders of $350mm (~11% of market cap) or 50% of FCF - whichever is greater. Under strip pricing, we estimate that 50% of FCF equates to $470mm in 2022E. Given YTD dividends/buybacks of $50mm, this leaves $420mm available for shareholder returns through the remainder of the year (13% of market cap).
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 (here). Continued divestiture of non-core assets should further highlight the strength of its core assets relative to its peers.