Enerplus Corp.
(ERF-N) US$12.15
Q2/22 Results as Expected. Positive RoC Update and Guide Bump Event
Reports Q2/22 Results. Bumps Guidance and Increases FCF Directed to Shareholders
Impact: POSITIVE
Q2/22 BOE/d and CF as Expected: Enerplus posted Q2/22 production of 94.1 mBOE/d, which was ahead of TD (91.7 mBOE/d) and generally in line with consensus (93.7 mBOE/d). CFPS of $1.19 was in line with TD/consensus at $1.21.
Return of Capital Framework Continues to Evolve: YTD Enerplus' return of capital framework has evolved from a base dividend and an undefined plan to participate in its NCIB, to the greater of $350mm or at least 50% of FCF to now the greater of $425mm or at least 60% of FCF. Enerplus has now completed the maximum shares repurchased under its Aug. 2021-Aug. 2022 NCIB, and has received approval for a new NCIB. Incrementally, the quarterly dividend was increased by 16% to $0.05 (2%) yield.
Our View: We expect ERF to generate FCF of $1.2bln between now and YE-2023 under TD commodity price assumptions. Based on the return of capital commitment, ~27% of the current market cap could be returned to equity holders via the current base dividend and the NCIB program, leaving potential room for further base dividend increases.
2022 Production Guidance Nudged Higher, Capex Unchanged: Enerplus increased its 2022 guidance to 97.5-101.5 mBOE/d (from 96-101 mBOE/d). Enerplus was able to achieve this guidance revision despite a recently announced $140mm Canadian divestiture of 3,400 BOE/d, which was not previously included in the guidance or our model. The capital budget of $400mm-$440mm is unchanged. We note that the budget was moved up from $370mm-$430mm with Q1/22 results to reflect inflation.
Despite Significant Return of Capital, ERF Tracking to Debt-Free by YE-2023:
Even after incorporating 60% of FCF being returned to equity holders, we believe Enerplus will exit 2022 with net debt of $263mm (0.2x D/CF), with a modest net cash position by YE-2023. Given Enerplus' reputation for quality and timely acquisitions, we believe this represents undervalued optionality.
TD Investment Conclusion
Enerplus remains a top pick among North American conventional producers. Its core Bakken assets generate strong IRRs, with attractive absolute (5%) and significant per-share (26%) growth in 2023.