September 13, 2022
Enerplus Corporation Update with Ian Dundas
Our view: Enerplus remains our favourite intermediate producer given its capable leadership team, solid execution, strong balance sheet and rising shareholder returns. We are reaffirming an Outperform rating on Enerplus and our one-year price target of $20 per share. Enerplus is on our Global Energy Best Ideas list.
Key points:
Advantaged Position. Enerplus has achieved comfortable scale and running room in North Dakota following successful integration of its $465 million Bruin and $312 million Dunn acquisitions in 2021. The company has 670 drilling locations in its core/extended core areas of the Bakken— or about 13 years of drilling inventory at 50 wells per annum (1.5-2 rig) development pace factored into its five-year (2022-26) plan.
Favorable Egress. The egress picture continues to look favorable for the Williston Basin with current in basin oil price differentials trading at a $1.50-$2.00 per barrel to WTI (ahead of the company’s annual guidance). Crude oil accounted for approximately 84% of Enerplus’ Bakken oil & ngl production during the first-half of 2022, with its ngls receiving about 35% of WTI during that period.
Waterfloods Disposition. Enerplus continues to advance initiatives to sell its remaining Canadian assets in Alberta and Saskatchewan (which support net production of 3,000 boe/d, 99% oil), but remains focused on value.
FCF and Shareholder Returns. We peg Enerplus’ free cash flow (before dividends and including A&D) at approximately $973 million in 2022 in the context of a $440 million capital program under our base outlook ($108 WTI, $5.63 Henry Hub). Alongside its second-quarter results, Enerplus raised its common share dividend 16% to an annualized rate of $0.20 per share (1.3% yield) and further enhanced its shareholder returns offering. Enerplus has indicated it is also ready and willing to execute a substantial issuer bid should market conditions warrant.
Relative Valuation. Enerplus is trading at a 2022E debt-adjusted cash flow multiple of 2.8x (vs. our Canadian intermediate peer group avg. of 3.0x) and free cash flow yield of 26% (in-line with our peer group avg.). We believe the company should trade at an average/above average multiple given its consistent operating performance, capable leadership team, shareholder alignment and strong balance sheet, partly off-set by portfolio concentration.