Enerplus Corp.
(ERF-N) US$15.99
In-line Q4/22; Strong RoC in 2023
Event
Enerplus Announces Q4/22 Results, 2023 Budget.
Impact: NEUTRAL
Q4/22 Volumes and CF Meet TD/Street Expectations: Enerplus reported Q4/22 production of 106.9 mBOE/d, which was modestly higher than both TD (105.1 mBOE/ d) and consensus (106.3 mBOE/d). This quarter included Canadian production that was ultimately divested. We forecast Q1/23 production of 96 mBOE/d. CFPS of $1.35 was generally in line with both TD ($1.34) and consensus ($1.36).
2023 Guidance. Lower Marcellus Spending to Result in Oilier Mix: Enerplus previously provided high-level 2023 figures as part of its five-year plan. The 2023 capital budget of $500 million-$550 million was as expected. Transportation and operating cost guidance are up y/y and higher than what we had modelled (see Exhibit 3), but this is likely offset by strong differentials (premium to WTI) in the Bakken.
Our View: The low end of the relatively wide production guidance range of 93-98 mBOE/d was below our ~98 mBOE/d expectation. However, in our view, this is due to: i) some conservatism in the low end of the range and 2) minimal capital spending in the highly capital-efficient Marcellus. The company now intends to allow its non-operated Marcellus production to atrophy by ~8% y/y versus our previous expectations to remain flat. Although absolute volumes are lower, this does not have a material impact on 2023E CF (especially at current strip gas prices). For 2023E, we have maintained our liquids production forecast, but reduced our gas production assumptions.
Return-of-capital Plan Unchanged. Expect Significant Share Repurchases:
Based on Enerplus' plan to direct 60% of FCF to dividends and buybacks, we estimate that the company will return 1% of its current market cap to shareholders via the base dividend and repurchase 7% of its YE-2022A shares outstanding through 2023. We expect 2023 YE net debt to be negligible at 0.1x.
TD Investment Conclusion
Enerplus offers measured (~5%/year) liquids growth, over a decade of future development potential in the highly economic N.D. Bakken, is generating significant FCF, and has nearly no debt. At US$75/bbl WTI, we estimate that Enerplus is trading at an attractive 16% FCF yield.