Enerplus Corporation Finishing Strong
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 US$21 per share. Enerplus is on our Global Energy Best Ideas list.
Key points:
Enerplus Corporation delivered solid fourth-quarter results amid in-line oil & liquids production of 65,356 bbl/d and free cash flow generation of $229 million (before working capital movements, excluding A&D). The company repurchased $169 million (9.8 million at $17.24 per share) of its common shares in the fourth-quarter, ending with net debt of $221.5 million.
Shareholder Return Outlook. What caught our eye in Enerplus’ release was the signal that it would accelerate a portion of its second-half 2023 free cash flow into its return of capital plans during the first-half. The company reaffirmed its commitment to distribute at least 60% of free cash flow in 2023 (with an accent on share buybacks). Our outlook for Enerplus factors in share repurchases of $400 million in 2023.
2023 Guidance. Enerplus provided formal 2023 guidance alongside its year-end results, which pointed toward mid-point production of 95,500 boe/d (including in-line oil & liquids of 59,000 bbl/d) in the context of a modestly lower $525 million ($500-$550 million) capital program (60% weighted towards the first-half).
Reserve Update. Enerplus replaced 112% of its 2022 net production with net proven reserves (US SEC standards) at a proven F&D cost (including FDC) of $16.43/boe. Enerplus’ year-end net proven reserves of 322.3 mmboe fell 5% year/year in connection with the sale of its Canadian assets.
Free Cash Flow. We peg Enerplus’ free cash flow (before dividends) at $737 million in 2023 under our base outlook ($92 WTI, $4.75 Henry Hub) and $395 million under futures ($75 WTI, $3.09 Henry Hub).
Relative Valuation. Enerplus is trading at a 2023E debt-adjusted cash flow multiple of 2.4x (vs. our North American Intermediate E&P peer group avg. of 2.6x) and free cash flow yield of 23% (vs. our peer group avg. of 20%). 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.