Enerplus Corporation Update with Ian Dundas
Our view: Enerplus remains our favorite 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 raising our one-year price target by $2 to $21 per share.
Key points:
Our recent discussion with Enerplus Corporation’s President & CEO, Ian Dundas, and Senior Manager, Corporate Planning, IR & Reserves, Drew Mair, was upbeat and delved into the company’s operating momentum, strategic priorities and shareholder returns.
Strong Momentum in the Bakken. Enerplus reinforced our confidence in its Bakken operating momentum that should see it deliver 10% sequential oil & liquids production growth in the third-quarter. Accordingly, we feel comfortable with our 2023 outlook which factors in third- and fourth- quarter oil & liquids production rates of 64,000 bbl/d and 63,000 bbl/d, respectively.
Operations Update. Enerplus has witnessed improving well performance in the Bakken and remains encouraged by well performance at its Bice (6 wells on-stream) and Hay Draw (6 wells on-stream) pads at Little Knife, which is located southwest of Fort Berthold in Dunn County. In Williams County, Enerplus plans to provide an update alongside its third-quarter results surrounding well performance on 5 operated wells (2-mile laterals) brought on-stream. The company remains on-track to live within its $510- $550 million capital spending guidance range.
Shareholder Returns. Enerplus remains committed to returning at least 60% of its second-half free cash flow to shareholders with an accent on share repurchases. This should result in over 70% of its full-year 2023 free cash flow returned to shareholders. The company continues to see value in share repurchases at its current share price and will remain pragmatic in its returns approach.
Free Cash Flow. We peg Enerplus’ free cash flow (before dividends, including A&D) at $386 million in 2023 under our base outlook ($76 WTI, $2.51 Henry Hub) and $461 million under futures ($81 WTI, $2.59 Henry Hub).
Relative Valuation. Under futures pricing, Enerplus is currently trading at a 2023E debt-adjusted cash flow multiple of 3.9x (vs. our North American Intermediate E&P peer group avg. of 3.8x) and free cash flow yield of 13% (vs. our peer group avg. of 9%). 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 offset by portfolio concentration.