June 3, 2022
Enerplus Corporation Update with Ian Dundas
Our view: Our recent discussion with Enerplus’ CEO, Ian Dundas, reinforced our confidence in the company’s outlook, execution, balance sheet strength and commitment to shareholder returns. We are reaffirming an Outperform rating on Enerplus and our one-year target price of $18 per share. ERF remains our favorite intermediate producer and is on our Global Energy Best Ideas list.
Key points:
Our recent discussion with Enerplus Corporations’ President & CEO, Ian Dundas, focused on the incremental with respect to Bakken pricing conditions, operational execution and progress on the disposition of its Canada waterflood properties.
Advantaged Position. Enerplus has achieved comfortable scale and running room in North Dakota following its $465 million Bruin and $312 million Hess acquisitions in 2021, but will remain opportunistically driven should further opportunities surface. At its April 12 investor update, the company pointed towards 670 drilling locations (circa 13 years of drilling inventory) in its core/extended core areas of the Bakken.
Waterfloods Disposition. Enerplus indicated that its Canadian waterfloods disposition process (announced February 2) has garnered interest, and is on a pathway to update the market this summer (potentially in the second- quarter). Based upon RBC Analyst Luke Davis’ analysis, these properties could capture roughly $235-$350 million of proceeds at flowing barrel metrics of C$40,000-$60,000/bbl/d (applied to production before royalties, converted into US dollars). Enerplus indicated that the lion’s share of these potential proceeds could be put towards debt repayment and shareholder returns, with modest organic redeployment (potential for an additional pad in North Dakota).
FCF and Shareholder Returns. We peg Enerplus’ free cash flow (before dividends) at approximately $821 million in 2022 under our base outlook ($100 WTI, $5.00 Henry Hub). In conjuction with first-quarter results, the company also enhanced its 2022 return of capital program by committing to return the greater of $350 million (minimum) or 50% of free cash flow through dividends and share repurchases.
Relative Valuation. At current levels, Enerplus is trading at a 2022 debt- adjusted cash flow multiple of 3.0x (vs. our North American intermediate peer group avg. of 3.6x) and an elevated free cash flow yield of 24% (vs. our peer group avg. of 17%). We believe the company should trade at an average/above average multiple given its consistent operating performance, capable leadership team and strong balance sheet, partly off- set by portfolio concentration.