Enerplus Corp T.ERF

TD Notes

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Q3/22 Commodity Price Deck Update

Recession Risk Aside, Industry Fundamentals Remain Strong

TD Investment Conclusion

In this publication, we are updating model estimates to reflect Q3/22 QTD actuals, modestly revising our forward commodity price assumptions, and introducing our 2024 company estimates. Brent/WTI prices fell 11%/15% q/q, respectively, on recession fears (still up 11%/2% YTD). NYMEX prices rallied 9% q/q, but AECO prices fell 41% q/q on reduced egress (note). Our Q3/22 FFOPS estimates are largely flat q/q for our N.A. oil-weighted and gas-weighted coverage, but up 59%/96% y/y, respectively. We were conservative with our previous commodity assumptions; so our 2023 Brent/WTI forecasts remain unchanged at ~US$85/bbl and US$80/bbl, respectively. Our 2023 NYMEX forecast increases to US$4/mcf (from US$3.75/mcf) and AECO to C$3.65/mcf (from C$3.55/mcf). Our deck is now relatively in line with 2025+ strip prices. We still see ample return across our coverage to maintain our OVERWEIGHT sector stance.

Oil outlook relatively unchanged since our last deck change—plenty of bullish supply signals: Despite recession-related demand concerns, we see numerous potentially bullish indicators. They include: 1) OPEC+ being 2.9 mmbbl/d short of its targeted quotas (close to the widest gap in its five-year history); 2) SPR releases likely winding down in November, and ultimately needing to get refilled; 3) global producer reluctance to increase output, given ongoing commodity price volatility and political/regulatory uncertainty, including windfall tax risks); 4) the E.U. Russian oil embargo taking effect in December (effectiveness unclear, in our view); 5) the likelihood of an Iran nuclear deal being low, at least in advance of the U.S. midterm elections in November; and 6) the potential for natural-gas-to-oil switching during the winter heating season (we estimate 500+ mbbl/d globally).

Geopolitical risks to European gas supply exacerbated; North American growth muted: European imports of Russian gas have fallen materially. The forward outlook became increasingly uncertain this week following underwater explosions/ leaks from the Nord Stream pipeline. Global LNG demand and prices remain strong, although U.S. supply growth has been modest (up 4% y/y) in the face of historically high North American prices. Although North American inventories remain below normal, storage has begun to converge towards historical levels. However, relative to demand (including strong LNG exports), U.S. inventory levels continue to chart record-lows for this time of the year. In the near term, we anticipate that the shoulder season will result in continued above-average U.S. inventory builds; however, this could quickly reverse once the 2 Bcf/d Freeport LNG export facility (shut down in June) is restored later this year. We have marginally increased our North American gas-price assumptions through 2023. Although our price deck is well below current spot levels, it is nearly twice our estimate of the marginal cost of supply.

We are maintaining our OVERWEIGHT sector stance for the Canadian and U.S. energy equities.