Enerplus Corp.
(ERF-N) US$17.25
Strong Q3/22 Results; Guidance Intact; Dividend Bumped
Event
Reports Q3/22 Results and Increases Dividend
Impact: POSITIVE
Slightly Stronger-than-expected Volume in Q3/22; CFPS in Line: Enerplus reported Q3/22 production of 107.8 mBOE/d, which modestly exceeded TD (105.7 mBOE/d) and consensus (104.5 mBOE/d). Given the tie-in of eight Bakken wells, production was up 15% from Q2/22, which suffered from limited tie-ins and weather- related downtime. CFPS of $1.44 was in line with TD ($1.44) and consensus ($1.45).
2022 Budget and Production Guidance Tightened Within Existing Range:
Enerplus has firmed its 2022 capital budget to $430mm (from $400mm-$440mm). Meanwhile, the midpoint of FY-2022 production guidance has increased by ~1%, likely due to strong performance in Q3/22.
Our View: The largely unchanged capital budget, slight upward movement in 2022E average production and unchanged cash cost expectations should be viewed positively in the context of broader inflationary pressure. Volumes will likely be approximately flat in Q4/22, but given Enerplus' typical drilling cycle, it will likely ebb into Q1/23, before ramping up mid-year.
Dividend Nudged Higher; Return-of-capital Framework Unchanged: Enerplus increased its dividend by 10% to $0.055/quarter. The dividend provides a comparatively low yield of 1.3% (it consumes 8% of 2023E FCF). However, Enerplus' return of capital is heavily weighted to buybacks, with a plan to return 60% of FCF to shareholders (or a minimum of $425mm) in 2022. YTD, it has returned $315mm through base dividends and the NCIB — with approximately half this figure returned in the past four months.
Remaining Canadian Asset Disposition Announced a Day Before Q3/22 Release: Enerplus announced that it has agreed to divest the remainder of its Canadian assets (~4 mBOE/d gross). Combined with the previous package (~8.4 mBOE/d in aggregate), the company fetched ~C$385mm, which modestly exceeded our previously published expectation of ~C$335mm.
TD Investment Conclusion
Enerplus remains a top pick among North American conventional producers. Its core Bakken assets generate strong IRRs, with attractive per-share (11%) growth in 2023. Furthermore, it now offers an even more streamlined asset portfolio, with the sale of its Canadian assets.