Have a US$22.00 target. GLTA
ENERPLUS CORPORATION
Q2/23 First Look: Dividend Increase Accompanies Steady
Execution
Our Conclusion
Enerplus reported stronger-than-expected production thanks to well
outperformance in the Bakken, but cash flow was slightly below estimates.
Outside of the slight cash flow miss, we believe the strong well results from
Little Knife are encouraging, and supportive for the company’s 2023
production guidance increase. Enerplus raised its dividend by 9% and plans
to return at least 60% of H2/23 free cash flow to shareholders, which
computes to greater than 70% of F2023 free cash flow, and is likely to stack
up well versus peers. Although we do not expect meaningful revisions to
consensus estimates on the back of this update, we do see the quarterly
result as being a good demonstration of steady execution from this group.
ERF currently trades at a 2024E EV/DACF of 3.4x and FCF yield of 12%
under our CIBC price deck, versus oil-weighted peers at 3.3x and 16%,
respectively.
Key Points
Headline metrics mixed with production beat and slight cash flow miss.
Production of 95.6 MBoe/d topped our estimate and consensus of 94.2
MBoe/d. Liquids production of 58.2 MBbl/d was better than our estimate of
57.6 MBbl/d and the Street at 57.4MBbl/d. Capital spending of $181MM was
ahead of our estimate and consensus of $175MM, while cash flow of
$0.89/sh was slightly below consensus of US$0.90/sh and our estimate of
US$0.92/sh.
Return of capital to shareholders will exceed 70% in 2023 with 9%
dividend increase. Enerplus returned 97% of free cash flow to shareholders
in H1/23 and plans to return at least 60% of its H2/23 free cash flow to
shareholders via a combination of dividends and share buybacks. We
estimate Enerplus will generate ~$300MM of free cash flow under strip
pricing in H2/23. Enerplus indicated that it has exhausted its existing 10%
NCIB and plans to renew its NCIB in August 2023 for another 10%.
Guidance revisions minor overall, but directionally positive. Full-year
2023 guidance was increased to 94.5 MBoe/d – 98.5 MBoe/d with a midpoint
of 96.5 MBoe/d, which is 1% higher than the previous midpoint of 95.5
MBoe/d. This is in line with our total production estimate of 96.8 MBoe/d and
the Street at 96.9 MBoe/d. Enerplus also guided 2023 liquids to a midpoint of
60 MBbl/d from a midpoint of 59 MBbl/d (+2%) due to strong well
performance. This compares as slightly better than our liquids production
estimate of 59.4 MBbl/d and the Street at 59.8 MBbl/d. Capital spending
guidance was increased to a midpoint of $530MM from $525MM prior, which
is slightly ahead of our estimate of $525MM and in line with the Street at
$531MM. Unit cost revisions were relatively minor and we believe are
unlikely to drive much change to consensus expectations.