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Enerplus Announces Fourth Quarter Update, 2019 Budget and Three-Year Outlook


CALGARYJan. 25, 2019 /CNW/ – Enerplus Corporation (“Enerplus” or the “Company”) (TSX & NYSE: ERF) today announced fourth quarter 2018 production at the high-end of its guidance range, its 2019 exploration and development capital budget of $565 to $635 million and a three-year outlook through 2021.

“We’re focused on maximizing returns, driving profitable growth and positioning our business for strong free cash flow generation,” stated Ian C. Dundas, President and Chief Executive Officer. “Our 2019 plan is expected to generate double-digit returns on capital employed and competitive oil production per share growth while operating within cash flow based on prevailing commodity prices. Importantly, if we see commodity prices improve, we would expect to generate meaningful free cash flow.”

Dundas continued, “We also remain committed to returning capital to shareholders. We returned over $100 million to shareholders in 2018 through dividends and share repurchases and we believe continuing to repurchase our shares represents a compelling capital allocation opportunity.”

Fourth Quarter 2018 Update

  • Achieved the high-end of fourth quarter and 2018 annual production guidance
    • Fourth quarter production of approximately 97,800 BOE per day, including liquids of 54,400 barrels per day
    • 2018 annual production of approximately 93,200 BOE per day, including liquids of 49,900 barrels per day
  • Capital spending in the fourth quarter was $72.1 million, resulting in full year 2018 capital spending of $593.9 million, in line with the Company’s guidance of $585 million
  • Repurchased 5.4 million shares in the fourth quarter for $70.5 million, bringing total repurchases in 2018 to $79.0 million (5.9 million shares), further enhancing per share growth and return of capital to shareholders

Highlights of the 2019 Budget and Three-Year Outlook

  • Three-year outlook through 2021 focused on maximizing financial returns, competitive oil growth and enhancing free cash flow generation
    • Second-half weighted growth profile in 2019 with annual liquids production growth of approximately 9% at the mid-point of guidance (11% liquids production per share growth)
    • Approximately 10% to 13% annual liquids production growth in 2020 and 2021
    • Over the three-year period capital spending is expected to be balanced with adjusted funds flow at US$50 per barrel WTI and US$3 per Mcf NYMEX, with free cash flow at prices above these levels
  • 2019 capital budget of $565 to $635 million
    • Capital spending plan based on a US$50 to US$55 per barrel WTI oil price environment
    • Capital spending and adjusted funds flow balanced at US$50 per barrel WTI and US$3 per Mcf NYMEX with significant free cash flow anticipated in a rising oil price environment
  • 2019 production guidance of 94,000 to 100,000 BOE per day, including 52,500 to 56,000 barrels per day of liquids
  • Expect to continue repurchasing shares in 2019
  • Price protection on more than 60% of 2019 forecast net oil production, hedged largely through three-way collar structures with average purchased put options at US$55 per barrel WTI and average upside participation to US$65 per barrel WTI
  • Net debt to adjusted funds flow ratio expected to remain below 0.6 times in 2019 based on US$50 per barrel WTI

2019 Operating Plan

Enerplus has allocated 80% of its 2019 capital budget to its North Dakota development to fund a 42 net well drilling program with 30 to 38 net operated completions.

Enerplus plans to spend 7.5% of its 2019 capital budget across its Canadian operations. Capital activity includes drilling approximately four net producer/injector wells, along with ongoing polymer injection for existing projects, and facilities maintenance and optimization.

Enerplus plans to spend 7.5% of its 2019 capital budget in the Marcellus to drill one net well and bring five net wells on production.

In the DJ Basin Enerplus plans to continue delineation drilling and progressing midstream options under a measured capital program. The Company plans to spend 5% of its 2019 capital budget in the DJ Basin on infrastructure and to drill and complete five gross (four net) wells.

The Company’s $565 to $635 million capital budget includes an allocation for non-drilling/completion capital, primarily related to infrastructure in the DJ Basin, maintenance and optimization spending, and capitalized G&A expenses. The allocation across assets is shown in the table below.

Approximate Capital Allocation

2019 Budget

North Dakota

80.0%

Canada

7.5%

Marcellus

7.5%

DJ Basin

5.0%

Total

100%

2019 Guidance

The Company expects to deliver average 2019 production of between 94,000 to 100,000 BOE per day, with crude oil and natural gas liquids production expected to average between 52,500 to 56,000 barrels per day.

As a result of the 2018 investment profile with only modest fourth quarter capital activity, combined with the Company’s decision to slow completions activity early in 2019 due to the significant oil price volatility, production in the first quarter of 2019 is expected to decline from the fourth quarter of 2018. Following this, production is expected to meaningfully increase with strong growth forecast for the second half of 2019.

The Company’s realized Bakken crude oil price differential below WTI is projected to be US$4.00 per barrel in 2019. This includes the impact of Enerplus’ 16,000 barrels per day of fixed physical differential sales at approximately US$3.00 per barrel below WTI. For the Marcellus, the Company expects robust natural gas price realizations during the first quarter of 2019 due to the seasonality of some of its market exposure, with realizations moderating during the remainder of the year. Enerplus expects its realized Marcellus natural gas price differential below NYMEX to average US$0.30 per Mcf in 2019.

Operating expenses in 2019 are forecast to be higher than 2018 levels as a result of the higher liquids weighting in the Company’s 2019 production mix, combined with increased use of electronic submersible pumps in North Dakota. Operating expenses are expected to average $8.00 per BOE in 2019.

Transportation expenses are expected to average $4.00 per BOE in 2019, modestly higher year-over-year due to additional transportation commitments that provide access to higher crude oil prices.

A summary of Enerplus’ 2019 guidance is provided below.

2019 Guidance

Capital spending

$565 to $635 million

Average annual production

94,000 – 100,000 BOE/d

Average annual crude oil and natural gas liquids production

52,500 – 56,000 bbl/d

Average royalty and production tax rate

25%

Operating expense

$8.00/BOE

Transportation expense

$4.00/BOE

Cash G&A expense

$1.50/BOE

2019 Differential/Basis Outlook(1)

U.S. Bakken crude oil differential (compared to WTI crude oil)

US$(4.00)/bbl

Marcellus basis (compared to NYMEX natural gas)

US$(0.30)/Mcf

(1)   Excluding transportation costs

Three-Year Outlook

With second-half weighted production growth in 2019, Enerplus expects to deliver approximately 9% annual liquids production growth at the midpoint of its guidance range. Thereafter in 2020 and 2021, Enerplus expects to grow its liquids production by 10% to 13% per year. This growth outlook is underpinned by the Company’s high-return, light oil asset in North Dakota. Over the three-year period, capital spending is expected to be balanced with adjusted funds flow at approximately US$50 per barrel WTI and US$3 per Mcf NYMEX natural gas, with free cash flow at prices above these levels.

Share Repurchase Update

During the fourth quarter of 2018, Enerplus repurchased 5,380,784 common shares under its Normal Course Issuer Bid at an average share price of $13.10. In total during 2018 Enerplus repurchased 5,925,084 common shares at an average share price of $13.33 at a cost of $79.0 million. When combined with dividends, Enerplus returned over $100 million to shareholders in 2018.

Risk Management Update

Using swaps and collar structures, Enerplus has an average of 23,100 barrels per day of crude oil protected in 2019 (approximately 63% of net production at guidance midpoint). Enerplus added additional natural gas hedges in 2019 and now has an average of 65,700 Mcf per day protected in 2019 (approximately 34% of net production at guidance midpoint).

Commodity Hedging Detail (As at January 24, 2019)

WTI Crude Oil

(US$/bbl) (1)

Nymex Natural Gas

(US$/Mcf) (1)

Jan 1 –
Mar 31,
2019

Apr 1 –
Jun 30,
2019

Jul 1, –
Sep 30,
2019

Oct 1, –
Dec 31,
2019

Jan 1, –
Dec 31,
2020

Jan 1, –

Mar 31,

2019

Apr 1, –

Oct 31,

2019

Swaps

Sold Swaps

$53.73

$4.23

$2.85

Volume (bbls/d or Mcf/d)

3,000

50,000

70,000

Collars

Sold Puts

$44.28

$44.50

$44.64

$44.64

$46.88

Volume (bbls/d or Mcf/d)

17,000

23,500

24,500

24,500

16,000

Purchased Puts

$54.12

$54.59

$54.81

$54.81

$57.50

$3.80

Volume (bbls/d or Mcf/d)

17,000

23,500

24,500

24,500

16,000

50,000

Sold Calls

$64.12

$65.52

$65.95

$65.99

$72.50

$6.01

Volume (bbls/d or Mcf/d)

17,000

23,500

24,500

24,500

16,000

50,000

(1)

Based on weighted average price (before premiums). 

(2)

The total average deferred premium spent on the three-way collars is US$1.61/bbl from January 1, 2019 to December 31, 2020.



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