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Enerplus announces first quarter 2020 results


All financial information contained within this news release has been prepared in accordance with U.S. GAAP, except as noted under “Non-GAAP Measures”. This news release includes forward-looking statements and information within the meaning of applicable securities laws. Readers are advised to review the “Forward-Looking Information and Statements” at the conclusion of this news release. A full copy of Enerplus’ First Quarter 2020 Financial Statements and MD&A are available on the Company’s website at www.enerplus.com, under its SEDAR profile at www.sedar.com and on the EDGAR website at www.sec.gov.

CALGARY – Enerplus Corporation (“Enerplus” or the “Company”) (TSX & NYSE: ERF) today announced financial and operating results for the first quarter of 2020. The Company reported first quarter 2020 cash flow from operating activities of $122.7 million and adjusted funds flow of $113.2 million. First quarter net income was $2.9 million, or $0.01 per share and adjusted net income was $21.1 million, or $0.09 per share.

HIGHLIGHTS

  • Achieved first quarter production of 98,209 BOE per day, including liquids of 54,390 barrels per day
  • Maintained low financial leverage; net debt to adjusted funds flow ratio was 0.8 times at quarter-end
  • Strong liquidity with cash of $142 million and an undrawn US$600 million bank credit facility at quarter-end
  • Robust commodity hedging position with forecast hedging gains of approximately $150 million in 2020, based on recent forward strip oil prices
  • Solid execution resulted in an 11% reduction to well costs year to date in North Dakota, compared to 2019
  • Lower expected run rate cash costs driven by workflow improvements and reduced cash compensation for Enerplus’ Board of Directors, executives and employees
  • Significant operational flexibility to reduce production levels to protect against selling oil at negative margins and preserve shareholder value
  • Advantaged position for future capital deployment with 27 net drilled uncompleted wells in inventory in North Dakota

 

“Under extremely challenging conditions, Enerplus delivered a solid operational quarter which has left the company well positioned to navigate the ongoing market uncertainty,” commented Ian C. Dundas, President and Chief Executive Officer of Enerplus. “We remain focused on protecting our people and supporting our communities, while delivering strong safety and operational performance across our business. The decisive actions we have taken over the last few months to reduce spending and lower our cost structure have enhanced our resilience. The resourcefulness of our people has been key to our ability to respond quickly.”

RESPONSE TO COVID-19

In response to the coronavirus (“COVID-19”) pandemic, Enerplus introduced additional measures to enhance employee and community safety, while ensuring the continuity of its business. The Company directed all staff who are able to work from home to do so, and adopted new working practices through leveraging technology and strong collaboration. At its field operations, Enerplus implemented procedures to allow for effective physical distancing for employees and contractors. Enerplus’ senior leadership team has been operating under a dedicated emergency response plan, including increased engagements with the Company’s Board of Directors, to address short term needs and plan for longer term business continuity.

FIRST QUARTER SUMMARY

Production
Production in the first quarter of 2020 was 98,209 BOE per day, an increase of 11% compared to the same period a year ago, and 9% lower than the prior quarter. Crude oil and natural gas liquids production in the first quarter of 2020 was 54,390 barrels per day, an increase of 20% compared to the same period a year ago, and 9% lower than the prior quarter. The lower quarter-over-quarter production was due to the Company’s 2019 investment profile with limited capital activity in the fourth quarter, along with Enerplus’ decision to shut-in, abandon and reclaim its non-core natural gas asset at Tommy Lakes in Canada in the first quarter of 2020.

Financial Highlights
Enerplus reported adjusted funds flow for the first quarter of 2020 of $113.2 million compared to $168.8 million in the first quarter of 2019. The Company reported adjusted net income for the first quarter of 2020 of $21.1 million ($0.09 per share) compared to $72.5 million ($0.30 per share) in the first quarter of 2019. The year-over-year decrease in adjusted funds flow and adjusted net income was due to lower crude oil and natural gas prices in the first quarter of 2020.

Enerplus’ first quarter 2020 realized Bakken oil price differential was US$5.26 per barrel below WTI, compared to US$3.25 per barrel below WTI in the first quarter of 2019. The wider Bakken differential was primarily a function of the year-over-year production growth in the basin. The Company’s realized Marcellus natural gas price differential was US$0.38 per Mcf below NYMEX during the first quarter of 2020 compared to US$0.13 per Mcf above NYMEX in the first quarter of 2019. The wider year-over-year Marcellus differential was driven by low winter natural gas demand in the first quarter of 2020.

In the first quarter of 2020, Enerplus’ operating costs were $8.84 per BOE, transportation costs were $3.95 per BOE and cash general and administrative expenses were $1.37 per BOE.

Exploration and development capital spending in the first quarter was $163.6 million. The Company also spent $2.5 million repurchasing 340,434 shares and paid $6.7 million in dividends during the first quarter.  As previously announced, Enerplus has suspended its share repurchase program given the deterioration in market conditions in order to prioritize the Company’s financial strength and liquidity.

Enerplus ended the first quarter of 2020 with a strong balance sheet and significant liquidity. The Company had total debt of $656.7 million, cash of $142.1 million and was undrawn on its US$600 million bank credit facility. The Company’s net debt to adjusted funds flow ratio was 0.8 times at quarter-end.

Asset Activity
Williston Basin production averaged 49,521 BOE per day (80% oil) during the first quarter of 2020, an increase of 27% compared to the same period a year ago, and 8% lower than the prior quarter. The Company drilled 18 gross operated wells (99% average working interest) and brought 11 gross operated wells (82% average working interest) on production during the first quarter.

The Company’s operational performance in North Dakota has tracked ahead of expectations year to date. Drilling cycle times have averaged 11 days per well for 10,000 foot laterals (spud to rig release), with eight of the last 11 wells drilled in 10 days or less. This compares to Enerplus’ 2019 average of 12.6 days per well. The Company’s 2020 well completion operations have also outperformed expectations. Combined, this strong drilling and completion execution resulted in an average well cost of US$6.8 million year to date, an 11% reduction compared to the Company’s 2019 average.

Marcellus production averaged 216 MMcf per day during the first quarter of 2020, an increase of 3% compared to the same period in 2019, and 7% lower than the prior quarter. The Company participated in drilling 15 gross non-operated wells (7% average working interest) and brought 10 gross non-operated wells (4% average working interest) on production during the quarter.

Canadian waterflood production averaged 8,209 BOE per day (94% crude oil) during the first quarter of 2020, a decrease of 12% compared to the same period in 2019, and 4% lower than the prior quarter. The Company drilled 10 producer/injector wells (100% working interest) at its Giltedge field in the first quarter.

OUTLOOK

Enerplus has taken proactive steps to preserve shareholder value as a result of the significant decline in crude oil prices. As previously announced, the Company has reduced its 2020 capital budget by 45%, to $300 million and lowered its cost structure through workflow improvements, vendor service cost reductions, project deferrals and reduced cash compensation for its Board of Directors, executives and employees.

Enerplus also began reducing production levels across its Williston basin and Canadian operations in April to protect against selling oil at negative margins. The Company’s April production was approximately 91,500 BOE per day, including 49,700 barrels per day of crude oil and natural gas liquids, exceeding the Company’s April outlook. In May, Enerplus began curtailing further production. Currently, the Company estimates that approximately 25% of its liquids volumes are curtailed, which excludes its recently completed seven-well pad in North Dakota that the Company has chosen not to produce until oil prices improve. Based on current regional pricing dynamics, Enerplus does not anticipate curtailing production beyond current levels through the rest of the second quarter.

Capital activity and production expectations in Enerplus’ Marcellus natural gas position remain unchanged relative to the Company’s original 2020 plans. Enerplus expects its Marcellus production to average approximately 185 to 200 MMcf per day through the remaining three quarters of 2020. The Company also expects its full year 2020 Marcellus natural gas price differential to average US$0.45 per Mcf below NYMEX.

Notwithstanding the potential variability in production levels in 2020 due to curtailments, the Company estimates its 2020 unit operating expenses will average approximately $8.25 per BOE, compared to its original forecast of $8.50 per BOE.

As previously announced, the Company has withdrawn its 2020 corporate guidance as a result of the significant ongoing uncertainty in oil prices.

Enerplus will remain disciplined with its production management and capital allocation during this period of heightened oil price volatility. The Company currently has 27 net operated drilled uncompleted wells in inventory in North Dakota enabling rapid future capital deployment.

Average Daily Production(1)

Three months ended March 31, 2020

Crude Oil

(Mbbl/d)

Natural
Gas
Liquids
(Mbbl/d)

Natural gas

(MMcf/d)

Total
Production

(Mboe/d)

Williston Basin

39.8

4.6

30.8

49.5

Marcellus

216.0

36.0

Canadian Waterfloods

7.7

0.1

2.6

8.2

Other(2)

1.5

0.7

13.5

4.5

Total

49.0

5.3

262.9

98.2

(1)

Table may not add due to rounding.

(2)

Comprises DJ Basin and non-core properties in Canada.

Summary of Wells Drilled(1)

Three months ended March 31, 2020

Operated

Non-Operated

Gross

Net

Gross

Net

Williston Basin

18

17.9

3

1.1

Marcellus

15

1.1

Canadian Waterfloods

10

10.0

Other(2)

5

4.4

1

0.0

Total

33

32.2

19

2.2

(1)

Table may not add due to rounding.

(2)

Comprises DJ Basin and non-core properties in Canada.

Summary of Wells Brought On-Stream(1)

Three months ended March 31, 2020

Operated

Non-Operated

Gross

Net

Gross

Net

Williston Basin

11

9.0

7

1.9

Marcellus

10

0.4

Canadian Waterfloods

Other(2)

1

0.0

Total

11

9.0

18

2.2

(1)

Table may not add due to rounding.

(2)

Comprises DJ Basin and non-core properties in Canada.

PRICE RISK MANAGEMENT

Enerplus has an average of 24,800 barrels per day of crude oil hedged through financial derivative contracts for the remainder of 2020.

In addition to its financial derivative contracts, Enerplus has fixed physical differential sales agreements for approximately 13,000 barrels of oil per day at an estimated price of WTI less US$5.00 per barrel for the remainder of 2020.

Commodity Derivatives (As at May 7, 2020)

WTI Crude Oil (US$/bbl)(1)(2)

Apr 1, 2020 –

Jul 1, 2020 – 

Oct 1, 2020 – 

Jun 30, 2020

Sep 30, 2020

Dec 31, 2020

Swaps

Volume (bbls/d)

9,500

7,000

Sold Swaps

$ 57.37

$ 36.02

Put Spreads(2)

Volume (bbls/d)

16,000

16,000

16,000

Sold Puts

$ 46.88

$ 46.88

$ 46.88

Purchased Puts

$ 57.50

$ 57.50

$ 57.50

Three Way Collars(2)

Volume (bbls/d)

5,000

5,000

Sold Puts

$ 48.00

$ 48.00

Purchased Puts

$ 56.25

$ 56.25

Sold Calls

$ 65.00

$ 65.00

(1)

The sold puts on the put spreads settle annually at the end of 2020.

(2)

The total average deferred premium on outstanding hedges is US$1.67/bbl from April 1, 2020 to December 31, 2020.

Q1 2020 CONFERENCE CALL DETAILS

A conference call hosted by Ian C. Dundas, President and CEO will be held at 9:00 AM MT (11:00 AM ET) today to discuss these results. Details of the conference call are as follows:

Date:

Friday, May 8, 2020

Time:

9:00 AM MT (11:00 AM ET)

Dial-In:

587-880-2171 (Alberta)

1-888-390-0546 (Toll Free)

Conference ID:

66390411

Audiocast:   

https://produceredition.webcasts.com/starthere.jsp?ei=1301001&tp_key=869ca52830

To ensure timely participation in the conference call, callers are encouraged to join 15 minutes prior to the start time to register for the event. A telephone replay will be available for 30 days following the conference call and can be accessed at the following numbers:

Replay Dial-In:

1-888-390-0541 (Toll Free)

Replay Passcode:

390411 #

SELECTED FINANCIAL RESULTS

Three months ended
March 31, 

2020

2019

Financial (CDN$, thousands, except ratios)

Net Income

$

2,876

$

19,158

Adjusted Net Income(4)

21,089

72,458

Cash Flow from Operating Activities

122,739

108,951

Adjusted Funds Flow(4)

113,227

168,755

Dividends to Shareholders – Declared

6,670

7,162

Total Debt Net of Cash(4)

514,620

363,771

Capital Spending

163,625

160,793

Property and Land Acquisitions

2,256

3,025

Property Divestments

5,578

466

Net Debt to Adjusted Funds Flow Ratio(4)

0.8x

0.5x

Financial per Weighted Average Shares Outstanding

Net Income – Basic

$

0.01

$

0.08

Net Income – Diluted

0.01

0.08

Weighted Average Number of Shares Outstanding (000’s) – Basic

222,357

238,922

Weighted Average Number of Shares Outstanding (000’s) – Diluted

223,300

241,298

Selected Financial Results per BOE(1)(2)

Oil & Natural Gas Sales(3)

$

31.96

$

44.70

Royalties and Production Taxes

(8.16)

(10.48)

Commodity Derivative Instruments

3.69

1.32

Cash Operating Expenses

(8.84)

(8.75)

Transportation Costs

(3.95)

(3.92)

Cash General and Administrative Expenses

(1.37)

(1.55)

Cash Share-Based Compensation

0.31

(0.17)

Interest, Foreign Exchange and Other Expenses

(0.97)

(0.68)

Current Income Tax Recovery

0.69

Adjusted Funds Flow(4)

$

12.67

$

21.16

SELECTED OPERATING RESULTS

Three months ended
March 31, 

2020

2019

Average Daily Production(2)

Crude Oil (bbls/day)

49,044

41,105

Natural Gas Liquids (bbls/day)

5,346

4,383

Natural Gas (Mcf/day)

262,913

258,568

Total (BOE/day)

98,209

88,583

% Crude Oil and Natural Gas Liquids

55%

51%

Average Selling Price (2)(3)

Crude Oil (per bbl)

$

51.30

$

66.56

Natural Gas Liquids (per bbl)

12.72

19.15

Natural Gas (per Mcf)

2.08

4.38

Net Wells Drilled

34

17

(1)

Non-cash amounts have been excluded.

(2)

Based on Company interest production volumes. See “Presentation of Production Information” below.

(3)

Before transportation costs, royalties, and commodity derivative instruments.

(4)

These non-GAAP measures may not be directly comparable to similar measures presented by other entities. See “Non-GAAP Measures” section in this news release.

Three months ended
March 31, 

Average Benchmark Pricing

2020

2019

WTI crude oil (US$/bbl)

$

46.17

$

54.90

Brent (ICE) crude oil (US$/bbl)

50.96

63.90

NYMEX natural gas – last day (US$/Mcf)

1.95

3.10

USD/CDN average exchange rate

1.34

1.33

Share Trading Summary

CDN(1) – ERF

U.S.(2) – ERF

For the three months ended March 31, 2020

(CDN$)

(US$)

High

$

9.55

$

7.35

Low

$

1.62

$

1.15

Close

$

2.07

$

1.48

(1)

TSX and other Canadian trading data combined.

(2)

NYSE and other U.S. trading data combined.

2020 Dividends per Share

CDN$

US$(1)

First Quarter Total

$

0.03

$

0.02

(1)

CDN$ dividends converted at the relevant foreign exchange rate on the payment date.

Currency and Accounting Principles
All amounts in this news release are stated in Canadian dollars unless otherwise specified. All financial information in this news release has been prepared and presented in accordance with U.S. GAAP, except as noted below under “Non-GAAP Measures”.

Barrels of Oil Equivalent
This news release also contains references to “BOE” (barrels of oil equivalent). Enerplus has adopted the standard of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf: 1 bbl) when converting natural gas to BOEs. BOEs may be misleading, particularly if used in isolation. The foregoing conversion ratios are based on an energy equivalency conversion method primarily applicable at the burner tip and do not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading.

Presentation of Production Information
Under U.S. GAAP oil and gas sales are generally presented net of royalties and U.S. industry protocol is to present production volumes net of royalties. Under Canadian disclosure requirements and industry practice, oil and gas sales and production volumes are presented on a gross basis before deduction of royalties. All production volumes and oil and gas sales presented herein are reported on a “company interest” basis, before deduction of Crown and other royalties, plus Enerplus’ royalty interest. All references to “liquids” in this news release include light and medium crude oil, heavy oil and tight oil (all together referred to as “crude oil”) and natural gas liquids on a combined basis.



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