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Enerplus Corp. Fourth Quarter, Full Year 2020 Results

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Enerplus Corp. reported its Q4 and full year 2020 results.

Enerplus reported fourth quarter 2020 cash flow from operating activities and adjusted funds flow of $96.1 million and $91.9 million, respectively, compared to $188.5 million and $178.9 million, respectively, in the fourth quarter of 2019. Full year 2020 cash flow from operating activities and adjusted funds flow was $446.4 million and $358.2 million, respectively, compared to $694.2 million and $709.0 million, respectively, in 2019. Cash flow from operating activities and adjusted funds flow decreased from 2019 due to lower benchmark crude oil prices and reduced production volumes.

Full Year 2020 Summary

• Generated free cash flow in 2020 - Adjusted funds flow was $358.2 million in 2020, which exceeded capital spending of $291.4 million, generating free cash flow of $66.8 million.
  
  
• Enhanced free cash flow outlook - Upon closing of the recently announced acquisition of Bruin E&P HoldCo, LLC ("Bruin"), anticipated in early March 2021, Enerplus expects to see a material increase in its free cash flow generation. Pro forma and based on a ten-month contribution from Bruin's assets in 2021, Enerplus expects to generate over $300 million of free cash flow in 2021 based on US$55 per barrel WTI crude oil and US$3.00 per Mcf NYMEX natural gas prices.
  
  
• Maintaining a solid balance sheet - Despite the low commodity price environment in 2020, Enerplus ended the year with a net debt to adjusted funds flow ratio of 1.0x and was undrawn on its US$600 million bank credit facility. Pro forma for the announced acquisition of Bruin, including the associated equity and term facility financings, Enerplus expects to remain in a resilient financial position with excellent liquidity. Enerplus estimates its year end 2021 net debt to adjusted funds flow ratio to be approximately 1.0x based on US$55 per barrel WTI crude oil and US$3.00 per Mcf NYMEX natural gas prices.
  
  
• Business resilience and safe operations - Enerplus successfully adapted to new remote working practices and enhanced safety measures due to the COVID-19 pandemic; achieving the best safety performance in the Company's history based on lost time injury frequency.
  
  
• Capital efficiency improvement - Solid operational execution delivered a step change in well cost performance in North Dakota with a 17% reduction (US$1.3 million per well) year-over-year. Proved plus probable finding and development ("F&D") costs were $6.50 per BOE in 2020, over 40% lower than the Company's prior three year average.
  
  
• Strong performance relative to environmental targets - Reduced 2020 greenhouse gas ("GHG") emissions intensity by more than 20% year-over-year based on preliminary estimates (target reduction was 10%). Reduced 2020 freshwater use per well completion in North Dakota by 23% year-over-year (target reduction was 15%).

Ian C. Dundas, President and CEO of Enerplus, said: "I want to thank our workforce for their efforts in the face of a challenging 2020. Their commitment to keeping each other and our communities safe as we adapted to a complicated new environment battling the spread of COVID-19 was exceptional. It was also critical to ensuring the continuity of our operations."

"Despite the volatile market conditions in 2020, we were able to preserve shareholder value, maintain our strong financial footing and position the business to deliver differentiated shareholder returns going forward. Our announced acquisition of Bruin, expected to close in early March 2021, demonstrates our ongoing commitment to value creation for shareholders, enabling us to accelerate free cash flow growth and further support our focus on providing long term sustainable returns."

Q4 2020 Summary

Enerplus delivered fourth quarter production at the high end of its guidance ranges with total production of 86,244 BOE per day (guidance was 84,000 to 87,000 BOE per day), including crude oil and natural gas liquids production of 49,195 barrels per day (guidance was 47,000 to 49,000 barrels per day). Total production in the fourth quarter was 5% lower than the prior quarter and 20% lower than same period in 2019. Liquids production in the fourth quarter of 2020 was 6% lower than the prior quarter and 18% lower than same period in 2019. The lower quarter-over-quarter production was due to limited capital activity. The lower production compared to the same period in 2019 was due to the significant reduction in capital activity in North Dakota during 2020 in response to the decline in crude oil prices, as well as lower capital activity in the Company's Marcellus natural gas asset during 2020.

Enerplus reported a fourth quarter 2020 net loss of $204.2 million, or ($0.92) per share, compared to a net loss of $429.1 million, or ($1.93) per share, in the fourth quarter of 2019. The reduced net loss was primarily due to lower non-cash impairment charges in the fourth quarter of 2020. The Company recognized a $311.2 million non-cash property, plant and equipment ("PP&E") impairment in the fourth quarter of 2020 due to the low commodity price environment and the use of 12-month trailing prices to test for impairment under the Securities and Exchange Commission ("SEC") guidelines. Excluding the PP&E impairment and certain other non-cash or non-recurring items, fourth quarter 2020 adjusted net income was $22.1 million, or $0.10 per share, compared to $34.4 million, or $0.15 per share, during the same period in 2019. Adjusted net income decreased from the fourth quarter of 2019 due to lower benchmark crude oil prices and reduced production volumes.

Enerplus' fourth quarter 2020 Bakken crude oil price differential was US$4.82 per barrel below WTI, compared to US$4.40 per barrel below WTI for the same period in 2019. The weaker differential compared to the prior year period was due to the narrowing of Brent-WTI differentials. Enerplus' fourth quarter Marcellus natural gas price differential was US$1.07 per Mcf below NYMEX, compared to US$0.63 per Mcf below NYMEX for the same period in 2019. Regional pricing in the Marcellus was particularly weak from September to November of 2020 due to nearly full regional storage combined with low demand due to mild weather.

Operating expenses in the fourth quarter of 2020 were $8.20 per BOE, compared to $8.05 per BOE in the same period in 2019. The increase in per unit operating expenses was due to lower production in the fourth quarter of 2020. Cash general and administrative ("G&A") expenses were $1.46 per BOE in the fourth quarter of 2020, compared to $1.34 per BOE in the prior year period. The increase in per unit G&A expenses was also due to lower production in the fourth quarter of 2020.

Exploration and development capital spending totaled $52.4 million in the fourth quarter of 2020. The Company paid $6.7 million in dividends during the quarter.

Enerplus ended the fourth quarter of 2020 with total debt net of cash of $376.0 million and was undrawn on its US$600 million bank credit facility. The Company's net debt to adjusted funds flow ratio was 1.0 times at quarter-end.

Full Year 2020 Summary

Enerplus delivered 2020 production at the high end of its annual guidance ranges with total production of 90,697 BOE per day (guidance was 90,000 to 91,000 BOE per day), including crude oil and natural gas liquids production of 51,054 barrels per day (guidance was 50,500 to 51,000 barrels per day). Total production and liquids production decreased 10% and 7%, respectively, compared to 2019. The year-over-year decrease in liquids production was due to the temporary curtailment of crude oil production during the second quarter and the significant reduction in capital activity in North Dakota during 2020 in response to the decline in crude oil prices. Natural gas production decreased 15% year-over-year due to lower capital activity in the Company's Marcellus natural gas asset during 2020.

Enerplus reported a full year 2020 net loss of $923.4 million, or ($4.15) per share, compared to a net loss of $259.7 million, or ($1.12) per share, in 2019. The higher net loss was primarily due to larger non-cash impairment charges, lower benchmark crude oil prices and reduced production volumes in 2020. The Company recognized non-cash impairments totaling $1,197.6 million in 2020 related to PP&E and goodwill due to the low commodity price environment and the use of 12-month trailing prices to test for impairment under the SEC guidelines. Excluding these impairments and certain other non-cash or non-recurring items, full year 2020 adjusted net income was $19.8 million, or $0.09 per share, compared to $243.2 million, or $1.05 per share, in 2019. Adjusted net income decreased from 2020 due to lower benchmark crude oil prices and reduced production volumes.

Enerplus' 2020 Bakken crude oil price differential was US$4.96 per barrel below WTI, compared to US$3.61 per barrel below WTI in 2019. The weaker year-over-year differential was due to the significant benchmark oil price volatility and the narrowing of Brent-WTI differentials throughout the year. Enerplus' 2020 Marcellus natural gas price differential was US$0.65 per Mcf below NYMEX, compared to US$0.39 per Mcf below NYMEX in 2019. Regional pricing in the Marcellus was particularly weak from September to November of 2020 due to nearly full regional storage combined with low demand due to mild weather.

Operating expenses in 2020 were $7.94 per BOE, compared to $7.88 per BOE in 2019. Cash G&A expenses in 2020 were $1.35 per BOE, compared to $1.32 per BOE in 2019.

Exploration and development capital spending totaled $291.4 million in 2020, below the Company's capital budget guidance of $295 million. The Company paid $26.7 million in dividends in 2020.

2020 Year End Reserve Summary

• Total proved plus probable ("2P") reserves were 424.4 MMBOE at year end 2020, 4% lower than year end 2019.
  
  
• Enerplus replaced 50% of total 2020 production, adding 16.7 MMBOE of 2P reserves (including technical revisions and economic factors). In North Dakota, the Company replaced 69% of 2020 production, adding 11.3 MMBOE of 2P reserves.
  
  
• Excluding economic factors, Enerplus replaced 89% of total 2020 production, adding 29.2 MMBOE of 2P reserves. In North Dakota, the Company replaced 119% of 2020 production excluding economic factors, adding 19.4 MMBOE of 2P reserves. Economic factors are reserves revisions due to the significant reduction in year-over-year forecast prices.
  
  
• F&D costs were $26.51 per BOE for proved developed producing ("PDP") reserves, $6.78 per BOE for proved reserves, and $6.50 per BOE for 2P reserves, including future development costs ("FDC").
  
  
• Finding, development and acquisition ("FD&A") costs were $6.97 per BOE for proved reserves and $6.74 per BOE for 2P reserves, including FDC.

Asset Activity

Williston Basin production averaged 46,127 BOE per day during the fourth quarter of 2020, 5% lower than the prior quarter and 15% lower than the same period in 2019. Fourth quarter Williston Basin production was comprised of 43,641 BOE per day in North Dakota and 2,486 BOE per day in Montana. In the fourth quarter, the Company brought four operated wells on production (100% working interest). No operated wells were drilled in the fourth quarter. Full year 2020 production from the Williston Basin averaged 47,125 BOE per day, a 3% decrease year-over-year. Enerplus delivered meaningful reductions to its well cost structures in 2020 driven by solid planning and execution coupled with technology application. This led to a continuing trend of improved drilling and completion cycle times resulting in an average total well cost of US$6.3 million in 2020, approximately 17% lower than 2019.

Marcellus shale gas production averaged 175 MMcf per day during the fourth quarter of 2020, 5% lower than the prior quarter and 25% lower than the same period in 2019. In the fourth quarter, the Company participated in drilling 23 gross non-operated wells (7% average working interest) with 19 gross non-operated wells (6% average working interest) brought on production. Full year 2020 production averaged 193 MMcf per day, a 15% decrease year-over-year.

Canadian waterflood production averaged 7,675 BOE per day during the fourth quarter of 2020, approximately flat compared to the prior quarter and 10% lower than the same period in 2019. Full year 2020 production averaged 7,469 BOE per day, a 17% decrease year-over-year.