Drilling & Completions | Quarterly / Earnings Reports | Third Quarter (3Q) Update | Financial Results | Capital Markets | Capital Expenditure | Capital Expenditure - 2021

Enerplus Corp. Third Quarter 2020 Results

Share Print Bookmark    |    Friday,November 06,2020

Enerplus Corp. reported its Q3 2020 results.

Cash flow from operating activities for the third quarter was $137.0 million and adjusted funds flow was $83.1 million. Enerplus reported a third quarter net loss of $112.8 million, or $0.51 per share. The Company recognized a $256.8 million non-cash impairment on property, plant and equipment ("PP&E") as a result of the continued market volatility and low commodity price environment. Excluding this impairment and certain other non-cash items, Enerplus' third quarter 2020 adjusted net income was $17.7 million, or $0.08 per share.

2021 Preliminary Outlook

Based on the current commodity price environment, Enerplus expects to execute a maintenance capital budget in 2021, which would see the Company's production remain largely flat to the midpoint of its fourth quarter 2020 guidance at approximately 86,000 BOE per day including 48,000 barrels per day of liquids.

Capital spending associated with this outlook is expected to be approximately $300 million. This capital spending outlook includes an allocation to drilling and would support a similar maintenance capital and production profile in 2022.

Enerplus expects this plan to generate free cash flow to fund the dividend at approximately US$40 per barrel WTI and US$3.00 per Mcf NYMEX, while offering more significant free cash flow potential in an improving commodity price environment.

The Company will release its 2021 capital budget and operating plan later in 2020 or in early 2021.

Q3 Highlights:

• Third quarter production was 91,022 BOE per day, including liquids of 52,539 barrels per day
• 2020 production guidance was increased to 90,000 to 91,000 BOE per day (from 88,000 to 90,000 BOE per day), including 50,500 to 51,000 barrels per day of liquids (from 49,000 to 50,000 barrels per day) following production outperformance in North Dakota
• Adjusted funds flow of $83.1 million exceeded capital spending in the third quarter, generating free cash flow of $47.8 million, with additional free cash flow forecast in the fourth quarter
• 2020 capital spending guidance was reduced to $295 million (from $300 million)
• Reduced operating, general & administrative and transportation cost guidance by a combined $0.45 per BOE
• Maintained low financial leverage; net debt to adjusted funds flow ratio was 1.0 times at quarter-end
• Significant operational flexibility with an inventory of 26 net operated drilled uncompleted wells expected at year-end

Ian C. Dundas, President and CEO, said: "We remain committed to preserving our strong financial position during this period of heightened market uncertainty. Our third quarter results demonstrate this commitment through our focus on reducing costs, maintaining capital discipline and delivering strong operational performance. Looking ahead into 2021, the strength of our balance sheet and our advantaged operational flexibility will help us continue to navigate volatility while positioning the business to generate robust free cash flow in an improving oil price environment."

Q3 Summary

Third quarter production was 91,022 BOE per day, an increase of 4% compared to the prior quarter and 15% lower compared to the same period a year ago. Crude oil and natural gas liquids production in the third quarter was 52,539 barrels per day, a 9% increase compared to the prior quarter and 13% lower compared to the same period a year ago. Previously curtailed production was fully restored in the third quarter driving the higher quarter-over-quarter volumes. The lower production compared to the same period in 2019 was due to the reduction in capital activity in 2020.

Enerplus reported adjusted funds flow for the third quarter of 2020 of $83.1 million compared to $175.3 million in the third quarter of 2019. The decrease was primarily due to a combination of lower commodity prices and production volumes.

The Company reported a net loss of $112.8 million in the third quarter of 2020 compared to net income of $65.2 million from the prior year period. The net loss was primarily due to non-cash PP&E impairments of $256.8 million in the third quarter of 2020 as a result of the continued market volatility and low commodity price environment. Excluding the impairment and certain other non-cash items, Enerplus' third quarter 2020 adjusted net income was $17.7 million, or $0.08 per share, compared to adjusted net income of $62 million, or $0.27 per share in the third quarter of 2019.

Enerplus' third quarter 2020 realized Bakken oil price differential was US$5.37 per barrel below WTI, compared to US$3.61 per barrel below WTI in the third quarter of 2019. Third quarter Bakken oil differentials were impacted by uncertainty related to the ongoing legal proceedings regarding the Dakota Access Pipeline.

The Company's realized Marcellus natural gas price differential was US$0.72 per Mcf below NYMEX during the third quarter of 2020 compared to US$0.44 per Mcf below NYMEX in the prior year period. Weaker third quarter differentials were the result of regional storage being near capacity, combined with lower demand due to mild weather.

Enerplus' operating expenses were $7.78 per BOE during the third quarter, compared to $7.06 per BOE during the same period in 2019. The higher year-over-year unit operating expenses were primarily due to lower production volumes and a higher liquids production weighting in the third quarter of 2020.

Exploration and development capital spending totaled $35.3 million in the third quarter. The Company paid $6.7 million in dividends in the quarter.

Enerplus remains in a strong financial position with significant liquidity. At the end of the third quarter the Company had total debt of $513.3 million, cash of $84.5 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.

Asset Activity

Williston Basin production averaged 48,765 BOE per day (77% crude oil) during the third quarter of 2020, a decrease of 11% compared to the same period in 2019 due to lower capital activity, and 11% higher than the second quarter of 2020, as previously curtailed production was restored. The Company participated in drilling six gross non-operated wells (23% average working interest) and brought one gross non-operated well (40% working interest) on-stream during the third quarter.

Marcellus production averaged 184 MMcf per day during the third quarter of 2020, a decrease of 19% compared to the same period in 2019 and 7% lower than the prior quarter due to reduced capital activity during 2020. The Company participated in drilling 17 gross non-operated wells (9% average working interest) and brought 15 gross non-operated wells (3% average working interest) on production during the third quarter.

Canadian waterflood production averaged 7,726 BOE per day (95% crude oil) during the third quarter of 2020, 16% lower than the third quarter of 2019 due to reduced capital activity, and an increase of 22% compared to the second quarter of 2020, as previously curtailed production was restored. Enerplus brought ten net producer/injector wells at Giltedge onstream during the third quarter.

2020 Updated Guidance

Enerplus is increasing its 2020 annual production guidance to 90,000 to 91,000 BOE per day (from 88,000 to 90,000 BOE per day), including 50,500 to 51,000 barrels per day of liquids (from 49,000 to 50,000 barrels per day). The increase is primarily due to the Company's 2020 North Dakota well program outperforming expectations.

The Company is providing fourth quarter 2020 production guidance of 84,000 to 87,000 BOE per day, including 47,000 to 49,000 barrels per day of liquids.

Enerplus reduced its 2020 capital budget to $295 million, from $300 million, driven by strong operational execution in 2020. Capital activity in the fourth quarter primarily relates to four operated well completions in North Dakota along with non-operated drilling and completion activity in North Dakota and the Marcellus. The Company expects to exit 2020 with an inventory of 26 net operated drilled uncompleted wells.

The Company has had continued success reducing its cost structures in 2020. As a result, Enerplus is reducing its guidance for operating expenses to $8.00 per BOE (from $8.25 per BOE), cash general and administrative expenses to $1.35 per BOE (from $1.40 per BOE) and its transportation costs to $4.00 per BOE (from $4.15 per BOE).

Due to the weakness in Marcellus regional natural gas prices during September and October, Enerplus is revising its 2020 Marcellus natural gas price differential outlook to US$0.60 per Mcf below NYMEX, from US$0.45 per Mcf below NYMEX.

Risk Management

As of November 5, 2020, Enerplus had an average of 21,000 barrels per day of crude oil hedged through financial derivative contracts for the remainder of 2020 and 10,000 barrels per day for the first half of 2021.

For natural gas, Enerplus had 40,000 Mcf per day hedged at a fixed price of US$2.96 per Mcf for the summer of 2021.