CALGARY, Jan. 20, 2020 /CNW/ - Enerplus Corporation
("Enerplus" or the "Company") (TSX & NYSE: ERF) today announced
its 2020 exploration and development capital budget of $520 to $570
million and outlook through 2022.
"We remain focused on creating value for shareholders through a
combination of sustainable, high return production per share
growth, free cash flow generation and low financial leverage,"
stated Ian C. Dundas, President and
Chief Executive Officer. "As we further prioritize our ability to
generate meaningful free cash flow throughout commodity price
cycles, we are moderating our production growth outlook."
Dundas continued, "Our revised 2020 plan is expected to generate
12% liquids production per share growth under a reduced capital
program that is approximately 13% lower than 2019's program of
$625 million. This plan is also
expected to generate free cash flow at oil prices above
US$50 per barrel WTI, a portion of
which we intend to continue returning to shareholders through our
dividend and opportunistic share repurchases."
Highlights of the 2020 Budget
- Improving capital efficiencies with well costs in North Dakota anticipated to be US$400,000 lower year-over-year
- Annual crude oil and natural gas liquids production is expected
to grow to between 57,000 to 60,000 barrels per day
- 7% annual crude oil and natural gas liquids production growth
at the guidance midpoint (12% growth per share)
- Free cash flow forecast at commodity prices above US$50 per barrel WTI and US$2.25 per Mcf NYMEX
- Continuing focus on return of capital to shareholders through
dividends and share repurchases
- Price protection on 56% of forecast net oil production at a
floor price of US$57 per barrel WTI,
hedged largely through put spreads and collar structures, retaining
meaningful exposure to higher crude oil prices
- Maintaining low financial leverage
2020 Capital and Operating Plan
Enerplus' high quality position in North Dakota will continue to attract the
majority of the Company's capital spending in 2020. Enerplus has
allocated 82% of its 2020 capital budget to its North Dakota development to drill 41 to
46 net wells and bring approximately 45 net wells on production.
Sustained improvements in drilling cycle times, completion
efficiencies and cost reductions are continuing to drive well costs
lower. Enerplus expects its 2020 well costs to average US$7.2 million, approximately US$400,000 lower than its 2019 average.
Enerplus plans to spend 8% of its 2020 capital budget across its
Canadian operations. Capital activity includes drilling
approximately 9 net producer/injector wells, along with ongoing
polymer injection for existing projects and facilities maintenance
and optimization.
Capital spending in Enerplus' non-operated Marcellus position is
expected to be meaningfully lower in 2020 compared to 2019, in
response to lower anticipated natural gas prices. Enerplus plans to
spend 5% of its 2020 capital budget in the Marcellus to drill 3 net
wells and bring 2 net wells on production.
In 2019, Enerplus continued to advance its understanding of cost
structures and well performance in the DJ Basin. The five wells
brought on production in late 2019 were completed using various
proppant and fluid intensities with encouraging results. On
average, the wells have produced approximately 40,000 barrels of
oil per well in 130 days on production. Currently the best
performing of the five wells is St.
Albert 8-67-21-22C, which also had the most competitive
completion cost structure. The well has produced over 51,000
barrels of oil in 130 days on production. In 2020, Enerplus plans
to drill 5 net wells and complete 3 net wells in the DJ Basin,
which includes participating in non-operated wells. With line of
sight to competitive development costs, this program is designed to
make further progress enhancing economics and to retain
acreage.
2020 Exploration
& Development Capital Allocation(1)
|
|
|
%
|
C$
Millions
|
North
Dakota
|
82%
|
$450
|
Canada
|
8%
|
$45
|
Marcellus
|
5%
|
$25
|
DJ Basin
|
5%
|
$25
|
Total
|
100%
|
$545
|
(1)
|
Approximate capital
allocation based on the midpoint of the budget.
|
2020 Guidance
Enerplus' oil focused capital program is expected to increase
crude oil and natural gas liquids production to between 57,000 to
60,000 barrels per day, on average, in 2020. The Company's natural
gas production is expected to decline in 2020 due to limited
capital activity in the Marcellus in response to lower anticipated
natural gas prices and the Company's decision to abandon and
reclaim its non-core asset at Tommy Lakes in Canada due to increasingly marginal economics.
The planned shut-in of Tommy Lakes in early 2020 is expected to
impact the Company's 2020 production by 1,600 BOE per day (90%
natural gas) with minimal impact to cash flow from operating
activities. Total Company production is expected to average between
96,000 to 100,000 BOE per day in 2020.
As a result of the Company's 2019 investment profile with only
modest fourth quarter capital activity, production in the first
quarter of 2020 is expected to decline from the fourth quarter of
2019. Following this, crude oil production is expected to
meaningfully increase driven by North
Dakota volumes, with strong growth forecast for the second
half of 2020.
The Company's realized Bakken crude oil price differential below
WTI is projected to be US$5.00 per
barrel in 2020. Growing basin production in the Bakken, combined
with a narrower Brent-WTI crude oil price spread, led to wider
Bakken oil price differentials in the fourth quarter of 2019 and
these pricing levels are expected to continue in 2020. For the
Marcellus, weak winter natural gas demand year to date is expected
to result in a wider natural gas price differential in 2020
compared to 2019. The Company expects its realized Marcellus
natural gas price differential to average US$0.45 per Mcf below NYMEX in 2020.
Operating expenses in 2020 are expected to average $8.50 per BOE, an increase from 2019 levels as a
result of the Company's liquids production weighting increasing
from 54% in 2019 to an expected 60% in 2020.
A summary of Enerplus' 2020 guidance is provided below.
2020 Guidance
Summary
|
Capital
spending
|
$520 to $570
million
|
Average annual
production
|
96,000 – 100,000
BOE/d
|
Average annual crude
oil and natural gas liquids production
|
57,000 – 60,000
BOE/d
|
Average royalty and
production tax rate
|
26%
|
Operating
expense
|
$8.50/BOE
|
Transportation
expense
|
$4.00/BOE
|
Cash G&A
expense
|
$1.50/BOE
|
2020
Differential/Basis Outlook(1)
|
U.S. Bakken crude oil
differential (compared to WTI crude oil)
|
US$(5.00)/bbl
|
Marcellus basis
(compared to NYMEX natural gas)
|
US$(0.45)/Mcf
|
(1)
|
Excluding transportation costs.
|
Return of Capital
Enerplus remains committed to returning capital to shareholders
through the combination of a sustainable dividend and share
repurchases. The Company is maintaining its monthly dividend level
at $0.01 per share and intends to
allocate a portion of its 2020 free cash flow after dividends to
repurchasing stock, based on current market conditions. The
Company's 2020 investment profile, with higher capital spending
during the first half of the year, is expected to result in free
cash flow generation in the second half of the year. Enerplus will
retain flexibility to pre-spend a portion of the expected free cash
flow to repurchase shares earlier in the year.
Since initiating its share repurchase program in the third
quarter of 2018, Enerplus has repurchased 24.3 million shares,
representing approximately 10% of shares outstanding. The Company
currently has 7.0 million remaining shares authorized under its
normal course issuer bid which expires March
25, 2020 and can be renewed thereafter for another 12 months
for up to 10% of the public float (within the meaning under the
Toronto Stock Exchange rules).
Outlook through 2022
Consistent with its approach to 2020, in 2021 and 2022, Enerplus
expects to provide a competitive balance of sustainable, high
return growth on a per share basis, free cash flow generation and
low financial leverage. This is expected to result in a high
single-digit annual liquids production growth rate over this period
and is expected to be further enhanced on a per share basis through
future share repurchases.
Price Risk Management Update
Enerplus has approximately 22,000 barrels per day of crude oil
protected in 2020, representing approximately 56% of net 2020 crude
oil production at the guidance midpoint. The Company has used
swaps, put spreads and three-way collar structures to hedge crude
oil providing downside protection at approximately $57 per barrel, while retaining meaningful
exposure to higher crude oil prices.
Commodity
Hedging Detail (As at January 17, 2020)
|
|
WTI Crude
Oil
(US$/bbl)(1)
|
|
Jan 1 – Mar
31,
2020
|
Apr 1 – Jun
30,
2020
|
Jul 1 – Sep
30,
2020
|
Oct 1 – Dec
31,
2020
|
Swaps
|
|
|
|
|
Sold Swaps
|
57.02
|
57.49
|
57.18
|
-
|
Volume
(bbls/d)
|
5,000
|
7,000
|
2,000
|
-
|
Put
Spreads
|
|
|
|
|
Sold Puts
|
$46.88
|
$46.88
|
$46.88
|
$46.88
|
Volume
(bbls/d)
|
16,000
|
16,000
|
16,000
|
16,000
|
Purchased
Puts
|
$57.50
|
$57.50
|
$57.50
|
$57.50
|
Volume
(bbls/d)
|
16,000
|
16,000
|
16,000
|
16,000
|
Three Way
Collars
|
|
|
|
|
Sold Puts
|
-
|
-
|
$48.00
|
$48.00
|
Volume
(bbls/d)
|
-
|
-
|
5,000
|
5,000
|
Purchased
Puts
|
-
|
-
|
$56.25
|
$56.25
|
Volume
(bbls/d)
|
-
|
-
|
5,000
|
5,000
|
Sold Calls
|
-
|
-
|
$65.00
|
$65.00
|
Volume
(bbls/d)
|
-
|
-
|
5,000
|
5,000
|
(1)
|
The total
average deferred premium on outstanding 2020 hedges is US$1.84/bbl
from January 1, 2020 to December 31, 2020.
|
Currency and Accounting Principles
All amounts in
this news release are stated in Canadian dollars unless otherwise
specified.
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 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 industry protocol oil and gas sales and
production volumes are required to be presented on a gross basis
before deduction of royalties. In order to continue to be
comparable with its Canadian peer companies, unless otherwise
stated, the information contained within this news release presents
Enerplus' production and BOE measures on a before royalty "company
interest" basis. All production volumes presented herein are
reported on a "company interest" basis, before deduction of Crown
and other royalties, plus Enerplus' royalty interest. This news
release also contains references to the percentage of the Company's
production that is hedged under commodity derivatives contracts,
this percentage being based upon the Company's net of royalty
production volumes.
FORWARD-LOOKING INFORMATION AND
STATEMENTS
This news release contains certain
forward-looking information and statements ("forward-looking
information") within the meaning of applicable securities laws. The
use of any of the words "expect", "anticipate", "continue",
"estimate", "guidance", "ongoing", "may", "will", "project",
"plans", "budget", "strategy" and similar expressions are intended
to identify forward-looking information. In particular, but without
limiting the foregoing, this news release contains forward-looking
information pertaining to the following: expected 2020 average
production volumes, anticipated production growth through 2022,
anticipated production mix and Enerplus' expected source of funding
thereof; the proportion of Enerplus' anticipated oil and gas
production that is hedged; our 2020 operating plans, including the
results from our drilling program, anticipated well costs and the
timing of related production; oil and natural gas prices and
differentials and our commodity risk management programs;
anticipated cash G&A, operating and transportation expenses;
expected average royalty and production tax rate; expected capital
spending levels in 2020 and in the future, its components and its
impact on production; and expected share purchases through 2022 and
sources of funding thereof.
The forward-looking information contained in this news
release reflects several material factors and expectations and
assumptions of Enerplus including, without limitation: that
Enerplus will conduct its operations and achieve results of
operations as anticipated; that Enerplus' development plans will
achieve the expected results; current commodity price and cost
assumptions; the general continuance of current or, where
applicable, assumed industry conditions; the continuation of
assumed tax, royalty and regulatory regimes; the accuracy of the
estimates of Enerplus' reserves and resources volumes; the
continued availability of adequate debt and/or equity financing,
cash flow and other sources to fund Enerplus' capital and operating
requirements, and dividend payments as needed; availability of
third party services; and the extent of its liabilities. In
addition, Enerplus' 2020 guidance contained in this news release is
based on the following: a WTI price of between US$50.00/bbl to US$55.00/bbl, a NYMEX price of US$2.25/Mcf, and a USD/CDN exchange rate of 1.30.
Enerplus believes the material factors, expectations and
assumptions reflected in the forward-looking information are
reasonable but no assurance can be given that these factors,
expectations, and assumptions will prove to be correct.
The forward-looking information included in this news release
is not a guarantee of future performance and should not be unduly
relied upon. Such information involves known and unknown risks,
uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in such
forward-looking information including, without limitation: changes,
including future decline, in commodity prices; changes in realized
prices for Enerplus' products; changes in the demand for or supply
of Enerplus' products; unanticipated operating results, results
from Enerplus' capital spending activities or production declines;
curtailment of Enerplus' production due to low realized prices or
lack of adequate infrastructure; changes in tax or environmental
laws, royalty rates or other regulatory matters; changes in
development plans by Enerplus or by third party operators of
Enerplus' properties; increased debt levels or debt service
requirements; changes in estimates of Enerplus' oil and gas
reserves and resources volumes; limited, unfavourable or a lack of
access to capital markets; increased costs; a lack of adequate
insurance coverage; the impact of competitors; reliance on industry
partners; failure to complete any anticipated acquisitions or
divestitures; and certain other risks detailed from time to time in
Enerplus' public disclosure documents (including, without
limitation, those risks identified in its AIF, management's
discussion and analysis ("MD&A"), and Form 40-F at December 31, 2018).
NON-GAAP MEASURES
In this news release,
Enerplus uses the term "free cash flow" as a measure to analyze
operating and financial performance. "Free cash flow" is defined as
"Adjusted funds flow less exploration and development capital
spending". "Adjusted funds flow" is calculated as net cash
generated from operating activities but before changes in non-cash
operating working capital and asset retirement obligation
expenditures.
Enerplus believes that, in addition to net earnings and other
measures prescribed by U.S. GAAP, the term "free cash flow" is a
useful supplemental measure as it provides an indication of the
results generated by Enerplus' principal business activities.
However, this measure is not recognized by U.S. GAAP and does not
have a standardized meaning prescribed by U.S. GAAP. Therefore,
this measure, as defined by Enerplus, may not be comparable to
similar measures presented by other issuers.
Ian C. Dundas
President & Chief Executive Officer
Enerplus Corporation
SOURCE Enerplus Corporation