CALGARY, Dec. 13, 2017 /CNW/ – Enerplus Corporation (TSX & NYSE: ERF) today announced its 2018 exploration and development capital budget of $535 to $585 million which is focused on generating sustainable and profitable cash flow growth, while maintaining the Company’s significant financial strength.
Highlights of the 2018 capital budget and guidance:
- Projecting approximately 10% total production growth and 20% liquids production growth year-over-year, on a divestment adjusted basis
- North Dakota production to grow by over 30% year-over-year
- Liquids to account for more than 55% of total production by the second half of 2018
- Capital spending and dividends expected to be funded within cash flow at between US$50 – $55 per barrel WTI oil and US$3.00 per Mcf NYMEX natural gas
- Price protection on more than 60% of 2018 forecast net crude oil production, hedged largely through three-way collar structures, with average upside participation to approximately US$60 per barrel WTI
- Net debt to adjusted funds flow ratio expected to remain below 1.0 times
“Our plans in 2018 remain grounded in disciplined capital allocation focused on generating competitive economic returns and profitable cash flow per share growth,” stated Ian C. Dundas, President and Chief Executive Officer. “The majority of our capital program will once again be directed to our North Dakota asset where our focus on continuous improvement is delivering top quartile capital efficiencies. Supported by our strong free cash flow generating assets in the Marcellus and Canada, our self-funded 2018 growth plan is resilient and our balance sheet is expected to remain among the strongest in the peer group.”
2018 Operating Plan
Enerplus has allocated approximately 75% of its 2018 capital budget to its North Dakota development, which will fund a two rig program projected to drill 45 gross operated wells (38 net). This represents an increase of approximately 30% in operated wells drilled year-over-year despite an unchanged rig count. This improvement is due to faster drilling cycle times and efficiency gains driven by more pad development in 2018. The Company expects to complete 38 gross operated wells (33 net) in North Dakota in 2018.
Enerplus plans to spend approximately 10% of its 2018 capital budget in the Marcellus to drill 8 net wells and bring 6 net wells on production.
Enerplus plans to spend approximately 10% of its 2018 capital budget across its Canadian waterflood portfolio. Capital activity will comprise drilling 17 gross (15 net) producer and injector wells across the waterflood assets, along with ongoing polymer injection for existing projects, and facilities maintenance and optimization.
The remaining 5% of the 2018 capital budget will be directed to non-core properties in Canada and the continued testing of the Company’s DJ Basin acreage.
The Company’s $535 to $585 million capital budget includes an allocation for non-drilling/completion capital, primarily related to maintenance and optimization spending and capitalized G&A expenses. The allocation across assets is shown in the table below.
Capital Allocation(1) |
2018 Budget |
|||||
North Dakota |
75% |
|||||
Marcellus |
10% |
|||||
Canadian Waterfloods |
10% |
|||||
Other(2) |
5% |
|||||
Total |
100% |
(1) |
Approximate capital allocation based on the mid-point ($560 million) of capital spending guidance |
(2) |
Other capital comprises exploration and development capital associated with Enerplus’ DJ Basin acreage, as well as spending for Enerplus’ non-core properties in Canada |
Fourth Quarter 2017 Non-Core Canadian Divestments
Enerplus has continued to progress the divestment of minor non-core properties in Canada during the fourth quarter of 2017. By the end of the quarter, Enerplus expects to divest approximately 1,400 BOE per day (70% natural gas) of aggregate non-core production from properties in Alberta for minimal proceeds. These properties have significantly higher cost structures than the Company’s corporate average and as a result, generated only modest cash flow. The properties had an average operating netback of $3.70 per BOE through the first nine months of 2017. Additionally, these divestments further reduce Enerplus’ overall well count and abandonment and reclamation liabilities. The transactions are expected to close late in the fourth quarter of 2017, or early 2018.
2018 Guidance
Annual 2018 production is expected to average between 86,000 to 91,000 BOE per day, with crude oil and natural gas liquids production expected to average between 46,000 to 50,000 barrels per day. In total throughout 2017, Enerplus expects to have divested approximately 8,700 BOE per day (70% natural gas) of non-core production. On a pro forma basis after adjusting for the impact of these divestments, year-over-year total Company and liquids production in 2018 is projected to grow by approximately 10% and 20%, respectively.
The Company’s realized Bakken crude oil price differential below WTI is projected to be US$2.50 per barrel in 2018. This represents an expected 40% improvement year-over-year largely driven by increased basin pipeline takeaway due to the Dakota Access Pipeline which commenced operations in mid-2017. The Company’s realized Marcellus natural gas price differential below NYMEX is projected to be US$0.40 per Mcf in 2018. This represents an expected 50% improvement year-over-year resulting from the significant slate of incremental Marcellus pipeline projects and Cove Point LNG expected to come into service between the fourth quarter of 2017 and year-end 2018.
Operating expenses in 2018 are forecast to be modestly higher than 2017 levels as a result of the higher expected liquids weighting in the Company’s 2018 production mix. Operating expenses are expected to average $7.00 per BOE in 2018.
Transportation costs and cash G&A expenses per BOE are expected to trend lower in 2018, and are forecast to average $3.60 per BOE and $1.65 per BOE, respectively.
A summary of Enerplus’ 2018 guidance is provided below. This guidance includes the impact of the expected fourth quarter 2017 divestments.
2018 Guidance |
||
Capital spending |
$535 – 585 million |
|
Average annual production |
86,000 – 91,000 BOE/d |
|
Average annual crude oil and natural gas liquids production |
46,000 – 50,000 bbl/d |
|
Average royalty and production tax rate |
25% |
|
Operating expense |
$7.00/BOE |
|
Transportation expense |
$3.60/BOE |
|
Cash G&A expense |
$1.65/BOE |
|
2018 Differential/Basis Outlook(1) |
||
U.S. Bakken crude oil differential (compared to WTI crude oil) |
US$(2.50)/bbl |
|
Marcellus basis (compared to NYMEX natural gas) |
US$(0.40)/Mcf |
(1) Excluding transportation costs |
Risk Management Update
Enerplus has added additional crude oil hedges to protect its capital plans. Crude oil production is expected to generate over three quarters of the Company’s net operating income in 2018. Using swaps and collar structures, Enerplus has an average of 20,500 barrels per day of crude oil protected in 2018 (approximately 64% of forecast crude oil production net of royalties at the midpoint of guidance) and 14,000 barrels per day of crude oil protected in 2019.
Commodity Hedging Detail (As at December 12, 2017) |
|||||||||
WTI Crude Oil |
Nymex Natural Gas |
||||||||
Oct 1, – |
Jan 1, – |
Apr 1 – |
Jul 1 – |
Oct 1 – |
Jan 1, – |
Apr 1, – |
Oct 1, 2017 – |
Jan 1, 2018 – |
|
Swaps |
|||||||||
Sold Swaps |
$53.50 |
$55.38 |
$55.38 |
$53.73 |
$53.73 |
$53.73 |
– |
– |
– |
Volume (bbls/d or Mcf/d) |
2,000 |
5,000 |
5,000 |
3,000 |
3,000 |
3,000 |
– |
– |
– |
Three-Way Collars |
|||||||||
Sold Puts |
$39.62 |
$42.83 |
$42.92 |
$42.71 |
$42.74 |
$43.52 |
$43.48 |
$2.06 |
– |
Volume (bbls/d or Mcf/d) |
18,000 |
13,000 |
15,000 |
18,000 |
20,000 |
11,000 |
14,000 |
50,000 |
– |
Purchased Puts |
$50.61 |
$53.04 |
$52.90 |
$52.53 |
$52.48 |
$53.23 |
$53.45 |
$2.75 |
$2.75 |
Volume (bbls/d or Mcf/d) |
18,000 |
13,000 |
15,000 |
18,000 |
20,000 |
11,000 |
14,000 |
50,000 |
30,000 |
Sold Calls |
$60.33 |
$61.99 |
$61.73 |
$61.22 |
$61.10 |
$62.09 |
$62.69 |
$3.41 |
$3.47 |
Volume (bbls/d or Mcf/d) |
18,000 |
13,000 |
15,000 |
18,000 |
20,000 |
11,000 |
14,000 |
50,000 |
30,000 |
(1) |
Based on weighted average price (before premiums). A portion of the sold puts are settled annually rather than monthly. |
About Enerplus
Enerplus Corporation is a responsible developer of high quality crude oil and natural gas assets in Canada and the United States committed to creating value for its shareholders through a disciplined capital investment strategy.
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.