CALGARY, AB – Enerplus Corporation (“Enerplus” or the “Company”) (TSX: ERF) (NYSE: ERF) today reported its second quarter 2020 operating and financial results. Cash flow from operating activities for the second quarter was $90.6 million and adjusted funds flow was $70.0 million. Enerplus reported a second quarter net loss of $609.3 million, or $2.74 per share. The Company recognized a $426.8 million non-cash impairment on property, plant and equipment (“PP&E”) and a $202.8 million non-cash impairment on goodwill as a result of the continued market volatility and low commodity price environment. Excluding these impairments and certain other non-cash or non-recurring items, Enerplus’ second quarter 2020 adjusted net loss was $41.2 million, or $0.19 per share.
HIGHLIGHTS
“We have seen extraordinary volatility in the first 6-months of 2020 as the COVID-19 pandemic and OPEC supply issues meaningfully impacted the industry,” commented Ian C. Dundas, President and Chief Executive Officer of Enerplus. “Enerplus took decisive action to respond to this instability, enabling the company to navigate this period and maintain financial resilience. Despite the challenging conditions, we delivered strong operational execution and cost performance in the second quarter, which has helped position the business to deliver free cash flow in 2020 and maintain our top-quartile balance sheet strength.”
SECOND QUARTER SUMMARY
Production
Production in the second quarter of 2020 was 87,360 BOE per day, a decrease of 13% compared to the same period a year ago, and 11% lower than the prior quarter. Crude oil and natural gas liquids production in the second quarter of 2020 was 48,097 barrels per day, a decrease of 9% compared to the same period a year ago, and 12% lower than the prior quarter.
The lower production was due to the temporary curtailment of production during the second quarter and the suspension of all operated drilling and completion activity in response to the significant decline in crude oil prices. Enerplus curtailed approximately 25% of its liquids volumes in May to protect against selling oil at negative margins. The Company began restoring curtailed volumes in June as oil prices improved, with curtailed volumes largely restored in July.
Financial Highlights
Enerplus reported adjusted funds flow for the second quarter of 2020 of $70.0 million compared to $186.0 million in the second quarter of 2019. The decrease from the prior year period was due to lower commodity prices and production levels in the second quarter of 2020.
The Company reported a net loss of $609.3 million in the second quarter of 2020 compared to net income of $85.1 million in the same period in 2019. The decrease from the prior year period was primarily the result of non-cash impairments and lower commodity prices and production in the second quarter of 2020. In the second quarter of 2020, Enerplus recorded a $426.8 million non-cash impairment on PP&E and a $202.8 million non-cash impairment on goodwill as a result of the continued market volatility and low commodity price environment. Excluding these impairments and certain other non-cash or non-recurring items, Enerplus’ second quarter 2020 adjusted net loss was $41.2 million, or $0.19 per share, compared to adjusted net income of $74.4 million, or $0.32 per share in the second quarter of 2019. Enerplus recorded a current tax recovery of $14.4 million in the second quarter of 2020 related to the recognition of the Company’s final U.S. Alternative Minimum Tax refund.
Enerplus’ second quarter 2020 realized Bakken oil price differential was US$4.36 per barrel below WTI, compared to US$3.00 per barrel below WTI in the second quarter of 2019. Bakken oil differentials materially weakened during April as refineries reduced purchases given the significant reduction in demand for refined products due to the COVID-19 pandemic. Despite this weakness, Enerplus outperformed the benchmark index (Bakken DAPL – WTI) by temporarily curtailing production during the weakest period and through the diversification of sales into higher priced markets.
The Company’s realized Marcellus natural gas price differential was US$0.49 per Mcf below NYMEX during the second quarter of 2020 compared to US$0.57 per Mcf below NYMEX in the second quarter of 2019. The second quarter differentials reflect lower seasonal natural gas demand in the local market.
In the second quarter of 2020, Enerplus’ operating expenses were $6.84 per BOE, compared to $7.84 per BOE during the same period in 2019. The lower unit operating expenses were primarily driven by the proactive price related shut-in of the Company’s highest unit expense oil wells, and from reduced well servicing activity and lower service costs.
Second quarter transportation costs were $4.28 per BOE and cash general and administrative expenses were $1.14 per BOE.
Exploration and development capital spending in the second quarter was $40.1 million, reflecting strong operational execution which drove continued improvement in total well costs. Capital activity in the quarter was associated with drilling 2.5 net wells and bringing 8.9 net wells on production, including operated and non-operated activity across the Company.
Enerplus ended the second quarter of 2020 with a strong balance sheet and significant liquidity. The Company had total debt of $524.3 million, cash of $6.2 million and US$599 million available 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. During the second quarter, Enerplus made scheduled principal repayments of US$81.6 million on its 2009 and 2012 senior notes.
Asset Activity
Williston Basin production averaged 44,081 BOE per day (81% oil) during the second quarter of 2020, a decrease of 6% compared to the same period a year ago, and 11% lower than the prior quarter, reflecting the curtailed production during the second quarter of 2020. During the second quarter, and prior to the suspension of the Company’s drilling and completion program in mid-April, the Company drilled one gross operated well and completed a seven-well pad (97% average working interest). The seven-well pad was brought on production during June concurrent with improving oil prices. Enerplus currently has 33 gross (27 net) operated drilled uncompleted wells in inventory in North Dakota.
Marcellus production averaged 197 MMcf per day during the second quarter of 2020, a decrease of 17% compared to the same period in 2019, and 9% lower than the prior quarter. The Company participated in drilling 15 gross non-operated wells (4% average working interest) and brought 10 gross non-operated wells (2% average working interest) on production during the quarter.
Canadian waterflood production averaged 6,338 BOE per day (94% oil) during the second quarter of 2020, a decrease of 31% compared to the same period in 2019, and 23% lower than the prior quarter, reflecting the curtailed production during the second quarter of 2020.
In the DJ Basin, the Company participated in drilling 15 gross non-operated wells (6% average working interest) in the second quarter and brought two gross operated wells (90% average working interest) on production. Enerplus currently has three gross (2.6 net) operated drilled uncompleted wells in inventory in the DJ Basin.
2020 GUIDANCE AND 2021 MAINTENANCE CAPITAL
Although there remains significant uncertainty regarding the timing and path forward for a global economic recovery from the impacts of COVID-19, given the relative stability in oil prices since late in the second quarter, Enerplus is reinstating 2020 guidance.
Enerplus expects its 2020 production to average 88,000 to 90,000 BOE per day, including 49,000 to 50,000 barrels per day of crude oil and natural gas liquids. Enerplus is maintaining its $300 million capital budget in 2020. Remaining activity is primarily focused on non-operated drilling and completions in the Marcellus and North Dakota, along with four operated completions in North Dakota planned for the fourth quarter. In total, the Company expects to complete approximately six net wells (operated and non-operated) in North Dakota and two net wells in the Marcellus in the second half of 2020. Enerplus expects this plan to generate free cash flow in 2020 based on current market conditions.
With this outlook, Enerplus estimates it could maintain its second half 2020 liquids production flat in 2021 for approximately $300 million. This maintenance capital estimate includes an allocation for drilling in 2021 to provide an inventory of wells to complete in 2022, and an allocation for the Company’s Marcellus natural gas asset.
In early July, a U.S. district court ordered the Dakota Access Pipeline (“DAPL”) to cease operations after it found that, due to deficiencies in the original environmental review, the U.S. Army Corps of Engineers are required to complete a more thorough Environmental Impact Statement. On August 5, an appeals court granted the pipeline owners’ request for a stay over the lower court order requiring the pipeline to cease operations. As a result, there is no outstanding court order in place requiring DAPL to shut down at this time and the legal process is ongoing.
As a result of the above and assuming DAPL continues to operate, the Company expects the market price for Bakken oil to remain constructive and estimates its realized 2020 Bakken oil price differential will average approximately US$5.00 per barrel below WTI. For the second half of 2020, Enerplus has fixed differential sales agreements in North Dakota for approximately 16,000 barrels per day at an estimated price of US$6.00 per barrel below WTI, based on current market prices.
2020 Guidance Summary
The Company’s reinstated guidance for 2020 is in the table below.
2020 Guidance |
|
Capital spending |
$300 million |
Average annual production |
88,000 – 90,000 BOE/day |
Average annual crude oil and natural gas liquids production |
49,000 – 50,000 bbls/day |
Average royalty and production tax rate |
26% |
Operating expense |
$8.25/BOE |
Transportation expense |
$4.15/BOE |
Cash G&A expense |
$1.40/BOE |
2020 Full-Year Differential/Basis Outlook (1) |
|
U.S. Bakken crude oil differential (compared to WTI crude oil)(2) |
US$(5.00)/bbl |
Marcellus natural gas sales price differential (compared to NYMEX natural gas) |
US$(0.45)/Mcf |
(1) |
Excluding transportation costs. |
(2) |
Based on the continued operation of the Dakota Access Pipeline. |
Risk Management
As of August 6, 2020, Enerplus has an average of 24,500 barrels per day of crude oil hedged through financial derivative contracts for the remainder of 2020 and 6,000 barrels per day for the first half of 2021.
WTI Crude Oil (US$/bbl)(1)(2) |
||||
Jul 1, 2020 – |
Oct 1, 2020 – |
Jan 1, 2021 – |
||
Swaps |
||||
Volume (bbls/d) |
7,000 |
— |
— |
|
Sold Swaps |
$ 36.02 |
— |
— |
|
Put Spreads |
||||
Volume (bbls/d) |
16,000 |
16,000 |
— |
|
Sold Puts |
$ 46.88 |
$ 46.88 |
— |
|
Purchased Puts |
$ 57.50 |
$ 57.50 |
— |
|
Three Way Collars |
||||
Volume (bbls/d) |
5,000 |
5,000 |
6,000 |
|
Sold Puts |
$ 48.00 |
$ 48.00 |
$ 32.00 |
|
Purchased Puts |
$ 56.25 |
$ 56.25 |
$ 40.00 |
|
Sold Calls |
$ 65.00 |
$ 65.00 |
$ 50.00 |
(1) |
All of the sold puts on the put spreads are settled annually at the end of 2020 rather than monthly. |
||||
(2) |
The total average deferred premium spent on these hedges is US$1.75/bbl from July 1, 2020 to December 31, 2020 and US$0.03/bbl from January 1, 2021 to June 30, 2021. |
DIRECTOR RETIREMENT
Enerplus announced the retirement of Mr. Michael Culbert from the Company’s board of directors. Mr. Culbert has been a valued member of the board of directors since his appointment in March 2014 and has provided the board with insightful guidance gained through his long career in the oil and gas industry. Enerplus wishes to acknowledge and thank him for his many contributions and dedicated service.
SECOND QUARTER PRODUCTION AND Operational summary tables
Average Daily Production(1)
Three months ended |
Six months ended |
||||||||
Crude Oil (Mbbl/d) |
Natural Gas Liquids (Mbbl/d) |
Natural gas (MMcf/d) |
Total Production (Mboe/d) |
Crude Oil (Mbbl/d) |
Natural Gas Liquids (Mbbl/d) |
Natural gas (MMcf/d) |
Total Production (Mboe/d) |
||
Williston Basin |
35.6 |
4.2 |
25.2 |
44.1 |
37.7 |
4.4 |
28.0 |
46.8 |
|
Marcellus |
– |
– |
196.7 |
32.8 |
– |
– |
206.3 |
34.4 |
|
Canadian Waterfloods |
6.0 |
0.1 |
1.8 |
6.3 |
6.8 |
0.1 |
2.2 |
7.3 |
|
Other(2) |
1.6 |
0.6 |
11.8 |
4.2 |
1.5 |
0.7 |
12.7 |
4.3 |
|
Total |
43.2 |
4.9 |
235.6 |
87.4 |
46.1 |
5.1 |
249.2 |
92.8 |
(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 |
Six months ended |
||||||||||
Operated |
Non-Operated |
Operated |
Non-Operated |
||||||||
Gross |
Net |
Gross |
Net |
Gross |
Net |
Gross |
Net |
||||
Williston Basin |
1 |
1.0 |
– |
– |
19 |
18.8 |
3 |
1.1 |
|||
Marcellus |
– |
– |
15 |
0.6 |
– |
– |
30 |
1.7 |
|||
Canadian Waterfloods |
– |
– |
– |
– |
10 |
10.0 |
– |
– |
|||
Other(2) |
– |
– |
15 |
0.9 |
5 |
4.4 |
16 |
0.9 |
|||
Total |
1 |
1.0 |
30 |
1.5 |
34 |
33.2 |
49 |
3.7 |
(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 |
Six months ended |
||||||||||
Operated |
Non-Operated |
Operated |
Non-Operated |
||||||||
Gross |
Net |
Gross |
Net |
Gross |
Net |
Gross |
Net |
||||
Williston Basin |
7 |
6.8 |
– |
– |
18 |
15.8 |
7 |
1.9 |
|||
Marcellus |
– |
– |
10 |
0.2 |
– |
– |
20 |
0.6 |
|||
Canadian Waterfloods |
– |
– |
– |
– |
– |
– |
– |
– |
|||
Other(2) |
2 |
1.8 |
– |
– |
2 |
1.8 |
1 |
0.0 |
|||
Total |
9 |
8.6 |
10 |
0.2 |
20 |
17.6 |
28 |
2.5 |
(1) |
Table may not add due to rounding. |
(2) |
Comprises DJ Basin and non-core properties in Canada. |
Q2 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, August 7, 2020 |
Time: |
9:00 AM MT (11:00 AM ET) |
Dial-In: |
587-880-2171 (Alberta) |
1-888-390-0546 (Toll Free) |
|
Conference ID: |
65642132 |
Audiocast: |
https://produceredition.webcasts.com/starthere.jsp?ei=1338878&tp_key=8226100b06 |
To ensure timely participation in the conference call, callers are encouraged to dial in 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: |
642132 # |
SELECTED FINANCIAL RESULTS |
Three months ended June 30, |
Six months ended June 30, |
||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||
Financial (CDN$, thousands, except ratios) |
||||||||||||
Net Income/(Loss) |
$ |
(609,323) |
$ |
85,084 |
$ |
(606,447) |
$ |
104,242 |
||||
Adjusted Net Income/(Loss)(1) |
(41,185) |
74,366 |
(20,095) |
146,824 |
||||||||
Cash Flow from Operating Activities |
90,560 |
236,991 |
213,299 |
345,942 |
||||||||
Adjusted Funds Flow(1) |
69,997 |
186,038 |
183,224 |
354,793 |
||||||||
Dividends to Shareholders – Declared |
6,675 |
7,034 |
13,345 |
14,196 |
||||||||
Total Debt Net of Cash(1) |
518,094 |
359,006 |
518,094 |
359,006 |
||||||||
Capital Spending |
40,084 |
207,208 |
203,709 |
368,001 |
||||||||
Property and Land Acquisitions |
3,416 |
1,911 |
5,672 |
4,936 |
||||||||
Property Divestments |
(63) |
9,601 |
5,515 |
10,067 |
||||||||
Net Debt to Adjusted Funds Flow Ratio(1) |
1.0x |
0.5x |
1.0x |
0.5x |
||||||||
Financial per Weighted Average Shares Outstanding |
||||||||||||
Net Income /(Loss) – Basic |
$ |
(2.74) |
$ |
0.36 |
$ |
(2.73) |
$ |
0.44 |
||||
Net Income/(Loss) – Diluted |
(2.74) |
0.36 |
(2.73) |
0.43 |
||||||||
Weighted Average Number of Shares Outstanding (000’s) – Basic |
222,557 |
235,490 |
222,457 |
237,197 |
||||||||
Weighted Average Number of Shares Outstanding (000’s) – Diluted |
222,557 |
238,189 |
222,457 |
239,947 |
||||||||
Selected Financial Results per BOE(2)(3) |
||||||||||||
Oil & Natural Gas Sales(4) |
$ |
19.53 |
$ |
44.00 |
$ |
26.11 |
$ |
44.33 |
||||
Royalties and Production Taxes |
(5.15) |
(11.26) |
(6.74) |
(10.90) |
||||||||
Commodity Derivative Instruments |
6.73 |
(0.13) |
5.12 |
0.55 |
||||||||
Cash Operating Expenses |
(6.84) |
(7.84) |
(7.90) |
(8.26) |
||||||||
Transportation Costs |
(4.28) |
(4.02) |
(4.11) |
(3.97) |
||||||||
Cash General and Administrative Expenses |
(1.14) |
(1.26) |
(1.26) |
(1.39) |
||||||||
Cash Share-Based Compensation |
(0.15) |
0.07 |
0.09 |
(0.04) |
||||||||
Interest, Foreign Exchange and Other Expenses |
(1.69) |
(0.79) |
(1.29) |
(0.75) |
||||||||
Current Income Tax Recovery |
1.81 |
1.52 |
0.85 |
1.14 |
||||||||
Adjusted Funds Flow(1) |
$ |
8.82 |
$ |
20.29 |
$ |
10.87 |
$ |
20.71 |
||||
SELECTED OPERATING RESULTS |
Three months ended June 30, |
Six months ended June 30, |
||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||
Average Daily Production(3) |
||||||||||||
Crude Oil (bbls/day) |
43,168 |
48,141 |
46,106 |
44,642 |
||||||||
Natural Gas Liquids (bbls/day) |
4,929 |
4,720 |
5,137 |
4,552 |
||||||||
Natural Gas (Mcf/day) |
235,579 |
287,000 |
249,246 |
272,863 |
||||||||
Total (BOE/day) |
87,360 |
100,694 |
92,784 |
94,671 |
||||||||
% Crude Oil and Natural Gas Liquids |
55% |
52% |
55% |
52% |
||||||||
Average Selling Price (3)(4) |
||||||||||||
Crude Oil (per bbl) |
$ |
30.55 |
$ |
74.42 |
$ |
41.59 |
$ |
70.82 |
||||
Natural Gas Liquids (per bbl) |
(0.96) |
17.96 |
6.16 |
18.53 |
||||||||
Natural Gas (per Mcf) |
1.63 |
2.63 |
1.87 |
3.46 |
||||||||
Net Wells Drilled |
3 |
13 |
37 |
30 |
(1) |
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. |
(2) |
Non-cash amounts have been excluded. |
(3) |
Based on Company interest production volumes. See “Presentation of Production Information” below. |
(4) |
Before transportation costs, royalties, and commodity derivative instruments. |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||
Average Benchmark Pricing |
2020 |
2019 |
2020 |
2019 |
||||||||
WTI crude oil (US$/bbl) |
$ |
27.85 |
$ |
59.81 |
$ |
37.01 |
$ |
57.36 |
||||
Brent (ICE) crude oil (US$/bbl) |
33.27 |
68.32 |
42.12 |
66.11 |
||||||||
NYMEX natural gas – last day (US$/Mcf) |
1.72 |
2.64 |
1.83 |
2.89 |
||||||||
USD/CDN average exchange rate |
1.39 |
1.34 |
1.37 |
1.33 |
Share Trading Summary |
CDN(1) – ERF |
U.S.(2) – ERF |
||||
For the three months ended June 30, 2020 |
(CDN$) |
(US$) |
||||
High |
$ |
5.18 |
$ |
3.73 |
||
Low |
$ |
1.95 |
$ |
1.38 |
||
Close |
$ |
3.82 |
$ |
2.83 |
(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 |
||
Second Quarter Total |
$ |
0.03 |
$ |
0.02 |
||
Total |
$ |
0.06 |
$ |
0.04 |
(1) |
CDN$ dividends converted at the relevant foreign exchange rate on the payment date. |
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