CALGARY, AB, April 8, 2021 /CNW/ - Enerplus Corporation
("Enerplus" or the "Company") (TSX: ERF) (NYSE: ERF) today
announced that it has entered into a definitive agreement to
acquire assets in the Williston Basin from Hess Corporation for
total cash consideration of US$312
million (the "Acquisition"). In connection with the
Acquisition, the Company has updated its 2021 guidance including an
increased production outlook due to operational outperformance year
to date. The Company has also provided a five-year outlook based on
principles of maintaining low financial leverage, generating
meaningful free cash flow and returning capital to
shareholders.
ACQUISITION HIGHLIGHTS
- Core acreage with substantial high-return drilling inventory
– Acquiring 78,700 largely contiguous net acres in
Dunn County, North Dakota,
strategically adjacent to Enerplus' core Bakken position. The
Acquisition includes 110 net tier one undrilled locations (77%
operated) which immediately compete for capital with Enerplus'
existing locations. The Acquisition is accretive to Enerplus'
drilling inventory, extending its development drilling by an
additional two to three years based on these tier one locations.
After the Acquisition, Enerplus estimates it will have
approximately 10 years of drilling inventory under mid-single digit
annual liquids production growth rates. In addition to these tier
one locations, the Acquisition includes 120 net operated undrilled
locations which are economic based on current crude oil prices, and
which offer the potential for more compelling returns with the
application of modern stimulation and production technologies.
- Significant potential in undeveloped acreage evidenced by
active proximal development – Unique opportunity in an
extensive, largely undeveloped core position. The acreage is 100%
held by production with an average of two producing wells per
drilling spacing unit. Recent development by offset operators
deploying modern stimulation designs (high proppant and fluid
intensity) has delivered strong well results in both the Middle
Bakken and Three Forks formations. The total 230 net undrilled
inventory locations referenced above are almost exclusively focused
in the Middle Bakken formation; additional development potential
exists beyond this in the Three Forks formation. In addition, the
acquired acreage has very limited exposure to federal land (less
than 3% of the total net acreage).
- Low decline base production – The Acquisition
includes approximately 6,000 BOE per day (76% tight oil, 10%
natural gas liquids ("NGL") and 14% natural gas) of working
interest(1) production (estimated at the time of
closing), with a base decline rate under 20% (10% on the operated
production, 37% on the non-operated production). An independent
reserves report on the properties, prepared by McDaniel &
Associates, effective as of March 1,
2021 has assigned proved plus probable reserves of 62.7
MMBOE consisting of 49.7 MMbbls of tight oil, 7.1 MMbbls of NGL and
35.1 Bcf of shale gas (working interest(1)).
- Meaningful near-term accretion – Expected to be
accretive to per share metrics in the first year, including
adjusted funds flow, free cash flow and net asset value. Accretion
levels are expected to increase after the first year with adjusted
funds flow per share and free cash flow per share accretion
expected to be 13% and 7%, respectively, by the end of 2022,
increasing to approximately 20% for each metric by the end of 2024
based on the Company's five year outlook outlined below and
assuming a US$55 per barrel WTI crude
oil price.(2)
- Acquisition contributes to free cash flow outlook – The
acquired assets are expected to consistently generate free cash
flow. Planned development is estimated to be self-funded in-line
with an annual capital spending reinvestment rate of approximately
60% to 70% of adjusted funds flow assuming a US$50 to $55 WTI
crude oil price. The Acquisition and Enerplus' production
outperformance are expected to increase the Company's free cash
flow generation in 2021, which is now estimated at over $330
million, based on a US$55 per barrel
WTI crude oil price.(2)
- Balance sheet remains strong – The pro forma
business retains a solid financial position with an estimated net
debt to adjusted funds flow ratio at or below 1.3x at December 31, 2021 (annualized for 2021
acquisitions), reducing to approximately 1.0x or less by year-end
2022 based on a US$55 per barrel WTI
crude oil price.(2) Enerplus will continue to have
ample liquidity and maintain significant financial flexibility
subsequent to the Acquisition and anticipates increasing the size
of its bank credit facility up to US$900
million prior to the Acquisition closing.
- Drives continued operational synergies – The Acquisition
is expected to support a more efficient capital and operating plan
through more consistent activity levels and high-graded
development. In addition, there are no incremental general and
administrative costs associated with the Acquisition.
"These assets are a strong strategic and operational fit for
Enerplus, further extending our high-return Bakken drilling
inventory," said Ian C. Dundas,
President and CEO of Enerplus. "The addition of this tier one
resource into our development plan is expected to generate strong
financial returns and enhance our free cash flow growth. In
connection with the acquisition, we have highlighted a five-year
outlook with projected cumulative free cash flow of between
$1.2 to $1.8
billion between 2021 and 2025, assuming US$50 to $55 per
barrel WTI."
TRANSACTION DETAILS
Enerplus has agreed to acquire the properties for total cash
consideration of US$312 million
pursuant to a purchase and sale agreement, subject to customary
purchase price adjustments. The Acquisition will be funded with the
Company's existing cash position of approximately US$150 million with the remaining portion funded
through borrowing on its undrawn bank credit facility. Closing of
the Acquisition is subject to customary closing conditions and is
expected to occur in May 2021.
2021 GUIDANCE UPDATE
Enerplus is increasing its 2021 production guidance to 111,000
to 115,000 BOE per day (from 103,500 to 108,500 BOE per day),
including 68,500 to 71,500 barrels per day of liquids (from 63,000
to 67,000 barrels per day) based on an eight month contribution
from the Acquisition to the Company's 2021 production. The
increased production guidance was also driven by strong operating
performance in North Dakota and
higher than expected production in the Marcellus through the first
three months of the year. Capital spending in 2021 is revised to
$360 to $400
million (from $335 to
$385 million) in connection with the
acquired assets.
The Company's 2021 Bakken oil price differential outlook is
unchanged at $3.25 per barrel below
WTI, which assumes the Dakota Access Pipeline ("DAPL") continues to
operate. In the event DAPL is required to cease operations,
Enerplus expects sufficient rail egress to be available, however,
Bakken oil price differentials would be expected to widen
reflecting rail economics. The Company estimates this would result
in a realized 2021 differential of approximately $6.00 per barrel below WTI, assuming eight months
of wider differentials if DAPL cannot operate. The impact to
Enerplus' corporate netback in this scenario is estimated to be
approximately $0.90 per BOE. The
Acquisition is expected to continue to provide attractive financial
returns at a wider differential, as outlined above.
2021 PRODUCTION AND CAPITAL SPENDING GUIDANCE SUMMARY
|
Enerplus 2021
Previous
Guidance
|
Pro Forma 2021
Guidance (based on an eight-month
contribution from the Acquisition)
|
Increase to
the
Guidance Midpoint
|
Total production
(BOE/d)(1)
|
103,500 to
108,500
|
111,000 to
115,000
|
+7,000
|
Liquids production
(bbl/d)(1)
|
63,000 to
67,000
|
68,500 to
71,500
|
+5,000
|
Capital spending
($MM)
|
$335 to
$385
|
$360 to
$400
|
+$20
|
(1) Production
is stated on a working interest basis before the deduction of
royalties.
|
FIVE YEAR OUTLOOK
In connection with its five-year outlook, Enerplus has provided
a capital allocation framework with the following key
principles:
- Maintain low financial leverage: Target a long-term
net debt to adjusted funds flow ratio of less than 1.0x.
- Committed to free cash flow generation: Target a
long-term capital spending reinvestment rate of less than 75% of
annual adjusted funds flow.
- Return capital to shareholders: Sustainably grow the
Company's base dividend supported by an increasing cash flow base.
Consider share repurchases to further enhance the return of capital
to shareholders.
The key principles above and the macro environment will drive
Enerplus' disciplined approach to growth, maximizing free cash flow
and shareholder returns.
To highlight Enerplus' financial sustainability and robust free
cash flow growth potential, the Company has provided an outlook
through 2025. Assuming a constructive commodity price environment
(WTI oil prices at approximately US$50 to $55 per
barrel or higher), the Company projects annual capital spending of
approximately $500 million from 2022
to 2025 focused on generating substantial levels of free cash flow.
Under this capital spending plan, cumulative free cash flow is
estimated at $1.2 to $1.8 billion between 2021 and 2025 based on a
US$50 to $55 per barrel WTI crude oil price and
US$2.75 per Mcf NYMEX natural gas
price.(2) This is expected to result in an average
capital spending reinvestment rate of approximately 60% to 70% of
adjusted funds flow over the period. Enerplus projects 3% to 5%
annual liquids production growth from 2022 to 2025 based on this
outlook. This growth rate is based on approximately 75,000 barrels
per day, being the Company's implied liquids production in 2021
assuming a full year contribution from its recent acquisitions.
ADVISORS
Stifel FirstEnergy acted as financial advisor, BMO Capital
Markets acted as strategic advisor. Vinson & Elkins LLP acted
as U.S. legal advisor and Blake, Cassels & Graydon LLP acted as
Canadian legal advisor to Enerplus on the Acquisition.
Presentation
An investor presentation in connection with the Acquisition has
been added to the Company's website at www.enerplus.com.
Footnotes:
(1) Production and reserves are stated on a working interest
basis before deduction of royalties.
(2) Assumes NYMEX natural gas prices of US$3.00 per Mcf in 2021 and US$2.75 per Mcf in 2022 and thereafter.
ABOUT ENERPLUS
Enerplus is an independent North American oil and gas
exploration and production company focused on creating long-term
value for its shareholders through a disciplined, returns-based
capital allocation strategy and a commitment to safe, responsible
operations.
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 and Reserves
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. All
reserves volumes in this news release (and all information derived
therefrom) are based on "gross reserves" using forecast prices and
costs. "Gross reserves" (as defined in NI 51-101), are Enerplus'
working interest before deduction of any royalties. Information
about reserves on the properties contained in this press release is
derived from a report on the properties effective as of
March 1, 2021 prepared by McDaniel
& Associates Ltd., an independent reserves evaluator. The
drilling locations identified in this news release are comprised of
153 gross (66.1 net) proved plus probable undeveloped reserves
locations identified by McDaniel & Associates Ltd, 166 gross
(44.5 net) unbooked future drilling locations not associated with
any reserves of the properties which have been identified by
internal qualified reserves evaluators and considered highly
economic, and 155 gross (120.7 net) unbooked future drilling
locations not associated with any reserves of the properties which
have been identified by internal qualified reserves evaluators as
offering future development potential but with more marginal
economics based on the current assessment.
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: anticipated completion of
the Acquisition, including expected purchase price, terms, timing
and completion thereof; expected benefits of the Acquisition;
expected impacted of the Acquisition on Enerplus' operations and
financial results, including inventory of drilling locations,
expected accretion to Enerplus' metrics (including expected free
cash flow in 2021 and beyond and year-end net debt to adjusted
funds flow ratio); Enerplus' expected 2021 average production
volumes and expected capital levels to support such production;
anticipated production mix and Enerplus' expected source of funding
thereof; expected operating plans; oil and natural gas prices and
differentials; anticipated impact of the Acquisition on Enerplus'
future costs and expenses; expected increase in the size of
Enerplus' credit facility; Enerplus' five year outlook, including
expected capital spending levels and resulting production,
production growth and free cash flow, and plans for excess cash
flow, including potential share repurchases.
The forward-looking information contained in this news
release reflects several material factors and expectations and
assumptions of Enerplus including, without limitation: that the
Acquisition will be completed substantially on the terms and within
the timeline described in this press release; that Enerplus will
realize expected benefits of the Acquisition described in this
press release and of its prior acquisition of Bruin E&P HoldCo,
LLP (the "Bruin Acquisition") as previously announced; 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, including
expectations regarding the duration and overall impact of
COVID-19; 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' updated 2021
outlook contained in this news release is based on the following: a
WTI price of between US$55.00/bbl, a
NYMEX price of US$3.00/Mcf, a Bakken
crude oil price differential of US$3.25/bbl below WTI and a USD/CDN exchange rate
of 1.27. Furthermore, in addition, Enerplus' five-year outlook
contained in this news release is based on the following: a WTI
price of between US$50.00/bbl and
US$55.00/bbl, a NYMEX price of
US$3.00/Mcf in 2021 and US$2.75/Mcf thereafter, a Bakken crude oil price
differential of US$3.25/bbl below WTI
in 2021 and US$2/bbl to US$3/bbl below WTI thereafter and a USD/CDN
exchange rate of 1.27. 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: failure
to complete the Acquisition, at all or on terms or within the
timeline described in this press release; failure by Enerplus to
realize anticipated benefits of the Acquisition or the Bruin
Acquisition; changes, including future decline, in commodity
prices, including as a result of continued COVID-19 pandemic;
changes in realized prices for Enerplus' products from those
currently anticipated; 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; changes in law or government programs or policies in
Canada or the United States; and certain other risks
detailed from time to time in Enerplus' public disclosure documents
(including, without limitation, those risks identified in its
annual information form for the year ended December 31, 2020, management's discussion and
analysis ("MD&A"), and Form 40-F at December 31, 2020 as it may be updated from time
to time by current reports on Form 6-K, all of which are available,
as applicable, on SEDAR website at www.sedar.com, on the SEC's
website at http://www.sec.gov and on Enerplus' website).
The purpose of our estimated free cash flow disclosure, is to
assist readers in understanding our expected and targeted financial
results, and this information may not be appropriate for other
purposes. Information in this press release is provided as of the
date hereof and Enerplus assumes no obligation to update any
forward-looking statements, unless otherwise required by
law.
NON-GAAP MEASURES
In this news release,
Enerplus uses the terms "adjusted funds flow", "free cash flow"
(including per share measures), "net debt to adjusted funds flow
ratio", and "reinvestment rate" as measures to analyze operating
and financial performance. "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. "Free cash flow" is defined as "Adjusted funds flow
less exploration and development capital spending". "Net debt
to adjusted funds flow ratio" is calculated as total debt net of
cash divided by a trailing twelve months of adjusted funds flow.
"Reinvestment rate" is calculated as exploration and development
capital spending divided by adjusted funds flow.
Enerplus believes that, in addition to net earnings and other
measures prescribed by U.S. GAAP, the terms "adjusted funds flow",
"free cash flow" (including per share measures), "net debt to
adjusted funds flow ratio", and "reinvestment rate" are useful
supplemental measures as such provide an indication of the results
generated by Enerplus' principal business activities. However,
these measures are not recognized by U.S. GAAP and do not have a
standardized meaning prescribed by U.S. GAAP. Therefore, these
measures, as defined by Enerplus, may not be comparable to similar
measures presented by other issuers.
SOURCE Enerplus Corporation