Enerplus Announces Reduced 2020 Capital Budget, Prioritizing Balance Sheet Strength and Free Cash Flow
March 16, 20203:00 AM PR Newswire
All financial information contained within this news release has been prepared in accordance with U.S. GAAP. This news release includes forward-looking statements and information within the meaning of applicable securities laws. Readers are advised to review the “Forward-Looking Information and Statements” and “Non-GAAP Measures” at the end of this news release for information regarding the presentation of the financial and operational information in this news release as well as the use of certain financial measures that do not have standard meaning under U.S. GAAP. A copy of Enerplus’ 2019 Financial Statements and MD&A is available on our website at www.enerplus.com, under our profile on SEDAR at www.sedar.com and on the EDGAR website at www.sec.gov. All amounts in this news release are stated in Canadian dollars unless otherwise specified. CALGARY – Enerplus Corporation (“Enerplus”) (TSX & NYSE: ERF) announced an update to its capital budget and operational plan for 2020 in response to the rapid decline in crude oil prices. Effective immediately, Enerplus is reducing its 2020 capital spending budget to $325 million, or approximately 40% at the midpoint of prior 2020 guidance of $520 to $570 million. The reduced 2020 capital budget is focused on prioritizing the Company’s balance sheet and free cash flow at US$35 per barrel WTI and US$2.25 per Mcf NYMEX.Enerplus is moving swiftly to preserve financial flexibility, maximize value and maintain the long term sustainability of the Company. Specifically, the Company plans to cease all operated drilling and completions activity in North Dakota by mid-April. Based on the revised plan, the Company will have 32 gross drilled uncompleted wells in inventory in North Dakota, creating valuable flexibility for rapid future capital deployment.Under this reduced capital program, 2020 crude oil and natural gas liquids production is expected to average between 50,000 to 52,000 barrels per day (from 57,000 to 60,000 barrels per day), representing a decline of approximately 7% at the midpoint compared to 2019 average liquids production. Despite this initial decline in liquids production from 2019, Enerplus estimates it could sustain liquids production approximately flat to 2020 over the next several years with capital spending at similar levels to the revised 2020 plan. Total average production guidance for 2020 has also been reduced to 89,000 to 92,000 BOE per day (from 96,000 to 100,000 BOE per day) in line with the Company’s revised liquids production range.“We’re taking immediate and decisive steps to protect value and maintain our balance sheet strength in response to the rapid deterioration in crude oil prices stemming from simultaneous supply and demand shocks,” commented Ian C. Dundas, President & CEO of Enerplus. “Importantly, we have entered this volatile period with a solid foundation. Our conservative approach to financial leverage, a robust commodity risk management program and corporate agility leave us well-positioned to navigate these challenging crude oil prices.”BALANCE SHEET STRENGTHFoundational to Enerplus’ strategy has been a financial plan with low leverage. Enerplus ended 2019 with total debt net of cash of $455 million. The Company’s net debt to adjusted funds flow ratio was 0.6 times at year-end 2019 with near-term debt maturities of US$82 million in 2020 related to its senior notes, with remaining maturities extending to 2026. Enerplus has significant liquidity available with $150 million of cash on its balance sheet at December 31, an undrawn US$600 million senior unsecured bank credit facility and a capital plan expected to generate free cash flow at current commodity prices.COMMODITY PRICE RISK MANAGEMENTIn addition to its strong balance sheet, Enerplus has a considerable amount of its crude oil production hedged through commodity derivatives in 2020. Enerplus has approximately 68% of its 2020 forecasted net crude oil production hedged (based on the updated guidance midpoint). Assuming a US$35 per barrel WTI crude oil price for the remainder of 2020, Enerplus forecasts hedging gains for the full year of approximately $125 million.Commodity Hedging Detail (As at March 13, 2020) WTI Crude Oil(US$/bbl)(1)Jan 1 – Jan31, 2020Feb 1 – Mar31, 2020Apr 1 – Jun30, 2020Jul 1 – Sep30, 2020Oct 1 – Dec31, 2020SwapsVolume (bbls/d)5,00010,0009,5002,000–Sold Swaps$57.05$54.56$57.37$57.18–Put Spreads(2)Volume (bbls/d)16,00016,00016,00016,00016,000Sold Puts$46.88$46.88$46.88$46.88$46.88Purchased Puts$57.50$57.50$57.50$57.50$57.50Three Way CollarsVolume (bbls/d)–––5,0005,000Sold Puts–––$48.00$48.00Purchased Puts–––$56.25$56.25Sold Calls–––$65.00$65.00 (1)The total average deferred premium on outstanding 2020 hedges is US$1.73/bbl from January 1, 2020 to December 31, 2020.(2)16,000 bbls/day of sold puts are term settled.SHARE REPURCHASES AND DIVIDENDEnerplus is committed to returning capital to shareholders. The Company plans to maintain its balance sheet strength and prioritize free cash flow to continue to deliver a competitive return of capital to shareholders. Under Enerplus’ revised $325 million capital program, it expects to generate free cash flow that fully funds the dividend and supports the share repurchase program.