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Enter Symbol
or Name
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CA



Enerplus Corp
Symbol ERF
Shares Issued 207,132,929
Close 2016-05-06 C$ 6.56
Market Cap C$ 1,358,792,014
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Enerplus loses $173.66-million in fiscal Q1 2016

2016-05-06 06:47 ET - News Release

Mr. Ian Dundas reports

ENERPLUS ANNOUNCES STRONG FIRST QUARTER 2016 RESULTS

Enerplus Corp. has released its results from operations for the first quarter of 2016.

"We continue to position our company to deliver long-term profitability in a lower commodity price environment. Our focus on reducing costs and driving efficiencies across the organization has resulted in a meaningful reduction to our cost structure. As a result, we are reducing our combined operating, transportation, and general and administrative cost guidance by $1.30 per barrel of oil equivalent in 2016," stated Ian C. Dundas, president and chief executive officer. "In addition, we have been delivering on our portfolio optimization objectives with non-core divestments generating net proceeds of $188-million in the first quarter, further strengthening our company's balance sheet. Operationally, our assets continue to deliver strong results and we remain on track to achieve our targets."

Key takeaways:

  • Production averaged 97,860 boe per day during the quarter, including approximately 45,000 barrels per day of crude oil and natural gas liquids. Total production was down 8 per cent from the previous quarter primarily as a result of non-core divestment activity during the fourth quarter of 2015 and first quarter of 2016, in which the company divested properties with associated production of approximately 9,100 boe per day. The divested production was approximately 90 per cent natural gas weighted and, as a result, the crude oil and natural gas liquids weighting increased to 46 per cent in the first quarter, from 43 per cent in the previous quarter.
  • The company continued to see outperformance from its North Dakota wells along with strong production results from its Canadian oil portfolio during the quarter. As a result, and despite the previously announced second quarter divestment of 2,300 boe per day, the company is maintaining its 2016 production guidance range of 90,000 to 94,000 boe per day and 43,000 to 45,000 barrels per day of crude oil and natural gas liquids.
  • First quarter funds flow was $41.7-million (20 cents per share), down approximately 60 per cent from the fourth quarter of 2015 as a result of significantly lower crude oil and natural gas prices, and lower realized gains on crude oil and natural gas hedging contracts.
  • The company recorded a net loss of $173.7-million (84 cents per share) in the first quarter. First quarter earnings benefited from a combined gain of $152.2-million on property divestments and the repurchase of a portion of the company's outstanding senior notes. These gains were offset by non-cash charges of $304.7-million related to asset impairment and a valuation allowance taken on the company's deferred tax asset as a result of the decline in 12-month trailing average commodity prices.
  • The company's focus on maintaining its balance sheet strength and preserving the value of its high-quality inventory during this period of low commodity prices resulted in a 50-per-cent reduction in capital spending from the fourth quarter of 2015 to $43.3-million. Capital spending was focused on crude oil properties with $19.8-million directed to North Dakota and $19.1-million directed to the Canadian oil portfolio. The company continues to budget 2016 capital spending of $200-million, with approximately 90 per cent allocated to its crude oil plays (65 per cent North Dakota, 25 per cent Canada).
  • The continuing cost-reduction efforts are delivering strong results. First quarter operating expenses of $8.15 per boe were 6 per cent lower than the fourth quarter of 2015 and 16 per cent lower than the first quarter of 2015, despite lower volumes. Based on cost savings to date, the strengthening Canadian dollar relative to the company's U.S.-dollar-denominated operating costs and the previously announced divestment of its higher-cost northwest Alberta assets, the company is reducing its 2016 guidance for operating expenses to $8.50 per boe from $9.50 per boe. The company is also reducing its transportation cost guidance to $3.10 per boe from $3.30 per boe as a result of the strengthening Canadian dollar.
  • Cash G&A expenses during the first quarter were $2.07 per boe, down 12 per cent from the same period in 2015 and up 18 per cent from the fourth quarter of 2015, largely due to severance payments incurred in the first quarter. As a result of the reduction of the company's work force to better align with its more focused asset base and improved organizational efficiencies, the company is reducing its 2016 guidance for cash G&A expenses to $2.00 per boe from $2.10 per boe.
  • Over all, taking into account its reduced operating, transportation and G&A expense guidance, the company expects 2016 cash costs to be approximately $1.30 per boe lower than previously forecast.
  • As previously announced, effective with the April, 2016, payment, the company reduced the monthly dividend from three cents per share to one cent per share. This reduction reflected the need to rebalance the dividend level to better align with reduced funds flow in the context of the sustained low commodity price environment.
  • The company further strengthened its balance sheet during the first quarter, ending the period with total debt, net of cash, of $992.8-million compared with $1,216.2-million at Dec. 31, 2015. The $223-million reduction in total debt was a result of applying divestment proceeds against outstanding debt combined with the strengthening Canadian dollar relative to the company's U.S.-dollar-denominated senior notes. Total debt comprised $844.5-million of senior notes and $149.6-million of bank indebtedness (19 per cent drawn on the $800-million facility) less $1.3-million in cash. At March 31, 2016, the company's senior-debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio was 1.6 times and its debt-to-funds-flow ratio was 2.3 times.
  • The company had continued success in divesting non-core assets during the quarter which provided net proceeds of approximately $188-million. These proceeds, along with the company's largely undrawn bank credit facility, were used to finance the repurchase of $172-million (U.S.) of the company's senior notes during the quarter and a total of $267-million (U.S.) of senior notes to date. The repurchases were completed at prices ranging from 90 per cent of par to par value, with no penalty or make-whole payments required, resulting in a total gain of $19-million. As a result of replacing fixed-term, higher-interest-rate senior debt with lower-interest-rate bank debt and using divestment proceeds to repay outstanding debt, the company expects to save approximately $13-million (U.S.) in interest expense on an annualized basis. Utilizing a portion of its bank credit facility in place of the senior notes provides additional flexibility within the company's capital structure to reduce its leverage further as cash becomes available.
  • Subsequent to the quarter, the company announced an additional non-core divestment of certain assets located in northwest Alberta for proceeds of $95.5-million, subject to closing adjustments. Expected annual average 2016 production associated with these assets is approximately 2,300 boe per day (50 per cent natural gas). This divestment is expected to close in the second quarter of 2016 and the company expects to realize a gain of approximately $70-million as a result of the sale. Upon closing, this will bring total 2016 divestment proceeds to $283-million.
  • In connection with its non-core assets sales, the company has materially reduced its future abandonment liabilities. Since the start of 2015, the company has reduced its asset retirement obligations by over 30 per cent.

Asset activity

North Dakota

North Dakota production averaged 29,200 boe per day during the first quarter, largely flat from the previous quarter and up 36 per cent from the same period in 2015. The company spent $19.8-million in North Dakota in the quarter drilling 4.4 net wells and bringing 2.5 net wells on stream. Well performance continues to be strong, with the two operated on-stream wells in the quarter delivering initial 30-day production rates of 1,990 and 1,750 boe per day. Subsequent to the quarter, two further wells were brought on stream that have averaged in excess of 2,000 boe per day in the first 30 days of production. Well costs continue to trend down due to reduced drilling days, completions optimization and changes to facilities design. Total drilling, completion, tie-in and facilities costs are currently $8.5-million (U.S.), down approximately 35 per cent from 2014 levels.

The company continues to run a single drilling rig in North Dakota given the sustained low commodity price environment but retains the flexibility to increase activity quickly given its inventory of drilled uncompleted wells, which stood at approximately 11 at the end of the first quarter. The 2016 capital program is primarily focused in North Dakota, where the company expects to spend approximately $130-million during full-year 2016, keeping North Dakota production largely flat.

Canada

Total production from Canada averaged 32,590 boe per day during the quarter. Activity was focused on the waterflood assets at Cadogan, Giltedge and southeast Saskatchewan, where the company drilled four producers and three injector wells. Results from the program have exceeded expectations with the wells producing at, or above, the type curve forecast. Production from the waterflood assets averaged 17,500 boe per day during the quarter. Activity in Canada during the rest of 2016 will be largely focused on performance and cost optimization work.

Marcellus

Marcellus production averaged 190 million cubic feet per day during the first quarter, down approximately 7 per cent from the previous quarter due to continued low levels of activity as a result of weak regional natural gas pricing. Capital spending in the quarter was $3.5-million, with 1.3 net wells brought on stream. The company continues to plan for modest levels of activity in the Marcellus, forecasting full-year 2016 spending of $20-million, a reduction of approximately 37 per cent from 2015 spending.

      PRODUCTION AND CAPITAL SPENDING -- THREE MONTHS ENDED MARCH 31, 2016(1)

Crude oil and NGLs (bbl/day)        Average production volumes   Capital spending
                                                                              ($M)

Canada                                                  15,990              $19.1
United States                                           29,012              $20.7
                                                       -------            -------
Total crude oil and NGLs (bbl/day)                      45,002              $39.8
                                                       =======            =======
Natural gas (Mcf/day)
Canada                                                  99,539                  -
United States                                          217,611               $3.5
                                                       -------            -------
Total natural gas (Mcf/day)                            317,150               $3.5
                                                       =======            =======
Company total (boe/day)                                 97,860              $43.3
                                                       =======            =======

(1) Table may not add due to rounding

    NET DRILLING ACTIVITY -- THREE MONTHS ENDED MARCH 31, 2016(1)

Crude oil                         Wells drilled     Wells on stream

Canada                                      7.0                 6.0
United States                               4.4                 2.5
                                           ----                ----
Total crude oil                            11.4                 8.5
                                           ====                ====
Natural gas
Canada                                        -                   -
United States                               0.1                 1.3
                                           ----                ----
Total natural gas                           0.1                 1.3
                                           ====                ====
Company total                              11.5                 9.8
                                           ====                ====

(1) Table may not add due to rounding.

Crude oil and natural gas pricing

The West Texas Intermediate benchmark crude oil price fell by 21 per cent versus the previous quarter as seasonal refinery outages combined with continued oversupply drove U.S. oil inventories to near-maximum levels. This supply imbalance pushed WTI prices to a low of $26.05 (U.S.) per barrel in February before improving by the end of the quarter as refinery demand returned and there were growing indications of supply declines in North America and elsewhere. Modestly weaker crude oil differentials in both Canada and the United States also contributed to the weakness in realized oil prices during the quarter. The average Bakken realized crude oil price differential was $8.38 (U.S.) per barrel below WTI in the quarter.

NYMEX natural gas prices fell by 8 per cent and AECO monthly prices fell by approximately 20 per cent compared with the previous quarter. Both markets remained weak in response to continued high production with lower-than-normal seasonal demand that resulted in significant storage surpluses across North America relative to the first quarter of 2015.

The overall realized natural gas price outperformed changes in NYMEX and AECO prices due to improving differentials in the Marcellus. Weaker NYMEX prices narrowed Marcellus benchmark differentials, resulting in an average Marcellus realized price differential of 91 U.S. cents per thousand cubic feet below NYMEX, a 19-per-cent improvement from the previous quarter. The company continues to expect its realized Marcellus differentials in 2016 to improve relative to recent years due to reduced industry spend and the continued build-out of regional takeaway capacity.

Risk management

The company continues to protect a portion of its funds flow through commodity hedging and has added additional price protection on both crude oil and natural gas production in 2017. Currently, the company has a combination of swaps and collars in 2016 and 2017 covering approximately 31 per cent and 20 per cent, respectively, of forecast net oil production, after royalties. For natural gas, the company has a combination of swaps and collars in 2016 and 2017 covering approximately 31 per cent and 16 per cent, respectively, of forecast net natural gas production, after royalties.

                                     COMMODITY HEDGING DETAIL (AS AT MAY 2, 2016)

                           Crude oil (US$/bbl)(1)                         NYMEX natural gas (US$/Mcf)(1)

         April 1, 2016, to July 1, 2016, to Jan. 1, 2017, to  April 1, 2016, to Nov. 1, 2016, to Jan. 1, 2017, to
             June 30, 2016    Dec. 31, 2016    Dec. 31, 2017      Oct. 31, 2016    Dec. 31, 2016    Dec. 31, 2017
Swap
Sold swaps          $64.28                -                -              $2.53            $2.48                -
Volume (bbl/d 
or Mcf/d)            3,000                -                -             50,000           25,000                -
% of net 
production             10%                -                -                23%              11%                 -
Three-way 
collars
Sold puts           $50.13           $49.78           $35.67              $2.50            $2.50             $2.00
Volume (bbl/d 
or Mcf/d)            8,000            8,000            6,000             25,000           25,000            35,000
% of net 
production             26%              26%              20%                11%              11%               16%
Purchased 
puts                $64.38           $63.98           $48.18              $3.00            $3.00             $2.67
Volume (bbl/d 
or Mcf/d)            8,000            8,000            6,000             25,000           25,000            35,000
% of net 
production             26%              26%              20%                11%              11%               16%
Sold calls          $79.38           $79.63           $60.00              $3.75            $3.75             $3.32
Volume (bbl/d 
or Mcf/d)            8,000            8,000            6,000             25,000           25,000            35,000
% of net 
production             26%              26%              20%                11%              11%               16%
Collars
Purchased 
puts                $33.41                -                -                  -                -                 -
Volume (bbl/d 
or Mcf/d)            1,670                -                -                  -                -                 -
% of net 
production              5%                -                -                  -                -                 -
Sold puts           $41.75                -                -                  -                -                 -
Volume (bbl/d 
or Mcf/d)            1,670                -                -                  -                -                 -
% of net 
production              5%                -                -                  -                -                 -

(1) Based on weighted average price (before premiums), assuming average annual production of 92,000 boe/day for 
2016 and 2017, less royalties and production taxes of 23 per cent in aggregate.

Revised guidance -- 2016

The company has revised its full-year 2016 guidance as a result of further reductions to its cost structure related to operating, transportation and G&A expenses. Capital spending and production guidance remain unchanged. The revised guidance considers the announced divestment of the company's northwest Alberta assets expected to close during the second quarter.

                               SUMMARY OF 2016 EXPECTATIONS  
       
                                                  Revised guidance        Original guidance

Capital spending                                      $200-million             $200-million
Average annual production                    90,000-94,000 boe/day    90,000-94,000 boe/day
Crude oil and natural gas liquids volumes    43,000-45,000 boe/day    43,000-45,000 boe/day
Average royalty and production tax rate                        23%                      23%
Operating expenses                                       $8.50/boe                $9.50/boe
Transportation expense                                   $3.10/boe                $3.30/boe
Cash G&A expenses                                        $2.00/boe                $2.10/boe

Q1 2016 conference call details

A conference call hosted by Mr. Dundas will be held at 8 a.m. MT (10 a.m. ET) today to discuss these results. Details of the conference call are as follows:

Date:  Friday, May 6, 2016

Time:  8 a.m. MT (10 a.m. ET)

Dial-in numbers:  647-427-7450/888-231-8191 (toll-free)

Audiocast:  available on-line

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:

Dial-in numbers:  416-849-0833/1-855-859-2056 (toll-free)

Passcode:  86983471

                            SELECTED FINANCIAL RESULTS
                 (In thousands, except per share and where noted)

                                                       Three months ended March 31,
                                                              2016            2015

Funds flow                                                 $41,727        $109,164
Dividends to shareholders                                   14,464          47,359
Net income/(loss)                                         (173,666)       (293,206)
Debt outstanding -- net of cash                            992,837       1,272,204
Capital spending                                            43,276         167,011
Property and land acquisitions                               3,554            (236)
Property divestments                                       187,768           3,712
Debt-to-funds-flow ratio                                      2.3x            1.7x
Financial per weighted average shares outstanding
Funds flow                                                    0.20            0.53
Net income/(loss)                                            (0.84)          (1.42)
Selected financial results per boe(1)(2)
Oil and natural gas sales(3)                                 19.14           26.89
Royalties and production taxes                               (3.95)          (5.50)
Commodity derivative instruments                              4.45            9.56
Cash operating expenses                                      (8.12)          (9.56)
Transportation costs                                         (2.89)          (2.92)
General and administrative expenses                          (2.07)          (2.36)
Cash share-based compensation                                (0.08)          (0.80)
Interest, foreign exchange and other expenses                (1.81)          (3.28)
Current income tax recovery                                   0.02               -
                                                           -------         -------
Funds flow                                                    4.69           12.03

                           SELECTED OPERATING RESULTS

                                                       Three months ended March 31,
                                                              2016            2015
Average daily production(2)
Crude oil (bbl/day)                                         39,508          39,355
Natural gas liquids (bbl/day)                                5,494           3,735
Natural gas (Mcf/day)                                      317,150         346,589
Total (boe/day)                                             97,860         100,855
% crude oil and natural gas liquids                            46%             43%
Average selling price(2)(3)
Crude oil (per bbl)                                         $31.59          $44.04
Natural gas liquids (per bbl)                                11.34           22.48
Natural gas (per Mcf)                                         1.77            2.58
Net wells drilled                                               11              28

(1) Non-cash amounts have been excluded.
(2) Based on company interest production volumes; see basis of presentation
section in the first quarter 2016 management's discussion and analysis.
(3) Before transportation costs, royalties and commodity derivative instruments.

We seek Safe Harbor.

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