Q4 2020 Enerplus Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the end of Life Corporation Q4 at year end, 'twenty and 'twenty results conference call and they shot all lines of the lesson.
Yep.
Hello, and your presentation, we will conduct a question and answer session. If at any time there of the skull and require immediate assistance. Please press star zero for the operator there.
And the skull is being recorded on February 19, 2021, I would now like to turn the conference over to Mr. Drew Mair. Please go ahead.
Only the operator and good morning, everyone. Thank you for joining the call.
Before we get started please take note of the advisories located at the end of today's news release, our financials have been prepared in accordance with the U S. GAAP all discussion of production volumes today are on a gross company working interest basis, and all financial figures are in Canadian dollars unless otherwise specified I'm here. This.
Thank you Ian Dundas, our President and Chief Executive Officer, Jodi, Jenson, Labrie, Senior VP, and Chief Financial Officer, Wade Hutchings, Senior VP, and Chief operating Officer, Shaina, Morihiro, VP finance and Garth doll VP of marketing.
Following our discussion and we will open up the call for questions with that I will turn it over to Ian.
Good morning.
Thank you drew.
The morning, everybody.
Two of our friends and the U S you're dealing with some rough weather.
I hope everyone's safe and on warm thank.
Thank you for joining us today.
This morning, we announced our fourth quarter and full year 2020 results.
And I'll start by describing some of the highlight.
It's from last year.
Four talking about our plans for 'twenty 'twenty, one and the brewing acquisition.
Clearly <unk> 'twenty and 'twenty with the complicated and challenging year and I want to thank our staff and our strategic partners for all of their support and dedication.
Their commitment to ensuring safe.
Highly reliable operations and the face of the pandemic has been nothing short of exceptional.
One of the most important takeaways from 2020.
And we were able to maintain our financial strength and preserve shareholder value.
Turning the challenge of the 2020 and to an opportunity to emerge as an even stronger.
Better.
The company.
We did this by taking action to adopt to sharply lower commodity prices include.
Including adjusting our operational plans and maintaining the focus on reducing our cost structures.
While continuing to deliver strong operational performance and.
Solid financial results and continued ESG improvements.
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As a result, we entered 2021 and in addition to execute on the Brewer and opportunity.
Operationally the brewing assets sit well.
All of them the walking with a material position on Fort Berthold area directly adjacent to our acreage.
And we're able to acquire the company.
The valuation that we believe is attractive both on an absolute and relative basis.
And underpinned by brewing the existing production.
The transaction will be immediately accretive to shareholders with robust accretion to adjusted funds flow per share and.
And the free cash flow of per share.
We highlight that we expect the pro forma business to generate more than $300 million and free cash flow of this year based on a 10 month contribution from the brewing.
And assuming $55 on West, Texas oil and $3 Nymex natural gas prices.
It was also important to us that we financed the acquisition.
And appropriately <unk>.
During that we remain.
We remain in a position of strength with a solid balance sheet and excellent liquidity.
We expect it to the Undrawn on our U S $600 million bank facility when the transaction closes in early March.
And if current pricing holds and we anticipate.
The bait and thinking of our balance sheet to approximately one times by year end.
The barilla the acquisition comes with 24000 BOE per day per day of current production.
10 net.
Drilled uncompleted well and.
And about 100 net drilling core locations.
We also see potential upside.
Beyond these locations the Wade will speak more about the inventory and upside in his remarks.
We do expect.
Realized tangible synergies with the acquisition.
We are not adding any G&A.
And there will be clear benefits from running a larger.
More efficient capital and operating plan.
We plan to report out on these efficiencies as we begin to realize them.
Our pro forma 'twenty 'twenty, one capital budget remains at between $335 million to $385 million, which reflects our maintenance capital plan.
We are committed.
Two of plan, which generates free cash flow, which we are well positioned to deliver following the brew and acquisition and with the improving commodity price environment.
First call on that free cash flow will be balance sheet.
We're also focused on opportunities to provide incremental return of capital to shareholders beyond.
The dividend as we make progress on our balance sheet objectives.
Yes.
Lastly, I'll wrap up with the few ESG columns.
We've made strong progress further integrating and enhancing our ESG strategies into our business.
And delivering on our targets over the last 12 months.
Our current 2020, we exceeded both our emissions intensity and freshwater use reduction targets and.
And we delivered the best safety performance and our company's history.
These along with our other ESG initiatives will continue to be priorities in 2021.
And we believe this focus will.
The value for our stakeholders.
Our board is deeply engaged on this topic and we're committed to continuing to pursue excellence here.
Now I will turn the call over to Wade.
Thanks, Ian and good morning, everyone.
Like other producers, our 'twenty and 'twenty capped.
Create operating plan change dramatically from our initial expectations.
But despite all of the changes there was a solid year from an operational perspective on.
Our execution started strong and by the time, we suspended our D&C activity in April we had achieved record performance for our company in terms of drilling and completion of <unk>.
And arms.
Which translated into significant capital efficiency improvements.
As we re initiated some capital activity and the fourth quarter completing four previously drilled wells, we were able to further improve upon our completion efficiency with our last pad, averaging 15 stages per day.
Cycles on average in 2020, we were able to reduce our total well costs and the Bakken to the U S $6 3 million, which represents of U S $1 3 million per well improvement year over year.
Turning to 'twenty and 'twenty, one we expect to keep this operational momentum going.
And believe we can continue to improve this well cost performance.
And we plan to provide more detailed guidance once the brew and acquisition closes of the pro forma budget that we've outlined assumes that we layer and Bruins 10, net drilled uncompleted well inventory into our completions program. This year.
And we are on track to commence completion activity in North Dakota and at the start of March and also plan to Reinitiate drilling activity there starting in the spring with one rig.
Another area. We're focused on is restoring production from a subset of Bruins wells, which require of Workovers.
Many.
<unk> were shut in during the low oil price environment last summer or simply went down and the normal course, and with current pricing providing robust workover economics, we will be accelerating their return to production.
As Ian noted we have identified about 100 net drilling locations.
Any of the cross brewing and Fort Berthold and Williams acreage as we think about upside to this number if primary primarily relates to the Williams acreage.
For context, the Williams of locations. We've identified are only focused on the east eastern portion of their land position or about one third of their Williams acreage.
These locations are also predominantly middle Bakken and focused with less development envisioned and the three forks.
As you move further west in Williams County, and the hydrocarbon system D grades and the wells aren't as productive.
So today, we're not including that Western Williams land and our forward plans or drilling.
Inventory, but if we have continued success, reducing well costs potentially also supported by higher commodity prices there could be a time when we'd revisit that acreage for development.
I would note that the Williams acreage does offer the potential for lower cost structures, and Fort Berthold and given the shallower and nature of the reservoir.
The war and lower ancillary costs due to being off the reservation.
Further to <unk> comments on synergies, while the brew and acquisition doesn't dramatically increase our scale it will support a more efficient capital and operating plan.
Other than laying down our drilling rig later in the year will likely keep and operating will also bring.
Wells on production with our Frac partner, allowing us to maintain momentum and helped drive costs lower.
We also expect to see benefits the operating costs for the combined operations and we will report out on these as we make progress.
Turning to our year end reserves with the reduced levels of capital.
Bring more of the 'twenty and 'twenty was not a year, where we saw significant reserve additions.
Notwithstanding this our overall performance was on track.
Bleeding economic revisions due to the reduced price forecast, we replaced the 89% of production Corporately and 119% of production and North Dakota on a per.
Activity plus probable basis, our F&D numbers were quite strong supported by the success, we've had reducing our well costs are proved F&D was $6 seven and $8 of U S per Boe.
Or excuse me $6 seven.
<unk> per BOE and proved plus probable F&B was.
<unk> 50 per Boe.
I'll leave it there and pass the call to Jodi.
Thanks Wade.
The combination of quickly reducing capital activity and our considerable success driving cost savings generated free cash flow in 'twenty and 'twenty. Despite the low oil price environment for most of.
Okay.
Our adjusted funds flow for 'twenty, and 'twenty with $358 million, which fully funded our capital spending requirements and generate and $67 million of free cash flow.
And the fourth quarter, we recognized a $311 million noncash property plant and equipment.
And the year and due to the lower commodity price environment and the use of constant and 12 month trailing prices to test for impairment in accordance with the Securities and Exchange Commission requirement.
This impacted our earnings leading to the fourth quarter net loss of $204 million.
And parenting on to our oil realizations and the Bakken our differential averaged $4.82 of U S per barrel below double UTI and the fourth quarter, our full year Bakken differential averaged just under $5 of U S per barrel.
With the decline of in basin production and the Bakken during 2020 and.
The ability and oil prices, we're seeing a more constructive market for Bakken crude with current spot differentials trading tighter than $3 of you asked per barrel below W. P. I.
And this strength is supporting our 2021 differential guidance of $3.25 of you asked per barrel, which assumes the Dakota access pipeline.
Morris to continues to operate.
Turning to the Marcellus regional natural gas prices were particularly weak between September through November and 2020 due to nearly full regional storage combined with low demand due to mild weather and.
As a result of realized Marcellus sales price differential widened.
And I plan to over a dollar of U S per Mcf below Nymex during the fourth quarter driving our full year 2020, and Marcellus differential to <unk> 65 cents of U S per Mcf below Nymex.
We expect our average 'twenty and 'twenty, one Marcellus differential to improve to 55 U S per mcf below Nymex.
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This is an annual average estimate and includes normal seasonality, where we expect robust pricing and differentials during the winter months with more moderate pricing and differentials during the warmer months.
Moving on to the balance sheet, we ended the year in a strong position with significant liquidity.
IMAX and you have of $114 million of cash on our hand on hand, and 600 million U S of Undrawn capacity on our bank credit facility.
Subsequent to year end and in connection with the brewing acquisition, we raised $132 million and gross proceeds from our equity offering and entered into a new.
Three years senior unsecured 400 million dollar of U S term facility to be fully drawn down on the closing date of the acquisition.
And this term facility includes financial and other covenants along.
Along with pricing consistent with our existing credit facility.
If current pricing holds we expect.
And just our net debt to adjusted funds flow ratio to approximately one times by year and in line with our long term leverage target.
Lastly, we have added to our commodity hedging position. We now have approximately 21500 barrels per day hedged in 2021, primarily through.
To take three way collars at average W. P. I prices of approximately $34 50 by 44 by $54 of U S per barrel.
As we previously disclosed upon closing of the brewing and acquisition, we will assume their hedge positions and record them on our balance sheet of fair value as part of the purchase price.
<unk> three and 2021 Bruin has 9000 barrels per day swapped at $42 U S. W. P I.
The realized and unrealized gains and losses on the Brewer and hedges will be recorded and our financial statements on a go forward basis, which will reflect the changes and WTS prices from the date of close.
I'll leave it there and we'll turn the call over to the operator and open it up for questions.
Yes.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have the question. Please press the star and followed by the one on your Touchtone phone.
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One moment please before your first question.
The first question comes from Patrick work with HEB capital. Please go ahead.
Oh, Hey, guys good morning.
We see a couple of quick questions on the nuance of the Reserve report I know there was a little bit of of technical revision, there and it looks like maybe perhaps some barrel shifted from two P and a one P is as is normal but I'm wondering with regard to the rest of the technical.
Technical revision what the the driver was there I know of about one.
And maybe $3 million came out of FTC is that.
Wells coming out of the reserve report or is that FTC reduction being more driven by.
On the well cost improvements that you've made and those being seen of structural.
Good morning, Patrick.
Do you want to handle that.
100, and ensure good morning, Patrick Thanks for the questions on the FTC question the.
And by far the biggest driver of those FTC change of those are lower.
Forward well cost projections given the success we've had.
Over the last year and reducing those costs as you saw.
And the and the release, we reduced costs year over year by 17%.
One 3 million and the U S and so as you as you bake that in the long term ft.
FTC.
The ends up making a pretty big impact.
Think to go back to your point on <unk>.
Probable tech revisions.
So really the key driver that Youre seeing there is as our confidence grows and our one P assignment and what you see as shifts from reserves from probable into proved and so even though the overall two P number doesn't change the probable number does change.
And it actually shows a negative.
Even though the total hasn't changed.
Okay.
Okay, Great and then just a quick question on Jodi talked.
Address the brewing.
Book.
Assumption would be that you came into that with eyes wide open and price side.
Change in the deal on.
Just curious on potentially the longer and more of absurd and of their hedge book on the five by 75 color and if you guys see.
And the need to have that sort of protection and 2023 or if you would think about unwinding.
The unwinding that to maybe preserve potential.
And upside beyond the 75 Bucks.
And Patrick.
So of course.
None of that was news and that was all.
It was all disclosed and the initial acquisition announcements when we sort of talked about the pro forma hedge books.
To that.
<unk>.
Little strange call or you're talking about let's just put that on the bucket of.
The immaterial there are some nuances that the.
The company has the company had to put it on as they emerge from bankruptcy.
And so yes, we will.
We'll think about that one and isolation, but.
And if we're dealing with the $75 per cap is the problem of I'll call. It a quality problem.
To be dealing with.
Yes.
And you step back and think about that hedge book we have.
And we're pretty comfortable let's give us.
And really meaningful downside protection and then we've structured it to preserve.
Pretty cyclic.
Significant upside through the through the.
The unhedged volumes, obviously and then the three ways that we've been using and then obviously as we move out into 'twenty 'twenty two of the hedge book is more modest again.
Yes, yes, very fair I think if anybody needs of $5 put for a for a full year on might need to look for a new job at some.
And here, but thank you for that.
Yes.
Okay. Thank you.
Thank you we have the following question from Greg with RBC capital markets. Please go ahead.
Yes, thanks, good morning.
Some point.
Just a couple of maybe just to go back to the reserve report a little bit and.
Just well performance and so forth. So obviously I mean weighted mentioned.
Reserve replacement and really a function of of spending levels. Obviously over the course of last year could you maybe just comment on on on well performance.
Ross are continuing to go on the right direction.
But any any thoughts there would be helpful.
Sure happy to address that Greg.
And at a high level I would say well performance continues to track our expectations.
The dive a little bit more into those reserve replacement numbers and North Dakota.
And I know the casino.
On the 69% reserve replacement.
It does move up to 119% if you take out the price driven economic revisions.
And the key drivers overall for our reserve replacement in 2020 and North Dakota.
Really our product of.
A bit of lower capital investment and 2020, obviously, but then also appreciate that our long range plans.
Have shifted to a bit of a lower growth model. Then we may have previously had and so that also impacts the number of of new.
And two P reserves you can add.
And of the system.
It was not driven at all of our well performance as I noted the.
And the results from the last couple of years and and specifically even the 2020 results have tracked right right close to our type curves.
Okay terrific and maybe the go up now to 15 and 20000 and see.
<unk>.
Realized.
Bruins closing in March, but your balance sheet.
And the best in class and you guys are very careful and how you go about doing things, but I guess the question for Ian is now that you've got increased scale and increase free cash flow and so forth are there further consolidation and acquisition opportunities that you would see.
And either.
And the Bakken or the Permian or or.
Would you actually even include Canada and that mix so.
I know thats the granular question, but I'm just trying to get used to get my head around how youre thinking about the business going forward.
Yeah.
And good morning, Greg.
It might sound a bit redundant.
And here, we are just executing and we've just executed on.
The transaction that day.
I think makes a lot of sense to us and and we've had some positive feedback.
Continuing to consolidate.
And our and our main.
Our area of focus.
So.
Would we continue to want to do those sorts of things the valuation lined up.
Clearly.
That could be pretty smart business and so yes, there is other opportunities out there.
We are not the big dog in that based on where you don't have a dominant position so we see opportunity.
And there I guess, we will see how that market unfolds.
We've only had two cash transactions and North Dakota, and the last couple of years really.
We'll see if this is the start of the trend.
And to your and your.
Call it about the.
The balance sheet.
And really important to us.
To maintain the balance sheet.
The strength, which is one of the reasons, we put a bit of equity out the door.
For all of the strategic benefits that can come from having a strong balance sheet, including the ability to continue to look for opportunistic acquisition opportunities.
To your the other part of your question.
How would we think about things.
Outside of North Dakota.
I think we've been consistent.
We view the core of the company as being North Dakota and building around that.
Makes sense are there other opportunities out there.
Yes, I think you have to keep your your eyes open to other opportunities.
Whenever you are starting to speculate all of the people.
People's ears, perk up and wonder what it looks like so I don't know what it looks like because right now we're talking to the Bakken consolidations, but someday, perhaps we do pay attention to North America carefully again most of the things that we see are in the U S, which is where most of our focus is but there are some interesting opportunities in Canada.
And as well.
But again I come back to what the.
The focus area today, largely is in our backyard and we see opportunities there, including the order with just execute on.
Happy to add more if you want to.
More color on that.
No I don't.
I think that does it yes, thanks to go.
Thanks.
Greg.
Thank you and is there.
A reminder, ladies and gentlemen, and should you have a question. Please press star followed by the one on you touched on the phone.
Yeah, no future of questions. At this time you May proceed.
Alright, so we'll leave it there and thank you.
For everyone joining us on the Friday morning, and.
The good safe weekend the characters.
Okay.