Enerplus Corporation Q1 2023 Earnings Call
It needs to be accretive to shareholder value.
Furthermore, the reduction of our share count is quite meaningfully enhancing our per share growth metrics.
Adjusted net income per share and production per share increased by 8% and 19% respectively. In the first quarter of 2023 compared to the first quarter of 2022.
As previously indicated we are committed to returning at least 60% of 2023 free cash flow to shareholders.
Over the next three months.
Up through the end of July we plan to repurchase the remaining $3 3 million shares under our NCI authorization.
And then renew our repurchase authorization for another 10% of shares outstanding in August .
In addition to our plans to return capital to our shareholders. We are also continuing to strengthen our balance sheet.
And our financial flexibility.
We've reduced net debt by 32%.
From December 31, 22 to March 31 23.
And ended the quarter with net debt of.
Approximately $150 million.
In summary.
The outlook remains strong.
We expect to deliver another year of solid execution and well performance from our Bakken development program.
And with our capital spending weighted approximately 60% to the first half of the year, we anticipate meaningful oil growth and a robust free cash flow profile in the second half of 'twenty three.
Beyond 'twenty three are deep.
High rate of return drilling inventory will continue to support attractive return on capital.
And.
Growth project prospects for years to come.
I'll leave it there and pass the call to wait for an operational update.
Thank you Ian and good morning, everyone.
North Dakota production averaged just under 67000 Boe per day in the quarter, which was 8% lower in Q4.
As is typical for us first quarter production declined sequentially due to the planned timing of our completions program in North Dakota.
We brought our last 2022 pad online in mid October and our first pad. This year started producing mid February .
As Ian mentioned operationally the year is off to a good start based production is tracking ahead of plan and our drilling and completions program is running efficiently.
We brought a four well pad on production during the first quarter and the Murphy Creek area in early time performance is meeting expectations.
I would note that as we continue to drive improvements in gas capture and emissions management, particularly in areas, where gas takeaway is constrained we have been adapting our practices to ensure more molecules are captured and sold by curtailing initial production when needed.
<unk> falls into that category with initial rates constrained to some degree.
This approach of curtailing rates to manage emissions isn't new for us, but it is becoming increasingly important as we deliver on our emissions reduction plan.
Overall these early results support our positive view of the economic returns in development potential and the Murphy Creek area.
Looking ahead, we have an active completions program underway with the second and third quarters being our busiest periods with the second quarter anticipated to be our highest period in terms of capital spending.
We expect to bring approximately 20 net operated wells online in the second quarter in North Dakota, which should set up strong volumes in the second half of the year.
In addition to a pad and FTIR our second quarter on streams will include our first two pads and the little knife area. The first of which is a seven well pad is currently being tied in.
We look forward to demonstrating the potential I'm little nine where we are highly confident we have a significant amount of tier one inventory.
We also plan to bring our first set of re fracs on during the second quarter, which will be a good data point to help us frame what this opportunity set could look like in our portfolio.
Today. We don't include these in our decade, plus drilling inventory, but if successful we see the potential for approximately 60 additional value accretive well re fracs that could be added.
For context. These re frac candidates are producing wells, we acquired in 2021 in Dunn County, which were completed several years prior to that.
These wells have relatively low recoveries and we think there is a potential meaningfully increase that with a modern re stimulation.
Turning to cost structures broadly speaking inflation year to date has tracked our expectations and we're seeing some early signs of the market tightened us beginning to ease on stabilized.
Although we're not expecting to see substantial cost deflation in 2023, we have seen <unk> prices soften as we have secured inventory so far this year.
Declines are being driven by lower input costs stronger supply in a flattening rig count.
This could be a tailwind to cost structures in 2024.
Lastly, I'll touch on activity on our non operated Marcellus position, our first quarter Marcellus natural gas production was 180 million cubic feet per day, which was approximately flat to the prior quarter.
We continue to expect limited capital activity in our Marcellus position in 2023, with just 3% of our overall capital budget being directed to the Marcellus This year.
As a result, we expect our Marcellus volumes decline as we move throughout the year.
In closing I'll reiterate <unk> comments about our strong positioning are.
Our unwavering focus on safe clean and efficient operations, along with disciplined cost control to supporting robust margins and significant free cash flow generation.
I'll leave it there we will turn the call over to the operator and open it up for questions.
Thank you, ladies and gentlemen, we will now conduct the question and answer session.
We have a question. Please press star one on your telephone keypad, you will hear <unk> acknowledging your request.
Your first question comes from the line of Greg Pardy from RBC capital markets. Your line is now open.
Hi, Good morning. This is Robert man on for Gregg Party and thanks for taking my question.
Just on the shareholders' return front, we just wanted to get a sense of what the appetite for an S. IP is here in the near term and what sort of market conditions with satisfy execution of one from the company's standpoint.
Good morning, Robert.
And we are we are open minded to and savvy.
It's.
For all intents and purposes sitting on a shelf ready to go as a tool that we will utilize if we see the need.
Your question was whether we see a need in the near term.
I don't think Thats.
Likely.
As we.
So a little more meat around the bone on how we see the next quarter going we have three 3 million shares available for repurchase under the NCI.
Which our share counts only about $250 million, so pretty meaningful percentage and.
We've committed to repurchasing that under current market conditions, so with current market conditions mean.
Effectively means the share price.
Being in this range.
Plus or minus maybe maybe plus plus actually we see a fair amount of value of the stock at these levels and based on our mid cycle price views. So we think when we look at that amount of <unk>.
Commitment layer on the dividend and then think about that in the context of this.
Minimum 60% commitment and also think about it in the context of how we see our capital program unfolding over the course of the year and that the free cash flow profile, which is much bigger in the back half of the first half of the year, we think we're pretty comfortable.
No if you will recall.
Last quarter, we said we were planning on that we werent going to smooth this 60% plus we were going to accelerate some of that and that's how the math lines up when you look at this $3 3 million share commitment.
Moving forward, we'll have lots of room under the NCI, but once we were due in August and the Si He sits there and.
And then the against the broad framework, we will think about affordability at least 6% free cash flow.
We will refresh that when we get that three.
And then it's all about valuation and again, we see less volume socket. These loans.
Yeah, that's great. Thanks for the detail that's all I have thanks.
Sure.
Your next question comes from the line of Jefferies Endogen from <unk>. Your line is now open.
Good morning, Thanks for taking my questions.
My first one is just going to be on the broader capital strategy as well just maybe looking at the different options that you have obviously a lot of execution on the on the buyback to date, but if we think about a scenario in which we see better crude prices play out in the strip is indicating and you'll see the share price react positively in conjunction with that in the space. How do you think about our variable.
Potentially entering the next longer term and then maybe as a second part to this question can you talk a bit more about how you evaluate intrinsic value internally there. If it's primarily an NAV exercise. It's a mid cycle price that you might use internally just trying to get a better understanding of how we compare the different alternatives all the time.
Yes, thanks for the question Jeffrey.
From Tpa, which I think.
<unk>.
So our framework for.
Evaluating valuation.
You've highlighted it.
It's a DCF exercise.
It's based on known low risk.
Our inventory.
Our view of mid cycle pricing and then that's compared against share price.
And.
It's dynamic.
Obviously, its impacted us by commodities, it's impacted by the success of the share buyback program actually we see buying at these levels is accretive to that number so it's dynamic and we'll stay on top of it and we monitor that really quite carefully.
You've asked would we complement that with other return of capital.
Tools variables or specials or the or the like.
We are open minded we're open minded to that.
When we think about fundamental valuation.
We sort of understand the math of buying.
Shares in the context of capital allocation decision.
A variable cost structure, a bit different than that and so for us to switch from this mechanism.
We need to see a couple of things we need to see valuation move to place where we were less comfortable.
I don't imagine it would be a binary decision that and keep you sort of complementing it with more of a dividend.
We look at the market and we see valuation that's underpinned by <unk>.
<unk> and our growing base dividend. So we were committed to growing our base dividend on the variable it looks a little hit and Miss to us at this moment.
And so we don't see a signal relative.
Relative to evaluation and those dividends being capitalized wells until we see that signal, we're probably not going to shift.
But we will be responsive to the market to pay attention to what's going on and we're not going to be something thats going to disadvantage our cost of capital.
Alright, perfect I appreciate the detail there and then for my second question I realize it's a little too early to talk about little knife, just with that seven well pad game title.
Highlighting but any comments you are able to share just on your outlook for productivity. There maybe based on what you've seen from operations in the area or any comments from your observations to date just from your market Creek activity that you referenced.
Yes, I think I think we can I think we can give you a little more color there.
I'll hand, it over to Wade it is early.
<unk> highlighted and we'll talk a little bit more about that but this area is is not unknown. There is a lot of data out there we have a highly calibrated geo model and there is a lot of data from third parties.
So we've talked about our confidence in the area being strong that we haven't seen anything that diminishes that at all.
I will ask weight.
A little more color on how we see the quarter on holding.
The pads, we're talking about.
And maybe actually will get into a little bit.
The re fracs as well.
Yes, good morning, Jeff Thanks for the question.
I want to go back almost two years to when we acquired this acreage.
We really liked it at the time, we thought it looked a lot like tier one acreage to us.
Everything that has happened since then has been constructive to that view, we've done a lot deeper characterization of the area. We've also saw additional wells come online in our non op program and just from other industry participants all of that has really confirmed our view that this little knife area compares very favorably to.
Our core position in Fort Berthold.
So that.
First pad that you referenced it's called the hey drop pad.
We've completed it and we're actually in early flowback and.
Very early but I would say, we're encouraged by what that.
It looks like so far and look forward to actually demonstrating.
The broad potential.
The little <unk> without pad in the second pad that will also come online this quarter.
So.
In terms of.
What you should expect this quarter.
In terms of order.
We also have another pad at the moments flowing back in Fort Berthold.
After those two youll actually see we'll actually have our first.
Set of re Fracs come online kind of a.
A couple of weeks from now and then.
And in the last month of the quarter Youll see we will have our second.
Nice pad come online and then near the end of the quarter, even another set of up re fracs.
So when we think about.
The productivity of the area.
It will likely vary, but we really are excited about.
These wells will come online this quarter.
In terms of the re fracs.
Maybe give a little deeper contracts. There. These are wells that they've been online for quite a long time.
Were completed at a time when.
Completion, intensities, where quite a bit different and so.
It's it's certainly something that we're exploring here around the potential to recover a lot more oil from those wells with a modern re stimulation.
You did ask about that.
Four well pad that came online in the first quarter and Murphy Creek.
That's our <unk>.
<unk> and a pad and that area is certainly is further away from the core of the play, but we're actually pleased with the results met our expectations today not just some of the other offsets that we saw in that area from another operator or two.
Great. Thank you a lot to look forward there it sounded like over the next couple of months here and really appreciate it.
Thanks, Jeff.
As a reminder, if you have any questions. Please press star one on your telephone keypad.
Next question comes from the line of Travis Wood from National Bank Financial Your line is now open.
Good morning, guys, sorry, I thought I withdrew Jeff J hit the question that I wanted to ask but since I didn't withdrawal.
I'll, maybe ask on inflation, we saw some commentary from other operators in North Dakota, starting to get a little bit here through the back half.
Of the year.
So maybe could you just remind us in terms of how you have some services secured and how youre thinking about inflation through through 'twenty, three and I think you made a comment on maybe there is some tailwind on pricing into 24. Thank you.
Sure happy to Travis This is Wade again.
In terms of our 2023 program.
But all of the services and consumables needed for that program with one exception, which I'll come to events secured for a long time so.
Even though yes, we see activity.
Ebb and flow in the play and maybe its picked up a bit we're not concerned about our ability to execute this year's program that's pretty much locked in.
The only key piece that we chose purposely not to lock in was our casing and tubular costs.
And supplies.
We've essentially been buying that on a quarter by quarter basis. Our view has been that steel prices were likely to at a minimum stay flat if not rollover. This year and so we wanted to we wanted to take advantage of that dynamic and so far that's worked out really well for us.
Last two quarters purchases.
We've actually saw about a 10% reduction each quarter and the cost of the casing and so that will continue to be our strategy as long as we see that kind of dynamic in the market, where where we think future facing cost will be lower than today.
In terms of our our strategic procurement activity.
It's been our pattern for several years, we're already working on 'twenty.
2024, and 2025 in terms of ensuring that we're securing.
<unk>.
Rigs and pressure pumping services and <unk>.
In certain places consumables, where we need them for those programs and so we feel like we're fairly well positioned there.
In terms of the broader ability to predict what costs will look like in 'twenty four.
A bit early to be firm about but.
It looks like on a broad basis, most of our key services and consumables have stabilized and price.
That's probably about the simplest view, we could get for next year, but if we continue to see steel costs rollover, which are frankly, the largest part of our drilling costs.
Could give us a bit of a tailwind to see a little bit lower cost next year at a minimum.
Okay Fantastic that's great color I appreciate it thanks, Mike.
Sure.
Your next question comes from the line of Patrick O'rourke from APB capital markets. Your line is now open.
Hey, guys. Good morning, Thanks for taking my question here it sounds like a bit of it.
Embarrassment of riches within the Bakken.
Nice quarter Berthold anemia market Creek, everything that's going on maybe.
With respect to one of the assets in the portfolio that doesn't see a lot of attention here and you do have the three wells in Wattenberg that youre drilling this year I'm. Just wondering if you could provide an update with the timing where we could expect to see some news and then maybe more broadly what the strategy with respect to value realization for this asset.
Could look like in the future.
Patrick.
Yes, we're not embarrassed.
But we're we're pretty proud.
The DJ is.
It's a great it's a.
Great Little asset.
Strong economics.
But it literally is sort of the key work for us and so we've declared that asset strategically noncore.
So what does that mean I mean, I guess Thats code for were open minded to parting ways with it.
But.
We see a lot of value in the asset beyond just the producing thousands of DVD.
Level that it's at.
So.
In a market like this.
Which I would characterize as volatile from an M&A perspective.
Sometimes difficult to transact, we made a decision that the best answer for that asset at this minute is to drill a few wells.
And.
Unlock value that way at this moment in time.
So relative to the timing on those wells and those sorts of things will have to.
As a way to talk about.
Where we are in that in that program.
Yes.
This three well pad that we have already begun execution on returns look really solid.
So more than happy to bring those online this year that will be in the summer so timing of new information really would be in Q3.
Okay. Thank you.
Thanks Pat.
As a reminder, if you have any questions. Please press star one.
There are no further questions at this time please continue.
Alright, well. Thank you very much for your attention again, it's a busy reporting day for lots folks will have to go back to your day jobs.
I appreciate your support of our great.
Weekend. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.