Q3 2023 Enerplus Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Endo plus Q3 2023 results conference call.
At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time during this call you'll require immediate assistance. Please press star zero for the operator also note that this call is being recorded on Friday November three 2023 and.
And I would like to turn the conference over to drew Mair. Please go ahead Sir.
Thank you 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 our third quarter news release.
<unk> have been prepared in accordance with U S. GAAP. Our production volumes are reported on a net after deduction of royalty basis.
Financial figures are in U S dollars unless otherwise specified.
I'm here this morning, with Ian Dundas, our President and Chief Executive Officer, Wade Hutchings, Senior VP, and Chief operating Officer, Jodi, Jenson Labrie, Senior VP, and Chief Financial Officer, Garth Doll, VP marketing and Shana Laurie here at BP Finance.
Following our discussion we'll open up the call for questions with that I will turn it over to Ian.
Good morning, everyone.
Our positive operating momentum this year continued.
Third quarter liquids production was up 14% sequentially outperforming our forecast.
Once again underpinning this production performance is strong well productivity from our core Bakken position.
The outperformance of our wells has taken our annual production forecast higher.
And we have increased our 2023 production guidance.
<unk> update points to an increase in annual total production of 2000 Boe per day.
And liquids production of 1000 barrels per day at the midpoint.
Adjusting for the divestment of our Canadian assets last year, the midpoint of our guidance is moving two 7% year over year liquids production growth in 2023.
This is the second consecutive year of exceeding our stated 3% to 5% annual liquids growth projection and has positioned us meaningfully ahead of the five year plan, we rolled out in 2021.
Although we anticipate it to be modestly more we expect fourth quarter liquids production to remain resilient through the end of the year and are guiding to Q4 volumes liquids volumes 60500 to 264500 barrels per day.
This will leave us well positioned as we enter 2024.
We continue to track within our original capital budget and have narrowed our annual guidance for capital spending to 522 $540 million.
The combination of production outperformance.
Cost focus and the cadence of our capital program is driving a robust free cash flow profile with an attractive outlook for the fourth quarter.
This will support a strong return of capital program through the end of the year.
Having returned $200 million to shareholders. During the first nine months of 2023, and an expectation of returning approximately $300 million of our 2023 cash flow based on the current commodity price environment.
The pace of returns is accelerating in the fourth quarter.
Quarter to date, we have already repurchased about $40 million of stock.
Looking ahead into 2024, we expect to continue to return meaningful cash to shareholders.
Based on current market conditions, our strong free cash flow look and low financial leverage we expect to return approximately 70% of 2020 for free cash flow.
Through share purchases and dividends.
I will leave it there and pass the call to wait for an operational update.
Thanks, Ian and good morning, everyone.
Third quarter production from North Dakota grew to just under 78000 Boe per day up 13% from the prior quarter. These.
These strong quarterly volumes were driven by an active completions program comprising 19 operated wells turned online during the quarter excellent cycle times and solid performance in our base production wells.
We brought wells on production across three pads and FTIR and one in Williams County.
We also continued to see strong production performance from the two little life pads.
That we brought online during the second quarter.
On average these wells are continuing to produce quite meaningfully above type curve expectations.
We have achieved some notable execution metrics as well this year on the drilling side. We've averaged just over 10 days for spud to rig release for our two mile Wells, which is more than a day faster than last year.
We also drilled a record pace setter, well, which was eight days spud to rig release on.
On the completion side, we've also seen efficiencies build through the year, averaging just under 15 stages per day also a year over year improvement.
We set a company record on completions to final Frac Ing, a six well pad and FTIR at 20 stages per day.
This strong execution has allowed us to bring volumes online faster and help drive costs lower.
Our expectation coming into the year was that our total well costs averaged $7 $8 million with the efficiency gains we've realized and lower steel costs, we anticipate coming in just below this forecast.
And based on our current per cube, Chairman work for 2024, where we have secured key supply chain elements, including drilling rigs directional services band and pumping services. Our expectation today is that we could see well cost come in approximately 5% lower next year.
Turning to our non operated Marcellus position as expected we saw quarterly volumes declined sequentially by 6% to 145 million cubic feet per day, driven by limited capital activity. This year, we expect our capital allocation to the Marcellus. This year will represent just 3% of our 2023 capital budget.
We now expect to exceed our 20% 30 scope, one and two emissions intensity reduction target this year.
Representing an approximate reduction of 40% from the 2021 baseline and 55% from 2019.
We are also tracking ahead of our methane intensity reduction targets and we expect to achieve an approximate 45% reduction.
The 2021 baseline and 65% from 2019.
To reflect this performance and our outlook for reducing a greater proportion of emissions by 2030 than previously anticipated.
We have revised our emissions intensity targets. These targets are detailed in our quarterly disclosures released yesterday.
In addition, we are endorsing the world Bank zero routine flaring by 2030 initiative and have established a flare intensity target of less than two.
Percent per thousand cubic feet of natural gas produced by 2026.
Leave it there and turn the call over to Jodi.
Great.
Let's start with our price realization in.
In the Bakken our realized oil price differential was <unk> <unk> per barrel above <unk> in the quarter.
This was stronger than the previous quarter, reflecting higher prices for crude oil delivered to downstream markets and the U S. Gulf coast by the Dakota access pipeline.
Behind with a recovery in <unk> prices throughout the summer.
Additionally, U S refinery utilizations and margins remained strong throughout the third quarter of 2023.
However, we have seen some modestly weaker trading in Bakken crude oil prices so far in the fourth quarter due to increased based on production and lower seasonal refinery demand, resulting from maintenance outages.
As a result, we are revising our annual 2023 expected Bakken crude oil price differential to 25 cents per barrel below wpri from par with WTS. It previously.
In the Marcellus our realized natural gas price differential weekend.
<unk> 24 per Mcf below Nymex, reflecting increased supply in the northeast U S and regional storage levels tracking above historical averages.
As a result of the weaker realization we are widening our annual 2023 expected Marcellus natural gas differential by 10% to 85 cents per Mcf below Nymex.
Operating expenses came in at $10 17 or early in the quarter.
We continue to expect operating expenses to increase in the fourth quarter due to planned workover activity. However, with our strong year to date performance. Our operating expenses are tracking at the lower end of our previous full year guidance range.
As a result, we have revised our 2023 opex guidance at $10 75.
Sure $11 per Boe from.
From $10 75.
11, 50 per BOE previously.
Overall, we generated $264 million of adjusted funds flow during the quarter with capital spending of 121 million of free cash flow was $142 million.
As our capital spending is expected to taper in the fourth quarter. We anticipate Q4 will be another strong period of free cash generation.
Earlier as Ian mentioned this is setting up an attractive return of capital profile to finish the year heading already repurchased $40 million in stock during the month of October with a total estimated return at a $100 million in the fourth quarter, including the dividend.
I'll leave it there and we'll turn the call over to the operator and open it up for questions.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear eight three don't prompt acknowledging your request and if you would like to withdraw from the question queue. Please press Star then two.
And if you're using a speaker phone and we ask that you. Please lift the handset before pressing Andy Keys. Please go ahead and press Star one now if you do have any questions.
And your first question will be from Greg Pardy with RBC. Please go ahead.
Hi, It's Justin Hello on for Gregg Party. So thanks for that thorough overview and thanks for taking my question. So my first question I'm wondering if you can delve a bit more into your operational game plan for next year.
What areas do you expect to be more focused on for drilling activity in North Dakota.
Good morning, Justin.
Hey, George take that please.
Yeah happy to good morning, Justin.
We look forward to providing even more color on that when we release, our full 2024 plan and guidance early in the next year, but we can directionally.
I would point you to activity next year in terms of on streams will be balanced between Fort Berthold and little lives.
And.
So you'd expect to see a program that looks quite a bit like this year.
Next year.
Thanks for that that's really helpful and.
Maybe switching gears, if I heard correctly I think you mentioned ways that you could see potentially 5% lower well cost next year could you provide more color on what's driving that and if there's any embedded inflation in that expectation.
Yes happy to so.
We think we will end this year, just under our $7 8 million total well cost estimate for 2023.
And the.
Casing cost reduction that we saw this year will help us as we move into next year on an average basis.
And then if I, if you step back and look at the key components of our well costs for next year.
The rigs that we need to drill the program next year, our secured the same rigs we've been using actually for a couple of years.
We've got pricing secured for those we have secured pricing and services for pressure pumping.
We also have secured all the sand that we'll need as well as pricing for that sand. So a lot of the key services that go into assuring that we can actually execute the program and have some confidence in the costs that will pay for the program are already set.
Now the things that will swing for next year are still <unk>.
And diesel would be the two biggest ones. So we have enough line of sight.
Indicate we think we'll see.
Around that 5% reduction from where we end this year going into next year and.
That's all predicated on kind of an $80 <unk> World and then we will just continue to be strategic around trying to secure.
Steel products and other components like that that aren't locked in.
That's great many thanks.
Thank you next question will be from Patrick O'rourke at ATB capital markets. Please go ahead.
Hey, good morning, guys. So solid results year to date, and obviously you took up the full year guide just looking at sort of granularity in terms of fourth quarter on the liquids production. It's about a 4000 barrel a day swing between the lower and the upper end of the guide you provided it for for fourth quarter. So just.
Wondering if you can unpack a little bit about.
What those sort of swing factors will be that will kind of land where you.
In that range.
Hey, good morning, Pat.
Patrick.
Yeah, I mean, I think you are.
You're seeing.
The granularity of our quarter there right.
We don't factor for factoring for storms of the century, but we factor and account for weather that can move things around.
Quite a bit.
We're done with the operated program, there's a little bit of non op model.
Stream, there can be coming into the mix.
As well and.
Maybe my last comment.
Youre seeing sort of the impact of some really highly productive.
Big pads have come on and they can move around a little bit.
So.
I don't know if there's any else you would add to that story for Patrick.
Yes, I think you've hit on it.
Just maybe a little deeper color on new pads, even if you go and look at the production that we got from those two little knife pads in the second quarter.
And then look at how anyone would've tried to forecast those into the third quarter, we had a pretty wide band of uncertainty you now see what those did in the third quarter. They were continued to be very robust, but anytime you have new pads.
Coming online and they've only been online for 15% to 45 days, there's still a fairly broad range of uncertainty around.
How those will perform.
We anticipate that each of those wells will at some time in the first few months get.
We will run tubing will add the first artificial lift, but even the timing of that is all dependent on well performance.
And.
That ends up driving on a well by well basis, how much production you get in the ensuing quarter.
Okay. Maybe then just shifting gears in terms of return of capital philosophy here.
Execution on the <unk> has been very strong we saw the October filing last night again impressive stuff.
Just wondering with respect to the dividend.
Yields a little bit lower than some of the peers today your payout ratio and what we're modeling for 2024 is also.
Much slower when you consider the capital program.
Sort of liability obligation for that dividend so just.
Wondering about the approach.
With respect to scaling of that element of the return of capital program.
That kind of plays into your thinking as a shareholder value proposition and sort of how we can think about the right ability of it going forward.
Yeah.
With a focus specifically on the dividend Patrick.
When you when you said, our payouts low presuming you're talking with a simple payout on the dividend.
No no.
When I look at the capital program plus the dividend that we're anticipating.
Understanding that the swing factor in terms of return on capital is the buyback, but just wondering.
How.
Aggressive you feel you could be with dividend growth here.
We will be balanced and dividend growth.
Yes.
Our dividend is lower than some certainly basis, a little bit lower we don't have a variable cost structure and special.
And.
This will sound familiar to you.
As we've thought about that construct.
We see value in that.
Doc we think were trading under intrinsic and we we don't see any signals in the market that suggest.
Different structures are being particularly be capitalizing any particular different way and so we're really comfortable at these kind of valuations leaning into the buyback.
So well.
We're interested in the dividend going up in.
It will sort of go up in the normal course, as we reduced share count.
And as you.
Although we raised it last last quarter, so we'll keep looking at that but.
But you know right now.
In the context of how we see the market.
We think that share buyback is really pretty attractive.
I think we see some of that on the stock performance.
For us that compounding effect of buying stock at these kind of levels.
It feels like a money machine that's going to pay.
Dividends.
Work overtime.
And I think you probably have noticed.
We've sort of been increasing.
As we continue to delever, increasing that return to shareholders now Jodi indicated we're thinking next year it looks like approximately 70% return free cash flow.
Thank you Todd moving at a pretty good direction.
Okay. Thank you very much.
Thanks, Patrick Thank you.
If you would like to ask a question. Please press star followed by one on your Touchtone phone.
And your next question will be from Jamie Kubik at CIBC. Please go ahead.
Yes, good morning, and thanks for taking my question a bit of a two pronged question here.
So I guess, we've seen overall Bakken natural gas volumes continue to climb in recent months.
So depending on the data that you look at it or gas oil ratios seem to be pretty stable.
Over the last couple of years, just wondering if you could maybe comment a bit on what you're seeing in your portfolio on that side.
And then maybe also discuss what's driven some of the outperformance in NGL production in recent quarters.
And Youre looking specifically to our portfolio youre not talking certain statewide stuff.
State statewide stuff it looks like it's.
Yes, I mean with respect to the question a question on your portfolio, specifically, what you've seen sort of gas oil ratios.
NGL production.
Just what's driven the strength in recent quarters in.
Sure Yes.
Yeah, well, I guess, where do you want to.
I'll take both of those.
Yes.
Yeah happy to so I would say in our portfolio the <unk> of our production.
The biggest thing that drives that on a quarter by quarter basis as the nature of the new paths, we're bringing online so even within Fort Berthold Theres G O. Our differences some of the big pads, we brought online actually in 2022 had a higher <unk> ratio.
Some of the pads, we brought online a little life have a little bit higher <unk>. So that that's one of the underlying drivers.
Or that trend for us, but I would say the other key one is we're simply capturing more gas.
As you have followed our emissions reduction efforts and frankly, just our efforts to capture and produce and sell more gas.
We are essentially increasing that sales you our ratio.
And then that ties into the second question around NGL production, obviously work as a capture more gas.
We are selling more ngls as well.
And then I'll come back to my first point.
Closeout the NGL answer it also varies by.
<unk>.
The geographic area of where new pads come online those two fairly significant new pads and little knives.
Not only did have a little bit higher than average.
And hence higher Ngls.
Gas processing plants that we flow those through have a higher NGL yield or realization as well and so that's why you saw that tick up a bit in Q2 and Q3 I think we've tried to be clear, we're actually seeing that come back a little bit closer to our historic average on oil cut.
For Q4.
That's great color that's all for me thanks.
Thank you and at this time, we have no other questions registered please proceed.
Right well, we will leave it there appreciate everyone's attention is very busy reporting day.
I think weekend. Thank you.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
Okay.
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Yeah.
Yeah.
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