Last year, Enerplus' (ERF, Financial) production increased by 15% or 13% per share mainly due to the robust performance in the Marcellus and the Bakken.
Enerplus also reported a 14% per share expansion in the fund flow, owing to the robustness of its hedging schedule, and a significant growth in production.
Strong production growth will lead to better times
This considerable increase in the production at the key wells, coupled with a major expansion of the free cash flows, is believed to uniquely position Enerplus on the growth path, delivering superior shareholder returns going forward.
The 2P reserves for Enerplus expanded by approximately 7% or 6% per share depicting the core production replacement of about 175%. Proved reserves increased by 9% and currently signify two thirds of its entire reserve base. Proved production deposits also grew by 11% and currently signify nearly half of its overall reserves.
The bulk of its reserves expansion was achieved from Marcellus and the Fort Berthold. Robust performance throughout the fiscal year 2014 allowed for hugely constructive technical reviews in both plays.
The significant production growth from the key wells at the Marcellus and Berthold illustrates the solid execution strategy of Enerplus, which is believed to firmly position the company for long-term growth.
Improving its reserves will lead to long-term growth
Enerplus added approximately 75 million BOE of 2P reserves by successfully executing its growth activities. FD&A cost remained well under $8.62 per BOE. Particularly, Enerplus continued to enhance the grade of its key portfolio all through the year by divesting its non-core gas assets at logical costs.
The overall divestment schedule of Enerplus for 2014 recognized total proceeds of about $204 million, all at a metric cost of $19.65 per BOE. Enerplus also enhanced its reliable resource estimation by about 86 million BOE, making its net to 449 million barrels of equivalent. This growth is primarily from the company’s major oil assets in North Dakota.
The planned divestment program of Enerplus targeted at its non-core assets is estimated to optimize the company’s balance sheet and provide additional cash flow streams to finance the future growth investments.
Smart moves
Moreover, Enerplus has delayed the capital expenditure all through the four major areas mentioned above to maintain expansion prospects in the portfolio. It is also planning to contract to a single rig in North Dakota in the middle of the fiscal year 2015, and delaying well closures. In addition, the 2015 capital expenditure for Marcellus is forecasted to reduce by 75% on year-over-year basis.
The planned cost-cutting efforts, in addition to the strategic allocation of the key capital reserves by Enerplus, is believed to drive significant top line growth for the company even in a declining oil pricing environment.
The key sell-out of the non-strategic assets, along with the significant implementation of the cost-cutting efforts by Enerplus is believed to solidify the company’s balance sheet, and encourage the management to plan for future expansion initiatives.
Enerplus is lowering its monthly dividend to an optimized level with effect from April payments. It is lowering the dividends to $0.05 per share from the existing level of $0.09 per share.
Further, Enerplus is adjusting its 2015 annual average production outlook in 93,000 to 100,000 BOE a day range with liquids and oil signifying growth of 42% and 44% respectively.
The slight reduction in the key dividends offered to the stakeholders is forecasted to only slightly benefit the company in improving the condition of its balance sheet. The lowering of the production target for the year is also expected to reduce the company’s operating expenditures.
Conclusion
Overall, the investors are advised to avoid investments into the Enerplus Corporation, looking at the declining company valuations. The PEG ratio of -2.80 depicts no growth but decline. However, the profit margin of 19.60% is satisfactory. Still, Enerplus is significantly debt-burdened with huge total debt of $903.62 million against small total cash of $2.90 million only, restricting the company to plan for future growth investments.
