Enerplus Corp (ERF) is a Canadian Energy producer with assets located both in Western Canada and the US. In July 2012, due to its heavy reliance on natural gas, Enerplus was forced to lower its dividend payout 50%, to a more sustainable $0.09 per month. Enerplus has recently bounced off its low, with the stock surging about 20% in recent weeks due to higher natural gas prices. At current prices, Enerplus yields about 7.1%.
Enerplus has been slowly shifting away from being a pure-play Canadian producer of oil and gas, to being a more diversified energy company, with newer assets and production located in the Bakken and Marcellus shale. This has balanced Enerplus's asset portfolio, with an asset split of 60% in Canada and 40% in the US. The US assets offer Enerplus a much higher percentage of liquids production than the Canadian assets. The Bakken production in particular has a much higher concentration of light oil, and has helped Enerplus stabilize its funds from operations ("FFO"). For full year 2012, Enerplus's production mix was 45% oil, 5% NGLs, and 50% natural gas.
For full year 2012, Enerplus grew annual average production by 9% to 82,098 BOE/d. Crude oil and NGLs production increased by 20% to 36,509 bbl/d and represented 49% production. Enerplus saw its US natural gas production from the Marcellus grow in 2012, offsetting declines from the Canadian natural gas. On average, Enerplus saw its total natural gas production remained unchanged at 252 MMCF/d in 2012.
For 2013, Enerplus estimates its production mix to be about 50% natural gas and 50% liquids. Crude oil production is expected to be 52% US production and 48% Canadian production. Note that the majority of Enerplus's Canadian oil production (25% of the total) is estimated to be heavy oil, which trades at a massive $30 discount to WTI.
As of year end 2012, Enerplus had total 2P reserves of about 346 MMBOE, with a mix of 55% crude oil, 5% NGLs, and 40% natural gas. Enerplus has managed to increase its crude oil reserves 12% and its total reserves 7% in 2012. These increases in reserves represent a 283% replacement in oil production and 111% replacement in natural gas production. Enerplus's 2P reserve life increased to 10.9 years in 2012, up from 9.8 years in 2011.
In terms of capital spending, Enerplus expects to deploy nearly half of its capex to the Bakken and 12% to the Marcellus. Another 23% of capex is going to the crude oil rich waterflood Canadian properties. Enerplus will be spending about 85% of its capex on oils and NGLs plays. Note that Enerplus will be focusing on more efficient capital spending, and will spend 20% less in capex than in 2012. Even with this lower capex, Enerplus expects its oil production to grow 2.5%, and total production to grow 2%. For hedging, Enerplus has about 64% of its 2013 crude oil production hedge and about 30% of its natural gas production hedged.
Even with its shift towards US light oil production, Enerplus still has the millstone that is Canadian natural gas exposure around its neck. Even with the lower capex budget, Enerplus expects its dividend payout ratio to be 125% in 2013. Enerplus is also expected to increase its debt to FFO ratio to 2.0X this year, up from 1.7X in 2012. If the Keystone pipeline is approved, Enerplus will not benefit as much unlike some other Canadian energy stocks (PGH, PWE, BTE). However, this is not to say that Enerplus will not see a positive move if the pipeline bottleneck issues are removed. With its high yield, Enerplus is a classic 'paid to wait' stock. In terms of risk/reward, I would categorize Enerplus as medium risk, medium reward. With natural gas price moves, Enerplus can easily gain or lose 20%. However, due to its diverse asset and production base, Enerplus is not as risky as say a Pengrowth (PGH) or a Penn West (PWE).
Disclosure: I am long PGH.