On Friday, August 10, Enerplus Corporation (NYSE:ERF) reported results for the second quarter of 2012. ERF's net income fell to $100.3 million Canadian (about $101.1 million U.S., with $1 U.S. roughly equal to $0.992 Canadian), or $0.51 per share, compared to $268 million, or $1.50 per share, during Q2 of 2011. Funds flow was approximately $147 million during the quarter, or $0.74 per share. Much or all of the above-mentioned reductions are based upon lower commodity prices, with some of that being offset by ERF's increased production rates.
Enerplus reported an average production rate of 82,108 BOE/day during the second quarter, which is about a four percent increase in average production volume compared to Q1 of 2011 and about a nine percent increase in production compared to Q2 of 2011. The company continued to increase its crude oil production, with total crude volumes increasing by about seven percent compared to Q1 of 2011.
Enerplus also noted that the company has 18,500 bbls/day of oil production hedged at US$96.17/bbl for the remainder of 2012 and 14,500 bbls/day of oil production hedged at US$101.36/bbl for 2013. Further, the company noted that it began to hedge its 2013 natural gas supply after natural gas prices began to increase during mid to late Q2.
Enerplus had previously announced plans to increase production of crude oil and natural gas liquids, represented 49% of ERF's total production for Q2. Enerplus noted that it drilled 18.7 net wells during the quarter, and 18.4 net wells were brought on stream with, 75 percent of drilled wells being oil wells. Enerplus also revised its expected full year capital expenditures upwards to $850 million from its prior estimate of $800 million.
As a result of lower cash flow expectations due to the severe drop in natural gas prices that occurred over the last 12 months, as well as a significant decline in oil prices during Q2, ERF cut its monthly dividend in half, from $0.18 per share to $0.09. Based upon ERF's current price, a nine-cent monthly dividend works out to a 7.5 percent annual yield.
Prior to Enerplus cutting its dividend in half, the company's shares declined by over 50 percent since the start of 2012. This significant decline was due to many factors, but largely due to the market anticipating the cut, and ERF's strong correlation to natural gas prices. Shortly after ERF cut its dividend, Pengrowth (NYSE:PGH), a peer Canadian oil and gas company that pays a monthly dividend, followed suit and reduced its monthly payout from $0.07 to $0.04 per month. Since Enerplus cut its dividend in half, in mid June, shares of the oil and gas producer have appreciated by nearly 15 percent, or about $1.88 per share, while also paying out two nine-cent monthly dividends.
All in all, this quarter's results are about what the market anticipated. The company continues to press forward on its plans to increase its production of both oil and gas. Further, Enerplus has indicated that it continues to push forward on its plans to sell or otherwise monetize portions of ERF's early stage assets, such as the Duvernay, Montney and operated Marcellus shale assets, as well as other non-core producing assets and a portion of the company's equity portfolio. Given these results, it appears Enerplus should be able to maintain its present dividend policy, and its plans to sell assets provide near-term positive news, if it can sell any of these assets in the coming months.
Disclosure: I am long PGH.