FORM 6‑K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer pursuant to Rule 13‑a‑16 or 15d‑16
of the Securities Exchange Act of 1934
FOR THE MONTH OF May, 2020
COMMISSION FILE NUMBER 1‑15150
The Dome Tower
Suite 3000, 333 – 7th Avenue S.W.
Calgary, Alberta
Canada T2P 2Z1
(403) 298‑2200
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20‑F or Form 40‑F.
Form 20‑F ☐ Form 40‑F ☒
Indicate by check mark if the registrant is submitting the Form 6‑K in paper as permitted by Regulation S‑T Rule 101(b)(1)
Yes ☐ No ☒
Indicate by check mark if the registrant is submitting the Form 6‑K in paper as permitted by Regulation S‑T Rule 101(b)(7)
Yes ☐ No ☒
EXHIBIT INDEX
EXHIBIT 99.1 — Management’s Discussion and Analysis for the First Quarter ended March 31, 2020
EXHIBIT 99.2 — Unaudited Consolidated Financial Statements for the First Quarter ended March 31, 2020
EXHIBIT 99.3 — Certification of the Chief Executive Officer
EXHIBIT 99.4 — Certification of the Chief Financial Officer
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ENERPLUS CORPORATION
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BY:
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/s/ David A. McCoy
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David A. McCoy
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Vice President, General Counsel & Corporate Secretary
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DATE: May 8, 2020
Exhibit 99.1
MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)
The following discussion and analysis of financial results is dated May 7, 2020 and is to be read in conjunction with:
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the unaudited interim condensed consolidated financial statements of Enerplus Corporation (“Enerplus” or the “Company”) as at and for the three months ended March 31, 2020 and 2019 (the “Interim Financial Statements”); |
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the audited consolidated financial statements of Enerplus as at December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017; and |
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our MD&A for the year ended December 31, 2019 (the “Annual MD&A”). |
The following MD&A contains forward-looking information and statements. We refer you to the end of the MD&A under “Forward-Looking Information and Statements” for further information. The following MD&A also contains financial measures that do not have a standardized meaning as prescribed by accounting principles generally accepted in the United States of America (“U.S. GAAP”). See “Non-GAAP Measures” at the end of the MD&A for further information. In addition, the following MD&A contains disclosure regarding certain risks and uncertainties associated with Enerplus' business. See "Risk Factors and Risk Management" in this MD&A and in the Annual MD&A and "Risk Factors" in Enerplus' annual information form for the year ended December 31, 2019 (the "Annual Information Form”).
BASIS OF PRESENTATION
The Interim Financial Statements and Notes thereto have been prepared in accordance with U.S. GAAP, including the prior period comparatives. All amounts are stated in Canadian dollars unless otherwise specified and all note references relate to the notes included in the Interim Financial Statements. Certain prior period amounts have been restated to conform with current period presentation.
Where applicable, natural gas has been converted to barrels of oil equivalent (“BOE”) based on 6 Mcf:1 bbl and oil and natural gas liquids (“NGL”) have been converted to thousand cubic feet of gas equivalent (“Mcfe”) based on 0.167 bbl:1 Mcf. BOE and Mcfe measures are based on an energy equivalent conversion method primarily applicable at the burner tip and do not represent a value equivalent at the wellhead. Given that the value ratio based on the current price of natural gas as compared to crude oil is significantly different from the energy equivalency of 6:1 or 0.167:1, as applicable, utilizing a conversion on this basis may be misleading as an indication of value. Use of BOE and Mcfe in isolation may be misleading. Unless otherwise stated, all production volumes and realized product prices information is presented on a “Company interest” basis, being the Company’s working interest share before deduction of any royalties paid to others, plus the Company’s royalty interests. Company interest is not a term defined in Canadian National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and may not be comparable to information produced by other entities. All references to "liquids" in this MD&A include light and medium crude oil, heavy oil and tight oil (all together referred to as "crude oil") and natural gas liquids on a combined basis.
In accordance with U.S. GAAP, oil and gas sales are presented net of royalties in our Interim Financial Statements. Under International Financial Reporting Standards, industry standard is to present oil and gas sales before deduction of royalties, and as such, this MD&A presents production, oil and gas sales, and BOE measures on this basis to remain comparable with our Canadian peers.
ENERPLUS 2020 Q1 REPORT 1
OVERVIEW
The coronavirus (“COVID-19”) pandemic and global excess supply of crude oil have created unprecedented market volatility and significant challenges for our industry. Government and health authorities’ efforts to slow the spread of the virus have resulted in a sudden contraction of the global economy, causing a significant reduction in crude oil demand. At the same time, the initial failure of the Organization of the Petroleum Exporting Countries Plus (“OPEC+”) nations to agree on production restrictions in early March led to a dramatic increase in global crude oil supply. This resulted in a decrease of approximately 50% in WTI benchmark prices in March to US$30.45/bbl compared to average December prices of US$59.80/bbl. These events also led to indiscriminate downward pressure on energy equities, resulting in a 78% decline in our share price at March 31, 2020 compared to December 31, 2019. In response, on April 22, 2020, we issued a news release withdrawing our 2020 corporate guidance provided in the news release dated March 16, 2020 and included in our Annual MD&A dated February 20, 2020. We will continue to reassess our ability to reasonably estimate and provide annual guidance and plan to provide additional operational updates to our investors during this period of heightened volatility.
Despite the challenging market conditions, we are focused on preserving our balance sheet and maintaining our liquidity. At March 31, 2020, total debt net of cash was $514.6 million, including senior notes of $656.7 million and cash on hand of $142.1 million, and our net debt to adjusted funds flow ratio was 0.8x. At March 31, 2020 and as of the date of this MD&A, we were undrawn on our US$600 million bank credit facility and we are compliant with all debt covenants.
Production for the first quarter of 2020 averaged 98,209 BOE/day, a 9% decrease compared to production of 107,436 BOE/day in the fourth quarter of 2019. Production decreased in North Dakota as expected due to modest capital spending in the fourth quarter, primarily focused on drilling activity. Natural gas production also decreased with limited capital spending in both the fourth quarter of 2019 and the first quarter of 2020. Natural gas volumes were further impacted by our decision during the first quarter to shut-in, abandon and reclaim our non-core natural gas assets at Tommy Lakes in Canada.
Beginning in April 2020, we have temporarily shut-in select wells across the Williston basin and our Canadian waterfloods to protect against selling crude oil at negative margins. Our April production was approximately 91,500 BOE/day, including 49,700 bbls/day of crude oil and natural gas liquids, exceeding our expected April production of 88,000 BOE/day including 47,000 bbls/day of crude oil and natural gas liquids. In May, we began curtailing further production. Currently, we estimate that approximately 25% of our crude oil and natural gas liquids volumes are curtailed, which excludes our recently completed seven-well pad in North Dakota that we have chosen not to produce until oil prices improve. Based on current quarter regional pricing dynamics, we do not anticipate curtailing production beyond current levels through the rest of the second quarter.
Capital activity and production expectations for our Marcellus natural gas position remain unchanged relative to our original 2020 plans. We expect Marcellus production to average approximately 185 MMcf/day to 200 MMcf/day for the remainder of the year.
Our Bakken crude oil price differential widened to US$5.26/bbl below WTI during the first quarter, compared to US$4.40/bbl below WTI in the fourth quarter of 2019, due to regional production remaining above pipeline takeaway capacity. We have fixed physical differential sales agreements in place for the remainder of 2020 for approximately 13,000 bbls/day of crude oil in North Dakota at an estimated price of WTI less US$5.00/bbl. Our Marcellus natural gas price differential narrowed to US$0.38/Mcf below NYMEX during the first quarter from US$0.63/Mcf below NYMEX in the fourth quarter of 2019 due to increased seasonal demand in the region. We continue to expect our Marcellus natural gas price differential to average US$0.45/Mcf below NYMEX in 2020.
We expect our commodity hedging program to protect a significant portion of our cash flow from operating activities and adjusted funds flow. At March 31, 2020, our crude oil commodity derivative contracts were in a net asset position of $108.4 million and we expect our commodity hedging position to provide full year gains of approximately $150 million based on recent forward strip oil prices. As of May 7, 2020, we had approximately 24,800 bbls/day of crude oil hedged for the remainder of 2020.
2 ENERPLUS 2020 Q1 REPORT
Capital expenditures totaled $163.6 million during the first quarter, with approximately 95% of capital spending directed to crude oil properties in North Dakota, the DJ Basin and the Canadian waterfloods.
We have reduced our expected capital spending to $300 million through the suspension of all further drilling and completions activity in North Dakota, efficiency improvements and the deferral of certain non-operated oil activity. In total, we have reduced our 2020 capital spending budget by approximately 45% from our original guidance range of $520 million to $570 million.
Operating costs for the quarter were $79.0 million, or $8.84/BOE, compared to $79.5 million, or $8.05/BOE, in the fourth quarter of 2019 mainly due to lower production in the first quarter of 2020. We have reduced our expected average annual operating costs to $8.25/BOE from our previous guidance of $8.50/BOE through further project prioritization and service cost reductions.
We reported net income of $2.9 million in the first quarter of 2020 compared to a net loss of $429.1 million in the fourth quarter of 2019. The increase was primarily the result of a $451.1 million non-cash goodwill impairment recorded in the fourth quarter of 2019 and a $131.3 million gain on commodity derivative instruments recorded in the first quarter of 2020. Net income in the first quarter was also impacted by a $93.6 million valuation allowance recorded against a portion of our Canadian deferred income tax assets.
During the first quarter of 2020, cash flow from operations decreased to $122.7 million, compared to $188.5 million in the fourth quarter of 2019, and adjusted funds flow decreased to $113.2 million from $178.9 million in the same respective periods. The decreases were the result of lower production and a decline in realized prices, offset by higher realized commodity derivative gains in the first quarter.
During the quarter, we repurchased and cancelled 340,434 common shares for total consideration of $2.5 million under our Normal Course Issuer Bid (“NCIB”) prior to its expiry on March 25, 2020. Given the deterioration in market conditions, we have suspended our share repurchase program to prioritize our financial strength and liquidity. We plan to renew our NCIB in due course and recommence our share repurchase program when market conditions improve.
RESULTS OF OPERATIONS
Production
Daily production for the first quarter averaged 98,209 BOE/day, a decrease of 9% compared to average production of 107,436 BOE/day in the fourth quarter of 2019. Crude oil and natural gas liquids production decreased by 5,456 bbls/day primarily due to the timing of our 2019 capital program, with lower capital spending in the fourth quarter. Natural gas production decreased 8% to 262,913 Mcf/day in the first quarter of 2020 from 285,537 Mcf/day in the fourth quarter of 2019 due to limited capital activity in the Marcellus and our decision to shut-in, abandon and reclaim Tommy Lakes, a Canadian asset with approximately 1,600 BOE/day (90% natural gas) of average annual production.
For the three months ended March 31, 2020, total production increased by 11%, when compared to the same period in 2019. The increase in production was primarily due to a 29% increase in U.S. crude oil and natural gas liquids production as a result of our continued capital investment in North Dakota.
Our crude oil and natural gas liquids weighting increased to 55% in the first quarter of 2020 from 51% for the same period in 2019.
ENERPLUS 2020 Q1 REPORT 3
Average daily production volumes for the three months ended March 31, 2020 and 2019 are outlined below:
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Three months ended March 31,
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Average Daily Production Volumes
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2020
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2019
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% Change
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Crude oil (bbls/day)
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49,044
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41,105
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19%
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Natural gas liquids (bbls/day)
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5,346
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4,383
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22%
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Natural gas (Mcf/day)
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262,913
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258,568
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2%
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Total daily sales (BOE/day)
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98,209
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88,583
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11%
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As announced in our April 22, 2020 news release, we have withdrawn our annual production guidance due to ongoing uncertainty in market conditions. Daily production in April was modestly impacted by shut-ins, with monthly average production of approximately 91,500 BOE/day, including 49,700 bbls/day of crude oil and natural gas liquids, exceeding our expected April average production of 88,000 BOE/day including 47,000 bbls/day of crude oil and natural gas liquids. In May, we began curtailing further production. Currently, we estimate that approximately 25% of our crude oil and natural gas liquids volumes are curtailed, which excludes our recently completed seven-well pad in North Dakota that we have chosen not to produce until oil prices improve. Based on current regional pricing dynamics, we do not anticipate curtailing production beyond current levels through the rest of the second quarter.
Capital activity and production expectations for our Marcellus natural gas position remain unchanged relative to our original 2020 plans. We expect Marcellus production to average approximately 185 MMcf/day to 200 MMcf/day for the remainder of the year.
4 ENERPLUS 2020 Q1 REPORT
Pricing
The prices received for crude oil and natural gas production directly impact our earnings, cash flow from operations, adjusted funds flow and financial condition. The following table compares quarterly average prices for the three months ended March 31, 2020 and 2019 and other periods indicated:
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Pricing (average for the period)
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Q1 2020
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Q4 2019
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Q3 2019
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Q2 2019
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Q1 2019
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Benchmarks
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WTI crude oil (US$/bbl)
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$
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46.17
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$
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56.96
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$
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56.45
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$
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59.81
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$
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54.90
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Brent (ICE) crude oil (US$/bbl)
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50.96
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62.51
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62.00
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68.32
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63.90
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NYMEX natural gas – last day (US$/Mcf)
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1.95
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2.50
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2.23
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2.64
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3.15
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USD/CDN average exchange rate
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1.34
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1.32
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1.32
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1.34
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1.33
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USD/CDN period end exchange rate
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1.41
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1.30
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1.32
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1.31
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1.33
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Enerplus selling price(1)
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Crude oil ($/bbl)
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$
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51.30
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$
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67.23
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$
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67.76
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$
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74.42
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$
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66.56
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Natural gas liquids ($/bbl)
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12.72
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18.28
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5.97
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17.96
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19.15
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Natural gas ($/Mcf)
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2.08
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2.50
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2.13
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2.63
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4.38
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Average differentials
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Bakken DAPL – WTI (US$/bbl)
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$
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(5.34)
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$
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(5.59)
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$
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(2.97)
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$
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(2.36)
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$
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(2.93)
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Brent (ICE) – WTI (US$/bbl)
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4.79
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5.55
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5.55
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8.51
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9.00
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MSW Edmonton – WTI (US$/bbl)
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(7.58)
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(5.37)
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(4.66)
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(4.63)
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(4.85)
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WCS Hardisty – WTI (US$/bbl)
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(20.53)
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(15.83)
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(12.24)
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(10.67)
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(12.29)
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Transco Leidy monthly – NYMEX (US$/Mcf)
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(0.39)
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(0.70)
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(0.48)
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(0.43)
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(0.22)
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Transco Z6 Non-New York monthly – NYMEX (US$/Mcf)
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0.41
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(0.11)
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(0.35)
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(0.31)
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1.67
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Enerplus realized differentials(1)(2)
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Bakken crude oil – WTI (US$/bbl)
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$
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(5.26)
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$
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(4.40)
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$
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(3.61)
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$
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(3.00)
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$
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(3.25)
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Marcellus natural gas – NYMEX (US$/Mcf)
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(0.38)
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(0.63)
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(0.44)
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(0.57)
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0.13
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Canada crude oil – WTI (US$/bbl)
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(17.77)
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(14.80)
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(13.50)
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(9.99)
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(10.42)
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(1)Excluding transportation costs, royalties and the effects of commodity derivative instruments.
(2)Based on a weighted average differential for the period.
CRUDE OIL AND NATURAL GAS LIQUIDS
Our realized crude oil sales price for the first quarter of 2020 averaged $51.30/bbl, a decrease of 24% compared to the fourth quarter of 2019 due to weaker benchmark prices and wider realized price differentials for our production. Benchmark WTI prices fell by 19% over the same period due to the combined impact of the global demand destruction resulting from the COVID-19 pandemic and the dramatic increase in the supply of Russian and Saudi Arabian crude oil in the markets after the OPEC+ nations failed to agree on production restrictions in early March 2020.
Our realized Bakken price differential weakened by US$0.86/bbl during the quarter to average US$5.26/bbl below WTI due to regional production remaining above pipeline takeaway capacity and a lower volume of crude oil sold under fixed price differential contracts compared to the fourth quarter of 2019. Our Bakken sales price consists of a combination of in-basin monthly spot and index sales, term physical sales with fixed differential pricing versus WTI and/or Brent, and sales at the U.S. Gulf Coast delivered via firm capacity on the Dakota Access Pipeline. A portion of our physical sales are directly tied to the spread between Brent and WTI crude oil prices. That differential narrowed by US$0.76/bbl, during the quarter, which resulted in a weaker realized price for a portion of our production. For the remainder of 2020, we have fixed physical differential sales agreements in North Dakota for approximately 13,000 bbls/day at an estimated price of WTI less US$5.00/bbl.
ENERPLUS 2020 Q1 REPORT 5
Our realized price differential for Canadian crude oil production widened by US$2.97/bbl compared to the fourth quarter of 2019, which was in line with changes to the underlying benchmark prices for Canadian crude oil.
Our realized sales price for natural gas liquids averaged $12.72/bbl during the first quarter of 2020, a 30% decrease compared to the previous quarter mainly due to the decrease in the WTI benchmark price, with a significant portion of our natural gas liquids contracts tied to WTI pricing.
6 ENERPLUS 2020 Q1 REPORT
NATURAL GAS
Our realized natural gas sales price decreased by 17% during the quarter to average $2.08/Mcf. NYMEX benchmark prices fell 22% over the same period due to warmer than average weather across the U.S. resulting in significant price weakness throughout the first quarter. Our realized Marcellus sales price differential averaged US$0.38/Mcf below NYMEX during the quarter, compared to US$0.63/Mcf in the fourth quarter of 2019, reflecting seasonal strength in local market price differentials over the period. A significant portion of our production receives prices reflecting market conditions south of New York. Prices for Transco Zone 6 Non-New York averaged US$0.41/Mcf over NYMEX in the first quarter, and this seasonal strength helped improve our overall realized price for our Marcellus production. We continue to expect our Marcellus natural gas price differential to average US$0.45/Mcf below NYMEX in 2020.
FOREIGN EXCHANGE
Our oil and natural gas sales are impacted by foreign exchange fluctuations as the majority of our sales are based on U.S. dollar denominated benchmark indices. A weaker Canadian dollar increases the amount of our realized sales, as well as the amount of our U.S. denominated costs, such as capital, interest on our U.S. denominated debt, and the value of our outstanding U.S. senior notes.
The Canadian dollar weakened significantly near the end of the first quarter of 2020 in response to lower commodity prices as a result of the global excess supply of crude oil and the decreased demand impact of the COVID-19 pandemic. The Canadian dollar weakened to 1.41 USD/CDN at March 31, 2020, compared to 1.30 USD/CDN at December 31, 2019. The average exchange rate during the first quarter remained consistent compared to the same period of the prior year, averaging 1.34 USD/CDN compared to 1.33 USD/CDN in the first quarter of 2019.
Price Risk Management
We have a price risk management program that considers our overall financial position and the economics of our capital program.
As of May 7, 2020, we have hedged 24,800 bbls/day of crude oil for the remainder of 2020. Our crude oil hedges are a mix of swaps, put spreads and three way collars. The put spreads and three way collars provide us with exposure to significant upwards price movement; however, the sold put effectively limits the amount of downside protection we have to the difference between the strike price of the purchased and sold puts. Overall, we expect our crude oil related hedging contracts to protect a significant portion of our cash flow from operating activities and adjusted funds flow.
The following is a summary of our financial contracts in place at May 7, 2020:
ENERPLUS 2020 Q1 REPORT 7
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WTI Crude Oil (US$/bbl)
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Apr 1, 2020 –
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Jul 1, 2020 –
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Oct 1, 2020 –
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Jun 30, 2020
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Sep 30, 2020
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Dec 31, 2020
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Swaps
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Volume (bbls/day)
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9,500
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7,000
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—
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Sold Swaps
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$ 57.37
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$ 36.02
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—
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Put Spreads(1)
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Volume (bbls/day)
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16,000
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16,000
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16,000
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Sold Puts(2)
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$ 46.88
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$ 46.88
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$ 46.88
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Purchased Puts
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$ 57.50
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$ 57.50
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$ 57.50
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Three Way Collars(1)
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Volume (bbls/day)
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—
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5,000
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5,000
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Sold Puts
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—
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$ 48.00
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$ 48.00
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Purchased Puts
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—
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$ 56.25
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$ 56.25
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Sold Calls
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—
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$ 65.00
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$ 65.00
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(1)
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The total average deferred premium spent on our outstanding hedges is US$1.67/bbl from April 1, 2020 to December 31, 2020. |
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(2)
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The sold puts on the put spreads settle annually at the end of 2020. |
8 ENERPLUS 2020 Q1 REPORT
ACCOUNTING FOR PRICE RISK MANAGEMENT
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Commodity Risk Management Gains/(Losses)
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Three months ended March 31,
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($ millions)
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2020
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2019
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Cash gains/(losses):
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Crude oil
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$
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33.0
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$
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(2.0)
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Natural gas
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—
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12.5
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Total cash gains/(losses)
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$
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33.0
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$
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10.5
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Non-cash gains/(losses):
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Crude oil
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$
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98.3
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$
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(86.9)
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Natural gas
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—
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(8.5)
|
Total non-cash gains/(losses)
|
|
$
|
98.3
|
|
$
|
(95.4)
|
Total gains/(losses)
|
|
$
|
131.3
|
|
$
|
(84.9)
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(Per BOE)
|
|
2020
|
|
2019
|
Total cash gains/(losses)
|
|
$
|
3.69
|
|
$
|
1.32
|
Total non-cash gains/(losses)
|
|
|
11.01
|
|
|
(11.97)
|
Total gains/(losses)
|
|
$
|
14.70
|
|
$
|
(10.65)
|
We realized cash gains of $33.0 million on our crude oil contracts during the first quarter of 2020, compared to realized cash losses of $2.0 million for the same period in 2019. Cash gains on crude oil contracts in the first quarter of 2020 were primarily due to prices falling below the swap level and the put strike price on our put spreads and three way collars. Our natural gas contracts were settled in the fourth quarter of 2019 and there were no natural gas derivative contracts outstanding during the first quarter of 2020. In comparison, we realized cash gains of $12.5 million on our natural gas contracts during the first quarter of 2019.
As the forward markets for crude oil and natural gas fluctuate, as new contracts are executed, and as existing contracts are realized, changes in fair value are reflected as either a non-cash charge or gain to earnings. At March 31, 2020, the fair value of crude oil contracts was in a net asset position of $108.4 million. For the three months ended March 31, 2020, the change in the fair value of our crude oil contracts resulted in a gain of $98.3 million, compared to a $86.9 million loss during the same period in 2019. We had no natural gas derivative contracts outstanding at March 31, 2020. In comparison, we recorded a non-cash loss of $8.5 million on our natural gas contracts during the first quarter of 2019.
Revenues
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions)
|
|
2020
|
|
2019
|
Oil and natural gas sales
|
|
$
|
285.6
|
|
$
|
356.4
|
ENERPLUS 2020 Q1 REPORT 9
Royalties
|
|
|
(57.5)
|
|
|
(68.9)
|
Oil and natural gas sales, net of royalties
|
|
$
|
228.1
|
|
$
|
287.5
|
Oil and natural gas sales, net of royalties, for the three months ended March 31, 2020 were $228.1 million, a decrease of 21% from the same period in 2019. The decrease in revenue was a result of lower realized prices partially offset by higher production volumes when compared to the same period in 2019. See Note 11 to the Interim Financial Statements for further detail.
Royalties and Production Taxes
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions, except per BOE amounts)
|
|
2020
|
|
2019
|
Royalties
|
|
$
|
57.5
|
|
$
|
68.9
|
Per BOE
|
|
$
|
6.43
|
|
$
|
8.65
|
|
|
|
|
|
|
|
Production taxes
|
|
$
|
15.4
|
|
$
|
14.6
|
Per BOE
|
|
$
|
1.73
|
|
$
|
1.83
|
Royalties and production taxes
|
|
$
|
72.9
|
|
$
|
83.5
|
Per BOE
|
|
$
|
8.16
|
|
$
|
10.48
|
|
|
|
|
|
|
|
Royalties and production taxes (% of oil and natural gas sales)
|
|
|
26%
|
|
|
23%
|
Royalties are paid to government entities, land owners and mineral rights owners. Production taxes include state production taxes, Pennsylvania impact fees and freehold mineral taxes. A large percentage of our production is from U.S. properties where royalty rates are generally higher than in Canada and less sensitive to commodity price levels. Royalties and production taxes for the three months ended March 31, 2020 were $72.9 million, a decrease of 13% from the same period in 2019. The decrease was primarily due to lower realized prices, which more than offset the increase in production.
Operating Expenses
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions, except per BOE amounts)
|
|
2020
|
|
2019
|
Cash operating expenses
|
|
$
|
79.0
|
|
$
|
69.8
|
Per BOE
|
|
$
|
8.84
|
|
$
|
8.75
|
For the three months ended March 31, 2020, operating expenses were $79.0 million or $8.84/BOE, an increase of $9.2 million or $0.09/BOE from the same period in 2019. The increase was mainly due to higher crude oil and natural gas liquids production, with our liquids weighting increasing to 55% from 51% over the same period.
As announced in our April 22, 2020 news release, we have reduced our expected average annual operating costs to $8.25/BOE from previous guidance of $8.50/BOE due to expected cost savings.
10 ENERPLUS 2020 Q1 REPORT
Transportation Costs
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions, except per BOE amounts)
|
|
2020
|
|
2019
|
Transportation costs
|
|
$
|
35.3
|
|
$
|
31.3
|
Per BOE
|
|
$
|
3.95
|
|
$
|
3.92
|
For the three months ended March 31, 2020, transportation costs were $35.3 million or $3.95/BOE, an increase of $4.0 million from the same period in 2019. The increase was primarily due to growth in U.S. crude oil and natural gas liquids production over the same period.
Netbacks
The crude oil and natural gas classifications below contain properties according to their dominant production category. These properties may include associated crude oil, natural gas or natural gas liquids volumes which have been converted to the equivalent BOE/day or Mcfe/day and as such, the revenue per BOE or per Mcfe may not correspond with the average selling price under the “Pricing” section of this MD&A.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
Netbacks by Property Type
|
|
Crude Oil
|
|
Natural Gas
|
|
Total
|
Average Daily Production
|
|
59,226 BOE/day
|
|
233,898 Mcfe/day
|
|
98,209 BOE/day
|
Netback(1) $ per BOE or Mcfe
|
|
(per BOE)
|
|
(per Mcfe)
|
|
(per BOE)
|
Oil and natural gas sales
|
|
$
|
44.46
|
|
$
|
2.16
|
|
$
|
31.96
|
Royalties and production taxes
|
|
|
(11.94)
|
|
|
(0.40)
|
|
|
(8.16)
|
Cash operating expenses
|
|
|
(13.35)
|
|
|
(0.33)
|
|
|
(8.84)
|
Transportation costs
|
|
|
(2.92)
|
|
|
(0.92)
|
|
|
(3.95)
|
Netback before hedging
|
|
$
|
16.25
|
|
$
|
0.51
|
|
$
|
11.01
|
Cash hedging gains/(losses)
|
|
|
6.12
|
|
|
—
|
|
|
3.69
|
Netback after hedging
|
|
$
|
22.37
|
|
$
|
0.51
|
|
$
|
14.70
|
Netback before hedging ($ millions)
|
|
$
|
87.6
|
|
$
|
10.8
|
|
$
|
98.4
|
Netback after hedging ($ millions)
|
|
$
|
120.6
|
|
$
|
10.8
|
|
$
|
131.4
|
|
(1)
| |
See “Non-GAAP Measures” in this MD&A |
ENERPLUS 2020 Q1 REPORT 11
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
Netbacks by Property Type
|
|
Crude Oil
|
|
Natural Gas
|
|
Total
|
Average Daily Production
|
|
48,909 BOE/day
|
|
238,044 Mcfe/day
|
|
88,583 BOE/day
|
Netback(1) $ per BOE or Mcfe
|
|
(per BOE)
|
|
(per Mcfe)
|
|
(per BOE)
|
Oil and natural gas sales
|
|
$
|
59.51
|
|
$
|
4.41
|
|
$
|
44.70
|
Royalties and production taxes
|
|
|
(14.92)
|
|
|
(0.83)
|
|
|
(10.48)
|
Cash operating expenses
|
|
|
(13.96)
|
|
|
(0.39)
|
|
|
(8.75)
|
Transportation costs
|
|
|
(2.75)
|
|
|
(0.90)
|
|
|
(3.92)
|
Netback before hedging
|
|
$
|
27.88
|
|
$
|
2.29
|
|
$
|
21.55
|
Cash hedging gains/(losses)
|
|
|
(0.45)
|
|
|
0.59
|
|
|
1.32
|
Netback after hedging
|
|
$
|
27.43
|
|
$
|
2.88
|
|
$
|
22.87
|
Netback before hedging ($ millions)
|
|
$
|
122.7
|
|
$
|
49.1
|
|
$
|
171.8
|
Netback after hedging ($ millions)
|
|
$
|
120.8
|
|
$
|
61.5
|
|
$
|
182.3
|
|
(1)
| |
See “Non-GAAP Measures” in this MD&A |
Total netbacks before hedging for the three months ended March 31, 2020 were lower compared to the same period in 2019 primarily due to weaker realized prices.
For the three months ended March 31, 2020, our crude oil properties accounted for 89% of our total netback before hedging, compared to 71% during the same period in 2019.
12 ENERPLUS 2020 Q1 REPORT
General and Administrative (“G&A”) Expenses
Total G&A expenses include share-based compensation (“SBC”) charges related to our long-term incentive plans (“LTI plans”). See Note 12 and Note 15 to the Interim Financial Statements for further details.
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions)
|
|
2020
|
|
2019
|
Cash:
|
|
|
|
|
|
|
G&A expense
|
|
$
|
12.2
|
|
$
|
12.3
|
Share-based compensation expense
|
|
|
(2.7)
|
|
|
1.3
|
|
|
|
|
|
|
|
Non-Cash:
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
7.7
|
|
|
8.1
|
Equity swap loss/(gain)
|
|
|
1.9
|
|
|
(0.1)
|
G&A expense
|
|
|
0.1
|
|
|
0.1
|
Total G&A expenses
|
|
$
|
19.2
|
|
$
|
21.7
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(Per BOE)
|
|
2020
|
|
2019
|
Cash:
|
|
|
|
|
|
|
G&A expense
|
|
$
|
1.37
|
|
$
|
1.55
|
Share-based compensation expense
|
|
|
(0.31)
|
|
|
0.17
|
|
|
|
|
|
|
|
Non-Cash:
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
0.86
|
|
|
1.01
|
Equity swap loss/(gain)
|
|
|
0.21
|
|
|
(0.01)
|
G&A expense
|
|
|
0.01
|
|
|
0.01
|
Total G&A expenses
|
|
$
|
2.14
|
|
$
|
2.73
|
Cash G&A expenses for the three months ended March 31, 2020 were $12.2 million, or $1.37/BOE, compared to $12.3 million, or $1.55/BOE, for the same period in 2019. Cash G&A expenses were consistent with the same period in 2019 but decreased on a per BOE basis due to higher production.
During the first quarter of 2020, we reported a cash SBC recovery of $2.7 million compared to an expense of $1.3 million for the same period in 2019. The recovery was due to the decrease in our share price on outstanding deferred share units. Non-cash
ENERPLUS 2020 Q1 REPORT 13
SBC expense for the three months ended March 31, 2020 was $7.7 million, or $0.86/BOE, a decrease from an expense of $8.1 million, or $1.01/BOE, during the same period in 2019.
We have hedges in place on a portion of the outstanding cash-settled grants under our LTI plans. In the first quarter of 2020, we recorded a mark-to-market loss of $1.9 million on these contracts, compared to a gain of $0.1 million in the same period in 2019.
Subsequent to the quarter, we reduced cash compensation for our Board of Directors, executives and employees. Including additional non-salary cost reductions, we anticipate cash G&A expenses will be approximately $5 million lower than our original 2020 budget.
Interest Expense
For the three months ended March 31, 2020, we recorded total interest expense of $8.9 million, compared to $8.4 million for the same period in 2019. The increase in interest expense in the first quarter of 2020 was primarily due to the impact of a weaker Canadian dollar on our U.S. dollar denominated interest expense.
At March 31, 2020, we were undrawn on our US$600 million bank credit facility and our debt balance consisted of fixed interest rate senior notes, with a weighted average interest rate of 4.7%. See Note 8 to the Interim Financial Statements for further details.
Foreign Exchange
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions)
|
|
2020
|
|
2019
|
Realized foreign exchange (gain)/loss:
|
|
|
|
|
|
|
Foreign exchange (gain)/loss on settlements
|
|
$
|
(0.1)
|
|
$
|
(0.1)
|
Translation of U.S. dollar cash held in Canada (gain)/loss
|
|
|
(3.1)
|
|
|
5.2
|
Unrealized foreign exchange (gain)/loss
|
|
|
(2.4)
|
|
|
(17.1)
|
Total foreign exchange (gain)/loss
|
|
$
|
(5.6)
|
|
$
|
(12.0)
|
USD/CDN average exchange rate
|
|
|
1.34
|
|
|
1.33
|
USD/CDN period end exchange rate
|
|
|
1.41
|
|
|
1.33
|
For the three months ended March 31, 2020, we recorded a foreign exchange gain of $5.6 million compared to $12.0 million for the same period in 2019. Realized gains and losses relate primarily to day-to-day transactions recorded in foreign currencies along with the translation of our U.S. dollar denominated cash held in Canada, while unrealized foreign exchange gains and losses are recorded on the translation of our U.S dollar denominated working capital held in Canada at each period end.
Effective January 1, 2020, we have designated US$467.0 million of outstanding senior notes as a net investment hedge related to our U.S. operations. As a result of the adoption of net investment hedge accounting, any unrealized foreign exchange gains
14 ENERPLUS 2020 Q1 REPORT
and losses on the translation of this U.S. dollar denominated debt are included in Other Comprehensive Income/(Loss). At March 31, 2020, Other Comprehensive Income/(Loss) included an unrealized loss of $50.1 million on our outstanding U.S. dollar denominated senior notes (March 31, 2019 – $14.1 million unrealized foreign exchange gain included in net income). The unrealized foreign exchange gain of $2.4 million at March 31, 2020 related to the translation of U.S. dollar denominated working capital held in Canada. See Note 3(a) to the Interim Financial Statements for further details.
Capital Investment
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions)
|
|
2020
|
|
2019
|
Capital spending(1)
|
|
$
|
163.6
|
|
$
|
160.8
|
Office capital(1)
|
|
|
1.9
|
|
|
1.1
|
Line fill
|
|
|
—
|
|
|
5.1
|
Sub-total
|
|
|
165.5
|
|
|
167.0
|
Property and land acquisitions
|
|
$
|
2.3
|
|
$
|
3.0
|
Property divestments
|
|
|
(5.6)
|
|
|
(0.5)
|
Sub-total
|
|
|
(3.3)
|
|
|
2.5
|
Total
|
|
$
|
162.2
|
|
$
|
169.5
|
|
(1)
| |
Excludes changes in non-cash investing working capital. See Note 18(b) to the Interim Financial Statements for further details. |
Capital spending for the three months ended March 31, 2020 totaled $163.6 million compared to $160.8 million for the same period in 2019. During the first quarter of 2020, we spent $145.0 million on our U.S. crude oil properties, $6.8 million on our Marcellus natural gas assets and $11.7 million on our Canadian waterflood properties.
During the first quarter, we completed $2.3 million in property and land acquisitions, which included minor acquisitions of leases and undeveloped land, compared to $3.0 million for the same period in 2019. Property divestments for the three months ended March 31, 2020 were $5.6 million compared to $0.5 million for the same period in 2019.
As announced on April 22, 2020, we have reduced our expected 2020 annual capital spending by an additional $25 million to $300 million to further preserve our balance sheet and liquidity position as a result of low crude oil prices. In total, we have decreased our 2020 capital budget by approximately 45% from our original guidance range.
Depletion, Depreciation and Accretion (“DD&A”)
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions, except per BOE amounts)
|
|
2020
|
|
2019
|
DD&A expense
|
|
$
|
95.2
|
|
$
|
75.9
|
Per BOE
|
|
$
|
10.65
|
|
$
|
9.52
|
DD&A of property, plant and equipment (“PP&E”) is recognized using the unit-of-production method based on proved reserves. For the three months ended March 31, 2020, DD&A increased compared to the same period in 2019 as a result of additional U.S. production with higher depletion rates.
ENERPLUS 2020 Q1 REPORT 15
Impairment
PP&E
Under U.S. GAAP, the full cost ceiling test is performed on a country-by-country basis using estimated after-tax future net cash flows discounted at 10 percent from proved reserves using SEC constant prices ("Standardized Measure"). SEC prices are calculated as the unweighted average of the trailing twelve first-day-of-the-month commodity prices. The Standardized Measure is not related to Enerplus' investment criteria and is not a fair value based measurement, but rather a prescribed accounting calculation. Impairments are non-cash and are not reversed in future periods under U.S. GAAP. There have been no PP&E impairments recorded in the current or prior year. See Note 6 to the Interim Financial Statements for trailing twelve month prices.
Many factors influence the allowed ceiling value versus our net capitalized cost base, making it difficult to predict with reasonable certainty the value of impairment losses from future ceiling tests. For the remainder of 2020, the primary factors include future first-day-of-the-month commodity prices, reserves revisions, capital expenditure levels and timing, acquisition and divestment activity, as well as production levels, which affect DD&A expense. We expect the twelve month trailing crude oil prices to decline further in 2020, impacting the ceiling value and increasing the risk of future PP&E impairments. See "Risk Factors and Risk Management - Risk of Impairment of Oil and Gas Properties, Deferred Tax Assets and Goodwill" in the Annual MD&A and "Risk Factors and Risk Management" in this MD&A.
Goodwill
Enerplus recognizes goodwill relating to business acquisitions when the total purchase price exceeds the fair value of the net identifiable assets and liabilities acquired. The portion of goodwill that relates to U.S. operations fluctuates due to changes in foreign exchange rates. Goodwill is stated at cost less impairment and is not amortized. Goodwill is not deductible for income tax purposes.
Goodwill is assessed for impairment annually or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Enerplus first performs a qualitative assessment to determine whether events or changes in circumstances indicate that goodwill may be impaired. If it is more likely than not that the fair value of the reporting unit is less than its carrying value, quantitative impairment tests are performed. If the carrying value of the reporting unit exceeds its fair value, goodwill is written down to the reporting unit’s fair value, with an offsetting charge to earnings in the Consolidated Statements of Income/(Loss). The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
There was no goodwill impairment recorded during the first quarter of 2020 or the same period of the prior year. At March 31, 2020, we reported $210.0 million of goodwill related to our U.S. reporting unit. There is a risk of future goodwill impairments if commodity prices continue to weaken or there is a downward revision to reserves. See "Risk Factors and Risk Management - Risk of Impairment of Oil and Gas Properties, Deferred Tax Assets and Goodwill" in the Annual MD&A and "Risk Factors and Risk Management" in this MD&A.
16 ENERPLUS 2020 Q1 REPORT
Asset Retirement Obligation
In connection with our operations, we incur abandonment, reclamation and remediation costs related to assets, such as surface leases, wells, facilities and pipelines. Total asset retirement obligations included on the Condensed Consolidated Balance Sheet are based on management’s estimate of our net ownership interest, costs to abandon, reclaim and remediate and the timing of the costs to be incurred in future periods. We have estimated the net present value of our asset retirement obligation, using a weighted average credit-adjusted risk-free rate of 5.35%, to be $146.1 million at March 31, 2020, compared to $138.0 million at December 31, 2019, using a weighted average credit-adjusted risk-free rate of 5.50%. For the three months ended March 31, 2020, asset retirement obligation settlements were $10.8 million compared to $5.4 million during the same period in 2019. See Note 9 to the Interim Financial Statements for further details.
Leases
Enerplus recognizes right-of-use (“ROU”) assets and lease liabilities on the Condensed Consolidated Balance Sheet for qualifying leases with a term greater than 12 months. We incur lease payments related to office space, drilling rig commitments, vehicles and other equipment. Total lease liabilities are based on the present value of lease payments over the lease term. Total ROU assets represent our right to use an underlying asset for the lease term. At March 31, 2020, our total lease liability was $51.4 million. In addition, ROU assets of $46.6 million were recorded, which equate to our lease liabilities less lease incentives. See Note 10 to the Interim Financial Statements for further details.
Income Taxes
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions)
|
|
2020
|
|
2019
|
Current tax expense/(recovery)
|
|
$
|
—
|
|
$
|
(5.5)
|
Deferred tax expense/(recovery)
|
|
|
109.4
|
|
|
(17.9)
|
Total tax expense/(recovery)
|
|
$
|
109.4
|
|
$
|
(23.4)
|
We recorded a total tax expense of $109.4 million for the period ending March 31, 2020, compared to a recovery of $23.4 million for the same period in 2019. The expense in 2020 relates to higher income in the first quarter of 2020, primarily resulting from unrealized commodity derivative gains and a valuation allowance of $93.6 million recorded against a portion of our Canadian deferred income tax assets. No valuation allowance was recorded against our U.S. deferred income tax assets.
We assess the recoverability of our deferred income tax assets each period to determine whether it is more likely than not all or a portion of our deferred income tax assets will not be realized. We have considered available positive and negative evidence, including future taxable income and reversing existing temporary differences, in making this assessment. This assessment is primarily the result of projecting future taxable income using total proved and probable reserves at forecast average prices and costs. There is a risk of additional valuation allowances in future periods if commodity prices weaken or other evidence indicates that more of our deferred income tax assets will not be realized. See "Risk Factors and Risk Management - Risk of Impairment of Oil and Gas Properties, Deferred Tax Assets and Goodwill" in the Annual MD&A and "Risk Factors and Risk Management" in this MD&A. After recording the valuation allowance, our overall net deferred income tax asset was $273.0 million at March 31, 2020 (December 31, 2019 - $372.5 million).
LIQUIDITY AND CAPITAL RESOURCES
ENERPLUS 2020 Q1 REPORT 17
There are numerous factors that influence how we assess liquidity and leverage, including commodity price cycles, capital spending levels, acquisition and divestment plans, hedging, share repurchases and dividend levels. We also assess our leverage relative to our most restrictive debt covenant under our bank credit facility and senior notes, which is a maximum senior debt to earnings before interest, taxes, depreciation, amortization, impairment and other non-cash charges (“adjusted EBITDA”) ratio of 3.5x for a period of up to six months, after which it drops to 3.0x. At March 31, 2020, our senior debt to adjusted EBITDA ratio was 1.0x and our net debt to adjusted funds flow ratio was 0.8x. Although it is not included in our debt covenants, the net debt to adjusted funds flow ratio is often used by investors and analysts to evaluate liquidity.
At March 31, 2020, we had $142.1 million of cash on hand and an undrawn US$600 million bank credit facility. Total debt net of cash at March 31, 2020, was $514.6 million, an increase of 13% compared to $455.0 million at December 31, 2019. The increase when compared to December 31, 2019 was primarily a result of the impact of a weaker Canadian dollar at March 31, 2020 on our U.S. dollar denominated senior notes. We have near-term debt maturities of US$82 million in senior notes due in May and June 2020, which we intend to repay with cash on hand, and our remaining maturities extend to 2026.
Our adjusted payout ratio, which is calculated as cash dividends plus capital, office expenditures and line fill divided by adjusted funds flow, was 152% for the three months ended March 31, 2020, compared to 103% for the same period in 2019.
Our working capital deficiency, excluding cash and current derivative financial assets and liabilities, increased to $270.9 million at March 31, 2020, from $210.4 million at December 31, 2019. We expect to finance our working capital deficit and our ongoing working capital requirements through cash on hand, cash flow from operations and our bank credit facility. We expect to be able to meet our financial commitments, as disclosed under “Commitments” in the Annual MD&A.
During the first quarter, we repurchased and cancelled 340,434 common shares for total consideration of $2.5 million under our Normal Course Issuer Bid (“NCIB”), prior to its expiry on March 25, 2020. Given the current environment, we have chosen not to renew our NCIB in order to conserve capital and preserve our balance sheet strength. We plan to renew our NCIB in due course and recommence our share repurchase program when market conditions improve.
At March 31, 2020, we were in compliance with all covenants under our bank credit facility and outstanding senior notes. We expect to manage our business within these financial ratios during 2020; however, current commodity prices have created a significant level of uncertainty which may challenge this expectation. If we exceed or anticipate exceeding our covenants, we may be required to repay, refinance or renegotiate the terms of the debt. See "Risk Factors – Debt covenants of the Corporation may be exceeded with no ability to negotiate covenant relief" in the Annual Information Form and "Risk Factors and Risk Management" in this MD&A. Our bank credit facility and senior note purchase agreements have been filed under our SEDAR profile at www.sedar.com.
18 ENERPLUS 2020 Q1 REPORT
The following table lists our financial covenants as at March 31, 2020:
|
|
|
|
|
Covenant Description
|
|
|
|
March 31, 2020
|
Bank Credit Facility:
|
|
Maximum Ratio
|
|
|
Senior debt to adjusted EBITDA (1)
|
|
3.5x
|
|
1.0x
|
Total debt to adjusted EBITDA (1)
|
|
4.0x
|
|
1.0x
|
Total debt to capitalization
|
|
55%
|
|
21%
|
|
|
|
|
|
Senior Notes:
|
|
Maximum Ratio
|
|
|
Senior debt to adjusted EBITDA (1)(2)
|
|
3.0x - 3.5x
|
|
1.0x
|
Senior debt to consolidated present value of total proved reserves(3)
|
|
60%
|
|
21%
|
|
|
Minimum Ratio
|
|
|
Adjusted EBITDA to interest (1)
|
|
4.0x
|
|
19.2x
|
Definitions
“Senior debt” is calculated as the sum of drawn amounts on our bank credit facility, outstanding letters of credit and the principal amount of senior notes.
“Adjusted EBITDA” is calculated as net income less interest, taxes, depletion, depreciation, amortization, impairment and other non-cash gains and losses. Adjusted EBITDA is calculated on a trailing twelve-month basis and is adjusted for material acquisitions and divestments. Adjusted EBITDA for the three months and the trailing twelve months ended March 31, 2020 was $125.3 million and $659.4 million, respectively.
“Total debt” is calculated as the sum of senior debt plus subordinated debt. Enerplus currently does not have any subordinated debt.
“Capitalization” is calculated as the sum of total debt and shareholder’s equity plus a $1.1 billion adjustment related to our adoption of U.S. GAAP.
Footnotes
(1)See “Non-GAAP Measures” in this MD&A for a reconciliation of adjusted EBITDA to net income.
(2)Senior debt to adjusted EBITDA for the senior notes may increase to 3.5x for a period of 6 months, after which the ratio decreases to 3.0x.
(3)Senior debt to consolidated present value of total proved reserves is calculated annually on December 31 based on before tax reserves at forecast prices discounted at 10%.
Dividends
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ millions, except per share amounts)
|
|
2020
|
|
2019
|
Dividends to shareholders(1)
|
|
$
|
6.7
|
|
$
|
7.2
|
Per weighted average share (Basic)
|
|
$
|
0.03
|
|
$
|
0.03
|
|
(1)
| |
Excludes changes in non-cash financing working capital. See Note 18(b) to the Interim Financial Statements for further details. |
ENERPLUS 2020 Q1 REPORT 19
During the three months ended March 31, 2020, we reported total dividends of $6.7 million or $0.03 per share compared to $7.2 million or $0.03 per share for the same period in 2019. Dividends to shareholders have decreased compared to the same period in 2019 as a result of our share repurchase program.
The dividend is part of our current strategy to return capital to shareholders. We continue to monitor commodity prices and economic conditions and are prepared to make adjustments as necessary.
Shareholders’ Capital
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
2020
|
|
2019
|
Share capital ($ millions)
|
|
$
|
3,097.2
|
|
$
|
3,317.9
|
|
|
|
|
|
|
|
Common shares outstanding (thousands)
|
|
|
222,564
|
|
|
238,243
|
Weighted average shares outstanding – basic (thousands)
|
|
|
222,357
|
|
|
238,922
|
Weighted average shares outstanding – diluted (thousands)
|
|
|
223,300
|
|
|
241,298
|
For the three months ended March 31, 2020, a total of 2,044,718 units vested pursuant to our treasury settled LTI plans, including the impact of performance multipliers (2019 – 1,007,234). In total, 1,160,000 shares were issued from treasury and $13.8 million was transferred from paid-in capital to share capital (2019 – 564,000; $4.4 million). We elected to cash settle the remaining units related to the required tax withholdings (2020 – $7.2 million, 2019 – $5.0 million).
During the three months ended March 31, 2020, the Company repurchased 340,434 common shares under the previous NCIB at an average price of $7.44 per share, for total consideration of $2.5 million (2019 – 1,732,038; $19.8 million). Of the amount paid, $4.7 million was charged to share capital and $2.2 million was credited to accumulated deficit (2019 – $24.1 million; $4.3 million). Given the current environment, we chose not to renew our NCIB in order to preserve capital and maintain our balance sheet strength and liquidity.
At May 7, 2020, we had 222,563,267 common shares outstanding. In addition, an aggregate of 6,905,615 common shares may be issued to settle outstanding grants under the Performance Share Unit (“PSU”) and Restricted Share Unit plans assuming the maximum performance multiplier of 2.0 times for the PSUs.
For further details, see Note 15 to the Interim Financial Statements.
20 ENERPLUS 2020 Q1 REPORT
SELECTED CANADIAN AND U.S. FINANCIAL RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
($ millions, except per unit amounts)
|
|
Canada
|
|
U.S.
|
|
Total
|
|
Canada
|
|
U.S.
|
|
Total
|
Average Daily Production Volumes(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (bbls/day)
|
|
|
7,836
|
|
|
41,208
|
|
|
49,044
|
|
|
8,998
|
|
|
32,107
|
|
|
41,105
|
Natural gas liquids (bbls/day)
|
|
|
710
|
|
|
4,636
|
|
|
5,346
|
|
|
984
|
|
|
3,399
|
|
|
4,383
|
Natural gas (Mcf/day)
|
|
|
14,913
|
|
|
248,000
|
|
|
262,913
|
|
|
24,348
|
|
|
234,220
|
|
|
258,568
|
Total average daily production (BOE/day)
|
|
|
11,032
|
|
|
87,177
|
|
|
98,209
|
|
|
14,040
|
|
|
74,543
|
|
|
88,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pricing(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (per bbl)
|
|
$
|
38.78
|
|
$
|
53.68
|
|
$
|
51.30
|
|
$
|
59.07
|
|
$
|
68.66
|
|
$
|
66.56
|
Natural gas liquids (per bbl)
|
|
|
23.90
|
|
|
11.01
|
|
|
12.72
|
|
|
35.89
|
|
|
14.30
|
|
|
19.15
|
Natural gas (per Mcf)
|
|
|
2.18
|
|
|
2.07
|
|
|
2.08
|
|
|
4.64
|
|
|
4.35
|
|
|
4.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital spending
|
|
$
|
11.8
|
|
$
|
151.8
|
|
$
|
163.6
|
|
$
|
17.5
|
|
$
|
143.3
|
|
$
|
160.8
|
Acquisitions
|
|
|
1.1
|
|
|
1.2
|
|
|
2.3
|
|
|
1.0
|
|
|
2.0
|
|
|
3.0
|
Divestments
|
|
|
—
|
|
|
(5.6)
|
|
|
(5.6)
|
|
|
(0.1)
|
|
|
(0.4)
|
|
|
(0.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netback(3) Before Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas sales
|
|
$
|
32.8
|
|
$
|
252.8
|
|
$
|
285.6
|
|
$
|
61.8
|
|
$
|
294.6
|
|
$
|
356.4
|
Royalties
|
|
|
(5.7)
|
|
|
(51.8)
|
|
|
(57.5)
|
|
|
(8.9)
|
|
|
(60.0)
|
|
|
(68.9)
|
Production taxes
|
|
|
(0.3)
|
|
|
(15.1)
|
|
|
(15.4)
|
|
|
(0.6)
|
|
|
(14.0)
|
|
|
(14.6)
|
Cash operating expenses
|
|
|
(17.5)
|
|
|
(61.5)
|
|
|
(79.0)
|
|
|
(21.0)
|
|
|
(48.8)
|
|
|
(69.8)
|
Transportation costs
|
|
|
(2.1)
|
|
|
(33.2)
|
|
|
(35.3)
|
|
|
(2.7)
|
|
|
(28.6)
|
|
|
(31.3)
|
Netback before hedging
|
|
$
|
7.2
|
|
$
|
91.2
|
|
$
|
98.4
|
|
$
|
28.6
|
|
$
|
143.2
|
|
$
|
171.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative instruments loss/(gain)
|
|
$
|
(131.3)
|
|
$
|
—
|
|
$
|
(131.3)
|
|
$
|
84.9
|
|
$
|
—
|
|
$
|
84.9
|
Total G&A(4)
|
|
|
(0.3)
|
|
|
19.5
|
|
|
19.2
|
|
|
13.2
|
|
|
8.5
|
|
|
21.7
|
Current income tax expense/(recovery)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.5)
|
|
|
(5.5)
|
(1)Company interest volumes.
(2)Before transportation costs, royalties and the effects of commodity derivative instruments.
(3)See “Non-GAAP Measures” section in this MD&A.
(4)Includes share-based compensation expense.
ENERPLUS 2020 Q1 REPORT 21
QUARTERLY FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Natural Gas
|
|
|
|
|
Net Income/(Loss) Per Share
|
($ millions, except per share amounts)
|
|
Sales, Net of Royalties
|
|
Net Income/(Loss)
|
|
Basic
|
|
Diluted
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
228.1
|
|
$
|
2.9
|
|
$
|
0.01
|
|
$
|
0.01
|
Total 2020
|
|
$
|
228.1
|
|
$
|
2.9
|
|
$
|
0.01
|
|
$
|
0.01
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
327.0
|
|
$
|
(429.1)
|
|
$
|
(1.93)
|
|
$
|
(1.93)
|
Third Quarter
|
|
|
318.9
|
|
|
65.1
|
|
|
0.28
|
|
|
0.28
|
Second Quarter
|
|
|
321.4
|
|
|
85.1
|
|
|
0.36
|
|
|
0.36
|
First Quarter
|
|
|
287.5
|
|
|
19.2
|
|
|
0.08
|
|
|
0.08
|
Total 2019
|
|
$
|
1,254.8
|
|
$
|
(259.7)
|
|
$
|
(1.12)
|
|
$
|
(1.12)
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
326.7
|
|
$
|
249.4
|
|
$
|
1.03
|
|
$
|
1.02
|
Third Quarter
|
|
|
373.6
|
|
|
86.9
|
|
|
0.35
|
|
|
0.35
|
Second Quarter
|
|
|
327.4
|
|
|
12.4
|
|
|
0.05
|
|
|
0.05
|
First Quarter
|
|
|
265.0
|
|
|
29.6
|
|
|
0.12
|
|
|
0.12
|
Total 2018
|
|
$
|
1,292.7
|
|
$
|
378.3
|
|
$
|
1.55
|
|
$
|
1.53
|
Oil and natural gas sales, net of royalties, decreased during the first quarter of 2020 compared to the fourth quarter of 2019 due to lower realized prices. Net income increased to $2.9 million during the first quarter of 2020 compared to a net loss of $429.1 million in the fourth quarter of 2019. The increase was primarily the result of a $451.1 million non-cash goodwill impairment recorded in the fourth quarter of 2019 and a $131.3 million gain on commodity derivative instruments recorded in the first quarter of 2020. Net income in the first quarter of 2020 was also impacted by a $93.6 million valuation allowance recorded against a portion of our Canadian deferred income tax assets.
Oil and natural gas sales, net of royalties, in 2019 were essentially flat when compared to 2018 due to lower realized commodity prices, offset by increased production. We reported a net loss in 2019 due to a non-cash impairment of $451.1 million on our Canadian goodwill asset recorded in the fourth quarter and a loss on commodity derivative instruments of $66.1 million compared to a gain of $88.2 million recorded in 2018.
RISK FACTORS AND RISK MANAGEMENT
Risks Relating to the Impact of the COVID-19 Pandemic and Continued Weakness and Volatility in Commodity Prices
22 ENERPLUS 2020 Q1 REPORT
The recent COVID-19 pandemic and governmental authorities response thereto has resulted in, and may continue to result in, among other things: increased volatility in financial markets, including credit markets and foreign currency and interest exchange rates; disruptions to global supply chains; labour shortages; reductions in trade volumes; temporary operational restrictions; business closures and travel bans; an overall slowdown in the global economy; and political and economic instability. In particular, the COVID-19 pandemic has resulted in, and may continue to result in, a reduction in the demand for crude oil and natural gas.
In addition, recent market events and conditions, including excess global crude oil and natural gas supply as a result of the failure by OPEC+ nations to set and maintain production restrictions in early March 2020 and decreased global demand due to the COVID-19 pandemic, have caused significant weakness and volatility in commodity prices. With the rapid spread of the COVID-19 pandemic and additional crude oil supply, the price of crude oil and other petroleum products has deteriorated significantly and, notwithstanding recent agreements among OPEC+ nations to reduce production levels, is expected to remain under pressure and be volatile. The overall result of these recent events and conditions could lead to a prolonged period of depressed prices for crude oil and natural gas. In response to the current decreased crude oil and natural gas prices, we have voluntarily shut-in certain production, and a prolonged period of decreased prices may result in further curtailments or shutting-in of production, voluntary or otherwise. We are continuing to evaluate the impact of the COVID-19 pandemic and the continued commodity environment instability on our business, financial condition and results of operations; however, such impact may be adverse and could result, among other things, in PP&E, goodwill or deferred tax asset impairment, or exceeding our debt covenants. See disclosure under "Impairment", “Income Taxes” and "Liquidity and Capital Resources" in this MD&A.
We are also subject to risks relating to the health and safety of our personnel, including the potential for a slowdown or temporary suspension of our operations in locations impacted by an outbreak or further regulatory changes. Such a suspension in operations could also be mandated by governmental authorities in response to the COVID-19 pandemic. This would negatively impact our production volumes, which could adversely impact our business, financial condition and results of operations.
NON-GAAP MEASURES
The Company utilizes the following terms for measurement within the MD&A that do not have a standardized meaning or definition as prescribed by U.S. GAAP and, therefore, may not be comparable with the calculation of similar measures by other entities:
“Netback” is used by Enerplus and is useful to investors and securities analysts in evaluating operating performance of crude oil and natural gas assets. Netback is calculated as oil and natural gas sales less royalties, production taxes, cash operating expenses and transportation costs.
|
|
|
|
|
|
|
Calculation of Netback
|
|
Three months ended March 31,
|
($ millions)
|
|
2020
|
|
2019
|
Oil and natural gas sales
|
|
$
|
285.6
|
|
$
|
356.4
|
Less:
|
|
|
|
|
|
|
Royalties
|
|
|
(57.5)
|
|
|
(68.9)
|
Production taxes
|
|
|
(15.4)
|
|
|
(14.6)
|
Cash operating expenses
|
|
|
(79.0)
|
|
|
(69.8)
|
Transportation costs
|
|
|
(35.3)
|
|
|
(31.3)
|
ENERPLUS 2020 Q1 REPORT 23
Netback before hedging
|
|
$
|
98.4
|
|
$
|
171.8
|
Cash gains/(losses) on derivative instruments
|
|
|
33.0
|
|
|
10.5
|
Netback after hedging
|
|
$
|
131.4
|
|
$
|
182.3
|
“Adjusted funds flow” is used by Enerplus and is useful to investors and securities analysts in analyzing operating and financial performance, leverage and liquidity. Adjusted funds flow is calculated as cash flow from operating activities before asset retirement obligation expenditures and changes in non-cash operating working capital.
|
|
|
|
|
|
|
Reconciliation of Cash Flow from Operating Activities to Adjusted Funds Flow
|
|
Three months ended March 31,
|
($ millions)
|
|
2020
|
|
2019
|
Cash flow from operating activities
|
|
$
|
122.7
|
|
$
|
109.0
|
Asset retirement obligation expenditures
|
|
|
10.8
|
|
|
5.4
|
Changes in non-cash operating working capital
|
|
|
(20.3)
|
|
|
54.4
|
Adjusted funds flow
|
|
$
|
113.2
|
|
$
|
168.8
|
“Free cash flow” is used by Enerplus and is useful to investors and securities analysts in analyzing operating and financial performance, leverage and liquidity. Free cash flow is calculated as adjusted funds flow minus capital spending.
|
|
|
|
|
|
Calculation of Free Cash Flow
|
Three months ended March 31,
|
($ millions)
|
2020
|
|
2019
|
Adjusted funds flow
|
$
|
113.2
|
|
$
|
168.8
|
Capital spending
|
|
(163.6)
|
|
|
(160.8)
|
Free cash flow
|
$
|
(50.4)
|
|
$
|
8.0
|
“Adjusted net income” is used by Enerplus and is useful to investors and securities analysts in evaluating the financial performance of the Company by understanding the impact of certain non-cash items and other items that the Company considers appropriate to adjust given the irregular nature and relevance to comparable companies. Adjusted net income is calculated as net income adjusted for unrealized derivative instrument gain/loss, unrealized foreign exchange gain/loss, the tax effect of these items as well as the valuation allowance on our deferred income tax assets.
|
|
|
|
|
|
|
Calculation of Adjusted Net Income
|
|
Three months ended March 31,
|
($ millions)
|
|
2020
|
|
2019
|
Net income/(loss)
|
|
$
|
2.9
|
|
$
|
19.2
|
Unrealized derivative instrument (gain)/loss
|
|
|
(96.4)
|
|
|
95.3
|
Unrealized foreign exchange (gain)/loss
|
|
|
(2.4)
|
|
|
(17.1)
|
Tax effect on above items
|
|
|
23.4
|
|
|
(24.9)
|
Valuation allowance on deferred income tax assets
|
|
|
93.6
|
|
|
—
|
Adjusted net income
|
|
$
|
21.1
|
|
$
|
72.5
|
24 ENERPLUS 2020 Q1 REPORT
“Total debt net of cash” is used by Enerplus and is useful to investors and securities analysts in analyzing leverage and liquidity. Total debt net of cash is calculated as senior notes plus any outstanding bank credit facility balance, minus cash and cash equivalents.
“Net debt to adjusted funds flow ratio” is used by Enerplus and is useful to investors and securities analysts in analyzing leverage and liquidity. The net debt to adjusted funds flow ratio is calculated as total debt net of cash divided by a trailing twelve months of adjusted funds flow. This measure is not equivalent to debt to earnings before interest, taxes, depreciation, amortization, impairment and other non-cash charges (“adjusted EBITDA”) and is not a debt covenant.
“Adjusted payout ratio” is used by Enerplus and is useful to investors and securities analysts in analyzing operating performance, leverage and liquidity. We calculate adjusted payout ratio as cash dividends plus capital, office expenditures and line fill divided by adjusted funds flow.
|
|
|
|
|
|
|
Calculation of Adjusted Payout Ratio
|
|
Three months ended March 31,
|
($ millions)
|
|
2020
|
|
2019
|
Dividends
|
|
$
|
6.7
|
|
$
|
7.2
|
Capital, office expenditures and line fill
|
|
|
165.5
|
|
|
167.0
|
Sub-total
|
|
$
|
172.2
|
|
$
|
174.2
|
Adjusted funds flow
|
|
$
|
113.2
|
|
$
|
168.8
|
Adjusted payout ratio (%)
|
|
|
152%
|
|
|
103%
|
“Adjusted EBITDA” is used by Enerplus and its lenders to determine compliance with financial covenants under its bank credit facility and outstanding senior notes. Adjusted EBITDA is calculated on the trailing four quarters.
|
|
|
|
Reconciliation of Net Income to Adjusted EBITDA(1)
|
|
|
|
($ millions)
|
|
March 31, 2020
|
Net income/(loss)
|
|
$
|
(276.0)
|
Add:
|
|
|
|
Goodwill impairment
|
|
|
451.1
|
Interest
|
|
|
34.4
|
Current and deferred tax expense/(recovery)
|
|
|
180.6
|
DD&A and asset impairment
|
|
|
376.1
|
Other non-cash charges(2)
|
|
|
(106.8)
|
Adjusted EBITDA
|
|
$
|
659.4
|
|
(1)
| |
Balances above at March 31, 2020 include the three months ended March 31, 2020 and the second, third and fourth quarter of 2019. |
|
(2)
| |
Includes the change in fair value of commodity derivatives and equity swaps, non-cash SBC expense, non-cash G&A expense and unrealized foreign exchange gains/losses. |
In addition, the Company uses certain financial measures within the “Liquidity and Capital Resources” section of this MD&A that do not have a standardized meaning or definition as prescribed by U.S. GAAP and, therefore, may not be comparable with the calculation of similar measures by other entities. Such measures include “senior debt to adjusted EBITDA”, “total debt to adjusted EBITDA”, “total debt to capitalization”, “senior debt to consolidated present value of total proved reserves” and “adjusted EBITDA to interest” and are used to determine the Company’s compliance with financial covenants under its bank credit facility and
ENERPLUS 2020 Q1 REPORT 25
outstanding senior notes. Calculation of such terms is described under the “Liquidity and Capital Resources” section of this MD&A.
INTERNAL CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting as defined in Rule 13a - 15 under the U.S. Securities Exchange Act of 1934 and as defined in Canada under National Instrument 52-109 - Certification of Disclosure in Issuer’s Annual and Interim Filings. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of Enerplus Corporation have concluded that, as at March 31, 2020, our disclosure controls and procedures and internal control over financial reporting were effective. There were no changes in our internal control over financial reporting during the period beginning on January 1, 2020 and ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ADDITIONAL INFORMATION
Additional information relating to Enerplus, including our current Annual Information Form (“AIF”), is available under our profile on the SEDAR website at www.sedar.com, on the EDGAR website at www.sec.gov and at www.enerplus.com.
26 ENERPLUS 2020 Q1 REPORT
FORWARD-LOOKING INFORMATION AND STATEMENTS
This MD&A contains certain forward-looking information and statements ("forward-looking information") within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", “guidance”, "ongoing", "may", "will", "project", "plans", “budget”, "strategy" and similar expressions are intended to identify forward-looking information. In particular, but without limiting the foregoing, this MD&A contains forward-looking information pertaining to the following: expected capital spending levels in 2020 and impact thereof on our production levels and land holdings; expected production volumes; expected operating strategy in 2020, including the proportion of Enerplus' production that may be curtailed and the effect of such curtailment on its properties, operations and financial position; the proportion of our anticipated oil and gas production that is hedged and the effectiveness of such hedges in protecting our adjusted funds flow; the results from our drilling program and the timing of related production; oil and natural gas prices and differentials, our commodity risk management program in 2020 and expected hedging gains; expectations regarding our realized oil and natural gas prices; expected operating costs; our anticipated shares repurchases under future normal course issuer bids; potential future asset and goodwill impairments, as well as relevant factors that may affect such impairments; the amount of our future abandonment and reclamation costs and asset retirement obligations; future environmental expenses; our future royalty and production and U.S. cash taxes; deferred income taxes, our tax pools and the time at which we may pay Canadian cash taxes; future debt and working capital levels and net debt to adjusted funds flow ratio and adjusted payout ratio, financial capacity, liquidity and capital resources to fund capital spending and working capital requirements; expectations regarding our ability to comply with debt covenants under our bank credit facility and outstanding senior notes; expectations regarding repayment of our outstanding senior notes, including sources of funds therefor; Enerplus' costs reduction initiatives and the expected cost savings therefrom in 2020; and the amount of future cash dividends that we may pay to our shareholders.
The forward-looking information contained in this MD&A reflects several material factors and expectations and assumptions of Enerplus including, without limitation: that we will conduct our operations and achieve results of operations as anticipated; that our development plans will achieve the expected results; that lack of adequate infrastructure and/or low commodity price environment will not result in curtailment of production and/or reduced realized prices beyond our current expectations; current commodity price, differentials and cost assumptions; the general continuance of current or, where applicable, assumed industry conditions; the continuation of assumed tax, royalty and regulatory regimes; the accuracy of the estimates of our reserve and contingent resource volumes; the continued availability of adequate debt and/or equity financing and adjusted funds flow to fund our capital, operating and working capital requirements, and dividend payments as needed; the continued availability and sufficiency of our adjusted funds flow and availability under our bank credit facility to fund our working capital deficiency; our ability to comply with our debt covenants; the availability of third party services; and the extent of our liabilities. In addition, our expected 2020 capital expenditures and operating strategy described in this MD&A is based on the rest of the year prices and exchange rate of: a WTI price of US$22.80/bbl, a NYMEX price of US$2.23/Mcf, and a USD/CDN exchange rate of 1.40. Enerplus believes the material factors, expectations and assumptions reflected in the forward-looking information are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty.
The forward-looking information included in this MD&A is not a guarantee of future performance and should not be unduly relied upon. Such information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information including, without limitation: continued instability, or further deterioration, in global economic and market environment, including from COVID-19; continued low commodity prices environment or further decline and/or volatility in commodity prices; changes in realized prices of Enerplus’ products; changes in the demand for or supply of our products; unanticipated operating results, results from our capital spending activities or production declines; curtailment of our production due to low realized prices or lack of adequate infrastructure; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in our capital plans or by third party operators of our properties; increased debt levels or debt service requirements; inability to comply with debt covenants under our bank credit facility and outstanding senior notes; inaccurate estimation of our oil and gas reserve and contingent resource volumes; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; reliance on industry partners and third party service providers; and certain other risks detailed from time to time in our public disclosure documents (including, without limitation, those risks identified in this MD&A, our Annual Information Form, our Annual MD&A and Form 40-F as at December 31, 2019).
ENERPLUS 2020 Q1 REPORT 27
The forward-looking information contained in this MD&A speak only as of the date of this MD&A. Enerplus does not undertake any obligation to publicly update or revise any forward-looking information contained herein, except as required by applicable laws.
28 ENERPLUS 2020 Q1 REPORT
Exhibit 99.2
Condensed Consolidated Balance Sheets
ENERPLUS 2020 Q1 REPORT 1
|
|
|
|
|
|
|
|
|
(CDN$ thousands) unaudited
|
|
Note
|
|
March 31, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
142,076
|
|
$
|
151,649
|
Accounts receivable
|
|
4
|
|
|
123,527
|
|
|
176,119
|
Income tax receivable
|
|
14
|
|
|
15,085
|
|
|
27,770
|
Derivative financial assets
|
|
16
|
|
|
108,389
|
|
|
10,570
|
Other current assets
|
|
|
|
|
3,397
|
|
|
2,990
|
|
|
|
|
|
392,474
|
|
|
369,098
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (full cost method)
|
|
5
|
|
|
1,743,436
|
|
|
1,547,362
|
Other capital assets, net
|
|
5
|
|
|
19,000
|
|
|
20,244
|
Property, plant and equipment
|
|
|
|
|
1,762,436
|
|
|
1,567,606
|
Right-of-use assets
|
|
10
|
|
|
46,582
|
|
|
48,729
|
Goodwill
|
|
|
|
|
210,026
|
|
|
194,015
|
Deferred income tax asset
|
|
14
|
|
|
272,988
|
|
|
372,502
|
Income tax receivable
|
|
14
|
|
|
—
|
|
|
13,852
|
Total Assets
|
|
|
|
$
|
2,684,506
|
|
$
|
2,565,802
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
7
|
|
$
|
278,325
|
|
$
|
291,540
|
Dividends payable
|
|
|
|
|
2,226
|
|
|
2,217
|
Current portion of long-term debt
|
|
8
|
|
|
114,746
|
|
|
105,998
|
Derivative financial liabilities
|
|
16
|
|
|
4,125
|
|
|
2,734
|
Current portion of lease liabilities
|
|
10
|
|
|
17,596
|
|
|
17,541
|
|
|
|
|
|
417,018
|
|
|
420,030
|
Long-term debt
|
|
8
|
|
|
541,950
|
|
|
500,635
|
Asset retirement obligation
|
|
9
|
|
|
146,074
|
|
|
138,049
|
Lease liabilities
|
|
10
|
|
|
33,760
|
|
|
35,530
|
|
|
|
|
|
721,784
|
|
|
674,214
|
Total Liabilities
|
|
|
|
|
1,138,802
|
|
|
1,094,244
|
|
|
|
|
|
|
|
|
|
2 ENERPLUS 2020 Q1 REPORT
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Share capital – authorized unlimited common shares, no par value
Issued and outstanding: March 31, 2020 – 223 million shares
December 31, 2019 – 222 million shares
|
|
15
|
|
|
3,097,187
|
|
|
3,088,094
|
Paid-in capital
|
|
|
|
|
44,430
|
|
|
59,490
|
Accumulated deficit
|
|
|
|
|
(1,985,964)
|
|
|
(1,984,365)
|
Accumulated other comprehensive income/(loss)
|
|
|
|
|
390,051
|
|
|
308,339
|
|
|
|
|
|
1,545,704
|
|
|
1,471,558
|
Total Liabilities & Shareholders' Equity
|
|
|
|
$
|
2,684,506
|
|
$
|
2,565,802
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
|
ENERPLUS 2020 Q1 REPORT 3
Condensed Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
March 31,
|
(CDN$ thousands, except per share amounts) unaudited
|
|
Note
|
|
2020
|
|
2019
|
Revenues
|
|
|
|
|
|
|
|
|
Oil and natural gas sales, net of royalties
|
|
11
|
|
$
|
228,127
|
|
$
|
287,452
|
Commodity derivative instruments gain/(loss)
|
|
16
|
|
|
131,341
|
|
|
(84,867)
|
|
|
|
|
|
359,468
|
|
|
202,585
|
Expenses
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
79,020
|
|
|
69,793
|
Transportation
|
|
|
|
|
35,329
|
|
|
31,291
|
Production taxes
|
|
|
|
|
15,444
|
|
|
14,615
|
General and administrative
|
|
12
|
|
|
19,185
|
|
|
21,710
|
Depletion, depreciation and accretion
|
|
|
|
|
95,192
|
|
|
75,911
|
Interest
|
|
|
|
|
8,911
|
|
|
8,393
|
Foreign exchange (gain)/loss
|
|
13
|
|
|
(5,637)
|
|
|
(12,026)
|
Other expense/(income)
|
|
|
|
|
(229)
|
|
|
(2,862)
|
|
|
|
|
|
247,215
|
|
|
206,825
|
Income/(Loss) before taxes
|
|
|
|
|
112,253
|
|
|
(4,240)
|
Current income tax expense/(recovery)
|
|
14
|
|
|
27
|
|
|
(5,530)
|
Deferred income tax expense/(recovery)
|
|
14
|
|
|
109,350
|
|
|
(17,868)
|
Net Income/(Loss)
|
|
|
|
$
|
2,876
|
|
$
|
19,158
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income/(Loss)
|
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on foreign currency translation
|
|
|
|
|
131,774
|
|
|
(36,356)
|
Foreign exchange gain/(loss) on net investment hedge with U.S. denominated debt
|
|
3, 16
|
|
|
(50,062)
|
|
|
—
|
Total Comprehensive Income/(Loss)
|
|
|
|
$
|
84,588
|
|
$
|
(17,198)
|
|
|
|
|
|
|
|
|
|
Net income/(Loss) per share
|
|
|
|
|
|
|
|
|
Basic
|
|
15
|
|
$
|
0.01
|
|
$
|
0.08
|
Diluted
|
|
15
|
|
$
|
0.01
|
|
$
|
0.08
|
4 ENERPLUS 2020 Q1 REPORT
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
ENERPLUS 2020 Q1 REPORT 5
Condensed Consolidated Statements of Changes in Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
(CDN$ thousands) unaudited
|
|
2020
|
|
2019
|
Share Capital
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
3,088,094
|
|
$
|
3,337,608
|
Purchase of common shares under Normal Course Issuer Bid
|
|
|
(4,731)
|
|
|
(24,159)
|
Share-based compensation – treasury settled
|
|
|
13,824
|
|
|
4,406
|
Balance, end of period
|
|
$
|
3,097,187
|
|
$
|
3,317,855
|
|
|
|
|
|
|
|
Paid-in Capital
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
59,490
|
|
$
|
46,524
|
Share-based compensation – cash settled (tax withholding)
|
|
|
(7,232)
|
|
|
(4,952)
|
Share-based compensation – treasury settled
|
|
|
(13,824)
|
|
|
(4,406)
|
Share-based compensation – non-cash
|
|
|
5,996
|
|
|
8,043
|
Balance, end of period
|
|
$
|
44,430
|
|
$
|
45,209
|
|
|
|
|
|
|
|
Accumulated Deficit
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
(1,984,365)
|
|
$
|
(1,772,084)
|
Purchase of common shares under Normal Course Issuer Bid
|
|
|
2,195
|
|
|
4,331
|
Net income/(loss)
|
|
|
2,876
|
|
|
19,158
|
Dividends declared ($0.01 per share)
|
|
|
(6,670)
|
|
|
(7,162)
|
Balance, end of period
|
|
$
|
(1,985,964)
|
|
$
|
(1,755,757)
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income/(Loss)
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
308,339
|
|
$
|
388,941
|
Unrealized gain/(loss) on foreign currency translation
|
|
|
131,774
|
|
|
(36,356)
|
Foreign exchange gain/(loss) on net investment hedge with U.S. denominated debt
|
|
|
(50,062)
|
|
|
—
|
Balance, end of period
|
|
$
|
390,051
|
|
$
|
352,585
|
Total Shareholders’ Equity
|
|
$
|
1,545,704
|
|
$
|
1,959,892
|
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
6 ENERPLUS 2020 Q1 REPORT
ENERPLUS 2020 Q1 REPORT 7
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
(CDN$ thousands) unaudited
|
Note
|
2020
|
|
2019
|
Operating Activities
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
2,876
|
|
$
|
19,158
|
Non-cash items add/(deduct):
|
|
|
|
|
|
|
Depletion, depreciation and accretion
|
|
|
95,192
|
|
|
75,911
|
Changes in fair value of derivative instruments
|
16
|
|
(96,428)
|
|
|
95,328
|
Deferred income tax expense/(recovery)
|
14
|
|
109,350
|
|
|
(17,868)
|
Foreign exchange (gain)/loss on debt and working capital
|
13, 16
|
|
(2,415)
|
|
|
(17,104)
|
Share-based compensation and general and administrative
|
12,15
|
|
7,755
|
|
|
8,134
|
Translation of U.S. dollar cash held in Canada
|
13
|
|
(3,103)
|
|
|
5,196
|
Asset retirement obligation expenditures
|
9
|
|
(10,794)
|
|
|
(5,390)
|
Changes in non-cash operating working capital
|
18
|
|
20,306
|
|
|
(54,414)
|
Cash flow from/(used in) operating activities
|
|
|
122,739
|
|
|
108,951
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
Purchase of common shares under Normal Course Issuer Bid
|
15
|
|
(2,536)
|
|
|
(19,828)
|
Share-based compensation – cash settled (tax withholding)
|
15
|
|
(7,232)
|
|
|
(4,952)
|
Dividends
|
15,18
|
|
(6,661)
|
|
|
(7,174)
|
Cash flow from/(used in) financing activities
|
|
|
(16,429)
|
|
|
(31,954)
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
Capital and office expenditures
|
18
|
|
(129,342)
|
|
|
(111,795)
|
Property and land acquisitions
|
|
|
(2,256)
|
|
|
(2,981)
|
Property divestments
|
|
|
5,578
|
|
|
422
|
Cash flow from/(used in) investing activities
|
|
|
(126,020)
|
|
|
(114,354)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
10,137
|
|
|
(6,974)
|
Change in cash and cash equivalents
|
|
|
(9,573)
|
|
|
(44,331)
|
Cash and cash equivalents, beginning of period
|
|
|
151,649
|
|
|
363,327
|
Cash and cash equivalents, end of period
|
|
$
|
142,076
|
|
$
|
318,996
|
8 ENERPLUS 2020 Q1 REPORT
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
ENERPLUS 2020 Q1 REPORT 9
Notes to Condensed Consolidated Financial Statements
(unaudited)
1) REPORTING ENTITY
These interim Condensed Consolidated Financial Statements (“interim Consolidated Financial Statements”) and notes present the financial position and results of Enerplus Corporation (“the Company” or “Enerplus”) including its Canadian and U.S. subsidiaries. Enerplus is a North American crude oil and natural gas exploration and development company. Enerplus is publicly traded on the Toronto and New York stock exchanges under the ticker symbol ERF. Enerplus’ head office is located in Calgary, Alberta, Canada.
2) BASIS OF PREPARATION
Enerplus’ interim Consolidated Financial Statements present its results of operations and financial position under accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the three months ended March 31, 2020 and the 2019 comparative periods. Certain information and notes normally included with the annual audited Consolidated Financial Statements have been condensed or have been disclosed on an annual basis only. Accordingly, these interim Consolidated Financial Statements should be read in conjunction with Enerplus’ annual audited Consolidated Financial Statements as of December 31, 2019.
These unaudited interim Consolidated Financial Statements reflect, in the opinion of Management, all normal and recurring adjustments necessary to present fairly the financial position and results of the Company as at and for the periods presented.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect both the amount and timing of recording assets, liabilities, revenues and expenses since the determination of these items may be dependent on future events. Actual results could differ from these estimates, and changes in estimates are recorded when known. Significant estimates made by management include: oil and natural gas reserves and related present value of future cash flows, depreciation, depletion and accretion (“DD&A”), impairment of property, plant and equipment, asset retirement obligations, income taxes, ability to realize deferred income tax assets, impairment assessments of goodwill and the fair value of derivative instruments. Enerplus uses the most current information available and exercises judgment in making these estimates and assumptions.
In early March 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak a pandemic. Responses to the spread of COVID-19 have resulted in a challenging economic climate, with more volatile commodity prices and foreign exchange rates, and a decline in long-term interest rates. It is difficult to reliably estimate the length or severity of these developments and their financial impact. The impacts of the economic downturn to Enerplus have been considered in management’s estimates described above at March 31, 2020; however, estimates made during this period of extreme volatility are subject to a higher level of uncertainty and as a result, there may be a further prospective material impact in future periods.
ENERPLUS 2020 Q1 REPORT 10
3) ACCOUNTING POLICY CHANGES
Recently adopted accounting standards
Effective January 1, 2020, the Company adopted hedge accounting in order to mitigate the foreign currency exposure related to its net investment in its U.S. subsidiary. The Company may designate certain U.S. dollar denominated debt as a hedge of its net investment in foreign operations for which the U.S. dollar is the functional currency. To be accounted for as a hedge, the U.S. dollar denominated debt must be designated an effective hedge, both at inception and on an ongoing basis. The required hedge documentation defines the relationship between the U.S. dollar denominated debt and the net investment in the U.S. subsidiary, as well as the Company’s risk management objective and strategy for undertaking the hedging transaction. The Company formally assesses, both at inception and on an ongoing basis, whether the changes in fair value of the U.S. dollar denominated debt are highly effective in offsetting changes in fair value of the net investment in the U.S. subsidiary. The unrealized foreign exchange gains and losses arising from the translation of the debt are recorded in Other Comprehensive Income/(Loss), net of tax, and are limited to the translation gain or loss on the net investment.
A reduction in the fair value of the net investment in the U.S. subsidiary or increase in the U.S. dollar denominated debt may result in a portion of the hedge becoming ineffective. If the hedging relationship ceases to be effective or is terminated, hedge accounting is not applied and subsequent gains or losses are recorded through net income/(loss).
|
b)
| |
Impairment of Financial Instruments |
Enerplus adopted ASC 326 – Financial Instruments – Credit Losses effective January 1, 2020 using the modified retrospective method, with the cumulative effect on comparative periods reflected as an adjustment to retained earnings, if applicable. The adoption of the standard had no impact on the interim Consolidated Financial Statements, with the exception of the revised disclosures which are detailed in Note 16. As a result of this adoption, Enerplus has revised its accounting policy for financial instruments as follows:
The Company has adopted the current expected credit loss model for its accounts receivable, which requires the use of a lifetime expected loss provision. In making an assessment as to whether financial assets are credit-impaired, the Company considers: (i) historically realized bad debts; (ii) a counterparty’s present financial condition and whether a counterparty has breached certain contracts; (iii) the probability that a counterparty will enter bankruptcy or other financial reorganization; (iv) changes in economic conditions that correlate to increased levels of default; and (v) the term to maturity of the specified receivable. The carrying amounts of receivables are reduced by the amount of the expected credit loss through an allowance account and losses are recognized within general and administrative expense in the Consolidated Statement of Income/(Loss). If the Company subsequently determines an account is uncollectible the account is written off with a corresponding charge to the allowance account.
Enerplus adopted ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350) effective January 1, 2020 using the prospective method. The amended standard simplifies the goodwill impairment test. As a result of this adoption, Enerplus has revised its accounting policy for goodwill as follows:
ENERPLUS 2020 Q1 REPORT 11
Goodwill is assessed for impairment annually or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Enerplus first performs a qualitative assessment to determine whether events or changes in circumstances indicate that goodwill may be impaired. If it is more likely than not that the fair value of the reporting unit is less than its carrying value, quantitative impairment tests are performed. If the carrying value of the reporting unit exceeds its fair value, goodwill is written down to the reporting unit’s fair value, with an offsetting charge to earnings in the Consolidated Statements of Income/(Loss). The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
4) ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
($ thousands)
|
|
March 31, 2020
|
|
December 31, 2019
|
Accrued revenue
|
|
$
|
96,436
|
|
$
|
142,048
|
Accounts receivable – trade
|
|
|
30,853
|
|
|
37,736
|
Allowance for doubtful accounts
|
|
|
(3,762)
|
|
|
(3,665)
|
Total accounts receivable, net of allowance for doubtful accounts
|
|
$
|
123,527
|
|
$
|
176,119
|
5) PROPERTY, PLANT AND EQUIPMENT (“PP&E”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depletion,
|
|
|
|
As of March 31, 2020
|
|
|
|
|
Depreciation, and
|
|
|
|
($ thousands)
|
|
|
Cost
|
|
Impairment
|
|
|
Net Book Value
|
Oil and natural gas properties(1)
|
|
$
|
15,864,102
|
|
$
|
(14,120,666)
|
|
$
|
1,743,436
|
Other capital assets
|
|
|
126,151
|
|
|
(107,151)
|
|
|
19,000
|
Total PP&E
|
|
$
|
15,990,253
|
|
$
|
(14,227,817)
|
|
$
|
1,762,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depletion,
|
|
|
|
As of December 31, 2019
|
|
|
|
|
Depreciation, and
|
|
|
|
($ thousands)
|
|
|
Cost
|
|
Impairment
|
|
|
Net Book Value
|
Oil and natural gas properties(1)
|
|
$
|
15,088,724
|
|
$
|
(13,541,362)
|
|
$
|
1,547,362
|
Other capital assets
|
|
|
125,265
|
|
|
(105,021)
|
|
|
20,244
|
Total PP&E
|
|
$
|
15,213,989
|
|
$
|
(13,646,383)
|
|
$
|
1,567,606
|
|
(1)
| |
All of the Company’s unproved properties are included in the full cost pool. |
12 ENERPLUS 2020 Q1 REPORT
6) IMPAIRMENT
There was no impairment recorded for the three months ended March 31, 2020 and 2019. Enerplus expects the twelve month trailing prices to decline further in 2020, impacting the ceiling value and increasing the risk of future PP&E impairment.
The following table outlines the 12-month average trailing benchmark prices and exchange rates used in Enerplus’ ceiling tests from March 31, 2019 through March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI Crude Oil
|
|
|
Edm Light Crude
|
|
|
U.S. Henry Hub
|
|
Exchange Rate
|
Period
|
|
US$/bbl
|
|
|
CDN$/bbl
|
|
|
Gas US$/Mcf
|
|
US$/CDN$
|
Q1 2020
|
$
|
55.96
|
|
$
|
66.42
|
|
$
|
2.30
|
|
1.33
|
Q4 2019
|
|
55.85
|
|
|
66.73
|
|
|
2.58
|
|
1.33
|
Q3 2019
|
|
57.77
|
|
|
62.79
|
|
|
2.83
|
|
1.33
|
Q2 2019
|
|
61.38
|
|
|
66.07
|
|
|
3.02
|
|
1.32
|
Q1 2019
|
|
63.00
|
|
|
67.30
|
|
|
3.07
|
|
1.32
|
|
b)
| |
Impairment of Goodwill |
At March 31, 2020, Enerplus identified indicators of goodwill impairment in the form of deteriorating macroeconomic conditions both in relation to the COVID-19 pandemic and a decline in commodity prices. Enerplus performed a quantitative test that utilized the discounted after-tax cash flows associated with the proved and probable reserves at forecast prices and costs of the U.S. reporting unit. As a result of this assessment, the Company concluded that the carrying value of the reporting unit did not exceed its fair value. There was no goodwill impairment for the three months ended March 31, 2020 (December 31, 2019 - $451.1 million for the Canadian reporting unit). There is a risk of future goodwill impairment if forecast commodity prices continue to weaken, there is a downward revision to reserves, or additional adverse changes reduce the underlying cash flows used to estimate the fair value of the reporting unit. At March 31, 2020, goodwill consisted of $210.0 million related to Enerplus’ U.S. reporting unit.
7) ACCOUNTS PAYABLE
|
|
|
|
|
|
|
($ thousands)
|
|
March 31, 2020
|
|
December 31, 2019
|
Accrued payables
|
|
$
|
129,809
|
|
$
|
105,928
|
Accounts payable – trade
|
|
|
148,516
|
|
|
185,612
|
Total accounts payable
|
|
$
|
278,325
|
|
$
|
291,540
|
ENERPLUS 2020 Q1 REPORT 13
8) DEBT
|
|
|
|
|
|
|
($ thousands)
|
|
March 31, 2020
|
|
December 31, 2019
|
Current:
|
|
|
|
|
|
|
Senior notes
|
|
$
|
114,746
|
|
$
|
105,998
|
Long-term:
|
|
|
|
|
|
|
Bank credit facility
|
|
|
—
|
|
|
—
|
Senior notes
|
|
|
541,950
|
|
|
500,635
|
Total debt
|
|
$
|
656,696
|
|
$
|
606,633
|
The terms and rates of the Company’s outstanding senior notes are provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
Remaining
|
|
CDN$ Carrying
|
|
|
Interest
|
|
|
|
Coupon
|
|
Principal
|
|
Principal
|
|
Value
|
Issue Date
|
|
Payment Dates
|
|
Principal Repayment
|
|
Rate
|
|
($ thousands)
|
|
($ thousands)
|
|
($ thousands)
|
September 3, 2014
|
|
March 3 and Sept 3
|
|
5 equal annual installments beginning September 3, 2022
|
|
3.79%
|
|
US$200,000
|
|
US$105,000
|
|
$
|
147,651
|
May 15, 2012
|
|
May 15 and Nov 15
|
|
Bullet payment on May 15, 2022
|
|
4.40%
|
|
US$20,000
|
|
US$20,000
|
|
|
28,124
|
May 15, 2012
|
|
May 15 and Nov 15
|
|
5 equal annual installments beginning May 15, 2020
|
|
4.40%
|
|
US$355,000
|
|
US$298,000
|
|
|
419,048
|
June 18, 2009
|
|
June 18 and Dec 18
|
|
2 equal annual installments on June 18, 2020 and 2021
|
|
7.97%
|
|
US$225,000
|
|
US$44,000
|
|
|
61,873
|
|
|
|
|
|
|
Total carrying value
|
|
$
|
656,696
|
14 ENERPLUS 2020 Q1 REPORT
9) ASSET RETIREMENT OBLIGATION
|
|
|
|
|
|
|
($ thousands)
|
|
March 31, 2020
|
|
December 31, 2019
|
Balance, beginning of year
|
|
$
|
138,049
|
|
$
|
126,112
|
Change in estimates
|
|
|
15,326
|
|
|
23,362
|
Property acquisitions and development activity
|
|
|
1,838
|
|
|
2,068
|
Divestments
|
|
|
(47)
|
|
|
(2,760)
|
Settlements
|
|
|
(10,794)
|
|
|
(16,715)
|
Accretion expense
|
|
|
1,702
|
|
|
5,982
|
Balance, end of period
|
|
$
|
146,074
|
|
$
|
138,049
|
Enerplus has estimated the present value of its asset retirement obligation to be $146.1 million at March 31, 2020 based on a total undiscounted liability of $359.3 million (December 31, 2019 – $138.0 million and $344.7 million, respectively). The asset retirement obligation was calculated using a weighted average credit-adjusted risk-free rate of 5.35% (December 31, 2019 –5.50%).
10) LEASES
The Company incurs lease payments related to office space, drilling rig commitments, vehicles and other equipment. Leases are entered into and exited in coordination with specific business requirements which include the assessment of the appropriate durations for the related leased assets. Short-term leases with a lease term of 12 months or less are not recorded on the Consolidated Balance Sheet. Such items are charged to operating expenses and general and administrative expenses in the Consolidated Statement of Income/(Loss), unless the costs are included in the carrying amount of another asset in accordance with other U.S. GAAP.
|
|
|
|
|
|
|
($ thousands)
|
|
March 31, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
|
|
|
Operating right-of-use assets
|
|
$
|
46,582
|
|
$
|
48,729
|
Liabilities
|
|
|
|
|
|
|
Current operating lease liabilities
|
|
$
|
17,596
|
|
$
|
17,541
|
Non-current operating lease liabilities
|
|
|
33,760
|
|
|
35,530
|
Total lease liabilities
|
|
$
|
51,356
|
|
$
|
53,071
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
|
|
|
|
Operating leases
|
|
|
4.1
|
|
|
4.3
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
|
|
ENERPLUS 2020 Q1 REPORT 15
Operating leases
|
|
|
4.1%
|
|
|
4.1%
|
The components of lease expense for the three months ended March 31, 2020 are as follows:
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
2020
|
|
2019
|
Operating lease cost
|
$
|
5,132
|
|
$
|
4,593
|
Variable lease cost
|
|
317
|
|
|
285
|
Short-term lease cost
|
|
5,285
|
|
|
4,121
|
Sublease income
|
|
(293)
|
|
|
(244)
|
Total
|
$
|
10,441
|
|
$
|
8,755
|
16 ENERPLUS 2020 Q1 REPORT
Maturities of lease liabilities, all of which are classified as operating leases at March 31, 2020 are as follows:
|
|
|
|
($ thousands)
|
|
Operating Leases
|
2020
|
|
$
|
15,542
|
2021
|
|
|
14,938
|
2022
|
|
|
7,996
|
2023
|
|
|
6,897
|
2024
|
|
|
6,304
|
After 2025
|
|
|
4,308
|
Total lease payments
|
|
$
|
55,985
|
Less imputed interest
|
|
|
(4,629)
|
Total discounted lease payments
|
|
$
|
51,356
|
Current portion of lease liabilities
|
|
$
|
17,596
|
Non-current portion of lease liabilities
|
|
$
|
33,760
|
Supplemental information related to leases is as follows:
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
|
2020
|
|
2019
|
Cash amounts paid to settle lease liabilities:
|
|
|
|
|
|
|
Operating cash flow used for operating leases
|
|
$
|
4,929
|
|
$
|
4,506
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
Operating leases
|
|
$
|
523
|
|
$
|
18,863
|
11) OIL AND NATURAL GAS SALES
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
|
2020
|
|
2019
|
Oil and natural gas sales
|
|
$
|
285,598
|
|
$
|
356,376
|
Royalties(1)
|
|
|
(57,471)
|
|
|
(68,924)
|
Oil and natural gas sales, net of royalties
|
|
$
|
228,127
|
|
$
|
287,452
|
|
(1)
| |
Royalties above do not include production taxes which are reported separately on the Condensed Consolidated Statements of Income/(Loss). |
ENERPLUS 2020 Q1 REPORT 17
Oil and natural gas revenue by country and by product for the three months ended March 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
|
Total revenue, net
|
|
|
|
|
|
Natural
|
|
|
Natural gas
|
|
|
|
($ thousands)
|
|
|
of royalties(1)
|
|
|
Crude oil(2)
|
|
|
gas(2)
|
|
|
liquids(2)
|
|
|
Other(3)
|
Canada
|
|
$
|
27,091
|
|
$
|
21,989
|
|
$
|
3,388
|
|
$
|
1,094
|
|
$
|
620
|
United States
|
|
|
201,036
|
|
|
159,765
|
|
|
37,466
|
|
|
3,750
|
|
|
55
|
Total
|
|
$
|
228,127
|
|
$
|
181,754
|
|
$
|
40,854
|
|
$
|
4,844
|
|
$
|
675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
|
|
Total revenue, net
|
|
|
|
|
|
Natural
|
|
|
Natural gas
|
|
|
|
($ thousands)
|
|
|
of royalties(1)
|
|
|
Crude oil(2)
|
|
|
gas(2)
|
|
|
liquids(2)
|
|
|
Other(3)
|
Canada
|
|
$
|
52,895
|
|
$
|
39,417
|
|
$
|
10,367
|
|
$
|
2,486
|
|
$
|
625
|
United States
|
|
|
234,557
|
|
|
157,841
|
|
|
73,157
|
|
|
3,559
|
|
|
—
|
Total
|
|
$
|
287,452
|
|
$
|
197,258
|
|
$
|
83,524
|
|
$
|
6,045
|
|
$
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
| |
Royalties above do not include production taxes which are reported separately on the Condensed Consolidated Statements of Income/(Loss). |
|
(2)
| |
U.S. sales of crude oil and natural gas relate primarily to the Company’s North Dakota and Marcellus properties, respectively. Canadian crude oil sales relate primarily to the Company’s waterflood properties. |
|
(3)
| |
Includes third party processing income. |
12) GENERAL AND ADMINISTRATIVE EXPENSE
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
|
2020
|
|
2019
|
General and administrative expense
|
|
$
|
12,335
|
|
$
|
12,431
|
Share-based compensation expense
|
|
|
6,850
|
|
|
9,279
|
General and administrative expense(1)
|
|
$
|
19,185
|
|
$
|
21,710
|
|
(1)
| |
Includes cash and non-cash amounts. |
13) FOREIGN EXCHANGE
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
2020
|
|
2019
|
Realized:
|
|
|
|
|
|
Foreign exchange (gain)/loss
|
$
|
(119)
|
|
$
|
(118)
|
18 ENERPLUS 2020 Q1 REPORT
Translation of U.S. dollar cash held in Canada (gain)/loss
|
|
(3,103)
|
|
|
5,196
|
Unrealized:
|
|
|
|
|
|
Translation of U.S. dollar debt and working capital (gain)/loss
|
|
(2,415)
|
|
|
(17,104)
|
Foreign exchange (gain)/loss
|
$
|
(5,637)
|
|
$
|
(12,026)
|
Effective January 1, 2020, the Company elected to apply net investment hedge accounting. Any unrealized foreign exchange gain or loss recorded on certain U.S. dollar denominated debt held in Canada after adoption has been reflected in Other Comprehensive Income/(Loss) on the Consolidated Statements of Income/(Loss). See Note 3 for further details.
14) INCOME TAXES
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
|
2020
|
|
2019
|
Current tax
|
|
|
|
|
|
|
United States
|
|
$
|
27
|
|
$
|
(5,530)
|
Current tax expense/(recovery)
|
|
|
27
|
|
|
(5,530)
|
Deferred tax
|
|
|
|
|
|
|
Canada
|
|
$
|
124,481
|
|
$
|
(29,559)
|
United States
|
|
|
(15,131)
|
|
|
11,691
|
Deferred tax expense/(recovery)
|
|
|
109,350
|
|
|
(17,868)
|
Income tax expense/(recovery)
|
|
$
|
109,377
|
|
$
|
(23,398)
|
The difference between the expected income taxes based on the statutory income tax rate and the effective income taxes for the current and prior period is impacted by the following: expected annual earnings, recognition or reversal of valuation allowance, foreign rate differentials for foreign operations, statutory and other rate differentials, non-taxable portions of capital gains and losses, and share-based compensation.
Each period, Enerplus assesses the recoverability of its deferred tax assets to determine whether it is more likely than not all or a portion of its deferred tax assets will not be realized. In making that assessment, the Company considers available positive and negative evidence including future taxable income and reversing existing temporary differences. Enerplus has concluded that it is more likely than not that a portion of its Canadian deferred income tax assets will not be realized and has recorded a valuation allowance of $93.6 million for the period ending March 31, 2020 (December 31, 2019 - $13.9 million). No valuation allowance was recorded against the Company's U.S. deferred income tax assets. This assessment is primarily the result of projecting future taxable income using total proved and probable reserves at forecast average prices and costs. There is risk of further valuation allowance in future periods if commodity prices continue to weaken or other evidence indicates that more of the Company’s deferred income tax assets will not be realized. After recording the valuation allowance, the Company’s overall net deferred income tax asset was $273.0 million as at March 31, 2020 (December 31, 2019 - $372.5 million).
ENERPLUS 2020 Q1 REPORT 19
At March 31, 2020, $14.9 million of the current income tax receivable related to a portion of the U.S. Alternative Minimum Tax refund (December 31, 2019 - $27.8 million).
15) SHAREHOLDERS’ EQUITY
a) Share Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Year ended
|
Authorized unlimited number of common shares issued: (thousands)
|
|
March 31, 2020
|
|
December 31, 2019
|
Shares
|
|
|
Amount
|
|
Shares
|
|
|
Amount
|
Balance, beginning of year
|
|
221,744
|
|
$
|
3,088,094
|
|
239,411
|
|
$
|
3,337,608
|
|
|
|
|
|
|
|
|
|
|
|
Issued/(Purchased) for cash:
|
|
|
|
|
|
|
|
|
|
|
Purchase of common shares under Normal Course Issuer Bid
|
|
(340)
|
|
|
(4,731)
|
|
(18,231)
|
|
|
(253,920)
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash:
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation – settled(1)
|
|
1,160
|
|
|
13,824
|
|
564
|
|
|
4,406
|
Balance, end of period
|
|
222,564
|
|
$
|
3,097,187
|
|
221,744
|
|
$
|
3,088,094
|
|
(1)
| |
The amount of shares issued on LTI settlement is net of employee withholding taxes. |
Dividends declared to shareholders for the three months ended March 31, 2020 were $6.7 million (2019 – $7.2 million).
Enerplus’ Normal Course Issuer Bid (“NCIB”) expired on March 25, 2020. The Company chose not to renew the NCIB upon expiry in order to conserve capital and preserve its liquidity; however, Enerplus plans to renew its NCIB in due course and recommence its share repurchase program when market conditions improve. All repurchases were made in accordance with the NCIB at prevailing market prices plus brokerage fees, with consideration allocated to share capital up to the average carrying amount of the shares, and any excess allocated to accumulated deficit.
During the three months ended March 31, 2020, the Company repurchased 340,434 common shares under the NCIB at an average price of $7.44 per share, for total consideration of $2.5 million. Of the amount paid, $4.7 million was charged to share capital and $2.2 million was credited to accumulated deficit.
During the three months ended March 31, 2019, the Company repurchased 1,732,038 common shares under the NCIB at an average price of $11.43 per share, for total consideration of $19.8 million. Of the amount paid, $24.1 million was charged to share capital and $4.3 million was credited to accumulated deficit.
20 ENERPLUS 2020 Q1 REPORT
b) Share-based Compensation
The following table summarizes Enerplus’ share-based compensation expense, which is included in General and Administrative expense on the Condensed Consolidated Statements of Income/(Loss):
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
|
2020
|
|
2019
|
Cash:
|
|
|
|
|
|
|
Long-term incentive plans (recovery)/expense
|
|
$
|
(2,747)
|
|
$
|
1,337
|
Non-cash:
|
|
|
|
|
|
|
Long-term incentive plans
|
|
|
7,689
|
|
|
8,043
|
Equity swap (gain)/loss
|
|
|
1,908
|
|
|
(101)
|
Share-based compensation expense
|
|
$
|
6,850
|
|
$
|
9,279
|
i) Long-term Incentive (“LTI”) Plans
The following table summarizes the Performance Share Unit (“PSU”), Restricted Share Unit (“RSU”) and Director Deferred Share Unit (“DSU”) and RSU Plan activity for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
(thousands of units)
|
|
Cash-settled LTI plans
|
|
Equity-settled LTI plans
|
|
Total
|
Director Plans
|
|
PSU(1)
|
|
RSU
|
|
|
Balance, beginning of year
|
|
422
|
|
2,139
|
|
1,531
|
|
4,092
|
Granted
|
|
121
|
|
1,131
|
|
1,079
|
|
2,331
|
Vested
|
|
—
|
|
(652)
|
|
(741)
|
|
(1,393)
|
Forfeited
|
|
—
|
|
—
|
|
(18)
|
|
(18)
|
Balance, end of period
|
|
543
|
|
2,618
|
|
1,851
|
|
5,012
|
|
(1)
| |
Based on underlying awards before any effect of the performance multiplier. |
Cash-settled LTI Plans
For the three months ended March 31, 2020, the Company recorded a cash share-based compensation recovery of $2.7 million (March 31, 2019 – expense of $1.3 million).
As of March 31, 2020, a liability of $1.1 million (December 31, 2019 – $3.9 million) with respect to the Director DSU and RSU plans has been recorded to Accounts Payable on the Condensed Consolidated Balance Sheets.
ENERPLUS 2020 Q1 REPORT 21
Equity-settled LTI Plans
The following table summarizes the cumulative share-based compensation expense recognized to-date, which is recorded to Paid-in Capital on the Condensed Consolidated Balance Sheets. Unrecognized amounts will be recorded to non-cash share-based compensation expense over the remaining vesting terms.
|
|
|
|
|
|
|
|
|
|
At March 31, 2020 ($ thousands, except for years)
|
|
PSU(1)
|
|
RSU
|
|
Total
|
Cumulative recognized share-based compensation expense
|
|
$
|
18,268
|
|
$
|
7,595
|
|
$
|
25,863
|
Unrecognized share-based compensation expense
|
|
|
17,206
|
|
|
12,133
|
|
|
29,339
|
Fair value
|
|
$
|
35,474
|
|
$
|
19,728
|
|
$
|
55,202
|
Weighted-average remaining contractual term (years)
|
|
|
2.1
|
|
|
1.8
|
|
|
|
|
(1)
| |
Includes estimated performance multipliers. |
The Company directly withholds shares on PSU and RSU settlements for tax-withholding purposes. For the three months ended March 31, 2020, $7.2 million (2019 – $5.0 million) in cash withholding taxes were paid.
ii) Stock Option Plan
At March 31, 2020 all stock options are fully vested and any related non-cash share-based compensation expense has been fully recognized. All remaining outstanding stock options expired in March 2020.
The following table summarizes the stock option plan activity for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted Average
|
|
|
(thousands)
|
|
Exercise Price
|
Options outstanding, beginning of year
|
|
2,107
|
|
$
|
14.24
|
Forfeited
|
|
(8)
|
|
|
14.85
|
Expired
|
|
(2,099)
|
|
|
14.24
|
Options outstanding, end of period
|
|
—
|
|
$
|
—
|
22 ENERPLUS 2020 Q1 REPORT
c) Basic and Diluted Net Income/(Loss) Per Share
Net income/(loss) per share has been determined as follows:
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(thousands, except per share amounts)
|
|
2020
|
|
2019
|
Net income/(loss)
|
|
$
|
2,876
|
|
$
|
19,158
|
|
|
|
|
|
|
|
Weighted average shares outstanding – Basic
|
|
|
222,357
|
|
|
238,922
|
Dilutive impact of share-based compensation
|
|
|
943
|
|
|
2,376
|
Weighted average shares outstanding – Diluted
|
|
|
223,300
|
|
|
241,298
|
Net income/(loss) per share
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
$
|
0.08
|
Diluted
|
|
$
|
0.01
|
|
$
|
0.08
|
16) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a) Fair Value Measurements
At March 31, 2020, the carrying value of cash, accounts receivable, accounts payable, and dividends payable approximated their fair value due to the short-term maturity of the instruments.
At March 31, 2020, the senior notes had a carrying value of $656.7 million and a fair value of $651.0 million (December 31, 2019 – $606.6 million and $613.8 million, respectively).
The fair value of derivative contracts and senior notes are considered level 2 fair value measurements. There were no transfers between fair value hierarchy levels during the period.
b) Derivative Financial Instruments
The derivative financial assets and liabilities on the Condensed Consolidated Balance Sheets result from recording derivative financial instruments at fair value.
ENERPLUS 2020 Q1 REPORT 23
The following table summarizes the change in fair value for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
Income Statement
|
Gain/(Loss) ($ thousands)
|
2020
|
|
2019
|
|
Presentation
|
Equity Swaps
|
$
|
(1,908)
|
|
$
|
101
|
|
G&A expense
|
Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
Oil
|
|
98,336
|
|
|
(86,929)
|
|
Commodity derivative
|
Gas
|
|
—
|
|
|
(8,500)
|
|
instruments
|
Total
|
$
|
96,428
|
|
$
|
(95,328)
|
|
|
The following table summarizes the effects of Enerplus’ commodity derivative instruments on the Condensed Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss):
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
|
2020
|
|
2019
|
Change in fair value gain/(loss)
|
|
$
|
98,336
|
|
$
|
(95,429)
|
Net realized cash gain/(loss)
|
|
|
33,005
|
|
|
10,562
|
Commodity derivative instruments gain/(loss)
|
|
$
|
131,341
|
|
$
|
(84,867)
|
The following table summarizes the fair values of derivative financial instruments at the respective period ends:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
($ thousands)
|
Current
|
|
Current
|
|
Current
|
|
Current
|
Equity Swaps
|
$
|
—
|
|
$
|
4,125
|
|
$
|
—
|
|
$
|
2,217
|
Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
108,389
|
|
|
—
|
|
|
10,570
|
|
|
517
|
Total
|
$
|
108,389
|
|
$
|
4,125
|
|
$
|
10,570
|
|
$
|
2,734
|
c) Risk Management
i) Market Risk
Market risk is comprised of commodity price, foreign exchange, interest rate and equity price risk.
24 ENERPLUS 2020 Q1 REPORT
Commodity Price Risk:
Enerplus manages a portion of commodity price risk through a combination of financial derivatives and physical delivery sales contracts. Enerplus’ policy is to enter into commodity contracts subject to a maximum of 80% of forecasted production volumes, net of royalties and production taxes.
The following tables summarize the Company’s price risk management positions at May 7, 2020:
Crude Oil Instruments:
|
|
|
|
|
Instrument Type(1)(2)
|
|
bbls/day
|
|
US$/bbl
|
|
|
|
|
|
Apr 1, 2020 – Jun 30, 2020
|
|
|
|
|
WTI Swap
|
|
9,500
|
|
57.37
|
WTI Purchased Put
|
|
16,000
|
|
57.50
|
WTI Sold Put
|
|
16,000
|
|
46.88
|
WTI – Brent Swap (Purchase)
|
|
4,400
|
|
(8.03)
|
WTI – Brent Swap (Sale)
|
|
4,400
|
|
(3.98)
|
|
|
|
|
|
|
|
|
|
|
Jul 1, 2020 – Sep 30, 2020
|
|
|
|
|
WTI Swap
|
|
7,000
|
|
36.02
|
WTI Purchased Put
|
|
21,000
|
|
57.20
|
WTI Sold Put
|
|
21,000
|
|
47.14
|
WTI Sold Call
|
|
5,000
|
|
65.00
|
WTI – Brent Swap (Purchase)
|
|
4,400
|
|
(8.03)
|
|
|
|
|
|
Oct 1, 2020 – Dec 31, 2020
|
|
|
|
|
WTI Purchased Put
|
|
21,000
|
|
57.20
|
WTI Sold Put
|
|
21,000
|
|
47.14
|
WTI Sold Call
|
|
5,000
|
|
65.00
|
WTI – Brent Swap (Purchase)
|
|
4,400
|
|
(8.03)
|
|
(1)
| |
Transactions with a common term have been aggregated and presented at a weighted average price/bbl before premiums. |
|
(2)
| |
The total average deferred premium on outstanding hedges is US$1.67/bbl from April 1, 2020 to December 31, 2020. |
ENERPLUS 2020 Q1 REPORT 25
Enerplus has fixed physical differential sales agreements for approximately 13,000 bbls/day in North Dakota at an estimated price of WTI less US$5.00/bbl for the remainder of 2020.
Foreign Exchange Risk:
Enerplus is exposed to foreign exchange risk in relation to its U.S. operations, U.S. dollar denominated senior notes, cash deposits and working capital. Additionally, Enerplus’ crude oil sales and a portion of its natural gas sales are based on U.S. dollar indices. To mitigate exposure to fluctuations in foreign exchange, Enerplus may enter into foreign exchange derivatives. At March 31, 2020, Enerplus did not have any foreign exchange derivatives outstanding.
Enerplus may designate certain U.S. dollar denominated debt as a hedge of its net investment in foreign operations for which the U.S. dollar is the functional currency. The unrealized foreign exchange gains and losses arising from the translation of the debt are recorded in Other Comprehensive Income/(Loss), net of tax, and are limited to the translation gain or loss on the net investment. At March 31, 2020, Enerplus designated all of its US$467 million senior notes as a hedge of the Company’s net investment in its U.S. subsidiary. For the three months ended March 31, 2020, Enerplus recorded a $50.1 million loss, net of tax of nil, on its net investment hedge.
Interest Rate Risk:
At March 31, 2020, all of Enerplus’ debt was based on fixed interest rates and Enerplus had no interest rate derivatives outstanding.
Equity Price Risk:
Enerplus is exposed to equity price risk in relation to its long-term incentive plans detailed in Note 15. Enerplus has entered into various equity swaps maturing in 2020 that effectively fix the future settlement cost on a portion of its cash settled LTI plans.
ii) Credit Risk
Credit risk represents the financial loss Enerplus would experience due to the potential non-performance of counterparties to its financial instruments. Enerplus is exposed to credit risk mainly through its joint venture, marketing and financial counterparty receivables. Enerplus has appropriate policies and procedures in place to manage its credit risk; however, given the recent rapid decline in commodity prices, Enerplus is subject to an increased risk of financial loss due to non-performance or insolvency of its counterparties.
Enerplus mitigates credit risk through credit management techniques including conducting financial assessments to establish and monitor counterparties’ credit worthiness, setting exposure limits, monitoring exposures against these limits and obtaining financial assurances such as letters of credit, parental guarantees or third party credit insurance where warranted. Enerplus monitors and manages its concentration of counterparty credit risk on an ongoing basis.
Enerplus’ maximum credit exposure at the balance sheet date consists of the carrying amount of its non-derivative financial assets and the fair value of its derivative financial assets. At March 31, 2020, approximately 80% of Enerplus’ marketing receivables were with companies considered investment grade.
26 ENERPLUS 2020 Q1 REPORT
Enerplus actively monitors past due accounts and takes the necessary actions to expedite collection, which can include withholding production, netting amounts of future payments or seeking other remedies including legal action. Enerplus’ allowance for doubtful accounts balance at March 31, 2020 was $3.8 million (December 31, 2019 – $3.7 million).
iii) Liquidity Risk & Capital Management
Liquidity risk represents the risk that Enerplus will be unable to meet its financial obligations as they become due. Enerplus mitigates liquidity risk through actively managing its capital, which it defines as debt, net of cash and cash equivalents and share capital. Enerplus’ objective is to provide adequate short and long term liquidity while maintaining a flexible capital structure to sustain the future development of its business. Enerplus strives to balance the portion of debt and equity in its capital structure given its current oil and natural gas assets and planned investment opportunities.
Management monitors a number of key variables with respect to its capital structure, including debt levels, capital spending plans, dividends, share repurchases, access to capital markets, and acquisition and divestment activity.
At March 31, 2020, Enerplus had $142.1 million in cash and cash equivalents and an undrawn US$600 million bank credit facility. The Company was in full compliance with all covenants under the bank credit facility and outstanding senior notes. Enerplus expects to manage its business within these financial ratios during 2020; however, current oil and gas prices have created a significant level of uncertainty which may challenge this expectation. If the Company exceeds or anticipates exceeding its covenants, the Company may be required to repay, refinance or renegotiate the terms of the debt.
17) COMMITMENTS AND CONTINGENCIES
As of the date of this report, there were no material changes to Enerplus’ contractual obligations and commitments outside the ordinary course of business as reported in the Company’s annual audited Consolidated Financial Statements as of December 31, 2019.
Enerplus is subject to various legal claims and actions arising in the normal course of business. Although the outcome of such claims and actions cannot be predicted with certainty, the Company does not expect these matters to have a material impact on the Consolidated Financial Statements. In instances where the Company determines that a loss is probable and the amount can be reasonably estimated, an accrual is recorded.
18) SUPPLEMENTAL CASH FLOW INFORMATION
a) Changes in Non-Cash Operating Working Capital
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
|
2020
|
|
2019
|
Accounts receivable
|
|
$
|
80,816
|
|
$
|
(14,179)
|
ENERPLUS 2020 Q1 REPORT 27
Other assets
|
|
|
(407)
|
|
|
(3,027)
|
Accounts payable
|
|
|
(60,103)
|
|
|
(37,208)
|
|
|
$
|
20,306
|
|
$
|
(54,414)
|
b) Changes in Other Non-Cash Working Capital
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
|
2020
|
|
2019
|
Non-cash financing activities(1)
|
|
$
|
9
|
|
$
|
(12)
|
Non-cash investing activities(2)
|
|
|
36,195
|
|
|
50,101
|
|
(1)
| |
Relates to changes in dividends payable and included in dividends on the Condensed Consolidated Statements of Cash Flows. |
|
(2)
| |
Relates to changes in accounts payable for capital and office expenditures and included in capital and office expenditures on the Condensed Consolidated Statements of Cash Flows. |
c) Other
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
($ thousands)
|
|
2020
|
|
2019
|
Income taxes paid/(received)
|
|
$
|
(30,167)
|
|
$
|
64
|
Interest paid
|
|
|
3,287
|
|
|
3,259
|
28 ENERPLUS 2020 Q1 REPORT
Exhibit 99.3
FORM 52‑109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Ian C. Dundas, President and Chief Executive Officer of Enerplus Corporation, certify the following:
1.Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Enerplus Corporation (the “issuer”) for the interim period ended March 31, 2020.
2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4.Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52‑109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
(a)designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i)material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii)information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b)designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is Internal Control — Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
5.2ICFR — material weakness relating to design: N/A
5.3Limitation on scope of design: N/A
6.Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: May 8, 2020
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/s/ Ian C. Dundas
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Ian C. Dundas President and Chief Executive Officer Enerplus Corporation
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Exhibit 99.4
FORM 52‑109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Jodine J. Jenson Labrie, Senior Vice President and Chief Financial Officer of Enerplus Corporation, certify the following:
1.Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Enerplus Corporation (the “issuer”) for the interim period ended March 31, 2020.
2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4.Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52‑109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
(a)designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i)material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii)information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b)designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is Internal Control — Integrated Framework (2013 Framework) issued by The Committee of Sponsoring Organizations of the Treadway Commission.
5.2ICFR — material weakness relating to design: N/A
5.3Limitation on scope of design: N/A
6.Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: May 8, 2020
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/s/ Jodine J. Jenson Labrie
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Jodine J. Jenson Labrie Senior Vice President and Chief Financial Officer Enerplus Corporation
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This regulatory filing also includes additional resources:
Ex99_1.pdf
Ex99_2.pdf
Ex99_3.pdf
Ex99_4.pdf
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