
Enerplus (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”ERF.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) recently released strong fourth-quarter and full year 2018 results that were driven by the company’s impressive production growth. Enerplus’ solid production profile helped the company easily offset the pricing weakness, while the guidance indicates that its performance should improve further in 2019.
Let’s take a closer look at how Enerplus performed last quarter and what’s in store for the year ahead.
Enerplus’ Impressive Production Growth Drives Results
Enerplus reported C$326.7 million in revenue during the quarter, a substantial increase over the C$230 million in revenue it reported in the prior-year period. Its GAAP net income for the quarter shot up to $1.03 per share as compared to $0.35 per share a year ago, while adjusted net income increased from $0.40 per share last year to $0.42 per share.
The top line increase was driven by the production of 97,860 barrels of oil equivalent per day, which arrived at the higher end of Enerplus’ own guidance range. As it turns out, 56% of this production was crude oil and natural gas liquids. For comparison, Enerplus had generated 88,590 barrels of oil equivalent per day of production in the prior-year period, 53% of which was liquids.
The 10% increase in production over the prior-year period helped Enerplus offset the decline that it witnessed in the prices of crude oil and natural gas liquids. Crude oil price per barrel came in at C$64.18 during the fourth quarter of 2018, down slightly from the C$65.91 per barrel it recorded in the prior-year period.
However, the price of natural gas liquids fell by a much higher margin to C$26.72 per barrel from C$32.26 last year. Meanwhile, natural gas prices increased from C$3.03 to C$4.28 year over year. As such, Enerplus enjoyed the tailwind of increased production and strong natural gas prices last quarter. The good part is that the company expects to boost its production slightly this year, but it remains to be seen if that will be enough to sustain its impressive growth in light of the energy pricing uncertainty.
2019 Guidance Positive
Enerplus expects to produce between 94,000 and 100,000 barrels of oil equivalent per day in 2019, with average annual crude oil and natural gas production expected in the range of 52,500-56,000 barrels of oil equivalent per day. The mid-point of the 2019 production guidance means that Enerplus is on track to grow its production from the 93,216 barrels of oil equivalent that it had recorded in the prior-year period.
The company has based its 2019 production guidance assuming a West Texas Intermediate (WTI) oil price of $50-$55 per barrel. The good news is that WTI oil is trading at a higher price point that Enerplus’ forecasted range, which means that the company should be able to carry out its capital expenditure plan for the year if the price remains steady. The company plans to spend $600 million on capital expenses this year according to the mid-point of its range, which is slightly higher than last year’s outlay.
The good news for Enerplus is that the OPEC supply cuts and the possibility of a U.S.-China trade deal have bolstered prices. But if things don’t turn out as expected and prices fall, Enerplus will have to run a tight ship and cut corners. However, the company’s solid balance sheet and impressive cash flow generation are tailwinds, so it shouldn’t have much difficulty in navigating a tough pricing environment.