Although swept along on a wave of upbeat results from 2014, with its Fort Berthold operations contributing handsomely to the performance, Enerplus has decided to head for dry land.
Low oil and natural gas prices have prompted the Calgary-based mid-size producer to slash its year-over-year capital spending by 40 percent to C$480 million, chopping its dividend by 44 percent, selling non-core assets for C$182 million, shutting in gas wells in the Pennsylvania Marcellus and deferring North Dakota oil wells.
The corporate focus is on “driving costs out, without compromising economics or safety,” according to Ray Daniels, senior vice president, operations.
He said 2015 will be a year when Enerplus is “very strict on capital allocation and maximizing savings in all areas.”
That includes eliminating one of its two Bakken rigs, ending 2015 with about 16 uncompleted wells that Daniels said could be brought on stream “expeditiously” when market conditions recover.
Daniels said the “spend discipline” being exercised across the company will apply to both capital programs and operating activities after a year when he said Enerplus achieved “industry-leading well performance in Fort Berthold by advancing our completion design, optimizing our drilling density design and testing the lower benches of the Three Forks.”
He said 30- and 60-day initial production rates were 20 percent higher on average than Enerplus’ high-case type curve, boosting Fort Berthold production by 30 percent over 2013 to 21,700 boepd.
Initially, well costs did trend higher as a result of increasing the number of well-fracture stages, but by the end of 2014 cost reductions of 8 percent were recorded, primarily driven by the efficiencies of pad drilling, Daniels said.
He said the five wells drilled and completed averaged US$12.1 million each, while the combination of increasing initial production and reduced capital costs drove a 25 percent increase in capital efficiency, year-over-year.
‘Rigorous’ resource assessment
For 2014, Enerplus drilled 27.2 net wells at Fort Berthold and brought 18.4 on stream.
It also completed a “rigorous” resource assessment of the play which resulted in original-oil-in-place estimates being hiked by 500 million barrels to 1.5 billion barrels, with an estimated recovery factor of 15 percent that enabled the company to increase its well density and boost the number of drilling locations by 127 percent, Daniels said.
The revised resource calculation and improved well performance added about 25 million barrels of proved plus probable reserves, equating to a replacement of 2014 production by more than 300 percent at an average F&D cost of C$16.87 per boe.
These results and outlook might, in other circumstances, have allowed Enerplus to hold out hopes for 2015 and beyond that would have wiped out memories of a 24 percent dive in share prices last summer that puzzled analysts such as TD Securities Aaron Bilkoski.
After speaking with the company and a series of institutional investors, he was unable to detect “any fundamental reason for the sell-off.”
Instead, he was counting on “positive catalysts” in the final quarter of 2014 that “could again result in Enerplus’ outperformance.”
Ensuring financial strength
But, like its peers, Enerplus has been forced to take proactive measures affecting all of its core areas in the United States and Canada to “preserve value in the near term and ensure the financial strength of the company,” as it navigates through current markets, said Chief Executive Officer Ian Dundas.
The prospects are so grim in the already battered natural gas sector that Eric Le Dain, senior vice president, corporate development, called on competitors in the Marcellus formation to join Enerplus in curtailing production.
He said Enerplus expects to remove an average of up to 7,000 boepd of Marcellus production in 2015, after doubling volumes from the play last year to 188 million cubic feet per day, despite trimming output during the second half.
“We just are not prepared to produce all of our capability into this low price market; therefore we see production on average of 170 million to 190 million cubic feet per day,” Le Dain said.
“In the end it comes down to whether competitors act as we and our partners are doing to limit production into this market environment,” he said.
Overall, Enerplus expects production this year to drop about 6 percent to 93,000-100,000 boepd, after selling 1,900 boepd (to a buyer believed to be Bonterra Energy), with oil and liquids accounting for 42 percent-44 percent.
Under its commodity hedging program, Enerplus has 52 percent of its forecasted net crude output hedged at just under US$92 per barrel for the first half of 2015 and 26 percent hedged for the second half at just under US$94.
