Chord/Enerplus Q1 results and outlook

[Petroleum economist]

Chord and Enerplus reported rather different Q1 results. Chord production was in line with the outlook, Enerplus well below expectation. The balance sheets and the profitability of both are in good shape and shareholder returns are adequate. The merger of Chord/Enerplus should be completed in Late May 2024. The merged company is an attractive investment

Production
Chord stand-alone
• Chord Q1 production (168.4 K BoE/d) was at the high end of the outlook (164.2-169.2 K BoE/d).
• Q1 production was down -8.2% versus Q4 (183.5 K BoE/d), part by choice and part as Q1 production was impacted by winter storms.
• Q2 production (outlook 168-173 K BoE/d) indicates a slightly higher production than Q1
• Chord will keep production flat in the rest of the 2024. 2024 production outlook was reduced by 600 BoE/d to 166.7-172.7 K BoE/d to reflect the winter weather in Q1.

Enerplus stand-alone
• Enerplus production was a low 87 K BoE/d, 16% below Q4 (103.5 K BoE/d).
• Q1 production was low due to (1) no wells brought online in Q4, (2) low gas production due to price-related curtailments and (3) a minus 2-3 K BoE/d impact of winter weather.
• Enerplus maintained its 2024 outlook at 99 K BoE/d, indicating a higher production in the rest of 2024.

Chord/Enerplus combined
• Chord will merge with Enerplus on or just after the 31st May.
• Production of the merged company in H2 should be 272-275 K BoE/d.
• Chord /Enerplus (369.6 M BoE) has proven reserves (1,006 M BoE) equivalent of 10.1 years of production. Both companies in the last three years have seen good reserves replacement (RRR = 1.7-2.0),
• Based on the reserves and the RRR, I believe that Chord/Enerplus can grow production to 277 K BoE/d (2025) and level out at 280 K BoE/d in the period 2026-2030.
• Combined fluids will be liquid dominated (75%), with oil at 55% and NGL at 20%.
• The fluid composition (55/20/25) is comparable with the reserves (58/22/20) and fluid composition over time will not vary in major way.

Balance sheet
• Both Chord and Enerplus have sound balance sheets.
• Chord solvency in Q1 decreased slightly from 73.7% (Q4) to 72.2% (Q1). Enerplus increased from 59.3% to 61.1%. Solvency of both remain very high.
• Chord long term debt in Q1 was flat ($ 396 M). The long-term debt of Enerplus decreased from 105 M to $ 94 M,
• Chord and Enerplus both had a low debt/EBITDA ratio in 2023 (< 0.3).
• Combined Chord/Energy will have a high solvency (68.9%) and a low 2024 debt/EBITDA ratio (< 0.3).
• The combined Chord/Enerplus balance sheet allows generous shareholder returns in 2024.

Profitability
• Both Chord and Enerplus are very profitable.
• Chord reported a Q1 net profit of $ 295 M (eps $ 7.15), inclusive non-cash hedging losses of 26.2 M). Adjusted eps ($ 5.30) was above analysts’ estimates of $ 4.33-5.12.
• Enerplus reported a Q1 net profit of $ 66.1 M (eps $ 0.13), inclusive hedging losses of $ 2 M. Adjusted profit was $ 7.3 M (eps $ 0.36) below analysts’ estimates of 0.43, due to the low production/.
• Enerplus net profit was $ 107 M.
• Unit costs of both Chord ($ 30.70/BOE) and Enerplus ($ 31.40/BoE) are comparable and are average.
• Both companies have limited 2024 oil hedging (Chord 14%, Enerplus 3%) and thus can fully profit from higher oil prices.
• Assuming the merger is completed at the start of Q2, with WTI= $ 80-86/bbl) I expect for the merged company a net profit (excluding non-cash hedging losses) of $ 1,210 -1,300 M (eps $ 23.30-25.50). The PE is a medium 7.3-7.6.
• The merger should close somewhere between late May and earl July. The timing of the merger will influence the 2024 net profit, but should not change the eps.

Shareholder returns
• Chord targets 75% of the free cash flow to be returned to shareholder and has confirmed that after the merger this policy will be maintained.
• Chord tends to route 80% of its returns through quarter dividends, composed of the fixed dividend ($ 1.25) and a $ 1.00-2.00 variable dividend. 20% is returned through share buybacks.
• Enerplus is less dividends focused (30%) with a fixed quarterly dividend of $ 0.065 and no variable dividend. Enerplus routes 70% of the returns through share buybacks.
• I expect that the returns of the combination will be a mixture of the two.
• Total shareholder returns in 2024 should be an adequate 6.5-7.5% and can increase in 2025 with higher production.

Conclusions
Chord/Enerplus is a safe, relatively cheap oil and gas investment with immediate attractive returns.

Chord/Enerplus ranks in the top quartile (12th)) of my oil and gas company ranking. Chord/Enerplus is low risk in most of the risk categories (solvency, free cash flow, generated cash flow, company value and fluid composition). Only in reserves and unit costs Chord rates average.

If you think I am always (too) positive in my evaluations – I only write on my top 15-20 ranked companies. I have some dim views some on the lower ranked ones, but I do not share these with the world.

[Fraser921]

I like dim views , not just happy talk all day long.
We should be mature enough to handle other opinions even if we are long the name, right???

I’ve had my opinion altered by other peoples opinions both bullish and bearish I appreciate your comments.