Calgary-based oil and gas explorer and producer Enerplus Corp has agreed to acquire the shares of Bruin E&P HoldCo, a company holding Williston Basin properties in North Dakota. The deal, which reflects a purchase price of $465 million, is expected to close in March. Bruin E&P Partners is backed by Arclight Capital Partners.
CALGARY, AB, Jan. 25, 2021 /CNW/ – Enerplus Corporation (“Enerplus” or the “Company”) (TSX & NYSE: ERF) today announced that it has entered into a definitive agreement to acquire all of the shares of Bruin E&P HoldCo, LLC (“Bruin”), a pure play Williston Basin private company, for total cash consideration of US$465 million (the “Acquisition”).
Core area acquisition improving scale – Acquiring 151,000 net acres in the Williston Basin, including 30,000 net acres contiguous with Enerplus’ tier 1 acreage position. The acquisition includes approximately 24,000 BOE per day of existing production (working interest(1)), 84 MMBOE of proved plus probable reserves (working interest(1)), and an inventory of 149 (111 net) drilling locations (including drilled uncompleted wells). After the Acquisition, Enerplus estimates it will hold more than a decade of drilling inventory capable of sustaining production at 2021 levels, with additional drilling inventory upside on Bruin’s acreage if commodity prices strengthen.
Immediately accretive to per share metrics – Expected to be materially accretive to per share metrics in the first year, including adjusted funds flow and free cash flow. Accretion to adjusted funds flow per share and free cash flow per share is expected to be approximately 30% and 80%, respectively, in the 12-month period following closing of the Acquisition, inclusive of the bought deal equity financing described below.
Enhanced value capture and free cash flow acceleration – The purchase price represents less than 3.0 times Bruin’s 2021 forecast EBITDA using a US$50 per barrel WTI oil price – a discount to Enerplus’ current trading metrics. Bruin’s lower decline production base is expected to support strong free cash flow generation. Pro forma and based on a ten-month contribution from Bruin’s assets in 2021, Enerplus expects to generate over $200 million of free cash flow in 2021 based on US$50 per barrel WTI crude oil and US$2.75 per Mcf NYMEX natural gas prices.
Maintains strong balance sheet – The pro forma business retains a solid financial position with an estimated year-end 2021 net debt to adjusted funds flow ratio at or below 1.3x on a trailing 12-month basis (inclusive of the bought deal equity financing described below), with a target of less than 1.0x over the longer term. The business will continue to have excellent liquidity and expects to be undrawn on its US$600 million bank credit facility upon the Acquisition closing.
Drives cost synergies – The enhanced operating scale and asset synergies resulting from the Acquisition are expected to drive continued efficiency gains and cost reductions supporting further cash flow improvements beyond Enerplus’ current forecast. Additionally, there are no incremental general and administrative costs associated with the Acquisition.
Commitment to strong ESG performance – Enerplus will continue to pursue ESG excellence while integrating Bruin’s assets and operations into its ESG initiatives. The Company will continue to work towards its longer-term goals, including a 50% reduction in GHG emissions intensity by 2030 and a 50% reduction in freshwater use per well completion by 2025.
“This acquisition demonstrates our disciplined returns-oriented focus and commitment to value creation for our shareholders,” said Ian C. Dundas, President and CEO of Enerplus. “With immediately adjacent acreage offering strong operational synergies, Bruin’s assets are highly complementary to our existing tier 1 position in the Bakken and will enable us to accelerate free cash flow growth and further support our focus on providing long term sustainable shareholder returns.”
Production and reserves are stated on a working interest basis before deduction of royalties.
Enerplus has agreed to acquire all of the outstanding shares of Bruin for total cash consideration of US$465 million pursuant to a purchase and sale agreement, subject to customary purchase price adjustments. The Acquisition will be funded with a new US$400 million term loan and a concurrent $115 million bought deal equity financing. Enerplus will not assume any debt of Bruin as part of the Acquisition. Closing of the Acquisition is subject to customary closing conditions and is expected to occur in early March 2021.
In connection with the Acquisition, Enerplus has entered into a binding agreement with RBC Capital Markets and BMO Capital Markets, who are acting as Joint Bookrunners, to provide Enerplus with a new three year, US$400 million term loan, which will be fully drawn to fund a portion of the purchase price for the Acquisition. The new term loan will include financial and other covenants and pricing identical to Enerplus’ existing US$600 million revolving credit facility which matures October 31, 2023. Funding under the term loan is subject to limited conditions, including completion of the Acquisition and delivery of customary credit facility documentation.
Bruin’s properties are all located in North Dakota with significant production and development inventory concentrated in the Fort Berthold area near Enerplus’ primary property. Bruin’s current production rate is approximately 24,000 BOE per day (72% tight oil, 14% NGL and 14% natural gas). An independent reserves report on Bruin’s properties effective as of December 31, 2020 has assigned proved plus probable reserves of 84.1 MMBOE consisting of 61.5 MMbbls of tight oil, 11.6 MMbbls of NGLs and 66.4 Bcf of shale gas (working interest before the deduction of royalties).
2020 UPDATE AND PRO FORMA 2021 OUTLOOK
Enerplus delivered fourth quarter 2020 production at the higher end of its guidance ranges with total production of approximately 86,200 BOE per day, including liquids production of 49,200 barrels per day, based on preliminary estimates. Full year 2020 production averaged approximately 90,700 BOE per day, with liquids production of 51,100 barrels per day, also at the high end of the Company’s guidance. Capital spending in the fourth quarter of 2020 was approximately $52 million, bringing total 2020 capital spending to $291 million, below Enerplus’ guidance of $295 million.
Enerplus’ stand-alone 2021 preliminary outlook (provided with its third quarter 2020 results on November 6, 2020) contemplated 2021 production volumes approximately flat to the Company’s fourth quarter 2020 production guidance of 86,000 BOE per day, including 48,000 barrels per day of liquids (based on the guidance mid-points). The capital spending associated with this outlook was approximately $300 million.
Assuming completion of the Acquisition and a ten-month contribution from the Bruin assets to Enerplus’ 2021 results, Enerplus expects to deliver 2021 production of 103,500 to 108,500 BOE per day, including 63,000 to 67,000 barrels per day of liquids. Capital spending in 2021 is expected to be $335 to $385 million.
Assuming a ten-month contribution from Bruin, Enerplus expects to generate over $200 million in free cash flow in 2021 based on a US$50 per barrel WTI oil price and US$2.75 per Mcf NYMEX natural gas price. Under the same commodity price assumptions, the Company expects its net debt to trailing adjusted funds flow ratio to be at or below 1.3x at year-end 2021 (inclusive of the bought deal equity financing). With the strengthening of its free cash flow profile as a result of the Acquisition, Enerplus plans to further enhance its balance sheet strength, targeting a net debt to trailing adjusted funds flow ratio of less than 1.0x in a sub-US$50 per barrel WTI oil price environment.
The Company will also consider options for increasing its return of capital to shareholders with excess cash flow.
Pro forma for the Acquisition, the Company expects to realize a Bakken oil price differential of $3.25 per barrel below WTI in 2021 assuming the Dakota Access Pipeline (“DAPL”) continues to operate. This represents an improvement from 2020, where Enerplus’ Bakken differential guidance was US$5.00 per barrel below WTI. The expected differential improvement is due to declining basin production leading to increased pipeline egress. In the event DAPL is required to cease operations, Enerplus expects Bakken oil price differentials to widen reflecting rail economics. The Company estimates this would result in a realized 2021 differential of approximately $6.00 per barrel below WTI, assuming ten months of wider differentials if DAPL cannot operate. The impact to Enerplus’ corporate netback in this scenario is estimated to be approximately $1.00 per BOE. The Acquisition is expected to continue to provide attractive per-share accretion to both adjusted funds flow per share and free cash flow per share at a wider differential, as outlined above.
Detailed guidance for 2021 will be provided following closing of the Acquisition.
COMMODITY HEDGING UPDATE
Pro forma for the Acquisition, Enerplus has approximately 70% of its 2021 forecasted crude oil production (net of royalties) protected at a weighted average floor price of US$44 per barrel WTI through swaps and three way collar structures. Of this hedged amount, approximately 66% provides participation up to US$54 per barrel WTI. Based on the 2021 production forecast, Enerplus has approximately 47% of its 2022 crude oil production (net of royalties) protected at a weighted average floor price of US$49 per barrel WTI through swaps and three way collar structures. Of this 2022 hedged amount, approximately 82% provides participation up to US$58 per barrel WTI.
For natural gas, Enerplus has hedges in place for its summer 2021 volumes representing approximately 43% of its forecasted natural gas production (net of royalties) between April 1 to October 31, 2021, protected at a weighted average floor price of US$2.85 per Mcf NYMEX primarily through swaps and three way collar structures. Of this hedged amount, approximately 25% provides participation up to US$3.25 per Mcf NYMEX.
Stifel FirstEnergy acted as financial advisor to Enerplus on the Acquisition. Tudor, Pickering, Holt & Co. and TD Securities acted as strategic advisors to Enerplus on the Acquisition. Vinson & Elkins LLP acted as U.S. legal advisor to Enerplus for the Acquisition and financings, and Blake, Cassels & Graydon LLP acted as legal advisor to Enerplus on the Acquisition and financings.
Enerplus is an independent North American oil and gas exploration and production company focused on creating long-term value for its shareholders through a disciplined, returns-based capital allocation strategy and a commitment to safe, responsible operations.