Oil and gas output was down for this Canadian oil and gas stock in the latest quarter. But higher oil prices pushed its cash flow up by more than 50%. And its debt is lower after the sale of some non-core properties.
Enerplus Corp. is pouring its cash into more wells, with exploration and development spending up 115% for 2017. It expects output to expand to 97,000 barrels a day by the end of the year. And the shares are trading at a low multiple to forecast cash flow.
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ENERPLUS CORP. (Toronto symbol ERF; www.enerplus.com) produces oil and gas from properties in Western Canada—Alberta, Saskatchewan and B.C.—as well as North Dakota and Montana in the western U.S. The company also has properties in the Marcellus Shale. That rock formation runs through Pennsylvania, New York, Ohio and West Virginia.
75% of its production is in the U.S. and the rest in Canada. The company’s proved and probable reserves of 382 million barrels of oil equivalent consist of 51% oil and 49% natural gas.
Enerplus’s output fell by 8.0% in the quarter ended June 30, 2017, to an average of 86,209 barrels of oil equivalent per day (52% gas and 48% oil) from 93,659 a year earlier.
The decline in production came after the company sold some of its non-core properties in 2016 for $670.4 million. Enerplus used the proceeds of the sale to pay down its debt.
Energy Stocks: Debt is down, cash is up on company balance sheet
Higher oil and gas prices more than offset the lower output, and cash flow jumped 50.2%, to $114.2 million from $76.0 million a year earlier. Cash flow per share rose 34.3%, to $0.47 from $0.35, on more shares outstanding.
On June 30, 2017, Enerplus’s long-term debt stood at $664.6 million, or a manageable 25% of its market cap. That’s down from $1.2 billion at the start of 2016. The company also has cash of $385.1 million from its property sales.
For 2017, Enerplus will spend a total of $450.0 million on exploration and development. That’s up 115.3% from $209.0 million in 2016. In the second quarter of 2017 Enerplus devoted the greater part of its exploration and development capital (70%) to its oil properties in the Williston Basin of North Dakota. Overall, the higher spending should expand the company’s output to as high as 97,000 barrels per day by the end of 2017.
The stock trades at 5.5 times the company’s forecast 2017 cash flow of $2.01 per share. The shares yield 1.1%.
Recommendation in Canadian Wealth Advisor: Enerplus Corp. is a buy.
Thanks for your inquiry. There is no simple answer to your questions. For investors who don’t need current income (from all or part of their portfolios), we think they’d be better off to build a portfolio of stocks of well-established dividend-paying companies—the kind of portfolios Pat builds for our portfolio management clients.
Conservative or income-seeking investors may want to emphasize utilities and Canadian banks for their high, generally secure dividends, but they’ll still want to spread their investments out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources, Consumer, Finance and Utilities.
However, for investors who need regular income from their portfolios, they may want to keep some funds in T-bills or other cash equivalents. That way, they’ll have cash available and they won’t have to sell stocks at a market low.
Pat doesn’t recommend bonds or other fixed income investments as buys—as they pay low interest and will drop in value as interest rates rise.
The returns on money market funds are very low….so investors might look at GICs instead. They could go for longer term for a better rate….
For GICs, they could check with their brokerage, and also President’s Choice Financial or Tangerine.
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What should I do if I just want to hold some cash in my investment account? Are there any solid and liquid investments that yield some interest?
Thanks for your inquiry. There is no simple answer to your questions. For investors who don’t need current income (from all or part of their portfolios), we think they’d be better off to build a portfolio of stocks of well-established dividend-paying companies—the kind of portfolios Pat builds for our portfolio management clients.
Conservative or income-seeking investors may want to emphasize utilities and Canadian banks for their high, generally secure dividends, but they’ll still want to spread their investments out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources, Consumer, Finance and Utilities.
However, for investors who need regular income from their portfolios, they may want to keep some funds in T-bills or other cash equivalents. That way, they’ll have cash available and they won’t have to sell stocks at a market low.
Pat doesn’t recommend bonds or other fixed income investments as buys—as they pay low interest and will drop in value as interest rates rise.
The returns on money market funds are very low….so investors might look at GICs instead. They could go for longer term for a better rate….
For GICs, they could check with their brokerage, and also President’s Choice Financial or Tangerine.