STATEMENTS
Exhibit 99.2
Condensed Consolidated Balance Sheets
| | | | | | | | |
(US$ thousands) unaudited |
| Note |
| March 31, 2023 |
| December 31, 2022 | ||
Assets | | |
| |
|
| |
|
Current assets | | |
| |
|
| |
|
Cash and cash equivalents | | | | $ | 52,578 | | $ | 38,000 |
Accounts receivable, net of allowance for doubtful accounts |
| 12 | |
| 231,735 | |
| 276,590 |
Other current assets | | 4, 5 | | | 56,987 | | | 56,552 |
Derivative financial assets | | 12 | |
| 23,647 | |
| 36,542 |
| | | |
| 364,947 | |
| 407,684 |
Property, plant and equipment: | | | |
|
| | | |
Crude oil and natural gas properties (full cost method) |
| 3 | |
| 1,384,953 | |
| 1,322,904 |
Other capital assets |
| 3 | |
| 9,678 | |
| 10,685 |
Property, plant and equipment | | | |
| 1,394,631 | |
| 1,333,589 |
Other long-term assets | | 4 | | | 14,632 | | | 21,154 |
Right-of-use assets | | | | | 17,469 | | | 20,556 |
Deferred income tax asset |
| 10 | |
| 150,280 | |
| 154,998 |
Total Assets | | | | $ | 1,941,959 | | $ | 1,937,981 |
| | | |
|
| |
|
|
Liabilities | | | |
|
| |
|
|
Current liabilities | | | |
|
| |
|
|
Accounts payable |
| | | $ | 386,590 | | $ | 398,482 |
Current portion of long-term debt |
| 5 | |
| 80,600 | |
| 80,600 |
Derivative financial liabilities |
| 12 | |
| 3,191 | |
| 10,421 |
Current portion of lease liabilities | | | | | 12,750 | | | 13,664 |
| | | |
| 483,131 | |
| 503,167 |
Long-term debt |
| 5 | |
| 122,600 | |
| 178,916 |
Asset retirement obligation |
| 6 | |
| 116,094 | |
| 114,662 |
Lease liabilities | | | | | 7,008 | | | 9,262 |
Deferred income tax liability | | 10 | | | 74,513 | | | 55,361 |
Total Liabilities | | | |
| 803,346 | |
| 861,368 |
| | | | | | | | |
Shareholders’ Equity | | | |
|
| |
|
|
Share capital – authorized unlimited common shares, no par value Issued and outstanding: March 31, 2023 – 215 million shares December 31, 2022 – 217 million shares |
| 11 | |
| 2,811,708 | |
| 2,837,329 |
Paid-in capital | | | |
| 34,295 | |
| 50,457 |
Accumulated deficit | | | |
| (1,406,049) | |
| (1,509,832) |
Accumulated other comprehensive loss | | | |
| (301,341) | |
| (301,341) |
| | | |
| 1,138,613 | |
| 1,076,613 |
Total Liabilities & Shareholders' Equity | | | | $ | 1,941,959 | | $ | 1,937,981 |
| | | | | | | | |
Subsequent Event | | 11 | | | | | | |
| | | | | | | | |
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements. |
ENERPLUS 2023 Q1 REPORT 1
Condensed Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss)
| | | | | | | | |
| | | | Three months ended | ||||
| | | | March 31, | ||||
(US$ thousands, except per share amounts) unaudited | | Note | | 2023 | | 2022 | ||
Revenues |
| |
| |
|
| |
|
Crude oil and natural gas sales |
| 7 | | $ | 413,182 | | $ | 513,152 |
Commodity derivative instruments gain/(loss) |
| 12 | |
| 27,965 | |
| (206,810) |
| | | |
| 441,147 | |
| 306,342 |
Expenses | | | |
|
| |
|
|
Operating | | | |
| 92,804 | |
| 83,244 |
Transportation | | | |
| 37,768 | |
| 35,807 |
Production taxes | | | |
| 30,123 | |
| 35,355 |
General and administrative |
| 8 | |
| 19,432 | |
| 17,581 |
Depletion, depreciation and accretion | | | |
| 87,109 | |
| 66,691 |
Interest |
| | |
| 4,318 | |
| 6,055 |
Foreign exchange (gain)/loss |
| 9 | |
| (97) | |
| 887 |
Other expense/(income) | | 4, 6 | |
| (2,666) | |
| 12,697 |
| | | |
| 268,791 | |
| 258,317 |
Income/(Loss) Before Taxes | | | |
| 172,356 | |
| 48,025 |
Current income tax expense/(recovery) |
| 10 | |
| 11,000 | |
| 5,000 |
Deferred income tax expense/(recovery) |
| 10 | |
| 23,870 | |
| 9,782 |
Net Income/(Loss) | | | | $ | 137,486 | | $ | 33,243 |
| | | | | | | | |
Other Comprehensive Income/(Loss) | | | |
| | |
| |
Unrealized gain/(loss) on foreign currency translation | | 12 | |
| — | |
| (620) |
Foreign exchange gain/(loss) on net investment hedge, net of tax | | 12 | | | — | | | 5,375 |
Total Comprehensive Income/(Loss) | | | | $ | 137,486 | | $ | 37,998 |
| | | | | | | | |
Net Income/(Loss) per Share | | | |
|
| |
|
|
Basic |
| 11 | | $ | 0.63 | | $ | 0.14 |
Diluted |
| 11 | | $ | 0.62 | | $ | 0.13 |
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
2 ENERPLUS 2023 Q1 REPORT
Condensed Consolidated Statements of Changes in Shareholders’ Equity
| | | | | | |
| | | Three months ended | |||
| | | March 31, | |||
(US$ thousands) unaudited |
| 2023 |
| 2022 | ||
Share Capital |
| |
|
| |
|
Balance, beginning of period | | $ | 2,837,329 | | $ | 3,094,061 |
Purchase of common shares under Normal Course Issuer Bid | | | (32,850) | | | (31,342) |
Share-based compensation – treasury settled | |
| 7,229 | |
| 7,959 |
Balance, end of period | | $ | 2,811,708 | | $ | 3,070,678 |
| |
|
| |
|
|
Paid-in Capital | |
|
| |
|
|
Balance, beginning of period | | $ | 50,457 | | $ | 50,881 |
Share-based compensation – tax withholdings settled in cash | | | (16,392) | | | (11,567) |
Share-based compensation – treasury settled | |
| (7,229) | |
| (7,959) |
Share-based compensation – non-cash | |
| 7,459 | |
| 4,755 |
Balance, end of period | | $ | 34,295 | | $ | 36,110 |
| |
|
| |
|
|
Accumulated Deficit | |
|
| |
|
|
Balance, beginning of period | | $ | (1,509,832) | | $ | (2,238,325) |
Purchase of common shares under Normal Course Issuer Bid | | | (21,710) | | | (5,865) |
Net income/(loss) | |
| 137,486 | |
| 33,243 |
Dividends declared(1) | |
| (11,993) | |
| (7,918) |
Balance, end of period | | $ | (1,406,049) | | $ | (2,218,865) |
| |
|
| |
|
|
Accumulated Other Comprehensive Income/(Loss) | |
|
| |
|
|
Balance, beginning of period | | $ | (301,341) | | $ | (297,307) |
Unrealized gain/(loss) on foreign currency translation | |
| — | |
| (620) |
Foreign exchange gain/(loss) on net investment hedge, net of tax | | | — | | | 5,375 |
Balance, end of period | | $ | (301,341) | | $ | (292,552) |
Total Shareholders’ Equity | | $ | 1,138,613 | | $ | 595,371 |
(1) | For the three months ended March 31, 2023, dividends declared were $0.055 per share (2022 – $0.033 per share). |
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
ENERPLUS 2023 Q1 REPORT 3
Condensed Consolidated Statements of Cash Flows
| | | | | | | | |
| | | | Three months ended | ||||
| | | | March 31, | ||||
(US$ thousands) unaudited | | Note | | 2023 | | 2022 | ||
Operating Activities |
| |
| |
|
| |
|
Net income/(loss) | | | | $ | 137,486 | | $ | 33,243 |
Non-cash items add/(deduct): | | | |
| | | | |
Depletion, depreciation and accretion | | | |
| 87,109 | | | 66,691 |
Changes in fair value of derivative instruments |
| 12 | |
| 6,344 | | | 133,332 |
Deferred income tax expense/(recovery) |
| 10 | |
| 23,870 | | | 9,782 |
Unrealized foreign exchange (gain)/loss on working capital |
| 9 | |
| (185) | | | 1,171 |
Share-based compensation and general and administrative |
| 8,11 | |
| 7,363 | | | 4,660 |
Other expense/(income) | | 4 | | | (1,650) | | | 12,653 |
Amortization of debt issuance costs | | 5 | | | 394 | | | 353 |
Translation of U.S. dollar cash held in parent company | | 9 | | | — | | | 10 |
Investing activities in Other income | | | | | (322) | | | — |
Asset retirement obligation settlements |
| 6 | |
| (6,782) | | | (8,795) |
Changes in non-cash operating working capital |
| 13 | |
| (12,226) | | | (57,108) |
Cash flow from/(used in) operating activities | | | |
| 241,401 | |
| 195,992 |
| | | | | | | | |
Financing Activities | | | |
|
| |
|
|
Drawings from/(repayment of) bank credit facilities | | 5 | |
| (56,316) | | | (104,409) |
Purchase of common shares under Normal Course Issuer Bid | | 11 | | | (54,560) | | | (37,207) |
Share-based compensation – tax withholdings settled in cash | | 11 | | | (16,392) | | | (11,567) |
Dividends |
| 11 | |
| (11,993) | | | (7,918) |
Cash flow from/(used in) financing activities | | | |
| (139,261) | |
| (161,101) |
| | | | | | | | |
Investing Activities | | | |
|
| |
|
|
Capital and office expenditures | | 13 | |
| (93,923) | | | (75,027) |
Canadian divestments | | 4, 13 | | | 5,191 | | | — |
Property and land acquisitions | | | |
| (1,748) | | | (1,941) |
Property and land divestments |
| | |
| 2,733 | | | 6,581 |
Cash flow from/(used in) investing activities | | | |
| (87,747) | |
| (70,387) |
Effect of exchange rate changes on cash and cash equivalents | | | |
| 185 | | | (3,121) |
Change in cash and cash equivalents | | | |
| 14,578 | |
| (38,617) |
Cash and cash equivalents, beginning of period | | | |
| 38,000 | | | 61,348 |
Cash and cash equivalents, end of period | | | | $ | 52,578 | | $ | 22,731 |
The accompanying notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
4 ENERPLUS 2023 Q1 REPORT
NOTES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1) REPORTING ENTITY
These interim Condensed Consolidated Financial Statements (“interim Consolidated Financial Statements”) and notes present the financial position and results of Enerplus Corporation (the “Company” or “Enerplus”) including its Canadian and United States (“U.S.”) subsidiaries. Enerplus is a North American crude oil and natural gas exploration and production company. Enerplus is publicly traded on the Toronto and New York stock exchanges under the ticker symbol ERF. Enerplus’ corporate offices are located in Calgary, Alberta, Canada and Denver, Colorado, United States.
2) BASIS OF PREPARATION
Enerplus’ interim Consolidated Financial Statements present its results of operations and financial position under accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the three months ended March 31, 2023 and the 2022 comparative period. Certain prior period amounts have been reclassified to conform with current period presentation. Certain information and notes normally included with the annual audited Consolidated Financial Statements have been condensed or have been disclosed on an annual basis only. Accordingly, these interim Consolidated Financial Statements should be read in conjunction with Enerplus’ annual audited Consolidated Financial Statements as of December 31, 2022.
The functional currency of the parent company changed from Canadian dollars to U.S. dollars effective January 1, 2023. This was the result of a gradual change in the primary economic environment in which the entity operates, culminating in the sale of Enerplus’ remaining Canadian operating assets at the end of 2022. This has triggered a prospective change as of January 1, 2023 in functional currency of the parent entity to U.S. dollars, consistent with the functional currency of its U.S. subsidiaries. All assets and liabilities held by the parent company were translated at the exchange rate at December 31, 2022 to determine opening balances in U.S. dollars. Amounts that are part of Shareholders’ Equity of the parent company are translated at historical exchange rates. Monetary assets and liabilities denominated in Canadian dollars will be revalued at current exchange rates at each reporting period. Upon settlement and/or realization of Canadian dollar denominated assets and liabilities, there may be realized foreign exchange gains and losses depending on the change in the foreign exchange rate when the transaction was originally recorded and the final settlement date.
These unaudited interim Consolidated Financial Statements reflect, in the opinion of Management, all normal and recurring adjustments necessary to present fairly the financial position and results of the Company as at and for the periods presented.
In preparing these financial statements, Enerplus is required to make estimates and assumptions and use judgement. Accordingly, actual results may differ from estimated amounts as future confirming events occur. Significant estimates and judgement used in the preparation of the financial statements are described in the Company’s annual audited Consolidated Financial Statements as of December 31, 2022.
3) PROPERTY, PLANT AND EQUIPMENT (“PP&E”)
| | | | | | | | | |
| | | | | Accumulated Depletion, | | | | |
At March 31, 2023 |
| | |
| Depreciation, and |
| | | |
($ thousands) | | | Cost | | Impairment | | | Net Book Value | |
Crude oil and natural gas properties(1) | | $ | 7,355,835 | | $ | (5,970,882) | | $ | 1,384,953 |
Other capital assets | |
| 99,331 | | | (89,653) | |
| 9,678 |
Total PP&E | | $ | 7,455,166 | | $ | (6,060,535) | | $ | 1,394,631 |
| | | | | | | | | |
| | | | | Accumulated Depletion, | | | | |
At December 31, 2022 |
| | |
| Depreciation, and |
| | | |
($ thousands) | | | Cost | | Impairment | | | Net Book Value | |
Crude oil and natural gas properties(1) | | $ | 7,214,993 | | $ | (5,892,089) | | $ | 1,322,904 |
Other capital assets | |
| 99,283 | |
| (88,598) | |
| 10,685 |
Total PP&E | | $ | 7,314,276 | | $ | (5,980,687) | | $ | 1,333,589 |
(1) | All of the Company’s unproved properties are included in the full cost pool. |
ENERPLUS 2023 Q1 REPORT 5
4) DIVESTMENTS
In the fourth quarter of 2022, the Company divested substantially all of its Canadian assets in two transactions for total adjusted proceeds of $213.0 million after purchase price adjustments and transaction costs. These transactions resulted in a $151.9 million gain on asset divestments on the Consolidated Statements of Income/(Loss) in the fourth quarter of 2022.
At March 31, 2023, the current and long-term portion of the outstanding loan receivable from one of the purchasers of $15.8 million and $10.4 million, respectively (December 31, 2022 – $17.7 million and $13.4 million, respectively), have been recorded as part of Other current assets and Other long-term assets on the Condensed Consolidated Balance Sheets.
At March 31, 2023, the common shares of one of the purchasers had a fair value of $24.6 million (December 31, 2022 – $23.1 million) resulting in an unrealized gain of $1.5 million, recognized in Other expense/(income) on the Condensed Consolidated Statements of Income/(Loss). The fair value of the marketable securities has been recorded as part of Other current assets on the Condensed Consolidated Balance Sheets.
5) DEBT
| | | | | | |
($ thousands) |
| March 31, 2023 |
| December 31, 2022 | ||
Current: |
| |
|
| |
|
Senior notes | | $ | 80,600 | | $ | 80,600 |
Long-term: | | | | | | |
Bank credit facilities | | | — | | | 56,316 |
Senior notes | |
| 122,600 | |
| 122,600 |
Total debt | | $ | 203,200 | | $ | 259,516 |
Bank Credit Facilities
Enerplus has two senior unsecured, covenant-based, sustainability linked lending (“SLL”) bank credit facilities. The first is a $900 million facility with $50 million maturing on October 31, 2025 and $850 million maturing on October 31, 2026. The second facility for $365 million matures on October 31, 2025. Debt issuance costs of $2.8 million in relation to the SLL bank credit facilities were included in Other current assets at March 31, 2023 and were netted against the bank credit facilities at December 31, 2022. For the three months ended March 31, 2023, total amortization of debt issuance costs amounted to $0.4 million (2022 – $0.4 million).
Senior Notes
The terms and rates of the Company’s outstanding senior notes are provided below:
| | | | | | | | | | |
| | |
| | | | | Original |
| Remaining |
| | | | | | Coupon | | Principal | | Principal |
Issue Date | | Interest Payment Dates | | Principal Repayment | | Rate | | ($ thousands) | | ($ thousands) |
September 3, 2014 | | March 3 and Sept 3 | | 4 equal annual installments beginning September 3, 2023 | | 3.79% | | $200,000 | | $84,000 |
May 15, 2012 |
| May 15 and Nov 15 |
| 2 equal annual installments beginning May 15, 2023 |
| 4.40% | | $355,000 |
| $119,200 |
| | | | Total carrying value at March 31, 2023 | | $ 203,200 |
Capital Management
Enerplus' capital consists of cash and cash equivalents, debt and shareholders' equity. The Company’s objective for managing capital is to prioritize balance sheet strength while maintaining flexibility to repay debt, fund sustaining capital, return capital to shareholders or fund future production growth. Capital management measures are useful to investors and securities analysts in analyzing operating and financial performance, leverage, and liquidity. Enerplus’ key capital management measures are as follows:
6 ENERPLUS 2023 Q1 REPORT
a) | Net debt |
Enerplus calculates net debt as current and long-term debt associated with senior notes plus any outstanding bank credit facility balances, minus cash and cash equivalents.
| | | | | | |
($ thousands) | | March 31, 2023 | | December 31, 2022 | ||
Current portion of long-term debt | | $ | 80,600 |
| $ | 80,600 |
Long-term debt | | | 122,600 | | | 178,916 |
Total debt | | $ | 203,200 | | $ | 259,516 |
Less: Cash and cash equivalents | | | (52,578) | | | (38,000) |
Net debt | | $ | 150,622 | | $ | 221,516 |
b) | Adjusted funds flow |
Adjusted funds flow is calculated as cash flow from operating activities before asset retirement obligation expenditures and changes in non-cash operating working capital.
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) | | 2023 | | 2022 | ||
Cash flow from/(used in) operating activities |
| $ | 241,401 |
| $ | 195,992 |
Asset retirement obligation settlements | | | 6,782 | | | 8,795 |
Changes in non-cash operating working capital | | | 12,226 | | | 57,108 |
Adjusted funds flow | | $ | 260,409 | | $ | 261,895 |
c) | Net debt to adjusted funds flow ratio |
The net debt to adjusted funds flow ratio is calculated as net debt divided by a trailing twelve months of adjusted funds flow.
| | | | | | |
($ thousands) | | March 31, 2023 | | December 31, 2022 | ||
Net debt | | $ | 150,622 |
| $ | 221,516 |
Trailing adjusted funds flow | | | 1,228,803 | | | 1,230,289 |
Net debt to adjusted funds flow ratio | | | 0.1x | | | 0.2x |
6) ASSET RETIREMENT OBLIGATION (“ARO”)
| | | | | | |
($ thousands) | | March 31, 2023 | | December 31, 2022 | ||
Balance, beginning of year | | $ | 114,662 | | $ | 132,814 |
Change in estimates | |
| 5,635 | |
| 48,419 |
Property acquisition and development activity | |
| 1,264 | |
| 3,985 |
Divestments | |
| — | |
| (58,284) |
Settlements | |
| (6,782) | |
| (17,401) |
Government assistance | | | — | | | (1,744) |
Accretion expense | |
| 1,315 | |
| 6,873 |
Balance, end of period | | $ | 116,094 | | $ | 114,662 |
Enerplus has estimated the present value of its ARO to be $116.1 million at March 31, 2023 based on a total undiscounted uninflated liability of $266.0 million (December 31, 2022 – $114.7 million and $262.4 million, respectively).
During 2022, Enerplus benefited from provincial government assistance to support the clean-up of inactive or abandoned crude oil and natural gas wells. These programs provided direct funding to oil field service contractors engaged by Enerplus to perform abandonment, remediation, and reclamation work. The funding received by the contractor is reflected as a reduction to ARO. During the first quarter of 2022, Enerplus benefited from $0.4 million, in government assistance, which has been recorded as part of Other expense/(income) in the Condensed Consolidated Statements of Income/(Loss).
For the three months ended March 31, 2022, Enerplus recognized $13.1 million as part of Other expense/(income) in the Condensed Consolidated Statements of Income/(Loss) to fund abandonment and reclamation obligation requirements on previously disposed of assets.
ENERPLUS 2023 Q1 REPORT 7
7) CRUDE OIL AND NATURAL GAS SALES
Crude oil and natural gas sales by country and by product for the three months ended March 31, 2023 and 2022 are as follows:
| | | | | | | | | | | | |
Three months ended March 31, 2023 | | | | | | | | | Natural | | | Natural gas liquids |
($ thousands) | | | Total revenue | | | Crude oil(1) | | | gas(1) | | | and other(1)(2) |
United States | | $ | 413,182 | | $ | 325,461 | | $ | 70,361 | | $ | 17,360 |
| | | | | | | | | | | | |
Three months ended March 31, 2022 | | | | | | | | | Natural | | | Natural gas liquids |
($ thousands) | | | Total revenue | | | Crude oil(1) | | | gas(1) | | | and other(1)(2) |
United States | | $ | 472,247 | | $ | 357,657 | | $ | 87,496 | | $ | 27,094 |
Canada |
| | 40,905 | | | 36,547 |
| | 2,781 | | | 1,577 |
Total | | $ | 513,152 | | $ | 394,204 | | $ | 90,277 | | $ | 28,671 |
(1) | U.S. sales of crude oil, natural gas and natural gas liquids relate primarily to the Company’s North Dakota and Marcellus properties. Canadian crude oil sales relate primarily to the Company’s waterflood properties in 2022. Substantially all of the Canadian assets were disposed of in the fourth quarter of 2022. |
(2) | Includes third party processing income of nil for the three months ended March 31, 2023 (2022 - $0.2 million). |
8) GENERAL AND ADMINISTRATIVE EXPENSE
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) | | 2023 | | 2022 | ||
General and administrative expense excluding share-based compensation(1) |
| $ | 12,861 |
| $ | 11,103 |
Share-based compensation expense | |
| 6,571 | |
| 6,478 |
General and administrative expense | | $ | 19,432 | | $ | 17,581 |
(1) | Includes a non-cash lease credit of $96 for the three months ended March 31, 2023 (2022 – credit of $95). |
9) FOREIGN EXCHANGE
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) | | 2023 | | 2022 | ||
Realized: | | |
|
| |
|
Foreign exchange (gain)/loss | | $ | 88 | | $ | (294) |
Foreign exchange (gain)/loss on U.S. dollar cash held in parent company | | | — | | | 10 |
Unrealized: | |
| | |
| |
Foreign exchange (gain)/loss on Canadian dollar working capital in parent company | | | (185) | | | — |
Foreign exchange (gain)/loss on U.S. dollar working capital in parent company | |
| — | |
| 1,171 |
Foreign exchange (gain)/loss | | $ | (97) | | $ | 887 |
10) INCOME TAXES
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) | | 2023 | | 2022 | ||
Current tax |
| |
|
| |
|
United States | | $ | 11,000 | | $ | 5,000 |
Canada | | | — | | | — |
Current tax expense/(recovery) | |
| 11,000 | |
| 5,000 |
Deferred tax | |
|
| |
|
|
United States | | $ | 19,152 | | $ | 56,468 |
Canada | | | 4,718 | | | (46,686) |
Deferred tax expense/(recovery) | | | 23,870 | | | 9,782 |
Income tax expense/(recovery) | | $ | 34,870 | | $ | 14,782 |
The difference between the expected income taxes based on the statutory income tax rate and the effective income taxes for the current and prior period is impacted by expected annual earnings, recognition or reversal of valuation allowance, foreign rate differentials for foreign operations, statutory and other rate differentials, non-taxable portions of capital gain and losses, and share-based compensation.
8 ENERPLUS 2023 Q1 REPORT
The Company's deferred income tax asset recorded in Canada is $150.3 million offset by a deferred income tax liability in the U.S of $74.5 million at March 31, 2023 (December 31, 2022 – $155.0 million deferred income tax asset in Canada offset by a $55.4 million deferred income tax liability in the U.S.).
11) SHAREHOLDERS’ EQUITY
a) Share Capital
| | | | | | | | | | |
| | Three months ended | | Year ended | ||||||
Authorized unlimited number of common shares issued: | | March 31, 2023 | | December 31, 2022 | ||||||
(thousands) |
| Shares |
| | Amount |
| Shares |
| | Amount |
Balance, beginning of year |
| 217,285 |
| $ | 2,837,329 |
| 243,852 | | $ | 3,094,061 |
| | | | | | | | | | |
Issued/(Purchased) for cash: |
|
| |
|
|
|
| |
|
|
Purchase of common shares under Normal Course Issuer Bid |
| (3,549) | |
| (32,850) |
| (27,925) | | | (266,694) |
| | | | | | | | | | |
Non-cash: |
| | |
| |
|
| |
|
|
Share-based compensation – treasury settled(1) |
| 1,300 | |
| 7,229 |
| 1,358 | |
| 9,962 |
Balance, end of period |
| 215,036 | | $ | 2,811,708 |
| 217,285 | | $ | 2,837,329 |
(1) | The amount of shares issued on long-term incentive settlement is net of employee withholding taxes. |
Dividends declared to shareholders for the three months ended March 31, 2023 were $12.0 million (2022 – $7.9 million).
On August 16, 2022, Enerplus renewed its Normal Course Issuer Bid (“NCIB”) to purchase up to 10% of the public float (within the meaning under Toronto Stock Exchange rules) during a 12-month period. During the three months ended March 31, 2023, 3.5 million common shares were repurchased and cancelled under the NCIB at an average price of $15.37 per share, for total consideration of $54.6 million. Of the amount paid, $32.9 million was charged to share capital and $21.7 million was added to accumulated deficit.
During the three months ended March 31, 2022, 3.1 million common shares were repurchased and cancelled under the NCIB at an average price of $11.87 per share, for total consideration of $37.2 million. Of the amount paid, $31.3 million was charged to share capital and $5.9 million was added to accumulated deficit.
Subsequent to March 31, 2023 and up to and including May 3, 2023, the Company repurchased 1.1 million common shares under the NCIB at an average price of $14.81 per share, for total consideration of $16.0 million.
b) Share-based Compensation
The following table summarizes Enerplus’ share-based compensation expense, which is included in General and administrative expense on the Condensed Consolidated Statements of Income/(Loss):
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) | | 2023 | | 2022 | ||
Cash: |
| |
|
| |
|
Long-term incentive plans (recovery)/expense | | $ | (888) | | $ | 2,098 |
Non-Cash: | |
| | |
| |
Long-term incentive plans expense | |
| 7,459 | |
| 4,755 |
Equity swap (gain)/loss | |
| — | |
| (375) |
Share-based compensation expense | | $ | 6,571 | | $ | 6,478 |
ENERPLUS 2023 Q1 REPORT 9
Long-term Incentive (“LTI”) Plans
The following table summarizes the Performance Share Unit (“PSU”), Restricted Share Unit (“RSU”), Director Deferred Share Unit (“DSU”) and Director RSU (“DRSU”) activity for the three months ended March 31, 2023:
| | | | | | | | |
| | Cash-settled LTI plans | | Equity-settled LTI plans | | Total | ||
(thousands of units) | | DSU/DRSU | | PSU(1) | | RSU | | |
Balance, beginning of year |
| 633 | | 3,689 | | 2,321 |
| 6,643 |
Granted |
| 70 | | 474 | | 470 | | 1,014 |
Vested |
| (54) | | (996) | | (1,184) | | (2,234) |
Forfeited |
| — | | — | | (7) | | (7) |
Balance, end of period |
| 649 |
| 3,167 |
| 1,600 |
| 5,416 |
(1) | Based on underlying awards before any effect of the performance multiplier. |
Cash-settled LTI Plans
For the three months ended March 31, 2023, the Company recorded a cash share-based compensation recovery of $0.9 million (2022 – $2.1 million expense).
At March 31, 2023, a liability of $9.4 million (December 31, 2022 – $11.1 million) with respect to the Director DSU and DRSU Plans has been recorded to Accounts payable on the Condensed Consolidated Balance Sheets.
Equity-settled LTI Plans
The following table summarizes the cumulative share-based compensation expense recognized to-date, which is recorded as Paid-in capital on the Condensed Consolidated Balance Sheets. Unrecognized amounts will be recorded to non-cash share-based compensation expense over the remaining vesting terms.
| | | | | | | | | |
At March 31, 2023 ($ thousands, except for years) |
| PSU(1) |
| RSU |
| Total | |||
Cumulative recognized share-based compensation expense | | $ | 19,505 | | $ | 11,012 | | $ | 30,517 |
Unrecognized share-based compensation expense | |
| 14,357 | |
| 9,919 | |
| 24,276 |
Fair value | | $ | 33,862 | | $ | 20,931 | | $ | 54,793 |
Weighted-average remaining contractual term (years) | |
| 1.6 | |
| 1.5 | |
|
|
(1) | Includes estimated performance multipliers. |
The Company directly withholds shares on PSU and RSU settlements for tax-withholding purposes. For the three months ended March 31, 2023, $16.4 million (2022 – $11.6 million) in cash withholding taxes were paid.
c) Basic and Diluted Net Income/(Loss) Per Share
Net income/(loss) per share has been determined as follows:
| | | | | | |
| | Three months ended March 31, | ||||
(thousands, except per share amounts) | | 2023 | | 2022 | ||
Net income/(loss) |
| $ | 137,486 |
| $ | 33,243 |
| | | | | | |
Weighted average shares outstanding – Basic | |
| 216,806 | | | 242,787 |
Dilutive impact of share-based compensation | |
| 6,121 | | | 6,550 |
Weighted average shares outstanding – Diluted | |
| 222,927 | |
| 249,337 |
Net income/(loss) per share | |
|
| |
|
|
Basic | | $ | 0.63 | | $ | 0.14 |
Diluted | | $ | 0.62 | | $ | 0.13 |
10 ENERPLUS 2023 Q1 REPORT
12) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a) Fair Value Measurements
At March 31, 2023, the carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximated their fair value due to the short-term nature of these instruments.
At March 31, 2023, the senior notes had a carrying value of $203.2 million and a fair value of $192.3 million (December 31, 2022 – $203.2 million and $189.5 million, respectively). The fair value of the senior notes is estimated based on the amount that Enerplus would have to pay a third party to assume the debt, including the credit spread for the difference between the issue rate and the period end market rate. The period end market rate is estimated by comparing the debt to new issuances (secured or unsecured) and secondary trades of similar size and credit statistics for both public and private debt.
At March 31, 2023, the loan receivable had a carrying value of $26.2 million and a fair value of $24.3 million (December 31, 2022 – $31.1 million and $31.6 million, respectively). The fair value of the loan receivable is estimated based on the amount that Enerplus would receive from a third party to assume the loan, including the difference between the coupon rate and the period end market rate for loan receivables of similar terms and credit risk.
The fair value of marketable securities are considered level 1 fair value measurements, while the derivative contracts, senior notes and loan receivable are considered level 2 fair value measurements. There were no transfers between fair value hierarchy levels during the period.
b) Derivative Financial Instruments
The derivative financial assets and liabilities on the Condensed Consolidated Balance Sheets result from recording derivative financial instruments at fair value.
The following table summarizes the change in fair value associated with equity and commodity contracts for the three months ended March 31, 2023 and 2022:
| | | | | | | |
| Three months ended March 31, | | Income Statement | ||||
Gain/(Loss) ($ thousands) | 2023 | | 2022 | | Presentation | ||
Equity Swaps | $ | — | | $ | 375 |
| G&A expense |
Commodity Contracts: |
| | |
| |
|
|
Crude oil |
| 3,743 | |
| (95,706) |
| Commodity derivative |
Natural gas |
| (10,087) | |
| (38,001) |
| instruments |
Total Unrealized Gain/(Loss) | $ | (6,344) | | $ | (133,332) |
|
|
The following table summarizes the effect of Enerplus’ commodity contracts on the Condensed Consolidated Statements of Income/(Loss):
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) | | 2023 | | 2022 | ||
Unrealized change in fair value gain/(loss) |
| $ | (6,344) |
| $ | (133,707) |
Net realized cash gain/(loss) | |
| 34,309 | |
| (73,103) |
Commodity contracts gain/(loss) | | $ | 27,965 | | $ | (206,810) |
The following table summarizes the presentation of fair values on the Condensed Consolidated Balance Sheets:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | ||||||||
| Assets | Liabilities | | Assets | Liabilities | ||||||
($ thousands) | Current | Current | | Current | Current | ||||||
Commodity Contracts: |
| | |
| | | | | | | |
Crude oil | $ | 7,026 | | $ | 3,191 | | $ | 9,834 | | $ | 10,421 |
Natural gas | | 16,621 | |
| — | |
| 26,708 | | | — |
Total | $ | 23,647 | | $ | 3,191 | | $ | 36,542 | | $ | 10,421 |
ENERPLUS 2023 Q1 REPORT 11
The fair value of commodity contracts is estimated based on commodity and option pricing models that incorporate various factors including forecasted commodity prices, volatility and the credit risk of the entities party to the contract. Changes and variability in commodity prices over the term of the contracts can result in material differences between the estimated fair value at a point in time and the actual settlement amounts.
At March 31, 2023, the fair value of Enerplus’ commodity contracts totaled a net asset of $20.5 million (December 31, 2022 – net asset of $26.1 million).
c) Risk Management
In the normal course of operations, Enerplus is exposed to various market risks, including commodity prices, foreign exchange, interest rates, equity prices, credit risk, liquidity risk, and the risks associated with environmental/climate change risk, social and governance regulation, and compliance.
i) Market Risk
Market risk is comprised of commodity price, foreign exchange, interest rate and equity price risk.
Commodity Price Risk:
Enerplus manages a portion of commodity price risk through a combination of financial derivative and physical delivery sales contracts. Enerplus’ policy is to enter into commodity contracts subject to a maximum of 80% of forecasted production volumes.
The following tables summarize Enerplus’ price risk management positions at May 3, 2023:
Crude Oil Instruments:
| | | | | | | | |
Instrument Type(1)(2) | Apr 1, 2023 - Jun 30, 2023 | | Jul 1, 2023 - Oct 31, 2023 | | Nov 1, 2023 - Dec 31, 2023 | |||
| bbls/day | $/bbl | | bbls/day | $/bbl | | bbls/day | $/bbl |
WTI Purchased Put | 15,000 | 79.33 | | 5,000 | 85.00 | | 5,000 | 85.00 |
WTI Sold Put | 15,000 | 61.67 | | 5,000 | 65.00 | | 5,000 | 65.00 |
WTI Sold Call | 15,000 | 114.31 | | 5,000 | 128.16 | | 5,000 | 128.16 |
Brent – WTI Spread | 10,000 | 5.47 | | 10,000 | 5.47 | | 10,000 | 5.47 |
WTI Purchased Swap | 250 | 64.85 | | 250 | 64.85 | | — | — |
WTI Sold Swap(3) | 250 | 42.10 | | 250 | 42.10 | | — | — |
WTI Purchased Put(3) | 2,000 | 5.00 | | 2,000 | 5.00 | | 2,000 | 5.00 |
WTI Sold Call(3) | 2,000 | 75.00 | | 2,000 | 75.00 | | 2,000 | 75.00 |
(1) | The total average deferred premium spent on the Company’s outstanding crude oil contracts is $1.32/bbl from April 1, 2023 – June 30, 2023 and $1.07/bbl from July 1, 2023 – December 31, 2023. |
(2) | Transactions with a common term have been aggregated and presented at weighted average prices and volumes. |
(3) | Outstanding commodity derivative instruments acquired as part of the Bruin Acquisition completed in 2021. |
Natural Gas Instruments:
| | |
Instrument Type(1) | Apr 1, 2023 – Oct 31, 2023 | |
| MMcf/day | $/Mcf |
NYMEX Purchased Put | 50.0 | 4.05 |
NYMEX Sold Call | 50.0 | 7.00 |
(1) | Transactions with a common term have been aggregated and presented at weighted average prices/Mcf. |
Foreign Exchange Risk:
Enerplus is exposed to foreign exchange risk as it relates to certain activities transacted in Canadian dollars. The parent company and its subsidiaries have a U.S. dollar functional currency, and the parent company has both U.S. and Canadian dollar transactions. Canadian denominated monetary assets and liabilities are subject to revaluation from the source currency of Canadian dollars to the functional currency of U.S. dollars, generating realized and unrealized foreign exchange (gains)/losses in the Condensed Consolidated Statements of Income/(Loss).
12 ENERPLUS 2023 Q1 REPORT
Following the change in functional currency of the parent company to U.S. dollars on January 1, 2023, the net investment hedge on the U.S. dollar denominated debt held in the parent entity for the U.S. subsidiaries was no longer required. Previously, the unrealized foreign exchange gains and losses arising from the translation of the debt were recorded in Other Comprehensive Income/(Loss), net of tax, and were limited by the cumulative translation gain or loss on the net investment in the U.S. subsidiaries. For the three months ended March 31, 2023, there was no unrealized foreign exchange gain or loss recorded in Other Comprehensive Income/(Loss) compared to an unrealized gain of $5.4 million on Enerplus’ U.S. denominated senior notes and bank credit facilities for the three months ended March 31, 2022.
Interest Rate Risk:
The Company’s senior notes bear interest at fixed rates while the bank credit facilities bear interest at floating rates. At March 31, 2023, Enerplus was undrawn on its bank credit facilities and all of Enerplus’ debt was based on fixed interest rates (December 31, 2022 – 78% fixed and 22% floating), with a weighted average interest rate of 4.1% (December 31, 2022 – 4.1% fixed and 5.7% floating). At March 31, 2023 and December 31, 2022, Enerplus did not have any interest rate derivatives outstanding.
Equity Price Risk:
Enerplus is exposed to equity price risk in relation to its long-term incentive plans detailed in Note 11. The Company may enter into various equity swaps to fix the future settlement cost on a portion of its cash settled LTI plans. At March 31, 2023 and December 31, 2022, Enerplus did not have any equity swaps outstanding.
ii) Credit Risk
Credit risk represents the financial loss Enerplus would experience due to the potential non-performance of counterparties to its financial instruments. Enerplus is exposed to credit risk mainly through its joint venture, marketing, divestments and financial counterparty receivables. Enerplus has appropriate policies and procedures in place to manage its credit risk; however, given the volatility in commodity prices, Enerplus is subject to an increased risk of financial loss due to non-performance or insolvency of its counterparties.
Enerplus mitigates credit risk through credit management techniques, including conducting financial assessments to establish and monitor counterparties’ credit worthiness, setting exposure limits, monitoring exposures against these limits and obtaining financial assurances such as letters of credit, parental guarantees, or third party credit insurance where warranted. Enerplus monitors and manages its concentration of counterparty credit risk on an ongoing basis.
The Company’s maximum credit exposure consists of the carrying amount of its non-derivative financial assets and the fair value of its derivative financial assets. At March 31, 2023, approximately 90% of Enerplus’ marketing receivables were with companies considered investment grade (December 31, 2022 – 90%).
Enerplus actively monitors past due accounts and takes the necessary actions to expedite collection, which can include withholding production, netting amounts off future payments or seeking other remedies including legal action. Should Enerplus determine that the ultimate collection of a receivable is in doubt, it will provide the necessary provision in its allowance for doubtful accounts with a corresponding charge to earnings. If Enerplus subsequently determines an account is uncollectible the account is written off with a corresponding charge to the allowance account. Enerplus’ allowance for doubtful accounts balance at March 31, 2023 was $2.9 million (December 31, 2022 – $2.9 million).
ENERPLUS 2023 Q1 REPORT 13
iii) Liquidity Risk & Capital Management
Liquidity risk represents the risk that Enerplus will be unable to meet its financial obligations as they become due. Enerplus mitigates liquidity risk through actively managing its capital, which it defines as debt (net of cash and cash equivalents) and shareholders’ capital. Enerplus’ objective is to provide adequate short and longer term liquidity while maintaining a flexible capital structure to sustain the future development of its business. Enerplus strives to balance the portion of debt and equity in its capital structure given its current crude oil and natural gas assets and planned investment opportunities.
Management monitors a number of key variables with respect to its capital structure, including debt levels, capital spending plans, dividends, share repurchases, access to capital markets, as well as acquisition and divestment activity.
At March 31, 2023, Enerplus was in full compliance with all covenants under the bank credit facilities and outstanding senior notes. If the Company breaches or anticipates breaching its covenants, the Company may be required to repay, refinance, or renegotiate the terms of the debt.
iv) Climate Change Risk
Enerplus is exposed to climate change risks through changing regulation, potential access to capital, capital spending plans and the impact of climate related events on the Company’s financial position. There have been no material changes since management’s risk assessment at December 31, 2022.
13) SUPPLEMENTAL CASH FLOW INFORMATION
a) | Changes in Non-Cash Operating Working Capital |
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) | | 2023 | | 2022 | ||
Accounts receivable |
| $ | 44,886 |
| $ | (54,591) |
Other assets – operating | |
| 5,741 | |
| 4,305 |
Accounts payable – operating | |
| (62,853) | |
| (6,822) |
Non-cash operating activities | | $ | (12,226) | | $ | (57,108) |
b) | Changes in Non-Cash Investing Working Capital |
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) | | 2023 | | 2022 | ||
Accounts payable – investing(1) |
| $ | 50,179 |
| $ | 24,306 |
Other current assets – investing(1) | | | (5,615) | | | — |
Non-cash investing activities | | $ | 44,564 | | $ | 24,306 |
(1) | Relates to changes in Accounts payable and Other current assets for capital and office expenditures and included in Capital and office expenditures on the Condensed Consolidated Statements of Cash Flows. |
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) |
| 2023 | | 2022 | ||
Loan receivable | | $ | 4,869 | | $ | — |
Non-cash working capital – Canadian divestments(1) | | $ | 4,869 | | $ | — |
(1) | Refer to Note 4. |
c) | Cash Income Taxes and Interest Payments |
| | | | | | |
| | Three months ended March 31, | ||||
($ thousands) | | 2023 | | 2022 | ||
Income taxes paid/(received) |
| $ | 2 |
| $ | 7 |
Interest paid | | $ | 2,953 | | $ | 5,206 |
14 ENERPLUS 2023 Q1 REPORT