Enerplus (TSX: ERF)(NYSE: EFR) recently revealed that its North Dakota shale position is bigger than it originally thought. In fact, the company has discovered that there’s 50% more original oil in place than it assumed, which leads the company to believe that it will recover 250% more oil than expected. It’s one big reason why the company’s 4% dividend still has plenty of room to grow.
Visible growth
As an investor seeking yield, one of the ways to determine if that yield has staying power is to see visible growth prospects within the company’s business. In the case of Enerplus, that growth is pretty clear, as the company has increased the number of future wells it expects to drill from 145 to 329. That’s a 127% increase in the company’s future drilling locations.
Those future wells represent a pretty strong growth opportunity for the company. As of the end of last year, Enerplus had drilled only 99 total producing wells on its acreage in North Dakota. Until recently, the company expected that it could drill for another seven years as it more than doubled its future well count to nearly 250 wells.
However, Enerplus now sees over 425 total well locations within its acreage position. It’s this visible future growth that not only should enable the company’s dividend to continue flowing to investors, but also gives the company ample fuel for future growth despite the fact that the production from these wells declines rather quickly.
Growth matters, even for dividend investors
When exploring some of Canada’s top dividend-paying energy stocks, Enerplus is actually a laggard. Crescent Point Energy (TSX: CPG)(NYSE: CPG), for example, currently yields nearly 6%. Meanwhile, Penn West Petroleum (TSX: PWT)(NYSE: PWE) yields just over 5%. However, Enerplus’s dividend could eventually rival its peers as it has a growth platform that has become much more visible over the past year.
Meanwhile, Penn West’s growth picture is a bit cloudy at the moment, as it is still in the middle of selling off assets to focus on just three core plays. While it’s a solid turnaround plan, it lacks the clear upside that Enerplus’s shale-fueled plan contains.
Crescent Point Energy, on the other hand, has taken the opposite approach as its dividend is being fueled by its ability to acquire additional oil and gas properties. The company’s most recent deal helped strengthen its payout ratio by 2% while adding upside to future growth by boosting its drilling inventory. It’s visible upside like this that dividend investors want to see, and both Enerplus and Crescent Point Energy have it in spades.
Enerplus is realizing that the $600 million it spent to acquire its Bakken position was clearly money well spent. The company now expects to recover substantially more oil than it originally thought, which will enable it to grow its payout in the future. That’s just one reason why its 4% yield still has room to grow.
