1 Opportunity Enerplus Investors Don’t Want to Miss

Enerplus (TSX: ERF)(NYSE: ERF) seems to be flying under the radar these days. The high-yielding stock is producing some compelling numbers that investors are simply missing. Two of those numbers are being fueled by the big opportunity found at the company’s Bakken Shale operations.

It’s this upside that fellow high-yielder Penn West (TSX: PWT)(NYSE: PWE) doesn’t possess, which is why I think Enerplus’s smaller dividend is a better bet, even for yield-seeking investors.

Drilling down into the Bakken

Last quarter, Enerplus drilled its best two wells to date in the Williston Basin. The first well, Hognose, was drilled into the second bench of the Three Forks formation, which is an area not currently counted among Enerplus’ future drilling opportunities. This well, however, produced 60,000 barrels of oil in just 26 days, which is about 2,300 barrels of oil per day. It was the company’s best well drilled to date in this shale, which suggests that it has a lot of potential to deliver future value to investors as Enerplus taps the shale underneath the more well-known Bakken Shale.

In addition to that, Enerplus drilled its best Bakken Shale well to date. The Ribbon well produced 64,000 barrels of oil in its first 26 days, which works out to about 2,500 barrels of oil per day. What’s unique about this one is that was a downspacing test, meaning it was drilled in close proximity to an earlier well to test how closely Enerplus could drill wells on its acreage. The fact that this well performed strongly suggests that Enerplus could potentially drill a lot more than previously thought on its acreage.

Add these two opportunities up and we come up with a pretty compelling picture. Under the current Bakken Shale spacing scheme, Enerplus has about 145 wells left to drill, which gives it about a seven-year drilling inventory. However, by spacing its wells closer together Enerplus could add another 150 future well locations, which could more than double its drilling inventory. Furthermore, adding in the second and third benches of the Three Forks could double Enerplus’s future drilling inventory yet again as the following slide from a recent investor presentation shows.

enerplus upside

Source: Enerplus Investor Presentation

Plenty of running room

Enerplus has plenty of running room to grow thanks to its decision to focus its attention on the U.S. shale boom as its core growth engine. This focus on shale is the opposite of the approach taken by Penn West, which is planning to completely exit shale by divesting its assets in the Duvernay to focus on light oil plays like the Cardium, Viking, and Slave Point locations. While 80% of Penn West’s capital was spent on its three light oil assets, Enerplus is spending just 25% of its capital on its Canadian light oil assets. That said, Enerplus will still see 10% production growth from its Canadian oil assets alone. In contrast, Penn West is struggling to grow production as it continues to sell off assets in a move to shrink the company to the point where it can resume growth.

Enerplus’ prospects are strong

Right now, Enerplus is in a much better position than Penn West. It has much better growth prospects thanks to its oil-rich position in the Bakken, which just keeps getting better over time. Meanwhile, Penn West is focused on selling off its shale assets, which is eliminating a lot of future upside. The bottom line is if you want to own a high-yielding Canadian energy company, Enerplus offers the most long-term upside, as its position in the Williston Basin just keeps growing, while Penn West’s shale position will soon be non-existent.

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Fool contributor Matt DiLallo doesn’t own shares of any of the companies mentioned in this article.

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