The Cuts Keep Coming at Enerplus Corp.

Enerplus Corp. (TSX:ERF)(NYSE:ERF) cuts its budget and its dividend again.

| More on:
The Motley Fool

The downturn in the energy industry has clearly gone from bad to worse. A clear sign of that shift is the fact that a growing list of energy companies no longer have the financial capacity maintain their current production rates. We see that now happening to Enerplus Corp. (TSX:ERF)(NYSE:ERF), which is reducing its budget again–this time below the point needed to maintain its production in 2016.

Playing the hand that’s been dealt

With the price of crude oil continuing to remain weak, Enerplus is being forced to take additional actions to meet the challenges that come with a low $30 oil price. The biggest challenge is the impact that the oil price has on funds flow, which has fallen from an average of $22.82 to $12.68 per barrel of oil equivalent (BOE) over the past year. That drop is forcing the company to reduce its cash outflows, which is why its dividend and its capital budget continue to drop.

Enerplus’s dividend has steadily fallen over the past year in response to weakening oil prices.

At this time last year the company was paying $0.09 per share each month, but that was cut to $0.05 per share in March, and then to $0.03 per share in November before its most recent cut to $0.01 per share. In some ways it’s a surprise to see the company even pay a dividend at all, especially since so many of its peers, including Penn West Petroleum and Pengrowth Energy, have already suspended their dividends in response to the current environment.

Enerplus is also reducing its capital budget. Last year the company spent $493 million to develop its oil and gas properties in North America, enabling the company to produce 106,525 BOE/d. However, in response to the continued weakness of oil prices, it has dropped its 2016 spending plan from its initial guidance of $350 million down to just $200 million, or 60% less than it spent last year.

One step forward and two steps back

At that spending level, Enerplus expects its production to range between 90,000 and 94,000 BOE/d in 2016. At the mid-point that’s 7% less than it produced in 2015 after adjusting for 8,000 BOE/d in asset sales. In other words, Enerplus has quickly gone from a company that was growing its production to one that no longer plans to even maintain its production rate.

That being said, this isn’t a problem that’s unique to Enerplus. Penn West Petroleum and Pengrowth, for example, have seen their cash flow dry up to such an extent that both cut their 2016 capex spending plan by 90% over 2015 levels. Penn West Petroleum production is expected to drop 19% year over year, while Pengrowth’s is expected to drop 16% from last year.

In fact, times are so tough right now that both companies are being forced to shut in production that’s no longer economic to produce, which is further impacting expected 2016 production rates.

Investor takeaway

Conditions in the oil sector have gotten so bad that many oil companies just don’t have the money to even keep production flowing at current rates. Instead, they’re being forced to cut back investments well past maintenance levels and are now clearly in survival mode.

That said, Enerplus is at least surviving better than some of its peers because it is still paying a token dividend and its production isn’t projected to fall as much as its peers. However, if conditions continue to worsen, we could see even more cuts down the road from Enerplus.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt DiLallo has no position in any stocks mentioned.

More on Energy Stocks

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

The Ultimate Buy-and-Hold Stock for Generational Wealth

Here's why Enbridge stands tall as a top buy-and-hold stock for investors focused on building generational wealth.

Read more »

Oil industry worker works in oilfield
Energy Stocks

A 6.8% Monthly Dividend! This Stock Is My Income Portfolio’s Foundation

Peyto Exploration and Development is benefitting from the very bullish natural gas environment making it a top dividend stock.

Read more »

engineer at wind farm
Dividend Stocks

1 Climbing Canadian Stock Down 7% to Buy and Hold Before It’s Too Late

This energy stock isn't just a great option right now, but one that will continue to expand in the future.

Read more »

Real estate investment concept with person pointing on growth graph and coin stacking to get profit from property
Energy Stocks

1 Energetic Stock at 52-Week Highs to Buy Now and Hold

Not all energy stocks are created equal. Here's why this is a top option.

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

1 Energetic Canadian Stock Down 31 Percent to Buy and Hold Now

While the TSX soars to new highs, this beaten-down oil and gas stock might just be one of the best…

Read more »

Piggy bank on a flying rocket
Energy Stocks

The 6% Dividend Champion Built for Income Investors

Income investors seeking a great stock that can provide both growth and income over the longer term should strongly consider…

Read more »

Man looks stunned about something
Energy Stocks

3 Red Flags That Could Cost You Thousands in Government Benefits

Canadian taxpayers could lose thousands of government benefits and forfeit other tax advantages due to non-compliance to the CRA.

Read more »

oil pump jack under night sky
Energy Stocks

Baytex Energy: Buy, Sell, or Hold in July 2025?

Baytex picked up a new tailwind in recent weeks. Are more gains on the way?

Read more »