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Aug 7, 2020

Enerplus restarting North Dakota production despite threat to pipeline

Jamie Murray discusses Enerplus

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CALGARY -- Enerplus Corp. says it has restored North Dakota crude oil production halted during the pandemic-linked oil price crash in May despite a court ruling last month that the Dakota Access Pipeline must be shut down.

The Calgary-based company says it is confident that crude-by-rail shipping from the state can be ramped up if the decision, stayed by an appeal court earlier this week, is restored and the pipeline that moves oil out of the state is out of commission for a longer term.

Last month, a U.S. District Court judge ruled the three-year-old pipeline must be closed down and emptied while the U.S. Army Corps of Engineers conducts a more extensive environmental review. The stay by the U.S. Court of Appeals this week is only a temporary reprieve.

Getting barrels out of the North Dakota Bakken oil basin won't be a problem because up to 800,000 barrels per day moved by rail before the 570,000-bpd pipeline began operating, pointed out Enerplus chief financial officer Jodine Jenson Labrie on a conference call on Friday.

The higher cost of rail, however, would likely result in lower profit margins for oil producers, she said.

"There remains a lot of rail infrastructure in the Bakken," she said, noting that discount pricing in relation to benchmark U.S. crude would likely widen from about US$5 per barrel to between US$6 and US$8 with rail transport.

"In terms of impact to Enerplus, if we were to assume the pipeline could not operate for all of 2021, we estimate the wider Bakken differential would impact our corporate netback by approximately 80 cents per boe (barrel of oil equivalent)," she said.

The company "hit the brakes" on oilfield activity in North Dakota in May as oil prices plummeted due to a global glut of barrels from OPEC-plus overproduction as demand fell thanks to the COVID-19 lockdowns, said CEO Ian Dundas.

"As we entered May, with the weakness in the oil market, our teams began curtailing volumes rather than risk negative margins," he said.

"We ended up curtailing approximately 25 per cent of our corporate liquids volumes and, as the market continued to improve in June, we began restoring curtailed volumes."

Enerplus reported a second-quarter net loss in Canadian funds of $609 million or $2.74 per share due to non-cash impairments of $630 million on assets and goodwill as a result of market volatility and low commodity prices.

That compares with a net profit of $85 million or 36 cents in the same period of 2019.

Excluding those impairments and other non-cash or non-recurring items, its adjusted second quarter net loss was $41.2 million, versus adjusted net income of $74.4 million a year earlier.

Analysts said the company's financial results beat consensus estimates, as did second-quarter production of 87,360 barrels of oil equivalent per day, down 11 per cent from the first quarter.

Enerplus reinstated its 2020 guidance cancelled earlier this year, calling for an unchanged capital budget of $300 million and average production of between 88,000 and 90,000 boe/d.