- Enerplus Corporation has reduced its capital spending budget to C$325 million, due to ongoing market volatility and the recent drop in oil prices
- This is a 40 per cent reduction compared to the company’s initial expenditure outlook, released earlier in the year
- The company believes its low leverage and high liquidity will allow it to weather the coming months
- Enerplus is using the freed funds to maintain the current dividend rate
- Enerplus Corporation (ERF) was down 8.33 per cent, with shares trading for $2.42 and a market cap of $537.5 million
Enerplus (TSX:ERF) is the latest oil company to release a revised capital spending budget, after oil prices collapsed last week.
The company is lowering its budget to C$325 million, a 40 per cent reduction. Enerplus is also expecting a 7 per cent reduction in LNG production compared to 2019.
President and CEO of Enerplus, Ian C. Dundas, believes these steps are necessary to navigate the current market.
“We’re taking immediate and decisive steps to protect value and maintain our balance sheet strength in response to the rapid deterioration in crude oil prices stemming from simultaneous supply and demand shocks.
“Our conservative approach to financial leverage, a robust commodity risk management program and corporate agility leave us well-positioned to navigate these challenging crude oil prices,” he said.
The company believes its strong balance sheet and low leverage will allow it to weather the volatile market. Enerplus currently has a near-term debt of $445 million and $150 million in liquid funds. The company has a further $838 million in credit.
Furthermore, Enerplus has a number of hedging agreements to protect against this kind of unexpected volatility. As a result of the steep oil price drop, these hedging agreements are now operating at a significant premium to the oil price.
Consequently, the company will make $125 million in hedging gains this year, if the oil price remains around $57.5 a barrel.
Surprisingly, the company’s reduced expenditure has not hit the dividends. Enerplus will use the funds generated from its reduced outlook to maintain dividends through this uncertain period.
The company stated that it remains committed to returning shareholder investment.
Enerplus Corporation (ERF) was down 8.33 per cent, with shares trading for $2.42 at 9:30am EST.