enerplus - swiss resource capital ag · p/nav 1.5x 1.5x 1.8x 1.8x total liabilities and equity...

This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 12 to 15.

Enerplus (ERF-TSX; ERF-NYSE) Stock Rating: Market PerformIndustry Rating: Market Perform

June 27, 2013 Research Comment Calgary, Alberta

Gordon Tait, CFA BMO Nesbitt Burns Inc. (403) 515-1501 [email protected] Assoc: Paul Surmanowicz, CFA

Investor Day Highlights; On the Path to Sustainability

Event On June 27, 2013 Enerplus held an analyst day to discuss the company’s (i) core

development properties; (ii) longer-term potential; and (iii) strategy to fund its

capital spending and dividend programs.

Impact

Slightly Positive.

Forecasts

We are maintaining our 2013 and 2014 estimates.

Valuation Our target price is based on a 2013E DACF multiple of 5.8x and is supported by

our sum-of-the-parts NAV estimate of $16.52 per share.

Recommendation Enerplus has made significant progress in streamlining and transforming its

asset base. We believe the company is progressing toward a more sustainable

business model and that ERF’s key properties offer long-term development

potential. They company’s core cash generating assets include a portfolio of

oil-weighted properties in the North Dakota Bakken/Three Forks, crude

waterfloods in the WCSB and gas-weighted assets in the Marcellus. We are

encouraged with the progress that Enerplus has made in transitioning to a more

oil-weighted portfolio. The company also appears to be progressing toward a

sustainable production profile. We believe further non-core asset dispositions

would help to bridge this year’s funding gap.

Price (27-Jun) $15.34 52-Week High $16.95 Target Price $16.00 52-Week Low $11.53

10

20

30

40

50

10

20

30

40

50

Enerplus Corp. (ERF)Price: High,Low,Close

0

10

20

0

10

20Volume (mln)

2008 2009 2010 2011 2012 20130

100

200

0

100

200ERF Relative to S&P/TSX Comp TRI

Last Data Point: June 21, 2013

(FY-Dec.) 2011A 2012A 2013E 2014E CDPS $2.16 $1.62 $1.08 $1.08 P/CDPS 13.7x 13.7x CFPS $3.18 $3.29 $3.54 $3.38 P/CFPS 4.2x 4.4x Oil & Liq (b/d) 33,487 40,050 42,500 43,755 Nat. Gas (MMcf/d) 251.1 251.7 255.0 254.1 Boe/d (6:1) 75,332 82,000 85,000 86,100 EV/EBITDA 9.1x 13.2x 5.4x 5.9x Quarterly Div. Q1 Q2 Q3 Q4 2011A $0.54 $0.54 $0.54 $0.54 2012A $0.54 $0.54 $0.27 $0.27 2013E $0.27a $0.27 $0.27 $0.27 Dividend $1.08 Yield 7.3% Book Value $15.07 Price/Book 1.0x Shares O/S (mm) 199.5 Mkt. Cap (mm) $2,959 Float O/S (mm) 199.5 Float Cap (mm) $2,959 Wkly Vol (000s) 8,235 Wkly $ Vol (mm) $119.5 Net Debt ($mm) $1,256 Next Rep. Date Aug (E)

Notes: All values in C$; Shares O/S incl. exchangeable shares; Shares O/S and net debt at Q1/13 Major Shareholders: Widely held First Call Mean Estimates: ENERPLUS CORP (C$/DI) 2013E: $1.08; 2014E: $1.08

BMO Capital Markets Enerplus

June 27, 2013

Market Perform Price (Jun-27)

Financial 2012 2013E 2014E 2015E 2016E 2017E Production 2012 2013E 2014E 2015E 2016E 2017EEPS 0.80-$ $ 0.85 $ 1.20 $ 1.54 $ 2.01 $ 2.19 North America Conventional Oil (b/d) 40,136 42,500 43,755 48,413 52,419 55,423 First Call consensus $ 0.72 $ 1.05 International Conventional Oil (b/d) - - - - - - CFPS $ 3.29 $ 3.54 $ 3.38 $ 3.81 $ 4.36 $ 4.60 Oil Sands (b/d) - - - - - - First Call consensus $ 3.69 $ 3.70 North America Natural Gas (mmcf/d) 252 255 254 248 245 243 EBITDA $ 1.42 $ 3.82 $ 3.75 $ 4.26 $ 4.87 $ 5.13 International Natural Gas (mmcf/d) - - - - - - DPS $ 1.62 $ 1.08 $ 1.08 $ 1.08 $ 1.08 $ 1.08 Total Production (boe/d 6:1) 82,098 85,000 86,100 89,798 93,263 95,868 ROCE (%) -4% 7% 7% 9% 10% 10% Total Production (boe/d 15:1) 56,921 59,500 60,693 64,967 68,757 71,601 Long-term Liabilities (%) 25% 27% 31% 33% 33% 32% %Natural Gas (6:1) 51% 50% 49% 46% 44% 42%

Y-o-Y Growth (% 6:1) 4% 1% 4% 4% 3%Cash Flow from Ops ($mm) 644 709 686 780 901 959 Y-o-Y Production/Share Growth (%) 2% 0% 3% 3% 0 Capital Spending ($mm) (865) (675) (750) (800) (850) (850)Dividends ($mm) (274) (173) (175) (177) (179) (180) Refining Capacity (net 000 b/d) - - - - - - Free Cash Flow ($mm) (495) (139) (239) (197) (128) (71)

Netbacks 2009 2010 2011 2012 2013E 2014E Reserves 2009 2010 2011 2012 2013E 2014ERevenue ($/boe) 42.33 45.21 49.77 45.67 49.14 49.14 Proved Conventional Oil (mmbbls) 132 118 124 134 144 154 Royalties (6.21) (7.36) (8.92) (8.95) (9.54) (9.54) Proved Oil Sands (mmbbls) - - - - - - Transportation (0.79) (0.89) (0.75) (0.88) (0.80) (0.80) Proved Natural Gas (Bcf) 754 606 551 560 529 509 Operating Costs (9.79) (9.54) (10.23) (10.64) (10.62) (10.62) Total Proved (mmboe 6:1) 257 219 216 227 232 239 Field Netback 25.55 27.41 29.88 25.20 28.18 28.18 Y-o-Y Growth (%) -15% -2% 5% 2% 3%G&A (2.45) (2.41) (3.43) (2.61) (2.94) (2.94) Y-o-Y Proved/Share Growth (%) -16% -4% -4% 0% 2%Interest (1.68) (1.54) (1.71) (2.33) (2.36) (2.36) %Proved Undeveloped 9% 11% 0% 0% 0% 0%Other 0.41- 1.15- 0.92- 1.22 0.45 - Probable Oil (mmbbls) 40 43 60 72 78 83 Cash Taxes (0.01) 1.00 (2.95) (0.05) (0.52) (0.18) Probable Oil Sands (mmbbls) - - - - - - Cash Netback 21.00 23.32 20.86 21.43 22.80 22.69 Probable Gas (Bcf) 284 263 242 277 262 252 F&D (proved) nm nm 8.57 13.47 19.09 19.09 Contingent Oil (mmbbls) - - 105 94 105 105 Recycle Ratio -2.4x -0.3x 1.2x 1.2x 1.2x 1.2x Contingent Oil Sands (mmbbls) - - - - - - DD&A 19.46 21.26 15.76 17.00 15.95 15.95 Contingent Gas (Bcf) - - 2,300 1,583 1,583 1,583 Effective Tax Rate (%) 0% -4% 12% 0% 2% 1% Undeveloped Land (000 acres) 1,052 1,094 1,052 873 873 873

Valuation 2012 2013E 2014E 2013E 2014E Balance Sheet ($mm) 2009 2010 2011 2012 2013E 2014EP/E -19.3x 17.9x 12.8x 101.4x 159.6x Current Assets 246 207 147 225 232 232 P/CF 4.7x 4.3x 4.5x 7.2x 7.0x Other 659 651 369 171 177 177 D/CF 1.9x 1.8x 2.3x 1.9x 2.0x Net PP&E 5,001 4,977 5,207 5,016 5,135 5,384 EV/EBITDA 13.4x 5.7x 6.2x 8.3x 8.2x Total Assets 5,906 5,835 5,723 5,412 5,545 5,793 Dividend Yield (%) 12.6% 7.0% 7.0% 6% 6%Earnings Payout Ratio (%) 49% 31% 32% 40% 38% Current Liabilities 289 439 538 367 368 368 EV/Production ($/boe/d) 45,418 51,312 54,591 90,783 88,977 Other 884 758 1,001 983 923 849 EV/Proven ($/boe) 19.19 18.80 18.22 29.65 28.45 Long Term Debt 559 732 907 1,069 1,125 1,436 EV/Proven+Probable ($/boe) 12.61 12.34 11.96 18.84 18.02 Total Liabilities 1,733 1,930 2,446 2,419 2,416 2,653 Proved NAV ($/sh) 5.80 6.11 Common Shares 5,716 5,757 3,442 3,836 3,879 3,923 P/NAV 2.6x 2.5x 2.8x 3.3x Preferred Shares - - - - - - Proved+Probable NAV ($/sh) 10.15 10.53 Retained Earnings/Cont Surplus 1,543- 1,852- 165- 843- 751- 783- P/NAV 1.5x 1.5x 1.8x 1.8x Total Liabilities and Equity 5,906 5,835 5,723 5,412 5,545 5,793 Proved+Probable+Possible NAV ($/sh) 16.52 17.88 P/NAV 0.9x 0.9x 0.8x 0.7x Shares Outstanding (million) 174 177 181 199 202 204

Commodity Assumptions 2012 2013E 2014E 2015E 2016E 2017E Operating RegionsWTI (US$/bbl) $ 94.17 $ 91.10 $ 85.00 $ 85.00 $ 85.00 $ 85.00Brent (US$/bbl) $ 111.69 $ 108.78 $ 95.00 $ 93.00 $ 93.00 $ 93.00Edmonton Par (C$/bbl) $ 86.42 $ 85.72 $ 83.00 $ 83.00 $ 83.00 $ 83.00WCS (C$/bbl) $ 71.82 $ 68.65 $ 70.55 $ 65.45 $ 65.45 $ 63.75Henry Hub (US$/mcf) $ 2.83 $ 4.00 $ 4.00 $ 4.00 $ 4.50 $ 4.50AECO (C$/mcf) $ 2.45 $ 3.61 $ 3.50 $ 3.50 $ 4.00 $ 4.00Exchange Rate (C$/US$) $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00

Hedges 2013E 2014E ManagementOil Volume (b/d) 18,507 4,500 Douglas Martin, ChairmanAverage Price (US$/bbl) $ 100.53 $ 92.60 Ian Dundas, CEOGas Volume (mmcf/d) 57.7 50.0 Robert Waters, CFOAverage Price (US$/mcf) $ 3.45 $ 4.14

Market DataMkt Cap ($mm) 3,100 Book Value $ 15.48 Price/Book 1.0xNet Debt ($mm) 1,261 52-Week High $ 16.95 52-Week Low $ 11.53Ent Value ($mm) 4,362 Wkly Vol (000s) 8,235 Wkly $ Vol (mm) 120

DPS 1Q 2Q 3Q 4QMgmt and Directors Shares: <1% 2012A $ 0.54 $ 0.54 $ 0.27 $ 0.27Major Shareholders: Widely Held 2013E $ 0.27 $ 0.27 $ 0.27 $ 0.27

2014E $ 0.27 $ 0.27 $ 0.27 $ 0.27

Source: Company reports, BMO Capital Markets estimates.

Enerplus Corporation was formed through the conversion of Enerplus Resources Fund from a trust to a corporation on January 1, 2011. Enerplus Resources Fund was created in July 1986, making it Canada's first publicly traded oil and gas royalty trust. The company owns interests in producing oil and natural gas properties in Western Canada and the United States. Its shares are listed on the TSX and NYSE.

Peer Averages

Notes: Peer Average includes ARC, Baytex, Bonavista, Crescent Point, Enerplus, Pengrowth, Penn West, Trilogy, Vermilion

$ 16.00$ 15.34 TargetEnerplus


June 27, 2013

Highlights

On June 27, 2013 Enerplus held an analyst day to discuss the company’s (i) four key operating areas; (ii) longer-term development potential; and (iii) strategy to fund its capital spending and dividend programs.

The company’s core areas are split between Canada and the U.S. Enerplus’ U.S. production is primarily from the Bakken oil play in North Dakota and Montana, and the Marcellus shale gas play in Pennsylvania. Together the U.S. properties now account for approximately one-half of the company’s cash flows.

In Canada, ERF’s oil production is centred in its crude oil waterflood fields, where decline rates average only about 12%. Medicine Hat, Giltedge and Ratcliffe account for the bulk of its crude waterflood program.

Enerplus’ Canadian gas properties are located primarily in the Deep Basin of Western Alberta (Wilrich, Montney and Duvernay) and provide the company with near-term development opportunities in the Wilrich, plus longer-term potential and optionality in the Montney and Duvernay.

Portfolio Overview

Crude Oil Waterfloods

The company’s Canadian operations are focused on its crude oil waterfloods at the Medicine Hat Glauconitic “C” property in Alberta and at the Ratcliffe trend in Saskatchewan. The company has approximately 56 MMboe of 2P Reserves attributed to the waterfloods with another 60 MMboe of contingent resource.

Figure 1: Enerplus Waterflood Properties

Total 2012 YE ContingentOOIP Recovered 2P Reserves Resource

Asset MMbbl MMbbl Mmboe MmboeMedicine Hat, AB 224 18.8 21.1 23.9Giledge, AB 158 18.6 10.5 21.6Freda/Skinner Lake/Neptune, SK 106 15.2 12.3 5.1Brooks 230 58.8 7.5 3.5Cadoga, AB 43 4.4 2.5 3.1Other 45 7.6 2.3 3.1Total 806 123 56 60

Source: Company Reports

This year, Enerplus plans to spend $160 million on its Canadian oil waterflood properties, roughly equal to 2012 spending levels. The optimization program will impact production volumes in the first half of this year with volumes growing in the second half of the year. The waterfloods are used primarily to generate cash that can be invested in other growth areas.


June 27, 2013

North Dakota Bakken/Three Forks (Williston Basin)

Enerplus has material interests in tight-oil assets through its ownership of the Sleeping Giant oil field in Montana and its 90% working interest in the Fort Berthold oil field in North Dakota. Production from the tight-oil fields is primarily light sweet crude (42º API) from the Middle Bakken formation at ~10,000 feet. The Three Forks is also being evaluated and tested for prospectively.

The Sleeping Giant Field is relatively mature and accounts for one-third of ERF’s 22,300 boe/d of Bakken oil production. Management is looking at moving into secondary and tertiary recovery projects in the field. Fort Berthold accounts for two-thirds of ERF’s daily Bakken production. Management highlighted the fact that drilling and completion costs in the Bakken have been decreasing, while EUR’s have been increasing. The net result is that the Bakken is now a significant contributor to ERF’s free cash flow (~$100 million in FCF in 2013E). Management expects the cash flow generation capacity of the Williston Basin to continue to grow for several more years:

Figure 2: Projected Growth in Williston Basin


Enerplus has 108 net sections in Fort Berthold prospective for the Bakken/Three Forks zones. Fort Berthold is the focus of the company’s light oil production growth. This year, ERF plans to run two rigs to drill, complete and tie-in between 20 and 25 wells in Fort Berthold targeting both the Bakken (two-thirds of total wells) and Three Forks (one-third of total wells) formations. Management is working on improving its capital efficiencies and will spend approximately $340 million in the play. The company expects to grow Fort Berthold production from ~14,500 boe/d in Q1/13 to exit 2013 at 18,000 boe/d.


June 27, 2013

Figure 3: ERF Fort Berthold Production Growth

0

5

10

15

20

2010 2011 2012 Q1 2013 2013 exit

Prod

uctio

n (M

boe/

d)

Forecast

2013


Enerplus has currently ~28 wells on production in Fort Berthold. We estimate the company has ~150 unbooked drilling locations in North Dakota.

At Fort Berthold, we modeled our well assumptions at approximately $11.5 million for drilling, tie-in and completion costs, with potential recoveries of ~780,000 boe. Our unrisked, after tax, NPV per well is approximately $12 million.

Figure 4: Fort Berthold Oil Economics Profile

Cost per well ($m) $11.00 Crude Oil (% ) 90%Op + Tx Cost ($/boe) $10.50 NGLs (% ) 0%IP (30 day) (boe/d) 1,250 Natural Gas 10%IP (12 m) (boe/d) 224 Total (% ) 100%

WTI (US$/bbl) $91.10 Henry Hub (US$/Mcf) $4.00

IRR (b. tax) 123% EUR (Mboe) 786NPV (b. tax $m) $17.4 Prof. Inv Ratio 1.6Payback Period (m) 10 Cap Efficiency ($/boe/d) $20,102

Model Outputs (@ 10% Discount Rate)

Model InputsWell Production T ype Curve

5 Y r D ecl ine C ur ve

0

200

400

600

800

1000

1200

1400

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59

M o nt hs

Source: Company Reports, BMO Capital Markets


June 27, 2013

Marcellus

Enerplus has approximately 1.3 Tcf of best-estimate contingent economic resource in the Marcellus natural gas play. The company is focusing its efforts in Northeast Pennsylvania where the well performance is exceeding expectations. The company’s non-operated production in Susquehanna and Bradford counties to offer the best economics:

Figure 5: Northeast Pennsylvania Well Performance


Enerplus has 100+ gross (10–20 net) Marcellus wells that it has drilled and completed but are awaiting tie-in. As a result, the company can reduce its capital program in the play this year by over 50% to $80 million. Management estimates its entire core non-operated Marcellus acreage will be held by production by year-end. In Susquehanna County, where EURs can be as high as 10–12 Bcf/well, ERF estimates it can generate RORs of 30–50% at current natural gas prices.


June 27, 2013

The company estimates it has approximately 184 future drilling locations in the Marcellus, with 18 locations booked. In the Marcellus, we modeled our well assumptions at approximately $7 million for drilling, tie-in and completion costs, with potential recoveries of ~1.25 MMboe (7.5 Bcf). Our unrisked, after tax, NPV per well is approximately $4.4 million.

Figure 6: Marcellus Economics Profile

Cost per well ($m) $7.00 Crude Oil (% ) 1%Op + Tx Cost ($/boe) $4.00 NGLs (% ) 0%IP (30 day) (boe/d) 1,367 Natural Gas 99%IP (12 m) (boe/d) 478 Total (% ) 100%

WTI (US$/bbl) $91.10 Henry Hub (US$/Mcf) $4.00

IRR (b. tax) 34% EUR (Mboe) 1,251NPV (b. tax $m) $4,423.4 Prof. Inv Ratio 0.6Payback Period (m) 30 Cap Efficiency ($/boe/d) $8,764

M odel Outputs (@ 10% Discount Rate)

M odel InputsWell Produc tion T ype Curve

5 Y r D ec l ine C ur ve

0

200

400

600

800

1000

1200

1400

1600

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59

M o nt hs

Source: Company Reports, BMO Capital Markets

Canadian Gas

Enerplus’ Canadian gas properties are located in the Deep Basin area of Western Alberta. Management views this as a core growth area with over 1,000 potential future drilling locations in the Wilrich, Montney and Duvernay.

Wilrich

The Wilrich liquids-rich gas play, located at Ansell, Minehead and Hanlan, is the most prospective for near-term production and cash flow growth. The company owns 84 net sections of land, the majority of which is 100% W.I. Management estimates they have over 100 Hz drilling locations with EUR’s of between 5.0–6.0 bcfe. Based on type curves to date, using a $4.00/mcf AECO gas price assumption, these wells (low case to high case) are expected to generate IRR’s of 30–40% and NPV’s of $3.9–6.7 million per well. Four wells will be drilled into the play in 2013.

Duvernay and Montney

The Duvernay and Montney areas are emerging plays that provide the company with future development upside and optionality. Enerplus has approximately 130 net sections of Duvernay rights in liquids-rich fairway of the Willesden Green/Pembina area. Management estimates the gas in place on its land is approximately 65 Bcf/section with 50–100 bbls/MMcf of liquids content. Enerplus believes it can ultimately recover ~20% of the resource in place assuming four horizontal wells per section and EURs of 3.5 Bcf per well.


June 27, 2013

The company drilled one vertical strat well in late 2012 and is currently evaluating the core. Enerplus will continue to monitor industry activity in the Pembina to determine how to proceed with the development of the play. The company plans to drill one vertical delineation well this year to better define the optimal liquids window for future development.

Enerplus owns 50 net sections of the Montney at Julienne Creek. At this point, management has a preliminary estimate of up to 500 potential drilling locations that could yield 4.0–6.0 bcfe of EUR per well, based on results from the North Montney fairway. We note that this project is in its early stages of its development, with the company still testing the prospectively of the Upper and Lower Montney zones.

Measuring Sustainability Enerplus has been successful in selling non-core assets in order to fund its growth initiatives. Subsequent to Q1, Enerplus announced it sold 600 boe/d of low working interest crude oil production in Saskatchewan and Alberta for ~$58 million.

As outlined in the table below, we believe that an additional sale of between $75 million and $150 million would close the funding gap for this year. On June 27, the company announced transactions that are expected to realize ~$50 million in net proceeds (see following section).

Table 1: 2013E Asset Sale Scenarios

2013E 2014E 2013E 2014E 2013E 2014ECash Flow from Ops ($mm) 709 686 709 674 709 668Capital Spending ($mm) (675) (750) (675) (750) (675) (750)Asset Sales ($mm) 58 0 133 0 208 0Div idends ($mm) (173) (175) (173) (175) (173) (175)Free Cash Flow ($mm) (81) (239) (6) (251) 69 (258)

Net Debt ($mm) 1,261 1,572 1,128 1,450 1,053 1,382

Basic payout ratio 24% 26% 24% 26% 24% 26%All-in payout ratio 120% 135% 120% 137% 120% 139%Sustaining payout ratio 111% 116% 111% 126% 111% 126%

Debt to Cash Flow 1.8x 2.3x 1.6x 2.2x 1.5x 2.1x

$75m Additional Asset S alesBase Case $150m Additional Asset S ales

Note: Base Case assumes $58 million in assets already sold and no other asset sales Source: BMO Capital Markets

Sustainability: in order for a company to sustain its dividend payments, it ought to be able to sustain the level of oil and gas production that supports those payments. Therefore, we consider a company to be sustainable if it can fund its maintenance capex (i.e., offset its annual production declines) plus the cash portion of its dividend payments out of expected operating cash flow. All things equal, companies with Sustaining Payout Ratios of <100% would be considered sustainable.


June 27, 2013

Enerplus’ 2013E Sustaining Payout Ratio is 111% as shown in the table below:

Table 2: 2013E Sustaining Payout Ratio Calculation

2013E Production 85.0 Mboe/d* Corporate Decline Rate 24%= Production Required to Replace 20.4 Mboe* Corporate Capital Efficiency 30.0 M$/boe/d= Cost to Replace Production 612.0 $m+ Cash Div idends 173.1 $m= S ustaining Capital Req'd 785.1 $m÷ Operating Cash Flow 709.3 $m

= S ustaining Payout Ratio 111% Source: BMO Capital Markets

The company has made progress in improving its capital efficiencies. We expect ERF will require some external financing (whether debt, equity or asset sales) in order to maintain its production levels and pay the cash dividend this year. However, we believe that if management continues to achieve operational success in North Dakota, Marcellus, and the crude oil waterfloods, ERF will edge closer to becoming sustainable.

Asset Transactions Announced

On June 27, Enerplus announced that it had entered into agreements to sell ~1,000 boe/d (90% liquids) of production for ~$80 million in gross proceeds. The company also announced that it acquired an additional 50% working interest in the Pouce Coupe Boundary B Unit #1 for ~$30 million. The acquired waterflood properties have ~375 Boe/d of current production, an average operating netback of $50/boe and a historical decline rate of 5%. Enerplus has maintained its production guidance despite the asset sales and expects annual production to average ~85,000 Boe/d (was 82,000–85,000 boe/d). The tightened guidance range is in line with BMO Research’s 2013E production estimate of 85,000 boe/d.

Valuation and Summary

Enerplus has made significant progress in streamlining and transforming its asset base. The company is progressing toward a more sustainable business model and we believe ERF’s key properties offer long-term development potential. We are also encouraged with the progress that Enerplus has made in transitioning to a more oil-weighted portfolio. We believe further non-core asset dispositions would help to bridge this year’s funding gap.

Potential share price catalysts over the next 12 months include:

Successful execution of its capital/drilling program;

Operating cost improvements in Fort Berthold;

A disposition or JV of the Duvernay position;


June 27, 2013

Target price risks include:

Past problems with operational consistency;

Operating cost increases;

Weakness in oil and gas prices;

Our target price is based on a 2013E DACF multiple of 5.8x and is supported by our sum-of-the-parts NAV estimate of $16.52 per share.

Table 3: Sum-of-the-Parts Net Asset Value Summary

NAV Per ShareFort Berthold Bakken $1.73

Crude Oil Waterfloods $1.37Marcellus $1.78Duvernay $1.48

2P Reserve Blowdown (net of debt) $10.15Net Asset Value Per Share @ 10% $16.52

Source: BMO Capital Markets


June 27, 2013

Table 4: E&P Yield Valuation Comparables

Price Mkt Cap Div. $ Yield %Large Cap Ticker Analyst Rating Jun-27 Target Return ($bn) 2014E 2014E 2013E 2014E 2013E 2014E

ARC ARX GT OP $27.20 $29.00 11.0% 8.4 1.20 4.4% 2.60 3.11 2.44 2.93Baytex BTE GT OP $37.65 $50.00 39.8% 4.6 2.64 7.0% 4.41 4.60 4.06 4.29

Bonavista BNP GT Mkt $13.68 $17.00 30.4% 2.7 0.84 6.1% 2.41 2.39 1.97 1.94Crescent Point CPG GT OP $35.72 $50.00 47.7% 13.4 2.76 7.7% 4.76 4.79 4.30 4.34

Enerplus ERF GT Mkt $15.34 $16.00 11.3% 3.0 1.08 7.0% 3.54 3.38 2.77 2.64Lightstream LTS JB Mkt $7.95 $9.00 25.3% 1.5 0.96 12.1% 3.15 2.91 1.70 1.61Pengrowth PGF GT R $5.05 R R R R R R R R RPenn West PWT GT Mkt $10.84 $11.50 11.3% 5.2 0.56 5.2% 2.15 2.25 1.55 1.65

Peyto PEY JB OP $30.01 $34.00 16.5% 4.5 0.96 3.2% 3.31 3.78 2.99 3.33Trilogy TET GT Mkt $30.85 $31.00 1.8% 3.6 0.42 1.4% 3.18 3.39 2.91 3.19

Vermilion VET GT OP $51.16 $57.00 16.1% 5.1 2.40 4.7% 6.22 5.95 5.80 5.52Average 21.1% 5.9%

Small CapAdvantage AAV GT Und $4.07 $4.25 4.4% 0.7 0.00 0.0% 0.57 0.67 0.47 0.48

Freehold FRU GT Mkt $23.72 $24.50 10.4% 1.6 1.68 7.1% 1.73 1.86 1.69 1.83Perpetual PMT GT Mkt $1.14 $1.75 53.5% 0.2 0.00 0.0% 0.36 0.45 0.19 0.21

Twin Butte TBE GT OP $2.25 $3.10 46.3% 0.6 0.19 8.5% 0.59 0.59 0.43 0.45Zargon ZAR GT Mkt $6.23 $8.00 40.0% 0.2 0.72 11.6% 2.08 1.86 1.38 1.19

Average 30.9% 5.4%

Debt to Sustain.Cash Flow Ratio

Large Cap Ticker 2013E 2014E 2013E 2014E 2013E 2013E 2014E 2013E 2014E 2013E 2013E 2014EARC ARX 10.7 9.7 100,561 90,632 1.3 10.5 8.7 11.1 9.3 84% 136% 120%

Baytex BTE 9.3 8.4 94,642 93,935 1.4 8.5 8.2 9.3 8.8 108% 136% 129%Bonavista BNP 7.4 7.4 50,145 50,221 2.0 5.7 5.7 6.9 7.1 107% 107% 113%

Crescent Point CPG 8.7 8.6 140,582 140,381 1.1 7.5 7.4 8.3 8.2 84% 105% 101%Enerplus ERF 5.7 6.2 51,312 54,591 1.8 4.3 4.5 5.5 5.8 111% 120% 135%

Lightstream LTS 5.5 5.5 82,444 83,936 3.6 2.5 2.7 4.7 4.9 128% 130% 123%Pengrowth PGF R R R R R R R R R R R RPenn West PWT 7.3 7.1 60,610 61,665 3.0 5.0 4.8 7.0 6.6 133% 116% 127%

Peyto PEY 10.4 9.3 87,905 78,940 1.7 9.1 7.9 10.0 9.0 101% 122% 121%Trilogy TET 10.5 9.8 104,783 97,745 1.7 9.7 9.1 10.6 9.7 75% 107% 92%

Vermilion VET 7.3 7.7 146,756 138,499 1.2 8.2 8.6 8.8 9.3 80% 105% 109%Average 8.3 8.0 91,974 89,054 1.9 7.1 6.8 8.2 7.9 101% 118% 117%

Small CapAdvantage AAV 11.2 10.2 54,461 52,722 4.1 7.1 6.1 8.7 8.6 90% 167% 235%

Freehold FRU 10.7 10.5 184,572 182,573 0.2 13.7 12.8 14.0 12.9 95% 99% 94%Perpetual PMT 4.4 6.9 26,952 28,554 6.0 3.2 2.5 6.1 5.5 106% 143% 143%

Twin Butte TBE 5.4 5.0 43,809 39,574 1.3 3.8 3.8 5.2 5.0 82% 85% 92%Zargon ZAR 4.4 4.5 44,877 47,850 2.2 3.0 3.3 4.5 5.2 89% 156% 105%

Average 7.2 7.4 70,934 70,255 2.8 6.2 5.7 7.7 7.5 92% 130% 134%

% BOEs 2P Total% Gas Hedged NAV NAV

Large Cap Ticker 2012 2013E 2014E 2013E 2013E 12/13E 13/14E 2011 2012E 2012E 2012E P/NAVARC ARX 93.5 95.4 109.4 60% 59% 2% 15% 2.1 1.6 $19.04 $29.87 91%

Baytex BTE 54.0 58.0 61.0 11% 40% 7% 5% 2.4 2.3 $16.61 $52.54 72%Bonavista BNP 69.3 74.0 76.7 61% 43% 7% 4% 1.5 1.3 $12.80 $20.64 66%

Crescent Point CPG 98.8 114.0 119.0 9% 48% 15% 4% 1.6 1.5 $32.01 $49.08 73%Enerplus ERF 82.1 85.0 86.1 50% 49% 4% 1% 1.2 1.2 $10.33 $16.52 93%

Lightstream LTS 42.8 46.7 48.2 17% 29% 9% 3% 1.7 3.3 $9.26 $12.00 66%Pengrowth PGF R R R R R R R 1.1 R R R RPenn West PWT 161.2 140.0 141.2 35% 66% -13% 1% 0.9 0.4 $8.13 $16.62 65%

Peyto PEY 44.5 60.4 69.0 88% 52% 36% 14% 3.5 2.0 $19.84 $32.55 92%Trilogy TET 33.5 41.0 44.0 55% 14% 22% 7% 1.2 1.4 $9.68 $31.38 98%

Vermilion VET 37.8 40.5 44.0 31% 24% 7% 9% 0.8 1.8 $27.01 $57.38 89%Average 42% 42% 10% 6% 1.6 1.7 81%

Small CapAdvantage AAV 21.7 18.8 22.5 97% 32% -13% 20% nm nm $1.43 $4.44 92%

Freehold FRU 8.8 8.7 8.8 36% 0% -2% 2% 1.7 1.8 $10.62 $12.58 189%Perpetual PMT 20.1 17.9 17.9 77% 46% -11% 0% 0.6 nm $2.07 $2.22 51%

Twin Butte TBE 14.7 17.4 18.5 12% 84% 19% 7% 0.4 1.1 $2.64 $3.31 68%Zargon ZAR 8.1 7.3 7.0 34% 48% -10% -4% 0.6 nm $9.02 $9.34 67%

Average 51% 42% -4% 5% 0.8 1.5 94%

Recycle Ratio

D.A. CFPS $CFPS $

All-in CashUsage RatioP/DACF

Y/Y Prod GrowthProduction (000 boe/d)

EV/BOE/D $ P/CFEV/EBITDA

Sustain. Ratio = (Annual Maintenance Capex + Cash Dividends) as % of Op. CF All-in Cash Usage = (Annual Maintenance Capex + Growth Capex + Cash Dividends) as % of Op. CF Rating System: BMO Forecast Assumptions: OP – Outperform; Mkt – Market Perform; Und. – Underperform; R – Restricted WTI Crude Oil: US$91 (’13); US $85 (’14); US$85 (Long term) Analyst Legend: GT – Gordon Tait, CFA, JB – Jim Byrne, P.Eng. ,CFA AECO Nat. Gas: C$3.61 (’13); C$3.50 (’14); C$4.00 (Long term) Source: Company Reports, BMO Capital Markets US$/C$ 1.00 (’12); US$/C$ 1.00 (’13); US$/C$ 1.00 (Long term)


June 27, 2013

Enerplus Corp. (ERF)

Last Price ( June 26, 2013): $14.86 Sources: IHS Global Insight, Thomson Reuters, BMO Capital Markets.

20

30

40

50

60

20

30

40

50

60

Quarterly Price

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 201250

100

150

200

250

300

50

100

150

200

250

300

ERF Relative to S&P/TSX Comp. TRIERF Relative to Oil/Gas/Consumable Fuels TRI

10

15

0

5

10

Revenue / Share Price / Revenue

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 20120

10

0

5E17

EPS (4 Qtr Trailing) Price / Earnings

FYE EPS P/E DPS Yield% Payout BV P/B ROE(Dec.) $ $ $ Hi - Lo Hi - Lo Hi - Lo % %

2010 0.72 44.2 25.3 2.16 11.9 6.8 na 21.9 1.5 0.82011 0.61 53.8 37.7 2.16 9.4 6.6 na 18.1 1.8 1.3 32012 -0.80 na na 1.08 9.4 4.0 na 15.3 1.8 0.8 na

Current* na 1.08 6.7 na 15.1 1.1 na

Range*: 53.8 25.3 11.9 4.0 1.8 0.8

Growth(%):5 Year: nm -26.5 -5.8

10 Year: nm -13.2 -2.3

* Current EPS is the 4 Quarter Trailing to Q1/2013.* Valuation metrics are based on high and low for the fiscal year. * Range indicates the valuation range for the period presented above.

5

10

15

20

25

30

35

5

10

15

20

25

30

35

1) R2) Mkt

3) R4) Mkt

Target Price Share Price

2011 2012 201350

100

150

50

100

150

ERF Relative to S&P/TSX Comp. TRIERF Relative to Oil/Gas/Consumable Fuels TRI

2011 2012 2013-100

100

-100

100

ERF Relative to S&P/TSX Comp. TRI Y/Y (%)ERF Relative to Oil/Gas/Consumable Fuels TRI Y/Y (%)

ERF - Rating as of 16-Jul-10 = Mkt

Date Rating Change Share Price

1 17-May-11 Mkt to R $30.14

2 29-Jun-11 R to Mkt $30.68

3 17-Jan-12 Mkt to R $24.06

4 9-Feb-12 R to Mkt $23.52


June 27, 2013

IMPORTANT DISCLOSURES

Analyst's Certification I, Gordon Tait, CFA, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients. Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Ltd. are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Company Specific Disclosure Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months. Disclosure 6: This issuer is a client (or was a client) of BMO NB, BMO Capital Markets Corp., BMO CM Ltd. or an affiliate within the past 12 months: Non-Securities Related Services. Disclosure 8: BMO Capital Markets or an affiliate has a financial interest in 1% or more of any class of the equity securities of this issuer. Methodology and Risks to Price Target/Valuation Methodology: Our target price is based on a combination of Enerplus' debt-adjusted cash flow multiple and our estimate of its NAV. Risks: General risks common to all oil & gas investments also apply to Enerplus. Among the most significant risks to our forecasts are oil and gas commodity prices, production declines, reserve replacement or impairment risk, and US$/C$ exchange rate risk. To offset natural production declines, oil and gas companies must replace production through acquisitions or development activities. If they do not, production will decrease and cash flow will decline. Enerplus faces the risk of not finding suitable acquisitions or successfully developing its existing properties. Estimates of reserves available for production can fluctuate due to changes in commodity prices and geological characteristics. A reduction in the amount of recoverable reserves estimated for Enerplus may negatively impact its unit price. Distribution of Ratings (March 31, 2013)

Rating Category

BMO Rating

BMOCM US Universe*

BMOCM USIB Clients**

BMOCM USIB Clients***

BMOCM Universe****

BMOCM IB Clients*****

Starmine Universe

Buy Outperform 37.3% 16.5% 53.8% 38.2% 51.3% 53.2% Hold Market Perform 58.0% 8.8% 44.6% 56.8% 47.7% 41.1% Sell Underperform 4.7% 3.7% 1.5% 4.9% 1.0% 5.7%

* Reflects rating distribution of all companies covered by BMO Capital Markets Corp. equity research analysts. ** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as

percentage within ratings category. *** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking

services as percentage of Investment Banking clients. **** Reflects rating distribution of all companies covered by BMO Capital Markets equity research analysts. ***** Reflects rating distribution of all companies from which BMO Capital Markets has received compensation for Investment Banking services as

percentage of Investment Banking clients. Rating and Sector Key (as of April 5, 2013): We use the following ratings system definitions: OP = Outperform - Forecast to outperform the analyst’s coverage universe on a total return basis Mkt = Market Perform - Forecast to perform roughly in line with the analyst’s coverage universe on a total return basis Und = Underperform - Forecast to underperform the analyst’s coverage universe on a total return basis on a total return basis (S) = speculative investment; NR = No rating at this time; R = Restricted – Dissemination of research is currently restricted.

BMO Capital Markets' seven Top 15 lists guide investors to our best ideas according to different objectives (CDN Large Cap, CDN Small Cap, US Large Cap, US Small cap, Income, CDN Quant, and US Quant have replaced the Top Pick rating). Prior BMO Capital Markets Ratings System (January 4, 2010–April 5, 2013): http://researchglobal.bmocapitalmarkets.com/documents/2013/prior_rating_system.pdf

http://researchglobal.bmocapitalmarkets.com/documents/2013/prior_rating_system.pdf�


June 27, 2013

Other Important Disclosures For Other Important Disclosures on the stocks discussed in this report, please go to http://researchglobal.bmocapitalmarkets.com/Public/Company_Disclosure_Public.aspx or write to Editorial Department, BMO Capital Markets, 3 Times Square, New York, NY 10036 or Editorial Department, BMO Capital Markets, 1 First Canadian Place, Toronto, Ontario, M5X 1H3.

Dissemination of Research Our research publications are available via our web site http://www.bmocm.com/research/. Institutional clients may also receive our research via FIRST CALL, FIRST CALL Research Direct, Reuters, Bloomberg, FactSet, Capital IQ, and TheMarkets.com. All of our research is made widely available at the same time to all BMO Capital Markets client groups entitled to our research. Additional dissemination may occur via email or regular mail. Please contact your investment advisor or institutional salesperson for more information. Conflict Statement A general description of how BMO Financial Group identifies and manages conflicts of interest is contained in our public facing policy for managing conflicts of interest in connection with investment research which is available at http://researchglobal.bmocapitalmarkets.com/Public/Conflict_Statement_Public.aspx.

General Disclaimer “BMO Capital Markets” is a trade name used by the BMO Investment Banking Group, which includes the wholesale arm of Bank of Montreal and its subsidiaries BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. in the U.K. and BMO Capital Markets Corp. in the U.S. BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. and BMO Capital Markets Corp are affiliates. Bank of Montreal or its subsidiaries (“BMO Financial Group”) has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. The opinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. BMO Capital Markets endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Capital Markets makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor. This material is for information purposes only and is not an offer to sell or the solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein.

Additional Matters To Canadian Residents: BMO Nesbitt Burns Inc., affiliate of BMO Capital Markets Corp., furnishes this report to Canadian residents and accepts responsibility for the contents herein subject to the terms set out above. Any Canadian person wishing to effect transactions in any of the securities included in this report should do so through BMO Nesbitt Burns Inc. The following applies if this research was prepared in whole or in part by Andrew Breichmanas, Tony Robson, or Edward Sterck: This research is not prepared subject to Canadian disclosure requirements. This research is prepared by BMO Capital Markets Limited and subject to the regulations of the Financial Conduct Authority (FCA) in the United Kingdom. FCA regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 5% or more of the equity of the issuer. Canadian regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 1% or more of the equity of the issuer that is the subject of the research. Therefore BMO Capital Markets Limited will only disclose its and its’ affiliates ownership interest in the subject issuer if such ownership exceeds 5% of the equity of the issuer. To U.S. Residents: BMO Capital Markets Corp. and/or BMO Nesbitt Burns Securities Ltd., affiliates of BMO NB, furnish this report to U.S. residents and accept responsibility for the contents herein, except to the extent that it refers to securities of Bank of Montreal. Any U.S. person wishing to effect transactions in any security discussed herein should do so through BMO Capital Markets Corp. and/or BMO Nesbitt Burns Securities Ltd. To U.K. Residents: In the UK this document is published by BMO Capital Markets Limited which is authorised and regulated by the Financial Conduct Authority. The contents hereof are intended solely for the use of, and may only be issued or passed on to, (I) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (II) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons together referred to as “relevant persons”). The contents hereof are not intended for the use of and may not be issued or passed on to, retail clients.


June 27, 2013

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST BMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment and corporate banking products. BMO serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United States, personal and commercial banking clients are served by BMO Harris Bank N.A., (Member FDIC). Investment and corporate banking services are provided in Canada and the US through BMO Capital Markets.

BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A (Member FDIC), BMO Ireland Plc, and Bank of Montreal (China) Co. Ltd. and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member SIPC), BMO Nesbitt Burns Securities Limited (Member SIPC) and BMO Capital Markets GKST Inc. (Member SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member Canadian Investor Protection Fund) in Canada, Europe and Asia, BMO Capital Markets Limited in Europe, Asia and Australia and BMO Advisors Private Limited in India.

“Nesbitt Burns” is a registered trademark of BMO Nesbitt Burns Corporation Limited, used under license. “BMO Capital Markets” is a trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel symbol)" is a registered trademark of Bank of Montreal, used under license.

® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere. TM Trademark Bank of Montreal

©COPYRIGHT 2013 BMO CAPITAL MARKETS CORP

Financial GroupA member of BMO

enerplus - swiss resource capital ag · p/nav 1.5x 1.5x 1.8x 1.8x total liabilities and equity...

Documents