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International Energy Portfolio — Aggressive Holdings

By Roger S. Conrad on Nov. 26, 2013

Enerplus Corp (TSX: ERF, NYSE: ERF)

Enerplus Corp last year halved its dividend to shore up its balance sheet and end a borrowing binge that had almost exhausted its credit lines. In subsequent quarters, the exploration and production company has turned the ship around by divesting noncore assets and plowing money into developing its most promising acreage.

In the third quarter, Enerplus boosted its hydrocarbon production by 8 percent from year-ago levels, including a 19 percent increase in volumes from its oil-focused assets in North Dakota and an uptick in production from the Marcellus Shale that topped management’s forecast exit rate for the year.

Management allocated about 70 percent of the company’s CA$146 million in capital expenditures to water-flooding activity, a form of enhanced oil recovery that boosts production and softens the decline rate in mature fields.

Meanwhile, the firm’s funds from operations soared 45 percent from year-ago levels, and its all-in payout ratio (dividends plus capital expenditures) came in at 97 percent. The company has also reduced its debt by 13.8 percent year over year and its operating costs per barrel of oil equivalent by 14.8 percent.

Ongoing production growth and cost reductions will drive future upside for Enerplus. Although we don’t expect the company to boost its dividend until at least 2015, investor sentiment toward the stock has improved.

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