Enerplus Case Study

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Enerplus: A Risky Player for Defensive Investors Summary: • Oil prices declined again after gaining momentum in the last week. • Enerplus is currently undervalued, but the company’s stock will face more pressure in the coming days. • Oil fundamentals are still bleak from increasing supplies and Iranian deals. • This is potentially a risky play for defensive investors. Enerplus Corp (ERF) has emerged as one of the worst beaten-down stocks over the past three months, ever since oil collapsed to six year lows in mid-August and crude hovered at around $45 a barrel for more than four weeks. Furthermore, the US Energy Information Administration (EIA) recently reduced its estimated average crude oil prices to $49 per barrel for this year and $54 per barrel for next year. These numbers are lower than its earlier estimates by $6 and $8 per barrel, respectively. This situation has strongly impacted the stock prices of U.S. and Canadian exploration & production companies, including Enerplus. The company's stock price touched its lowest level of…show more content…
ERF will create a selling opportunity until its third quarter results. Following these results, I believe its stock will again come under pressure based on the company’s poor results, along with its bleak future fundamentals. Enerplus has no answer to this situation except to maintain its financial strength while focusing on productivity improvements and cost control measures. Additionally, it is investing only in those projects where the expected returns justify the investment, and all this in a highly volatile market. The company’s strategy of investing in four key assets – consisting of North Dakota, Bakken, Three Forks, and Marcellus – has been fueling its production levels. However, due to falling oil and gas prices, Enerplus is now mainly investing in North Dakota, thanks to that asset’s high margin
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