Enerplus reports third quarter results for 2009
OPERATING PERFORMANCE:
- Daily production averaged 90,111 BOE/day during the quarter and
93,184 BOE/day year-to-date. We continue to expect 2009 annual
production volumes to average 91,000 BOE/day.
- Cash flow from operations was $207.2 million, comparable to that of
the second quarter of 2009. Approximately 45% of our cash flow was
distributed to our unitholders with monthly cash distributions of
$0.18/unit maintained throughout the quarter. When combining
distributions and capital spending during the quarter, our adjusted
payout ratio was 68%. Year-to-date, our adjusted payout ratio has
averaged 78%, however, given the high level of capital spending
planned for the fourth quarter of 2009, we expect our adjusted payout
ratio to be approximately 100% for the entire year.
- Capital expenditures totaled $45.4 million during the quarter with
48 gross wells drilled (27.6 net wells). Our year-to-date capital
spending has totaled $180.2 million with 229 gross wells drilled
(156.6 net wells). Our drilling success rate was 99%.
- We have actively been working to control costs throughout 2009 and
our efforts have resulted in operating costs of $10.07/BOE for the
third quarter and an average of $9.94/BOE for the year. Based on
these results, we are lowering our full year guidance from
$10.65/BOE to $10.20/BOE, an improvement of over 4% from our
original target. Our general and administrative costs remain on track
to meet our full year guidance of $2.45/BOE.
- Our hedging program realized cash gains of $40.6 million in the
quarter, helping to offset weak natural gas prices. Year-to-date, we
have realized cash hedging gains totaling $129.1 million.
GROWTH STRATEGY EXECUTION:
- We completed our first significant transaction in the U.S. shale gas
plays acquiring an average 21.5% working interest in over
540,000 gross acres of land in the Marcellus shale region in
northeast United States from Chief Oil & Gas LLC and certain
affiliated entities ("Chief"). Total consideration for this interest
was approximately US$411 million, consisting of an upfront cash
payment of US$164 million that was paid upon closing and US$247
million to be paid as a carry of 50% of Chief's future drilling and
completion costs in the Marcellus shale play which we expect will be
invested over the next four years. Our net production at the time of
the transaction was approximately 1.8 MMcfe/day, with a line of
sight to approximately 100 MMcfe/day within the next five years. Our
internal assessment has identified over 1.4 trillion cubic feet of
best estimate contingent resources on these lands, net to Enerplus,
which would almost double our proved plus probable natural gas
reserves currently booked. See "Information Regarding Contingent
Resource Estimates" at the end of this news release.
- Subsequent to quarter end, we purchased a 50% non-operated working
interest in over 22,000 gross acres of prospective Bakken land in
North Dakota for US$27 million, consisting of US$15 million in cash
and US$12 million of carry capital to be invested over the next
12 months. We have assessed an internal best estimate of contingent
resources on this acreage of approximately 7.4 million barrels, net
to Enerplus, based upon a 13% recovery factor.
- We sold approximately 4.5 net sections of low working interest,
non-core property interests in southeast Saskatchewan for
approximately $100 million subsequent to the quarter. These lands
were producing approximately 200 BOE/day of oil with 1.5 million BOE
of booked proved plus probable reserves. We continue to prepare to
sell non-core oil and gas assets that will allow us to focus our
efforts and capital on existing core resource plays and expand our
interests in targeted resource plays. We expect to have completed
this work and to be in a position for sale in 2010.
BALANCE SHEET STRENGTH:
- In September we completed an equity financing issuing approximately
10 million trust units at $21.65 per unit for gross proceeds of
$225 million. The proceeds of this financing were used to fund the
upfront costs of the Marcellus acquisition, with the balance used to
reduce outstanding bank debt to zero at the end of the quarter.
- We currently have the full $1.4 billion of bank credit capacity
available and our balance sheet remains strong with a debt to
trailing 12 month cash flow ratio of 0.7x.
SELECTED FINANCIAL RESULTS
Three months ended Nine months ended
September 30, September 30,
(in Canadian dollars) 2009 2008 2009 2008
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Financial (000's)
Cash Flow from
Operating Activities $207,211 $383,573 $587,207 $1,004,246
Cash Distributions to
Unitholders(1) 93,504 224,417 272,651 619,121
Excess of Cash Flow
Over Cash
Distributions 113,707 159,156 314,556 385,125
Net Income 38,182 465,773 86,399 699,397
Debt Outstanding -
net of cash 561,218 522,254 561,218 522,254
Development Capital
Spending 45,417 163,215 180,222 377,485
Acquisitions 192,484 4,574 222,877 1,771,383
Divestments 519 502,489 2,255 504,697
Actual Cash Distributions
paid to Unitholders $0.54 $1.31 $1.69 $3.83
Financial per Weighted
Average Trust Units(2)
Cash Flow from
Operating Activities $1.23 $2.33 $3.52 $6.32
Cash Distributions per
Unit(1) 0.55 1.36 1.63 3.89
Excess of Cash Flow
Over Cash
Distributions 0.68 0.97 1.89 2.42
Net Income 0.23 2.82 0.52 4.40
Payout Ratio(3) 45% 59% 46% 62%
Adjusted Payout
Ratio(3) 68% 102% 78% 100%
Selected Financial
Results per BOE(4)
Oil & Gas Sales(5) $35.23 $73.62 $35.36 $72.44
Royalties (5.56) (13.71) (6.10) (13.54)
Commodity Derivative
Instruments 4.89 (6.82) 5.08 (5.19)
Operating Costs (10.00) (10.10) (9.84) (9.51)
General and
Administrative (2.21) (1.50) (2.18) (1.66)
Interest and Other
Income and Foreign
Exchange (0.79) (1.46) (0.22) (1.23)
Taxes (0.35) (0.59) (0.22) (1.19)
Asset Retirement
Obligations Settled (0.31) (0.54) (0.34) (0.52)
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Cash Flow from Operating
Activities before
changes in non-cash
working capital $20.90 $38.90 $21.54 $39.60
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Weighted Average Number
of Trust Units
Outstanding(2) 168,521 164,908 166,724 158,980
Debt to Trailing Twelve
Month Cash Flow Ratio(6) 0.7x 0.4x 0.7x 0.4x
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SELECTED OPERATING RESULTS
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
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Average Daily Production
Natural gas (Mcf/day) 323,884 341,803 333,606 336,328
Crude oil (bbls/day) 32,218 34,119 33,454 34,295
Natural gas liquids
(bbls/day) 3,912 4,557 4,129 4,660
Total daily sales
(BOE/day) 90,111 95,644 93,184 95,010
% Natural gas 60% 60% 60% 59%
Average Selling Price(5)
Natural gas (per Mcf) $2.95 $8.25 $3.86 $8.60
Crude oil (per bbl) 64.94 110.63 55.57 103.85
NGLs (per bbl) 32.59 81.20 36.21 77.21
CDN$/US$ exchange rate 0.91 0.96 0.85 0.98
Net Wells drilled 27.6 272 156.6 469
Success Rate(7) 100% 99% 99% 99%
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(1) Calculated based on distributions paid or payable.
(2) Weighted average trust units outstanding for the period, includes the
equivalent exchangeable partnership units.
(3) Payout ratio is calculated as cash distributions to unitholders
divided by cash flow from operating activities. Adjusted payout ratio
is calculated as cash distributions to unitholders plus development
capital and office expenditures divided by cash flow from operating
activities. See "Non-GAAP Measures" at the conclusion of this news
release.
(4) Non-cash amounts have been excluded.
(5) Net of oil and gas transportation costs, but before the effects of
commodity derivative instruments.
(6) Including the trailing 12 month cash flow of Focus Energy Trust for
2008.
(7) Based on wells drilled and cased.
TRUST UNIT TRADING SUMMARY
For the three months ended TSX - ERF.un U.S.* - ERF
September 30, 2009 (CDN$) (US$)
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High $24.82 $23.18
Low $21.28 $18.23
Close $24.50 $22.89
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* U.S. Composite Exchange Data including NYSE.
2009 CASH DISTRIBUTIONS PER TRUST UNIT
Payment Month CDN$ US$
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First Quarter Total $0.61 $0.49
Second Quarter Total $0.54 $0.47
July $0.18 $0.16
August 0.18 0.16
September 0.18 0.17
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Third Quarter Total $0.54 $0.49
Total Year-to-Date $1.69 $1.45
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OPERATIONS
Our development capital spending continues to reflect the prudent approach
we undertook at the start of 2009 in light of commodity price uncertainty and
a focus on achieving compelling returns on our investment. Our activities in
the first half of 2009 were focused on natural gas drilling in our shallow gas
and tight gas resource plays. As the price of natural gas continued to
deteriorate throughout the year and oil prices strengthened, we began shifting
our development program. This shift resulted in a low level of spending in the
third quarter and set up a high activity level for the fourth quarter. We
expect to focus on oil projects on our Bakken lands and waterflood assets and
are limiting our natural gas activities primarily to the Marcellus and
utilizing the Alberta Drilling Royalty Credit ("DRC") incentive. As we
participate in more early stage growth plays, we anticipate increasing our
land and seismic expenditures in key areas. We continue to maintain our
capital guidance of $330 million for 2009 including our carry obligations
associated with the Marcellus shale gas play and which is net of the credits
associated with the DRC incentive, with fourth quarter spending up
significantly over the previous quarters of 2009.
2009 PRODUCTION AND DEVELOPMENT ACTIVITY
Three months ended September 30, 2009
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Production Capital Wells Drilled
Volumes Spending -------------------------
Play Type (BOE/day) ($ millions) Total Gross Total Net
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Shallow Gas 22,478 9.1 22 21
Crude Oil Waterfloods 15,703 8.5 1 1
Tight Gas 15,310 9.7 1 0.1
Bakken/Tight Oil 9,756 9.3 10 2
Conventional Oil & Gas 26,766 4.3 11 3
Shale Gas* 98 3.1 3 0.5
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Total Conventional 90,111 44.0 48 27.6
Oil Sands - 1.4 - -
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Total 90,111 45.4 48 27.6
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* The Marcellus shale gas acquisition closed September 1, 2009.
Nine months ended September 30, 2009
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Production Capital Wells Drilled
Volumes Spending -------------------------
Play Type (BOE/day) ($ millions) Total Gross Total Net
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Shallow Gas 23,504 38.7 143 126
Crude Oil Waterfloods 16,007 22.0 3 2
Tight Gas 15,689 45.0 21 11.1
Bakken/Tight Oil 10,350 26.8 12 3
Conventional Oil & Gas 27,601 30.0 47 14
Shale Gas* 33 3.1 3 0.5
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Total Conventional 93,184 165.6 229 156.6
Oil Sands - 14.6 - -
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Total 93,184 180.2 229 156.6
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* The Marcellus shale gas acquisition closed September 1, 2009.
Shallow Gas and DRC Incentives
We remain active in our shallow gas resource play but due to weak natural gas prices we drilled only a modest number of wells (12) in the third quarter to complete our activities at Shackleton for the year, and have elected not to tie these wells in until gas prices recover. However, we started drilling the first nine of approximately 250 shallow gas wells in Alberta to take advantage of the DRC incentive. This incentive offers a drilling credit of
Marcellus Shale Gas
Capital spending in our Marcellus shale gas play is expected to be approximately
Bakken/Tight Oil
The improvement in crude oil prices has also resulted in increased activity in our Bakken/Tight Oil assets. At Sleeping Giant, we are resuming our drilling activity and have increased our refrac program to 18 refracs for the year. We plan to utilize tri-fracs (three wells frac'd simultaneously) to complete the program. Twelve refracs had been completed at the end of the third quarter. This activity continues to yield positive results with production gains of approximately 50 BOE/day gross (35 BOE/day net) per refrac and expected reserve additions of approximately 50 MBOE gross (35 MBOE net). We have contracted two rigs and plan to drill four wells at Sleeping Giant by year end. We estimate at year end we will have eight third well and 40 lease line drilling opportunities remaining on our lands as well as approximately 100 refracs in our inventory. We also plan to continue drilling at Taylorton in southern Saskatchewan where we participated in the drilling of 5 gross wells (1.25 net wells) in the third quarter and have another three gross wells (0.75 net wells) planned with our partner for the fourth quarter. On our newly acquired North Dakota acreage, initial plans include four gross wells (two net wells) drilled in late 2009 or early 2010. Although this is a non-operated position for Enerplus, due to our considerable drilling expertise in the Bakken, Enerplus will operate the drilling activities. Additionally, we are drilling on our operated Bakken lands in other areas as part of our overall Bakken portfolio.
Waterfloods and Other Oil
Drilling activity is also expected to increase on our crude oil waterflood properties in the fourth quarter. We currently have development plans at Virden, Manitoba and the Glauconitic "C" unit at Medicine Hat in Alberta, and at our
OUTLOOK
Looking ahead, our business strategy is clear. We believe a balance of growth and income will provide a compelling investment opportunity and the addition of more early stage resource play assets to our portfolio of core cash flow generating assets will help us to achieve this. We expect these early stage assets to be focused on tight gas and tight oil that we believe will deliver top quartile economics. We plan to utilize our balance sheet strength prudently to acquire additional assets and to help fund the capital needs of these growth plays. We also remain focused on the successful execution of our operational plans, maintaining the discipline we apply to our spending and improving the efficiencies of our day-to-day business.
CONSOLIDATED FINANCIAL STATEMENTS AND MD&A
Third quarter 2009 Consolidated Financial Statements and Notes to the Consolidated Financial Statements, along with the Management's Discussion and Analysis for Enerplus have been filed on our website at www.enerplus.com, under our profile on SEDAR (www.sedar.com) and on the EDGAR website at www.sec.gov.
INFORMATION REGARDING DISCLOSURE IN THIS NEWS RELEASE
All amounts in this news release are stated in Canadian dollars unless otherwise specified.
Where applicable, natural gas has been converted to barrels of oil equivalent ("BOE") based on 6 Mcf:1 BOE. The BOE rate is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. Use of BOE in isolation may be misleading. In accordance with Canadian practice, production volumes and revenues are reported on a gross basis, before deduction of Crown and other royalties, unless otherwise stated. "MMcfe" means million cubic feet of gas equivalent. Enerplus has adopted the standard of one barrel of oil to six thousand cubic feet of gas (1 barrel: 6 Mcf) when converting oil to MMcfes. MMcfes may be misleading, particularly if used in isolation. An MMcfe conversion ratio of 1 barrel: 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
In accordance with Canadian practice, production volumes and revenues are reported on a gross basis, before deduction of Crown and other royalties, unless otherwise stated.
FORWARD-LOOKING INFORMATION AND STATEMENTS
This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "guidance", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: the amount, timing and tax treatment of cash distributions to unitholders; payout ratios and adjusted payout ratios; tax treatment of income trusts such as the Fund; the structure of the Fund and its subsidiaries including conversion to a corporate structure; the Fund's income taxes, tax liabilities and tax pools; the volume and product mix of the Fund's oil and gas production; production and operational matters including drilling plans and delayed projects; oil and natural gas prices and the Fund's risk management programs; the amount of asset retirement obligations; future liquidity and financial capacity and resources; future capital expenditures; cost and expense estimates; results from operations and financial ratios; the impact of the conversion to IFRS on the financial results of the Fund; the Fund's ongoing strategy; the Fund's credit exposure; cash flow sensitivities; royalty rates and their impact on the Fund's operations and results; future growth including development, exploration, and acquisition and development activities and related expenditures; and future dispositions of oil and gas assets. This press release also contains estimates of contingent resources, which are by their nature estimates that the quantities described exist in the amounts estimated.
The forward-looking information and statements contained in this news release reflect several material factors and expectations and assumptions of the Fund including, without limitation: that the Fund will continue to conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions and tax and regulatory regimes; availability of cash flow, debt and/or equity sources to fund the Fund's capital and operating requirements as needed; the continuance of existing and, in certain circumstances, proposed tax and royalty regimes; the accuracy of the estimates of the Fund's reserve and resource volumes; and certain commodity price and other cost assumptions. The Fund believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; unanticipated operating results or production declines; changes in tax or environmental laws or royalty rates; increased debt levels or debt service requirements; inaccurate estimation of the Fund's oil and gas reserves and resources volumes; limited, unfavourable or no access to debt or equity capital markets; increased costs and expenses; the impact of competitors; reliance on industry partners; and certain other risks detailed from time to time in the Fund's public disclosure documents including, without limitation, those risks identified in the MD&A, our MD&A for the year ended
The forward-looking information and statements contained in this news release speak only as of the date of this release and none of the Fund or its subsidiaries assumes any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.
INFORMATION REGARDING CONTINGENT RESOURCE ESTIMATES
This news release contains estimates of "contingent resources". "Contingent resources" are not, and should not be confused with, oil and gas reserves. "Contingent resources" are defined in the Canadian OIl and Gs Evaluation Handbook as "those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage." There is no certainty that it will be commercially viable to produce any portion of the contingent resources or that Enerplus will produce any portion of the volumes currently classified as contingent resources. The contingent resource estimate for the acquired interests in the Marcellus properties set forth in this news release is presented as Enerplus' internal "best estimate" of the quantity that will actually be recovered effective as of
The resource estimates provided herein are estimates only. Actual contingent resources (and any volumes that may be reclassified as reserves) and future production from such contingent resources may be greater than or less than the estimates provided herein. The primary contingencies which currently prevent the classification of Enerplus' disclosed contingent resources associated with the Marcellus and Bakken properties as "reserves" consist of: additional delineation drilling to establish economic productivity in the development areas, limitations to development based on adverse topography or other surface restrictions (primarily Marcellus), the uncertainty regarding marketing and transportation of natural gas from development areas, the receipt of all required regulatory permits and approvals to develop the lands, and access to confidential information of other operators in the area. Significant negative factors related to the estimate include: the pace of development, including drilling and infrastructure, is slower than the forecast, risk of adverse regulatory and tax changes, ongoing litigation related to minimum royalties payable to freehold landowners, and other issues related to oil and gas development in populated areas. There are a number of inherent risks and contingencies associated with the development of the acquired interests in the Marcellus and Bakken properties, including commodity price fluctuations, project costs, Enerplus' ability to make the necessary capital expenditures to develop the properties, reliance on Enerplus' industry partners in project development, acquisitions, funding and provisions of services and those other risks and contingencies described above and that apply generally to oil and gas operations as described under "Risk Factors" in our annual information form for the year ended
NON-GAAP MEASURES
Throughout this news release we use the term "payout ratio" and "adjusted payout ratio" to analyze operating performance, leverage and liquidity. We calculate payout ratio by dividing cash distributions to unitholders ("cash distributions") by cash flow from operating activities ("cash flow"), both of which appear on our consolidated statements of cash flows. "Adjusted payout ratio" is calculated as cash distributions plus development capital and office expenditures divided by cash flow. The terms "payout ratio" and "adjusted payout ratio" do not have a standardized meaning or definition as prescribed by GAAP and therefore may not be comparable with the calculation of similar measures by other entities. Refer to the Liquidity and Capital Resources section of the MD&A for further information.
Gordon J. Kerr
President & Chief Executive Officer
Enerplus Resources Fund
%CIK: 0001126874
For further information: regarding this news release or a copy of our 2009 third quarter interim report, please contact our investor relations department at 1-800-319-6462 or email [email protected]
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