Message to Shareholders

November 10, 2011

As weather conditions improved during the third quarter of 2011, our operations and drilling activities resumed, albeit at a slower pace than anticipated.  We continued to be impacted by road bans and restricted access to our leases early in the quarter, particularly in the North Dakota region, delaying our drilling and completions activity in this key growth area. Daily production volumes averaged 73,245 BOE/day during the quarter which was approximately 3% lower than expected. Production volumes reflected those delays as well as the strategic sale of a portion of our Marcellus acreage which occurred at the end of June.  Year-to-date, we’ve brought 48 net wells on stream, just over half of the on-streams we had planned for 2011.  During the fourth quarter, we expect to bring an additional 41 net wells on stream, approximately 90% of which are oil wells.  As a result of this activity, we expect to achieve our exit production target of 81,000 – 84,000 BOE/day. With the slower than expected build in production through the first nine months of the year, we expect our full year production will average close to 76,000 BOE/day in 2011.

Our drilling activities to date have been very encouraging, particularly in a number of core areas for us. Our first Three Forks test well at Fort Berthold, North Dakota has come on stream with a 30 day initial production rate of approximately 830 bbls/day and our first operated Marcellus well has tested significantly above expectations with a 24 hour peak test rate of 8.3 MMcf/day. We’ve also experienced positive results in the Ratcliffe and the Viking in Saskatchewan and recently completed a Bluesky delineation well at Ansell which tested at 4.2 MMcf/day. Overall, our drilling program is delivering at or above our expectations, just slightly behind the anticipated timeline.

We continue to add to our portfolio of undeveloped land in both Canada and the U.S. to build a solid inventory of future growth opportunities.  Since the second quarter, we’ve added another 38,000 acres of land targeting the liquids-rich natural gas Duvernay play in the Willesden Green area and now hold approximately 100 sections of undeveloped land in the Duvernay. We expect to drill our first test well in 2012.  We also acquired additional acreage in our emerging oil play portfolio and now hold approximately 25,000 acres in these prospects in Canada along with our 75,000 net acres in the Bakken/Three Forks play in Fort Berthold, North Dakota. In addition, we own over 110,000 net acres in the Marcellus (60% operated), over 33,000 net acres in the Montney, and over 67,000 net acres in the Stacked Mannville region of Alberta. Year-to-date, we’ve invested just over $100 million adding new growth positions in Canada. Our strategic land position now includes over 380,000 net acres in some of the most prospective oil and gas plays in North America that will support reserves, production and cash flow growth in the coming years.

Our operations generated $123 million of funds flow ($0.68/share) during the quarter, net of current taxes of $32 million related to our Marcellus disposition and adjustments to prior year tax estimates. Excluding these taxes, our funds flow would have been approximately $155 million ($0.86/share).  As planned, our balance sheet helped support our development capital spending program in the quarter. We remain in a very solid financial position with only $265 million drawn on our $1 billion credit facility and a debt to funds flow ratio of 1.3x at the end of the quarter. We continue to actively hedge our exposure to oil prices to help protect our cash flow and retain our financial strength. We currently have over 50% of our expected oil production in 2012 hedged at approximately $95/bbl and have started to add hedge positions for our 2013 oil production as well. Our gas production remains unhedged at this time as the benefit of locking in prices in a weak forward market remains limited.

Production and Capital Spending

Our base production, primarily from our Canadian operations, continued to deliver consistent production through the third quarter of 2011.  Oil and liquids volumes from both our Bakken/tight oil and waterflood assets were up slightly over the second quarter despite delays and our total oil and liquids production represented 45% of total production during the quarter. Our conventional natural gas production continued to decline, as expected, due to low capital spending levels in a low price environment. Our Marcellus production was lower as a result of the sale of a portion of mainly non-operated assets in this resource play. We invested just over $200 million of capital during the third quarter of 2011, drilling approximately 35 net wells and bringing 12 net wells on-stream. Approximately 80% of our wells were oil wells and all but one were horizontal wells. Over 85% of our spending was directed to our Bakken, waterflood and Marcellus resource plays.

During the fourth quarter we expect to see a significant increase in production as a result of completion and tie-in activities, primarily in the U.S.  At Fort Berthold we expect to bring 13 wells on-stream in November and December, nine Bakken and four Three Forks short horizontal wells. We also expect to add incremental production associated with field optimization activities. As a result of these activities, we expect production to grow by 5,000 – 8,000 BOE/day net by the end of December.  In the Marcellus, tie-in activities by our operators are expected to accelerate in the fourth quarter with exit production in the range of 25 MMcf/day – 33 MMcf/day net to Enerplus.  We expect approximately 24 additional gross wells in the Marcellus region (2.3 net wells) to come on-stream by year-end. In Canada, we plan to have approximately 23 net wells on-stream in the fourth quarter primarily in our crude oil waterflood properties targeting the Ratcliffe, Lodgepole and Viking formations.  We also plan to test both the Montney and Stacked Mannville areas of the Deep Basin before year-end.

Net Drilling Activity for the three months ended September 30, 2011

* Wells drilled during the quarter that are pending potential completion/tie-in or abandonment                                                                     **Total wells brought on-stream during the quarter regardless of when they were drilled

Bakken/Tight Oil

Our Bakken/tight oil production increased during the third quarter by approximately 900 BOE/day to average 13,511 BOE/day. The increase in production is attributable to our successful drilling activities in our U.S. Bakken properties in Montana and North Dakota.  However, as a result of flooding earlier in the year in North Dakota, major state highway repair work continued into the third quarter and slowed our planned activities at Fort Berthold. The combination of these issues also impacted the pace of construction of our third-party gathering system at Fort Berthold which was originally expected in late spring, delaying tie-in activity and adding to our trucking costs in this area.

We invested $90 million in drilling, completions and tie-in activities during the quarter. We completed our 2011 drilling program in the Sleeping Giant field in Montana drilling two gross (1.5 net) operated horizontal wells. Four gross well completions in the area planned for the quarter were delayed until October, however, all are now on-stream and producing at a total rate of 2,200 BOE/day gross, 1,500 BOE/day net to Enerplus.

At Fort Berthold we drilled one long and six short Bakken horizontal wells and one long and two short Three Forks horizontal wells during the quarter.  Three long and one short Bakken horizontal wells were completed during the quarter along with our first long Three Forks horizontal well. The long Three Forks well has produced over 25,000 barrels of oil in the first 30 days and had water cuts of approximately 30%, similar to those in the Bakken.  Current production from this well is approximately 600 BOE/day with 1,200 psi flowing pressure.  We continue to be pleased with the performance of our wells versus our estimated type curves. We also completed our first salt water disposal well late in the quarter. This well will allow us to reduce our trucking and water handling costs going forward.  The completion of this disposal well, reduced drilling times due to the use of walking rigs and expected savings in rig moves, construction and tie-ins as a result of multi-well pads provide us with greater confidence in achieving our expected well costs of $6.7 million for short lateral wells and $8.7 million for long lateral wells, including tie-ins, despite upward cost pressures in this busy basin.

We currently have four rigs working at Fort Berthold and expect to maintain this rig count through the remainder of 2011 and into 2012.  The build out of the first phase of the gathering system was completed by October and we have commenced gas sales from 14 of our producing wells.  We anticipate that six of the 13 completions planned in the fourth quarter will also be tied into the gathering system immediately with the remainder tied in as compression facilities permit.  We expect incremental production volumes of approximately 10% associated with the capture and sale of the natural gas once wells are tied into the gathering system.  

Crude Oil Waterfloods

Our waterflood portfolio continues to be a core holding for Enerplus providing us with exposure to a variety of crude oil plays across western Canada that offer low decline production with significant upside potential.  We invested $33 million in our waterflood portfolio during the quarter, drilling 14 net wells primarily targeting the Ratcliffe and Viking formations. Four net Ratcliffe wells were drilled and placed on-stream at Freda Lake with results that were 10% above our type curve expectations of 140 BOE/day per well.  We expect to drill another four wells at Freda Lake through the end of the year. We also drilled five horizontal gross Viking wells at Gleneath with positive early test results.

Our polymer flood project at Giltedge is proceeding well.  We’re seeing polymer break through in a number of producing wells and we are now working to ensure the polymer is moving through the reservoir as efficiently as possible.  We are encouraged by the early signs of improved oil production and reduced water cuts.  Our annual production estimate at Giltedge has increased from 1,650 BOE/day to 1,900 BOE/day due to the polymer project and other optimization work.   We have also increased our exit production outlook for the field by 600 BOE/day primarily due to these activities. As we see further reservoir response, we will evaluate our options of accelerating and/or expanding the next phase of enhanced oil recovery at Giltedge.

We have a busy program planned for the fourth quarter on our oil waterflood properties where we expect to drill 13 operated wells with the bulk of our activity focused on our Pembina, Virden, and Freda Lake properties. We will also continue constructing facilities at Medicine Hat to support the start-up of our second polymer flood project early in 2012.

Marcellus

We continued to see high activity levels in the Marcellus throughout the third quarter of 2011 with capital spending of $50 million on both our operated and non-operated leases.  Our well results continue to exceed our expectations with net production growing by 3 MMcf/day, after adjusting for the sale of a portion of our interests late in the second quarter, to 15 MMcf/day in the third quarter.  We participated in drilling 36 gross wells (4.5 net) with eight gross wells (1.1 net) coming on-stream.  Although completion activity increased during the third quarter, there still continues to be a significant inventory of wells waiting to be completed and tied-in to pipelines due to the extremely wet spring and delays in pipeline gathering projects.  We currently have 214 gross wells (15.5 net) waiting on completion and/or tie-in.  Our current net production is 19 MMcf/day.

On our non-operated leases in the northeast region of Pennsylvania, drilling activity continued at a brisk pace with approximately 12 rigs working in the play.  EXCO continues to run a three rig development program focused on multi-well pad drilling exclusively in Lycoming County.  Both Chief and Chesapeake are also very active with three and six rigs running respectively in the northeast area of Pennsylvania focused primarily on lease retention strategies. The Marcellus continues to experience high levels of activity as producers drill to hold acreage and explore new step out areas and slowly move into development.  There are currently 165 horizontal rigs running in the basin, concentrated in Pennsylvania and West Virginia.  Well performance for the year in northeast Pennsylvania continues to outperform our expectations.  Our partners are averaging 4,000 – 5,000 foot laterals, trending longer where acreage allows with an average of 8 – 15 frac stages.  Chesapeake is extending the lateral length on their latest wells to approximately 6,000 feet. Current well costs in the northeast are ranging from $6.5 million to $8.0 million, slightly higher than previous quarters due to longer laterals and an extra casing string for water protection. 

In our operated areas, we continue to run a one rig appraisal program and moved this rig from Clinton County, Pennsylvania to Preston County, West Virginia during the quarter. We drilled one well in southwest Preston County and are preparing to complete the well in early November.  We also recently finished drilling our second well in the southeast area of Preston County and will start completion activities following rig release on our first well in southwest Preston County. Both of these wells are expected to be tied-in to pipeline by late in the first quarter of 2012.  We plan to drill a third well in West Virginia before year-end and then move back to Clinton County to drill a second well during the winter.  Work on our initial well in Clinton County has been completed. Our extended test showed a 24 hour peak rate of 8.3 MMcf/day (our expected 24 hour peak rate was 3.5 MMcf/day) with flowing tubing pressure of 2,600 psi. 

Deep Tight Gas

Summary

While we’ve experienced a number of challenges in executing our 2011 capital program to date, we continue to be encouraged by our well results, the additional growth positions we have been able to build and the strength we have maintained in our financial position.  We’re excited about the prospects within our portfolio and the opportunity they represent for future growth in reserves, production and cash flow.  We have a very active capital program planned for the fourth quarter that we expect will add significant production volumes to achieve our exit target of 81,000 – 84,000 BOE/day.  While there continues to be much uncertainty and volatility in the capital markets as a result of debt issues in Europe and slow economic growth in the U.S., Enerplus is in a very strong financial position.  We have preserved our balance sheet strength and are utilizing it to achieve our growth plans in the near term and believe we are on track to deliver on these plans. 

Gordon J. Kerr
President & Chief Executive Officer
Enerplus Corporation

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