May 7, 2010

Strategic Execution

During the first quarter we continued to progress on our strategy to transition Enerplus into a growth and income oriented oil and gas producer. The addition of more early stage assets into our portfolio is critical to achieving the growth elements of our strategy. We are targeting to increase our interests in the Marcellus shale gas play principally in Pennsylvania and West Virginia, tight gas in the Deep Basin area of Canada and Bakken/tight oil in both Canada and the U.S. I am pleased to report that we have increased our interests in all of these play areas.

We increased our acreage position in the Marcellus play and now hold approximately 136,000 net acres of land primarily in Pennsylvania and West Virginia. As part of our recent acquisitions, Enerplus has secured lands where we will act as operator. We expect to drill our first operated well toward the end of 2010. To date our results in the Marcellus play have continued to meet or exceed our expectations with respect to production rates and assessments of contingent resources.

In April we acquired 154 new sections (approximately 100,000 net acres) of undeveloped land in southern Saskatchewan at a Crown land sale for $117 million. These lands are in an emerging Bakken play area and are contiguous to our existing land holdings. We now hold a 100% working interest in approximately 142,000 acres in the Freda Lake/Neptune area. To date we have drilled 4 wells on these lands, three of which have been completed applying multi-stage fracture technology, with the fourth well to be completed in the second quarter. We are encouraged by early test results in the area and will be doing further assessments once we are able to again access the area, post spring breakup. In aggregate we hold over 170,000 net acres of undeveloped land in the Bakken/tight oil areas of Saskatchewan, North Dakota and Manitoba which are in the early stages of development.

We have also increased our undeveloped land holdings in the Deep Basin area of western Canada where we now hold approximately 34,000 net acres of undeveloped land. Our primary focus in this area will be on the Montney and stacked zone potential in the Mannville. We have drilled two vertical wells on the lands and are currently evaluating these results.

We are also continuing with our plans to divest of non-core conventional assets to improve the focus in our asset base. We still expect to realize a minimum of $200 million of proceeds in the current year through a partial sale of the 14,000 BOE/day of conventional assets identified as non-core in our portfolio.

Our financial position and capacity remains strong. At the end of the quarter our unsecured $1.4 billion syndicated bank facility was totally undrawn. Our debt to trailing 12 month cash flow ratio is one of the lowest within our peer group at 0.7 times.

Operating Performance on Track

Our oil and gas production averaged 84,719 BOE/day during the quarter, on track with our expectations. Given the timing of our capital program, we expect our production will continue to increase throughout the year and meet our full year forecast of 86,000 BOE/day and our exit rate of 88,000 BOE/day, not including any acquisition or disposition activity that may occur throughout the year.

Our operations generated cash flow of $1.07/unit during the quarter which was up over the first quarter of 2009 primarily due to the strength of crude oil prices. Approximately 51% of our cash flow was distributed to our unitholders through our monthly distributions of $0.18/unit. We invested approximately $95 million in capital activities during the quarter and when combined with distributions, our adjusted payout ratio was approximately 101% of cash flow.

Operating costs of $9.96/BOE in the quarter were lower than our guidance of $10.90/BOE due primarily to the timing of annual maintenance activity expected in the second and third quarters. General and administrative costs of $2.56/BOE were also in line with our expectations.

Capital Program

We invested $95 million during the first quarter in capital programs, drilling 137.4 net wells across our portfolio of assets. Approximately 56% of our capital was invested in crude oil related development projects, primarily in our Bakken and crude oil waterflood resource plays. Our natural gas spending was concentrated in our Marcellus and tight gas resource plays, however, the majority of wells drilled during the quarter were located in our shallow gas resource play, taking advantage of the Alberta Drilling Royalty Credit program (‘‘DRC’’). We continue to expect to invest approximately $425 million in our assets during 2010; however, we may reallocate capital to oil related projects as we assess opportunities in our growth plays.

Marcellus Shale Gas

Activity in the Marcellus shale gas play in the U.S. continued throughout the first quarter despite record snowfall causing extremely wet surface conditions. A total of 12 gross wells were drilled during the quarter (2.7 net wells) across seven counties in Pennsylvania and we now have six rigs working in the play. Both completion activities and pipeline projects experienced delays in the quarter due to weather however activities are now back on track. Well costs continue to meet our expectations of approximately $4.5 million per well. Drilling days are trending lower than expected even though we are drilling longer horizontal legs with increased frac stages. Lateral lengths have ranged from 2,500 feet to 5,200 feet with 7 - 10 frac stages per well. We have drilled our first multi-well pad site with five wells and have recently completed three of these wells. Average 24-hour test rates of the last 10 wells drilled were 4.5 MMcf/day with the best well in the northeast development area testing at 8.2 MMcf/day and the best well in the southwest area testing at 7.1 MMcf/day. Marcellus production volumes for the quarter averaged 2.7 MMcf/day net to Enerplus and as of May 1, production volumes had increased to approximately 6 MMcf/day net. We continue to expect our exit volumes will be in excess of 18 MMcf/day net. We currently have an approximate 20% working interest in 19 gross producing wells (15 horizontal wells and 4 vertical wells) and 39 gross wells awaiting tie-in and/or completion.

Bakken/Tight Oil

We continue to build momentum in our Bakken/tight oil resource play through the acquisition of approximately 108,000 net acres of undeveloped land year to date as well as successfully executing our capital program. Enerplus now holds over 170,000 net acres of undeveloped Bakken prospective lands in both Canada and the U.S. and we continue to look for additional opportunities to grow this land base on both sides of the border.

The southeast Saskatchewan Bakken play has become a meaningful new prospect area for Enerplus. In the last six months, we have drilled and completed 3 Bakken horizontal wells with multi-frac completions in the Freda/Neptune area. Preliminary test results are positive and we expect to contract two drilling rigs to further delineate and develop the play on these 100% operated lands. Given the similarity in well depths and reservoir quality to our joint-venture assets at Taylorton, we expect similar type curves for successful wells on these new lands. We believe the economics of these wells will be attractive and expect that ultimately the play could be developed on the basis of up to four horizontal wells per section on a risked basis.

At Fort Berthold, North Dakota, we participated in the drilling of 3 horizontal wells (2 with a 50% working interest) during the quarter and currently have 2 wells completed and producing. The average lateral length of these wells ranged from 4,000 feet to 4,300 feet with 12 stage completions and 24-hour initial test rates have averaged approximately 1,100 BOE/day per well. We expect to have 3 to 6 more wells completed by the end of the second quarter. Given the success in this area, we expect that we may direct more of our 2010 development capital spending to the Fort Berthold area.

At Sleeping Giant, Montana, we drilled a total of five gross wells (3.5 net to Enerplus) which have been completed using multi-stage fracturing technology. As of May 1, all of these wells were on stream. Production rates on these wells are encouraging and we are evaluating results in conjunction with an analysis of the entire Sleeping Giant field. While we still expect to drill an additional four operated wells and two non-operated wells at Sleeping Giant during the balance of the year, we will be evaluating these plans in relation to our field analysis work and our other development opportunities including refracs.

Corporate Conversion

As a result of the Canadian federal government’s tax on trusts, we anticipate converting to a dividend paying corporation effective January 1, 2011. While our cash flows and the amount we distribute to unitholders will vary depending on commodity prices, production volumes and costs, we do not expect to adjust our monthly cash distributions solely as a result of our conversion to a corporation. We have approximately $3 billion in tax pools that can be used to provide shelter from cash taxes in Canada for three to five years beyond 2010 (depending on commodity prices, production volumes, capital spending and any acquisition and divestment activity we may transact) and expect to be taxable at an estimated rate of 10-15% following this period. Subject to the approval of our corporate conversion plan by the Board of Directors, we expect to proceed with a Special Meeting of Unitholders in December of this year and ultimately convert to a corporation on or about January 1, 2011.

We remain committed to providing investors with a superior investment within the oil and gas industry and believe that a business strategy that offers both growth and income can achieve this. We expect to continue to improve our asset base through the addition of earlier stage growth oriented assets to our portfolio and by divesting of non-core conventional properties. We believe this will create a stronger mix of assets that will improve our operating results and create value for our investors in both the near term and the future.

Gordon J. Kerr
President & Chief Executive Officer
Enerplus Resources Fund

To read the full First Quarter Report, click here.