|
|
 |
|
| 2001 Annual Report > President's Message |
   |
|
Enerplus led the Canadian conventional oil and gas sector in
total return for 2001
2001 ACCOMPLISHMENTS
2001 was a very exciting and rewarding year for
Enerplus and its Unitholders. Through the merger of
EnerMark Income Fund with Enerplus Resources Fund,
Enerplus is now the largest conventional oil and gas
income fund in North America with a market
capitalization of $1.7 billion and an enterprise value
of over $2 billion. On a combined basis, Enerplus has
achieved record levels of production at 62,615 BOE
per day, funds flow from operations of $410 million,
and the drilling of 350 net (598 gross) wells with a
99% success rate, while maintaining a healthy
established reserve life index in the order of 14 years.
Distributions, together with the year over year change
in
Unit price, have placed Enerplus Unitholders in the
number one position in the conventional oil and gas
income fund sector with a total return of 34% for
2001.Likewise, former Unitholders of EnerMark
Income Fund who retained their ownership through
the merger to year end enjoyed a total return of 22%.
We have seen a significant increase in U.S. investor
interest in the Fund with our current U.S. ownership
in excess of 20% versus under 5% a year ago.
VISION
Our vision for Enerplus is to be the premier oil and
gas income fund in North America. To achieve this,
we recognize the need to deliver consistent, above
average returns to our Unitholders. The strategic
pillars upon which we expect to accomplish this
objective are based on Enerplus being a successful
acquirer, efficient exploiter, low cost operator, and
having access to capital, all surrounded by an
organizational infrastructure supporting these
strategies.
Enerplus has been in operation for over 15 years
and during this time has built a reputation of being
a leader in the Canadian oil and gas income fund
sector. In the past two years, we have taken a
number of significant steps forward in distinguishing
ourselves in the sector in line with our vision.
Our affiliation with El Paso Energy Corporation,
the parent Corporation to our manager Enerplus
Global Management Corporation, has further
enhanced our ability to do business in Canada and
access capital in the U.S.
ACQUISITION
In 2000, the Enerplus Group completed nearly one
billion dollars of merger and acquisition activities.
These transactions were consummated during a time
of lower commodity prices somewhat akin to what
we are currently experiencing. The result was a
doubling of the asset base as well as a further
diversification of the asset holdings. In 2001 our
acquisition activities were virtually offset by our
divestitures. We were disciplined during 2001 in
applying our evaluation and bid parameters at a time
when there was a certain euphoria surrounding
rising commodity prices, especially with respect to
natural gas. Our ability to successfully penetrate
acquisition markets in 2002 will be predicated upon
seller price expectations as well as strategic fits with
our business model.
During the last two years, virtually the entire midsized
Canadian exploration and production ("E&P")
based companies have disappeared as a result of
merger and acquisition ("M&A") activity. We believe
the size we have achieved through this period,
together with our expertise in the Western Canadian
Sedimentary Basin, places us in a more favourable
position to compete not only on large corporate
transactions, but on larger sized asset packages which
we expect to be forthcoming out of the M&A activities
of larger cap E&P companies.
In addition to achieving the size to be successful at
acquisitions, we are also taking a proactive (versus
reactive) approach to increasing our opportunity for
deal flow. On this front, we have been actively
approaching industry E&P partners to heighten their
awareness of our capacity as well as how we can play
a complementary role to their business.
EXPLOITATION
In our industry role as a low risk producer, we do not
attempt to develop cutting edge technologies but
rather, to extract maximum value from our asset base,
we employ proven technologies supplemented by
reservoir modeling techniques. Our focus in 2001 was
on the exploitation of the assets we acquired in 2000.
As previously mentioned, we participated in the
drilling of 350 net wells in addition to numerous
facility and enhancement projects. The latter included
eight major waterflood projects, sixteen compression
installations, and a number of well workover
programs. These activities coincide with our
underpinning strategy of being an efficient exploiter.
OPERATING EFFICIENCY
With the drilling of 350 net wells, we were able to
essentially achieve our targeted production for 2001.
As part of our strategy for ensuring we maintain our
position as a low cost operator, we have aligned our
operations teams to enable them to focus on
operations in a particular geographical area and
maintain alignment with actual conduct of operations
in the field. At the same time, oversight responsibilities
at the senior management level ensure consistency
in operating standards, dissemination and sharing of
information among the various teams, and ensuring
that we take advantage of our aggregate buying
power as a consumer of supplies and services. In
addition, we are employing benchmarking data to
improve on the competitiveness and efficiency of our
operations on an area by area basis.
ACCESS TO CAPITAL
Over the course of the last two years, the trust sector
overall has enjoyed ready access to capital in the
Canadian marketplace. Since our listing on the
New York Stock Exchange ("NYSE") late in 2000, we
have positioned ourselves to have even greater access
to capital through the U.S. markets. The interest in
Enerplus is illustrated by the increase in U.S. ownership
which is currently in excess of 20%. We see two key
benefits of this additional access to capital. Firstly,
diversification of and increased depth in our access
to capital, and secondly, the potential to lower our
overall cost of capital. Both of these factors enhance
our competitive advantage with respect to acquisition
opportunities. Again, we have been proactively
communicating with E&P companies to improve their
understanding of how we access a different investor
appetite (lower risk oil and gas investment with yield
orientation) that can efficiently bring capital into the
Canadian oil and gas industry.
ORGANIZATION
Finally, with respect to the organizational
infrastructure surrounding our strategies, we ensure
we have experienced oil and gas personnel in place
in order to execute these strategies. Additionally, we
monitor responsibility levels, business structures, and
technology tools available to ensure we maintain
creativity, responsiveness and efficiency in the conduct
of our business. We have also realigned the structure
of our management contracts to be more performance
based as opposed to transactional based, a concept
we have carried through to our employee
compensation practices to ensure all stakeholders'
(Unitholders, manager, and employees) interests
are aligned.
Through the merger of EnerMark with Enerplus, a
new board of directors has been constituted, chaired
by an independent chairman, Mr. Doug Martin, and
comprised of a majority of independent board
members. The board is charged with, among other
responsibilities, the overall strategic direction of the
Fund. I wish to thank my fellow board members for
their wisdom and guidance in the setting of our
strategic direction.
OUTLOOK FOR 2002
As we move into 2002, we've come from a backdrop
of volatility in oil and gas prices, exacerbated by
global economies in a recessionary mode through
the latter half of 2001 and into the first quarter of
2002. As with almost any swing in economic
conditions, opportunities are created.
We believe that our opportunities to consummate
oil and gas acquisitions will be elevated in the current
year. This will be a primary focus for our organization
in 2002. We will continue to monitor and evaluate
acquisition opportunities as they are brought to the
market, however, we will also aggressively pursue
internally identified opportunities where we believe
we have a high probability of negotiating a successful
transaction that fits within our criteria for acquisition.
In addition to targeting
value-adding acquisitions,
we have also planned another sizeable development
drilling and exploitation program for 2002. Our board
has approved a $130 million capital spending program
exclusive of any acquisition opportunities presented
for separate consideration. Our spending for 2002 is
targeted 35% to light oil development, 35% to
shallow gas development, 15% to medium depth and
deep gas development, and 15% to medium and
heavy oil development.
While we have planned for the program as referenced,
we will be prepared to shift additional capital resources
towards acquisition opportunities or, alternatively,
conserve our capital resources should a decline in
commodity prices occur that reduces the benefits of
planned spending below our economic thresholds.
Our recently announced monthly distribution of
20 cents per unit payable March 20th, is indicative of
maintainable distribution levels based upon where
commodity prices existed during January 2002 and
providing some allowance for capital spending. I
encourage readers to review our full annual report
inclusive of our management's discussion and analysis
to gain a more comprehensive view of our activities
in 2001 and our direction going forward.
As a final note, I want to thank all of the members of
our team here at Enerplus. Through the dedication,
expertise and creativity of our team, we have achieved
great success and I am confident we will continue to
do so in the future.
On behalf of the Board of Directors,
"signed"
Gordon J. Kerr
President and Chief Executive Officer
March 1, 2002
|
 |
|
|
|
