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2002 Annual Report > How We Create Value |
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HOW WE CREATE VALUE
The keys to our historical and future successes are our focus on portfolio management,
value creation on our existing asset base and risk management.
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PORTFOLIO MANAGEMENT THROUGH ACQUISITIONS AND DIVESTMENTS
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Enerplus enjoyed a successful year on the acquisition front in 2002 closing
$218.7 million of acquisitions resulting in the addition of 26.6 MMBOE of
established reserves and 7,548 BOE/day of production. Established reserves and
production were added at $8.22/BOE and $28,970 per BOE/day respectively.
These acquisitions replaced 116% of 2002 production and will provide significant
low-risk development potential in the future.
Enerplus has one of the most diversified, quality asset bases in the trust sector with
an established reserve life of 13.8 years and a 57% reserve weighting toward natural
gas. Acquisition efforts are driven by a disciplined approach to add accretive cash
flow, replenish our value creation opportunities, and maintain a balance of oil and
natural gas production (with a present emphasis toward natural gas). Our focus is
on existing core areas that have provided historical value creation. The historic core
areas have common producing characteristics that have been proven over time
including limited reserve risk, limited cash flow risk and incremental upside
potential. During 2002, Enerplus also positioned itself in potential new areas
including the Athabasca oil sands. Periodically, we will also divest of certain smaller
holdings to monetize higher risk assets and assets with limited value
creation potential.
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- Closed $218.7 million of
acquisitions
- Added 26.6 MMBOE of
established reserves and
7,548 BOE/day of
production
- Acquisition cost of $8.22
per BOE of established
reserves and $28,970 per
daily barrel of production
- Acquisitions replaced
116% of 2002
production on an
established basis and will
provide significant lowrisk
development potential
in the future
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2002 Acquisition Activity
Med. Hat Glauc. "C" Additional Working Interest: In keeping with our strategy
of increasing ownership in existing long-life, key operated properties that offer
upside potential, the first property acquisition completed in 2002 was the purchase
of additional interests in the Medicine Hat Glauc. "C" crude oil property for
$20.5 million. The transaction increased the Fund's working interest and added
established reserves of 4.9 million barrels of crude oil and 2.0 Bcf of natural gas
and daily production volumes of 500 barrels of crude oil and 600 Mcf of natural
gas. Additional upside potential has been realized through the implementation of
a waterflood program that has added incremental reserves and production to
this property.
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Med. Hat Glauc. "C"
- $20.5 million
- 5.2 MMbbl of established
reserves
- 600 BOE/day of
production
- Upside waterflood
potential
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Strategic Investment in Oil Sands Lease #24: During the third quarter of 2002,
Enerplus completed a strategic acquisition of a 16% working interest in Oil Sands
Lease #24 for $16.4 million. Oil Sands Lease #24 is a 50,000-acre lease situated
approximately 40 miles northwest of Fort McMurray in the Athabasca Oil Sands
fairway of northeastern Alberta with both steam assisted gravity drainage
("SAGD") and mining potential. The long-term strategic nature of this
investment, combined with modest initial capital exposure, provides Enerplus an
ideal entry into the development of the Athabasca Oil Sands - a key driver in the
future of the Western Canadian Sedimentary Basin. Over the longer term, this
investment is expected to provide Enerplus unitholders exposure to significant
low-cost reserves and stable production growth.
Initial assessment work for a SAGD project has been completed on the lease,
including the drilling of 230 core hole wells, a third party independent engineering
assessment, and the completion of a successful SAGD pilot project. The next phase
of the project will consist of a commercial SAGD project that is scheduled to
commence in 2003 with peak production expected by early to mid 2005.
Following this project, Enerplus has the option to participate in full-scale
development of the lease. Current plans by the operator contemplate development
of up to two 30,000 bbl/day projects with production from the first 30,000
bbl/day SAGD project expected on stream by 2008. Once fully developed, each
SAGD project is expected to have an established Reserve Life Index in excess of 25
years. Recoverable reserves associated with each 30,000 bbl/day SAGD
development are estimated to be 275 million barrels of oil (44 million barrels net
to Enerplus with a net cost of approximately $50 million). In keeping with current
industry practices, Enerplus has not recorded any reserves for this investment but
expects to record reserves as the projects are developed over time.
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Oil Sands Lease #24
- $16.4 million to acquire
16% W.I.
- 50,000 acre lease in
Athabasca oil sands
fairway
- Two 30,000 bbl/day
SAGD projects
- Established RLI in excess
of 25 years
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Celsius Energy:In October 2002, Enerplus acquired Celsius Energy
Resources Ltd. ("Celsius"), a wholly-owned subsidiary of Questar Market
Resources Inc. for a total consideration of $161.4 million including costs and
adjustments incurred in connection with the acquisition. This transaction is
consistent with our strategy of expanding the production base in our core areas and
acquiring significant low-risk development potential. Daily production volumes
acquired consisted of 22.5 MMcf/day of natural gas, 1,724 bbls/day of crude oil,
and 280 bbls/day of natural gas liquids (5,750 BOE/day) and added established
reserves of 18 MMBOE. The Celsius assets provide excellent synergy with
Enerplus' existing assets, particularly in the Verger, Countess, Pine Creek and Deep
Basin areas and we have identified over 300 low-risk development drilling
locations on the Celsius properties.
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Celsius Energy:
- $161.4 million
- 5,750 BOE/day of
production
- 18 MMBOE of
established reserves
- Over 300 low-risk
development drilling
locations
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PCC Energy Inc. and PCC Energy Corp.: Subsequent to year-end, Enerplus
acquired all of the outstanding shares and debt of PCC Energy Inc. and PCC
Energy Corp., (collectively "PCC") which are wholly-owned Canadian
subsidiaries of US-based PetroCorp Incorporated for $167.6 million. This
transaction provides high-quality, long-life gas assets in large established pools and
adds approximately 4,380 BOE/day of production and 17.2 MMBOE of
established reserves after adjustments for a royalty arrangement to a third party
which is structured as a Net Profits Interest. The properties have an established
reserve life index of 10.7 years and 74% of the production is natural gas.
Approximately 79% of the value of PCC is concentrated in eight properties, which
are high quality, long-life, deep-gas properties with drilling potential. The
operating costs associated with the PCC assets are approximately $4.00/BOE. The
production and reserves associated with this acquisition will be recorded by
Enerplus from March 2003 onward.
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PCC Acquisition
- $167.6 million
- 4,380 BOE/day of
production
- 17.2 MMBOE of
established reserves
- 10.7 year established RLI
- $4.00/BOE operating
costs
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Divestments
Enerplus continually pursues divestment opportunities to upgrade its portfolio of
properties by monetizing higher risk, non-core assets with limited development
potential. The assets sold are generally minor working interests and represent a
small percentage of the Fund's overall portfolio. In 2002, Enerplus divested $3.1
million of non-core properties that produced 202 BOE/day of production and had
associated established reserves of 646 MBOE. Enerplus plans to continue with its
divestment program in 2003
Acquisition Summary
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| Daily Production ¹ |
3,064 |
25,098 |
301 |
7,548 |
$28,970 |
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| Reserves: |
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| Proven |
7.8 |
79.3 |
1.1 |
22.1 |
$9.90 |
| Established |
10.5 |
89.0 |
1.3 |
26.6 |
$8.22 |
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