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2002 Annual Report > Who We Are - President's Message |
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PRESIDENT'S MESSAGE
Building on Success; Building for Success
Last year in my message to Unitholders, I described our vision
for Enerplus to be the premier energy income fund in North
America and outlined the strategic pillars that would serve as
the foundation for achieving this vision. It is our mission "to
be a top quartile performer, within the energy income fund sector, providing above
average returns to our Unitholders and recognized for responsibility, creativity,
consistency and as an employer of choice". We liken this somewhat to a marathon
race as opposed to a sprint. Our goal is to provide value to our Unitholders with
consistency over the long term.
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Gordon J. Kerr
President &
Chief Executive Officer
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In 2002, Enerplus achieved a number of successes consistent with our vision, not
the least of which was a total return to our Unitholders of 26.5% on the strength
of our unit price and cash distributions, placing us again in the top quartile of
performance within our sector. In fact, over the last three years, Enerplus
Unitholders have received an average annual total return of 52.1% putting us at
the top of our conventional oil and gas income fund peer group. In addition, we
achieved record production levels averaging 62,784 barrels of oil equivalent
("BOE") per day during 2002, exiting the year at 67,800 BOE per day, and a
record reserve level of 330.4 MMBOE of established reserves weighted 57% to
natural gas. The Fund's reserve life index has been maintained in the order of
13.8 years.
Emanating out of our supporting strategies, our growth in production and reserves
was attributable to both the successes in our exploitation activities and in
acquisitions. During 2002, we drilled 300 net wells with a 99% success rate, the
majority of which were targeted on our shallow natural gas properties. In addition,
we acquired over $218 million worth of oil and gas properties at an average cost
of $8.22 per BOE, with our largest transaction being the acquisition of Celsius
Energy Resources Ltd., a Canadian subsidiary of a U.S.based oil and gas
company. As discussed last year, we have taken a proactive approach to stimulating
acquisition deal flow and the Celsius transaction is a direct result of this approach.
As well, we have just closed our first major acquisition of 2003, the Canadian
subsidiaries of U.S.based PetroCorp Incorporated, for $167.6 million that
includes production weighted 74% to natural gas, again as a result of our proactive
acquisition efforts.
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our mission
To be a top quartile
performer within the energy
income fund sector,
providing above-average
returns to our Unitholders
and recognized for our
responsibility, creativity,
consistency and as an
employer of choice.
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Heather J. Culbert
Senior Vice President,
Corporate Services
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Garry A. Tanner
Senior Vice President,
& Chief Operating
Officer
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Eric P. Tremblay
Senior Vice President,
Capital Markets
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Jo-Anne M. Caza
Vice President,
Investor Relations
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Robert J. Waters
Senior Vice President &
Chief Financial Officer
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A strategic acquisition for Enerplus in 2002 was the acquisition of a 16% working
interest in Oil Sands Lease #24 in the Alberta oil sands fairway. The Alberta oil sands
is a world-class resource expected to produce in excess of one million barrels of oil per
day in 2003 and will play a pivotal role in the future of Canadian oil production in
the years to come. Not only is our investment in Oil Sands Lease #24 significant on
its own economic merits and scope, but it also allows the Fund to gain knowledge and
positioning in this strategic asset base with a relatively low capital investment. A
commercial steam assisted gravity drainage ("SAGD") project is currently under way
with first production expected in 2004.
Building from our strategy of accessing additional sources of capital, we successfully
completed two significant capital transactions in 2002. First, we placed US$175
million of senior unsecured 12 year notes at a very attractive all-in rate of 6.62% with
major institutional investors in the United States. This placement not only diversified
our sources of debt financing on a long-term basis, but also provided a critical review
of our credit worthiness. Second, we completed our inaugural cross border equity
issue in the last quarter of the year. As we began marketing the issue, there was a
tightening in the Canadian market given the significant number of new truststructured
issues facing investors. Despite this tightening, we were able to successfully
raise over $200 million as a consequence of our cross border access. As a result of our
successful issues and an increase in our total borrowing capacity to $700 million, we
have maintained a strong balance sheet and the financial flexibility to execute on our
exploitation and acquisition opportunities.
To ensure our continued success in both the exploitation and operation of our asset
base, especially in view of our increasing size, in 2001 we began the process of bringing
increased focus of smaller teams onto geographically defined play areas. In 2002 we
completed the transition by introducing multi-disciplined teams structured
around geographic business units. This transition has required significant input,
resources, and dedication from all areas of our organization not to mention
patience. I am truly grateful to all our staff for making it a reality. The value
creation opportunities and strategies being undertaken are discussed more fully in
the Business Unit Overviews section of this annual report.
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We have maintained a
strong balance sheet and
the financial flexibility
to execute on our
exploitation and
acquisition
opportunities.
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Ian C. Dundas
Vice President &
Director, Business
Development
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Wayne T. Foch
Vice President,
Finance
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David A. McCoy
General Counsel
& Corporate
Secretary
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Daryl W. Cook
Vice President,
Operations
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Daniel M. Stevens
Vice President,
Development Services
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Recent Developments
Concurrent with the release of our annual results we have also announced a
proposal for internalization of the management contract held by Enerplus Global
Energy Management Company ("EGEM") through the purchase of EGEM (the
"Proposal"). The details of this Proposal are set out in the information and proxy
circular in respect of the annual general and special meeting of Enerplus
Unitholders to be held April 23, 2003.
RBC Dominion Securities Inc., advisors to the Special Committee of the Board,
have provided a positive fairness opinion in respect of the Proposal. Both executive
management of the Fund and the Board are in favour of the Proposal, which will
eliminate all management fees going forward and thereby provide additional cash
flow which will be accretive to distributions. All members of the executive
management team will continue on in their existing capacities through and
subsequent to the Proposal.
Other recent developments affecting the Fund relate to the introduction of the
Sarbanes-Oxley Act in the U.S. This act was introduced as a consequence of the
numerous irregular corporate activities which have plagued the U.S. markets over
the past two years. The Act is intended to re-establish integrity and credibility with
investors in the U.S. markets. As the Fund, through the Board and its Manager,
has maintained a high level of corporate governance, I together with our CFO will
be able to meet the newly instituted certification requirements under the Act.
Finally, there is the matter of the Kyoto Accord and Canada's ratification of this
Accord. While we still await many details of the implementation plan, the oil and
gas industry has taken some comfort with the federal government's position to cap
the emission reduction targets for the industry and the cost of emission credits. We
do not expect this to be a material cost factor for the Fund's operations.
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2003 Outlook
As we move forward into 2003, there are a number of external developments
affecting our outlook. The most immediate and significant is the impending
conflict in the Middle East. The threat of war and supply disruption, the latter
being exacerbated by the strikes in Venezuela, has caused a significant upward spike
in crude oil prices. Compounding this further has been the run up in natural gas
prices as reflected through both the U.S. and Canadian indices. As a producer of
both crude oil and natural gas, Enerplus has benefited from the price movements
of both commodities. As a result, we recently announced an increase in the
monthly cash distribution to 35 cents per unit for the month of March. Based
upon current production levels and commodity prices, this level of distribution
will allow us to continue to fund a significant portion of our capital spending
program out of cash flow.
There is an expectation that pending the outcome of the situation in the Middle
East, crude oil prices could come down quickly on the restoration of Middle East
and Venezuelan supply. Natural gas, however, is being driven by more fundamental
supply/demand imbalances that support a more compelling case for continued
strong natural gas prices, although demand destruction and a weak U.S. economy
are expected to temper the absolute price levels. Based on this outlook, we have
shifted our acquisition and development focus to be more heavily weighted toward
natural gas although we will continue to maintain a relatively balanced portfolio of
oil and gas assets.
We will continue to monitor the commodity price markets and enter into hedging
arrangements in accordance with our hedging strategies. Under these strategies it
is our intention to provide downside price protection on a portion of our
production while maintaining significant exposure to upside price movement and
at the same time ensure we achieve positive economic returns on our exploitation
and acquisition activities.
We will also be focused on realizing the expected benefits of our reorganization
into Business Units. This reorganization has brought additional focus on
improving the value creation and business results from all of our existing assets. In
the last two years combined, we have seen record levels of reserve additions and
revisions which reflect our successful development efforts to create value. We will
continue these efforts in 2003 and in this regard, our Board has approved a capital
development budget of $155 million for 2003. The budgeted amount does not
include an allocation for acquisitions as these will be considered separately as
opportunities are brought forward. We will continue to be proactive in our
acquisition activities and to focus our oil and natural gas asset base as we target to
acquire attractive properties with solid fundamentals and upside value creation
potential. With respect to acquisitions, the proposed internalization of the
management fee arrangement, if approved, will better position the Fund for
consolidation in the energy trust sector should such opportunities provide added
value for our Unitholders. In addition, we will continue to monitor the entire
energy related acquisition market for opportunities that we can proactively pursue
to add long term value.
I want to once again thank my fellow board members for their support, guidance
and diligence in providing strategic direction for the Fund, with a special thanks
to Mr. Arne Nielsen who resigned from our board this last year after providing
many years of service to the Enerplus organization. I also want to thank all the
members of our organization who have continued to demonstrate the drive and
dedication necessary for the successes we have achieved and will continue
to achieve.
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We have shifted our
acquisition and development
focus to be more heavily
weighted toward natural gas
although we will continue to
have a relatively balanced
portfolio of oil and gas assets.
In the last two years, we
have seen record levels of
reserve additions and
revisions which reflect our
successful development efforts
to create value.
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On behalf of the
Board of Directors,
Gordon J. Kerr
President &
Chief Executive Officer
March 7, 2003
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