ENERPLUS WAS ABLE TO REPLACE OVER 75% OF ITS DAILY PRODUCTION VOLUMES IN 2003 THROUGH NET ACQUISITION ACTIVITIES. BY INCLUDING RESERVE REVISIONS FROM DEVELOPMENT ACTIVITY, OUR PRODUCTION REPLACEMENT INCREASED TO 99%
2003 was another successful year for acquisitions at Enerplus. We added to our core properties in the non-operated foothills, shallow natural gas and waterflood areas, spending $225.3 million to acquire
28.1 million BOE of proved plus probable reserves, 87% of which were proved. Significant transactions included PCC ($166.9 million), Freda Lake ($15.2 million) and various interests in the Joarcam area ($16.4 million).
In addition, we divested of $73.2 million of non-core properties with associated production of approximately 3,000 BOE/day and established reserves of 9.2 million BOE. These properties were generally small working interests in non-operated areas with low upside potential. Enerplus realized metrics of $7.96/BOE and $24,376/BOE/day on these dispositions. Given the size, low percentage of Proved Developed Producing (“PDP”) reserves, a 5.0 year PDP RLI, and high operating costs associated with these assets, these metrics are quite favourable. We will continue the process of acquiring new properties and rationalizing marginal properties throughout 2004.
2003 Acquisition and Divestment Summary
|
Cost/Proceeds
($millions) |
Estab. Reserves
MMBOE (1) |
Production
BOE/day |
Cost/Estab. Reserves
($/BOE) (2) |
Cost/Production
($/BOE/Day) (2) |
|
|
|
|
|
|
Acquired |
225.3 |
28.1 |
5,595 |
$8.02 |
$40,268 |
Divested |
(73.2) |
(9.2) |
(3,003) |
$7.96 |
$24,376 |
Net |
152.1 |
18.9 |
2,592 |
|
|
(1)Based on established reserves as determined at the time of the acquisition or disposition. Changes, if any, associated with NI 51-101 were captured under revisions at year end.
(2)Based on initial cost excluding future development costs if any.
Value Creation Key to Acquisition
OUR ACQUISITION COST WAS AN ATTRACTIVE $8.02 PER ESTABLISHED BARREL OF OIL EQUIVALENT ACQUIRED
In 2003, we continued to focus our acquisition activities on assets where we have a competitive advantage. These include executing low-risk development drilling programs, increasing reserve recovery through waterflood optimization and low cost well recompletions. Recent acquisitions where these advantages exist include shallow gas drilling in Shackleton (Ice Energy), waterflood expansion in Joarcam, infill drilling in the Northern Foothills area (PCC), NGC development in Joffre (Ice Energy) and oil recompletions at Freda Lake.
In 2003, we capitalized on the value of the Celsius assets acquired in late 2002 through significant shallow natural gas development. This has resulted in production increasing from 4.5 MMcf/day to 9 MMcf/day on key shallow gas properties since the acquisition.
PCC ACQUISITION
The acquisition of PCC Energy Inc. and PCC Energy Corp. closed March 5, 2003 at a price of $166.9 million for 16.5 MMBOE of established reserves. The PCC assets included principally non-operated interests in long life, high netback, natural gas properties with significant infill drilling upside. The properties are located primarily in the central foothills area of Alberta and included a strategic interest in the 300 MMcf/day Hanlan Robb Gas Plant.
Equity Investment Strategy
Enerplus implemented a new strategy in 2003 of making equity investments in selected junior oil and gas exploration companies.
THE STRATEGY IS DESIGNED TO CREATE A LIMITED NUMBER OF RELATIONSHIPS WITH MANAGEMENT TEAMS WHO CAN PROVIDE VALUE THROUGH TECHNICAL INSIGHT IN OUR CORE AREAS, STRATEGIC ACQUISITIONS, PARTNERING OPPORTUNITIES AND VALUE ON THE EQUITY INVESTMENT ITSELF
During the year, Enerplus invested a total of $7.4 million, including an investment in Ice Energy. The initial investment in Ice Energy facilitated our acquisition of the entire company in early 2004.
Enerplus plans to pursue this investment strategy on a limited basis and expects our exposure to be approximately $10 million at any one time. We will be highly selective and will only invest with management teams that have a good strategic fit with Enerplus and an attractive investment risk/return profile.
Subsequent Acquisition of Ice Energy Ltd.
On January 7, 2004, Enerplus acquired all of the outstanding shares of Ice Energy, a private company focused on shallow natural gas development in Saskatchewan and Alberta, for total consideration of $132.2 million.
ICE ENERGY PROVIDES ENERPLUS WITH A NEW CORE SHALLOW GAS AREA WITH SIGNIFICANT DEVELOPMENT POTENTIAL IN THE SHACKLETON REGION OF WESTERN SASKATCHEWAN.
Production from Ice Energy was in excess of 2,300 BOE/day at closing and with anticipated development drilling, is expected to average 2,600 and 3,000 BOE per day in 2004 and 2005, respectively. We have identified over 250 shallow gas development drilling locations within the properties and estimate capital expenditures to be approximately $20 million and $25 million in 2004 and 2005.
A total of 13.9 MMBOE of proved plus risked probable reserves were acquired, based upon internal engineering estimates using the methodology prescribed in National Instrument 51-101. Included in the acquisition are 72,500 net acres of undeveloped land valued at approximately $9.2 million that will provide further development opportunities to the Fund. In addition, the Ice Energy assets include a 50% working interest in a NGC project.
