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 2005 Performance and 2006 Outlook 2005 was a breakthrough year as we executed our business strategies on all fronts and achieved record levels of production, reserves, capital spending and opportunity generation. For the first time, we more than replaced 2005 production through conventional reserve additions on our existing assets excluding any volumes added through acquisitions. These replacements came from capital development and rising commodity prices. Our performance generally met or exceeded targets on all significant metrics and positions us for an even stronger year in 2006. We are focused on resource play development with a strong internal opportunity set combined with a skilled workforce to execute an even larger capital program in the future. In 2006 we expect to replace reserves once again through conventional and oil sands additions. We also expect to grow our production for the first time through our development program without reliance on new acquisition activity. Production 2005 production averaged 79,727 BOE/day slightly ahead of forecast based on better performance from our waterflood and shallow gas properties along with higher capital spending. Our exit production rate was 85,000 BOE/day essentially in line with our guidance of 86,000 BOE/day despite delays at our Bantry North development (1,400 BOE/day) and our coalbed methane projects (500 BOE/day). In total, approximately 3,800 BOE/day of production associated with 2005 capital spending is expected to come on stream early in 2006. Our 2006 average daily production is expected to increase to 84,000 BOE/day based on a full year of production from our U.S. assets and an expanded capital program. We expect to exit 2006 at 89,000 BOE/day, 5% above our 2005 exit rate without the benefit of additional acquisitions. Capital We invested a record $369 million on capital development in 2005, approximately 4% ahead of our guidance of $355 million. Through this spending, we added approximately 13,400 BOE/day of new production which offset the natural production declines of our assets. Our ability to bring on significant new production volumes through our development program speaks to the rich opportunity set that exists within our asset base and our technical skills in maximizing on these opportunities. While our capital efficiency of $27,500/BOE/day remains attractive, this metric was negatively impacted due to significant 'behind pipe' production associated with our 2005 spending, increased investments in long-term opportunities and inflationary cost pressures across the industry. Approximately 3,800 BOE/day of production associated with 2005 spending is delayed and expected to be on stream in early 2006. This negatively impacts our capital efficiency in 2005 but improves our capital efficiency in 2006. We also invested approximately $60 million in the oil sands, infrastructure, land, seismic, and exploration activities in 2005 which did not add current year production but will provide significant rewards in production and reserve growth in the future. The life-cycle of these types of projects range from one to several years, as seen in the oil sands and other resource plays. We expect this type of spending to represent 15-20% of our capital budget going forward. Inflationary cost pressures continue to be seen across the industry. We are experiencing double-digit inflation on a number of services and supplies across our business and expect that continued cost pressures will be evident as long as commodity prices and activity levels remain high. We plan to increase spending in 2006 by approximately 30% to $485 million on our development program and to drill over 550 net wells, almost a 40% increase over 2005. We also expect to invest approximately $90 million in long-term opportunities which are not expected to add significant production in the current year but will further position us for attractive production and reserve additions in the years ahead. This long-term capital is weighted approximately 50% to higher risk exploration activities. Overall we still expect an improvement in 2006 capital efficiencies to approximately $24,000/BOE/day due to the significant carry-over of 2005 production into 2006, lower infrastructure investment and an attractive inventory of development prospects. A majority of our capital budget in 2006 is discretionary and can be revised downward in the event of a commodity downturn or similar economic event.
2005 Capital Efficiency Summary
* 2005 production is not recorded for Joslyn as the operation has not reached commercial production levels. 2005 Drilling Activity We drilled 859 gross wells (393.3 net) during 2005 with an almost 100% success rate. Although we participated in the drilling of a record number of gross wells, our net wells were up only modestly from 2004 levels (393 versus 367) despite a significant increase in development capital spending. The increased spending was driven largely by a greater investment in infrastructure and oil sands development, a meaningful increase in higher cost oil wells and rising industry costs. Specifically, a number of our oil well drilling programs consist of horizontal wells which have a significantly higher cost than a typical shallow gas well, especially the deep Bakken wells in the U.S.
Future Opportunities We have been tracking our future development capital opportunities on existing assets as part of our annual budget and planning cycle. Throughout this time, we have seen our future development opportunity set increase dramatically through attractive acquisitions and robust technical work despite increasing capital spending each year. We currently estimate that we have a drilling inventory of approximately 1,500 net wells representing almost $1 billion in attractive investment opportunities on our existing conventional assets. This translates into almost four years of future conventional development opportunities based upon historic drilling levels and prior to any new acquisitions of land or properties. Over and above these conventional opportunities, we have also identified significant development potential at our Joslyn oil sands lease in the years ahead on both the SAGD and mine development. We see potential for $200 million in attractive SAGD future development and approximately $500 million in mining development exclusive of an upgrader solution. In total, Enerplus has line of sight to over $1.5 billion in future investment opportunities in our current portfolio. In 2006 our goal is to identify new opportunities which will more than replace the projects that will be executed in our 2006 capital program. These new opportunities will come through internal efforts on our existing lands and the acquisition of both undeveloped land and new producing properties. A majority of this growth is expected in our traditional focus areas including shallow gas, waterfloods, CBM and our most recent resource play addition, the Bakken. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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