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PRESIDENT'S MESSAGEThe year 2006 marked another year of significant operational and financial success for Enerplus, but it was also impacted by the surprise announcement on October 31, 2006 by the Canadian federal government to completely reverse their position of one year ago that they would not impose a tax on trusts, such as Enerplus. While I will elaborate more on this action by the government, I want to first highlight that our primary business and focus has remained unchanged. We are committed to being a strong, technical oriented oil and gas company. Evidence of this commitment to being a top oil and gas producer is found throughout our 2006 annual report. In 2006 we completed our most ambitious capital program in our 20 year history, spending just over $491 million on our oil and gas activities. During 2006 we adjusted the allocation of our capital spending to focus on our higher return opportunities in response to cost inflation, significantly lower natural gas prices and strong oil prices. We shifted more of our spending to projects such as our Bakken oil development in Montana and reduced our shallow gas and coal bed methane programs in western Canada. As a result of our spending, we increased our production to an average of 85,779 BOE per day, up approximately 8% from last year, and increased both our cash flow from operations and distributions per unit by 11% and 13% respectively over the previous year. Cost inflation pressures, however, continued to impact on our operations in 2006 as they did industry wide. We experienced increases in our operating, general and administration and finding, development and acquisition costs per BOE compared to 2005. Also, while we are seeing some softening in inflationary pressures, competition for people and services remains tight. The following recaps our key accomplishments for 2006:
In addition to our operational and financial achievements in 2006, we also completed an in depth review of our conventional asset base resulting in an assessment that identifies approximately $2 billion of potential capital projects within our conventional asset base. This represents approximately 2,500 net drilling locations or roughly five years of conventional future development potential at current spending levels. These projects will support our operations in the years ahead through the development and addition of production and reserves. In addition to our conventional activities, we continued to advance on the Joslyn mine project. Our operating partner is in the process of responding to the supplemental information requests ("SIR's") in respect of the North Mine application. We are hopeful that regulatory approval to proceed with the North Mine development will be received in 2007. This could put us in a position to be able to record probable reserves in respect of the North Mine in 2007. An independent engineering assessment has determined Enerplus' 15% interest in the North Mine represents 140 million barrels of resource potential. Also, with respect to the Joslyn lease overall, we are in the process of developing the optimal lease development plan with our operating partner. This could result in more of the lease being targeted for mining extraction versus Steam Assisted Gravity Drainage ("SAGD") extraction. Mining extraction could result in higher ultimate recovery of the resource contained within the Joslyn lease area. In addition to progressing on the Joslyn project, we have also put in place a team of professionals with significant SAGD assessment and operating execution skills. It is our intent to pursue an operated SAGD project as part of our long-term growth and sustainability strategy. In the U.S. we completed the staffing of our Denver office and the full integration of operations in 2006. As a result, we achieved significant success on the execution of an expanded drilling program at Sleeping Giant, our major producing property in Montana. Our production of light sweet crude oil and natural gas out of the Sleeping Giant field grew from approximately 9,400 BOE per day in 2005 to average 11,300 BOE per day in 2006. Commodity PricesIn 2006, natural gas and crude oil prices were influenced by the standard set of factors: weather, geopolitical risk, inventory positions, economic expansion, investment in production, and the cost of substitute fuels. As we came out of a warm winter with high gas inventories, a subdued hurricane season ultimately drove the AECO monthly index price to a low for the year of $4.45/Mcf in October. Spot and forward prices recovered significantly as winter approached, with spot prices rising briefly above $8.00/Mcf before a warmer than normal November and December pushed the daily spot price back to $6.07/Mcf on December 31, 2006. Currently, the forward curve for 2007, influenced by cold weather in late January and early February, has regained strength and is in the range of $8.00/Mcf. World crude oil prices continued to be influenced by strong demand and geopolitical events through the first half of 2006, continuing the upward trend in prices experienced during 2005. WTI spot prices peaked in July during the Israel-Hezbollah conflict at US$77.03/bbl. With strong inventories, warmer than normal weather conditions expected for the winter, and continued strength on the supply side, prices fell thereafter through the second half of 2006. The WTI spot price hit a low of US$55.81/bbl in November, representing a 28% reduction from the July high. Late in the year OPEC agreed to cut production in order to better balance supply and demand, with the objective of protecting the WTI price from falling much below US$55/bbl. OPEC's actions, combined with cold weather in late January and February, has stabilized the price somewhat and the forward price for 2007 has now recovered to just above US$60/bbl. During 2006, our strategy of maintaining a mix of oil and gas in our portfolio proved beneficial in maintaining our distributions. Strong oil prices combined with the reallocation of our capital spending away from gas projects towards our more profitable oil projects helped us offset the impacts of a reduced gas price. As a result, we maintained our distributions at 42 cents per unit while others were cutting their distributions largely as a consequence of lower gas prices. We continue to remain bullish on oil and gas prices in the long term, however, we expect to experience volatility in the short term. We intend to continue with our price risk management strategies in 2007 as discussed more fully under the heading "Price Risk Management" in this report. Government and Regulatory DevelopmentsTaxation of TrustsOn October 31, 2006 the Finance Minister of Canada announced a plan which, among other things, would impose a 31.5 percent tax on certain income flows generated within trust entities. For existing trusts such as Enerplus, the tax would be imposed commencing in the year 2011. The announcement came as a surprise to financial markets and all concerned as it represented a complete reversal of the position taken by the ruling Conservative Party less than 12 months earlier. For Enerplus unitholders the immediate impact was to erode what would have been a double digit total return for the year to essentially zero. Since the announcement, a Ways and Means Motion has been passed in the Canadian House of Commons. Enabling legislation has been drafted but, as at the time of this report, has yet to be introduced into the House of Commons. Enabling legislation requires three readings and passage in the House of Commons as well as subsequent passage in the Senate before it becomes fully implemented. In the interim period, the House of Commons Standing Committee on Finance has held a series of special hearings on the plan to tax trusts. At this date the report of this committee has yet to be released. It should be noted that while the report of the Committee may influence the final legislation, there is no assurance that it will effect any change in the legislation as it is currently drafted. Immediately after the government's October 31 announcement Enerplus joined with other members of the energy trust sector to form the Coalition of Canadian Energy Trusts ("CCET"). Our primary purpose has been to bring forward factual arguments in support of an exemption for energy trusts from the government's proposed tax plan. We have conducted numerous meetings with federal politicians, media representatives and members of the analyst and investment community in an effort to deliver information and analyses we believe was totally lacking in the government's development of their tax policy on this matter. We believe these efforts, together with those of others directly impacted, including the millions of investors in trusts, resulted in the special hearings conducted by the House of Commons Standing Committee on Finance. Time will tell whether or not these efforts will have positive results. Greenhouse Gas Emissions and Climate ChangeA considerable amount of dialogue and action has developed internationally, nationally and locally on the issue of greenhouse gas emissions and connectivity to concerns over global climate change. The debate over the science of the issue has fallen to the wayside, particularly with the recent pronouncements coming out of the Intergovernmental Panel on Climate Change. While Canada had previously ratified its participation in the "Kyoto Accord", no legislation had been put in place to enforce change to accomplish the target reductions encompassed within the Accord. The targets have been widely considered unattainable by the business community without wreaking havoc on our economy. The question has now moved from "will regulations be put in place to reduce greenhouse gas emissions?" to "what form will emission reductions take, how will emission reductions be achieved, and how will the costs be shared?". Currently, Enerplus has minimal exposure to large facility emitter (LFE's) classes of facilities, however, future facilities associated with our Joslyn Creek mining development could fall into this category. We believe LFE's will be the first facilities to be impacted by any legislated government changes. It is expected that policy at both the federal and provincial levels will be unveiled in the first half of 2007. The energy industry is keenly awaiting this unveiling to determine its impact on current operations and future developments. Alberta Royalty ReviewIn December, 2006 the Alberta provincial government announced plans for a review of royalty structures in Alberta for both Crown owned conventional and unconventional oil and natural gas resources. A review panel consisting of economists, academics and former industry participants has been formed by the Minister of Finance. While no conclusions can be reached at this point as to the outcome of this review it was widely speculated that the rapid pace and magnitude of development in the Alberta oil sands combined with the public's perception of a 1% royalty on revenue before payout of oil sands projects served as the catalyst for this review. Approximately 70% of the royalties currently paid by Enerplus is to the Alberta government and in respect of conventional production. We do not expect a significant impact on our current operations coming out of this review but will have to await the results to make a proper determination. The government's review is expected to be concluded by August 2007 with findings and conclusions published shortly thereafter. 2007 OutlookAs we move forward into 2007 Enerplus is well positioned both operationally and financially to meet the challenges that face us in 2007. We will obviously be seeking greater clarity on the Federal government's taxation proposals, greenhouse gas emission initiatives by various governments and the Alberta government's royalty review initiative to determine their impacts on Enerplus' longer term strategic plans. For 2007 we have reduced our capital spending plans by approximately 16% compared to 2006, further high grading our spending on shallow gas and CBM projects and reflecting a lower spending requirement on our Bakken oil play in Montana. We expect to maintain our production in the order of 85,000 BOE per day and exit 2007 at approximately 86,000 BOE per day based upon spending $410 million on our capital programs and before considering any acquisitions we may make. As previously mentioned, we are seeing some signs of a softening in cost escalation pressure for supplies and services as capital expenditure programs have been reduced in the Canadian oil and gas sector, particularly on the natural gas side. However, the labour supply situation remains tight and a rebound in natural gas prices and associated activity could quickly reverse the trend. We will continue to expand our exposure to large repeatable resource type plays in both Canada and the U.S. In addition to expanding our technical capabilities in the area of oil sands SAGD operations and continuing to employ our shallow gas and waterflood expertise, we are also focusing on developing our deep gas capabilities. I strongly encourage interested investors to read our annual report in its entirety for a full review of our 2006 activities and future plans. As a final note, I once again extend my thanks to our Board of Directors for their guidance and support throughout the year. I also extend my thanks to our staff for their diligence in the conduct of all aspects of our operations and to our investors who have continued to support us as we move forward into 2007. Enerplus is a strong oil and natural gas company well positioned through our assets, strategies and people to succeed now and into the future. Gordon J. Kerr 
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