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News Releases

Enerplus announces strategic oil sands acquisition and equity financing

March 22, 2007


    CALGARY, March 22 /CNW/ - Enerplus Resources Fund ("Enerplus" or the
"Fund") is pleased to announce that it has entered into an agreement to
acquire a 90% interest in the Kirby Oil Sands Partnership ("Kirby"), a
privately held partnership operating in the Athabasca oil sands fairway of
Alberta, for total consideration of $182.5 million, consisting of
$127.8 million in cash and the issuance of 1,104,945 trust units at a deemed
price of $49.55. As part of the acquisition, Enerplus will become the managing
partner and the operator of the project.
    This transaction represents a strategic acquisition of additional
long-term oil sands assets with steam assisted gravity drainage ("SAGD")
development potential that Enerplus believes will add significant long-term
value for our unitholders. Oil sands assets are a key resource play for
Enerplus given their lower geologic risk and the scalable development
associated with these types of assets. The addition of an operated SAGD
project compliments Enerplus' existing portfolio of non-operated oil sands
assets which include the mining and SAGD projects on the Joslyn lease.
Enerplus has assembled an internal oil sands team with expertise in developing
and operating SAGD projects.
    The transaction is expected to close on or about April 10, 2007, subject
to standard closing conditions. In conjunction with and in addition to the
trust units to be issued pursuant to the acquisition, Enerplus has agreed to
issue 4,050,000 million trust units through a bought deal financing at a price
of $49.55 per trust unit for gross proceeds of $200.7 million as described in
further detail later in this release. The proceeds of the equity financing
will be used to reduce the Fund's outstanding bank debt, including
indebtedness incurred in connection with the Kirby acquisition and the
previously-announced acquisition of a gross overriding royalty interest in the
Jonah natural gas field ("Jonah") in Wyoming for $60 million which closed on
January 31, 2007, and for future capital and general corporate expenditures.

    Acquisition Highlights

    -   The Kirby oil sands leases cover a large land block of 43,360 gross
        acres (over 67 sections of land) in a highly prospective area in the
        heart of the Athabasca oil sands fairway near several other major
        SAGD development projects currently on production.
    -   An independent engineering assessment conducted by GLJ Petroleum
        Consultants Ltd. ("GLJ") indicates a "best estimate" of contingent
        resources of 244 million barrels of bitumen (approximately
        220 million barrels net to Enerplus).
    -   Enerplus believes there is upside to the best estimate of contingent
        resources given the highly prospective location, indications from
        existing seismic and log data, the opportunity to develop oil sands
        with less than 13 metres of pay thickness, 19 undrilled sections of
        land and upside in the Wabiskaw formation.
    -   Enerplus' initial development plans include a 10,000 bbl/day SAGD
        project (9,000 bbls/day net) starting in 2011 with further expansion
        capability to a total of 30,000 - 40,000 bbls/day of gross bitumen
        production (27,000 - 36,000 bbls/day net to Enerplus) over time.
        Enerplus expects the project life of these SAGD developments to be in
        the order of 25 years.
    -   Enerplus estimates the initial capital requirements to bring the
        first 10,000 bbls/day of production on stream to be approximately
        $320 million net to Enerplus including estimates for cost inflation
        and contingencies. Further sustaining capital will be required over
        the remaining life of the 10,000 bbl/day project.
    -   Although we have the option of starting with a larger SAGD project,
        we believe the strategy of a 10,000 bbl/day project will allow us to
        expedite regulatory approvals, manage cost pressures and allow the
        knowledge and experience gained to be leveraged on the larger
        expansion. We would expect to see improved capital efficiencies on
        the project as it increases in size.
    -   Enerplus plans to commence development of the Kirby expansion project
        after the start-up of the first phase of the Joslyn mine project
        (representing 15,000 bbls/day net to Enerplus with anticipated start-
        up in 2013). The timing of any Kirby expansion, together with the
        Joslyn mining or SAGD operations, and other potential projects will
        be coordinated in order to balance the Fund's future capital
        requirements and production profile.
    -   This acquisition, combined with Enerplus' existing oil sands working
        interest in the Joslyn lease, provides an independently assessed
        "best estimate" of 443 million barrels of contingent resources in
        addition to 53 million barrels of proved plus probable reserves
        associated with the SAGD portion of the Joslyn lease currently
        included in our total company reserve estimates.
    -   Enerplus expects that cash distributions to unitholders will not be
        impacted by the acquisition or equity financing. Based on the Fund's
        cash flow from operating activities at December 31, 2006 and
        including the Jonah and Kirby acquisitions, and giving effect to the
        base equity offering, Enerplus will continue to have a debt to cash
        flow ratio of 0.8 times.

    Property Details and Development Plans

    The Kirby acquisition includes 43,360 gross acres of oil sands acreage
located in northeast Alberta in townships 73-75, Ranges 7 to 9, W4M in close
proximity to significant existing oil sands projects and infrastructure. The
geologic characteristics of the bitumen reservoirs found within this lease
show channel and valley fill deposits in the McMurray formation without any
"thief" zones which are sometimes found in SAGD projects and which can
adversely affect bitumen recovery factors, steam-oil ratios and project
    There are currently 49 wells which were drilled in connection with oil
and gas operations that provided delineation on the lease plus an additional
21 core holes along with 2-D and 3-D seismic which covers approximately 30% of
the lease. This core, log and seismic data were used in determining the
contingent resources on the lease that were quantified by the independent
third party engineering evaluation (see "Contingent Resource Estimates"
section below). The pay thickness included in the contingent resource estimate
is between 13 and 25 metres.
    Enerplus believes there is upside to the best case estimate of contingent
resources. Further delineation of the lease could identify additional
resources and expand the development area given indications from existing
seismic and log data and the fact that there are 19 undrilled sections of
land. We believe there is also an opportunity to exploit the resource below
13 metres of pay thickness which could potentially add resources. Finally,
additional resource potential may exist in other zones such as the Wabiskaw
    The depth of the target reservoir is approximately 475 metres below the
surface allowing the SAGD project to be operated at higher pressures and
providing an opportunity to use high pressure gas lift operations. These types
of operations are generally marked by relatively higher production rates and
lower operating costs than typical lower pressure operations. In addition, the
lease is located near existing infrastructure including highway 881, a rail
line and the Enbridge Athabasca System as well as the planned Access pipeline.
As part of the transaction, Enerplus is also acquiring the uphole petroleum
and natural gas rights on the same lands and the oil sand leases, excluding
existing gas wells and discovered gas pools.
    Enerplus expects to spend approximately $5 million for the remainder of
2007 and approximately $39 million in 2008 with respect to the Kirby project
to continue drilling core holes and to advance regulatory approvals and
engineering. The key objectives over the next two years will be to further
evaluate the lease potential, define the initial project area, refine initial
phase project costs, and secure regulatory approval. A full scale development
plan for the lease will be determined as we move forward, however Enerplus
expects final engineering and detailed initial phase development plans to be
completed in 2009 with construction to begin in 2010. Enerplus expects first
steam injection in 2011 with initial production 6 months thereafter and full
production approximately 12-18 months after initial steam injection.
    Enerplus expects any expansion of the Kirby SAGD project to occur after
the startup of the North Mine on the Joslyn lease, currently planned for
startup in 2013. The timing and extent of the expansion will depend on a
variety of factors including performance of the initial phase, performance of
the Joslyn mine and SAGD project, other project inventory, commodity markets
and overall capital requirements. Enerplus intends to coordinate the expansion
with other capital projects in the Fund's portfolio to manage the Fund's
overall capital commitments.
    Enerplus is actively evaluating the various bitumen and upgrading options
for both these volumes and volumes associated with our other oil sands
opportunities. Accordingly, marketing plans for the produced bitumen will be
announced at a later date. The acquisition has been valued on an after-tax
basis and Enerplus has accounted for the impact of the 2007 Federal budget
proposal to phase out the accelerated capital cost allowance for oil sands

    Contingent Resource Estimates

    Enerplus is acquiring a "best estimate" total of 219.8 million barrels of
gross working interest contingent bitumen resource based upon GLJ's
engineering report effective September 1, 2006, prepared to Canadian standards
using forecast prices (assuming a bitumen-diluent blended product) and costs
effective July 1, 2006. The following table summarizes the estimated
contingent resources for the Kirby Lease as contained in the independent
report, together with the amount attributable to Enerplus' proposed
acquisition of a 90% interest in Kirby.

    Contingent Resource Estimates for the Kirby Lease

                           Kirby Lease           Enerplus 90% Interest
                          Gross (Mbbls)              Gross (Mbbls)
                          -------------              -------------

    Low Estimate              91,287                     82,158

    Best Estimate            244,230                    219,807

    High Estimate            432,966                    389,669

    The resulting acquisition metrics are approximately $0.83 per barrel of
contingent resource before future development costs based on the "best
estimate" of the resources.
    Enerplus expects to book a portion of the current contingent resources as
probable reserves on or about year-end 2008 based on successful continuation
and results of the core hole drilling program, regulatory filing, updated
economics and the then current commodity price outlook, cost estimates, and
other economic factors. Enerplus expects additional proved and probable
reserve bookings based on the success and advancement of the project over the
ensuing years. For additional information on contingent resource estimates,
see "Information Regarding Contingent Resource Estimates" below.


    Concurrent with the acquisition, Enerplus has entered into an agreement
to issue, to a syndicate of Canadian underwriters, on a bought deal basis,
4,050,000 trust units at a price of $49.55 per trust unit for gross proceeds
of $200.7 million. Enerplus has granted the underwriters an option,
exercisable in whole or in part until 30 days following closing, to purchase
up to 607,500 additional trust units at the same offering price, to cover
over-allotments and for market stabilization purposes. Should the
underwriters' over-allotment option be fully exercised, the total gross
proceeds of the financing will be $230.8. We expect the equity issue to close
on April 10, 2007 and the new trust units issued would be eligible for the
April 20, 2007 cash distribution paid to unitholders of record at the close of
business on April 10, 2007. Completion of the equity financing and completion
of the Kirby acquisition are not dependent on the other transaction being
    The underwriting syndicate is led by CIBC World Markets Inc. and includes
RBC Capital Markets, BMO Capital Markets, Scotia Capital Inc., National Bank
Financial Inc., TD Securities Inc., Raymond James Ltd., Canaccord Capital
Corporation, FirstEnergy Capital Corp., HSBC Securities (Canada) Inc.,
Desjardins Securities Inc. and Tristone Capital Inc.
    The offering of trust units is being made only in Canada by means of a
short-form prospectus and is subject to normal regulatory approvals. The
securities offered have not been and will not be registered under the United
States Securities Act of 1933, as amended (the "U.S. Securities Act"), and may
not be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except in certain transactions exempt from the
registration requirements of the U.S. Securities Act. This release does not
constitute an offer for sale of trust units in the U.S.

    Cash Distribution for April 2007

    A cash distribution in the amount of $0.42 per unit will be payable on
April 20, 2007 to all Unitholders of record on April 10, 2007. The
ex-distribution date for this payment is April 5, 2007. The $0.42 per unit is
equivalent to approximately US$0.36 per unit if converted using a Canadian/US
dollar exchange ratio of 1.16. The US dollar equivalent distribution will be
based upon the actual Canadian/US exchange rate applied on the payment date
and will be net of any Canadian withholding taxes that may apply.

    Gordon J. Kerr
    President & Chief Executive Officer

    Forward-Looking Statements and Information

    This news release contains certain forward-looking information and
statements within the meaning of applicable securities laws. The use of any of
the words "expect", "anticipate", "continue", "estimate", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans", "intends",
"designed" and similar expressions are intended to identify forward-looking
information or statements. In particular, but without limiting the foregoing,
this news release contains forward-looking information and statements
pertaining to the following: the proposed acquisition of an interest in Kirby
by Enerplus and the future benefits of such acquisition to unitholders; the
amount of cash distributions to unitholders; the volumes and estimated value
of the Fund's future oil and gas resources and reserves; future bitumen
production from and prospects in the Kirby development; project life
estimates; future oil and natural gas prices and the Fund's commodity risk
management programs; future liquidity and financial capacity (including debt
to cash flow ratio); future results from operations, cost estimates; future
development, exploration, acquisition and development activities and related
expenditures, including with respect to the development of the Kirby project
and Enerplus' other oil sands projects; and the completion of an equity
offering by Enerplus.
    The forward-looking information and statements contained in this news
release reflect several material factors and expectations and assumptions of
the Fund including, without limitation: that the Fund will continue to conduct
its operations in a manner consistent with past operations; the general
continuance of current industry conditions; the continuance of existing (and
in certain circumstances, proposed) tax and royalty regimes; the accuracy of
the estimates of the Fund's resource volumes; the ability to acquire
sufficient financing on favourable terms and certain commodity price and other
cost assumptions. The Fund believes the material factors, expectations and
assumptions reflected in the forward-looking information and statements are
reasonable but no assurance can be given that these factors, expectations and
assumptions will prove to be correct.
    The forward-looking information and statements included in this news
release are not guarantees of future performance and should not be unduly
relied upon. Such information and statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in such forward-looking information
or statements including, without limitation: changes in commodity prices;
unanticipated operating results or production declines; incorrect estimates of
resources and reserves and upside potential on the Kirby properties; changes
in tax or environmental laws or royalty rates; increased debt levels or debt
service requirements; inaccurate estimation of the Fund's oil and gas reserves
volumes; limited, unfavourable or limited access to capital markets; increased
costs; the impact of competitors; and certain other risks detailed from time
to time in the Fund's public disclosure documents (including, without
limitation, those risks identified in this news release and in the Fund's
annual information form).
    The forward-looking information and statements contained in this news
release speak only as of the date of this news release, and none of the Fund
or its subsidiaries assumes any obligation to publicly update or revise them
to reflect new events or circumstances, except as may be required pursuant to
applicable laws.

    Information Regarding Contingent Resource Estimates

    "Contingent resources" is a recognized category of resources in the
Canadian Oil and Gas Evaluation ("COGE") Handbook and is defined as "those
quantities of oil and gas estimated on a given date to be potentially
recoverable from known accumulations but are not currently economic". However,
as indicated in the COGE Handbook, criteria other than economics may cause a
quantity to be classified as a resource rather than a reserve. The COGE
Handbook states that the following issues are contingencies that affect the
classification as resources rather than reserves: ownership considerations;
drilling requirements; testing requirements; regulatory considerations;
infrastructure and market considerations; timing of production and
development; and economic requirements. Contingent resources may also include
those quantities of hydrocarbons that are estimated to be potentially
recoverable using technology that is under development. Resources and
contingent resources do not constitute, and should not be confused with,
reserves. There is no certainty that any portion of the volumes currently
classified as "contingent resources" will be produced. The primary
contingencies which currently prevent the classification of the disclosed
contingent resources associated with the Kirby project as "reserves" consist
of: (i) an absence of a formalized near-term development plan, (ii) the
results of further delineation drilling, (iii) facility design and detailed
design estimates to confirm economic productibility, and (iv) the absence of
project regulatory applications. There are a number of inherent risks and
contingencies associated with the development, of the Kirby project and the
associated bitumen resources, including commodity price fluctuations, project
costs, receipt of regulatory approvals, commercial use of the SAGD technology
and those other risks and contingencies described above and under "Risk
Factors" Enerplus' annual information form dated March 12, 2007 (the "AIF"), a
copy of which is available on Enerplus' SEDAR profile at For
additional information with respect to the presentation and disclosure of oil
and gas reserves and resources, see "Presentation of Enerplus' Oil and Gas
Reserves, Resources and Production" in the AIF.

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