— Production in the quarter averaged about 95,000 BOE/day, 7% higher than the year-ago quarter and corresponding to Enerplus Resources expectations’. As a result of reduced capital spending in 2009, the company is expecting production volumes to be lower throughout the remainder of the year. It will carry on to foresee average daily production volumes of 91,000 BOE/day with an exit rate of about 88,000 BOE/day based upon development capital spending of CAD300 million
— Enerplus Resources has realized an average selling price of CAD5.13/Mcf for its natural gas, a 32% decline from the year-ago quarter. The company’s crude oil production realized an average price of CAD42.41/bbl, down over 50% from the year-ago quarter
— As a result of lower commodity prices, cash flow from operations during the quarter was CAD169.4 million, 34% lower than during the same period previous year. In conjunction with the drop in prices and cash flows, the company has reduced its monthly cash distributions to unitholders in February to CAD0.18/unit in order to preserve Enerplus Resources’ financial flexibility. About 53% of the company’s cash flow was distributed to unitholders during the quarter against 75% previous year
— When Enerplus Resources combines cash distributions paid to unitholders with development capital spending, its adjusted payout ratio for the quarter was 112% or 107% before adjustments for working capital
— Enerplus Resources continued to invest in its asset base with about CAD99 million spent on development drilling and optimization activities during the quarter. The company has drilled 123 net wells with a 99% success rate this quarter with about 84% of the company’s capital spent on operated properties
— Enerplus Resources realized cash gains of CAD14.3 million on its natural gas hedges and CAD31.6 million on crude oil hedges. The company holds downside protection on about 27% of its crude oil production for the remainder of the year at an effective price of over $93/bbl, and about 26% downside protection on its natural gas production at an effective price of over CAD7.50/Mcf based on current forward market prices
— Enerplus Resources balance sheet remains very strong with a debt to 12 month trailing cash flow of 0.6x
Deferral Of Kirby Oil Sands Project:
On April 17, 2009 Enerplus Resources announced the deferral of its Kirby oil sands project. While the company believes there is long-term value in the Kirby project, the current cost structures, commodity price environment and its cost of capital do not offer a sufficient economic return for additional investment at this time. Enerplus Resources plan to complete an updated resource assessment this summer based on new data resulting from Enerplus Resources seismic program which began in late 2008 and to complete the regulatory application process by this fall as originally planned.
The company will not, however, carry on the advance engineering work which would have led to a sanctioning decision later in 2009. As it has already considerably decreased its spending plans on Kirby for 2009 to CAD25 million, the company only anticipates a modest decrease in the order of CAD5 million this year. Enerplus Resources expect to redeploy this capital into its growth budget, focusing on tight oil and tight gas development opportunities. It will continue to monitor economic, regulatory, market and technical developments which impact oil sands development and will revisit Enerplus Resources’ plans for Kirby as circumstances warrant.
Overview:
Enerplus Resources’ first quarter operating results were in-line with expectations with production averaging 94,962 BOE/day, operating expenses of CAD9.84/BOE and development capital spending of CAD99.2 million. Despite raised production levels, cash flow from operating activities decreased 34% to CAD169.4 million compared to the first quarter of 2008 because of lower realized crude oil and natural gas prices. As a result of lower commodity price levels Enerplus Resources’ price risk management program generated cash gains of CAD45.9 million and non-cash gains of CAD12.7 million.
Enerplus Resources will carry on focusing on cost control across all areas of its organization, including the development capital spending, operating expenses and general & administrative expenses. The company’s 2009 development capital program is still anticipated to total CAD300 million however the company is closely evaluating all projects and may look to shift some spending from gas to oil projects if natural gas prices remain at current levels. On April 17, 2009 it has announced that it is deferring further development of Enerplus Resources’ Kirby oil sands project as existing cost structures, the commodity price environment and its cost of capital do not offer a sufficient return for this project at this time.
At March 31, 2009 Enerplus Resources will continue to have a conservative balance sheet with over CAD950 million of available credit capacity and a debt to 12 month trailing cash flow ratio of 0.6x. The company believes that it is well positioned to capitalize on potential acquisition opportunities given its track record of strategic acquisitions and the strength of Enerplus Resources’ balance sheet.
Results Of Operations:
Pricing:
Natural gas prices continued to decrease during the first quarter of 2009. Winter weather this year was colder than normal across most of North America and imports of LNG into the US remained low. However, the combination of demand destruction from the weak economy and continued over-supply from US domestic natural gas production led to continued downward pressure on price throughout the first quarter of 2009.
Enerplus Resources has realized an average price on its natural gas of CAD5.13/Mcf (net of transportation costs) during the first quarter of 2009, a decline of 32% from CAD7.52/Mcf for in the year-ago quarter. The majority of its natural gas sales are priced with reference to the monthly and daily AECO indices. The decline in its realized natural gas price during the first quarter is comparable to the average change in the combined indices.
West Texas Intermediate (WTI) crude oil prices stabilized in the first quarter of 2009 after falling radically in the prior quarter. During the quarter WTI prices fluctuated between $33.98/bbl and $54.34/bbl and closed the quarter at $49.66/bbl. Key drivers supporting crude oil prices at this level are a reduction in OPEC supply, falling rig counts and a long term demand outlook which has resulted in a strong forward market. However, current fundamentals show crude oil storage at historically high levels with continuing weak global demand.
The average price Enerplus Resources received for its crude oil during the first quarter of 2009 decreased 51% to CAD42.41/bbl (net of transportation costs) from CAD86.02/bbl during the same period in 2008. In comparison, the WTI crude oil benchmark price, in Canadian dollars, decreased 45% from the corresponding period in 2008. The disparity between the change in the benchmark and the company’s average price can be attributed to Enerplus Resources’ light sweet oil produced in the US and the light/medium blends in Canada, both of which were subject to wider price differentials due to reduced refinery demand for lighter crudes.
The Canadian dollar averaged CAD0.80 per US dollar during the first quarter of 2009 versus being near par during the first quarter of 2008. As most of Enerplus Resources’ crude oil and a portion of its natural gas is priced in reference to US dollar denominated benchmarks, this movement in the exchange rate helped offset, in part, the decline in prices the company has realized overall.
