Enerplus has attempted to defy a trend in the oil exploration business of shrinking onshore reserves by acquiring 5 companies with substantial reserves since 2005, resulting in a 16% increase in net reserves.  Alberta, where the majority of Enerplus' activity takes place, has adopted a new tax law which goes into law in 2009 that increases royalties companies pay on oil development. The new statutes threaten the profits of Enerplus.  Enerplus has also invested in oil sands which are large tracts of oil saturated sand. These sands make up the second largest oil reserves after Saudi Arabia.
Enerplus is Canadian based, and the majority of its reserves are in Canada. It has five main regions: Alberta (73% of production), Montana (14% of production), Saskatchewan (8% of production), British Columbia (3% of production), and Manitoba (2% of production).
The company also extracts its fossil fuels through 5 specific play types:
Like many onshore companies in the oil and gas drilling and exploration sector, the company's oil and natural gas reserves have shrunk over the years. It was been able to reverse this trend in 2007 by following an aggressive acquisition strategy. Enerplus acquired 5 companies in 3 years, and enlarged both its total proved and probable undeveloped reserves in 2007 and 2006. However, despite these efforts, only 10% of Enerplus' proved reserves are undeveloped. This means that it is at or near maximum production levels.
Because of the nature of the oil and gas industry, a company usually encounters the majority of its costs while it establishes and drills the wells necessary for extraction. Once the wells are in place, revenue rises increasingly as more wells are built and more oil and gas are extracted. However, Enerplus has already developed the great majority of its reserves, and so its revenue has not increased over the past few years. Enerplus' average production rate has fallen from 85,779 Boe/d in 2006 to 82,319 Boe/d in 2007. This drop explains the fall in revenue from 2006 to 2007 despite a rise in gas and oil prices.
On July 3rd, 2008, crude oil futures reached a record high of $145.85. In 2000, the oil price per barrel was $20, but in 2007, it averaged $72. The global demand for oil and gas has risen dramatically as China, India and other emerging markets require more energy to power their industrializing economies. However, the supply of fossil fuels has not kept up with the skyrocketing demand and speculation that the world has passed peak oil are prevalent. The result is that the profit margins on oil and gas drilling and exploration have risen.
The fear of climate change has negatively impacted the coal industry. Coal releases nearly twice as much carbon dioxide and more than 5 times as much carbon monoxide as natural gas for the same amount of energy output. Natural gas also releases less sulfur dioxides and nitrogen oxides than coal when burned for electricity. Citigroup (C), J P Morgan Chase (JPM), and Morgan Stanley (MS) said in early 2008 that they will be unlikely to invest in coal burning power-plants. However, the demand for electricity grows annually by 2% and so utility executives have announced the construction of more generators powered by natural gas. North American natural gas production per person reached its peak in 1971 and the rise in demand will result in continued elevated prices. The rise in prices will raise the value and the profit margins of the 46% of Enerplus' proved reserves which are natural gas.
Like much of the industry, Enerplus has already heavily developed the majority of its lands and has ever shrinking on shore reserves. To rectify this problem, Enerplus acquired Lyco Energy Corporation in 2006, a private American company, for $501.9 million. The purchase gave the company access to 120,000 undeveloped acres. The region has a 92% light oil 8% natural gas mix. Enerplus also purchased TriLoch Resources Inc and Sleeping Giant LLC in 2005, and Kirby (KEX) and Focus Energy Trust in 2007. The TriLoch addition solidifies Enerplus' position in southern Alberta and gives it access to new NGL (Liquid Natural Gas), and the Sleeping Giant move gives Enerplus access to a very productive well. Kirby (KEX) gives the company access to new, larger oil sands and Focus Energy provides 84,744 MBoe (thousand barrels of oil equivalent) of mostly natural gas reserves. These acquisitions have caused Enerplus' net reserves to rise from 379,693 MBoe in 2005 to 440,234 MBoe in 2007. These acquisitions are necessary because Enerplus must acquire new reserves in order to defy the trend of ever shrinking onshore deposits.
In 2007, the government of Alberta released a new royalty regime on oil, natural gas, and bitumen. The new regime will go into effect January 1, 2009 and will alter the royalty rates. Rates on conventional oil range up to 50%, natural gas is set at 40%, and butanes and propane are set at 30%. The region has the highest number of Enerplus' oil and natural gas wells both producing and non-producing. 73% of Enerplus' production comes from Alberta and the majority of its undeveloped acres are in the Province.
Oil Sands are large tracts of dirt that are saturated with oil. After being processed, the oil can be separated from the dirt and refined like normal oil. The regions of Alberta, Canada and Venezuela are particularly rich in this form of oil. There are approximately 175 billion barrels of proven oil reserves, with the possibility of more buried deeper. This makes Alberta home to the second largest oil reserve after Saudi Arabia. Enerplus' Kirby acquisition and its Joslyn project are both based on this new form of oil extraction. Estimates as of 2007 predict that Kirby's oil sands will provide 244,374 million barrels of bitumen, while the Joslyn project will provide 306 million barrels of bitumen. Both of these projects are in development, but Enerplus' predicts production levels of 10,000 bbls/d by 2013. Enerplus has already spent $39 million and intends to spend $50 million more on developing the oil sands. Extraction of oil from the dirt is only profitable as long as oil prices remain high. These regions in Alberta have not been used in the past since prices were not high enough. If prices fall in the future, the oil sands will once again become unprofitable.
The US Energy Independence and Security Act established a 35mpg average for automakers and set a standard of 36 billion gallons of renewable biofuels by 2022. Renewable and alternative energy such as nuclear, solar, wind, biofuels, and ethanol have grown both in consumer demand and production levels. Concerns about environmental issues such as global climate change and excess pollution have also resulted in a decreased demand for oil and gas, thanks to the adoption of cars like Toyota's Prius. 24 US states have also adopted Renewable Energy Standards.
Enerplus is a land based oil and gas company. Unlike many of its competitors, it avoids the high costs of deepwater and the the ultra-deepwater oil and gas drilling and exploration, and it does not have to worry about poor weather. Hurricanes Rita and Katrina caused damage to 113 oil rigs in the Gulf of Mexico alone. The downside of staying on land however, is the price of the physical drilling grounds tends to be more expensive. On top of that, North American onshore drilling sites have become less numerous and less productive. As a whole, onshore drilling is on the decline in North America.
There are many companies within the oil and gas exploration and production sector, but the following companies are most similar to Enerplus for a variety of reasons.
|Crude Oil (Bbl/d)||34,506||130,498||422||3,606||2,579|
|Natural Gas (Mcf/d)||262,200||3,367,400||86,893||4,119||167,000|