Enerplus Executive Insights: Fort Berthold Exit Rate, Hedging

On Friday, Enerplus Corp (NYSE:ERF) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Fort Berthold Exit Rate

Roger Serin – TD Securities: Three questions. First question, could you give me sense of what you think your exit rate is going to be from Fort Berthold for 2012? I know you used can’t. Will you give me an exit rate?

Gordon J. Kerr – President and CEO: Our Chief Operating Officer might take a shot it.

Ian C. Dundas – EVP and COO: I think we targeted – we initially thought about 15,600 barrels of equivalent. Directionally, I think that holds, Roger. Depending upon costs and how those materialize over the course of the year, that could move around a little bit, but directionally, we are pretty encouraged by the growth that’s happening there.

Roger Serin – TD Securities: So, if I’m doing the math right now, quite double from current levels?

Ian C. Dundas – EVP and COO: Correct. Yes.

Roger Serin – TD Securities: We’ll keep it simple. Second question, as it relates to your Duvernay activities, you’ve drilled one vertical. Earlier in the year, you had talked about perhaps following that up in the second half of the year with either additional verticals or horizontals, could you give us an update as to your current plans?

Gordon J. Kerr – President and CEO: I’ll let Ian talk, but we haven’t drilled on Duvernay at this point just to be clear as we talked about vertical on Montney, but go ahead Ian?

Ian C. Dundas – EVP and COO: Yeah, so Roger, just to be clear, we haven’t drilled any wells. We have had a fair amount of offset activity. The Bellatrix announced a well recently that was just a little bit of South and West of our acreage, and then there has been activity on the East and Southern part. Regionally, I guess last quarter, we were talking with possibility of two vertical wells, largely because we’ve now seen offset activity and we’re learning from that, we think likely the best plan for us is one vertical well likely towards the northern end of our acreage, and since things dry up I think the (guys are getting) back kicked off, so we’ll evaluate that well, but the plan at this point would be to move after that to a horizontal well likely in the same type of area, timing of that is probably early 2013 when we get time to evaluate it.

Roger Serin – TD Securities: My last question I think is, do you guys have a Board governance policy that relates to term of office, you even had a number of board members who have stepped down and could you give us some color on that?

Gordon J. Kerr – President and CEO: Yeah, there is a policy in place and in fact it was – the good term to use it, was grandfathered in terms – and it’s an age-related policy. So, two of the directors would have basically been retiring, of course, Don West was one of those directors and Harry being the other one as a consequence, and then of course Mr. Zorich and Mr. Woitas also made their determination to retire for personal reasons and associated with their lifestyles to say more than anything or their business activities.

Hedging

Gordon Tait – BMO Capital Markets: Just on the hedging, I think you saved about 27% of your summer gas hedge, gas prices have come up a bit for the last few weeks are you looking to lock in anymore?

Ian C. Dundas – EVP and COO: Well, first of all what we said was we have fixed contracts in place for about 27% of the production from April through to October and that was at $2.17 an Mcf. So, we don’t have any financial hedges in place on the gas. That will be a topic of discussion, but we haven’t moved on anything there in the gas front.

Gordon Tait – BMO Capital Markets: Can you maybe give us, what sort of a price it would take at least on the gas side where you’d be more comfortable with you current rate of spending and funding without having to make some of the changes that you highlighted in your comments?

Gordon J. Kerr – President and CEO: Well as far as comfortable on level of spending, I mean this year of course we are trying to scale back on our spend overall. We said, we are not spending anything on the dry or the shallow gas in Western Canada and our focus has been on the Marcellus and mostly to preserve acreage in that. If we start to see prices that move up pass the ($354) range really encourages us. Ian already mentioned, for example, in our Stacked Mannville play is that the economics are really robust, but we are going to go to slower pace there just to watch and see what develops up on the price front as well as activity around us. I don’t think at this particular point in time we have any plans to accelerate beyond what we are doing right now. Again, we are all looking to see what’s going to happen on natural gas improvement on the price trend.

Gordon Tait – BMO Capital Markets: How much flexibility do you have in terms of spending in the Marcellus? I know you’ve got drilling commitments to hold your leases, is there some CapEx that you can cut out of that over and above the drilling to meet your lease commitments?

Gordon J. Kerr – President and CEO: Well, I think as we also indicated, we probably have about $19 million less to spend post this first quarter to meet our commitment of carry obligation with their operating partner, Chief. There could be some reduced spend this year. We’re not really planning on reduction below the 150 million that we have there. Then, when we get out past the obligation, there is always the possibility you could (go penalty) on well in that, but we’d be, we believe suffering significant value loss if we don’t do it in a judicious way. Our partners are paying attention of where they’re drilling wells and they are drilling spacing units that they are drilling into to preserve acreage position, so it’s not like it’s just to preserve acreage in the aggregate, so we may see some expiring of acreage as we move forward with our partners.

Ian C. Dundas – EVP and COO: Gordon, maybe I’ll just one more piece to that too. It’s very, very dynamic particularly in the Marcellus right now as the rig count is falling and that’s trying to preserve capital. It’s a multi-faceted equation. One of the other pieces that we haven’t seen people really doing yet, but I think are going to play in on our when we look at our non-operated expiring acreage and we look at expiries next year, but a third of those acres that are expiring, we’ve got an ability to deal with by extensions, and so paying money to extend the leases. We haven’t seen any meaningful uptick on that by our partners, but my expectation is we’re probably going to and so then it becomes an economic trade. You pay some more money, but effectively stop drilling 10 wells, and so we’re seeing it move quite rapidly around this. But I guess at this point we think we have captured that in our numbers, but it somewhat dynamic.

Roger Serin – TD Securities: Three questions. First question, could you give me sense of what you think your exit rate is going to be from Fort Berthold for 2012? I know you used can’t. Will you give me an exit rate?

Gordon J. Kerr – President and CEO: Our Chief Operating Officer might take a shot it.

Ian C. Dundas – EVP and COO: I think we targeted – we initially thought about 15,600 barrels of equivalent. Directionally, I think that holds, Roger. Depending upon costs and how those materialize over the course of the year, that could move around a little bit, but directionally, we are pretty encouraged by the growth that’s happening there.

Roger Serin – TD Securities: So, if I’m doing the math right now, quite double from current levels?

Ian C. Dundas – EVP and COO: Correct. Yes.

Roger Serin – TD Securities: We’ll keep it simple. Second question, as it relates to your Duvernay activities, you’ve drilled one vertical. Earlier in the year, you had talked about perhaps following that up in the second half of the year with either additional verticals or horizontals, could you give us an update as to your current plans?

Gordon J. Kerr – President and CEO: I’ll let Ian talk, but we haven’t drilled on Duvernay at this point just to be clear as we talked about vertical on Montney, but go ahead Ian?

Ian C. Dundas – EVP and COO: Yeah, so Roger, just to be clear, we haven’t drilled any wells. We have had a fair amount of offset activity. The Bellatrix announced a well recently that was just a little bit of South and West of our acreage, and then there has been activity on the East and Southern part. Regionally, I guess last quarter, we were talking with possibility of two vertical wells, largely because we’ve now seen offset activity and we’re learning from that, we think likely the best plan for us is one vertical well likely towards the northern end of our acreage, and since things dry up I think the (guys are getting) back kicked off, so we’ll evaluate that well, but the plan at this point would be to move after that to a horizontal well likely in the same type of area, timing of that is probably early 2013 when we get time to evaluate it.

Roger Serin – TD Securities: My last question I think is, do you guys have a Board governance policy that relates to term of office, you even had a number of board members who have stepped down and could you give us some color on that?

Gordon J. Kerr – President and CEO: Yeah, there is a policy in place and in fact it was – the good term to use it, was grandfathered in terms – and it’s an age-related policy. So, two of the directors would have basically been retiring, of course, Don West was one of those directors and Harry being the other one as a consequence, and then of course Mr. Zorich and Mr. Woitas also made their determination to retire for personal reasons and associated with their lifestyles to say more than anything or their business activities.