Enerplus Resources Fund announced that it is commencing a review of strategic options regarding its 15% working interest in the Joslyn oil sands lease. Joslyn is located in the Athabasca oil sands fairway in northeastern Alberta and consists of both mining and steam assisted gravity drainage ("SAGD") development projects.
Enerplus' oil sands portfolio is comprised of three principal investments: a 100% working interest in the operated Kirby SAGD project ("Kirby"); a 15% non-operated working interest in the Joslyn mining and SAGD project; and a 12% equity investment in Laricina Energy Ltd., ("Laricina") a private oil sands company pursuing SAGD projects.
A strategic review of Enerplus' portfolio of oil sands and conventional projects has resulted in the decision to consider options to rebalance the portfolio. Enerplus' low risk, distribution-oriented business model necessitates a portfolio of assets that provide near-term cash flow, future growth potential and an appropriate balance of commodities. Managing the future capital requirements of the portfolio while maintaining financial flexibility is critical to the long-term success of Enerplus. While Enerplus believes that both Joslyn and Kirby provide attractive long-term potential, the operated nature of the Kirby project provides enhanced control over the timing and nature of our capital spending profile. In addition, there are more SAGD opportunities within Canada for future growth and SAGD is better suited to Enerplus' technical competencies and business model.
Enerplus first acquired a 16% working interest in Joslyn from Deer Creek Energy Ltd. ("Deer Creek") in 2002. Deer Creek was subsequently acquired by Total E&P Canada in September 2005. In early 2006, Enerplus sold a 1% interest in Joslyn to Laricina for a common equity interest.
Enerplus acquired Kirby in early 2007 and is currently focusing its efforts on the staged development of the lease which Enerplus believes has the potential to produce 30,000 to 40,000 barrels of bitumen per day. Preliminary internal assessments of the winter delineation program are positive. A total of 55 delineation wells and 3 water source and disposal wells were drilled.
As a result, Enerplus expects positive revisions to the existing estimates of contingent resources later this year.
Should the strategic review result in a decision to sell all or a portion of Joslyn, sale proceeds would initially be used to reduce Enerplus' current bank debt. Given the Fund's conservative balance sheet, such sale proceeds would reinforce Enerplus' borrowing capacity, enhance its ability to fund future capital spending and acquisition activity, and minimize future equity dilution.
Enerplus has retained RBC Capital Markets to act as its exclusive financial advisor and assist in the strategic review.
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