Enerplus Corporation (ERF)
Q4 2012 Earnings Call
February 22, 2013 11:00 am ET
Jo-Anne M. Caza – Vice President-Corporate and Investor Relations
Gordon J. Kerr – President and Chief Executive Officer
Ian C. Dundas – Executive Vice President and Chief Operating Officer
Greg Pardy – RBC Capital Markets
Kyle Preston – National Bank Financial
Roger Serin – TD Securities
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Jo-Anne M. Caza
Thank you, operator, and good morning, everyone. Thanks for calling in. Gord Kerr, our President and CEO will summarize our fourth quarter and year-end results for 2012 including reserves this morning and Ian Dundas, Executive Vice President and Chief Operating Officer will provide some additional color on our operating results for the year. To answer some of your questions at the end of the call, we also have with us Rob Waters, our Senior Vice President and Chief Financial Officer; Ray Daniels, our Senior Vice President of Operations; Eric Le Dain, our Senior Vice President of Strategic Planning, Reserves and Marketing; and Rod Gray, our Vice President of Finance.
Before we get started, please note that this call will contain forward-looking information. Listeners should understand the risks and limitations of this type of information and review our advisory on forward-looking information found at the end of our news release issued this morning and included within our MD&A and financial statements filed on SEDAR and EDGAR, and available on our website at enerplus.com.
Our financial statements were also prepared in accordance with International Financial Reporting Standards. All financial figures referenced during the call are in Canadian dollars, unless otherwise specified, and all conversions of natural gas to barrels of oil equivalents are done on a 6-to-1 energy equivalent conversion ratio, which does not represent the current value equivalent.
Following our review, we'll open up the phone lines and answer any questions you may have and we'll also have a replay of this call available later today on our website.
With that, over to you Gord.
Gordon J. Kerr
Well, thanks for joining us this morning. I trust everyone, that you’ve had a chance to review our news release that was put out before open of markets. So first of all, looking at the fourth quarter results, I think it’s safe to say that we beat the consensus of analysts on virtually all metrics. Our production was up 5% over the third quarter and our operating G&A costs were down significantly. And most importantly, funds flow grew by almost 50% quarter-over-quarter. These results helped us achieve our revised full-year targets as well. And we delivered on our annual production guidance, producing just over 82,000 BOE per day and 9% increase year-over-year. This included a 21% increase in our crude oil volumes.
The Marcellus production that was delayed in our third quarter showed up at year end. Our exit production during the month of December was on target at 85,800 BOE per day. Our capital spending and operating costs came in on guidance. Equity based compensation costs declined, which brought G&A costs in under guidance.
Certainly, a weak natural gas price had a significant impact on our business throughout 2012. But the natural gas price dropped into context, our average realized gas price fell by approximately 35% versus 2011. And only a 15% of our net operating income in 2012 was from our gas assets.
Now despite this, we actually increased our fund flow by 12% over last year. And this is largely attributable to the significant increase in oil production, improved netbacks, and gains on our hedging program.
As a result, our adjusted payout ratio improved and we expect this trend to continue in 2013, due to lower capital spending and improved natural gas prices. On the reserves front, total proved and probable reserves increased by over 7% in 2012. Our capital program will replace the 190% of production through the drill bit. And in total, we added over 57 million BOE of 2P reserves, and 66% of those additions were from crude oil and represented 283% replacement of our 2012 crude oil and liquids production.
Fort Berthold was the biggest contributor to our reserves growth. Our total crude oil and liquids reverse increased by 12%, and they now represents 60% of our total P+P reserves. So if we contrast this to three years ago, where oil and liquids accounted for only 50% of our total reserves.
Our finding and development costs were $24.21 per BOE on a P+P basis, and those numbers include future development costs. And remember 66% of our reserve additions were from crude oil as you consider the F&D. We also continue to improve the focus of our portfolio during the year.
We sold non-core assets in Manitoba and use the portion of the proceeds to buy an additional interest in our Sleeping Giant oil fields in Montana. And this had minimal impact on our production, but resulted in net proceeds of approximately $100 million, which we applied to our bank debt, and it’s consistent with our strategy of increasing the focus in our asset base. When we include our acquisition and divestment activities, our FD&A costs were $22.92 per BOE in 2012, which we believe compares well in the industry.