CALGARY — Enerplus Resources Fund is shifting its portfolio away from the oilsands and toward two promising U.S. energy plays as it prepares to convert from an income trust into a corporation by year-end.
The Calgary-based firm has agreed to sell its Kirby oilsands leases for $405 million to an undisclosed buyer, while expanding its presence in the Bakken light oil and Marcellus shale gas formations. It also sold non-core conventional assets for approximately $158.5 million.
Enerplus (TSX:ERF.UN) wants to keep paying out a steady dividend to its investors after its conversion into a corporation, said executive vice-president Ian Dundas in an interview Wednesday.
Ahead the change, the company has been looking at which of its assets have the best prospects.
“We looked at the oilsands project, and we’re very comfortable with the project. We liked it,” Dundas said.
“But when we looked at the timetable to development, the timetable to cash flow, the amount of initial capital — and we put that in the context of the rest of our projects, our Bakken opportunities and our opportunities in the Marcellus shale play — it just didn’t compete and wasn’t consistent with that strategy.”
When the Kirby sale closes, Enerplus’s remaining oilsands portfolio will consist of its 4.3 million shares of Laricina Energy, a private oilsands company. In 2008, Enerplus sold its 15 per cent stake in the Joslyn oilsands lease, which is operated by France’s Total SA, to Occidental Petroleum Corp. for around $500 million.
The Kirby sale was expected, UBS Investment research analyst Matt Donohue said in a research note Wednesday.
“While (Enerplus) maintains significant financial flexibility, it was not a surprise when the trust announced that they had reached an agreement for the sale of its 100 per cent interest in the Kirby oilsands lease for $405 million,” he said.
“We had forecasted the trust would potentially look for an outright sale or (joint venture) opportunities for the development of the asset.”
Another major Canadian crude producer, Penn West Energy Trust (TSX:PWT.UN), went the joint-venture route for its oilsands holdings, garnering a $1.25-billion investment from China Investment Corp. to develop leases that would have otherwise been left dormant.
Enerplus’ capital spending for 2010 is now expected to total $515 million, about $30 million more than previously planned.
Meanwhile, Enerplus has invested more than $1.3 billion in what it considers two of the best resource plays on the continent: light oil in the Bakken formation and natural gas in the Marcellus shale.
The Bakken stretches from southeastern Saskatchewan into parts of North Dakota and Montana. Enerplus said it has signed a deal to buy 72 sections of land in North Dakota for US$456 million.
The agreement with private Colorado firm Peak Energy Resources LLC, which closes in October, includes 800 barrels per day of light crude oil production and proven plus probable reserves of 10 million barrels of oil equivalent.
The latest deals mean the company has more than 84,000 net hectares of undeveloped land with early stage potential in the Bakken and adjacent three Forks area in North Dakota and Saskatchewan in addition to Enerplus’s core Bakken field at Sleeping Giant in Montana.
Enerplus has also closed the acquisition of acreage in West Virginia and Maryland. The enormous Marcellus shale formation underlies those states as well as parts of New York, Pennsylvania and Ohio. The seller for those properties was not disclosed.
“The Marcellus drilling economics are some of the best gas economics in North America. Even at these depressed prices there’s positive economics,” said Dundas.
The Marcellus’ proximity to major urban centres on the U.S. Eastern Seaboard boosts the economics of that play significantly, he added.
Units in Enerplus, which announced the deals after the close of markets Tuesday, hit $24.62 not long after markets reopened Wednesday but later fell back. The stock was up four cents at $24.33 in afternoon trading on the Toronto Stock Exchange.