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us-gaap:OilAndGasMemberus-gaap:OilAndGasMemberus-gaap:OilAndGasMemberUnlimitedUnlimited0.3333us-gaap:OilAndGasMemberus-gaap:OilAndGasMemberus-gaap:OilAndGasMember23900000000UnlimitedUnlimited2220000002020-01-01Prospective2020-01-01Modified Retrospective0.3333Modified Retrospective

        REPORTS

.2

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision of our Chief Executive Officer and our Chief Financial Officer we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we have concluded that as of December 31, 2019, our internal control over financial reporting is effective.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even those systems determined to be effective can provide only reasonable assurance with respect to the financial statement preparation and presentation.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, has been audited by KPMG LLP, the Independent Registered Public Accounting Firm, who also audited the Company’s Consolidated Financial Statements for the year ended December 31, 2019.

/s/ Ian C. Dundas

/s/ Jodine J. Jenson Labrie

President and
Chief Executive Officer

Senior Vice President and
Chief Financial Officer

Calgary, Alberta

February 20, 2020

ENERPLUS 2019 FINANCIAL SUMMARY             1

      

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Enerplus Corporation

Opinion on Internal Control Over Financial Reporting

We have audited Enerplus Corporation’s (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income (loss) and comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated February 20, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control and Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Chartered Professional Accountants
Calgary, Canada
February 20, 2020

2             ENERPLUS 2019 FINANCIAL SUMMARY

      

Management’s Responsibility for Financial Statements

In management’s opinion, the accompanying consolidated financial statements of Enerplus Corporation have been prepared within reasonable limits of materiality and in accordance with accounting principles generally accepted in the United States of America. Since a precise determination of many assets and liabilities is dependent on future events, the preparation of financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgment and with all information available up to February 20, 2020. Management is responsible for all information in the annual report and for the consistency, therewith, of all other financial and operating data presented in this report.

To meet its responsibility for reliable and accurate financial statements, management has established and monitors systems of internal control which are designed to provide reasonable assurance that financial information is relevant, reliable and accurate, and that assets are safeguarded and transactions are executed in accordance with management’s authorization.

The consolidated financial statements have been examined by KPMG LLP, Independent Registered Public Accountants. Their responsibility is to express a professional opinion on the fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The Report of Independent Registered Public Accounting Firm outlines the scope of their examination and sets forth their opinion.

The Audit Committee, consisting exclusively of independent directors, has reviewed these statements with management and the Independent Registered Public Accounting Firm and has recommended their approval to the Board of Directors. The Board of Directors has approved the consolidated financial statements of the Company.

/s/ Ian C. Dundas

/s/ Jodine J. Jenson Labrie

President and
Chief Executive Officer

Senior Vice President and
Chief Financial Officer

Calgary, Alberta

February 20, 2020

ENERPLUS 2019 FINANCIAL SUMMARY             3

      

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Enerplus Corporation

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Enerplus Corporation (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Corporation Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 20, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the carrying value of goodwill for the Canadian reporting unit

As discussed in note 5(b) to the consolidated financial statements, the Company recorded goodwill impairment of $451,121 thousand related to the Canadian reporting unit. The Company assesses goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value of the reporting unit likely exceeds the fair value. If it is more likely than not that the fair value of the reporting unit is less than its carrying value, quantitative impairment tests are performed. If the carrying value of the reporting unit exceeds its fair value, goodwill is written down to its implied fair value. The estimated fair value of the Canadian reporting unit involves a number of estimates, including the cash flows associated with the estimated proved and probable oil and gas reserves of the Canadian reporting unit (“Canadian reserves”) and the discount rate. The estimation of the Canadian reserves require the expertise of independent reservoir engineering specialists, who take into consideration assumptions related to its forecasted production, forecasted operating, royalty and capital cost assumptions and forecasted oil and gas prices (“reserve assumptions”). The Company engages independent reservoir engineering specialists to estimate the Canadian reserves.

We identified the assessment of the carrying value of goodwill for the Canadian reporting unit as a critical audit matter. Complex auditor judgment was required in evaluating the Company’s estimate of the Canadian reserves and the discount rate, which were inputs to the calculation of the fair value of the Canadian reporting unit.  Auditor judgment was also required to evaluate the reserve assumptions used in the Canadian reserves.

4             ENERPLUS 2019 FINANCIAL SUMMARY

      

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s determination of the fair value of the Canadian reporting unit, including controls related to the development of the discount rate and the estimation of the Canadian reserves. We performed sensitivity analyses over the discount rate used to estimate the fair value of the Canadian reporting unit to assess the impact of a change in the discount rate on the goodwill impairment charge. We evaluated the competence, capabilities and objectivity of the independent reservoir engineering specialists engaged by the Company, who estimated the Canadian reserves. We evaluated the methodology used by the independent reservoir engineering specialists to estimate the Canadian reserves for compliance with regulatory standards. We compared the 2019 actual production, operating, royalty and capital costs of the Canadian reporting unit to those estimates used in the prior year’s estimate of the proved reserves associated with the Canadian reporting unit to assess the Company’s ability to accurately forecast. We compared the forecasted commodity prices used in the estimate of the Canadian reserves to those published by other reserve engineering firms. We compared estimates of forecasted production and forecasted operating, royalty and capital cost assumptions used in the Canadian reserves to historical results.

Evaluation of the realizability of the deferred income tax asset associated with the Company’s Canadian operation.

As discussed in note 17 to the consolidated financial statements, as of December 31, 2019, the Company had recognized a deferred income tax asset of $372,502 thousand of which $185,880 thousand relates to the Company’s Canadian operations. The Company estimated that there is a greater than 50 percent likelihood that the deferred income tax asset will be realized. The determination of the deferred income tax asset associated with the Canadian operation involves a number of estimates, including the future cash flows associated with the estimated Canadian reserves. Changes in assumptions regarding future cash flows, which are based on the estimate of the Canadian reserves, could have a significant impact on the determination on the Company’s ability to realize the Canadian operation’s deferred income tax asset and the amount of a valuation allowance, if any. The estimation of the Canadian reserves requires the expertise of independent reservoir engineering specialists, who take into consideration reserve assumptions. The Company engages independent reservoir engineering specialists to estimate the Canadian reserves.

We identified the evaluation of the realizability of the Canadian operation’s deferred income tax asset as a critical audit matter. Complex auditor judgment was required in evaluating the Canadian reserves which were an input to derive the recognized deferred income tax asset. Auditor judgment was also required to evaluate the reserve assumptions used in the Canadian reserves.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process to evaluate the realizability of the Canadian deferred income tax assets, including controls related to the estimation of the Canadian reserves. We evaluated the competence, capabilities and objectivity of the independent reservoir engineering specialists engaged by the Company, who estimated the Canadian reserves. We evaluated the methodology used by independent reservoir engineering specialists to estimate the Canadian reserves for compliance with regulatory standards. We compared the 2019 actual production, operating, royalty and capital costs of the Canadian operations to those estimates used in the prior year’s estimate of the proved reserves associated with the Canadian operations to assess the Company’s ability to accurately forecast. We compared the forecasted commodity prices used in the Canadian reserves to those published by other reserve engineering firms. We compared estimates of forecasted production and forecasted operating, royalty and capital cost assumptions used in the Canadian reserves to historical results. We involved Canadian income tax professionals with specialized skills and knowledge who assisted in evaluating the application of relevant tax laws and regulations used in the determination of the recorded deferred tax asset.

Assessment of the impact of estimated proved oil and gas reserves on the calculations of depletion expense and the ceiling test related to oil and gas properties

As discussed in Note 2(d) to the consolidated financial statements, the Company depletes its oil and gas properties using the unit-of-production method on a country-by-country basis for Canada and the United States of America. Under such method, capitalized costs by country are depleted over the estimated proved oil and gas reserves by for each of Canada and the United States of America (“country proved reserves”). For the year ended December 31, 2019, the Company recorded depletion, depreciation and accretion expense of $356,830 thousand. Additionally, as discussed in Note 2(d) to the consolidated financial statements, the Company is required to perform a ceiling test calculation on a country-by-country basis for Canada and the United States of America. The Company limits the capitalized costs of proved and unproved oil and natural gas properties, net of accumulated depletion and the related deferred income tax effects, by country, to the estimated future net cash flows from country proved reserves discounted at 10 percent, net of related tax effects, plus the lower of cost or fair value of unproved oil and gas properties. The estimated future net cash flows are calculated using the simple average of the preceding twelve months’ first-day-of-the-month commodity prices. The estimation of country proved reserves, which are used in the calculations of depletion and the ceiling test, requires the expertise of independent reservoir engineering specialists, who take into consideration reserve assumptions. The Company engages independent reservoir engineering specialists to estimate country proved reserves.

ENERPLUS 2019 FINANCIAL SUMMARY             5

      

We identified the assessment of the impact of estimated country proved reserves on the calculations of depletion expense and the ceiling test related to oil and gas properties as a critical audit matter. Complex auditor judgment was required in evaluating the country proved reserves, which were an input to the calculations of depletion expense and the ceiling test. Auditor judgment was also required to evaluate the reserve assumptions used to estimate the country proved reserves.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the calculations of depletion expense and the ceiling test, including controls over the estimation of the country proved reserves. We analyzed and assessed the calculations of depletion expense and the ceiling test for compliance with regulatory standards. We evaluated the competence, capabilities and objectivity of the independent reservoir engineering specialists engaged by the Company, who estimated the country proved reserves. We evaluated the methodology used by the independent reservoir engineering specialists to estimate country proved reserves for compliance with regulatory standards. We compared the Company’s 2019 actual production, operating, royalty and capital costs by country to those estimates used in the prior year estimate of country proved reserves to assess the Company’s ability to accurately forecast. We compared estimates of forecasted production and forecasted operating, royalty and capital cost assumptions used in the country proved reserves to historical results.

/s/ KPMG LLP

We have served as the Company’s auditor since 2017.

Chartered Professional Accountants

Calgary, Canada

February 20, 2020

6             ENERPLUS 2019 FINANCIAL SUMMARY

       STATEMENTS

Consolidated Balance Sheets

(CDN$ thousands)

    

Note

    

December 31, 2019

    

December 31, 2018

Assets

Current assets

Cash and cash equivalents

$

151,649

$

363,327

Accounts receivable

 

3

 

176,119

 

145,206

Income tax receivable

13

27,770

55,172

Derivative financial assets

 

15(b)

 

10,570

 

59,258

Other current assets

 

2,990

 

8,928

 

369,098

 

631,891

Property, plant and equipment:

Oil and natural gas properties (full cost method)

 

4

 

1,547,362

 

1,293,941

Other capital assets, net

 

4

 

20,244

 

13,130

Property, plant and equipment

 

1,567,606

 

1,307,071

Right-of-use assets

9

48,729

Goodwill

5(b)

 

194,015

654,799

Derivative financial assets

15(b)

32,220

Deferred income tax asset

 

13

 

372,502

 

465,124

Income tax receivable

13

13,852

27,195

Total Assets

$

2,565,802

$

3,118,300

Liabilities

Current liabilities

Accounts payable

 

6

$

291,540

$

290,045

Dividends payable

 

2,217

 

2,395

Current portion of long-term debt

 

7

 

105,998

 

60,001

Derivative financial liabilities

 

15(b)

 

2,734

 

1,909

Current portion of lease liabilities

9

17,541

 

420,030

 

354,350

Long-term debt

 

7

 

500,635

 

636,849

Asset retirement obligation

 

8

 

138,049

 

126,112

Lease liabilities

9

35,530

 

674,214

 

762,961

Total Liabilities

 

1,094,244

 

1,117,311

Shareholders’ Equity

Share capital – authorized unlimited common shares, no par value

 

Issued and outstanding: December 31, 2019 – 222 million shares

 

 

December 31, 2018 – 239 million shares

14(a)

3,088,094

3,337,608

Paid-in capital

 

 

59,490

 

46,524

Accumulated deficit

 

(1,984,365)

 

(1,772,084)

Accumulated other comprehensive income

 

308,339

 

388,941

 

1,471,558

 

2,000,989

Total Liabilities & Shareholders' Equity

$

2,565,802

$

3,118,300

Commitments and Contingencies

 

16

Subsequent Event

14(a)

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

Approved on behalf of the Board of Directors:

/s/ Elliott Pew

/s/ Robert B. Hodgins

Director

Director

ENERPLUS 2019 FINANCIAL SUMMARY             7

      

Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss)

For the year ended December 31 (CDN$ thousands)

    

Note

    

2019

    

2018

    

2017

Revenues

Oil and natural gas sales, net of royalties

 

10

$

1,254,806

$

1,292,736

$

920,693

Commodity derivative instruments gain/(loss)

 

15(b)

 

(66,071)

 

88,232

 

14,310

 

1,188,735

 

1,380,968

 

935,003

Expenses

Operating

 

290,766

 

238,261

 

197,101

Transportation

 

144,903

 

123,463

 

111,265

Production taxes

 

83,109

 

87,286

 

54,318

General and administrative

 

11

 

72,853

 

75,783

 

74,301

Depletion, depreciation and accretion

 

356,830

 

304,274

 

250,774

Goodwill impairment

 

5(b)

 

451,121

 

 

Interest

 

 

33,919

 

36,799

 

38,714

Foreign exchange (gain)/loss

 

12

 

(25,378)

 

39,521

 

(30,150)

Gain on divestment of assets

4

(78,400)

Other expense/(income)

 

 

(7,529)

 

(5,909)

 

(1,906)

 

1,400,594

 

899,478

 

616,017

Income/(Loss) Before Taxes

 

(211,859)

 

481,490

 

318,986

Current income tax expense/(recovery)

 

13

 

(33,414)

 

(27,093)

 

(47,957)

Deferred income tax expense/(recovery)

 

13

 

81,275

 

130,304

 

129,945

Net Income/(Loss)

$

(259,720)

$

378,279

$

236,998

Other Comprehensive Income/(Loss)

Unrealized gain/(loss) on foreign currency translation

 

(80,602)

 

125,817

 

(90,277)

Total Comprehensive Income/(Loss)

$

(340,322)

$

504,096

$

146,721

Net Income/(Loss) per Share

Basic

 

14(c)

$

(1.12)

$

1.55

$

0.98

Diluted

 

14(c)

$

(1.12)

$

1.53

$

0.96

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

8             ENERPLUS 2019 FINANCIAL SUMMARY

      

Consolidated Statements of Changes in Shareholders’ Equity

For the year ended December 31 (CDN$ thousands)

    

2019

    

2018

    

2017

Share Capital

Balance, beginning of year

$

3,337,608

$

3,386,946

$

3,365,962

Purchase of common shares under Normal Course Issuer Bid

(253,920)

(82,596)

 

Share-based compensation – treasury settled

 

4,406

 

23,389

 

20,984

Stock Option Plan – cash

 

 

9,138

 

Stock Option Plan – exercised

 

 

731

 

Balance, end of year

$

3,088,094

$

3,337,608

$

3,386,946

Paid-in Capital

Balance, beginning of year

$

46,524

$

75,375

$

73,783

Share-based compensation – cash settled (tax withholding)

(4,952)

Share-based compensation – cash settled

(30,648)

Share-based compensation – treasury settled

 

(4,406)

 

(23,389)

 

(20,984)

Share-based compensation – non-cash

 

22,324

 

25,917

 

22,576

Stock Option Plan – exercised

(731)

Balance, end of year

$

59,490

$

46,524

$

75,375

Accumulated Deficit

Balance, beginning of year

$

(1,772,084)

$

(2,124,676)

$

(2,332,641)

Purchase of common shares under Normal Course Issuer Bid

75,127

3,569

 

Net income/(loss)

 

(259,720)

 

378,279

 

236,998

Dividends declared ($0.01 per share)

 

(27,688)

 

(29,256)

 

(29,033)

Balance, end of year

$

(1,984,365)

$

(1,772,084)

$

(2,124,676)

Accumulated Other Comprehensive Income

Balance, beginning of year

$

388,941

$

263,124

$

353,401

Unrealized gain/(loss) on foreign currency translation

 

(80,602)

 

125,817

 

(90,277)

Balance, end of year

$

308,339

$

388,941

$

263,124

Total Shareholders’ Equity

$

1,471,558

$

2,000,989

$

1,600,769

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

ENERPLUS 2019 FINANCIAL SUMMARY             9

      

Consolidated Statements of Cash Flows

For the year ended December 31 (CDN$ thousands)

    

Note

    

2019

  

2018

  

2017

Operating Activities

Net income/(loss)

$

(259,720)

$

378,279

$

236,998

Non-cash items add/(deduct):

Depletion, depreciation and accretion

 

356,830

 

304,274

 

250,774

Goodwill impairment

 

5(b)

 

451,121

 

 

Changes in fair value of derivative instruments

 

15(b)

 

81,733

 

(124,266)

 

(6,184)

Deferred income tax expense/(recovery)

 

13

 

81,275

 

130,304

 

129,945

Foreign exchange (gain)/loss on debt and working capital

 

12

 

(34,085)

 

58,628

 

(42,623)

Share-based compensation and general and administrative

 

11, 14(b)

 

23,044

 

25,917

 

22,576

Translation of U.S. dollar cash held in Canada (gain)/loss

12

8,794

(19,630)

10,978

Gain on the divestment of assets

 

4

 

 

 

(78,400)

Asset retirement obligation expenditures

 

8

 

(16,715)

 

(11,263)

 

(12,907)

Changes in non-cash operating working capital

 

18(a)

 

1,963

 

(3,459)

 

(35,032)

Cash flow from operating activities

 

694,240

 

738,784

 

476,125

Financing Activities

Proceeds from the issuance of shares (net of issue costs)

 

14(a)

 

 

9,138

 

Dividends

 

14(a),18(b)

 

(27,866)

 

(29,282)

 

(29,017)

Bank credit facility

7

 

 

 

(23,272)

Senior notes

7

 

(59,429)

 

(29,044)

 

(29,084)

Purchase of common shares under Normal Course Issuer Bid

14(a)

(178,793)

(79,027)

 

Share-based compensation – cash settled (tax withholding)

14(b)

(4,952)

Cash flow from/(used in) financing activities

 

(271,040)

 

(128,215)

 

(81,373)

Investing Activities

Capital and office expenditures

18(b)

 

(606,966)

 

(604,110)

 

(459,152)

Property and land acquisitions

4

 

(24,362)

 

(18,009)

 

(13,276)

Property divestments

4

 

9,539

 

(919)

 

56,196

Cash flow from/(used in) investing activities

 

(621,789)

 

(623,038)

 

(416,232)

Effect of exchange rate changes on cash and cash equivalents

 

(13,089)

 

29,248

 

(25,277)

Change in cash and cash equivalents

 

(211,678)

 

16,779

 

(46,757)

Cash and cash equivalents, beginning of year

 

363,327

 

346,548

 

393,305

Cash and cash equivalents, end of year

$

151,649

$

363,327

$

346,548

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

10             ENERPLUS 2019 FINANCIAL SUMMARY

      

Notes to Consolidated Financial Statements

1) REPORTING ENTITY

These annual audited Consolidated Financial Statements (“Consolidated Financial Statements”) and notes present the financial position and results of Enerplus Corporation (the “Company” or “Enerplus”) including its Canadian and U.S. subsidiaries. Enerplus is a North American crude oil and natural gas exploration and development company. Enerplus is publicly traded on the Toronto and New York stock exchanges under the ticker symbol ERF. Enerplus’ head office is located in Calgary, Alberta, Canada.

2) SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies are presented to assist the reader in evaluating these Consolidated Financial Statements and, together with the following notes, are an integral part of the Consolidated Financial Statements.

a) Basis of Preparation

Enerplus’ Consolidated Financial Statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain prior period amounts have been restated to conform with current period presentation.  

i. Reporting Currency

These Consolidated Financial Statements are presented in Canadian dollars, which is Enerplus’ reporting currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand unless otherwise indicated.

ii. Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect both the amount and timing of recording assets, liabilities, revenues and expenses since the determination of these items may be dependent on future events. Actual results could differ from these estimates, and changes in estimates are recorded when known. Significant estimates made by management include: oil and natural gas reserves and related present value of future cash flows, depreciation, depletion and accretion (“DD&A”), impairment of property, plant and equipment, asset retirement obligations, income taxes, ability to realize deferred income tax assets, impairment assessments of goodwill and the fair value of derivative instruments. Enerplus uses the most current information available and exercises judgment in making these estimates and assumptions. In the opinion of management, these Consolidated Financial Statements have been properly prepared within reasonable limits of materiality and within the framework of the Company’s significant accounting policies.

iii. Basis of Consolidation

These Consolidated Financial Statements include the accounts of Enerplus and its subsidiaries. Intercompany balances and transactions are eliminated on consolidation. Interests in jointly controlled oil and natural gas assets are accounted for following the concept of undivided interest, whereby Enerplus’ proportionate share of revenues, expenses, assets and liabilities are included in the accounts.

The acquisition method of accounting is used to account for acquisitions that meet the definition of a business under U.S. GAAP. The cost of an acquisition is measured as the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the acquisition date. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

b) Revenue

Revenue from the sale of crude oil, natural gas and natural gas liquids is measured based on the consideration specified in contracts with customers, net of sales taxes. Enerplus recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. This is generally at the time the customer obtains legal title to the product and when it is physically transferred to the contractual delivery points.

Enerplus evaluates its arrangements with third parties and partners to determine if the Company acts as the principal or as an agent.  In making this evaluation, management considers if Enerplus retains control of the product being delivered to the end customer. As part of this assessment, management considers whether the Company retains the economic benefits associated with the good being delivered to the end customer. Management also considers whether the Company has the primary responsibility for the delivery of the product, the ability to establish prices or the inventory risk. If Enerplus acts in the capacity of an agent rather than as a principal in a transaction, then the revenue is recognized on a net basis, only reflecting the fee, if any, realized by the Company from the transaction.

ENERPLUS 2019 FINANCIAL SUMMARY             11

      

c) Transportation

Enerplus generally sells oil and natural gas under two types of agreements which are common in our industry.  Both types of agreements include a transportation charge.  One is a net-back arrangement, under which the Company sells crude oil or natural gas at the wellhead and collects a price, net of the transportation incurred by the purchaser.  In this case, sales are recorded at the price received from the purchaser, net of transportation costs.  

Under the other arrangement, Enerplus sells crude oil or natural gas at a specific delivery point, pays transportation to a third party and receives proceeds from the purchaser with no transportation deduction.  In this case, transportation costs are recorded as transportation expense on the Consolidated Statements of Income/(Loss).  Due to these two distinct selling arrangements, Enerplus’ computed realized prices, before the impact of derivative instruments, include revenues which are reported under two separate bases.

d) Oil and Natural Gas Properties

Enerplus uses the full cost method of accounting for its oil and natural gas properties. Under this method, all acquisition, exploration and development costs incurred in finding oil and natural gas reserves are capitalized, including general and administrative costs attributable to these activities. These costs are recorded on a country-by-country cost centre basis as oil and natural gas properties subject to depletion (“full cost pool”). Costs associated with production and general corporate activities are expensed as incurred.

The net carrying value of both proved and unproved oil and natural gas properties is depleted using the unit of production method using proved reserves, as determined using a constant price assumption of the simple average of the preceding twelve months’ first-day-of-the-month commodity prices (“SEC prices”). The depletion calculation takes into account estimated future development costs necessary to bring those reserves into production.

Under full cost accounting, a ceiling test is performed on a cost centre basis. Enerplus limits capitalized costs of proved and unproved oil and natural gas properties, net of accumulated depletion and the related deferred income tax effects, to the estimated future net cash flows from proved oil and natural gas reserves discounted at 10%, net of related tax effects, plus the lower of cost or fair value of unproved properties (“the ceiling”). The estimated future net cash flows are calculated using the simple average of the preceding twelve months’ first-day-of-the-month commodity prices. If such capitalized costs exceed the ceiling, a write-down equal to that excess is recorded as a non-cash charge to net income. A write-down is not reversed in future periods even if higher oil and natural gas prices subsequently increase the ceiling.

Under full cost accounting rules, divestitures of oil and natural gas properties are generally accounted for as adjustments to capitalized costs, with no recognition of a gain or loss.  However, if not recognizing a gain or loss on the transaction would have otherwise significantly altered the relationship between a cost centre’s capitalized costs and proved reserves, then a gain or loss must be recognized.

e) Other Capital Assets

Other capital assets are recorded at historical cost, net of depreciation, and include furniture, fixtures, leasehold improvements, computer equipment and Company owned line-fill in third party pipelines. Line fill is recorded at lower of cost and net realizable value. Depreciation is calculated on a straight-line basis over the estimated useful life of the respective asset. The cost of repairs and maintenance is expensed as incurred.

f) Cash and Cash Equivalents

Cash and cash equivalents includes cash and highly liquid investments with maturities of less than 90 days.

g) Goodwill

Enerplus recognizes goodwill relating to business acquisitions when the total purchase price exceeds the fair value of the net identifiable assets and liabilities acquired. The portion of goodwill that relates to U.S. operations fluctuates due to changes in foreign exchange rates. Goodwill is stated at cost less impairment and is not amortized. Goodwill is not deductible for income tax purposes.    

Goodwill is assessed for impairment annually or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Enerplus first performs a qualitative assessment to determine whether events or changes in circumstances indicate that goodwill may be impaired. If it is more likely than not that the fair value of the reporting unit is less than its carrying value, quantitative impairment tests are performed.  If the carrying value of the reporting unit exceeds its fair value, goodwill is written down to its implied fair value with an offsetting charge to earnings in the Consolidated Statements of Income/(Loss). The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. For the purposes of goodwill impairment testing, Enerplus has two reporting units.

12             ENERPLUS 2019 FINANCIAL SUMMARY

      

h) Asset Retirement Obligations

Enerplus’ oil and natural gas operating activities give rise to dismantling, decommissioning and site remediation activities. Enerplus recognizes a liability for the estimated present value of the future asset retirement obligation liability at each balance sheet date. Upon recognition, the liability is recorded at its estimated fair value. The associated asset retirement cost is capitalized and amortized over the same period as the underlying asset. Changes in the estimated liability and related asset retirement cost can arise as a result of revisions in the estimated amount or timing of cash flows.

Depletion of asset retirement costs and increases in asset retirement obligations resulting from the passage of time are recorded to depreciation, depletion and accretion and charged against net income in the Consolidated Statements of Income/(Loss).

i) Leases

Enerplus determines if an arrangement is a lease at inception. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Operating and finance leases are included in right-of-use (“ROU”) assets and the associated lease liability in the Consolidated Balance Sheet.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Lease liabilities are recognized at lease commencement date based on the present value of remaining lease payments over the lease term. A corresponding ROU asset is recognized at the amount of the lease liability, adjusted for lease incentives received. Enerplus uses the implicit rate when readily available, or uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Enerplus’ lease terms may have options to extend or terminate the lease which are included in the calculation of lease liabilities when it is reasonably certain that it will exercise those options. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

Lease agreements contain both lease and non-lease components which are accounted for separately. For certain equipment leases, a portfolio approach is applied to effectively account for the ROU assets and liabilities. Prior to January 1, 2019, the Company applied lease accounting in accordance with ASC 840.

j) Income Tax

Enerplus uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities are recorded on the temporary differences between the accounting and income tax basis of assets and liabilities, using the enacted tax rates expected to apply when the temporary differences are expected to reverse. Deferred tax assets are reviewed each period and a valuation allowance is provided if, after considering available evidence, it is more likely than not that a deferred tax asset will not be realized. Enerplus considers both positive and negative evidence including historic and expected future taxable income, reversing existing temporary differences and tax basis carry forward periods in making this assessment. A valuation allowance is removed in any period where available evidence indicates all or a portion of the valuation allowance is no longer required.  The financial statement effect of an uncertain tax position is recognized when it is more likely than not, based on technical merits, that the position will be sustained upon examination by a taxation authority. Penalties and interest expense related to income tax are recognized in income tax expense.

k) Financial Instruments

i. Fair Value Measurements

Financial instruments are initially recorded at fair value, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For financial instruments carried at fair value, and when disclosing the fair value of financial instruments on certain non-financial items, inputs used in determining the fair value are characterized according to the following fair value hierarchy:

   Level 1  –  Inputs represent quoted market prices in active markets for identical assets or liabilities.

   Level 2  –  Inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets or other market corroborated inputs.

   Level 3  – Inputs that are not observable from objective sources, such as forward prices supported by little or no market activity or internally developed estimates of future cash flows used in a present value model.

Subsequent measurement is based on classification of the financial instrument into one of the following five categories: held-for-trading, held-to-maturity, available-for-sale, loans and receivables or other financial liabilities.

ENERPLUS 2019 FINANCIAL SUMMARY             13

      

ii. Non-derivative financial instruments

The carrying amount of cash, accounts receivable, income tax receivable, accounts payable, dividends payable and bank credit facilities reported on the Consolidated Balance Sheets approximates fair value. The fair value of the senior notes are considered a level 2 fair value measurement. The fair value of debt has been disclosed in Note 15. 

iii. Derivative financial instruments

Enerplus enters into financial derivative contracts in order to manage its exposure to market risks from fluctuations in commodity prices, foreign exchange rates and interest rates in the normal course of operations. Enerplus has not designated its financial derivative contracts as effective accounting hedges, and thus has not applied hedge accounting, even though it considers most of these contracts to be economic hedges. As a result, all financial derivative contracts are classified as held-for-trading and are recorded at fair value based on a Level 2 designation, with changes in fair value recorded in net income. The fair values of these derivative instruments are generally based on an estimate of the amounts that would be paid or received to settle these instruments at the balance sheet date. Enerplus’ accounting policy is to not offset the fair values of its financial derivative assets and liabilities.

Realized gains and losses from commodity price risk management activities are recognized in income when the contract is settled. Unrealized gains and losses on commodity price risk management activities are recognized in income based on the changes in fair value of the contracts at the end of the respective reporting period.

Enerplus’ crude oil, natural gas and natural gas liquids physical delivery purchase and sales contracts qualify as normal purchases and sales as they are entered into and held for the purpose of receipt or delivery of products in accordance with the Company’s expected purchase, sale or usage requirements. As such, these contracts are not considered derivative financial instruments. Settlements on these physical contracts are recognized in net income over the term of the contracts as they occur.

l) Foreign Currency

i. Foreign currency transactions

Transactions denominated in foreign currencies are translated to the functional currency of the entity (Canadian dollars) using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency of the entity using the rate of exchange in effect at the balance sheet date whereas non-monetary assets and liabilities are translated at the historical rate of exchange in effect on the date of the transaction. Foreign currency differences arising on translation are recognized in net income in the period in which they arise.

ii. Foreign operations

Assets and liabilities of Enerplus’ U.S. operations, which has a U.S. dollar functional currency, are translated into Canadian dollars at period end exchange rates while revenues and expenses are translated using average rates for the period. Gains and losses from the translation are deferred and included in the cumulative translation adjustment which is recorded in accumulated other comprehensive income.

m) Share-Based Compensation

Enerplus’ share-based compensation plans include equity-settled Restricted Share Unit (“RSU”) and Performance Share Unit (“PSU”) awards made pursuant to its Share Award Incentive Plan (“SAIP”). The Company is authorized to issue up to 3.8% of outstanding common shares from treasury under the SAIP. Enerplus also has a cash-settled Deferred Share Unit (“DSU”) Plan for Directors (“Director DSU Plan”) and a cash-settled RSU Plan for Directors (“Director RSU Plan”).

i. Long-term Incentive (“LTI”) Plans

For RSU awards granted under the SAIP, employees receive compensation in relation to the value of a specified number of underlying notional shares. The number of notional shares awarded varies by individual and vests one-third each year for three years. The value upon vesting is based on the value of the underlying notional shares plus notional accrued dividends over the vesting period.

For PSU awards granted under the SAIP, executives and management receive compensation in relation to the value of a specified number of underlying notional shares. The number of notional shares awarded varies by individual and they vest at the end of three years. The value upon vesting is based on value of the underlying shares plus notional accrued dividends along with a multiplier that ranges from 0 to 2 depending on Enerplus’ performance compared to a peer group of both Canadian and U.S. oil and natural gas producers over the vesting period.

14             ENERPLUS 2019 FINANCIAL SUMMARY

      

Under Enerplus’ Director DSU Plan and Director RSU Plan, directors receive compensation in relation to the value of a specified number of underlying notional shares. The number of notional shares awarded is based on the annual equity retainer value. Directors may elect to receive all or a portion of their notional shares under either plan. Under the Director DSU Plan, units vest and are paid at a specified date following the director leaving the Board. Under the Director RSU Plan, units vest one-third each year for three years. The value upon vesting is based on the value of the underlying notional shares plus notional accrued dividends over the vesting period. All Director DSU and RSU grants are settled in cash.

Enerplus recognizes non-cash share-based compensation expense over the vesting period of the equity-settled long-term incentive plans, net of realized forfeitures, based on the estimated grant date fair value of the respective awards. The grant date fair value is based on the Company’s 20-day volume weighted average price on December 31 prior to the grant date. The fair value for the PSUs is adjusted for the outcome of the performance condition. Share-based compensation charges are recorded on the Consolidated Statements of Income/(Loss) with an offset to paid-in capital.  Each period, management performs an estimate of the PSU plan multiplier. Any differences that arise between the actual multiplier on plan settlement and management’s estimate is recorded to share-based compensation. On settlement of these plans, amounts previously recorded to paid-in capital are reclassified to share capital.

Enerplus recognizes a liability with respect to its cash-settled long-term incentive plans based on their estimated fair value. The liability is re-measured at each reporting date and at settlement date with any changes in the fair value recorded as share-based compensation, included in general and administrative expense.  

ii. Stock options

Enerplus’ Stock Option Plan was suspended in 2014 and is now closed. All options outstanding under the plan are fully vested and the expense has been fully recognized. The remaining outstanding stock options will expire in 2020.

n) Net Income/(Loss) Per Share

Basic net income/(loss) per common share is computed by dividing net income/(loss) by the weighted average number of common shares outstanding during the period.

For the diluted net income per common share calculation, the weighted average number of shares outstanding is adjusted for the potential number of shares which may have a dilutive effect on net income. The weighted average number of diluted shares is calculated in accordance with the treasury stock method which assumes that the proceeds received from the exercise of all stock options and outstanding RSU’s and PSU’s would be used to repurchase common shares at the average market price.

o) Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, environmental and other sources are recognized when it is probable that a liability has been incurred and the amount can be reasonably estimated. Contingencies are adjusted as additional information becomes available or circumstances change.

p) Accounting Changes and Recent Pronouncements Issued

i. Recently adopted accounting standards

Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in these Consolidated Financial Statements.

Enerplus adopted ASC 842 Leases effective January 1, 2019 using the modified retrospective method, with ASC 842 applied to all contracts not yet completed as of the date of adoption with the cumulative effect on comparative periods reflected as an adjustment to retained earnings, if applicable. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while accounting for finance leases and lessor accounting remained unchanged.

Enerplus elected the practical expedient related to land easements, allowing it to carry forward its accounting treatment for land easements on existing agreements.

The impacts of the adoption of ASC 842 as at January 1, 2019 are as follows:

As reported as at

Balance as at

($ thousands)

December 31, 2018

Adjustments

January 1, 2019

Right-of-use assets

    

$

$

50,193

    

$

50,193

Current portion of lease liabilities

(10,648)

(10,648)

Lease liabilities

 

(39,545)

 

(39,545)

Total

$

$

$

ENERPLUS 2019 FINANCIAL SUMMARY             15

      

The standard did not materially impact the Company’s Consolidated Statement of Income/(Loss) or Consolidated Statements of Cash Flows.

ii. Future accounting changes

In future accounting periods, the Company will adopt the following Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”):

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance amends the impairment model of financial instruments basing it on expected losses rather than incurred losses. These expected credit losses will be recognized as an allowance rather than a direct write down of the amortized cost basis. The new guidance is effective January 1, 2020, and will be applied using a modified retrospective approach. Enerplus has not early adopted the standard and does not expect a material impact to the Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350). This standard eliminates Step 2 of the goodwill impairment test, and requires a goodwill impairment charge for the amount that the carrying amount of the reporting unit exceeds the reporting unit’s fair value. The updated guidance is effective January 1, 2020 and will be applied prospectively. Enerplus has not early adopted this ASU. The amended standard simplifies the goodwill impairment test and will impact the amount of any impairment recorded post adoption.

3) ACCOUNTS RECEIVABLE

($ thousands)

   

December 31, 2019

   

December 31, 2018

Accrued revenue

$

142,048

$

118,821

Accounts receivable – trade

 

37,736

 

30,252

Allowance for doubtful accounts

 

(3,665)

 

(3,867)

Total accounts receivable, net of allowance for doubtful accounts

$

176,119

$

145,206

4) PROPERTY, PLANT AND EQUIPMENT (“PP&E”)

    

 

Accumulated Depletion,

 

As at December 31, 2019

Depreciation,

($ thousands)

Cost

and Impairment

Net Book Value

Oil and natural gas properties(1)

$

15,088,724

$

(13,541,362)

$

1,547,362

Other capital assets

 

125,265

 

(105,021)

 

20,244

Total PP&E

$

15,213,989

$

(13,646,383)

$

1,567,606

    

 

Accumulated Depletion,

 

As at December 31, 2018

Depreciation,

($ thousands)

Cost

 

and Impairment

Net Book Value

Oil and natural gas properties(1)

$

14,773,082

$

(13,479,141)

$

1,293,941

Other capital assets

 

115,510

 

(102,380)

 

13,130

Total PP&E

$

14,888,592

$

(13,581,521)

$

1,307,071

(1)All of the Company’s unproved properties are included in the full cost pool.

Acquisitions:

For the years ended December 31, 2019 and 2018, Enerplus acquired property and land totaling $24.4 million, and $25.8 million, respectively.  

Divestments:

For the years ended December 31, 2019 and 2018, Enerplus disposed of properties for proceeds of $9.6 million and $6.9 million, respectively. Certain asset divestments may result in gains if the divestments cause a significant alteration in the relationship between the cost centre’s capitalized costs and proved reserves. During 2019, Enerplus did not recognize any gains on asset divestments (2018 – nil, 2017 – $78.4 million).  

16             ENERPLUS 2019 FINANCIAL SUMMARY

      

5) IMPAIRMENT

a) Impairment of PP&E

There was no impairment recorded for the years ended December 31, 2019, 2018 and 2017.

The following table outlines the 12-month average trailing benchmark prices and exchange rates used in Enerplus’ ceiling test as at December 31, 2019, 2018 and 2017:

    

    

    

U.S. Henry

    

WTI Crude Oil

Edm Light Crude

 Hub Gas

Exchange Rate

Period

US$/bbl

CDN$/bbl

US$/Mcf

US$/CDN

2019

$

55.85

$

66.73

$

2.58

1.33

2018

 

65.56

69.58

3.10

1.28

2017

 

51.34

63.57

2.98

1.30

b) Impairment of Goodwill

Enerplus recorded goodwill impairment of $451.1 million on its Canadian reporting unit for the period ended December 31, 2019. The impairment was due to the carrying value of the Canadian reporting unit exceeding its fair value as a result of the cumulative impact of Canadian asset divestments, the shut-in of uneconomic natural gas production in Canada and lower forecasted commodity prices. The estimated fair value of the Canadian reporting unit for the goodwill impairment test was based on the discounted after-tax cash flows associated with the proved and probable reserves of the reporting unit. Other changes in goodwill relate to the impact of foreign exchange movements on U.S. dollar denominated goodwill balances. At December 31, 2019, goodwill consisted entirely of US$149.4 million related to Enerplus’ U.S. reporting unit. There was no goodwill impairment for the years ended December 31, 2018 and 2017.

6) ACCOUNTS PAYABLE

($ thousands)

    

December 31, 2019

    

December 31, 2018

Accrued payables

$

105,928

$

115,388

Accounts payable – trade

 

185,612

 

174,657

Total accounts payable

$

291,540

$

290,045

7) DEBT

($ thousands)

 

December 31, 2019

  

December 31, 2018

Current:

Senior notes

$

105,998

$

60,001

Long-term:

Bank credit facility

$

$

Senior notes

 

500,635

 

636,849

Total debt

$

606,633

$

696,850

Bank Credit Facility

Enerplus has a senior unsecured, covenant-based, US$600 million bank credit facility that matures on October 31, 2023. Drawn fees range between 125 and 315 basis points over bankers’ acceptance rates. Standby fees on the undrawn portion of the facility are based on 20% of the drawn pricing. The Company has the ability to request an extension of the facility or repay the entire balance at the end of the term. At December 31, 2019, Enerplus was undrawn on the facility (December 31, 2018 –undrawn).

Senior Notes

During 2019 and 2018, Enerplus made its second and third US$22 million principal repayments on its 2009 senior notes. During 2019, Enerplus made a $30 million bullet repayment on its 2012 senior notes.

ENERPLUS 2019 FINANCIAL SUMMARY             17

      

The terms and rates of the Company’s outstanding senior notes are detailed below:

  

  

 

Original

Remaining

 

CDN$ Carrying

Coupon

Principal

Principal

Value

Issue Date

Interest Payment Dates

Principal Repayment

Rate

($ thousands)

($ thousands)

($ thousands)

September 3, 2014

March 3 and Sept 3

5 equal annual installments beginning September 3, 2022

3.79%

US$200,000

US$105,000

$

136,395

May 15, 2012

 

May 15 and Nov 15

 

Bullet payment on May 15, 2022

 

4.40%

US$20,000

 

US$20,000

 

25,980

May 15, 2012

 

May 15 and Nov 15

 

5 equal annual installments beginning May 15, 2020

 

4.40%

US$355,000

 

US$298,000

 

387,102

June 18, 2009

 

June 18 and Dec 18

 

2 equal annual installments on June 18, 2020 and 2021

 

7.97%

US$225,000

 

US$44,000

 

57,156

Total carrying value

$

606,633

8) ASSET RETIREMENT OBLIGATION

($ thousands)

   

December 31, 2019

   

December 31, 2018

Balance, beginning of year

$

126,112

$

117,736

Change in estimates

 

23,362

 

16,755

Property acquisition and development activity

 

2,068

 

1,565

Divestments

 

(2,760)

 

(4,585)

Settlements

 

(16,715)

 

(11,263)

Accretion expense

 

5,982

 

5,904

Balance, end of year

$

138,049

$

126,112

Enerplus has estimated the present value of its asset retirement obligation to be $138.0 million at December 31, 2019 based on a total undiscounted, uninflated liability of $344.7 million (December 31, 2018 – $126.1 million and $343.9 million, respectively). The asset retirement obligation was calculated using a weighted average credit-adjusted risk-free rate of 5.50% and inflation rate of 1.8% (December 31, 2018 – 5.59% and 1.8%, respectively).  The majority of Enerplus’ asset retirement obligation expenditures are expected to be incurred between 2025 and 2055.

9) LEASES

The Company incurs lease payments related to office space, drilling rig commitments, vehicles and other equipment. Leases are entered into and exited in coordination with specific business requirements which include the assessment of the appropriate durations for the related leased assets. Short-term leases with a lease term of 12 months or less are not recorded on the Consolidated Balance Sheet. Such items are charged to operating expenses and general and administrative expenses in the Consolidated Statement of Income/(Loss), unless the costs are included in the carrying amount of another asset in accordance with other U.S. GAAP.

($ thousands)

At December 31, 2019

Assets

Operating right-of-use assets

$

48,729

Liabilities

Current operating lease liabilities

$

17,541

Non-current operating lease liabilities

35,530

Total lease liabilities

$

53,071

Weighted average remaining lease term (years)

Operating leases

4.3

Weighted average discount rate

Operating leases

4.1%

18             ENERPLUS 2019 FINANCIAL SUMMARY

      

The components of lease expense for the year ended December 31, 2019 are as follows:

($ thousands)

2019

Operating lease cost

$

19,483

Short-term lease cost

 

15,332

Sublease income

(1,072)

Total

$

33,743

Maturities of lease liabilities, all of which are classified as operating leases at December 31, 2019, are as follows:

Maturity of Lease Liabilities

    

($ thousands)

Operating Leases

2020

$

19,371

2021

 

14,098

2022

 

7,674

2023

 

6,706

2024

6,200

After 2024

 

3,979

Total lease payments

$

58,028

Less imputed interest

(4,957)

Total discounted lease payments

$

53,071

Current portion of lease liabilities

$

17,541

Non-current portion of lease liabilities

$

35,530

Supplemental information related to leases are as follows:

($ thousands)

December 31, 2019

Cash amounts paid to settle lease liabilities:

Operating cash flow used for operating leases

$

18,637

Right-of-use assets obtained in exchange for lease obligations:

 

Operating leases

$

20,818

10) OIL AND NATURAL GAS SALES

($ thousands)

    

2019

    

2018

    

2017

Oil and natural gas sales

$

1,572,955

$

1,610,899

$

1,141,770

Royalties(1)

 

(318,149)

 

(318,163)

 

(221,077)

Oil and natural gas sales, net of royalties

$

1,254,806

$

1,292,736

$

920,693

(1)

Royalties above do not include production taxes which are reported separately on the Consolidated Statements of Income/(Loss).

Oil and natural gas revenue by country and by product for the years ended December 31, 2019 and 2018 are as follows:

2019

Total revenue, net

Natural

Natural gas

($ thousands)

of royalties(1)

Crude oil(2)

gas(2)

liquids(2)

Other(3)

Canada

    

$

177,299

$

145,814

    

$

21,776

    

$

7,158

    

$

2,551

United States

 

1,077,507

847,182

 

215,963

 

14,355

 

7

Total

$

1,254,806

$

992,996

$

237,739

$

21,513

$

2,558

2018

Total revenue, net

Natural

Natural gas

($ thousands)

of royalties(1)

Crude oil(2)

gas(2)

liquids(2)

Other(3)

Canada

    

$

198,263

$

148,949

    

$

32,109

    

$

14,075

  

$

3,130

United States

 

1,094,473

834,146

 

236,825

 

23,502

 

Total

$

1,292,736

$

983,095

$

268,934

$

37,577

$

3,130

(1)Royalties above do not include production taxes which are reported separately on the Consolidated Statements of Income/(Loss).
(2)U.S. sales of crude oil and natural gas relate primarily to the Company’s North Dakota and Marcellus properties, respectively. Canadian crude oil sales relate primarily to the Company’s waterflood properties.

ENERPLUS 2019 FINANCIAL SUMMARY             19

      

(3)Includes third party processing income.

Enerplus sells the majority of its production pursuant to variable-price contracts. The transaction price for variable priced contracts is based on the commodity price, adjusted for quality, location or other factors, whereby each component of the pricing formula can be either fixed or variable, depending on the contract terms. Under the contracts, the Company is required to deliver a fixed or variable volume of crude oil, natural gas liquids or natural gas to the contract counterparty.

Crude oil, natural gas and natural gas liquids are sold under contracts of varying terms, including multi-year contracts. Revenues are typically collected in the month following production.

11) GENERAL AND ADMINISTRATIVE EXPENSE

($ thousands)

    

2019

  

2018

  

2017

General and administrative expense

 

$

49,532

$

49,943

$

50,544

Share-based compensation expense

 

23,321

 

25,840

 

23,757

General and administrative expense(1)

 

$

72,853

$

75,783

$

74,301

(1)Includes cash and non-cash amounts.

12) FOREIGN EXCHANGE

($ thousands)

    

2019

    

2018

  

2017

Realized:

Foreign exchange (gain)/loss

$

(87)

$

523

$

1,495

Translation of U.S. dollar cash held in Canada (gain)/loss

8,794

(19,630)

10,978

Unrealized:

Translation of U.S. dollar debt and working capital (gain)/loss

 

(34,085)

 

58,628

 

(42,623)

Foreign exchange (gain)/loss

$

(25,378)

$

39,521

$

(30,150)

13) INCOME TAXES

Enerplus’ provision for income tax is as follows:

($ thousands)

    

2019

  

2018

  

2017

Current tax

Canada

$

(13,910)

$

(400)

$

(407)

United States

 

(19,504)

 

(26,693)

 

(47,550)

Current tax expense/(recovery)

(33,414)

(27,093)

(47,957)

Deferred tax

Canada

$

11,023

$

3,915

$

(17,127)

United States

 

70,252

 

126,389

 

147,072

Deferred tax expense/(recovery)

81,275

130,304

129,945

Income tax expense/(recovery)

$

47,861

$

103,211

$

81,988

The following provides a reconciliation of income taxes calculated at the Canadian statutory rate to the actual income taxes:

($ thousands)

    

2019

    

2018

    

2017

Income/(loss) before taxes

Canada

$

(437,571)

$

104,204

$

146,953

United States

225,712

 

377,286

 

172,033

Total income/(loss) before taxes

(211,859)

481,490

318,986

Canadian statutory rate

26.50%

 

27.00%

 

27.00%

Expected income tax expense/(recovery)

$

(56,143)

$

130,002

$

86,126

Impact on taxes resulting from:

Foreign and statutory rate differences

$

27,446

$

(23,859)

$

157,320

Share-based compensation

(5,398)

(18,102)

5,067

Capital gains and losses

3,994

 

7,254

 

(6,337)

Change in valuation allowance

(22,038)

 

6,292

 

(162,992)

Amounts in respect of prior periods

(19,451)

Non-deductible goodwill impairment

119,547

Other

(96)

 

1,624

 

2,804

20             ENERPLUS 2019 FINANCIAL SUMMARY

      

Income tax expense/(recovery)

$

47,861

$

103,211

$

81,988

During the year, the Alberta corporate income tax rate change resulted in a decrease to the Canadian statutory rate by 0.5% for 2019.

The deferred income tax asset consists of the following:

As at December 31 ($ thousands)

  

2019

    

2018

Deferred income tax assets

Property, plant and equipment

$

59,896

$

60,665

Tax loss carry-forwards and other credits

 

383,600

 

429,651

Capital loss carryforwards and other capital items

154,532

188,409

Asset retirement obligation

 

33,569

 

33,935

Other assets

 

12,219

 

14,099

Deferred income tax assets before valuation allowance

643,816

726,759

Valuation allowance

(169,129)

(191,167)

Deferred income tax assets, net

474,687

535,592

Deferred income tax liabilities

Property, plant and equipment

$

(100,328)

$

(46,284)

Derivative financial instruments

(1,857)

(24,184)

Total deferred income tax liabilities

(102,185)

(70,468)

Total deferred income tax asset

$

372,502

$

465,124

As of December 31, 2019, $13.9 million was reclassified from deferred income tax asset to income tax receivable for the AMT refund expected to be realized in 2020 (December 31, 2018 – $27.2 million).

Loss carry-forwards and tax credits available for tax reporting purposes:

As at December 31 ($ thousands)

   

2019

    

Expiration Date

Canada

Capital losses

$

1,170,000

 

Indefinite

Non-capital losses

 

405,000

 

2028-2039

United States

Net operating losses – prior to 2018

$

889,000

2030-2039

Net operating losses – 2018 and thereafter

102,000

 

Indefinite

Changes in the balance of Enerplus' unrecognized tax benefits are as follows:

($ thousands)

    

2019

    

2018

2017

Balance, beginning of year

$

13,300

$

13,300

$

13,300

Settlements

 

(13,300)

 

 

Balance, end of year

$

$

13,300

$

13,300

Enerplus settled an outstanding dispute with the Canadian tax authorities in the Company's favor reducing the balance of its unrecognized tax benefit to nil and recorded a current tax recovery of $13.9 million including tax and interest.

A summary of the taxation years, by jurisdiction, that remain subject to examination by the taxation authorities are as follows:

Jurisdiction

   

Taxation Years

Canada – Federal

 

2014-2019

United States – Federal

 

2016-2019

Enerplus and its subsidiaries file income tax returns primarily in Canada and the United States. Matters in dispute with the taxation authorities are ongoing and in various stages of completion.

ENERPLUS 2019 FINANCIAL SUMMARY             21

      

14) SHAREHOLDERS’ EQUITY

a) Share Capital

2019

2018

2017

Authorized: unlimited number of common shares

Issued: (thousands)

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

Balance, beginning of year

 

239,411

$

3,337,608

 

242,129

$

3,386,946

 

240,483

$

3,365,962

Issued for cash:

Purchase of common shares under Normal Course Issuer Bid

(18,231)

(253,920)

(5,925)

(82,596)

 

Stock Option Plan

 

 

668

 

9,138

 

 

Non-cash:

Share-based compensation – settled(1)

 

564

 

4,406

 

2,539

 

23,389

 

1,646

 

20,984

Stock Option Plan – exercised

731

Balance, end of year

 

221,744

$

3,088,094

 

239,411

$

3,337,608

 

242,129

$

3,386,946

(1)The amount of shares issued on LTI settlement is net of employee withholding taxes in 2019.

The Company is authorized to issue an unlimited number of common shares without par value.

For the year ended December 31, 2019, Enerplus declared dividends of $0.12 per weighted average common share totaling $27.7 million (December 31, 2018 – $0.12 per share and $29.3 million, December 31, 2017 – $0.12 per share and $29.0 million).

On March 21, 2019, Enerplus renewed its Normal Course Issuer Bid (“NCIB”) to continue to repurchase shares through the facilities of the Toronto Stock Exchange (the “TSX”), New York Stock Exchange and/or alternative Canadian trading systems. Pursuant to the NCIB, the Company was permitted to repurchase for cancellation up to 16,673,015 common shares over a period of twelve months commencing on March 26, 2019. All repurchases are made in accordance with the NCIB at prevailing market prices plus brokerage fees, with consideration allocated to share capital up to the average carrying amount of the shares, and any excess is allocated to accumulated deficit. On November 7, 2019, the Company’s Board of Directors approved an increase to the maximum number of common shares that may be repurchased under the NCIB for up to 10% of the public float (or an additional 7,145,578 common shares) until the expiry of the NCIB on March 25, 2020.

For the year ended December 31, 2019, the Company repurchased 18,231,401 common shares under the NCIB at an average price of $9.80 per share, for total consideration of $178.8 million. Of the amount paid, $253.9 million was charged to share capital and $75.1 million was credited to accumulated deficit.

For the year ended December 31, 2018, the Company repurchased 5,925,084 common shares under the NCIB at an average price of $13.33 per share, for total consideration of $79.0 million. Of the amount paid, $82.6 million was charged to share capital and $3.6 million was credited to accumulated deficit.

Subsequent to the year, and up to February 20, 2020, the Company repurchased approximately 340,000 common shares under the NCIB at an average price of $7.44 per share, for total consideration of $2.5 million. The Company also received approval from the Board of Directors to renew the NCIB upon expiry of the existing term on March 25, 2020, subject to approval by the TSX. The proposed renewal is anticipated to be for 10% of the public float (within the meaning under the TSX rules), consistent with the current bid.

b) Share-based Compensation

The following table summarizes Enerplus' share-based compensation expense, which is included in General and Administrative expense on the Consolidated Statements of Income/(Loss):

($ thousands)

   

2019

    

2018

    

2017

Cash:

Long-term incentive plans expense

$

689

$

133

$

997

Non-Cash:

Long-term incentive plans expense

22,324

25,917

22,576

Equity swap (gain)/loss

 

308

 

(210)

 

184

Share-based compensation expense

$

23,321

$

25,840

$

23,757

22             ENERPLUS 2019 FINANCIAL SUMMARY

      

i)  LTI Plans

The following table summarizes the PSU, RSU and DSU activity for the twelve months ended December 31, 2019:

For the year ended December 31, 2019

Cash-settled LTI Plans

Equity-settled LTI Plans

Total

(thousands of units)

    

DSU

   

PSU(1)

    

RSU

   

Balance, beginning of year

 

391

1,371

1,753

3,515

Granted

 

99

817

862

1,778

Vested

 

(68)

(1,007)

(1,075)

Forfeited

 

(49)

(77)

(126)

Balance, end of year

422

2,139

1,531

4,092

(1)Based on underlying awards before any effect of the performance multiplier.

Cash-settled LTI Plans

For the year ended December 31, 2019, the Company made cash payments of $0.9 million related to its cash-settled plans (2018 – $0.5 million, 2017 – $0.1 million).  

As of December 31, 2019, a liability of $3.9 million (December 31, 2018 – $4.1 million) with respect to the Director DSU Plan has been recorded to Accounts Payable on the Consolidated Balance Sheets.

Equity-settled LTI Plans

The following table summarizes the cumulative share-based compensation expense recognized to-date which is recorded to Paid-in Capital on the Consolidated Balance Sheets. Unrecognized amounts will be recorded to non-cash share-based compensation expense over the remaining vesting terms.

At December 31, 2019 ($ thousands, except for years)

 

PSU(1)

 

RSU

 

Total

Cumulative recognized share-based compensation expense

$

30,768

$

13,495

$

44,263

Unrecognized share-based compensation expense

 

11,971

 

5,582

 

17,553

Fair value

$

42,739

$

19,077

$

61,816

Weighted-average remaining contractual term (years)

 

1.7

1.4

(1)

Includes estimated performance multipliers.

The Company directly withholds shares on PSU and RSU settlements for tax-withholding purposes. For the year ended December 31, 2019, $5.0 million (2018, 2017 – nil) in cash withholding taxes were paid.

ii) Stock Option Plan

At December 31, 2019, all stock options are fully vested and all non-cash share-based compensation expense has been fully recognized.

The following table summarizes the stock option plan activity for the year ended December 31, 2019:

    

Number of Options

    

Weighted Average

Year ended December 31, 2019

(thousands)

Exercise Price

Options outstanding, beginning of year

 

4,131

$

17.12

Exercised

 

 

Forfeited

 

(96)

 

15.22

Expired

 

(1,928)

 

20.35

Options outstanding and exercisable, end of year

 

2,107

$

14.24

At December 31, 2019, 2,106,944 options were exercisable at a weighted average exercise price of $14.24 with a weighted average remaining contractual term of 0.2 years, giving an aggregate intrinsic value of nil (December 31, 2018 – nil, December 31, 2017 – nil).

ENERPLUS 2019 FINANCIAL SUMMARY             23

      

c) Basic and Diluted Net Income/(Loss) Per Share

Net income/(loss) per share has been determined as follows:

(thousands, except per share amounts)

   

2019

 

2018

 

2017

Net income/(loss)

$

(259,720)

$

378,279

$

236,998

Weighted average shares outstanding – Basic

 

231,334

 

244,076

 

241,929

Dilutive impact of share-based compensation(1)

 

 

3,185

 

5,945

Weighted average shares outstanding – Diluted

231,334

247,261

247,874

Net income/(loss) per share

Basic

$

(1.12)

$

1.55

$

0.98

Diluted

$

(1.12)

$

1.53

$

0.96

(1)For the year ended December 31, 2019, the impact of share-based compensation was anti-dilutive as a conversion to shares would not increase the loss per share.

15) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

a) Fair Value Measurements

At December 31, 2019, senior notes had a carrying value of $606.6 million and a fair value of $613.8 million (December 31, 2018 – $696.9 million and $695.4 million, respectively).

There were no transfers between fair value hierarchy levels during the year.

b) Derivative Financial Instruments

The derivative financial assets and liabilities on the Consolidated Balance Sheets result from recording derivative financial instruments at fair value.

The following tables summarize the change in fair value for the respective years:

    

    

    

    

Income

Gain/(Loss) ($ thousands)

2019

2018

2017

Statement Presentation

Equity Swaps

$

(308)

$

210

$

(184)

 

G&A expense

Electricity Swaps

 

 

 

639

 

Operating expense

Commodity Derivative Instruments:

Oil

 

(70,481)

 

114,822

 

(5,445)

 

Commodity derivative

Gas

 

(10,944)

 

9,234

 

11,174

 

instruments

Total Unrealized Gain/(Loss)

$

(81,733)

$

124,266

$

6,184

The following table summarizes the effect of Enerplus’ commodity derivative instruments on the Consolidated Statements of Income/(Loss):

($ thousands)

    

2019

   

2018

    

2017

Change in fair value gain/(loss)

$

(81,425)

$

124,056

$

5,729

Net realized cash gain/(loss)

 

15,354

 

(35,824)

 

8,581

Commodity derivative instruments gain/(loss)

$

(66,071)

$

88,232

$

14,310

The following table summarizes the fair values at the respective year ends:

December 31, 2019

December 31, 2018

Assets

Liabilities

Assets

Liabilities

($ thousands)

    

Current

    

Current

    

Current

Long-term

    

Current

Equity Swaps

$

$

2,217

$

$

$

1,909

Commodity Derivative Instruments:

Oil

 

10,570

 

517

 

48,314

 

32,220

 

Gas

 

 

 

10,944

 

 

Total

$

10,570

$

2,734

$

59,258

$

32,220

$

1,909

24             ENERPLUS 2019 FINANCIAL SUMMARY

      

c) Risk Management

In the normal course of operations, Enerplus is exposed to various market risks, including commodity prices, foreign exchange, interest rates and equity prices, credit risk and liquidity risk.

i)  Market Risk

Market risk is comprised of commodity price, foreign exchange, interest rate and equity price risk.

Commodity Price Risk:

Enerplus manages a portion of commodity price risk through a combination of financial derivative and physical delivery sales contracts. Enerplus’ policy is to enter into commodity contracts subject to a maximum of 80% of forecasted production volumes net of royalties and production taxes.

The following tables summarize Enerplus’ price risk management positions at February 20, 2020:

Crude Oil Instruments:

Instrument Type(1)(2)

    

bbls/day

    

US$/bbl

Jan 1, 2020 – Jan 31, 2020

WTI Swap

5,000

57.05

WTI Purchased Put

16,000

57.50

WTI Sold Put

16,000

46.88

WTI – Brent Swap (Purchase)

4,400

(8.03)

WTI – Brent Swap (Sale)

4,400

(3.98)

WCS Differential Swap

1,000

(19.25)

Feb 1, 2020 – Mar 31, 2020

WTI Swap

10,000

54.56

WTI Purchased Put

16,000

57.50

WTI Sold Put

16,000

46.88

WTI – Brent Swap (Purchase)

4,400

(8.03)

WTI – Brent Swap (Sale)

4,400

(3.98)

WCS Differential Swap

1,000

(19.25)

Apr 1, 2020 – Jun 30, 2020

WTI Swap

12,000

55.23

WTI Purchased Put

16,000

57.50

WTI Sold Put

16,000

46.88

WTI – Brent Swap (Purchase)

4,400

(8.03)

WTI – Brent Swap (Sale)

4,400

(3.98)

Jul 1, 2020 – Sep 30, 2020

WTI Swap

2,000

57.18

WTI Purchased Put

21,000

57.20

WTI Sold Put

21,000

47.14

WTI Sold Call

5,000

65.00

WTI – Brent Swap (Purchase)

4,400

(8.03)

Oct 1, 2020 – Dec 31, 2020

WTI Purchased Put

21,000

57.20

WTI Sold Put

21,000

47.14

WTI Sold Call

5,000

65.00

WTI – Brent Swap (Purchase)

4,400

(8.03)

(1)Transactions with a common term have been aggregated and presented as the weighted average price/bbl before premiums.
(2)The total average deferred premium on outstanding hedges is US$1.69/bbl from January 1, 2020 to December 31, 2020.

Foreign Exchange Risk:

Enerplus is exposed to foreign exchange risk in relation to its U.S. operations, U.S. dollar denominated senior notes, cash deposits and working capital. Additionally, Enerplus’ crude oil sales and a significant portion of its natural gas sales are based on U.S. dollar indices. To mitigate exposure to fluctuations in foreign exchange, Enerplus may enter into foreign exchange derivatives. At December 31, 2019, Enerplus did not have any foreign exchange derivatives outstanding.

ENERPLUS 2019 FINANCIAL SUMMARY             25

      

Interest Rate Risk:

At December 31, 2019, all of Enerplus’ debt was based on fixed interest rates, and Enerplus did not have any interest rate derivatives outstanding.

Equity Price Risk:

Enerplus is exposed to equity price risk in relation to its long-term incentive plans detailed in Note 14. Enerplus has entered into various equity swaps maturing in 2020 and has effectively fixed the future settlement cost on 264,000 shares at a weighted average price of $17.82 per share.

ii) Credit Risk

Credit risk represents the financial loss Enerplus would experience due to the potential non-performance of counterparties to its financial instruments. Enerplus is exposed to credit risk mainly through its joint venture, marketing and financial counterparty receivables.

Enerplus mitigates credit risk through credit management techniques, including conducting financial assessments to establish and monitor counterparties’ credit worthiness, setting exposure limits, monitoring exposures against these limits and obtaining financial assurances such as letters of credit, parental guarantees, or third party credit insurance where warranted. Enerplus monitors and manages its concentration of counterparty credit risk on an ongoing basis.

Enerplus’ maximum credit exposure at the balance sheet date consists of the carrying amount of its non-derivative financial assets and the fair value of its derivative financial assets. At December 31, 2019, approximately 77% of Enerplus’ marketing receivables were with companies considered investment grade.

Enerplus actively monitors past due accounts and takes the necessary actions to expedite collection, which can include withholding production, netting amounts off future payments or seeking other remedies including legal action. Should Enerplus determine that the ultimate collection of a receivable is in doubt, it will provide the necessary provision in its allowance for doubtful accounts with a corresponding charge to earnings. If Enerplus subsequently determines an account is uncollectible the account is written off with a corresponding charge to the allowance account. Enerplus’ allowance for doubtful accounts balance at December 31, 2019 was $3.7 million (December 31, 2018 – $3.9 million).

iii) Liquidity Risk & Capital Management

Liquidity risk represents the risk that Enerplus will be unable to meet its financial obligations as they become due. Enerplus mitigates liquidity risk through actively managing its capital, which it defines as debt (net of cash and cash equivalents) and shareholders’ capital. Enerplus’ objective is to provide adequate short and longer term liquidity while maintaining a flexible capital structure to sustain the future development of its business. Enerplus strives to balance the portion of debt and equity in its capital structure given its current oil and natural gas assets and planned investment opportunities.

Management monitors a number of key variables with respect to its capital structure, including debt levels, capital spending plans, dividends, share repurchases, access to capital markets, as well as acquisition and divestment activity.

At December 31, 2019, Enerplus was in full compliance with all covenants under the bank credit facility and outstanding senior notes.

16) COMMITMENTS AND CONTINGENCIES

a) Commitments

Enerplus has the following minimum annual commitments, excluding operating leases which are recorded in the lease liability (see Note 9):

Minimum Annual Commitment Each Year

($ thousands)

Total

2020

2021

2022

2023

2024

Thereafter

Senior notes(1)

$

606,633

$

105,998

$

105,998

$

130,680

$

104,700

$

104,699

$

54,558

Transportation commitments

313,197

    

34,829

31,651

29,271

28,981

28,719

159,746

Processing commitments

 

12,663

 

3,174

1,519

1,519

1,519

1,519

3,413

Total commitments(2)(3)

$

932,493

$

144,001

$

139,168

$

161,470

$

135,200

$

134,937

$

217,717

(1)Interest payments have not been included.
(2)Crown and surface royalties, production taxes, lease rentals and mineral taxes (hydrocarbon production rights) have not been included as amounts paid depend on future ownership, production, prices and the legislative environment.
(3)US$ commitments have been converted to CDN$ using the December 31, 2019 foreign exchange rate of 1.2990.

26             ENERPLUS 2019 FINANCIAL SUMMARY

      

b) Contingencies

Enerplus is subject to various legal claims and actions arising in the normal course of business. Although the outcome of such claims and actions cannot be predicted with certainty, the Company does not expect these matters to have a material impact on the Consolidated Financial Statements.  In instances where the Company determines that a loss is probable and the amount can be reasonably estimated, an accrual is recorded.

17) GEOGRAPHICAL INFORMATION

As at and for the year ended December 31, 2019 ($ thousands)

    

Canada

    

U.S.

    

Total

Oil and natural gas sales, net of royalties

$

177,299

$

1,077,507

$

1,254,806

Depletion, depreciation and accretion

59,936

296,894

356,830

Property, plant and equipment

 

259,514

 

1,308,092

 

1,567,606

Deferred income tax asset

185,880

186,622

372,502

Goodwill

194,015

194,015

Long term income tax receivable

 

 

13,852

 

13,852

As at and for the year ended December 31, 2018 ($ thousands)

    

Canada

    

U.S.

    

Total

Oil and natural gas sales, net of royalties

$

198,263

$

1,094,473

$

1,292,736

Depletion, depreciation and accretion

58,333

245,941

304,274

Property, plant and equipment

 

262,159

 

1,044,912

 

1,307,071

Deferred income tax asset

196,903

268,221

465,124

Goodwill

 

451,121

203,678

654,799

Long term income tax receivable

 

 

27,195

 

27,195

As at and for the year ended December 31, 2017 ($ thousands)

    

Canada

    

U.S.

    

Total

Oil and natural gas sales, net of royalties

$

227,031

$

693,662

$

920,693

Depletion, depreciation and accretion

89,936

160,838

250,774

Property, plant and equipment

 

246,604

 

653,427

 

900,031

Deferred income tax asset

200,818

369,119

569,937

Goodwill

 

451,121

 

187,757

 

638,878

Long term income tax receivable

 

 

50,108

 

50,108

18) SUPPLEMENTAL CASH FLOW INFORMATION

a) Changes in Non-Cash Operating Working Capital

($ thousands)

December 31, 2019

December 31, 2018

December 31, 2017

Accounts receivable

$

8,493

$

(45,385)

$

(66,860)

Other assets

 

4,475

 

(3,026)

 

(154)

Accounts payable

 

(11,005)

 

44,952

 

31,982

$

1,963

$

(3,459)

$

(35,032)

b) Changes in Other Non-Cash Working Capital

($ thousands)

  

December 31, 2019

 

December 31, 2018

 

December 31, 2017

Non-cash financing activities(1)

$

(178)

$

(26)

$

16

Non-cash investing activities(2)

$

17,682

$

(3,753)

$

1,523

(1)Relates to changes in dividends payable and included in dividends on the Consolidated Statements of Cash Flows.
(2)Relates to changes in accounts payable for capital and office expenditures and included in capital and office expenditures on the Consolidated Statements of Cash Flows.

c) Other

($ thousands)

 

December 31, 2019

December 31, 2018

    

December 31, 2017

Income taxes paid/(received)

$

(71,890)

$

(481)

$

2,640

Interest paid

$

33,991

$

36,161

$

38,149

ENERPLUS 2019 FINANCIAL SUMMARY             27