Paramount Resources Ltd. Announces First Quarter 2023 Results

2023-05-03

TSX - Toronto Stock Exchange · Natural Gas · Oil · Natural Gas Liquids · Ethane · Canada

Canada NewsWire

CALGARY, AB , May 3, 2023 /CNW/ - Paramount Resources Ltd. ("Paramount" or the "Company") (TSX: POU) is pleased to announce first quarter 2023 financial and operating results highlighted by record production in the Grande Prairie Region, an active capital program that will drive second half 2023 production growth and continued strong free cash flow generation.

HIGHLIGHTS

First quarter sales volumes averaged 97,269 Boe/d (45% liquids), similar to the fourth quarter of 2022 even with the impact of 4,700 Boe/d in property dispositions in January 2023 . Grande Prairie Region sales volumes averaged a record 69,507 Boe/d (51% liquids). (1) Cash from operating activities was $271 million ( $1.91 per basic share) in the first quarter. Adjusted funds flow was $268 million ( $1.89 per basic share). (2) Free cash flow was $60 million ( $0.42 per basic share) in the first quarter. (2) In addition, Paramount closed the sale of its Kaybob Smoky and Kaybob South Duvernay properties and certain other minor interests in the Kaybob Region (the "Kaybob Disposition") for cash proceeds of $371 million in January 2023 . Capital expenditures in the quarter totaled $184 million . Activities were focused on development in the Grande Prairie Region where Paramount drilled six (6.0 net) Montney wells and completed 14 (14.0 net) Montney wells and in the Kaybob Region where it drilled four (3.4 net) wells, including the longest well by measured depth in the Company's history of approximately 7,800 meters at its Kaybob North Duvernay property. Abandonment and reclamation expenditures in the first quarter totaled $22 million . The Company's infrastructure debottlenecking project in the Grande Prairie Region is now complete. This will facilitate production growth in the region to between 77,000 Boe/d and 82,000 Boe/d in the second half of 2023 as additional wells are brought onstream. Paramount began bringing new Montney wells from the ten well Karr 4-2 pad on production in mid-April.

| | | | (1) | In this press release, "liquids" refers to NGLs (including condensate) and oil combined, "natural gas" refers to shale gas and conventional natural gas combined, "condensate and oil" refers to condensate, light and medium crude oil, tight oil and heavy crude oil combined and "other NGLs" refers to ethane, propane and butane. See the "Product Type Information" section for a complete breakdown of sales volumes for applicable periods by the specific product types of shale gas, conventional natural gas, NGLs, light and medium crude oil, tight oil and heavy crude oil. See also "Oil and Gas Measures and Definitions" in the Advisories section. | | (2) | Adjusted funds flow and free cash flow are capital management measures used by Paramount. Cash from operating activities per basic share, adjusted funds flow per basic share and free cash flow per basic share are supplementary financial measures. Refer to the "Specified Financial Measures" section for more information on these measures. |

Following the Kaybob Disposition, the Company repaid all remaining drawings under its $1.0 billion revolving credit facility and paid a special cash dividend of $1.00 per class A common share ("Common Share"). At March 31, 2023 , Paramount held $82 million in cash and cash equivalents and its revolving credit facility remained undrawn. The carrying value of the Company's investments in securities at March 31, 2023 was $498 million .

GUIDANCE

Paramount is reaffirming its 2023 and preliminary 2024 annual average sales volumes and capital expenditure guidance. Capital expenditures in 2023 and 2024 are expected to be evenly split between: (i) sustaining and maintenance capital; and (ii) growth capital. Paramount is revising its free cash flow expectations to reflect higher operating and transportation expenses due to inflationary cost pressures and to incorporate updated NGLs pricing following the execution of new propane contracts in April 2023 . If inflationary cost pressures persist into 2024, Paramount expects capital expenditures to be on the higher end of the guided range in 2024.

Paramount remains committed to prudently managing its capital resources and has the flexibility to adjust its capital expenditure plans depending on commodity prices, inflationary cost pressures and other factors.

The Company's midpoint 2023 sustaining and maintenance capital program and regular monthly dividend would remain fully funded down to an average WTI price of about US$50 /Bbl over the last three quarters of 2023. (2) The Company's total midpoint 2023 capital program and regular monthly dividend would remain fully funded down to an average WTI price of about US$71 /Bbl over the last three quarters of 2023. (2)

Planning for the second phase of development at Willesden Green is ongoing, including the design of a new processing facility and the advancement of commercial arrangements for sales volumes egress. Paramount intends to update its five-year outlook later this year.

| | | | (1) | Free cash flow is a capital management measure used by Paramount. Refer to "Advisories - Specified Financial Measures" for more information on this measure. The stated free cash flow forecast is based on the following assumptions for 2023: (i) the midpoint of stated capital expenditures and sales volumes, (ii) $55 million in abandonment and reclamation costs, (iii) $7 million in geological and geophysical expenses, (iv) realized pricing of $55.50/Boe (US$79.04/Bbl WTI, US$3.48/MMBtu NYMEX, $3.33/GJ AECO), (v) a $US/$CAD exchange rate of $0.751, (vi) royalties of $8.40/Boe, (vii) operating costs of $12.00/Boe and (vii) transportation and NGLs processing costs of $3.85/Boe. Assumed pricing of US$80.00/Bbl WTI, US$3.50/MMBtu NYMEX and $3.08/GJ AECO and an assumed $US/$CAD exchange rate of $0.755 for the remaining three quarters of 2023 is unchanged from previous guidance provided on March 7, 2023 but the stated amounts have been adjusted to incorporate actual results for the first quarter of 2023. | | (2) | Assuming no changes to the other forecast assumptions for 2023. | | (3) | All 2024 guidance is based on preliminary planning and current market conditions and is subject to change. | | (4) | The stated free cash flow estimate is based on the following assumptions for 2024: (i) the midpoint of stated capital expenditures and sales volumes, (ii) $40 million in abandonment and reclamation costs, (iii) $7 million in geological and geophysical expenses, (iv) realized pricing of $53.60/Boe (US$75.00/Bbl WTI, US$3.50/MMBtu NYMEX, $3.08/GJ AECO), (v) a $US/$CAD exchange rate of $0.755, (vi) royalties of $8.15/Boe, (vii) operating costs of $11.25/Boe and (vii) transportation and NGLs processing costs of $3.65/Boe. |

MAY DIVIDEND

Paramount's Board of Directors has declared a cash dividend of $0.125 per Common Share that will be payable on May 31, 2023 to shareholders of record on May 15, 2023 . The dividend will be designated as an "eligible dividend" for Canadian income tax purposes.

REVIEW OF OPERATIONS

GRANDE PRAIRIE REGION

Sales volumes and netbacks in the Grande Prairie Region are summarized below:

| | | Q1 2023 | | | Q4 2022 | | % Change | | | | Sales volumes | | | | | | | | | | | Natural gas (MMcf/d) | | 204.4 | | | 189.9 | | 8 | | | | Condensate and oil (Bbl/d) | | 31,367 | | | 29,146 | | 8 | | | | Other NGLs (Bbl/d) | | 4,074 | | | 3,631 | | 12 | | | | Total (Boe/d) | | 69,507 | | | 64,434 | | 8 | | | | % liquids | | 51 % | | | 51 % | | | | | | Netback (1) | ($ millions) | | | ($/Boe) | ($ millions) | | | ($/Boe) | _Change in $ millions (%) _ | | Natural gas revenue (2) | 79.4 | | | 4.31 | 125.4 | | | 7.18 | (37) | | Condensate and oil revenue | 286.9 | | | 101.64 | 293.9 | | | 109.60 | (2) | | Other NGLs revenue | 16.9 | | | 46.21 | 17.1 | | | 51.22 | (1) | | Petroleum and natural gas sales | 383.2 | | | 61.26 | 436.4 | | | 73.62 | (12) | | Royalties | (56.7) | | | (9.07) | (66.4) | | | (11.21) | (15) | | Operating expense | (70.3) | | | (11.24) | (69.9) | | | (11.80) | 1 | | Transportation and NGLs processing | (28.7) | | | (4.58) | (22.1) | | | (3.70) | 30 | | | 227.5 | | | 36.37 | 278.0 | | | 46.91 | (18) |

| (1) | "Netback" is a Non-GAAP financial measure. When presented on a $/Boe or $/Mcf basis, each of the components of Netback is a supplementary financial measure and Netback is a non-GAAP ratio. Refer to the "Specified Financial Measures" section for more information on these measures. | | (2) | Per unit natural gas revenue presented as $/Mcf. |

First quarter 2023 sales volumes in the Grande Prairie Region averaged a record 69,507 Boe/d (51% liquids) compared to 64,434 Boe/d (51% liquids) in the fourth quarter of 2022. The Company brought a total of six (6.0 net) new Montney wells at Karr and Wapiti on production in the first quarter.

Development activities in the Grande Prairie Region in the first quarter included the drilling of six (6.0 net) Montney wells and the completion of 14 (14.0 net) Montney wells.

At Karr, all four (4.0 net) wells at the 1-2 North pad were brought on production in the first quarter. The pad included a well with one of the longest lateral lengths in corporate history and a total measured depth of 7,060 metres. All-in drilling, completion, equipping and tie-in ("DCET") costs for the pad averaged $10.5 million per well. Production results from these four wells are consistent with expectations, averaging gross peak 30-day production per well of 1,904 Boe/d (6.3 MMcf/d of shale gas and 846 Bbl/d of NGLs) with an average CGR of 133 Bbl/MMcf. (1 )

| | | | (1) | Production measured at the wellhead. Natural gas sales volumes were lower by approximately 10% and liquids sales volumes were lower by approximately 6% due to shrinkage. Excludes days when the wells did not produce. The production rates and volumes stated are over a short period of time and, therefore, are not necessarily indicative of average daily production, long-term performance or of ultimate recovery from the wells. CGR means condensate to gas ratio and is calculated by dividing raw wellhead liquids volumes by raw wellhead natural gas volumes. See "Oil and Gas Measures and Definitions" in the Advisories section. |

The Company completed all ten (10.0 net) wells on the Karr 4-2 pad during the quarter and began bringing the wells on production in mid-April. Paramount also commenced drilling at the five (5.0 net) well 7-33 South pad at Karr in the first quarter, with the wells expected to be on production in the third quarter.

At Wapiti, the remaining two wells on the eight (8.0 net) well 16-15 pad were brought onstream in the first quarter. Paramount began drilling the eight (8.0 net) well 8-15 pad in the first quarter, with the wells expected to come on production in the third quarter.

The Company's Grande Prairie Region infrastructure debottlenecking project is now complete. This will facilitate sales volumes growth in the region to between 77,000 Boe/d and 82,000 Boe/d in the second half of 2023 as additional wells are brought onstream.

As previously disclosed, a planned 11 day outage in the second quarter and a planned four day outage in the fourth quarter at the third-party Wapiti natural gas processing plant will impact Grande Prairie Region sales volumes.

KAYBOB REGION

Kaybob Region sales volumes averaged 19,201 Boe/d (29% liquids) in the first quarter of 2023 compared to fourth quarter 2022 sales volumes of 24,477 Boe/d (34% liquids) (which included approximately 4,700 Boe/d from properties sold in the January 2023 Kaybob Disposition).

Development activities at the Company's Kaybob North Duvernay property are ongoing with Paramount recently completing the drilling of the three (3.0 net) well 4-13 pad that is expected to be brought onstream in the third quarter. The wells on this pad have the longest average well length by total measured depth in the Company's history and include the single longest well at approximately 7,800 meters of total measured depth. The Company is applying its learnings from the drilling of long reach wells, achieving another record by drilling 1,130 meters of lateral length in a 24-hour period on one of the wells.

The drilling of the five (5.0 net) well 15-7 pad at Kaybob North Duvernay commenced in the second quarter, with all five wells expected to be onstream in the fourth quarter. As a result of the optimization of existing infrastructure and improved surface facility design, the 4-13 and 15-7 pads are not expected to be subject to the production restrictions that impacted the three-well 12-21 pad brought on production in 2022.

Development activities in the Kaybob Region also included the drilling and completion of two (1.4 net) Montney gas wells. Paramount is deferring bringing these wells onstream until the winter when natural gas prices are expected to strengthen.

CENTRAL ALBERTA AND OTHER REGION

Central Alberta and Other Region sales volumes averaged 8,561 Boe/d (32% liquids) in the first quarter of 2023 compared to 8,459 Boe/d (31% liquids) in the fourth quarter of 2022.

The Company plans to commence the drilling of four (4.0 net) Duvernay wells at Willesden Green late in the second quarter with first production anticipated in early 2024 to coincide with the start-up of the liquids handling expansion at the Leafland natural gas processing plant. Drilling operations at a second four (4.0 net) Duvernay well pad at Willesden Green will commence in late 2023.

Planning for the second phase of development at Willesden Green is ongoing, including the design of a new processing facility ("New Facility") and the advancement of commercial arrangements for sales volumes egress. It is currently anticipated that the New Facility will be capable of handling approximately 150 MMcf/d of raw gas and 30,000 Bbl/d of raw liquids upon completion. Additional gathering, compression and associated infrastructure will also be required. Paramount now expects that the New Facility will be constructed in three phases of approximately 50 MMcf/d of raw gas handling and 10,000 Bbl/d of raw liquids handling each, with the first train to start up in late 2025, approximately six months later than previously estimated.

Paramount controls approximately 240,000 net acres of contiguous land at Willesden Green with over 700 internally estimated Duvernay drilling locations, which supports targeted full field development plateau production of over 50,000 Boe/d that can be sustained for over 20 years. (1 )

HEDGING

The Company's current commodity and foreign exchange contracts are summarized below:

| | | Q2

2023 | Q3

2023 | Q4

2023 | 2024 | Average Price (2) | | Oil | | | | | | | | Sweet Crude Oil – Basis (Physical Sale) (Bbl/d) | | 3,112 | 3,078 | 3,078 | – | WTI – US$3.73/Bbl | | Natural Gas | | | | | | | | AECO – Basis (Physical Sale) (MMBtu/d) | | 35,000 | 35,000 | 11,793 | – | NYMEX – US$0.94/MMBtu | | Dawn – Basis (Physical Sale) (MMBtu/d) | | 25,000 | 25,000 | 8,424 | – | NYMEX – US$0.20/MMBtu | | Foreign Currency Exchange | | | | | | | | Forward Sales / Swaps (US$MM/Month) | | $60 | – | – | – | 1.3293 CAD$ / US$ | | Swaps (US$MM/Month) | | – | $40 | $40 | – | 1.3427 CAD$ / US$ | | Swaps (US$MM/Month) | | – | – | – | $20 | 1.3425 CAD$ / US$ |

| (2) Average price is calculated on a volume weighted average basis. |

ANNUAL GENERAL MEETING

Paramount will hold its annual general meeting of shareholders on Wednesday, May 3, 2023 at 10:30 a.m. ( Calgary time) in the McMurray Room of the Calgary Petroleum Club, located at 319 – 5 th Avenue S.W., Calgary Alberta . A webcast of the meeting will be available on the Company's website at www.paramountres.com/investors/presentations .

| _ | | | (1) | See "Oil and Gas Measures and Definitions" in the Advisories section for additional information respecting internally estimated drilling locations. |

ABOUT PARAMOUNT

Paramount is an independent, publicly traded, liquids-rich natural gas focused Canadian energy company that explores for and develops both conventional and unconventional petroleum and natural gas, including longer-term strategic exploration and pre-development plays, and holds a portfolio of investments in other entities. The Company's principal properties are located in Alberta and British Columbia . Paramount's Common Shares are listed on the Toronto Stock Exchange under the symbol "POU".

Paramount's first quarter 2023 results, including Management's Discussion and Analysis and the Company's Consolidated Financial Statements, can be obtained on SEDAR at www.sedar.com or on Paramount's website at www.paramountres.com/investors/financial-shareholder-reports .

A summary of historical financial and operating results is also available on Paramount's website at www.paramountres.com/investors/financial-shareholder-reports .

| FINANCIAL AND OPERATING RESULTS (1) | | | | | | | | | | | | | | ($ millions, except as noted) | | Q1 2023 | | | Q4 2022 | | | | | Q1 2022 | | | | Net income | | 197.0 | | | 259.9 | | | | | 16.6 | | | | per share – basic ($/share) | | 1.39 | | | 1.83 | | | | | 0.12 | | | | per share – diluted ($/share) | | 1.33 | | | 1.76 | | | | | 0.11 | | | | Cash from operating activities | | 271.4 | | | 306.9 | | | | | 174.9 | | | | per share – basic ($/share) | | 1.91 | | | 2.17 | | | | | 1.25 | | | | per share – diluted ($/share) | | 1.84 | | | 2.08 | | | | | 1.20 | | | | Adjusted funds flow | | 268.2 | | | 340.7 | | | | | 237.8 | | | | per share – basic ($/share) | | 1.89 | | | 2.40 | | | | | 1.70 | | | | per share – diluted ($/share) | | 1.81 | | | 2.31 | | | | | 1.63 | | | | Free cash flow | | 59.8 | | | 162.0 | | | | | 103.4 | | | | per share – basic ($/share) | | 0.42 | | | 1.14 | | | | | 0.74 | | | | per share – diluted ($/share) | | 0.40 | | | 1.10 | | | | | 0.71 | | | | Total assets | | 4,114.6 | | | 4,337.3 | | | | | 4,095.5 | | | | Investments in securities | | 498.3 | | | 557.1 | | | | | 479.2 | | | | Net (cash) debt | | (43.6) | | | 161.2 | | | | | 361.2 | | | | Long-term debt | | – | | | 159.4 | | | | | 302.6 | | | | Common shares outstanding _(millions) _(2) | | 142.4 | | | 142.0 | | | | | 140.0 | | | | | | | | | | | | | | | | | | Sales volumes (3) | | | | | | | | | | | | | | Natural gas (MMcf/d) | | 320.6 | | | 321.9 | | | | | 272.9 | | | | Condensate and oil (Bbl/d) | | 37,916 | | | 37,580 | | | | | 31,375 | | | | Other NGLs (Bbl/d) | | 5,916 | | | 6,143 | | | | | 5,276 | | | | Total (Boe/d) | | 97,269 | | | 97,370 | | | | | 82,137 | | | | % liquids | | 45 % | | | 45 % | | | | | 45 % | | | | Grande Prairie Region (Boe/d) | | 69,507 | | | 64,434 | | | | | 54,737 | | | | Kaybob Region (Boe/d) | | 19,201 | | | 24,477 | | | | | 20,726 | | | | Central Alberta & Other Region (Boe/d) | | 8,561 | | | 8,459 | | | | | 6,674 | | | | Total (Boe/d) | | 97,269 | | | 97,370 | | | | | 82,137 | | | | Netback | | | $/Boe (4) | | | | | $/Boe (4) | | | | $/Boe (4) | | Natural gas revenue | 122.0 | | 4.23 | | 194.2 | | 6.56 | | 127.1 | | 5.18 | | | Condensate and oil revenue | 343.5 | | 100.66 | | 375.1 | | 108.50 | | 331.9 | | 117.53 | | | Other NGLs revenue | 23.4 | | 43.93 | | 27.3 | | 48.25 | | 29.3 | | 61.64 | | | Royalty and other revenue | 0.8 | | ─ | | 1.1 | | ─ | | 11.3 | | ─ | | | Petroleum and natural gas sales | 489.7 | | 55.94 | | 597.7 | | 66.72 | | 499.6 | | 67.59 | | | Royalties | (69.1) | | (7.90) | | (84.4) | | (9.43) | | (76.2) | | (10.31) | | | Operating expense | (108.8) | | (12.43) | | (119.2) | | (13.31) | | (89.2) | | (12.07) | | | Transportation and NGLs processing | (36.3) | | (4.15) | | (27.2) | | (3.03) | | (31.3) | | (4.24) | | | Sales of commodities purchased (5) | 115.1 | | 13.15 | | 102.7 | | 11.47 | | 48.8 | | 6.59 | | | Commodities purchased (5) | (114.3) | | (13.05) | | (100.4) | | (11.21) | | (49.1) | | (6.64) | | | Netback | 276.3 | | 31.56 | | 369.2 | | 41.21 | | 302.6 | | 40.92 | | | Risk management contract settlements | 6.1 | | 0.70 | | (23.0) | | (2.57) | | (49.7) | | (6.72) | | | Netback including risk management contract settlements | 282.4 | | 32.26 | | 364.2 | | 38.64 | | 252.9 | | 34.20 | | | | | | | | | | | | | | | | | Capital expenditures | | | | | | | | | | | | | | Grande Prairie Region | | 121.1 | | 135.8 | | | | | 76.8 | | | | | Kaybob Region | | 39.0 | | | 11.4 | | | | | 31.1 | | | | Central Alberta & Other Region | | 5.6 | | | 1.0 | | | | | 0.1 | | | | Fox Drilling and Cavalier Energy | | 12.7 | | | 12.1 | | | | | 1.1 | | | | Corporate | | 5.7 | | | 9.3 | | | | | 7.9 | | | | Total | | 184.1 | | | 169.6 | | | | | 117.0 | | | | Asset retirement obligations settled | | 21.8 | | | 7.0 | | | | | 14.8 | | |

Earlier from Paramount Resources Ltd.

PARAMOUNT RESOURCES LTD. ANNOUNCES APRIL DIVIDEND 2023-04-03
Paramount Resources Ltd. Announces Record 2022 Annual Results 2023-03-07
PARAMOUNT RESOURCES LTD. ANNOUNCES FEBRUARY DIVIDEND 2023-02-01