Paramount Resources Ltd. press release

Paramount Resources Ltd. Announces Record Third Quarter 2022 Results, 25% Dividend Increase, 2023 Budget and Five-Year Outlook

2022-11-03

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

Canada NewsWire

CALGARY, AB , Nov. 3, 2022 /CNW/ - Paramount Resources Ltd. ("Paramount" or the "Company") (TSX: POU) is pleased to announce third quarter 2022 financial and operating results highlighted by record production, funds flow and free cash flow and a 2023 capital expenditure budget that is forecast to generate approximately $650 million in free cash flow on production of between 105,000 Boe/d and 110,000 Boe/d (46% liquids). (1)(2) Paramount is also pleased to announce that it is increasing its regular monthly dividend by 25% from $0.10 per class A common share ("Common Share") to $0.125 per Common Share beginning November 2022 .

HIGHLIGHTS

The Company achieved record quarterly sales volumes of 97,601 Boe/d (46% liquids) in the third quarter, including record monthly sales volumes of 104,506 Boe/d (46% liquids) in September. Cash from operating activities was $248.9 million ( $1.76 per basic share) in the third quarter. Adjusted funds flow was $334.3 million ( $2.37 per basic share). Free cash flow was $137.5 million ( $0.97 per basic share). (3) Capital expenditures in the quarter totaled $184.3 million and were focused on development activities at Karr, Wapiti, Kaybob North and Smoky. As previously announced, Paramount closed its Willesden Green Duvernay acquisition in the third quarter. Net of adjustments, the purchase price was $60.4 million in cash.

| | | | (1) | Free cash flow is a capital management measure used by Paramount. Refer to the "Specified Financial Measures" section for more information on this measure. | | (2) | In this press release, "liquids" refers to NGLs (including condensate) and oil combined, "natural gas" refers to conventional natural gas and shale gas combined, "condensate and oil" refers to condensate, light and medium crude oil and tight 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 and tight oil. See also "Oil and Gas Measures and Definitions" in the Advisories section. | | (3) | Adjusted funds flow is a capital management measure 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. |

In early October, the Company also closed its previously announced disposition of certain non-core infrastructure assets, comprised of approximately 60 kilometers of operated resource roads in the Bigstone area of the Kaybob Region (the "Roads Disposition"), for cash proceeds of $64.2 million net of adjustments. Paramount continues to own approximately 1,600 gross kilometers of resource roads, largely in the Kaybob Region. Abandonment and reclamation expenditures in the third quarter totaled $10.2 million , net of $4.3 million in funding under the Alberta Site Rehabilitation Program ("ASRP"). Net debt at September 30, 2022 was $347.0 million . Pro forma the $64.2 million Roads Disposition, the Company has achieved its $300 million net debt target. Net debt does not account for the $451.3 million carrying value of the Company's investments in securities at September 30, 2022 . (1 )

INCREASED DIVIDEND

Paramount's Board of Directors has approved a 25% increase in the regular monthly dividend from $0.10 to $0.125 per Common Share. The first increased dividend will be payable on November 30, 2022 to shareholders of record on November 15 , 2022. The dividend will be designated as an "eligible dividend" for Canadian income tax purposes.

DELIVERING ON FREE CASH FLOW PRIORITIES

Following the achievement of its net debt target, Paramount's free cash flow priorities continue to be the maintenance of conservative leverage levels and the delivery of superior shareholder returns through a combination of dividends, investments in growth opportunities and opportunistic share buybacks. Paramount has and will continue to deliver on these priorities.

The Company implemented a regular monthly dividend of $0.02 per share in July 2021 , which has now been increased six-fold to $0.125 per share through four increases over the past year. Paramount maintains the flexibility to provide incremental returns through special dividends. The Company has allocated incremental capital to its highest risk-adjusted return organic growth opportunities and to accretive acquisitions, contributing to the significant growth in free cash flow and production described in the five-year outlook below. Paramount continues to actively evaluate additional opportunities for accretive acquisitions and divestitures and organic growth, while remaining focused on capital discipline and maintaining a strong balance sheet. The Company has the ability to make opportunistic repurchases of up to 7.6 million Common Shares under its normal course issuer bid.

Paramount plans to direct the majority of its near-term free cash flows to further reduce credit facility drawings in order to provide additional financial flexibility. Over the last two years, the Company has reduced net debt by over $500 million while increasing production 50% to approximately 105,000 Boe/d.

| _ | | (1) Net debt is a capital management measure used by Paramount. Refer to the "Specified Financial Measures" section for more information on this measure. |

UPDATED 2022 GUIDANCE

Fourth quarter 2022 sales volumes are expected to average between 103,000 Boe/d and 107,000 Boe/d (45% liquids). This results in expected full year 2022 average sales volumes of between 90,000 Boe/d and 91,000 Boe/d (45% liquids) versus previous guidance of between 91,000 Boe/d and 93,000 Boe/d (45% liquids).

The Company's planned 2022 capital expenditures remain unchanged at a range of between $600 million and $640 million . (1 ) Planned 2022 abandonment and reclamation spending totals $35 million , net of $10.5 million in funding under the ASRP.

Paramount is updating its forecast of 2022 free cash flow to approximately $500 million from $600 million to reflect updated commodity prices, production and other assumptions. (2 )

2023 BUDGET AND GUIDANCE

With its achievement of the net debt target, strong free cash flow profile and deep inventory of high return opportunities, Paramount is budgeting 2023 capital expenditures in a range of between $720 million and $760 million , $65 million higher at the midpoint than previous preliminary guidance. This increase is largely related to infrastructure and drilling capital to accelerate Duvernay development in the recently expanded Willesden Green core area that will benefit production in 2024 and beyond. Paramount remains committed to prudently managing its capital resources and has the flexibility to adjust its capital expenditure plans depending on commodity prices and other factors.

The 2023 capital budget at midpoint is broken down as follows:

$350 million of sustaining capital and maintenance activities; $80 million of growth capital associated with production benefits in 2023; and $310 million of growth capital associated with production benefits in 2024 and beyond.

The breakdown by region at midpoint is as follows:

Grande Prairie Region − $375 million ; Kaybob Region − $215 million ; Central Alberta and Other Region − $125 million ; and Corporate and Other − $25 million .

The Company has budgeted approximately $45 million for abandonment and reclamation activities in 2023.

Average sales volumes in 2023 are expected to be between 105,000 Boe/d and 110,000 Boe/d (46% liquids), unchanged from previous preliminary guidance.

First half 2023 sales volumes are expected to average between 101,000 Boe/d and 106,000 Boe/d (45% liquids). Second half 2023 sales volumes are expected to average between 109,000 Boe/d and 114,000 Boe/d (46% liquids).

| _ | | | (1) | Capital expenditures exclude land and property acquisitions and abandonment and reclamation expenditures. | | (2) | The stated free cash flow forecast is based on the following assumptions for 2022: (i) the midpoint of forecast capital spending and production, (ii) $35 million in net abandonment and reclamation costs, (iii) $9 million in geological and geophysical expenses, (iv) realized pricing of $69.70/Boe (US$93.99/Bbl WTI, US$6.57/MMBtu NYMEX, $5.22/GJ AECO), (v) a $US/$CAD exchange rate of $0.766, (vi) royalties of $10.80/Boe, (vii) operating costs of $12.00/Boe and (viii) transportation and processing costs of $4.00/Boe. |

Paramount is forecasting approximately $650 million of free cash flow in 2023, approximately $75 million lower than previous preliminary estimates largely as a result of changes in budgeted capital spending. (1 )

The Company's 2023 capital program and increased regular monthly dividend would remain fully funded down to an average WTI price of about US$56 /Bbl in 2023. (2 )

PRELIMINARY 2024 GUIDANCE

Based on preliminary planning and current market conditions, Paramount anticipates 2024 capital expenditures to range between $750 million and $850 million , broken down as follows at midpoint:

$390 million of sustaining capital and maintenance activities; and $410 million of growth capital.

The breakdown by region at midpoint is as follows:

Grande Prairie Region – $385 million ; Kaybob Region – $200 million ; Central Alberta and Other Region – $205 million ; and Corporate and Other − $10 million .

A capital program in this range would be expected to result in 2024 average sales volumes of between 115,000 Boe/d and 125,000 Boe/d (48% liquids) and free cash flow of approximately $650 million . (3 )

The Company's 2024 capital program and increased regular monthly dividend would remain fully funded down to an average WTI price of about US$54 /Bbl in 2024. (4 )

FIVE-YEAR OUTLOOK

Paramount is providing its five-year outlook for the period from 2023 through to the end of 2027. The Company anticipates midpoint cumulative free cash flow of approximately $4.2 billion (approximately $30 per basic share (5 ) ) over the period. Paramount anticipates annual capital expenditures to range between $750 million and $850 million through the period 2024 to 2027, with sales volumes increasing to between 140,000 Boe/d and 150,000 Boe/d in 2027, representing a compound annual production growth rate of approximately 11% between 2022 and 2027. (6 ) With estimated tax pools in excess of $4 billion at September 30, 2022 , the majority of which are immediately deductible, Paramount does not forecast cash tax in its five-year outlook until 2026.

| (1) | The stated free cash flow forecast is based on the following assumptions for 2023: (i) the midpoint of stated capital spending and production, (ii) $45 million in abandonment and reclamation costs, (iii) $7 million in geological and geophysical expenses, (iv) realized pricing of $63.00/Boe (US$80.00/Bbl WTI, US$5.00/MMBtu NYMEX, $4.74/GJ AECO), (v) a $US/$CAD exchange rate of $0.730, (vi) royalties of $10.30/Boe, (vii) operating costs of $11.15/Boe and (vii) transportation and processing costs of $3.55/Boe. | | (2) | Assuming no changes to the other stated free cash flow forecast assumptions for 2023. | | (3) | The stated free cash flow estimate is based on the following assumptions for 2024: (i) the midpoint of stated capital spending and production, (ii) $40 million in abandonment and reclamation costs, (iii) $7 million in geological and geophysical expenses, (iv) realized pricing of $58.80/Boe (US$75.00/Bbl WTI, US$4.50/MMBtu NYMEX, $4.27/GJ AECO), (v) a $US/$CAD exchange rate of $0.735, (vi) royalties of $9.75/Boe, (vii) operating costs of $10.25/Boe and (vii) transportation and processing costs of $3.50/Boe. | | (4) | Assuming no changes to the other stated free cash flow estimate assumptions for 2024. | | (5) | Based on 142.3 million outstanding Common Shares as at November 1, 2022. | | (6) | The five-year outlook is based on preliminary planning and current market conditions and is subject to change. The stated anticipated cumulative free cash flow is based on the following assumptions: (i) the stated annual capital expenditures and compound annual production growth; (ii) approximately $40 million in average annual abandonment and reclamation costs, (iii) approximately $7 million in annual geological and geophysical expenses, (iv) 2023 realized pricing of $63.00/Boe (US$80.00/Bbl WTI, US$5.00/MMBtu NYMEX, $4.74/GJ AECO) and thereafter commodity prices of US$75.00/Bbl WTI, US$4.50/MMBtu NYMEX and $4.27/GJ AECO, (v) a 2023 $US/$CAD exchange rate of $0.730 and thereafter a $US/$CAD exchange rate of $0.735 and (vi) internal management estimates of future royalties, operating costs, transportation and processing costs and, beginning in 2026, cash taxes. |

REVIEW OF OPERATIONS

GRANDE PRAIRIE REGION

Sales volumes and netbacks in the Grande Prairie Region, which includes Karr and Wapiti, are summarized below:

| | Q3 2022 | Q2 2022 | % Change | | | | Sales volumes | | | | | | | Natural gas (MMcf/d) | 189.6 | 139.8 | 36 | | | | Condensate and oil (Bbl/d) | 30,615 | 22,516 | 36 | | | | Other NGLs (Bbl/d) | 3,758 | 2,914 | 29 | | | | Total (Boe/d) | 65,981 | 48,736 | 35 | | | | % liquids | 52 % | 52 % | | | | | Netback (1) | ($ millions) | ($/Boe) | ($ millions) | ($/Boe) | _ Change in $ millions (%) _ | | Natural gas revenue (2) | 119.9 | 6.87 | 85.1 | 6.69 | 41 | | Condensate and oil revenue | 319.2 | 113.34 | 276.4 | 134.91 | 15 | | Other NGLs revenue | 18.3 | 52.95 | 17.1 | 64.31 | 7 | | Royalty and other revenue (3) | 0.1 | – | 1.3 | – | NM | | Petroleum and natural gas sales | 457.5 | 75.37 | 379.9 | 85.65 | 20 | | Royalties | (70.5) | (11.62) | (62.9) | (14.17) | 12 | | Operating expense | (68.1) | (11.22) | (55.9) | (12.61) | 22 | | Transportation and NGLs processing | (25.7) | (4.24) | (22.1) | (4.99) | 16 | | | 293.2 | 48.29 | 239.0 | 53.88 | 23 |

| (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.

(3) Second quarter royalty and other revenue includes $1.3 million related to a business interruption insurance claim.

NM means not meaningful. |

_ KARR AREA _

Karr sales volumes and netbacks are summarized below:

| | Q3 2022 | Q2 2022 | % Change | | | | Sales volumes | | | | | | | Natural gas (MMcf/d) | 113.4 | 94.6 | 20 | | | | Condensate and oil (Bbl/d) | 16,799 | 13,551 | 24 | | | | Other NGLs (Bbl/d) | 2,394 | 1,978 | 21 | | | | Total (Boe/d) | 38,088 | 31,295 | 22 | | | | % liquids | 50 % | 50 % | | | | | Netback (1) | ($ millions) | ($/Boe) | ($ millions) | ($/Boe) | _ Change in $ millions (%) _ | | Natural gas revenue (2) | 71.7 | 6.87 | 56.3 | 6.54 | 27 | | Condensate and oil revenue | 178.8 | 115.68 | 166.0 | 134.60 | 8 | | Other NGLs revenue | 11.3 | 51.35 | 11.6 | 64.31 | (3) | | Petroleum and natural gas sales | 261.8 | 74.70 | 233.9 | 82.14 | 12 | | Royalties | (47.7) | (13.62) | (45.8) | (16.09) | 4 | | Operating expense | (39.6) | (11.29) | (36.0) | (12.65) | 10 | | Transportation and NGLs processing | (15.6) | (4.46) | (15.2) | (5.34) | 3 | | | 158.9 | 45.33 | 136.9 | 48.06 | 16 |

| (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.

NM means not meaningful. |

Third quarter 2022 sales volumes at Karr averaged 38,088 Boe/d (50% liquids) compared to 31,295 Boe/d (50% liquids) in the second quarter. Sales volumes were higher in the third quarter as production resumed following plant turnarounds that occurred in the second quarter and as new well production from the remaining five wells at the twelve-well 16-17 pad came onstream late in the third quarter. Although September production averaged 40,485 Boe/d (49% liquids), production earlier in the quarter was impacted by unplanned facility outages and downtime related to extended workover operations.

All-in drilling, completion, equipping and tie-in ("DCET") costs for the remaining five wells on the twelve-well 16-17 pad averaged $8.5 million .

Drilling operations at the five-well 4-2 South pad and the five-well 4-2 North pad commenced in the third quarter. Paramount anticipates nine of these wells will be drilled by year-end. The drilling of the four-well 1-2 North pad that also commenced in the third quarter is ongoing and the Company plans to bring all four wells onstream in the first quarter of 2023. Paramount is bringing additional gas lift compression onstream in the fourth quarter to support liquids production and continues to build out infrastructure to debottleneck future production.

The Company is targeting an increase in plateau production at Karr to approximately 50,000 Boe/d in the second half of 2023 through the newly expanded infrastructure by drilling 13 (13.0 net) Montney wells and bringing onstream 22 (22.0 net) wells. The four wells on the 1-2 North pad are expected to come onstream early in the first quarter while the ten wells on the 4-2 North and 4-2 South pads are anticipated to come onstream in the second quarter. Drilling operations at the five-well 7-33 South pad and the three-well 6-36 pad are planned to commence in the first and second quarters, respectively. All five 7-33 South pad wells are expected to come onstream late in the second quarter and into the third quarter while the three 6-36 pad wells are expected to come onstream by the fourth quarter. Additional planned development activities at Karr in 2023 that are expected to benefit 2024 production include the drilling, completion and tie-in of the four-well 7-33 North pad and the commencement of drilling operations at the three-well 15-24 South pad.

WAPITI AREA

Wapiti sales volumes and netbacks are summarized below:

| | Q3 2022 | Q2 2022 | % Change | | | | Sales volumes | | | | | | | Natural gas (MMcf/d) | 76.2 | 45.2 | 69 | | | | Condensate and oil (Bbl/d) | 13,816 | 8,965 | 54 | | | | Other NGLs (Bbl/d) | 1,364 | 936 | 46 | | | | Total (Boe/d) | 27,893 | 17,441 | 60 | | | | % liquids | 54 % | 57 % | | | | | Netback (1) | ($ millions) | ($/Boe) | ($ millions) | ($/Boe) | _ Change in $ millions (%) _ | | Natural gas revenue (2) | 48.2 | 6.87 | 28.8 | 6.98 | 67 | | Condensate and oil revenue | 140.4 | 110.49 | 110.4 | 135.36 | 27 | | Other NGLs revenue | 7.0 | 55.77 | 5.5 | 64.30 | 27 | | Royalty and other revenue (3) | 0.1 | – | 1.3 | – | NM | | Petroleum and natural gas sales | 195.7 | 76.27 | 146.0 | 91.94 | 34 | | Royalties | (22.8) | (8.88) | (17.1) | (10.72) | 33 | | Operating expense | (28.5) | (11.12) | (19.9) | (12.56) | 43 | | Transportation and NGLs processing | (10.1) | (3.94) | (6.9) | (4.35) | 46 | | | 134.3 | 52.33 | 102.1 | 64.31 | 32 |

| (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.

(3) Second quarter royalty and other revenue includes $1.3 million related to a business interruption insurance claim.

NM means not meaningful. |

Third quarter 2022 sales volumes at Wapiti averaged 27,893 Boe/d (54% liquids) compared to 17,441 Boe/d (57% liquids) in the second quarter. The increase is attributable to a combination of new well production, which has exhibited higher natural gas contribution with similar liquids volumes compared to previous Wapiti wells, and improved runtime at the third-party Wapiti natural gas processing plant.