Paramount Resources Ltd. press release

Paramount Resources Ltd. Reports 2021 Annual Results and Increased Dividend and 2022 Guidance

2022-03-02

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

Canada NewsWire

CALGARY, AB , March 2, 2022 /CNW/ - Paramount Resources Ltd. ("Paramount" or the "Company") (TSX: POU) is pleased to report 2021 annual results that include record adjusted funds flow, continuing capital discipline, increased reserves with strong finding and development costs and recycle ratios and a 47% year-over-year reduction in net debt. Paramount is also pleased to announce that it is increasing its regular monthly dividend from $0.06 per share to $0 .08 per share beginning March 2022 and forecasting higher 2022 production and free cash flow.

HIGHLIGHTS

Annual sales volumes averaged 82,001 Boe/d (44% liquids) in 2021, in line with guidance. Fourth quarter 2021 sales volumes averaged 85,265 Boe/d (44% liquids). (1 )

Cash from operating activities was $482.1 million in 2021 and $191.8 million in the fourth quarter. Adjusted funds flow in 2021 was $499.8 million ( $3.74 per basic share) and $174.6 million ( $1.29 per basic share) in the fourth quarter, representing annual and quarterly records for the Company. (2 )

2021 capital expenditures totaled $274.6 million and were predominantly focused on drilling and completion activities at Karr, Wapiti and the Willesden Green Duvernay. Capital expenditures were $15.4 million less than the midpoint of previous guidance, reflecting strong execution and a continued focus on cost control.

In 2021, the Company achieved proved plus probable ("P+P") reserves additions of 82.8 MMBoe, P+P finding and development ("F&D") costs of $2.12 /Boe and a P+P recycle ratio of 12.6x. Total proved ("TP") reserves additions in 2021 were 72.9 MMBoe, with TP F&D costs of $6.72 /Boe and TP recycle ratio of 4.0x. (3)

| | | | (1) | 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. | | (2) | Adjusted funds flow is a capital management measure used by Paramount. Adjusted funds flow per share is a supplementary financial measure. Refer to the "Specified Financial Measures" section for more information on these measures. | | (3) | Readers are referred to the advisories concerning "Reserves Data". Reserves evaluated by McDaniel & Associates Consultants Ltd. ("McDaniel") as of December 31, 2021 in accordance with National Instrument 51-101 definitions, standards and procedures. Reserves are gross reserves representing working interest before royalties. F&D costs and recycle ratio are non-GAAP ratios. Refer to the "Specified Financial Measures" section and "Oil and Gas Measures and Definitions" in the Advisories section for more information on these measures. |

Operating costs averaged $11.37 /Boe in 2021, 4% lower than 2020. Karr operating costs averaged $9.57 /Boe in 2021. (1)

Abandonment and reclamation expenditures totaled $25.4 million in 2021, net of $9.7 million funded under the Alberta Site Rehabilitation Program ("ASRP").

Free cash flow was $191.8 million ( $1.44 per basic share) in 2021 and $99.0 million ( $0.73 per basic share) in the fourth quarter. (2)

The Company reduced net debt by $397.4 million year-over-year to $456.7 million at December 31, 2021 . (3)

Net debt does not account for the $372.1 million carrying value of the Company's investments in securities as at December 31, 2021 .

The Company implemented a regular monthly dividend of $0.02 per Common Share in July 2021 and tripled it to $0.06 per Common Share in November 2021 . The Company is increasing its monthly dividend to $0.08 per Common Share beginning in March 2022 .

In the first quarter of 2022, the Company completed a highly complementary asset acquisition in the Grande Prairie Region for $24.4 million (the "Grande Prairie Acquisition"), which is expected to contribute approximately 1,000 Boe/d to annual 2022 sales volumes.

RESERVES

Paramount's P+P reserves increased 5% to 662 MMBoe in 2021 compared to 632 MMBoe in 2020. TP and proved developed producing ("PDP") reserves increased 9% and 4%, respectively.

The Company's reserves replacement ratio was 1.4x for PDP reserves. (4)

| | | | (1) | Operating costs on a $/Boe basis is a supplementary financial measure. Refer to the "Specified Financial Measures" section for more information on this measure. | | (2) | Free cash flow is a capital management measure used by Paramount. Free cash flow per share is a supplementary financial measure. Refer to the "Specified Financial Measures" section for more information on these measures. | | (3) | Net debt and net debt to adjusted funds flow are capital management measures used by Paramount. Refer to the "Specified Financial Measures" section for more information on these measures. | | (4) | See "Oil and Gas Measures and Definitions" in the Advisories section of this document for a description of the calculation and use of reserves replacement ratio. |

Paramount achieved strong F&D costs and recycle ratios in 2021 due to lower drilling, completion, equipping and tie-in costs across its major resource plays and higher netbacks. (1)

| | F&D ($/Boe) | Recycle Ratio * | | | | | Total | Grande Prairie | Total | Grande Prairie | | Proved Developed Producing | 6.22 | 6.53 | 4.3 | 5.1 | | Total Proved | 6.72 | 1.99 | 4.0 | 16.8 | | Proved plus Probable | 2.12 | 0.59 | 12.6 | 56.2 |

Estimated future net revenue at December 31, 2021 , discounted at 10% before tax, totaled $1.4 billion for PDP reserves, $3.6 billion for TP reserves and $6.2 billion for P+P reserves. (2 )

2022 GUIDANCE

The Company's planned 2022 capital expenditures remain unchanged at a range of between $500 million and $540 million , with anticipated efficiency gains offsetting certain inflationary pressures. The 2022 capital budget is focused on development and debottlenecking operations at Karr to grow production to 43,000 to 47,000 Boe/d in the second half of 2022, development activities at Wapiti to achieve targeted plateau production of 30,000 Boe/d in 2023 and development activities at Kaybob to advance the Duvernay plays at Kaybob Smoky and Kaybob North. 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 Company is increasing its 2022 annual production guidance to average between 91,000 Boe/d and 95,000 Boe/d (46% liquids) to reflect the impact of the Grande Prairie Acquisition. Although production in early 2022 at Wapiti was affected by two unplanned outages totaling 18 days at the third-party operated Wapiti natural gas processing facility, well outperformance is anticipated to offset this unplanned downtime.

First half 2022 sales volumes are still expected to average between 81,000 Boe/d and 85,000 Boe/d (44% liquids), taking into account a planned 16-day full field outage at Karr during the second quarter for turnaround activities at third-party midstream facilities.

Second half 2022 sales volumes are now expected to average between 101,000 Boe/d and 105,000 Boe/d (47% liquids) as numerous new wells from the Company's capital program are brought onstream.

Paramount is increasing its forecast of 2022 free cash flow from approximately $455 million to approximately $590 million to reflect higher commodity price assumptions and higher forecast production. (3 )

| | | | (1) | Netback is a non-GAAP financial measure. Refer to the "Specified Financial Measures" section for more information on this measure. | | (2) | Net present values of future net revenue were determined using forecast prices and costs and do not represent fair market value. | | (3) | The stated free cash flow forecast is based on the following assumptions for 2022: (i) the midpoint of forecast capital spending and production, (ii) $33 million in net abandonment and reclamation costs, (iii) $7 million in geological and geophysical expense, (iv) realized pricing of $61.95/Boe (US$86.30/Bbl WTI, US$4.74/MMBtu NYMEX, $4.25/GJ AECO), (v) royalties of $9.45/Boe, (vi) operating costs of $11.15/Boe, (vii) transportation and processing costs of $3.75/Boe and (viii) a $US/$Cdn exchange rate of $0.788. |

As previously disclosed, the Company's free cash flow priorities are (i) the achievement of targeted leverage levels, (ii) shareholder returns and (iii) incremental growth.

The Company expects to achieve its net debt target of about $300 million in the third quarter of 2022 based on its 2022 free cash flow forecast.

Remaining 2022 free cash flow will be available to:

The Company continues to budget approximately $41 million for abandonment and reclamation activities in 2022. Approximately $8 million is to be funded directly through the ASRP, resulting in approximately $33 million net to Paramount. The majority of these funds will be directed to the Zama area.

PRELIMINARY 2023 BUDGET

Paramount's anticipated 2023 capital expenditure budget, based on preliminary planning and current market conditions, remains unchanged at a range of between $475 million and $525 million .

Paramount expects that a capital program in this range will result in 2023 average sales volumes of between 98,500 Boe/d and 103,500 Boe/d (48% liquids), 1,000 Boe/d higher than previously estimated.

Paramount is updating its estimate of 2023 free cash flow that would be expected from such a capital program from approximately $450 million to approximately $580 million to reflect higher commodity price assumptions and higher estimated production. (1)

FIVE-YEAR OUTLOOK

Paramount is updating its previously provided five-year outlook to reflect recent commodity prices. The Company now anticipates cumulative free cash flow through to the end of 2026 of over $3.3 billion , up from $2.7 billion . The Company continues to anticipate annual capital expenditures of approximately $500 million and a compound annual production growth rate of approximately 5 percent through the period. (2)

INCREASED DIVIDEND

Paramount's Board of Directors has approved an increase in the Company's regular monthly dividend from $0.06 to $0.08 per Common Share. The first increased dividend will be payable on March 31, 2022 to shareholders of record on March 15 , 2022. The dividend will be designated as an "eligible dividend" for Canadian income tax purposes.

| | | | (1) | The stated free cash flow estimate is based on the following assumptions for 2023: (i) the midpoint of stated capital spending and production, (ii) $40 million in net abandonment and reclamation costs, (iii) $7 million in geological and geophysical expenses, (iv) realized pricing of $54.60/Boe (US$76.96/Bbl WTI, US$3.84/MMBtu NYMEX, $3.39/GJ AECO), (v) royalties of $8.55/Boe, (vi) operating costs of $10.65/Boe, (vii) transportation and processing costs of $3.65/Boe and (viii) a $US/$Cdn exchange rate of $0.787. | | (2) | The five-year outlook is based on preliminary planning and current market conditions and is subject to change as conditions evolve. 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) strip commodity prices and foreign exchange rates as at February 16, 2022, and (v) internal management estimates of future royalties, operating costs and transportation and processing costs. |

HEDGING

Paramount has hedged approximately 33% of its 2022 forecast production to provide greater free cash flow certainty. The Company's current 2022 hedging position is summarized below:

| | Type (1) | | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | Average Price (2) | | Oil – WTI Swaps (Sale) (Bbl/d) | Financial | | 3,500 | 3,500 | 3,500 | 3,500 | US$75.79/Bbl | | Oil – WTI Swaps (Sale) (Bbl/d) | Financial | | 9,500 | – | – | – | CDN$87.90/Bbl | | Oil – WTI Swaps (Sale) (Bbl/d) | Financial | | – | 3,500 | 3,500 | 3,500 | CDN$91.38/Bbl | | Oil – WTI Collars (Bbl/d) | Financial | | 7,000 | 7,000 | 7,000 | 7,000 | CDN$82.50/Bbl (Floor) | | | | | | | | | CDN$100.47/Bbl (Ceiling) | | Condensate – Basis (Sale) (Bbl/d) | Physical | | 2,098 | – | – | – | WTI + US$3.13/Bbl | | Sweet Crude Oil – Basis (Sale) (Bbl/d) | Physical | | – | 5,186 | – | – | WTI - US$2.15/Bbl | | Gas – NYMEX Swaps (Sale) (MMBtu/d) | Financial | | 40,000 | – | – | – | US$4.15/MMBtu | | Gas – NYMEX Swaps (Sale) (MMBtu/d) | Financial | | – | 30,000 | – | – | US$4.62/MMBtu | | Gas – NYMEX Swaps (Sale) (MMBtu/d) | Financial | | – | – | 30,000 | – | US$4.67/MMBtu | | Gas – NYMEX Swaps (Sale) (MMBtu/d) | Financial | | – | – | – | 3,370 | US$4.91/MMBtu | | Gas – AECO fixed price (GJ/d) | Physical | | 40,000 | – | – | – | CDN$4.06/GJ | | Gas – AECO fixed price (GJ/d) | Physical | | – | 80,000 | 80,000 | 26,957 | CDN$3.78/GJ | | Gas – Dawn fixed price (MMBtu/d) | Physical | | – | 20,000 | 20,000 | 6,739 | US$4.03/MMBtu | | Fx – CDN/USD Swaps (US$MM/Month) | Financial | | $5 | $5 | $5 | $5 | 1.27 C$ / US$ | | Fx – CDN/USD Collars (US$MM/Month) | Financial | | $5 | $5 | $5 | $3.3 | 1.25 C$ / US$ (Floor) | | | | | | | | | 1.30 C$ / US$ (Ceiling) | | | | | | | | | |

| (1) Financial, refers to financial commodity contracts. Physical, refers to fixed-priced and basis physical contracts. (2) Average price is calculated using a weighted average of notional volumes and prIces. |

COMPLETE ANNUAL RESULTS

Paramount's: (i) complete annual results, including a review of operations, the Company's audited consolidated financial statements as at and for the year ended December 31, 2021 (the "Consolidated Financial Statements") and the accompanying management's discussion and analysis (the "MD&A") and (ii) 2021 annual information form, which contains additional important information concerning the Company's reserves, properties and operations, 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 .

ANNUAL GENERAL MEETING

Paramount will hold its annual general meeting of shareholders in a virtual-only format on Wednesday, May 4, 2022 at 10:30 a.m. ( Calgary time).

| FINANCIAL AND OPERATING RESULTS (1) | | | | | | | | | | | | | | | | | | | | | | ($ millions, except as noted) | Three months ended December 31 | Year ended December 31 | | | | | | | | | | 2021 | | 2020 | 2021 | 2020 | | | | | | Net income (loss) | 101.0 | | 311.5 | | 236.9 | (22.7)­ | | | | | per share – basic ($/share) | 0.75 | | 2.35 | | 1.77 | (0.17) | | | | | per share – diluted ($/share) | 0.70 | | 2.35 | | 1.67 | (0.17) | | | | | Cash from operating activities | 191.8 | | 53.2 | | 482.1 | 80.9 | | | | | per share – basic ($/share) | 1.42 | | 0.40 | | 3.61 | 0.61 | | | | | per share – diluted ($/share) | 1.33 | | 0.40 | | 3.39 | 0.61 | | | | | Adjusted funds flow | 174.6 | | 67.9 | | 499.8 | 150.0 | | | | | per share – basic ($/share) | 1.29 | | 0.51 | | 3.74 | 1.12 | | | | | per share – diluted ($/share) | 1.21 | | 0.51 | | 3.51 | 1.12 | | | | | Free cash flow | 99.0 | | 0.6 | | 191.8 | (113.7) | | | | | per share – basic ($/share) | 0.73 | | 0.01 | | 1.44 | (0.85) | | | | | per share – diluted ($/share) | 0.69 | | 0.01 | | 1.36 | (0.85) | | | | | Total assets | | | | | 3,885.1 | 3,497.0 | | | | | Long-term debt | | | | | 386.3 | 813.5 | | | | | Net debt | | | | | 456.7 | 854.1 | | | | | Common shares outstanding _(millions) _(2) | | | | | 139.2 | 132.3 | | | | | | | | | | | | | | | | Sales volumes (3) | | | | | | | | | | | Natural gas (MMcf/d) | 284.8 | | 256.3 | 275.2 | 248.7 | | | | | | Condensate and oil (Bbl/d) | 32,342 | | 25,752 | 30,989 | 22,565 | | | | | | Other NGLs (Bbl/d) | 5,462 | | 4,987 | 5,147 | 4,325 | | | | | | Total (Boe/d) | 85,265 | | 73,460 | 82,001 | 68,340 | | | | | | % liquids | 44% | | 42% | 44% | 39% | | | | | | Grande Prairie Region (Boe/d) | 56,035 | | 37,782 | 51,869 | 31,076 | | | | | | Kaybob Region (Boe/d) | 21,725 | | 27,056 | 22,588 | 28,685 | | | | | | Central Alberta & Other Region (Boe/d) | 7,505 | | 8,622 | 7,544 | 8,579 | | | | | | Total (Boe/d) | 85,265 | | 73,460 | 82,001 | 68,340 | | | | | | | | | | | | | | | | | Netback | | $/Boe (4) | | $/Boe (4) | | | $/Boe (4) | | $/Boe (4) | | Natural gas revenue | 124.7 | 4.76 | 66.7 | 2.83 | | 373.3 | 3.72 | 204.9 | 2.25 | | Condensate and oil revenue | 281.1 | 94.46 | 123.3 | 52.03 | | 926.5 | 81.91 | 383.8 | 46.47 | | Other NGLs revenue | 27.4 | 54.61 | 9.5 | 20.61 | | 78.6 | 41.84 | 24.7 | 15.63 | | Royalty and other revenue | 1.1 | ─ | 2.5 | ─ | | 4.6 | ─ | 12.6 | ─ | | Petroleum and natural gas sales | 434.3 | 55.37 | 202.0 | 29.89 | | 1,383.0 | 46.21 | 626.0 | 25.03 | | Royalties | (52.5) | (6.69) | (11.7) | (1.73) | | (127.0) | (4.24) | (31.3) | (1.25) | | Operating expense | (91.0) | (11.61) | (79.8) | (11.80) | | (340.4) | (11.37) | (297.1) | (11.88) | | Transportation and NGLs processing | (26.1) | (3.33) | (24.6) | (3.63) | | (114.5) | (3.83) | (101.3) | (4.05) | | Netback | 264.7 | 33.74 | 85.9 | 12.73 | | 801.1 | 26.77 | 196.3 | 7.85 | | Risk management contract settlements | (72.4) | (9.23) | 7.9 | 1.18 | | (218.3) | (7.29) | 37.6 | 1.50 | | Netback including risk management contract settlements | 192.3 | 24.51 | 93.8 | 13.91 | | 582.8 | 19.48 | 233.9 | 9.35 | | | | | | | | | | | | | Capital expenditures | | | | | | | | | | | Grande Prairie Region | 57.7 | | 64.3 | 228.6 | 196.9 | | | | | | Kaybob Region | 3.8 | | 1.8 | 14.5 | 16.4 | | | | | | Central Alberta & Other Region | 2.6 | | 0.8 | 25.3 | 4.6 | | | | | | Corporate | 1.6 | | (1.8) | 6.2 | 2.3 | | | | | | Total | 65.7 | | 65.1 | 274.6 | 220.2 | | | | | | | | | | | | | | | | | Asset retirement obligations settlements | 7.0 | | 0.1 | 25.4 | 35.0 | | | | |

| (1) | "Adjusted funds flow", "free cash flow" and "net debt" are capital management measures used by Paramount. "Netback" and "netback including risk management contract settlements" are non-GAAP financial measures. Netback and Netback including risk management contract settlements presented on a $/Boe or $/Mcf basis are non-GAAP ratios. Each measure, other than net income, that is presented on a per share, $/Mcf or $/Boe basis is a supplementary financial measure. Refer to the "Specified Financial Measures" section for more information on these measures. Prior period free cash flow results have been reclassified to conform with the current years' presentation. | | (2) | Common shares are presented net of shares held in trust under the Company's restricted share unit plan: 2021: 1.5 million; 2020: 1.9 million; 2019: 0.9 million. | | (3) | Other NGLs means ethane, propane and butane. Readers are referred to the Product Type Information section of this document for a complete breakdown of sales volumes for applicable periods by specific product type. | | (4) | Natural gas revenue presented as $/Mcf. |

ABOUT PARAMOUNT

Paramount is an independent, publicly traded, liquids-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 Class A common shares are listed on the Toronto Stock Exchange under the symbol "POU".

PRODUCT TYPE INFORMATION

This press release refers to sales volumes of "liquids", "natural gas", "condensate and oil" and "other NGLs". "Liquids" means 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. Below is a complete breakdown of sales volumes for applicable periods by the specific product types of shale gas, conventional natural gas, NGLs, tight oil and light and medium crude oil. Numbers may not add due to rounding.