Paramount Resources Ltd. Announces Second Quarter 2024 Results

2024-08-01

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

Canada NewsWire

CALGARY, AB , Aug. 1, 2024 /CNW/ - Paramount Resources Ltd. ("Paramount" or the "Company") (TSX: POU) is pleased to announce its second quarter 2024 financial and operating results, highlighted by strong adjusted funds flow and well results at Kaybob North that continue to demonstrate the high quality of the Company's Duvernay position.

HIGHLIGHTS

Second quarter sales volumes averaged 95,609 Boe/d (48% liquids). (1) Grande Prairie Region sales volumes averaged 63,480 Boe/d (51% liquids), consistent with Paramount's expectations. Sales volumes were restricted by planned maintenance outages and some unplanned downtime at key facilities. Kaybob Region sales volumes increased to 23,946 Boe/d (41% liquids), driven by a new five well Duvernay pad brought onstream at Kaybob North. Central Alberta and Other Region sales volumes averaged 8,183 Boe/d (49% liquids). The continued strong results from Paramount's drilling program at Kaybob North and Willesden Green grew the Company's total Duvernay production in the quarter to an average of approximately 15,000 Boe/d (63% liquids). The Company shut-in a total of 4,600 Boe/d of dry gas production in the quarter due to low natural gas prices.

First half 2024 sales volumes averaged 98,293 Boe/d (48% liquids), in line with the midpoint of the Company's guidance of 96,000 Boe/d to 100,000 Boe/d (47% liquids). Cash from operating activities was $221 million ( $1.51 per basic share) in the second quarter. Adjusted funds flow was $266 million ( $1.82 per basic share). Free cash flow was $20 million ( $0.14 per basic share). (2)

| | | | (1) | In this press release, "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, "Other NGLs" refers to ethane, propane and butane and "liquids" refers to condensate and oil and Other NGLs combined. 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. |

Second quarter capital expenditures totaled $241 million . Significant activities included: Grande Prairie Region ( Montney ) – eleven (11.0 net) wells drilled, four (4.0 net) wells brought on production and the substantial completion of a new compressor node at Wapiti that will support the development of the western portion of the field; Kaybob Region ( Duvernay ) – five (5.0 net) wells drilled and five (5.0 net) wells brought on production; and Central Alberta and Other Region ( Duvernay ) – four (4.0 net) wells drilled and the ongoing construction of the Company's second operated natural gas processing plant at Willesden Green.

Asset retirement obligations settled in the second quarter totaled $2 million . As previously disclosed, Paramount sold 6 million shares of its investment in NuVista Energy Ltd. for cash proceeds of $75 million in the second quarter. The carrying value of the Company's investments in securities at June 30, 2024 was $580 million . Paramount received total cash dividends of $8 million in the second quarter from its investments in securities. In June 2024 , Paramount realized total cash proceeds of $38 million from the termination and close out of all of its then outstanding NYMEX WTI swaps (14,250 Bbl/d at C$111.67 /Bbl for the balance of 2024). Paramount has since hedged 5,000 Bbl/d of liquids sales from July 2024 to the end of 2025 at an average WTI price of C$105.00 /Bbl. Revenue in the second quarter included $10 million related to an initial payment from insurers for 2023 Alberta wildfire losses. The Company continues to advance its insurance claims process. At June 30, 2024 , net debt was $29 million and Paramount's $1.0 billion revolving credit facility was undrawn. (1)

| _ | | | (1) | Net (cash) debt is a capital management measure used by Paramount. This capital management measure has been expressed as net debt in this instance for simplicity as the amount referenced is a positive number. Refer to the "Specified Financial Measures" section for more information on this measure. |

GUIDANCE

Paramount is reaffirming its 2024 guidance for sales volumes. The Company currently has approximately 4,600 Boe/d of dry gas production shut-in. The 2024 sales volumes guidance assumes that this production, as well as certain new dry gas production, is brought online in the fourth quarter. If natural gas prices do not improve later in the year, as anticipated, the Company may choose to defer bringing this production online. In such a case, Paramount anticipates that 2024 sales volumes would be at the lower end of the forecast range.

The Company is reaffirming its 2024 guidance for capital expenditures and abandonment and reclamation expenditures.

Paramount is updating its forecast of 2024 free cash flow from $205 million to $100 million to reflect first half results and revised natural gas price assumptions for the second half of 2024 of US$2.50 /MMBtu NYMEX and $1.50 /GJ AECO (previously US$3.50 /MMBtu NYMEX and $2.84 /GJ AECO). Assumed WTI pricing for the second half of 2024 remains unchanged at US$80.00 /Bbl.

The Company's midpoint 2024 sustaining and maintenance capital program, abandonment and reclamation expenditures and regular monthly dividend would remain fully funded down to an average WTI price for the second half of 2024 of about US$56 /Bbl, assuming no changes to the other forecast assumptions.

AUGUST DIVIDEND

Paramount's Board of Directors has declared a cash dividend of $0.15 per class A common share that will be payable on August 30 , 2024 to shareholders of record on August 15 , 2024. The dividend will be designated as an "eligible dividend" for Canadian income tax purposes.

| | | | (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. The stated free cash flow forecast 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) $10 million in geological and geophysical expenses, (iv) realized pricing of $51.45/Boe; (v) a $US/$CAD exchange rate of $0.736, (vi) royalties of $7.55/Boe, (vii) operating costs of $13.30/Boe and (vii) transportation and NGLs processing costs of $3.55/Boe. The stated amounts have been adjusted to incorporate actual results for the first half of 2024. |

REVIEW OF OPERATIONS

GRANDE PRAIRIE REGION

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

| | Q2 2024 | Q1 2024 | % Change | | | | Sales Volumes | | | | | | | Natural gas (MMcf/d) | 187.3 | 201.8 | (7) | | | | Condensate and oil (Bbl/d) | 28,083 | 29,202 | (4) | | | | Other NGLs (Bbl/d) | 4,179 | 4,334 | (4) | | | | Total (Boe/d) | 63,480 | 67,163 | (5) | | | | % liquids | 51 % | 50 % | | | | | Netback (1) | ($ millions) | ($/Boe) | ($ millions) | ($/Boe) | _Change in $ millions (%) _ | | Natural gas revenue (2) | 28.5 | 1.67 | 53.0 | 2.89 | (46) | | Condensate and oil revenue | 264.9 | 103.63 | 248.0 | 93.32 | 7 | | Other NGLs revenue | 12.8 | 33.77 | 15.7 | 39.70 | (18) | | Petroleum and natural gas sales | 306.2 | 53.01 | 316.7 | 51.81 | (3) | | Royalties | (56.9) | (9.86) | (50.8) | (8.32) | 12 | | Operating expense | (82.6) | (14.29) | (80.1) | (13.11) | 3 | | Transportation and NGLs processing | (21.9) | (3.80) | (22.6) | (3.69) | (3) | | | 144.8 | 25.06 | 163.2 | 26.69 | (11) |

| (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. |

Second quarter 2024 sales volumes in the Grande Prairie Region were consistent with Paramount's expectations, averaging 63,480 Boe/d (51% liquids) compared to 67,163 Boe/d (50% liquids) in the first quarter. Although field deliverability has been enhanced as a result of the previously disclosed well optimization program, second quarter sales volumes were restricted by planned maintenance outages at two third-party natural gas processing facilities. Sales volumes were further restricted by start-up issues and unplanned downtime at one of these plants, which have since been largely resolved.

The well optimization program that was initiated in the first quarter is ongoing and has resulted in improved deliverability. There are currently 11 wells that the Company believes could benefit from intervention in the Grande Prairie Region. The magnitude of incremental contribution from these wells is expected to be less as the Company focused on the highest impact wells first.

Development activities in the Grande Prairie Region in the second quarter included the drilling of eleven (11.0 net) Montney wells, the completion of eleven (11.0 net) Montney wells and the bringing onstream of four (4.0 net) Montney wells. The construction of a new compressor node in the western portion of the Wapiti field was concluded and commissioned in July, approximately one month ahead of schedule. This has allowed the Company to bring a new seven (7.0 net) well Montney pad on production earlier than forecast. The pad has been brought on at restricted rates, initially through temporary equipment and more recently through permanent facilities.

Paramount plans to drill a total of 16 (16.0 net) Montney wells and bring on production a total of 27 (27.0 net) Montney wells in the Grande Prairie Region in the second half of 2024. As previously disclosed, third quarter sales volumes will be impacted by a planned 21-day full outage at the Wapiti natural gas processing plant.

KAYBOB REGION

Kaybob Region sales volumes averaged 23,946 Boe/d (41% liquids) in the second quarter of 2024 compared to 22,353 Boe/d (42% liquids) in the first quarter. Sales volumes increased as a result of new well production from a five (5.0 net) well Kaybob North Duvernay pad that came on production part way through the second quarter. The shut-in of certain dry gas wells due to low natural gas prices partially offset production contributions from this pad. In light of low natural gas pricing, Paramount shut-in 1,800 Boe/d of Kaybob Region dry gas production in the second quarter and does not expect to bring this production back on until late 2024 when prices are forecast to improve.

Development activities in the second quarter included the drilling of five (5.0 net) Duvernay wells and the completion and bringing on production of a five (5.0 net) well Duvernay pad at Kaybob North.

Initial production from the five well Duvernay pad brought onstream at Kaybob North in the second quarter averaged gross 30-day peak production per well of 1,028 Boe/d (1.1 MMcf/d of shale gas and 853 Bbl/d of NGLs) with an average CGR of 814 Bbl/MMcf. (1) The wells on this pad have been flowing at restricted rates due to facility constraints.

Paramount plans to drill five (5.0 net) Duvernay wells and bring on production six (6.0 net) Duvernay wells at Kaybob North in the second half of 2024.

CENTRAL ALBERTA AND OTHER REGION

Central Alberta and Other Region sales volumes averaged 8,183 Boe/d (49% liquids) in the second quarter of 2024 compared to 11,461 Boe/d (44% liquids) in the first quarter. In the second quarter, the Company shut-in approximately 2,800 Boe/d of dry gas production in northeast British Columbia due to low natural gas prices.

Paramount finished the drilling of a new six (6.0 net) well Duvernay pad in Willesden Green in the second quarter. The Company plans to complete and bring onstream three of these wells in the third quarter and the remaining three wells in 2025 when sufficient processing capacity is expected to be available.

The construction of the Company's second operated natural gas processing plant in the Willesden Green area is ongoing. Paramount continues to anticipate start-up of the plant in the fourth quarter of 2025.

The Company plans to drill five (5.0 net) Duvernay wells and bring on production three (3.0 net) Duvernay wells at Willesden Green in the second half of 2024. Third quarter sales volumes will be impacted by the planned shut-in of certain legacy wells on the Willesden Green Duvernay 04-07 pad for two weeks as completion operations are conducted on three new wells on this pad. The Company capitalized on this planned downtime by taking a 9-day full outage of the Company's Leafland natural gas processing plant to conduct preventative maintenance and minor repair work.

| | | | (1) | 30-day peak production is the highest daily average production rate for each well, measured at the wellhead, over a rolling 30-day period, excluding days when the well 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. Natural gas sales volumes were lower by approximately 15% and liquids sales volumes were lower by approximately 12% due to shrinkage. In addition, certain liquids entrained in the natural gas stream are only recovered once processed and therefore final sales volumes cannot be imputed from wellhead volumes and shrinkage estimates alone. |

HEDGING

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

| | Q3 2024 | Q4 2024 | 2025 | | Average Price (1) | - | | Oil | | | | | | | | NYMEX WTI Swaps (Sale) (Bbl/d) | 5,000 | 5,000 | 5,000 | | C$105.00/Bbl | | | | | | | | | | | Natural gas | | | | | | | | AECO – Basis (Physical Sale) (MMBtu/d) | 40,000 | 13,478 | – | | NYMEX less US$0.93/MMBtu (2) | | | Malin / Citygate Basis Swap (Sale) (MMBtu/d) | 10,000 | 10,000 | 10,000 | | Citygate less US$1.03/MMBtu (3) | | | | | | | | | | | Foreign Currency Exchange | | | | | | | | Swaps (Sale) (US$ million / month) | $30 | $30 | – | | 1.3462 C$ / US$ | |

| (1) | Average price is calculated using a weighted average of notional volumes and prices. | | (2) | "NYMEX" means NYMEX pricing at Henry Hub. The contract has a notional volume of 40,000 MMBtu/d for a term of July 2024 to October 2024. | | (3) | "Malin" refers to Pacific Gas & Electric at Malin and "Citygate" refers to Pacific Gas & Electric Citygate. The term of this contract is July 2024 to October 2027. |

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 second quarter 2024 results, including Management's Discussion and Analysis and the Company's Interim Consolidated Financial Statements, can be obtained on SEDAR+ at www.sedarplus.ca 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) | Q2 2024 | Q1 2024 | Q2 2023 | | | | | Net income | 84.5 | 68.1 | 74.2 | | | | | per share – basic ($/share) | 0.58 | 0.47 | 0.52 | | | | | per share – diluted ($/share) | 0.57 | 0.46 | 0.50 | | | | | Cash from operating activities | 220.5 | 201.3 | 172.2 | | | | | per share – basic ($/share) | 1.51 | 1.39 | 1.20 | | | | | per share – diluted ($/share) | 1.47 | 1.35 | 1.16 | | | | | Adjusted funds flow | 266.2 | 225.6 | 178.7 | | | | | per share – basic ($/share) | 1.82 | 1.56 | 1.25 | | | | | per share – diluted ($/share) | 1.78 | 1.52 | 1.21 | | | | | Free cash flow | 20.3 | (9.5) | 30.5 | | | | | per share – basic ($/share) | 0.14 | (0.07) | 0.21 | | | | | per share – diluted ($/share) | 0.14 | (0.07) | 0.21 | | | | | Total assets | 4,589.2 | 4,458.9 | 4,106.6 | | | | | Investments in securities | 579.5 | 568.6 | 489.9 | | | | | Long-term debt | – | – | – | | | | | Net (cash) debt | 29.3 | 68.4 | 2.3 | | | | | Common shares outstanding _(millions) _(2) | 146.7 | 145.2 | 143.1 | | | | | Sales volumes (3) | | | | | | | | Natural gas (MMcf/d) | 296.8 | 318.7 | 290.2 | | | | | Condensate and oil (Bbl/d) | 39,206 | 40,908 | 34,230 | | | | | Other NGLs (Bbl/d) | 6,928 | 6,954 | 5,648 | | | | | Total (Boe/d) | 95,609 | 100,977 | 88,243 | | | | | % liquids | 48 % | 47 % | 45 % | | | | | Grande Prairie Region (Boe/d) | 63,480 | 67,163 | 66,950 | | | | | Kaybob Region (Boe/d) | 23,946 | 22,353 | 13,238 | | | | | Central Alberta & Other Region (Boe/d) | 8,183 | 11,461 | 8,055 | | | | | Total (Boe/d) | 95,609 | 100,977 | 88,243 | | | | | Netback | | ($/Boe) (4) | | ($/Boe) (4) | | ($/Boe) (4) | | Natural gas revenue | 45.6 | 1.69 | 82.4 | 2.84 | 64.1 | 2.43 | | Condensate and oil revenue | 367.7 | 103.07 | 344.8 | 92.64 | 294.1 | 94.42 | | Other NGLs revenue | 20.8 | 33.07 | 23.9 | 37.81 | 15.9 | 30.86 | | Royalty income and other revenue (5) | 9.5 | – | 1.2 | – | 0.3 | – | | Petroleum and natural gas sales | 443.6 | 50.99 | 452.3 | 49.24 | 374.4 | 46.63 | | Royalties | (66.1) | (7.60) | (61.8) | (6.73) | (41.2) | (5.12) | | Operating expense | (115.7) | (13.29) | (118.9) | (12.94) | (104.6) | (13.03) | | Transportation and NGLs processing | (31.3) | (3.60) | (31.9) | (3.47) | (33.6) | (4.19) | | Sales of commodities purchased (6) | 84.4 | 9.70 | 54.7 | 5.95 | 47.7 | 5.94 | | Commodities purchased (6) | (82.4) | (9.47) | (53.4) | (5.81) | (49.3) | (6.15) | | Netback | 232.5 | 26.73 | 241.0 | 26.24 | 193.4 | 24.08 | | Risk management contract settlements | 36.4 | 4.18 | (0.5) | (0.05) | (2.7) | (0.33) | | Netback including risk management contract settlements | 268.9 | 30.91 | 240.5 | 26.19 | 190.7 | 23.75 | | Capital expenditures | | | | | | | | Grande Prairie Region | 154.8 | 120.2 | 66.0 | | | | | Kaybob Region | 40.9 | 56.3 | 45.5 | | | | | Central Alberta & Other Region | 45.9 | 39.8 | 17.1 | | | | | Fox Drilling and Cavalier Energy | 0.7 | 4.1 | 7.6 | | | | | Corporate (7) | (1.5) | (6.5) | 4.0 | | | | | Total | 240.8 | 213.9 | 140.2 | | | | | Asset retirement obligations settled | 2.3 | 16.5 | 5.9 | | | |

| (1) | Adjusted funds flow, free cash flow and net (cash) 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 "Specified Financial Measures". | | (2) | Common shares are presented net of shares held in trust under the Company's restricted share unit plan: Q2 2024: 0.2 million, Q1 2024: 0.4 million, Q2 2023: 0.4 million. | | (3) | Refer 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. | | (5) | Royalty income and other revenue for the three months ended June 30, 2024 includes $10.0 million related to an initial payment from insurers for 2023 Alberta wildfire losses. This amount was not allocated to individual Regions or properties. The Company continues to advance its insurance claims process. | | (6) | Sales of commodities purchased and commodities purchased are treated as corporate items and not allocated to individual regions or properties. | | (7) | Includes transfers between regions. |