Paramount Resources Ltd. Announces Record 2022 Annual Results

2023-03-07

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

Canada NewsWire

CALGARY, AB , March 7, 2023 /CNW/ - Paramount Resources Ltd. ("Paramount" or the "Company") (TSX: POU) is pleased to report 2022 annual financial and operating results highlighted by record production, adjusted funds flow and free cash flow and substantial reserves additions.

HIGHLIGHTS

The Company achieved record annual sales volumes of 88,672 Boe/d (45% liquids) in 2022. Fourth quarter sales volumes averaged 97,370 Boe/d (45% liquids), of which 64,434 Boe/d (51% liquids) was produced in the Grande Prairie Region. (1) Cash from operating activities was a record $1,050 million ( $7.45 per basic share) in 2022 and $307 million ( $2.17 per basic share) in the fourth quarter. (2) Adjusted funds flow in 2022 was $1,171 million ( $8.32 per basic share) and $341 million ( $2.40 per basic share) in the fourth quarter, representing annual and quarterly records for the Company. (2) Capital expenditures in 2022, which included the pre-ordering of approximately $25 million in materials for future development, totaled $655 million versus the $640 million upper range of prior guidance. The Company generated record annual free cash flow in 2022 of $471 million ( $3.35 per basic share) compared to prior guidance of $500 million . Fourth quarter free cash flow was $162 million ( $1.14 per basic share), also a quarterly record. (2) Total proved ("TP") reserves increased 31% to 445 MMBoe with an NPV 10 of approximately $5.8 billion ( $41.18 per basic share). Proved plus probable ("P+P") reserves increased 15% to 759 MMBoe with an NPV 10 of approximately $9.1 billion ( $64.52 per basic share). (3) Three-year average finding and development ("F&D") costs were $7.72 /Boe for TP reserves and $4.24 /Boe for P+P reserves. (4)

| | | | (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 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. | | (3) | All reserves are gross reserves based upon an evaluation prepared by McDaniel & Associates Consultants Ltd. ("McDaniel") dated March 6, 2023 and effective December 31, 2022 (the "McDaniel Report"). "NPV 10 " refers to the net present value of future net revenue of the applicable reserves, discounted at 10 percent, as estimated in the McDaniel Report. Such value does not represent fair market value. Readers are referred to the advisories concerning "Reserves Data". | | (4) | F&D costs are a non-GAAP ratio. Refer to the "Specified Financial Measures" section and "Oil and Gas Measures and Definitions" in the Advisories section for more information on this measure and on the related non-GAAP financial measure of F&D capital. The three-year average F&D costs were calculated by dividing total F&D capital over the period by the aggregate reserves additions in the period. | | | |

Paramount continued to successfully execute its strategy of accretive acquisitions and divestitures in 2022 and early 2023. The Company more than tripled its Willesden Green Duvernay land position in two acquisitions at a total cost of $98 million and realized compelling value for its Kaybob Smoky and Kaybob South Duvernay properties and a portion of its road infrastructure in dispositions that generated aggregate proceeds of $434 million . Paramount continues to deliver on its free cash flow priorities: The carrying value of the Company's investments in securities at December 31, 2022 was $557 million .

2022 RESERVES

Proved developed producing ("PDP") reserves increased 28% year-over-year to 160 MMBoe. TP reserves were up 31% to 445 MMBoe. P+P reserves increased 15% to 759 MMBoe. With the significant reserves additions in 2022, the Company's reserves replacement ratios were 1.9x for PDP reserves, 4.0x for TP reserves and 3.7x for P+P reserves. (2) Compared to 2021, the NPV 10 of the Company's: 2022 F&D costs were: (3) Three-year average F&D costs were: (4)

| _ | | | (1) | Net debt is a capital management measure used by Paramount. Refer to the "Specified Financial Measures" section for more information on this measure. | | (2) | 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. | | (3) | 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 and on the related non-GAAP financial measure of F&D capital. | | (4) | The three-year average F&D costs were calculated by dividing total F&D capital over the period by the aggregate reserves additions in the period. The associated recycle ratios were calculated by dividing the weighted average netback, a non-GAAP measure, per Boe over the period by the three-year average F&D costs. | | | |

REVISED GUIDANCE

Paramount is reaffirming its 2023 and preliminary 2024 sales volumes guidance, as well as its five-year outlook for sales volumes. Paramount is increasing its 2023 guidance for capital expenditures by $50 million as a result of anticipated inflationary cost pressures. The Company is reaffirming its preliminary 2024 guidance and five-year outlook for capital expenditures. Capital expenditures in 2023 and 2024 are expected to be evenly split between: (i) sustaining and maintenance capital; and (ii) growth. Paramount is revising its free cash flow expectations to reflect lower natural gas prices, updated capital expenditures in 2023 and revised foreign exchange rates and other assumptions.

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$55 /Bbl in 2023. 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 in 2023. (2) 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.

| _ | | | (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 $55.20/Boe (US$80.00/Bbl WTI, US$3.50/MMBtu NYMEX, $3.08/GJ AECO), (v) a $US/$CAD exchange rate of $0.755, (vi) royalties of $8.30/Boe, (vii) operating costs of $11.40/Boe and (vii) transportation and processing costs of $3.55/Boe. | | (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 $53.50/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 $8.30/Boe, (vii) operating costs of $10.55/Boe and (vii) transportation and processing costs of $3.60/Boe. | | (5) | The five-year outlook is based on preliminary planning and current market conditions and is subject to change. The five-year outlook is for the period from 2023 through to the end of 2027. | | (6) | The stated cumulative free cash flow estimate is based on the following assumptions: (i) the stated annual capital expenditures and management assumptions as to annual sales volume growth; (ii) $55 million in abandonment and reclamation costs in 2023 and approximately $40 million annually thereafter, (iii) approximately $7 million in annual geological and geophysical expenses, (iv) 2023 realized pricing of $55.20/Boe (US$80.00/Bbl WTI, US$3.50/MMBtu NYMEX, $3.08/GJ AECO) and thereafter commodity prices of US$75.00/Bbl WTI, US$3.50/MMBtu NYMEX and $3.08/GJ AECO, (v) a $US/$CAD exchange rate of $0.755 and (vi) internal management estimates of future royalties, operating costs, transportation and processing costs and, beginning in 2027, cash taxes. | | | |

MARCH DIVIDEND

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

HEDGING

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

| | | Q1

2023 | Q2

2023 | Q3

2023 | Q4

2023 | 2024 | Average Price (1) | | Oil | | | | | | | | | Condensate – Basis (Physical Sale) (Bbl/d) | | 5,244 | – | – | – | – | WTI + US$0.50/Bbl | | Sweet Crude Oil – Basis (Physical Sale) (Bbl/d) | | 3,146 | 3,112 | 3,078 | 3,078 | – | WTI – US$3.73/Bbl | | Natural Gas | | | | | | | | | NYMEX Collars (MMBtu/d) | | 20,000 | – | – | – | – | US$7.50/MMBtu (Floor) | | | | | | | | | US$12.13/MMBtu (Ceiling) | | AECO Collars (GJ/d) | | 20,000 | – | – | – | – | CAD$7.25/GJ (Floor) | | | | | | | | | CAD$9.60/GJ (Ceiling) | | Chicago Index Swap (Sale) (MMBtu/d) (2) | | 5,000 | – | – | – | – | Daily – US$0.09/MMBtu | | AECO – Basis (Physical Sale) (MMBtu/d) | | – | 20,000 | 20,000 | 6,739 | – | NYMEX – US$0.94/MMBtu | | Dawn – Basis (Physical Sale) (MMBtu/d) | | – | 10,000 | 10,000 | 3,370 | – | NYMEX – US$0.19/MMBtu | | Foreign Currency Exchange | | | | | | | | | Forward Sales / Swaps (US$MM/Month) | | $60 | – | – | – | – | 1.3105 CAD$ / US$ | | 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$ | | | | | | | | | |

| (1) | Average price is calculated on a volume weighted average basis. | | (2) | "Chicago Index" refers to Chicago Index pricing. These contracts convert price exposure of Chicago monthly index to daily index. |

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, 2022 (the "Consolidated Financial Statements") and the accompanying management's discussion and analysis (the "MD&A"); and (ii) 2022 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 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 .

FINANCIAL AND OPERATING RESULTS (1)

| ($ millions, except as noted) | | Three months ended December 31 | Year ended December 31 | | | | | | | | | | | 2022 | | 2021 | 2022 | 2021 | | | | | | Net income | | 259.9 | | 101.0 | | 680.6 | 236.9 | | | | | per share – basic ($/share) | | 1.83 | | 0.75 | | 4.83 | 1.77 | | | | | per share – diluted ($/share) | | 1.76 | | 0.70 | | 4.63 | 1.67 | | | | | Cash from operating activities | | 306.9 | | 191.8 | | 1,049.6 | 482.1 | | | | | per share – basic ($/share) | | 2.17 | | 1.42 | | 7.45 | 3.61 | | | | | per share – diluted ($/share) | | 2.08 | | 1.33 | | 7.14 | 3.39 | | | | | Adjusted funds flow | | 340.7 | | 174.6 | | 1,171.0 | 499.8 | | | | | per share – basic ($/share) | | 2.40 | | 1.29 | | 8.32 | 3.74 | | | | | per share – diluted ($/share) | | 2.31 | | 1.21 | | 7.97 | 3.51 | | | | | Free cash flow | | 162.0 | | 99.0 | | 471.1 | 191.8 | | | | | per share – basic ($/share) | | 1.14 | | 0.73 | | 3.35 | 1.44 | | | | | per share – diluted ($/share) | | 1.10 | | 0.69 | | 3.20 | 1.36 | | | | | Total assets | | | | | | 4,337.3 | 3,885.1 | | | | | Investments in securities | | | | | | 557.1 | 372.1 | | | | | Long-term debt | | | | | | 159.4 | 386.3 | | | | | Net debt | | | | | | 161.2 | 456.7 | | | | | Common shares outstanding (millions) (2) | | | | | | 142.0 | 139.2 | | | | | | | | | | | | | | | | | Sales volumes (3) | | | | | | | | | | | | Natural gas (MMcf/d) | | 321.9 | | 284.8 | 294.7 | 275.2 | | | | | | Condensate and oil (Bbl/d) | | 37,580 | | 32,342 | 33,908 | 30,989 | | | | | | Other NGLs (Bbl/d) | | 6,143 | | 5,462 | 5,650 | 5,147 | | | | | | Total (Boe/d) | | 97,370 | | 85,265 | 88,672 | 82,001 | | | | | | % liquids | | 45 % | | 44 % | 45 % | 44 % | | | | | | Grande Prairie Region (Boe/d) | | 64,434 | | 56,035 | 58,519 | 51,869 | | | | | | Kaybob Region (Boe/d) | | 24,477 | | 21,725 | 22,730 | 22,588 | | | | | | Central Alberta & Other Region (Boe/d) | | 8,459 | | 7,505 | 7,423 | 7,544 | | | | | | Total (Boe/d) | | 97,370 | | 85,265 | 88,672 | 82,001 | | | | | | | | | | | | | | | | | | Netback | | | $/Boe (4) | | $/Boe (4) | | | $/Boe (4) | | $/Boe (4) | | Natural gas revenue | 194.2 | | 6.56 | 124.7 | | 4.76 | 671.1 | 6.24 | 373.3 | 3.72 | | Condensate and oil revenue | 375.1 | | 108.50 | 281.1 | | 94.46 | 1,448.9 | 117.07 | 926.5 | 81.91 | | Other NGLs revenue | 27.3 | | 48.25 | 27.4 | | 54.61 | 114.2 | 55.37 | 78.6 | 41.84 | | Royalty and other revenue | 1.1 | | ─ | 1.3 | | ─ | 18.2 | ─ | 5.2 | ─ | | Petroleum and natural gas sales | 597.7 | | 66.72 | 434.5 | | 55.40 | 2,252.4 | 69.60 | 1,383.6 | 46.23 | | Royalties | (84.4) | | (9.43) | (52.5) | | (6.69) | (335.3) | (10.36) | (127.0) | (4.24) | | Operating expense | (119.2) | | (13.31) | (91.0) | | (11.61) | (407.1) | (12.58) | (340.4) | (11.37) | | Transportation and NGLs processing | (27.2) | | (3.03) | (26.1) | | (3.33) | (123.7) | (3.82) | (114.5) | (3.83) | | Sales of commodities purchased (5) | 102.7 | | 11.47 | 22.1 | | 2.82 | 272.0 | 8.41 | 75.5 | 2.52 | | Commodities purchased (5) | (100.4) | | (11.21) | (22.3) | | (2.85) | (267.0) | (8.25) | (76.1) | (2.54) | | Netback | 369.2 | | 41.21 | 264.7 | | 33.74 | 1,391.3 | 43.00 | 801.1 | 26.77 | | Risk management contract settlements | (23.0) | | (2.57) | (72.4) | | (9.23) | (179.0) | (5.53) | (218.3) | (7.29) | | Netback including risk management contract settlements | 364.2 | | 38.64 | 192.3 | | 24.51 | 1,212.3 | 37.47 | 582.8 | 19.48 | | | | | | | | | | | | | | Capital expenditures | | | | | | | | | | | | Grande Prairie Region | | 135.8 | | 57.7 | 453.3 | 228.6 | | | | | | Kaybob Region | | 11.4 | | 3.8 | 131.2 | 14.5 | | | | | | Central Alberta & Other Region | | 1.0 | | 2.6 | 2.1 | 25.2 | | | | | | Fox Drilling and Cavalier Energy | | 12.1 | | 1.0 | 27.7 | 5.0 | | | | | | Corporate | | 9.3 | | 0.6 | 40.7 | 1.3 | | | | | | Total | | 169.6 | | 65.7 | 655.0 | 274.6 | | | | | | | | | | | | | | | | | | Asset retirement obligations settled | | 7.0 | | 7.0 | 36.1 | 25.4 | | | | |

| (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 has been reclassified to conform with the current year's presentation. | | (2) | Common shares are presented net of shares held in trust under the Company's restricted share unit plan: 2022: 0.8 million, 2021: 1.5 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) | Sales of commodities purchased and commodities purchased are treated as corporate items and not allocated to individual regions or properties. |

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".

PRODUCT TYPE INFORMATION

This press release includes references to sales volumes of "natural gas", "condensate and oil", "NGLs", "Other NGLs" and "liquids". "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. "NGLs" refers to condensate and Other NGLs combined. "Other NGLs" refers to ethane, propane and butane. "Liquids" refers to condensate and oil and Other NGLs combined. 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.

Region | Kaybob

Region | Central Alberta and Other Region | | | | | | | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | | Shale gas (MMcf/d) | 232.9 | 207.9 | 166.9 | 138.8 | 38.5 | 38.6 | 27.5 | 30.5 | | Conventional natural gas (MMcf/d) | 61.8 | 67.3 | 1.3 | 2.2 | 55.0 | 58.6 | 5.5 | 6.5 | | Natural gas (MMcf/d) | 294.7 | 275.2 | 168.2 | 141.0 | 93.5 | 97.2 | 33.0 | 37.0 | | Condensate (Bbl/d) | 31,228 | 28,328 | 27,095 | 25,253 | 3,192 | 2,295 | 941 | 781 | | Other NGLs (Bbl/d) | 5,650 | 5,147 | 3,394 | 3,103 | 1,620 | 1,612 | 636 | 432 | | NGLs (Bbl/d) | 36,878 | 33,475 | 30,489 | 28,356 | 4,812 | 3,907 | 1,577 | 1,213 | | Tight oil (Bbl/d) | 480 | 487 | – | – | 261 | 355 | 219 | 131 | | Light and medium crude oil (Bbl/d) | 2,200 | 2,174 | 4 | 5 | 2,066 | 2,129 | 130 | 40 | | Crude oil (Bbl/d) | 2,680 | 2,661 | 4 | 5 | 2,327 | 2,484 | 349 | 171 | | Total (Boe/d) | 88,672 | 82,001 | 58,519 | 51,869 | 22,730 | 22,588 | 7,423 | 7,544 |