Paramount Resources Ltd. Reports 2019 Annual Results and Provides 2020 Guidance

2020-03-04

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

Canada NewsWire

CALGARY, March 4, 2020

CALGARY, March 4, 2020/CNW/ -

[](https://mma.prnewswire.com/media/1099299/Paramount_Resources_LtdParamount_Resources_LtdReports_2019_A.pdf?p=original)

HIGHLIGHTS

Annual sales volumes averaged 82,394 Boe/d (39 percent liquids) in 2019. Fourth quarter 2019 sales volumes averaged 85,411 Boe/d (42 percent liquids).(1)

Cash from operating activities was $256 millionin 2019. Adjusted funds flow in 2019 was $299 millionor $2.29per share. Fourth quarter 2019 adjusted funds flow was $93.5 millionor $0.71per share.(2)

Strong execution and a continued focus on cost control resulted in lower per well capital costs at both Karr and Wapiti. This allowed the Company to accelerate the drilling of two five-well pads and a water disposal well at Karr into the fourth quarter of 2019 (from the first quarter of 2020) and construct a crude oil terminal in the Kaybob Region in 2019, while still maintaining its 2019 base capital budget of $350 million. (2)

Base capital spending in 2019 totalled $351 million. The Company spent $29 millionon abandonment and reclamation activities in 2019 compared to guidance of $32 million. Net cash proceeds from dispositions in 2019 totalled $393 million.

At Karr, 5 (5.0 net) new Montneywells on the 4-24 pad were brought on production in the third quarter of 2019, averaging 1,047 Bbl/d per well of raw wellhead liquids (1,635 Boe/d raw wellhead total) over the first five months of production, resulting in an average condensate to gas ratio ("CGR") of 298 Bbl/MMcf.(3)In the fourth quarter of 2019, 3 (3.0 net) new Montneywells on the 1-19 pad were brought on production, averaging 1,542 Boe/d per well of gross peak 30-day production, with an average CGR of 486 Bbl/MMcf.(3) Fourth quarter sales volumes at Karr averaged 24,943 Boe/d (54 percent liquids).

At Wapiti, 11 (11.0 net) new Montneywells on the 9-3 pad were brought on production in 2019, but at restricted rates due to continued intermittent operations at the third-party Wapiti natural gas processing facility (the "Wapiti Plant"). All 12 (12.0 net) new Montneywells on the 5-3 pad were temporarily brought-on production through inline test facilities to recover completion fluids in late 2019. Two of these wells were later brought on production through permanent facilities. Currently, six of these wells are on production. Fourth quarter sales volumes at Wapiti averaged 11,498 Boe/d (66 percent liquids).

Paramount completed the construction of a crude oil terminal in the Kaybob Region in the fourth quarter of 2019. This terminal is pipeline connected and has been commissioned and placed into service. It will provide Paramount the opportunity to increase netbacks for its Kaybob area crude and condensate volumes (including volumes which were until recently being trucked to third-party terminals) and capture incremental value in price differentials. Total capital expenditures associated with this project were approximately $13 million.

Paramount closed the sale of its Karr 6-18 facility for gross cash proceeds of $332 millionin August 2019. In December 2019, Paramount also closed the sale of certain natural gas-weighted properties in West Central Alberta for gross cash proceeds of $52 million.

In 2019, the Company commenced its first area-based closure ("ABC") abandonment and reclamation projects at both Hawkeye and Zama. Economies of scale gained under the ABC programs have resulted in significantly lower costs than prior estimates. In addition, property dispositions coupled with additional abandonment and reclamation spending in 2019 further reduced the Company's asset retirement obligations ("ARO"). Paramount's discounted ARO liability at December 31, 2019was approximately $238 millionlower than at year-end 2018.

| _ | | | (1) | See "Oil and Gas Measures and Definitions" in the Advisories section. | | (2) | "Adjusted funds flow" and "base capital" are Non-GAAP measures. See "Non-GAAP Measures" in the Advisories section. | | (3) | Production measured at the wellhead. Natural gas sales volumes are lower by approximately 10 percent and wellhead liquids sales volumes are lower by approximately 12 percent due to shrinkage, under normalized operations. 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. CGRs calculated by dividing raw wellhead liquids volumes by raw wellhead natural gas volumes. See Oil and Gas Measures and Definitions in the Advisories section. |

2020 GUIDANCE

The Company's capital budget for 2020 is expected to range between $350 millionand $450 million, excluding land acquisitions and abandonment and reclamation activities, assuming average benchmark commodity prices of US$55.00/Bbl for WTI and CDN$1.80/GJ for AECO natural gas and a $0.76 CDN/US exchange rate. The capital plan remains flexible, with the lower end of the range reflecting the deferral of capital expenditures largely associated with production benefits in 2021. Activities denoted as "contingent" in the descriptions below highlight these activities. The 2020 program is largely focused on the ongoing development of Karr and Wapiti, where the Company plans to continue to grow its Montneyproduction, resulting in higher liquids contribution and per-unit netbacks. Recently, world oil prices have been adversely affected by uncertainty surrounding the economic impact of the COVID-19 (Coronavirus) outbreak. The Company is committed to prudently managing its capital resources and may adjust its capital plans depending on commodity prices and other factors. Paramount may also determine to divest of assets or investments in securities to raise capital to reduce indebtedness or fund operations.

Paramount's December 2019sales volumes averaged approximately 80,000 Boe/d following the December 2019disposition of Central Albertaand Other Region assets that had sales volumes of approximately 8,350 Boe/d.

Paramount's 2020 annual sales volumes are expected to average between 75,000 Boe/d and 80,000 Boe/d (43 percent liquids).

The Company has budgeted $39 millionfor abandonment and reclamation activities in 2020, the majority of which will be directed to Hawkeye and Zama. Over the course of the year, approximately 238 inactive wells are planned to be abandoned.

RESERVES (1)

Despite the disposition of assets in the Central Albertaand Other Region in December 2019, Paramount's 2019 proved plus probable (ʺP+Pʺ) reserves were relatively unchanged at 632 MMBoe compared to 634 MMBoe in 2018. The liquids weighting of the Company's 2019 P+P reserves increased to 47 percent (from 43 percent in 2018).

Paramount's proved reserves decreased 14 percent to 335 MMBoe in 2019 compared to 391 MMBoe in 2018. The decrease was primarily a result of dispositions and changes in future development capital (primarily in the Kaybob Region).

The Company's reserves replacement ratio was 1.5 times for P+P reserves, net of dispositions.

Total proved plus probable developed reserves were 151 MMBoe in 2019, with an estimated net present value of future net revenue of $1.2 billion(discounted at 10 percent, before tax).

P+P finding and development costs were $10.28per Boe in 2019.

The Company's estimated net present value of future net revenue at December 31, 2019totalled $4.5 billionfor P+P reserves, up approximately eight percent from December 31, 2018, and $2.4 billionfor proved reserves, up approximately 14 percent from December 31, 2018(in each case discounted at 10 percent, before tax). The increase in net present value of future net revenue is mainly attributed to the Company's higher liquids weighting and the optimization of future capital spending.

| | | | (1) | Readers are referred to the advisories concerning "Reserves Data" and "Oil and Gas Measures and Definitions" in the Advisories section of this document. Reserves evaluated by McDaniel & Associates Consultants Ltd. ("McDaniel") as of December 31, 2019 and December 31, 2018 in accordance with National Instrument 51-101 definitions, standards and procedures. Reserves are gross reserves representing working interest before royalties. Net present values of future net revenue were determined using forecast prices and costs and do not represent fair market value. |

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

Paramount is committed to creating value for our shareholders and stakeholders in an environmentally and socially responsible manner. Environmental, Social and Governance ("ESG") information with respect to Paramount can be found on our website at http://www.paramountres.com. As part of our ESG program:

CORPORATE

Paramount's average realized natural gas sales price was $2.36/Mcf in 2019, 45 percent higher than AECO monthly index prices for the year, as a result of the Company's natural gas diversification strategy.

Paramount's natural gas sales diversification strategy includes arrangements to sell approximately 60,000 GJ/d of natural gas at Dawn, approximately 22,000 GJ/d of natural gas at Malin, and 40,000 GJ/d of natural gas sales priced in the US Midwest. The Company also has AECO fixed-price physical contracts in place to sell 50,000 GJ/d of natural gas at $2.36/GJ for winter 2020 and 80,000 GJ/d of natural gas at $1.61/GJ for summer 2020.

Paramount has 4,000 Bbl/d of oil hedged in 2020 at an average price of CDN$80.11/Bbl.

In November 2019, Paramount completed a private placement of approximately 5.9 million common shares, issued on a ʺflow-throughʺ basis in respect of Canadian development expenses, at a price of $6.65per share for gross proceeds of approximately $39.2 million.

The Company's long-term debt balance at December 31, 2019was $632 million. Paramount has a $1.5 billioncovenant-based bank credit facility that matures in November 2022.

The Company purchased a total of 2.6 million common shares for cancellation under its 2019 normal course issuer bid program at an average price of $5.47per share. In January 2020, Paramount implemented a new normal course issuer bid program under which the Company may purchase up to 7.0 million common shares for cancellation.

FINANCIAL AND OPERATING RESULTS (1) ($ millions, except as noted)

| | Three months ended December 31 | Twelve months ended December 31 | | | | | | | | | 2019 | 2018 | 2019 | 2018 | | | | | | Net income (loss) | (31.1) | (170.5) | (87.9) | (367.2) | | | | | | per share – basic and diluted ($/share) | (0.24) | (1.31) | (0.67) | (2.78) | | | | | | Cash from operating activities | 70.5 | 12.4 | 255.7 | 223.4 | | | | | | per share – basic and diluted ($/share) | 0.54 | 0.10 | 1.96 | 1.69 | | | | | | Adjusted funds flow | 93.5 | 45.5 | 299.0 | 263.9 | | | | | | per share – basic and diluted ($/share) | 0.71 | 0.35 | 2.29 | 2.00 | | | | | | Total assets | | | 3,531.3 | 4,118.1 | | | | | | Long-term debt | | | 632.3 | 815.0 | | | | | | Net debt | | | 703.5 | 896.0 | | | | | | Common shares outstanding _(thousands)_(2) | | | 133,337 | 130,326 | | | | | | | | | | | | | | | | Sales volumes | | | | | | | | | | Natural gas (MMcf/d) | 299.0 | 315.2 | 303.3 | 325.9 | | | | | | Condensate and oil (Bbl/d) | 28,516 | 24,898 | 25,079 | 24,238 | | | | | | Other NGLs (Bbl/d) (3) | 7,064 | 7,059 | 6,767 | 7,386 | | | | | | Total (Boe/d) | 85,411 | 84,495 | 82,394 | 85,941 | | | | | | % liquids | 42% | 37% | 39% | 37% | | | | | | Grande Prairie Region (Boe/d) | 36,789 | 26,976 | 29,040 | 26,059 | | | | | | Kaybob Region (Boe/d) | 33,167 | 37,262 | 35,500 | 39,004 | | | | | | Central Alberta and Other Region (Boe/d) | 15,455 | 20,257 | 17,854 | 20,878 | | | | | | Total (Boe/d) | 85,411 | 84,495 | 82,394 | 85,941 | | | | | | | | | | | | | | | | Netback | | $/Boe (4) | | $/Boe (4) | | $/Boe (4) | | $/Boe (4) | | Natural gas revenue | 75.1 | 2.73 | 79.2 | 2.73 | 261.0 | 2.36 | 267.1 | 2.25 | | Condensate and oil revenue | 175.0 | 66.70 | 104.3 | 45.54 | 610.2 | 66.66 | 599.9 | 67.81 | | Other NGLs revenue (3) | 8.5 | 13.03 | 20.4 | 31.39 | 37.7 | 15.24 | 82.7 | 30.67 | | Royalty and sulphur revenue | 1.3 | ─ | 3.5 | ─ | 6.0 | ─ | 15.8 | ─ | | Petroleum and natural gas sales | 259.9 | 33.08 | 207.4 | 26.68 | 914.9 | 30.42 | 965.5 | 30.78 | | Royalties | (17.2) | (2.19) | (8.0) | (1.03) | (63.3) | (2.10) | (69.2) | (2.21) | | Operating expense | (105.0) | (13.36) | (103.2) | (13.28) | (376.0) | (12.50) | (381.0) | (12.15) | | Transportation and NGLs processing (5) | (22.8) | (2.90) | (24.2) | (3.11) | (94.7) | (3.15) | (93.0) | (2.96) | | Netback | 114.9 | 14.63 | 72.0 | 9.26 | 380.9 | 12.67 | 422.3 | 13.46 | | Commodity contract settlements | 4.7 | 0.60 | (9.3) | (1.20) | 13.2 | 0.44 | (76.5) | (2.44) | | Netback including commodity contract

settlements | 119.6 | 15.23 | 62.7 | 8.06 | 394.1 | 13.11 | 345.8 | 11.02 | | | | | | | | | | | | Base Capital (6) | | | | | | | | | | Grande Prairie Region | 60.7 | 48.1 | 256.7 | 265.7 | | | | | | Kaybob Region | 9.5 | 35.6 | 80.7 | 215.7 | | | | | | Central Alberta and Other Region | 0.6 | 16.3 | 7.6 | 40.9 | | | | | | Corporate | ─ | 2.5 | 6.0 | 10.8 | | | | | | Total | 70.8 | 102.5 | 351.0 | 533.1 | | | | | | | | | | | | | | | | Asset retirement obligations settlements | 18.0 | 8.9 | 29.4 | 29.4 | | | | |

| | | | (1) | Readers are referred to the advisories concerning Non-GAAP Measures and Oil and Gas Measures and Definitions in the Advisories section of this document. This table contains the following Non-GAAP measures: Adjusted Funds Flow, Net Debt, Netback, and Base Capital. | | (2) | Common shares are presented net of shares held in trust under the Company's restricted share unit plan (000's of common shares): 2019: 857.9; 2018: 574.0. | | (3) | Other NGLs means ethane, propane and butane. | | (4) | Natural gas revenue presented as $/Mcf. | | (5) | Includes downstream transportation costs and NGLs fractionation costs. | | (6) | Excludes spending related to the expansion of the Karr 6-18 facility prior to its sale, land and property acquisitions |

RESERVES (1)

| | Proved | Proved plus Probable | | | | | | | 2019 | 2018 | % Change | 2019 | 2018 | % Change | | Natural gas (Bcf) | 1,059.5 | 1,366.6 | (22) | 1,993.8 | 2,169.2 | (8) | | NGLs (MBbl) (2) | 141,238 | 146,791 | (4) | 264,917 | 238,325 | 11 | | Crude oil (MBbl) | 16,997 | 16,130 | 5 | 34,875 | 34,550 | 1 | | Total (MBoe) | 334,817 | 390,688 | (14) | 632,097 | 634,403 | ─ | | | | | | | | | | Future Net Revenue NPV10($ millions) | 2,427 | 2,136 | 14 | 4,478 | 4,134 | 8 |

APPOINTMENT OF CHIEF FINANCIAL OFFICER

The Board of Directors of Paramount is pleased to announce the appointment of Paul Kinvigto the role of Chief Financial Officer. Paul has most recently served as Paramount's Vice President Finance, Capital Markets and has held roles of increasing responsibility in Paramount's finance area throughout his 15 years with the Company. Bernie Leewill continue to serve as Executive Vice President, Finance of the Company. The Board recognizes and appreciates the significant contributions that Bernie Leehas made as Chief Financial Officer to Paramount's success over the last 17 years and looks forward to his continuing contributions.

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 reserves and resources, 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 Albertaand British Columbia. Paramount's Class A common shares are listed on the Toronto Stock Exchange under the symbol "POU".

Paramount's 2019 annual results, including the Review of Operations, Management's Discussion and Analysis and the Company's Consolidated Financial Statements can be obtained at: https://mma.prnewswire.com/media/1099299/Paramount_Resources_LtdParamount_Resources_LtdReports_2019_A.pdf

This information will also be made available through Paramount's website at www.paramountres.comand on SEDAR at www.sedar.com.

Advisories

Forward-looking Information

Certain statements in this press release constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as "anticipate", "believe", "estimate", "will", "expect", "plan", "schedule", "intend", "propose", or similar words suggesting future outcomes or an outlook. Forward-looking information in this press release includes, but is not limited to:

expected average sales volumes for 2020 and certain periods within 2020; planned capital expenditures for 2020 and potential changes thereto; planned abandonment and reclamation activities and expenditures for 2020; planned exploration, development and production activities; the expected completion of the 6-18 facility expansion and the timing thereof; planned continued growth of Montneyproduction at Karr and Wapiti, including increasing liquids contribution and per unit netbacks; the timing of the alleviation of fluid handling constraints at Wapiti; and planned facility outages and turnarounds.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this press release:

future natural gas and liquids prices; royalty rates, taxes and capital, operating, general & administrative and other costs; foreign currency exchange rates and interest rates; general business, economic and market conditions; the ability of Paramount to obtain the required capital to finance its exploration, development and other operations and meet its commitments and financial obligations; the ability of Paramount to obtain equipment, services, supplies and personnel in a timely manner and at an acceptable cost to carry out its activities; the ability of Paramount to secure adequate product processing, transportation, fractionation, and storage capacity on acceptable terms and the capacity and reliability of facilities; the ability of Paramount to market its natural gas and liquids successfully to current and new customers; the ability of Paramount and its industry partners to obtain drilling success (including in respect of anticipated production volumes, reserves additions, liquids yields and resource recoveries) and operational improvements, efficiencies and results consistent with expectations; the timely receipt of required governmental and regulatory approvals; the application of regulatory requirements respecting abandonment and reclamation; and anticipated timelines and budgets being met in respect of drilling programs and other operations (including well completions and tie-ins, the construction, commissioning and start-up of new and expanded facilities, including third-party facilities and facility turnarounds and maintenance).

Statements relating to reserves are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

Although Paramount believes that the expectations reflected in such forward-looking information are reasonable based on the information available at the time of this press release, undue reliance should not be placed on the forward-looking information as Paramount can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Paramount and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

Earlier from Paramount Resources Ltd.

Paramount Resources Ltd. Advises of Unplanned Outage at the Keyera Wapiti Gas Plant 2020-01-20
Sale of Non-Core Assets for $55 million 2019-12-05
Paramount Resources Ltd. Completes Flow-Through Share Offering 2019-11-15