Paramount Resources Ltd. Announces Third Quarter 2023 Results, Expansion of Montney Acreage, 2024 Budget and Five-Year Outlook

2023-11-02

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

Canada NewsWire

CALGARY, AB , Nov. 2, 2023 /CNW/ - Paramount Resources Ltd. ("Paramount" or the "Company") (TSX: POU) is pleased to announce its third quarter 2023 financial and operating results, which included record production, and an expansion of its Montney acreage in the Grande Prairie Region. The Company is also pleased to announce its 2024 capital expenditure budget and guidance and five-year outlook.

HIGHLIGHTS

Third quarter sales volumes averaged 98,644 Boe/d (45% liquids), a quarterly record. (1) Grande Prairie Region sales volumes averaged a record 74,381 Boe/d (50% liquids) despite approximately 5,400 Boe/d in unplanned outages and curtailments associated with third-party midstream facilities. Kaybob Region sales volumes increased to 17,027 Boe/d (32% liquids) due to the recovery from the Alberta wildfires. The Company successfully completed the planned turnaround at its Kaybob 8-9 natural gas processing plant in September, which shut-in the majority of Kaybob Region production for approximately three weeks. Central Alberta and Other Region sales volumes averaged 7,236 Boe/d (30% liquids).

Paramount has expanded its core Montney land position in the Grande Prairie Region through the addition of 10 net sections of new land at Karr and Wapiti. The Company has also disclosed the location of a further 10 net sections at Wapiti that were previously held confidentially. The Company maintains an active exploration program and is pleased with the progress made to date in capturing additional resource. Cash from operating activities was $208 million ( $1.45 per basic share) in the third quarter. Adjusted funds flow was $234 million ( $1.64 per basic share). (2) Free cash flow was $19 million ( $0.13 per basic share) in the third quarter. (2)

| _ | | | (1) | In this press release, "liquids" refers to NGLs (including condensate) and oil combined, "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 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, 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. |

Third quarter capital expenditures totaled $199 million . Key activities included: Grande Prairie Region ( Montney ) - nine (9.0 net) wells drilled, five (5.0 net) wells completed and eight (8.0 net) wells brought on production; Kaybob Region ( Duvernay ) - two (2.0 net) wells drilled and three (3.0 net) wells brought on production; and Central Alberta and Other Region ( Duvernay ) - three (3.0 net) wells drilled in Willesden Green and advancement of the liquids handling expansion at Paramount's Leafland natural gas processing plant.

Initial results at two of the Company's most recent pads brought on production, the Karr 7-33S five-well Montney pad and the Kaybob North 4-13S three-well Duvernay pad, have been exceptional, significantly exceeding type curve. Asset retirement obligations settled in the third quarter totaled $14 million . Activities in the quarter included the abandonment of seven wells and reclamation of seven well sites. At September 30, 2023 , net debt was $44 million and Paramount's $1.0 billion revolving credit facility was undrawn. (1) The carrying value of the Company's investments in securities at September 30, 2023 was $578 million . Subsequent to September 30, 2023 , the Company monetized certain WTI liquids hedges that were outstanding at quarter end for cash consideration of approximately $13 million , which will be included in fourth quarter 2023 adjusted funds flow. Paramount also hedged 10,000 Bbl/d of 2024 liquids sales volumes at an average WTI price of CAD$109.50 /Bbl.

UPDATED 2023 GUIDANCE

Third quarter sales volumes were in-line with expectations. Paramount expects average fourth quarter 2023 sales volumes to be between 100,000 Boe/d and 103,000 Boe/d (47% liquids), resulting in average second half 2023 and annual 2023 sales volumes in the range of previous guidance. Fourth quarter 2023 sales volumes guidance includes the impact of the previously disclosed 11 day planned outage of the third-party Wapiti natural gas processing plant (the "Wapiti Plant") in October that was rescheduled from earlier in the year due to the Alberta wildfires.

Third quarter capital expenditures were also in-line with expectations. Paramount is narrowing the range of its 2023 capital expenditure guidance to $725 million to $750 million (~50% to growth) from previous guidance of $700 million to $750 million . The narrowing of the range reflects year-to-date spending and anticipated costs for remaining activities to be completed during the fourth quarter.

The Company is updating its forecast of 2023 free cash flow to approximately $165 million from $185 million to incorporate third quarter results and the slightly higher mid-point of forecast capital expenditures. (2)

| _ | | | (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. | | (2) | 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 $52.60/Boe (US$77.99/Bbl WTI, US$3.34/MMBtu NYMEX, $2.72/GJ AECO), (v) a $US/$CAD exchange rate of $0.746, (vi) royalties of $7.60/Boe, (vii) operating costs of $12.65/Boe and (vii) transportation and NGLs processing costs of $3.90/Boe. Assumed pricing of US$80.00/Bbl WTI, US$3.50/MMBtu NYMEX and $3.08/GJ AECO and an assumed $US/$CAD exchange rate of $0.755 for the fourth quarter of 2023 is unchanged from previous guidance, but the stated amounts have been adjusted to incorporate actual results for the first three quarters of 2023. |

2024 BUDGET AND GUIDANCE

Paramount is budgeting 2024 capital expenditures of between $830 million and $890 million , $60 million at midpoint more than the previous high range of preliminary guidance. This increase is largely related to (i) the addition of a five-well Willesden Green Duvernay pad to be drilled in the fourth quarter of 2024, (ii) the acceleration of the drilling of a four-well Kaybob North Duvernay pad into the fourth quarter of 2024, and (iii) slightly higher budgeted overall drilling, completion, equipping and tie-in costs due to persistent inflationary pressures.

The Company 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 2024 capital budget at midpoint is broken down as follows:

$415 million (~50%) to sustaining capital and maintenance activities; $45 million (~5%) to growth capital associated with production benefits in 2024; and $400 million (~45%) to growth capital associated with production benefits largely in 2025 and beyond, including approximately $150 million related to the construction of the Company's new processing facility in Willesden Green.

The breakdown by region at midpoint is as follows:

Grande Prairie Region − $425 million ; Kaybob Region − $185 million ; and Central Alberta and Other Region − $250 million .

The breakdown by category at midpoint is as follows:

Drilling, completion, equipping and tie-ins − $575 million ; Facilities and gathering − $280 million ; and Corporate and other − $5 million .

The majority of the facilities and gathering capital budgeted for 2024 relates to the first phase of the Company's new processing facility in Willesden Green. This first phase will provide an estimated 50 MMcf/d of raw gas and 10,000 Bbl/d of raw liquids handling capacity upon completion to support Paramount's Willesden Green Duvernay development, with start-up expected in the fourth quarter of 2025.

The Company has budgeted $40 million for abandonment and reclamation activities in 2024.

Average sales volumes in 2024 are expected to be between 108,000 Boe/d and 116,000 Boe/d (47% liquids), 3,000 Boe/d lower at midpoint compared to the previous preliminary guidance primarily due to (i) an increase in planned downtime by the third-party operator of the Wapiti Plant, (ii) a reduction in Paramount's assumption for on-time at the Wapiti Plant, (iii) higher than previously forecast gas lift requirements in the Grande Prairie Region, and (iv) a decision to delay the onstream timing of the second four-well pad in Willesden Green.

First half 2024 average sales volumes are expected to be between 101,000 Boe/d and 111,000 Boe/d (46% liquids), with second quarter sales volumes being impacted by a 21 day planned turnaround at the Wapiti Plant. Second half 2024 average sales volumes are expected to be between 115,000 Boe/d and 121,000 Boe/d (47% liquids).

Paramount is updating its forecast of 2024 free cash flow to approximately $350 million from $445 million to reflect updated capital expenditures, sales volumes, commodity prices and other assumptions.

The Company's midpoint 2024 sustaining and maintenance capital program and regular monthly dividend would remain fully funded down to an average WTI price in 2024 of about US$55 /Bbl. (2) The Company's total midpoint 2024 capital program and regular monthly dividend would remain fully funded down to an average WTI price in 2024 of about US$71 /Bbl. (2)

FIVE-YEAR OUTLOOK

Paramount is providing its five-year outlook for the period from 2024 through to the end of 2028. (3) The Company anticipates midpoint cumulative free cash flow of approximately $2.8 billion (approximately $19.40 per basic share (4) ) over the period. Paramount anticipates midpoint annual capital expenditures to range between approximately $850 million and $1.0 billion through the period 2024 to 2028, with sales volumes increasing to between 140,000 Boe/d and 155,000 Boe/d in 2028, representing a compound annual production growth rate of 8% to 10% between 2023 and 2028. With estimated tax pools of almost $4 billion at September 30, 2023 , the majority of which are immediately deductible, Paramount does not forecast cash tax in its five-year outlook until 2027.

NOVEMBER DIVIDEND

Paramount's Board of Directors has declared a cash dividend of $0.125 per Common Share that will be payable on November 30, 2023 to shareholders of record on November 15, 2023 . 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 "Advisories - Specified Financial Measures" 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) $7 million in geological and geophysical expenses, (iv) realized pricing of $56.40/Boe (US$80/Bbl WTI, US$3.50/MMBtu NYMEX, $2.84/GJ AECO), (v) a $US/$CAD exchange rate of $0.735, (vi) royalties of $8.80/Boe, (vii) operating costs of $12.05/Boe and (vii) transportation and NGLs processing costs of $3.70/Boe. For comparative purposes, the preliminary 2024 free cash flow forecast utilized the following differing assumptions as to the following factors: (i) realized pricing of $53.60/Boe (US$75.00/Bbl WTI, US$3.50/MMBtu NYMEX, $3.08/GJ AECO), (ii) a $US/$CAD exchange rate of $0.755, (iii) royalties of $8.10/Boe, (iv) operating costs of $11.20/Boe and (vi) transportation and NGLs processing costs of $3.60/Boe. | | (2) | Assuming no changes to the other forecast assumptions for 2024. | | (3) | 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 midpoint annual capital expenditures; (ii) compound annual production growth in the stated range; (iii) approximately $40 million in 2024 and thereafter approximately $45 million in average annual abandonment and reclamation costs, (iv) approximately $7 million in annual geological and geophysical expenses, (v) 2024 realized pricing of $56.40/Boe (US$80.00/Bbl WTI, US$3.50/MMBtu NYMEX, $2.84/GJ AECO) and thereafter commodity prices of US$75.00/Bbl WTI, US$4.00/MMBtu NYMEX and $3.55/GJ AECO, (vi) a 2024 $US/$CAD exchange rate of $0.735 and thereafter a $US/$CAD exchange rate of $0.74 and (vii) internal management estimates of future royalties, operating costs, transportation and NGLs processing costs and, beginning in 2027, cash taxes. | | (4) | Based on 144.3 million outstanding Common Shares as at October 31, 2023. |

REVIEW OF OPERATIONS

GRANDE PRAIRIE REGION

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

| | Q3 2023 | Q2 2023 | % Change | | | | Sales Volumes | | | | | | | Natural gas (MMcf/d) | 223.2 | 196.4 | 14 | | | | Condensate and oil (Bbl/d) | 32,365 | 30,205 | 7 | | | | Other NGLs (Bbl/d) | 4,815 | 4,012 | 20 | | | | Total (Boe/d) | 74,381 | 66,950 | 11 | | | | % liquids | 50 % | 51 % | | | | | Netback (1) | ($ millions) | ($/Boe) | ($ millions) | ($/Boe) | _Change in $ millions (%) _ | | Natural gas revenue (2) | 55.6 | 2.71 | 43.3 | 2.42 | 28 | | Condensate and oil revenue | 308.7 | 103.68 | 260.5 | 94.76 | 19 | | Other NGLs revenue | 15.4 | 34.70 | 11.7 | 31.99 | 32 | | Royalty income and other revenue | – | – | 0.3 | – | NM | | Petroleum and natural gas sales | 379.7 | 55.48 | 315.8 | 51.83 | 20 | | Royalties | (64.7) | (9.45) | (39.3) | (6.45) | 65 | | Operating expense | (72.7) | (10.62) | (70.7) | (11.61) | 3 | | Transportation and NGLs processing | (25.6) | (3.75) | (27.2) | (4.47) | (6) | | | 216.7 | 31.66 | 178.6 | 29.30 | 21 |

| (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 | |

Sales volumes in the Grande Prairie Region averaged a record 74,381 Boe/d (50% liquids) in the third quarter compared to 66,950 Boe/d (51% liquids) in the second quarter of 2023. The quarter-over-quarter increase was primarily attributable to the recovery from the second quarter wildfire related outages and curtailments along with new well production from the three (3.0 net) well Wapiti 1-27 pad that came onstream in late-July and the five (5.0 net) well Karr 7-33S pad that came onstream in mid-September. A number of unplanned outages and curtailments at third-party operated midstream facilities negatively impacted third quarter sales volumes by approximately 5,400 Boe/d.

Development activities in the Grande Prairie Region in the third quarter included the drilling of nine (9.0 net) Montney wells and the completion of five (5.0 net) Montney wells.

At Karr, all five (5.0 net) wells on the 7-33S pad were brought on production late in the third quarter. Production results from these wells to date have significantly exceeded expectations, averaging gross 30-day peak production per well of 2,554 Boe/d (4.8 MMcf/d of shale gas and 1,749 Bbl/d of NGLs) with an average CGR of 362 Bbl/MMcf. (1)

| _ | | | (1) | Production measured at the wellhead. Natural gas sales volumes were lower by approximately 10% and liquids sales volumes were lower by approximately 7% due to shrinkage. 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. 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. |

At Wapiti, all three (3.0 net) wells on the 1-27 pad were brought on production in the third quarter. Production results from these wells are in-line with expectations, averaging gross 30-day peak production per well of 1,187 Boe/d (2.7 MMcf/d of shale gas and 730 Bbl/d of NGLs) with an average CGR of 266 Bbl/MMcf. (1) More recently, Paramount began flow testing the eight (8.0 net) well 8-15 pad at Wapiti. All eight wells are expected to be brought on production through permanent facilities in November. The Company recently finished drilling the three (3.0 net) well 6-36 pad at Karr and is close to concluding drilling operations on the eight (8.0 net) well 14-5 pad at Wapiti. Completion operations at the Karr 6-36 pad have commenced and all three wells are expected to be brought on production in the fourth quarter. Completion operations at the Wapiti 14-5 pad are anticipated to commence in mid-2024. Paramount plans to commence drilling at the four (4.0 net) well Karr 7-33N pad, four (4.0 net) well Karr 15-24S pad and seven (7.0 net) well Wapiti 2-18 pad in the fourth quarter of 2023.

In 2024, the Company plans to drill 41 (41.0 net) wells and bring on production 36 (36.0 net) wells in the Grande Prairie Region, which is expected to result in annual average sales volumes of between 75,000 Boe/d and 82,000 Boe/d. Over the first half of 2024, Paramount plans to drill 19 (19.0 net) wells, complete 27 (27.0 net) wells and bring onstream eight (8.0 net) wells. In the second half of 2024, Paramount plans to drill 22 (22.0 net) wells, complete 9 (9.0 net) wells and bring onstream 28 (28.0 net) wells. These plans include the commencement of development activities in the western portion of the Wapiti field where a new compressor node is being installed and commissioned to accommodate the tie-in of a seven-well pad in the second half of 2024 as well as future well development in the area. This portion of the Wapiti field is proximal to the Montney lands previously held confidentially.

The third-party operator of the Wapiti Plant has notified Paramount of a planned increase in the frequency of maintenance outages, with the stated objective of reducing the frequency and severity of unplanned outages in the future. This includes two outages in 2024 (a 21 day full outage in the second quarter and an 8 day 50% curtailment in the fourth quarter). Paramount's 5-year outlook now incorporates a lower on-time factor for the Wapiti Plant, the 2024 planned outages and 15 days of annual planned outages thereafter.

Earlier from Paramount Resources Ltd.

Paramount Resources Ltd. Announces October Dividend 2023-10-02
Paramount Resources Ltd. Announces September Dividend 2023-09-01
Paramount Resources Ltd. Announces Second Quarter 2023 Results 2023-08-02