Paramount Resources Ltd. Financial and Operating Results For The Three and Nine Months Ended September 30, 2008
07 November 2008 - 10:52PM
Marketwired Canada
Paramount Resources Ltd. (TSX:POU) ("Paramount" or the "Company") announces its
financial and operating results for the three and nine months ended September
30, 2008.
FINANCIAL AND OPERATING HIGHLIGHTS (1)
($ millions, except as noted)
Three Months Ended Nine Months Ended
Sept. 30 June 30 Sept. 30 Sept. 30
2008 2008 Change % 2008 2007 Change %
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Financial
Petroleum and
natural gas sales 83.5 102.9 (19) 263.4 221.6 19
Funds flow from
operations (2) 40.9 46.3 (12) 111.4 77.7 43
Per share -
diluted ($/share) 0.60 0.68 (12) 1.64 1.09 50
Net earnings
(loss) 103.9 (31.9) 426 33.9 572.8 (94)
Per share -
diluted ($/share) 1.53 (0.47) 426 0.50 8.04 (94)
Capital
expenditures(3) 33.1 10.5 215 107.7 197.0 (45)
Investments (4) 354.8 467.7 (24) 354.8 340.0 4
Total assets 1,259.8 1,193.6 6 1,259.8 1,484.0 (15)
Net debt (5) 61.0 48.0 27 61.0 (95.4) 164
Common shares
outstanding
(thousands) 67,749 67,739 - 67,749 69,037 (2)
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Operating
Sales volumes:
Natural gas
(MMcf/d) 57.3 67.7 (15) 63.6 82.3 (23)
Oil and NGLs
(Bbl/d) 3,657 3,611 1 3,693 3,707 -
Total (Boe/d) 13,206 14,895 (11) 14,288 17,422 (18)
Gas weighting 72% 76% (4) 74% 79% (5)
Total wells
drilled (gross) 18 8 125 54 144 (63)
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(1) Readers are referred to the advisories concerning non-GAAP measures and
barrels of oil equivalent conversions under the heading "Advisories" in
this document.
(2) The nine months ended September 30, 2007 have been reclassified by $4.9
million for a foreign exchange collar settlement to conform to the
current year presentation.
(3) Exploration and development capital expenditures only.
(4) Based on the period-end closing prices of publicly traded enterprises
and book value of the remaining investments.
(5) Net debt, a non-GAAP measure, excludes risk management assets and
liabilities and stock-based compensation liabilities. Prior period
comparative amounts have been restated to conform to the current year
presentation.
Third Quarter Overview
- Funds flow from operations were $40.9 million in the third quarter, a decrease
of $5.4 million from the second quarter and included the impacts of lower
realized commodity prices and lower production offset by lower payments on
commodity contract settlements.
- Net earnings were $103.9 million in the third quarter compared to a net loss
of $31.9 million for the second quarter. Current quarter pre-tax earnings
included $91.5 million of mark-to-market gains on commodity contracts and stock
based compensation recoveries.
Principal Properties
- Third quarter netback decreased by $13.0 million from the second quarter to
$54.8 million, largely due to lower realized commodity prices and lower
production partially offset by lower royalties and operating expenses.
- Kaybob started drilling the first of two wells of a four well pad in
Resthaven. Production from the first two wells is expected during the first
quarter of 2009 with the remaining wells to be drilled during the winter
2009/2010 drilling season. Kaybob also applied for regulatory approval to drill
up to four wells per section on an incremental 37 land sections, in addition to
the 62 sections approved earlier this year.
- Grande Prairie's waterflood regulatory hearings have concluded and a decision
is expected in the first quarter of 2009.
- Drilled three (2.3 net) wells in the United States, furthering Southern's
light oil program.
- The initial bidding period closed for the Northern properties and no
acceptable bids were received. The formal sales process is now closed, however,
Paramount will continue to consider offers for the properties.
- Continued to dispose of non-core assets recognizing a gain of $9.6 million.
Strategic Investments
- Commenced construction of a third drilling rig, expected to be in service in 2009.
- Invested $12.3 million in 22.4 million shares of MGM Energy pursuant to MGM
Energy's July public offering, maintaining a 16.7 percent equity interest.
- Increased ownership in Trilogy to 22.1 percent at September 30, 2008, through
continued participation in Trilogy's distribution reinvestment plan and
indirectly as a result of Trilogy's normal course issuer bid unit purchases.
Corporate
- Interest and financing charges for the nine months ended September 30, 2008
decreased to $7.4 million from $28.6 million for the prior year comparable
period on lower average debt levels.
OUTLOOK UPDATE
Paramount projects annual average production of 14,000 Boe/d for 2008, a
decrease of 1,250 Boe/d from original guidance of 15,250 Boe/d. This decrease is
primarily the result of lower than anticipated production in the United States
due to delays in bringing on production from Bakken wells and lower than
expected production rates on wells in the Birdbear formation, and because of
delays in obtaining regulatory approval for waterflood at Crooked Creek in
Grande Prairie.
During the quarter, Paramount's 2008 exploration and development budget was
increased to $170 million from $150 million primarily to fund cost increases and
Paramount increasing its working interest share of existing projects in
Southern. Capital spending for the remainder of the year will be directed at the
North Dakota oil program, Kaybob, and to a lesser extent Grande Prairie.
SUBSEQUENT EVENTS
Commodity Contracts
Paramount settled the following commodity sales contracts subsequent to
September 30, 2008:
Payment
Commodity Notional/Quantity Price Original Term Received
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Fixed - November 2008 - US$4.8
Gas - NYMEX 10,000 MMbtu/d US$10.03/MMbtu March 2009 million
Fixed - January 2009 - US$19.5
Crude - WTI 1,000 Bbl/d US$133.65/Bbl December 2009 million
In addition, Paramount entered into the following commodity purchase
contracts:
Commodity Notional/Quantity Price Remaining Term
----------------------------------------------------------------------------
November 2008 -
Gas - NYMEX (10,000) MMbtu/d Fixed - US$6.63/MMbtu March 2009
November 2008 -
Crude - WTI (2,000) Bbl/d Fixed - US$74.63/Bbl December 2008
As a result of the transactions subsequent to September 30, 2008, Paramount
had the following financial commodity contracts at October 31, 2008:
Commodity Notional/Quantity Price Remaining Term
----------------------------------------------------------------------------
November 2008 -
Gas - NYMEX 10,000 MMbtu/d Fixed - US$9.94/MMbtu March 2009
November 2008 -
Gas - NYMEX (10,000) MMbtu/d Fixed - US$6.63/MMbtu March 2009
November 2008 -
Gas - AECO 20,000 GJ/d Fixed - CAD $9.50/GJ March 2009
November 2008 -
Crude - WTI 2,000 Bbl/d Fixed - US$90.40/Bbl December 2008
November 2008 -
Crude - WTI (2,000) Bbl/d Fixed - US$74.63/Bbl December 2008
Hoole Evaluation
Paramount announced the results of the initial independent evaluation of its 100
percent-owned in-situ oil sands leases covering approximately 48 contiguous
sections (30,680 acres) in the Hoole area in the western portion of the
Athabasca Oil Sands region. The independent evaluation results included a best
estimate (50% probability) of approximately 458 million barrels of contingent
bitumen resources within the Grand Rapids formation having a pre-tax net present
value of $585 million using a discount rate of 10 percent.
Paramount has drilled seven oil sands evaluation wells at Hoole over the past
five years to evaluate the Wabiskaw and Grand Rapids formations. In connection
with the independent evaluation, over 190 other wells, located on Paramount's
acreage and third party oil sands acreage analogous to Paramount's, were
examined to evaluate the reservoir formation and bitumen recovery. Paramount
plans to drill an additional 15 oil sands evaluation wells during the first half
of 2009 to further delineate the reservoir and contingent bitumen resources in
the Grand Rapids formation. The Company anticipates the additional drilling will
result in material increases to contingent bitumen resource estimates.
Credit Facility
Paramount's banking syndicate completed its interim review of the Company's
credit facility and revised both the gross and net borrowing base to $148.6
million from $150 million. The banking syndicate's commitment of $125 million
remains unchanged.
ADDITIONAL INFORMATION
A copy of Paramount's complete results for the three and nine months ended
September 30, 2008, including Management's Discussion and Analysis and Unaudited
Interim Consolidated Financial Statements can be obtained at
http://media3.marketwire.com/docs/1107pou.pdf. This report will also be made
available through Paramount's website at www.paramountres.com and SEDAR at
www.sedar.com .
ABOUT PARAMOUNT
Paramount is a Canadian oil and natural gas exploration, development and
production company with operations focused in Western Canada. Paramount's common
shares are listed on the Toronto Stock Exchange under the symbol "POU".
ADVISORIES
NON-GAAP MEASURES
In this document, Paramount uses the term "funds flow from operations", "funds
flow from operations per share - diluted" and "net debt", collectively the
"Non-GAAP measures", as indicators of Paramount's financial performance. The
Non-GAAP measures do not have standardized meanings prescribed by GAAP and,
therefore, are unlikely to be comparable to similar measures presented by other
issuers. "Funds flow from operations" is commonly used in the oil and gas
industry to assist management and investors in measuring the Company's ability
to finance capital programs and meet financial obligations, and refers to cash
flows from operating activities before net changes in operating working capital.
"Funds flow from operations" includes distributions and dividends received on
securities held by Paramount. The most directly comparable measure to "funds
flow from operations" calculated in accordance with GAAP is cash flows from
operating activities. "Funds flow from operations" can be reconciled to cash
flows from operating activities by adding (deducting) the net change in
operating working capital as shown in the consolidated statements of cash flows.
"Net debt" is defined as debt plus working capital excluding risk management
assets and liabilities and stock based compensation liabilities. The calculation
of net debt has been changed to exclude risk management assets and liabilities
and stock based compensation liabilities because both are highly volatile and
are settled in future periods. Management of Paramount believes that the
Non-GAAP measures provide useful information to investors as indicative measures
of performance.
Investors are cautioned that the Non-GAAP Measures should not be considered in
isolation or construed as alternatives to their most directly comparable measure
calculated in accordance with GAAP, as set forth above, or other measures of
financial performance calculated in accordance with GAAP.
FORWARD-LOOKING INFORMATION
Certain statements included in this document constitute forward-looking
statements or information under applicable securities legislation.
Forward-looking statements or information typically contain statements with
words such as "anticipate", "believe", "expect", "plan", "intend", "estimate",
"propose", or similar words suggesting future outcomes or statements regarding
an outlook. Forward-looking statements or information in this document include,
but are not limited to: expected 2008 annual production and exploration and
development expenditures, business strategies and objectives, capital
expenditures, reserve quantities and the undiscounted and discounted present
value of future net revenues from such reserves, management's expectation that
additional drilling will result in material increases to contingent bitumen
resources; estimates to contingent bitumen resources and the pre-tax net present
value thereof, anticipated tax liabilities, future production levels,
exploration and development plans and the timing thereof, abandonment and
reclamation plans and costs, acquisition and disposition plans, operating and
other costs and royalty rates.
Such forward-looking statements or information are based on a number of
assumptions which may prove to be incorrect. The following assumptions have been
made, in addition to any other assumptions identified in this document:
- the ability of Paramount to obtain required capital to finance its
exploration, development and operations;
- the ability of Paramount to obtain equipment, services and supplies in a
timely manner to carry out its activities;
- the ability of Paramount to market its oil and natural gas successfully to
current and new customers;
- the timing and costs of pipeline and storage facility construction and
expansion and the ability of Paramount to secure adequate product
transportation;
- the ability of Paramount and its industry partners to obtain drilling success
consistent with expectations;
- the timely receipt of required regulatory approvals;
- currency, exchange and interest rates; and
- future oil and gas prices.
Although Paramount believes that the expectations reflected in such
forward-looking statements or information are reasonable, undue reliance should
not be placed on forward-looking statements because Paramount can give no
assurance that such expectations will prove to be correct. Forward-looking
statements or information are based on current 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 statements or information. These risks and
uncertainties include but are not limited to:
- the ability of Paramount's management to execute its business plan;
- the risks of the oil and gas industry, such as operational risks in exploring
for, developing and producing crude oil and natural gas and market demand for
oil and gas;
- the ability of Paramount to obtain required capital to finance its
exploration, development and operations and the adequacy and costs of such
capital;
- fluctuations in oil and gas prices, foreign currency exchange rates and
interest rates;
- risks and uncertainties involving the geology of oil and gas deposits;
- risks inherent in Paramount's marketing operations, including credit risk;
- the uncertainty of reserves estimates and reserves life;
- the value and liquidity of Paramount's investments in other entities and the
returns on such investments;
- the uncertainty of estimates and projections relating to exploration and
development costs and expenses;
- the uncertainty of estimates and projections relating to future production and
the results of exploration, development and drilling;
- potential delays or changes in plans with respect to exploration or
development projects or capital expenditures;
- the availability of future growth prospects and Paramount's expected financial
requirements;
- Paramount's ability to obtain equipment, services, supplies and personnel in a
timely manner to carry out its activities;
- Paramount's ability to enter into or continue leases;
- health, safety and environmental risks;
- Paramount's ability to secure adequate product transportation and storage;
- imprecision in estimates of product sales and the anticipated revenues from
such sales;
- the ability of Paramount to add production and reserves through development
and exploration activities;
- weather conditions;
- the possibility that government laws, regulations or policies may change or
governmental approvals may be delayed or withheld;
- uncertainty in amounts and timing of royalty payments and changes to royalty
regimes and government regulations regarding royalty payments;
- changes in taxation laws and regulations and the interpretation thereof;
- changes in environmental laws and regulations and the interpretation thereof;
- the cost of future abandonment activities and site restoration;
- the ability to obtain necessary regulatory approvals;
- risks associated with existing and potential future law suits and regulatory
actions against Paramount;
- uncertainty regarding aboriginal land claims and co-existing with local
populations;
- loss of the services of any of Paramount's executive officers or key employees;
- the impact of market competition;
- general economic and business conditions; and
- other risks and uncertainties described elsewhere in this document or in
Paramount's other filings with Canadian securities authorities and the United
States Securities and Exchange Commission.
The forward-looking statements or information contained in this news release are
made as of the date hereof and Paramount undertakes no obligation to update
publicly or revise any forward-looking statements or information, whether as a
result of new information, future events or otherwise, unless so required by
applicable securities laws.
OIL AND GAS ADVISORY
This news release contains disclosure expressed as "Boe" and "Boe/d" All oil and
natural gas equivalency volumes have been derived using the ratio of six
thousand cubic feet of natural gas to one barrel of oil. Equivalency measures
may be misleading, particularly if used in isolation. A conversion ratio of six
thousand cubic feet of natural gas to one barrel of oil is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the well head.
Contingent resources are those quantities of bitumen estimated, as of a given
date, to be potentially recoverable from known accumulations using established
technology or technology under development, but are classified as a resource
rather than a reserve due to one or more contingencies, such as the absence of
regulatory approvals, detailed design estimates or near term development plans.
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