Paramount Resources Ltd. (TSX:POU) ("Paramount" or the "Company") announces its
financial and operating results for the three and six months ended June 30,
2011: Second quarter 2011 average sales volumes increase 30 percent to 16,572
Boe/d.
FINANCIAL AND OPERATING HIGHLIGHTS(1)
($ millions, except as noted)
Three months ended Six months ended
June 30 June 30
2011 2010 Change% 2011 2010 Change%
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Financial(2)
Petroleum and natural gas
sales 61.1 44.6 37 107.9 93.5 15
Funds flow from
operations(3) 23.4 25.2 (7) 37.3 48.7 (23)
Per share - diluted
($/share) 0.29 0.35 (17) 0.48 0.67 (28)
Net income (loss) 12.2 (17.5) 170 0.3 9.4 (97)
Per share - basic
($/share) 0.16 (0.24) 167 - 0.13 (100)
Per share - diluted
($/share) (0.02) (0.24) 92 (0.06) 0.13 (146)
Exploration and development
expenditures 54.5 17.9 204 214.6 84.7 153
Investments in other
entities - market value(4) 783.1 354.8 121
Total assets 1,714.5 1,145.6 50
Net debt(5) 514.1 184.9 178
Common shares outstanding
(thousands) 79,051 72,434 9
Operating
Sales volumes:
Natural gas (MMcf/d) 77.7 57.0 36 68.3 53.6 27
NGLs (Bbl/d) 1,504 821 83 1,237 798 55
Oil (Bbl/d) 2,110 2,466 (14) 2,231 2,602 (14)
Total (Boe/d) 16,572 12,787 30 14,844 12,333 20
Average realized price:
Natural gas ($/Mcf) 4.43 4.49 (1) 4.36 5.00 (13)
NGLs ($/Bbl) 83.17 77.26 8 81.66 74.82 9
Oil ($/Bbl) 95.64 69.34 38 88.44 72.57 22
Net wells drilled
(excluding oil sands
evaluation) 8 2 300 20 24 (17)
Net oil sands evaluation
wells drilled 1 - - 27 45 (40)
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1. Readers are referred to the advisories concerning non-GAAP measures and
oil and gas definitions in the "Advisories" section of this document.
2. Paramount adopted International Financial Reporting Standards ("IFRS")
effective for fiscal years beginning on or after January 1, 2011 and the
Company has applied IFRS as of January 1, 2010 (the "Transition Date")
for comparative purposes. Certain prior period amounts have been
adjusted to reflect the changes in the Company's accounting policies.
3. The Company has adjusted its funds flow from operations measure for all
periods presented. Refer to the advisories concerning non-GAAP measures
in the "Advisories" section of this document.
4. Based on the period-end closing prices of publicly traded enterprises
and the book value of the remaining investments.
5. Net debt is a non-GAAP measure, it is calculated and defined in the
Liquidity and Capital Resources section of Management's Discussion and
Analysis.
SECOND QUARTER OVERVIEW
Funds Flow From Operations
-- Second quarter 2011 funds flow from operations was $23.4 million, $1.8
million lower than the second quarter of 2010, as the impact of higher
production and a higher netback was more than offset by higher interest,
cash payments on financial commodity contracts and other corporate
costs.
Principal Properties
-- Average sales volumes in the second quarter of 2011 increased 30 percent
to 16,572 Boe/d compared to 12,787 Boe/d in the second quarter of 2010.
Paramount's average daily sales volumes for the last two weeks of June
exceeded 20,000 Boe/d.
-- Netback increased 49 percent in the second quarter of 2011 to $34.9
million from $23.4 million in the second quarter of 2010.
-- The Kaybob corporate operating unit ("COU") increased sales volumes to
over 10,000 Boe/d in the last two weeks of June.
-- Construction of the 45 MMcf/d processing plant at Musreau is progressing
on budget with an expected start-up in October. Design work has
commenced to expand the new facility, once operational, into a 190
MMcf/d (160 MMcf/d sales gas capacity) deep cut liquids extraction plant
with an expected start-up in the second quarter of 2013.
-- At Karr-Gold Creek in the Grande Prairie COU, a 22 day shut-down of a
third-party midstream processing facility that affected approximately
1,700 Boe/d of the Company's production was resolved during May 2011 and
the Company is working to restore production from the shut-in wells.
-- Construction of the 10 MMcf/d compression and gathering system at
Valhalla was completed in June 2011 and the facility commenced
operations in July 2011.
-- In May 2011, Paramount closed the acquisition of ProspEx Resources Ltd.
("ProspEx").
Strategic Investments
-- The market value of Paramount's portfolio of investments in other oil
and gas entities increased nine percent during the second quarter of
2011 to $783.1 million.
-- In July 2011, the Company received an updated independent evaluation of
its bitumen resources within the Grand Rapids formation at the Hoole oil
sands property in which estimated economic contingent bitumen resources
increased 20 percent to 763 million barrels (Best Estimate (P50)). The
before-tax net present value of future net revenue of such economic
contingent resources, discounted at ten percent (Best Estimate (P50)),
increased 49 percent to $2.8 billion.
-- Between April 2011 and July 2011 Paramount sold its investments in the
shares of NuLoch Resources Inc. ("NuLoch") and Magnum Hunter Resources
Corporation ("Magnum Hunter") for aggregate proceeds of $15.8 million.
Corporate
-- In April 2011, Paramount closed offerings of an aggregate 1.7 million
Common Shares for gross proceeds of $54.2 million.
-- In June 2011, Paramount renewed and expanded its bank credit facility,
increasing the total credit limit to $300 million from $160 million.
REVIEW OF OPERATIONS
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Three months ended June 30, 2011 March 31, 2011 Change%
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SALES VOLUMES
Natural gas (MMcf/d) 77.7 58.7 32
NGLs (Bbl/d) 1,504 968 55
Oil (Bbl/d) 2,110 2,353 (10)
Total (Boe/d) 16,572 13,097 27
NETBACK ($/Boe)
Petroleum and natural gas sales 40.52 39.67 2
Royalties (3.46) (4.01) (14)
Operating expense and production
tax (10.40) (13.20) (21)
Transportation (3.52) (3.47) 1
-----------------------------------------
Netback 23.14 18.99 22
Financial commodity contract
settlements (0.47) (0.23) 104
-----------------------------------------
Netback including financial
commodity contract settlements 22.67 18.76 21
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Paramount's average sales volumes increased 27 percent to 16,572 Boe/d in the
second quarter of 2011 compared to 13,097 Boe/d in the previous quarter,
primarily as a result of production increases in the Kaybob COU and the impact
of the ProspEx acquisition (June - 2,850 Boe/d, second quarter - 950 Boe/d).
Sales volumes were affected by operational disruptions in the Grande Prairie COU
where a third-party processing facility shut-in Karr-Gold Creek production for
22 days and in the Northern COU where a third-party pipeline failure affected
liquids sales volumes during the quarter. Paramount's average sales volumes
exceeded 20,000 Boe/d during the last two weeks of June.
The second quarter netback per Boe increased 21 percent compared to the previous
quarter, primarily because of lower per unit operating costs. The Company's
operating costs are normally higher in the first quarter as a result of annual
scheduled repair and maintenance programs at winter access locations in the
Northern COU.
ProspEx Acquisition
On May 31, 2011, Paramount completed the acquisition of ProspEx; paying $64.8
million in cash and issuing two million Paramount Common Shares.
Through the acquisition, Paramount added a suite of high impact liquids-rich
natural gas assets with multi-zone and horizontal drilling potential in several
zones, including the prolific Falher C zone in the Kakwa area. These assets
increase Paramount's Deep Basin land holdings in the Kakwa, Elmworth and Wapiti
areas of Alberta. The acquisition also included assets in the Pembina and
Brazeau areas and numerous drilling locations in the Birch area of north eastern
British Columbia, a liquids-rich Montney gas opportunity. In addition, the
acquisition included reserves and production from the Ricinus and Harmattan
areas of Alberta.
The following map shows Paramount's Deep Basin lands and the Deep Basin lands
added through the acquisition of ProspEx.
To view the map, please follow the link provided:
http://media3.marketwire.com/docs/802pou_map.jpg
KAYBOB
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Three months ended June 30, 2011 March 31, 2011 Change%
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Sales Volumes
Natural gas (MMcf/d) 43.5 27.7 57
NGLs (Bbl/d) 847 535 58
Oil (Bbl/d) 102 95 7
Total (Boe/d) 8,204 5,246 56
Exploration and Development
Expenditures(1) ($ millions)
Exploration, drilling, completions
and tie-ins 14.0 45.1 (69)
Facilities and gathering 4.4 34.2 (87)
---------------------------------------
18.4 79.3 (77)
Gross Net Gross Net
-------------------------------
Wells drilled 5 3 10 6
Wells placed on production - - 11 7
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1. Before deduction of Alberta Drilling Royalty credits
Average daily sales volumes in the Kaybob COU in the second quarter of 2011
increased 56 percent to 8,204 Boe/d compared to the prior quarter, and exceeded
10,000 Boe/d in the last two weeks of June 2011. The increase in sales volumes
was primarily the result of production from new wells brought on production and
incremental production from wells added through the ProspEx acquisition.
Performance of the 11 (7.0 net) wells brought on production during 2011 has been
consistent with, or exceeded expectations.
Subsequent to quarter end, one (0.5 net) new Montney formation well was
completed and brought on production, and Paramount currently has an additional
11 (7.3 net) Dunvegan, Falher and Montney wells awaiting completion and tie-in.
The Company expects that by August 2011 it will be operating four drilling rigs
on its Deep Basin properties, drilling up to 11 (7.4 net) more wells this year,
including three (3.0 net) Montney wells. Regulatory approvals to drill up to
eight wells per section have been obtained for a total of 19 sections and
additional applications will be submitted as the development of the Company's
properties progresses.
The Company is continuing its plans to expand processing capacity in the Deep
Basin as current production levels are nearing the limit of the Company's owned
and third-party firm service processing capacity. Construction of the new 45
MMcf/d processing plant at Musreau is progressing on-budget and is now expected
to start-up in October 2011 as construction activities have been impacted by wet
weather conditions. With its continued positive drilling results, the Company
has initiated design work to expand the total capacity of the new plant, once
operational, to 190 MMcf/d (160 MMcf/d sales gas capacity) and convert it into a
deep cut liquids extraction plant. It is anticipated that this expansion will be
completed during the second quarter of 2013. The planned expansion of the
third-party processing plant at Smoky, for which Paramount has nominated for an
incremental 50 MMcf/d of processing capacity, is currently in the engineering
and design phase and is expected to be completed in mid-2013.
Paramount anticipates that by the end of 2011 it will have 55 MMcf/d of
Company-owned and firm-service third-party processing capacity at Musreau and
approximately 20 MMcf/d of Company-owned processing capacity in the
Resthaven/Smoky area. The Company will continue to utilize available excess
capacity at facilities where Paramount has ownership and utilize interruptible
capacity in third-party facilities to maximize production while additional
Company-owned capacity is being constructed.
GRANDE PRAIRIE
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Three months ended June 30, 2011 March 31, 2011 Change%
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Sales Volumes
Natural gas (MMcf/d) 12.6 13.0 (3)
NGLs (Bbl/d) 560 367 53
Oil (Bbl/d) 448 426 5
Total (Boe/d) 3,108 2,954 5
Exploration and Development
Expenditures(1) ($ millions)
Exploration, drilling, completions and
tie-ins 19.0 39.6 (52)
Facilities and gathering 9.9 20.8 (52)
-------------------------------------
28.9 60.4 (52)
Gross Net Gross Net
-----------------------------
Wells drilled 3 3 7 4
Wells placed on production 3 3 7 4
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1. Before deduction of Alberta Drilling Royalty credits
Average sales volumes in the Grande Prairie COU increased five percent in the
second quarter of 2011 to 3,108 Boe/d compared to 2,954 Boe/d in the first
quarter of the year, despite a processing disruption at a third-party processing
facility and continued wet weather conditions.
KARR-GOLD CREEK
Sales volumes at Karr-Gold Creek were impacted by processing interruptions at a
third-party midstream facility which shut-in approximately 1,700 Boe/d of
production for 22 days during the quarter. The facility resumed service in
mid-May and production volumes are expected to increase during the remainder of
2011 as production from shut-in wells is restored and new wells are brought on
production.
Second quarter activities at Karr-Gold Creek included the drilling of one (1.0
net) well and the tie-in of two (2.0 net) wells previously drilled. The
completion of an additional three (3.0 net) wells was deferred until the third
quarter due to an extended spring break-up and wet weather that impacted
construction activities.
Construction of the second phase of the compression/dehydration facility at
Karr-Gold Creek has been completed, which brings total dehydration and
compression capacity to 40 MMcf/d of sour gas and 8 MMcf/d of sweet gas.
VALHALLA
Two (1.5 net) wells were drilled at Valhalla in the second quarter and
construction of the initial 10 MMcf/d phase of a gas gathering and compression
system was completed. The start-up of the system was deferred until July as a
result of delays in receiving third-party approvals. The Company plans to expand
the system to 20 MMcf/d by the end of 2011.
ANTE CREEK
Paramount has drilled two (1.5 net) wells to date at Ante Creek targeting oil
from the Montney formation. The first well is producing at approximately 200
Bbl/d (100 Bbl/d net), the maximum currently permitted. The second well is
planned to be completed and tied-in during the third quarter. Applications will
be made for Good Production Practice to permit wells in Ante Creek to be
produced at unrestricted rates. A third Montney oil well is expected to be
drilled later in 2011.
SOUTHERN
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Three months ended June 30, 2011 March 31, 2011 Change%
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Sales Volumes
Natural gas (MMcf/d) 10.6 8.7 22
NGLs (Bbl/d) 90 51 76
Oil (Bbl/d) 1,477 1,435 3
Total (Boe/d) 3,333 2,939 13
Exploration and Development
Expenditures(1) ($ millions)
Exploration, drilling, completions and
tie-ins 1.8 3.0 (40)
Facilities and gathering 0.5 1.8 (72)
-------------------------------------
2.3 4.8 (52)
Gross Net Gross Net
-----------------------------
Wells drilled 5 2 3 1
Wells placed on production 2 2 15 12
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1. Before deduction of Alberta Drilling Royalty credits
Southern COU average sales volumes increased by 13 percent in the second quarter
of 2011 to 3,333 Boe/d compared to 2,939 Boe/d in the prior quarter as a result
of production additions from the ProspEx acquisition and new wells in Chain.
Second quarter 2011 activities in southern Alberta included the tie-in of two
(2.0 net) Chain area coal bed methane wells. At Enchant, the drilling of three
oil wells planned for the second quarter was deferred to the third quarter due
to rig availability.
In southern Saskatchewan, Paramount's joint development partner brought its
initial three Viking light oil wells on production. Paramount will have a
post-payout interest of 45 percent in these wells. An additional 4 (1.8 net)
wells were drilled in the second quarter and will be completed later in 2011.
In May 2011, drilling of a fourth well began under the North Dakota joint
development project.
NORTHERN
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Three months ended June 30, 2011 March 31, 2011 Change%
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Sales Volumes
Natural gas (MMcf/d) 11.0 9.3 18
NGLs (Bbl/d) 7 15 (53)
Oil (Bbl/d) 83 397 (79)
Total (Boe/d) 1,927 1,958 (2)
Exploration and Development
Expenditures(1)($ millions)
Exploration, drilling, completions and
tie-ins 2.4 9.9 76
Facilities and gathering 0.1 2.9 97
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2.5 12.8 80
Gross Net Gross Net
-----------------------------
Wells drilled - - 2 2
Wells placed on production - - 2 2
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1. Before deduction of Alberta Drilling Royalty credits
Average sales volumes in the Northern COU during the second quarter of 2011 were
unchanged from the first quarter of the year, as decreases in sales volumes
resulting from natural declines and a third-party pipeline failure were offset
by new production from wells brought on during the first quarter. The
third-party pipeline was shut-down at the end of April, and has not yet received
regulatory approval to resume service.
As part of the ProspEx acquisition, the Company added approximately 22,500 net
acres of undeveloped land in the Birch area of north east British Columbia,
which is prospective for a liquids-rich Montney natural gas play. In the third
quarter of 2011, Paramount expects to complete a horizontal exploratory well
that had been drilled by ProspEx.
STRATEGIC INVESTMENTS
In July 2011, Paramount received an updated independent evaluation of its
bitumen resources within the Grand Rapids formation at the Hoole oil sands
property from the Company's independent reserves evaluator, McDaniel &
Associates Consultants Ltd. ("McDaniel"), who had previously evaluated the Hoole
oil sands property effective April 30, 2010. This update was undertaken to
include the results of Paramount's 15 well 2010/2011 winter delineation drilling
program, which increased the mapped thickness of the reservoir in some areas,
confirmed the continuous nature of the reservoir and extended the boundaries of
the exploitable reservoir.
The tables below summarize McDaniel's updated evaluation of the estimated
volumes and net present values attributable to Paramount's 100 percent interest
in the economic contingent bitumen resources in the Grand Rapids formation at
Hoole as of April 30, 2011, and current estimates of initial and fully developed
production from such interests. Economic contingent bitumen resources in the
Grand Rapids formation and the associated net present values were determined
assuming a conventional Steam-Assisted Gravity Drainage development scenario.
Potentially exploitable bitumen accumulations within other prospective
formations in the Hoole oil sands properties were not included in McDaniel's
evaluation.
Economic
Contingent Fully
Resources Initial Developed
Category / Level of DEBIP(1) (2)(3) Production Production
Certainty (6) (MBbl)(4) (MBbl)(4) (Bbl/d)(5) (Bbl/d)(5)
----------------------------------------------------------------------------
High Estimate 1,821,614 952,544 27,000 105,000
Best Estimate 1,631,742 762,661 26,000 80,000
Low Estimate 1,320,406 552,094 25,000 60,000
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1. DEBIP means Discovered Exploitable Bitumen In-Place. Discovered
Exploitable Bitumen In-Place is the estimated volume of bitumen, as of a
given date, which is contained in a subsurface stratigraphic interval of
a known accumulation that meets or exceeds certain reservoir
characteristics, such as minimum continuous net pay, porosity, and mass
bitumen content, considered necessary for the commercial application of
known recovery technologies. There is no certainty that it will be
commercially viable to produce any portion of the resources.
2. Represents the Company's share of recoverable volumes before deduction
of royalties. In the assessment of contingent resources within the Hoole
oil sands properties, McDaniel used a minimum net pay cut-off of 10
meters in the best estimate case.
3. Refer to the advisories section at the end of this document for further
information concerning contingent resources, including economic
contingent resources.
4. MBbl means thousands of barrels.
5. Bbl/d means barrels per day. Initial production means the average daily
production rate during the first year of production. Estimates of
production rates assume that production will commence in 2015 and fully
developed production will be reached in 2016 for the low estimate, 2017
for the best estimate and 2018 for the high estimate.
6. Refer to the advisories section at the end of this document for a
description of such categories.
NPV(1)of Future Net Revenue ($MM)(2)
Discounted At NPV(1)
--------------------------------------- Discounted
Category / Level of at 10%
Certainty (4) 0% 5% 8% 10% ($/Bbl)(3)
----------------------------------------------------------------------------
High Estimate 22,884 9,452 5,862 4,336 4.55
Best Estimate 16,522 6,549 3,935 2,834 3.72
Low Estimate 10,454 4,026 2,321 1,602 2.90
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1. NPV means net present value and represents the Company's share of future
net revenue, before the deduction of income tax from the economic
contingent bitumen resources in the Grand Rapids formation within the
Hoole oil sands properties. The calculation considers such items as
revenues, royalties, operating costs, abandonment costs and capital
expenditures. Royalties have been calculated based on Alberta's Royalty
Framework applicable to oil sands projects in Alberta. The calculation
does not consider financing costs and general and administrative costs.
All NPVs are calculated assuming natural gas is used as a fuel for steam
generation. Revenues and expenditures were calculated based on
McDaniel's forecast prices and costs as of April 1, 2011.
2. $MM means millions of Canadian dollars.
3. $/Bbl means Canadian dollars per barrel.
4. Refer to the advisories section at the end of this document for a
description of such categories.
During the remainder of 2011, the Company expects to finalize its plans for the
initial development of the Hoole oil sands properties, complete the engineering
design and environmental impact analysis for the project and submit a regulatory
application for commercial development of the resource. The Company has
continued to analyze and interpret the data collected in the first quarter
drilling and delineation program, including performing a steam coreflood in
order to confirm the quality and characteristics of the reservoir.
Paramount continues to interpret the results of its winter drilling program at
Saleski, with an emphasis on the analysis of the recovered cores. Paramount has
commissioned an independent evaluation of the Saleski property, which is
expected to be received in the fourth quarter of 2011.
Paramount is developing plans to begin drilling operations on its shale gas
properties in the 2011/2012 winter drilling season, with the first well being
planned for the Dunedin area of north east British Columbia. The Company
purchased seismic data in the first quarter of 2011 covering a substantial
portion of its shale gas acreage which will be incorporated in further studies
and planning for future projects.
OUTLOOK
Paramount's 2011 annual capital spending budget (excluding land and
acquisitions) remains at $450 million, with $425 million allocated to
exploration and development spending in the Company's core producing areas and
$25 million allocated to the Hoole oil sands and Saleski carbonate bitumen
areas. The Company has flexibility within its current capital plan to increase
or decrease spending depending upon future economic conditions, among other
factors.
Average sales volumes for the last two weeks of June 2011 increased to over
20,000 Boe/d and further increases in sales volumes are expected throughout the
second half of the year as additional wells and facilities are brought on
production. A wet spring and summer, combined with disruptions at third-party
facilities, have impacted the timing of some of the Company's planned field
activities and subsequent expected production additions. The Company continues
to forecast a 2011 exit rate of approximately 28,000 Boe/d.
ADDITIONAL INFORMATION
A copy of Paramount's complete results for the three and six months ended June
30, 2011, including Management's Discussion and Analysis and the Unaudited
Interim Consolidated Financial Statements can be obtained at
http://media3.marketwire.com/docs/802pou.pdf. These documents 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
Forward-looking Information
Certain statements in this document constitute forward-looking information under
applicable securities legislation. Forward-looking information typically
contains statements with words such as "anticipate", "believe", "estimate",
"expect", "plan", "intend", "propose", or similar words suggesting future
outcomes or an outlook. Forward looking information in this document includes,
but is not limited to:
-- expected production volumes and the timing thereof;
-- planned exploration and development expenditures, and the timing
thereof;
-- development plans for Paramount's oil sands leases and the projected
timeline for finalizing such plans;
-- exploration and development plans and strategies;
-- budget allocations and capital spending flexibility;
-- adequacy of facilities to process natural gas production;
-- estimated resources and the undiscounted and discounted net present
value of future net revenues from such resources (including the forecast
prices and costs and the timing of expected production volumes and
future development capital);
-- estimated initial and fully developed production from the oil sands
leases and the timing thereof;
-- timing of regulatory applications;
-- ability to fulfill future pipeline transportation commitments;
-- undeveloped land lease expiries;
-- timing and cost of future abandonment and reclamation;
-- business strategies and objectives;
-- sources of and plans for financing;
-- acquisition and disposition plans;
-- operating and other costs and royalty rates;
-- expected drilling programs, well tie-ins, facility construction and
expansions, completions and the timing thereof; and
-- the outcome of any legal claims, audits, assessments or other regulatory
matters or proceedings.
Such forward-looking information is 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:
-- future crude oil, bitumen and natural gas prices and general economic
and business conditions;
-- the ability of Paramount to obtain required capital to finance its
exploration, development and operations;
-- the ability of Paramount to obtain equipment, services, supplies and
personnel 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;
-- estimates of input and labour costs for an oil sands project;
-- the ability of Paramount to secure adequate product transportation and
storage;
-- the ability of Paramount and its industry partners to obtain drilling
success consistent with expectations;
-- the timely receipt of required regulatory approvals;
-- estimated timelines being met in respect of the development of the Hoole
oil sands properties;
-- access to capital markets and other sources of funding; and
-- currency exchange and interest rates.
Although Paramount believes that the expectations reflected in such forward
looking information is reasonable, undue reliance should not be placed on it as
Paramount can give no assurance that such expectations will prove to be correct.
Forward-looking information is 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 information. These risks and uncertainties
include, but are not limited to:
-- fluctuations in crude oil, bitumen, natural gas and NGLs prices, foreign
currency exchange rates and interest rates;
-- the uncertainty of estimates and projections relating to future revenue,
future production, costs and expenses and the timing thereof;
-- the ability to secure adequate product processing, transportation and
storage;
-- the uncertainty of exploration, development and drilling;
-- operational risks in exploring for, developing and producing crude oil
and natural gas, and the timing thereof;
-- the ability to obtain equipment, services, supplies and personnel in a
timely manner;
-- potential disruption or unexpected technical difficulties in designing,
developing or operating new or existing facilities;
-- risks and uncertainties involving the geology of oil and gas deposits;
-- the uncertainty of reserves and resource estimates;
-- the ability to generate sufficient cash flow from operations and other
sources of financing at an acceptable cost to meet current and future
obligations, including costs of anticipated projects;
-- changes to the status or interpretation of laws, regulations or
policies;
-- changes in environmental laws including emission reduction obligations;
-- the receipt and timing of governmental or regulatory approvals;
-- changes in general business and economic conditions;
-- uncertainty regarding aboriginal land claims and co-existing with local
populations;
-- the effects of weather;
-- the ability to fund exploration, development and operational activities
and meet current and future obligations;
-- the timing and cost of future abandonment and reclamation activities;
-- cleanup costs or business interruptions due environmental damage and
contamination;
-- the ability to enter into or continue leases;
-- existing and potential lawsuits and regulatory actions; and
-- other risks and uncertainties described elsewhere in this document and
in Paramount's other filings with Canadian securities authorities,
including its Annual Information Form.
The foregoing list of risks is not exhaustive. Additional information concerning
these and other factors which could impact Paramount are included in Paramount's
most recent Annual Information Form. The forward-looking information contained
in this document is made as of the date hereof and, except as required by
applicable securities law, 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.
Non-GAAP Measures
In this document "Funds flow from operations", "Funds flow from operations per
share - diluted", "Netback", "Netback including financial commodity contract
settlements", "Net Debt", "Exploration and development expenditures" and
"Investments in other entities - market value", collectively the "Non-GAAP
measures", are used and do not have any standardized meanings as prescribed by
Canadian Generally Accepted Accounting Principles ("GAAP").
The Company has adjusted its funds flow from operations measure for all periods
subsequent to the Transition Date to exclude asset retirement obligation
settlements, cash outflows related to the purchase of Paramount's Common Shares
under the Company's stock incentive plan and the effect of changes in foreign
exchange rates in respect of foreign currency cash and cash equivalent balances.
Funds flow from operations refers to cash from operating activities before net
changes in operating working capital, geological and geophysical expenses and
asset retirement obligation settlements. 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.
Netback equals petroleum and natural gas sales less royalties, operating costs,
production taxes and transportation costs. Netback is commonly used by
management and investors to compare the results of the Company's oil and gas
operations between periods. Net Debt is a measure of the Company's overall debt
position after adjusting for certain working capital amounts and is used by
management to assess the Company's overall leverage position. Refer to the
calculation of Net Debt in the liquidity and capital resources section of
Management's Discussion and Analysis. Exploration and development expenditures
refers to capital expenditures incurred by the Company's COUs (excluding land
and property acquisitions). The exploration and development expenditure measure
provides management and investors with information regarding the Company's
Principal Property spending on drilling and infrastructure projects, separate
from land and property acquisition activity.
Investments in other entities - market value reflects the Company's investments
in enterprises whose securities trade on a public stock exchange at their period
end closing price (e.g. Trilogy Energy Corp., MEG Energy Corp., MGM Energy Corp.
and others), and all other investments in other entities at book value.
Paramount provides this information in its MD&A because the market values of
equity-accounted investments, which are significant assets of the Company, are
often materially different than their carrying values.
Non-GAAP measures should not be considered in isolation or construed as
alternatives to their most directly comparable measure calculated in accordance
with GAAP, or other measures of financial performance calculated in accordance
with GAAP. The Non-GAAP measures are unlikely to be comparable to similar
measures presented by other issuers.
Oil and Gas Measures and Definitions
This document 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.
This document contains disclosure of certain results of an updated independent
evaluation of the Company's contingent bitumen resources from the Grand Rapids
formation within the Company's Hoole oil sands property as of April 30, 2011 by
McDaniel (the "McDaniel Evaluation"). "Contingent resources" are those
quantities of bitumen resources 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. There is no certainty that it
will be commercially viable to produce any portion of the contingent resources.
For Paramount, contingencies which must be overcome to enable the
reclassification of bitumen contingent resources as reserves include
finalization of plans for the initial development of the Hoole oil sands
properties, regulatory application submission with no major issues raised,
access to capital markets and other sources of funding, and intent to proceed by
Paramount evidenced by a development plan with major capital expenditures.
"Economic contingent resources" are those contingent bitumen resources that are
currently economically recoverable based on specific forecasts of commodity
prices and costs. There is no certainty that it will be commercially viable to
produce any portion of the economic contingent resources. "Best estimate" is
considered to be the best estimate of the quantity of resources that will
actually be recovered. It is equally likely that the actual remaining quantities
recovered will be greater or less than the best estimate. Those resources that
fall within the best estimate have a 50 percent confidence level that the actual
quantities recovered will equal or exceed the estimate. "Low estimate" is
considered to be a conservative estimate of the quantity of resources that will
actually be recovered. It is likely that the actual remaining quantities
recovered will exceed the low estimate. Those resources at the low end of the
estimate range have the highest degree of certainty - a 90 percent confidence
level - that the actual quantities recovered will equal or exceed the estimate.
"High estimate" is considered to be an optimistic estimate of the quantity of
resources that will actually be recovered. It is unlikely that the actual
remaining quantities of resources recovered will meet or exceed the high
estimate. Those resources at the high end of the estimate range have a lower
degree of certainty - a 10 percent confidence level - that the actual quantities
recovered will equal or exceed the estimate. The volume of economic contingent
resources disclosed represents the Company's share of recoverable volumes before
the deduction of royalties.
This document contains certain disclosures of net present values ("NPV") from
the McDaniel Evaluation. The NPVs disclosed represent the Company's share of
future net revenue, before the deduction of income tax from the economic
contingent bitumen resources in the Grand Rapids formation within the Hoole oil
sands properties. The calculation considers such items as revenues, royalties,
operating costs, abandonment costs and capital expenditures. Royalties were
calculated based on Alberta's Royalty Framework applicable to oil sands projects
in Alberta. The calculation does not consider financing costs and general and
administrative costs. The NPVs were calculated assuming natural gas is used as a
fuel for steam generation. Revenues and expenditures were calculated based on
McDaniel's forecast prices and costs as of April 1, 2011. The estimated net
present value of economic contingent resources disclosed does not represent fair
market value.
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