Paramount Resources Ltd. (TSX:POU) ("Paramount" or the "Company") announces its
financial and operating results for the three and nine months ended September
30, 2011: third quarter 2011 average sales volumes increased 48 percent to
20,707 Boe/d.
FINANCIAL AND OPERATING HIGHLIGHTS(1)
($ millions, except as noted)
Three months ended Nine months ended
September 30 September 30
2011 2010 Change% 2011 2010 Change%
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Financial(2)
Petroleum and natural
gas sales 70.5 44.9 57 178.4 138.4 29
Funds flow from
operations(3) 32.8 24.1 36 70.2 72.8 (4)
Per share - diluted
($/share) 0.42 0.33 27 0.91 1.01 (10)
Net income (loss) (22.4) 6.9 (425) (22.1) 16.3 (236)
Per share - basic and
diluted ($/share) (0.28) 0.09 (411) (0.29) 0.22 (232)
Exploration and
development
expenditures 107.0 35.9 198 321.7 120.4 167
Investments in other
entities - market
value(4) 812.3 443.7 83
Total assets 1,737.9 1,217.1 43
Net debt(5) 589.6 221.8 166
Common shares
outstanding
(thousands) 79,002 72,448 9
Operating
Sales volumes:
Natural gas (MMcf/d) 97.8 62.9 55 78.2 56.7 38
NGLs (Bbl/d) 2,062 1,145 80 1,515 915 66
Oil (Bbl/d) 2,344 2,335 - 2,269 2,512 (10)
Total (Boe/d) 20,707 13,967 48 16,820 12,884 31
Average realized price:
Natural gas ($/Mcf) 4.16 4.12 1 4.27 4.67 (9)
NGLs ($/Bbl) 83.68 59.90 40 82.59 68.68 20
Oil ($/Bbl) 80.06 68.60 17 85.52 71.31 20
Total ($/Boe) 37.03 34.96 6 38.85 39.36 (1)
Net wells drilled
(excluding oil sands
evaluation) 15 10 50 35 34 3
Net oil sands
evaluation wells
drilled - - - 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.
THIRD QUARTER OVERVIEW
Funds Flow From Operations
-- Third quarter 2011 funds flow from operations increased 36 percent to
$32.8 million compared to $24.1 million in the third quarter of 2010, as
the impact of higher production and a higher netback more than offset
higher interest and lower settlements of financial commodity contracts.
Principal Properties
-- Average sales volumes in the third quarter of 2011 increased 48 percent
to 20,707 Boe/d compared to 13,967 Boe/d in the third quarter of 2010.
-- Netback increased 68 percent to $39.1 million in the third quarter of
2011 from $23.3 million in the third quarter of 2010.
-- Average sales volumes in the Kaybob COU increased 117 percent to 10,487
Boe/d in the third quarter of 2011 compared to 4,829 Boe/d in the third
quarter of 2010.
-- Construction of phase one of the Musreau processing plant (45 MMcf/d raw
gas capacity) is nearing completion, with an expected start-up in late-
November. Design work is being finalized for phase two of the facility,
an incremental 190 MMcf/d raw gas capacity (160 MMcf/d sales gas) deep
cut liquids extraction facility to be built alongside the initial phase.
-- The expansion of the non-operated processing plant at Smoky has now been
approved by the partners. The existing 100 MMcf/d (10 MMcf/d net) raw
gas capacity facility will be expanded to 300 MMcf/d (60 MMcf/d net) of
raw gas and be upgraded to operate as a deep cut liquids extraction
facility. The expansion is expected to be complete in late-2013.
-- The Grande Prairie COU commissioned a 10 MMcf/d raw gas capacity
compression and gathering system at Valhalla in July 2011. Work has
commenced to expand the system to 20 MMcf/d of raw gas capacity, which
is expected to be brought onstream during the first quarter of 2012.
-- The Northern COU completed its first well at Birch in northeast British
Columbia with promising results, including significant liquid yields.
Strategic Investments
-- The market value of Paramount's portfolio of investments in other oil
and gas entities increased to $980 million at October 31, 2011,
primarily due to an increase in the market price of Trilogy Energy Corp.
("Trilogy") shares.
-- In July 2011, the Company received an updated independent evaluation of
its bitumen resources within the Grand Rapids formation at its 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
NuLoch Resources Inc. and Magnum Hunter Resources Corporation for
aggregate proceeds of $15.8 million.
Corporate
-- On October 20, 2011 Paramount issued 1.6 million flow-through Common
Shares for gross proceeds of $62.8 million. On October 25, 2011, the
Company announced an offering of 4.5 million Common Shares at a price of
$34.75 per share for gross proceeds of $156 million, which is expected
to close in mid-November. Proceeds from these two offerings are planned
to be used to fund a portion of Paramount's ongoing capital expenditure
program, including eligible Canadian exploration expenses and long-lead
time capital expenditures for 2012, and for general corporate purposes.
-- General and administrative costs per Boe decreased 39 percent to $2.12
per Boe in the third quarter of 2011 compared to $3.48 per Boe in the
third quarter of 2010.
REVIEW OF OPERATIONS
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September 30,
Three months ended 2011 June 30, 2011 Change%
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SALES VOLUMES
Natural gas (MMcf/d) 97.8 77.7 26
NGLs (Bbl/d) 2,062 1,504 37
Oil (Bbl/d) 2,344 2,110 11
Total (Boe/d) 20,707 16,572 25
NETBACK % Change
($ millions, except as noted) $(/Boe) $(/Boe) in $/Boe
----------------------------------------------
Petroleum and natural gas
sales 70.5 37.03 61.1 40.52 (9)
Royalties (6.6) (3.46) (5.2) (3.46) -
Operating expense and
production tax (18.8) (9.88) (15.7) (10.40) (5)
Transportation (6.0) (3.16) (5.3) (3.52) (10)
-------------------------------------
Netback 39.1 20.53 34.9 23.14 (11)
Financial commodity contract
settlements 0.9 0.46 (0.7) (0.47) 198
-------------------------------------
Netback including financial
commodity contract
settlements 40.0 20.99 34.2 22.67 (7)
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Paramount's average sales volumes increased 25 percent to 20,707 Boe/d in the
third quarter of 2011 compared to 16,572 Boe/d in the previous quarter,
primarily as a result of production increases from new wells in the Kaybob and
Grande Prairie COUs and from wells added through the acquisition of ProspEx
Resources Ltd. ("ProspEx"). The outages at third party processing facilities and
pipelines that impacted the Company's production in the second quarter did not
affect third quarter production. Additional unscheduled service interruptions
have occurred in the Kaybob and Grande Prairie COUs subsequent to the end of the
third quarter. Paramount's ongoing investment in infrastructure projects is
expected to reduce its reliance on third party facilities and the impact of
unplanned operational disruptions.
The third quarter netback increased 12 percent to $39.1 million compared to
$34.9 million in the previous quarter. The impact of increased production
volumes and lower per unit operating and transportation costs was partially
offset by lower natural gas and oil prices.
KAYBOB
----------------
September 30,
Three months ended 2011 June 30, 2011 Change%
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Sales Volumes
Natural gas (MMcf/d) 55.7 43.5 28
NGLs (Bbl/d) 1,180 847 39
Oil (Bbl/d) 28 102 (73)
Total (Boe/d) 10,487 8,204 28
Exploration and Development
Expenditures(1) ($ millions)
Exploration, drilling, completions
and tie-ins 42.5 14.0 204
Facilities and gathering 15.7 4.4 257
-----------------------------------------
58.2 18.4 216
Gross Net Gross Net
--------------------------------
Wells drilled 4 3 5 3
Wells placed on production 2 2 - -
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(1) Before deduction of Alberta drilling royalty credits
Average daily sales volumes in the Kaybob COU during the third quarter of 2011
were 10,487 Boe/d, an increase of 28 percent compared to the prior quarter. This
was primarily the result of new wells being brought on in Musreau and Resthaven,
and a full quarter of production from wells added through the ProspEx
acquisition. Subsequent to September 30, 2011, unscheduled service interruptions
occurred at third party pipelines and non-operated processing plants that
impacted October production at Musreau and Smoky.
The Company is in the initial stages of the exploration of its liquids-rich
Montney rights in the Deep Basin, with four (3.5 net) wells drilled to date, of
which two (1.5 net) have been completed. The first well had a test rate in
excess of 10 MMcf/d and was placed on production in July with first month
average sales volumes of 6.0 MMcf/d of natural gas and 90 Bbl/MMcf of associated
liquids. The second well was completed in late October with a test rate of 12
MMcf/d of natural gas (liquid yields information is not yet available). The
remaining two wells are planned to be completed and tied-in during the fourth
quarter. The Company continues to acquire Montney mineral rights, and currently
holds 216 (185 net) sections in Musreau and Resthaven.
Paramount has completed and tied-in 12 (8.2 net) Cretaceous Falher and Dunvegan
formation wells during the first nine months of 2011. Subsequent to quarter end
an additional three (1.8 net) Falher wells were completed and brought on
production and Paramount currently has an additional eight (6.0 net) Falher and
Dunvegan wells awaiting completion and tie-in.
The Kaybob COU is currently operating five drilling rigs on its Deep Basin
properties, and anticipates drilling up to five (3.7 net) wells during the
fourth quarter, including one (1.0 net) Montney well.
The Company is continuing its plans to expand its processing capacity in the
Deep Basin, as current production levels have exceeded Company-owned and
third-party firm service processing capacities. Construction of the first phase
of the Paramount operated processing plant at Musreau (45 MMcf/d raw gas
capacity) is progressing on-budget and is expected to start-up in late-November
2011. With its continued positive drilling results, the Company is finalizing
the design of phase two of the facility, an incremental 190 MMcf/d raw gas
capacity (160 MMcf/d sales gas) deep cut liquids extraction facility to be built
alongside the initial phase. It is anticipated that this expansion will be
completed during the second quarter of 2013. The addition of deep cut facilities
adds significant value to natural gas production due to the price premium
realized from the extraction of ethane, propane and butane volumes that would
otherwise be sold in solution.
In addition, the expansion of the non-operated processing plant at Smoky has now
been approved by the partners. The existing 100 MMcf/d (10 MMcf/d net) raw gas
capacity facility will be expanded to 300 MMcf/d (60 MMcf/d net) of raw gas and
be upgraded to operate as a deep cut liquids extraction facility. Initially,
compression capacity for 200 MMcf/d will be installed, with an additional 100
MMcf/d of compression to be added when production volumes reach capacity,
thereby deferring a portion of the capital costs. The expansion is expected to
be complete in late-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. This aggregate 75 MMcf/d of processing capacity will be
maintained throughout 2012 and into 2013 until the Musreau and Smoky plant
expansions are completed. The Company plans to drill and complete additional
wells throughout 2012 and 2013 in preparation for these expansions, and will in
the interim produce volumes held behind pipe on interruptible service where
capacity is available in an effort to maximize production while additional
Company-owned capacities are being constructed.
GRANDE PRAIRIE
----------------
September 30,
Three months ended 2011 June 30, 2011 Change%
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Sales Volumes
Natural gas (MMcf/d) 19.0 12.6 51
NGLs (Bbl/d) 611 560 9
Oil (Bbl/d) 364 448 (19)
Total (Boe/d) 4,142 3,108 33
Exploration and Development
Expenditures(1) ($ millions)
Exploration, drilling, completions
and tie-ins 26.6 19.0 40
Facilities and gathering 7.7 9.9 (22)
-----------------------------------------
34.3 28.9 19
Gross Net Gross Net
--------------------------------
Wells drilled 8 5 3 3
Wells placed on production 5 4 3 3
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(1) Before deduction of Alberta drilling royalty credits
Average sales volumes in the Grande Prairie COU increased 33 percent in the
third quarter of 2011 to 4,142 Boe/d compared to 3,108 Boe/d in the second
quarter of the year, as the new Valhalla compression facility was commissioned
in July and additional wells were brought onstream. In October, approximately
2,000 Boe/d of the Company's production at Karr-Gold Creek was shut-in as a
result of unscheduled service interruptions at third party facilities. Work is
currently ongoing to resolve the interruptions and restore Paramount's
production.
The Company's development at Valhalla continued to progress in the third quarter
as additional wells were tied into the new compression and gathering system,
which by the end of the third quarter was operating in excess of its 10 MMcf/d
design capacity. The Company also participated in three (1.7 net) partner
operated wells that will not be routed through Paramount's gathering system. One
(1.0 net) operated well was drilled at Valhalla in the third quarter and two
(1.0 net) wells are planned to be drilled during the fourth quarter. A $4.5
million expansion of the Valhalla compression facility that will increase its
capacity to 20 MMcf/d of raw gas is expected to enter service during the first
quarter of 2012.
The exploration of Paramount's Karr-Gold Creek property has continued as the
Company works to refine the production systems required for the wells to reach
optimal performance levels. Operational challenges have continued due to a
number of factors including the characteristics of the reservoir, inconsistent
production resulting from unplanned third party processing interruptions and
delays in the delivery of surface equipment. The Company's field activities at
Karr-Gold Creek have been further delayed by the wet conditions that prevailed
throughout the summer. Third quarter activities at Karr-Gold Creek included the
drilling of three (2.5 net) wells and the tie-in of two (1.0 net) previously
drilled wells. In the fourth quarter one (1.0 net) previously drilled well is
expected to be completed and brought on production and two (1.3 net) wells are
scheduled to be drilled. The completion of two (2.0 net) wells planned for 2011
has been deferred to the first quarter of 2012.
Paramount has drilled two (1.5 net) wells to date at Ante Creek targeting oil
from the Montney formation. The first well is producing at approximately 200
Bbl/d (100 Bbl/d net), the maximum currently permitted under regulation. The
second well is scheduled to be completed in the fourth quarter. This development
has experienced delays due to regulatory issues, production equipment failures
and midstream service interruptions. The Company and the operator are developing
plans to mitigate these issues.
SOUTHERN
----------------
September 30,
Three months ended 2011 June 30, 2011 Change%
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Sales Volumes
Natural gas (MMcf/d) 12.2 10.6 15
NGLs (Bbl/d) 241 90 168
Oil (Bbl/d) 1,468 1,477 (1)
Total (Boe/d) 3,742 3,333 12
Exploration and Development
Expenditures(1) ($ millions)
Exploration, drilling, completions
and tie-ins 7.4 1.8 311
Facilities and gathering 1.1 0.5 120
-----------------------------------------
8.5 2.3 270
Gross Net Gross Net
--------------------------------
Wells drilled 9 7 5 2
Wells placed on production 8 3 2 2
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(1) Before deduction of Alberta drilling royalty credits
The Southern COU's average sales volumes increased by 12 percent in the third
quarter of 2011 to 3,742 Boe/d compared to 3,333 Boe/d in the prior quarter as a
result of a full quarter of production from wells added through the ProspEx
acquisition.
Third quarter 2011 activities in southern Alberta included the drilling of three
oil wells which are expected to be completed and tied-in during the fourth
quarter. In southern Saskatchewan, Paramount's joint development partner drilled
four wells during the third quarter, in addition to the four wells drilled
during the second quarter. All eight wells have now been completed and brought
on production. Paramount will have a post-payout interest of 45 percent in these
wells.
In North Dakota, the Company's joint development partner drilled two wells
during the third quarter which are currently being completed. Drilling has also
commenced on an additional two wells subsequent to the end of the third quarter.
All four of these wells are expected to be brought on production by late-2011.
NORTHERN
----------------
September 30,
Three months ended 2011 June 30, 2011 Change%
----------------------------------------------------------------------------
Sales Volumes
Natural gas (MMcf/d) 10.9 11.0 (1)
NGLs (Bbl/d) 30 7 329
Oil (Bbl/d) 484 83 483
Total (Boe/d) 2,336 1,927 21
Exploration and Development
Expenditures(1)($ millions)
Exploration, drilling, completions
and tie-ins 5.7 2.4 133
Facilities and gathering 0.3 0.1 200
-----------------------------------------
6.0 2.5 136
Gross Net Gross Net
--------------------------------
Wells drilled - - - -
Wells placed on production - - - -
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(1) Before deduction of Alberta drilling royalty credits
Average sales volumes in the Northern COU during the third quarter of 2011
increased 21 percent from the second quarter of the year, as oil inventory that
had accumulated during a third-party pipeline failure was sold following the
resumption of service in early-September.
During the third quarter a horizontal exploratory well at Birch was completed
with promising results, including significant liquid yields. The Company is
currently evaluating alternatives to obtain access to gathering and processing
infrastructure in order to be able to produce the well. Potential follow-up
drilling locations are being evaluated.
STRATEGIC INVESTMENTS
In July 2011, Paramount received an updated independent evaluation of its
bitumen resources within the Grand Rapids formation at its Hoole oil sands
property, incorporating the results of the Company'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 updated evaluation was
conducted by the Company's independent reserves evaluator, McDaniel & Associates
Consultants Ltd. ("McDaniel"), who had previously evaluated the Hoole oil sands
property effective April 30, 2010. The updated evaluation estimates that the
Grand Rapids formation within the Company's 100 percent owned Hoole oil sands
properties contains approximately 763 million barrels (April 30, 2010 - 634
million barrels) of economic contingent bitumen resources within the Grand
Rapids formation (Best Estimate (P50)). The estimated before-tax net present
value of future net revenue, discounted at ten percent (Best Estimate (P50)), is
$2.8 billion (April 30, 2010 - $1.9 billion). During the remainder of 2011, the
Company will continue to finalize its plans for the initial development of the
Hoole property and complete the engineering design and environmental impact
analysis for the project with a view to submitting a regulatory application for
commercial development of the resource by the end of 2011.
In April 2011, Paramount completed a ten well drilling and delineation program
at its 100 percent owned Saleski carbonate bitumen property. Paramount has
commissioned an independent evaluation of its resources in the Grosmont
formation, which is expected to be completed in the fourth quarter. The Company
is currently developing plans for the 2011/2012 winter capital program at
Saleski, including a further drilling and delineation program and seismic
studies.
Paramount plans to drill an initial exploratory shale gas well in the Dunedin
area of northeast British Columbia in the 2011/12 winter drilling season. The
well will be drilled to a vertical depth of approximately 4,500 meters and will
be cored and logged for evaluation. Plans for further shale gas activities will
incorporate information obtained from this initial well.
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
properties. The Company has flexibility within its current capital plan to
increase or decrease spending depending upon future economic conditions, among
other factors. Certain expenditures related to long lead-time equipment for the
2012 capital program may be incurred in the fourth quarter.
Average sales volumes for the third quarter increased to 20,707 Boe/d and
further increases in sales volumes are expected during the fourth quarter as
additional wells and the Musreau facility are brought onstream. A wet spring and
summer, combined with disruptions at third-party facilities, have impacted the
timing of field activities. The Company is also experiencing delays at some
expansion projects as equipment deliveries are behind schedule and service
equipment and personnel are in short supply. These delays have impacted the
timing of expected production additions, primarily at Valhalla and Karr-Gold
Creek in the Grande Prairie COU. As a result, the Company anticipates that its
previously disclosed 2011 exit rate forecast of approximately 28,000 Boe/d will
be achieved in the first quarter of 2012.
ADDITIONAL INFORMATION
A copy of Paramount's complete results for the three and nine months ended
September 30, 2011, including Management's Discussion and Analysis and the
Unaudited Interim Consolidated Financial Statements can be obtained at
http://media3.marketwire.com/docs/Q3pou.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 and transport 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);
-- timing of regulatory applications;
-- ability to fulfill future pipeline transportation commitments;
-- 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;
-- the anticipated closing of equity offerings, the timing thereof, and use
of proceeds; 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 processing
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 fund 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 disclosures 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. 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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