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 $3.48 per Boe in the
third quarter of 2010.
REVIEW OF OPERATIONS
------------------
September 30,
Three months ended 2011 June 30, 2011 Change%
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SALES VOLUMES
Natural gas (MMcf/d) 97.8 77.7 26
NGLs (Bbl/d) 2,062 1,504 37
Oil (Bbl/d) 2,344 2,110 11
Total (Boe/d) 20,707 16,572 25
NETBACK % Change
($ 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%
----------------------------------------------------------------------------
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 - - - -
----------------------------------------------------------------------------
(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.
Contacts: Paramount Resources Ltd. J.H.T. (Jim) Riddell
President and Chief Operating Officer (403) 290-3600 (403) 262-7994
(FAX) Paramount Resources Ltd. B.K. (Bernie) Lee Chief Financial
Officer (403) 290-3600 (403) 262-7994 (FAX)www.paramountres.com
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