Paramount Resources Ltd. (TSX:POU)
THIRD QUARTER OVERVIEW
Principal Properties
-- Paramount engaged its independent reserves engineers to complete an
updated evaluation of the Company's conventional reserves, effective
September 30, 2013, in connection with the renewal of its bank credit
facility at the end of November. Proved reserves increased 75 percent
from year-end 2012 to 88.9 MMBoe (replacement ratio of eight times) and
proved and probable reserves increased 55 percent from year-end 2012 to
134.9 MMBoe (replacement ratio of ten times).
-- The Company's 200 MMcf/d deep cut facility at Musreau (the "Musreau Deep
Cut Facility") is nearing completion, in-line with budget. Commissioning
will commence in December and is expected to span approximately 12
weeks.
-- Paramount's behind pipe well inventory in the Kaybob Deep Basin has
increased to 61 (47.9 net) wells and advance drilling for the deep cut
facilities expansions at Musreau and Smoky continues.
-- Based on positive middle-Montney drilling results in the Grande Prairie
COU, the Company is planning to drill up to four additional horizontal
wells at Karr-Gold Creek during the remainder of 2013.
-- Third quarter netbacks increased 47 percent to $28.0 million in 2013
from $19.0 million in 2012, despite the impact of third-party downstream
disruptions which curtailed production by approximately 3,600 Boe/d.
-- Kaybob COU sales volumes increased 29 percent to 13,176 Boe/d in the
third quarter of 2013 compared to 10,225 Boe/d in the same quarter of
2012. Total Company sales volumes in the third quarter of 2013 averaged
20,022 Boe/d compared to 18,712 Boe/d in the third quarter of 2012.
Corporate
-- In October 2013, Paramount raised approximately $60 million through the
issuance of 1.4 million CEE flow-through Common Shares.
-- Paramount is currently working with its lenders on the annual renewal of
its $450 million bank credit facility. The Company anticipates that the
facility will be renewed before the end of November and the size will be
increased based on the progress achieved in the Kaybob Deep Basin
development and the significant increases in reserves.
Strategic Investments
-- Paramount is currently drilling the horizontal leg of its shale gas
evaluation well in the Dunedin area of Northeast British Columbia.
Completion operations are expected to follow.
-- Tie-in work for the Company's shale gas evaluation well at Patry is
substantially complete, and the Company plans to bring the well on
production before the end of 2013.
FINANCIAL AND OPERATING HIGHLIGHTS(1)(2)
($ millions, except as noted)
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Three months ended Nine months ended
September 30 September 30
2013 2012 % Change 2013 2012 % Change
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FINANCIAL
Petroleum and
natural gas
sales 53.9 41.3 31 174.7 142.5 23
Funds flow from
operations 13.4 15.5 (14) 52.3 40.4 29
Per share -
diluted
($/share) 0.14 0.18 (22) 0.56 0.46 22
Net income
(loss) (37.6) (34.6) (9) (59.4) 89.9 (166)
Per share -
diluted
($/share) (0.39) (0.40) 3 (0.64) 1.03 (162)
Exploration and
development
expenditures 209.8 147.7 42 449.1 356.3 26
Investments in
other entities
- market
value(3) 749.8 656.6 14
Total assets 2,282.4 1,903.0 20
Net debt (4) 1,009.3 569.1 77
Common shares
outstanding
(thousands) 95,351 87,489 9
OPERATING
Sales volumes
Natural gas
(MMcf/d) 100.9 95.3 6 107.4 96.7 11
NGLs (Bbl/d) 2,535 1,755 44 2,441 1,793 36
Oil (Bbl/d) 656 1,081 (39) 790 1,756 (55)
Total (Boe/d) 20,022 18,712 7 21,125 19,663 7
Average realized
price
Natural gas
($/Mcf) 3.10 2.58 20 3.52 2.46 43
NGLs ($/Bbl) 78.55 60.65 30 74.89 69.42 8
Oil ($/Bbl) 100.73 81.28 24 89.43 83.96 7
Total
($/Boe) 29.27 24.00 22 30.29 26.46 14
Net wells
drilled (excl.
oil sands
evaluation) 16 9 78 32 28 14
Net oil sands
evaluation
wells drilled - - - 6 1 500
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CONVENTIONAL
RESERVES Proved Proved and Probable
-------------------- --------------------
September December September December
30 31 30 31
2013 2012 2013 2012
--------------------------------------------------
Natural gas
(Bcf) 306.2 201.9 52 455.6 323.7 41
NGLs (MBbl) 37,226 15,662 138 58,106 30,761 89
Light and
medium crude
oil (MBbl) 669 1,540 (57) 870 2,128 (59)
-------------------- --------------------
Total
Conventional
(MBoe) 88,932 50,857 75 134,910 86,842 55
-------------------- --------------------
-------------------- --------------------
Conventional F&D
costs excluding
facilities &
gathering
($/Boe) 17.49 16.82 4 11.35 12.18 (7)
Conventional
reserves
replacement 799% 336% 992% 599%
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(1) Readers are referred to the advisories concerning non-GAAP measures and
Oil and Gas Measures and Definitions in the Advisories section of this
document.
(2) Amounts include the results of discontinued operations. Refer to
Paramount's Management's Discussion and Analysis for the three and nine
months ended September 30, 2013.
(3) Based on the period-end closing prices of publicly-traded enterprises
and the book value of the remaining investments.
(4) Net debt is a non-GAAP measure, it is calculated and defined in the
Liquidity and Capital Resources section of Paramount's Management's
Discussion and Analysis for the three and nine months ended September 30,
2013.
OUTLOOK
Paramount has expanded its fourth quarter capital program, including the
addition of approximately 11 net wells in the Kaybob and Grande Prairie areas
and accelerating plans for the completion of the Dunedin shale gas evaluation
well. As a result, the Company's total 2013 exploration and development ("E&D")
and Strategic Investments capital budget has been increased by $150 million to
approximately $800 million, excluding land acquisitions and capitalized
interest.
The Company's E&D spending in the fourth quarter will primarily focus on the
Kaybob COU's Deep Basin development, including drilling and completing
additional wells, and the final stages of construction of the Musreau Deep Cut
Facility. Fourth quarter activities will also include drilling and completing
middle Montney wells in the Grande Prairie COU. Strategic Investment capital
spending for the remainder of 2013 will be directed towards the Company's shale
gas evaluation wells in the Liard Basin.
Sales volumes for the remainder of 2013 are expected to be approximately 21,000
Boe/d, unless additional interruptible natural gas processing capacity becomes
available.
Upon start-up of the Musreau Deep Cut Facility, Paramount will begin to ramp-up
production to achieve levels exceeding 50,000 Boe/d later in 2014, following the
completion of expansions to a downstream NGLs fractionation facility in which
Paramount has secured long-term firm service capacity and the non-operated Smoky
facility.
CONVENTIONAL RESERVES UPDATE
In connection with the renewal of its bank credit facility at the end of
November, Paramount engaged McDaniel & Associates Consultants Ltd. ("McDaniel"),
its independent reserves evaluator, to evaluate the Company's conventional
reserves as of September 30, 2013 in accordance with National Instrument 51-101
definitions, standards and procedures. The updated evaluation was undertaken to
incorporate the significant progress made by the Company in its Kaybob Deep
Basin Development and the results of recent drilling activity at Karr-Gold Creek
in the Grande Prairie COU.
Paramount's conventional proved reserves at September 30, 2013 increased 75
percent over year-end 2012 to 88.9 MMBoe, after production of 5.8 MMBoe and
dispositions of 2.2 MMBoe, resulting in a proved reserves replacement ratio of
799 percent. Conventional proved and probable reserves increased 55 percent over
year-end 2012 to 134.9 MMBoe, resulting in a proved and probable reserves
replacement ratio of 992 percent.
The Company's working interest reserves and before tax net present value of
future net revenues as of September 30, 2013 using forecast prices and costs are
as follows:
Conventional Reserves Summary (1)
Gross Proved and Probable Before Tax
Reserves Net Present Value(3)
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Light &
Medium Natural
Natural Crude Gas ($ millions)
Gas Oil Liquids Total Discount Rate
--------------------------------------------------------
(MBoe)
Reserves Category (Bcf) (MBbl) (MBbl) (2) 0% 10% 15%
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Conventional
Proved
Developed
Producing 143.9 669 4,427 29,072 524 411 373
Developed Non-
producing 35.2 - 11,324 17,189 344 193 153
Undeveloped 127.2 - 21,475 42,670 726 241 124
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Total Proved 306.2 669 37,226 88,932 1,594 845 649
Total Probable 149.4 201 20,879 45,978 1,273 698 572
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Total Proved and
Probable 455.6 870 58,106 134,910 2,867 1,543 1,221
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(1) Columns may not add due to rounding.
(2) Refer to the Oil and Gas Measures and Definitions and other advisories
in the Advisories section of this document.
(3) The estimated net present values disclosed in this document do not
represent fair market value. Revenues and expenditures were calculated
based on McDaniel's forecast prices and costs as of October 1, 2013.
Conventional Reserves Reconciliation (1)
Proved and Probable
Proved Reserves Reserves
------------------------------------------------
Natural Oil and Natural Oil and
Gas NGLs(2) Total Gas NGLs(2) Total
------------------------------------------------
(MBoe) (MBoe)
(Bcf) (MBbl) (3) (Bcf) (MBbl) (3)
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January 1, 2013 201.9 17,202 50,857 323.7 32,889 86,842
Extensions & discoveries 120.1 18,849 38,864 188.7 29,836 61,285
Technical revisions 22.9 3,379 7,193 (13.7) (1,804) (4,091)
Dispositions (9.4) (652) (2,215) (13.8) (1,063) (3,359)
Production (29.3) (882) (5,767) (29.3) (882) (5,767)
September 30, 2013 306.2 37,895 88,932 455.6 58,976 134,910
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(1) Columns and rows may not add due to rounding.
(2) Light and medium crude oil and natural gas liquids.
(3) Refer to the Oil and Gas Measures and Definitions and other advisories
in the Advisories section of this document.
Additional information concerning the updated reserves evaluation and finding
and development costs is contained in the Company's third quarter 2013 report.
ADDITIONAL INFORMATION
ABOUT PARAMOUNT
Paramount Resources Ltd. 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".
A copy of the Company's third quarter 2013 report, including Management's
Discussion and Analysis and the unaudited Interim Condensed Consolidated
Financial Statements, can be obtained at:
http://media3.marketwire.com/docs/1106pou_pr.pdf
This information will also be made available through: SEDAR at www.sedar.com and
Paramount's website at
http://www.paramountres.com/investor_relations/quarterlies.html.
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", "schedule", "intend", "propose", or similar words suggesting
future outcomes or an outlook. Forward looking information in this document
includes, but is not limited to:
-- projected production and sales volumes and growth and the timing
thereof;
-- estimated conventional reserves and the undiscounted and discounted
present value of future net revenues therefrom (including the forecasted
prices and costs and timing of expected production volumes and future
development capital);
-- forecast capital expenditures;
-- exploration, development, and associated operational plans and
strategies (including planned drilling programs and well tie-ins) and
the anticipated timing thereof;
-- anticipated increases in the size of the Company's bank credit facility;
-- anticipated increases in funds flow from operations;
-- projected timeline for constructing, commissioning and starting-up the
Musreau Deep Cut Facility;
-- the projected availability of third party facilities to process,
transport and/or fractionate natural gas and NGLs production; and
-- business strategies and objectives.
Such forward-looking information is based on a number of assumptions which may
prove to be incorrect. Assumptions have been made with respect to the following
matters, in addition to any other assumptions identified in this document:
-- future oil, bitumen, natural gas, NGLs and other commodity prices;
-- royalty rates, taxes and capital, operating, general & administrative
and other costs;
-- foreign currency exchange rates and interest rates;
-- general economic and business conditions;
-- the ability of Paramount to obtain the required capital to finance its
exploration, development and other operations;
-- the ability of Paramount to obtain equipment, services, supplies and
personnel in a timely manner and at an acceptable cost to carry out its
activities;
-- the ability of Paramount to secure adequate product processing,
transportation, fractionation and storage capacity on acceptable terms;
-- the ability of Paramount to market its oil, bitumen, natural gas and
NGLs successfully to current and new customers;
-- the ability of Paramount and its industry partners to obtain drilling
success (including in respect of anticipated production volumes,
reserves additions and NGLs yields) and operational improvements,
efficiencies and results consistent with expectations;
-- the timely receipt of required governmental and regulatory approvals;
and
-- anticipated timelines and budgets being met in respect of drilling
programs and other operations (including well completions and tie-ins
and the construction, commissioning and start-up of new and expanded
facilities).
Although Paramount believes that the expectations reflected in such forward
looking information are reasonable, undue reliance should not be placed on them
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 and/or relate (but are not limited) to:
-- fluctuations in oil, bitumen, natural gas, NGLs and other commodity
prices;
-- the uncertainty of estimates and projections relating to future
revenue, future production, NGLs yields, royalty rates, taxes and costs
and expenses;
-- the ability to secure adequate product processing, transportation,
fractionation and storage capacity on acceptable terms;
-- operational risks in exploring for, developing and producing crude oil,
bitumen, natural gas and NGLs;
-- the ability to obtain equipment, services, supplies and personnel in a
timely manner and at an acceptable cost;
-- potential disruptions or unexpected technical or other difficulties in
designing, developing, expanding or operating new, expanded or existing
facilities (including third party facilities);
-- risks and uncertainties involving the geology of oil and gas deposits;
-- the uncertainty of reserves and resources estimates;
-- the ability to generate sufficient cash flow from operations and obtain
financing at an acceptable cost to fund planned exploration, development
and operational activities and meet current and future obligations
(including costs of anticipated new and expanded facilities and other
projects, and product processing, transportation, fractionation and
similar commitments);
-- changes in or in the interpretation of laws, regulations or policies
(including environmental laws);
-- the ability to obtain required governmental or regulatory approvals in a
timely manner, and enter into and maintain leases and licenses;
-- changes in foreign currency exchange rates and interest rates;
-- the effects of weather;
-- the timing and cost of future abandonment and reclamation obligations
and potential liabilities for environmental damage and contamination;
-- uncertainties regarding aboriginal claims and in maintaining
relationships with local populations and other stakeholders;
-- the outcome of existing and potential lawsuits, regulatory actions,
audits and assessments; and
-- general business, economic and market conditions 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, its operations and its
financial condition 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", "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 International Financial Reporting Standards.
Funds flow from operations refers to cash from operating activities before net
changes in operating non-cash 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
liquidity and capital resources section of the Company's Management's Discussion
and Analysis for the period for the calculation of Net Debt. Exploration and
development expenditures refer to capital expenditures and geological and
geophysical costs incurred by the Company's COUs (excluding land and
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
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, MEG Energy, MGM
Energy, Strategic, RMP and others), and investments in all other entities at
book value. Paramount provides this information 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. The term "liquids" is used
to represent oil and natural gas liquids.
During the third quarter of 2013, the value ratio between crude oil and natural
gas was approximately 33:1. This value ratio is significantly different from the
energy equivalency ratio of 6:1. Using a 6:1 ratio would be misleading as an
indication of value.
The oil sands bitumen properties owned by Paramount's wholly-owned subsidiary,
Cavalier Energy Inc., have not been evaluated subsequent to December 31, 2012
and, as a result, oil sands reserve estimates have not been included in this
document. Conventional reserve estimates include nominal amounts of volumes and
future net revenues related to Paramount's completed shale gas well. The
estimates of reserves and future net revenue for individual properties may not
reflect the same confidence level as estimates of reserves and future net
revenue for all properties, due to the effects of aggregation. In addition,
estimates of future net revenue do not represent fair market value.
Finding and Development Costs exclude capital costs and reserve volumes related
to shale gas and oil sands properties because the relationship between capital
amounts invested and reserve volumes discovered for such properties are not
comparable to conventional oil and gas properties.
The reserves replacement disclosure herein was calculated as the net increase in
proved and probable reserves estimates from extensions and discoveries,
technical revisions and economic factors divided by the Company's total
production in the period.
The Kaybob COU's estimated behind pipe production inventory is based on the
Company's 4.9 Bcf type curve for Falher formation wells and 3.7 Bcf type curve
for Montney formation wells.
FOR FURTHER INFORMATION PLEASE CONTACT:
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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