CALGARY, AB,
Sept. 14, 2020 /CNW/ -
Paramount Resources Ltd. ("Paramount" or the "Company") (TSX: POU)
is pleased to provide an update on its operations and 2020
guidance.
HIGHLIGHTS
- The Company is accelerating $60
million of development activities at Karr and Wapiti from
2021 into the second half of 2020.
- Sales volumes are now expected to average between 62,500
and 67,500 Boe/d in the second half of 2020, reflecting the impact
of the previously announced unscheduled outage at the third-party
natural gas processing facility at Wapiti (the "Wapiti
Plant").
-
- The Wapiti Plant is currently anticipated to be
operational the week of September 21,
2020.
- Operating costs are expected to average approximately
$12/Boe in the second half of 2020 as
a result of the Company's efforts in sustainably improving its cost
structure.
- Five wells on the 2-1 pad at Karr have been brought on
production with encouraging results.
- Paramount has executed additional 2020 and 2021 liquids
and natural gas hedges.
OPERATIONS UPDATE
The Company recently brought onstream all five wells on
the 2-1 pad at Karr. Production continues to ramp up as wells
unload completion fluids. Over the last seven days, the wells have
averaged 914 Bbl/d per well of raw wellhead liquids (1,686 Boe/d
raw wellhead total), resulting in an average condensate to gas
ratio of 198 Bbl/MMcf.(1)
All-in lease construction, drilling, completion, equip and
tie-in (collectively, "DCET") costs are estimated at $7.5 million per well. This represents a 37
percent reduction compared with average DCET costs for all Karr
wells in 2018 and 2019. Paramount continues to make excellent
progress in reducing DCET costs while not compromising on
completion effectiveness.
In addition, the Company continues to focus on sustainable
improvements in its operating cost structure and now anticipates
corporate unit operating costs to average approximately
$12/Boe for the second half of
2020.
At Wapiti, production continues to be shut-in due to the
unplanned outage at the Wapiti Plant. The operator of the Wapiti
Plant has advised Paramount that repairs are expected to be
complete and the plant operational the week of September 21, 2020. The impact of this outage is
estimated at approximately 2,500 Boe/d for the second half of
2020.
______________________________
|
(1)
|
Production measured
at the wellhead. Sales volumes are lower by approximately 7 percent
due to shrinkage. The production rates and volumes stated are over
a short period of time and, therefore, are not necessarily
indicative of average daily production, long-term performance or of
ultimate recovery from the wells. Condensate to gas ratio is
calculated by dividing raw wellhead liquids volumes by raw wellhead
natural gas volumes. See Oil and Gas Measures and Definitions in
the Advisories section.
|
HEDGING
Paramount has undertaken an active hedging program and,
since the second quarter, has added several additional hedges to
provide greater funds flow certainty and further protect the
Company's capital program.
The Company's current commodity hedging position is
summarized below:
- Natural Gas:
Rest of 2020 ~71,000 MMBtu/d at
US$2.27/MMBtu
~81,100 GJ/d at CDN$2.02/GJ
2021
~67,500 MMBtu/d at US$2.73/MMBtu
~60,000 GJ/d at CDN$2.54/GJ
- Oil:
Rest of 2020 ~15,500 Bbl/d at US$47.57/Bbl
(1)
2021
5,000 Bbl/d at US$44.10/Bbl
Details of the Company's hedge position are shown
below.
Oil
|
Volume
|
Price
|
Remaining term
|
NYMEX WTI Swaps
(Sale)
|
4,000
Bbl/d
|
CDN$80.11/Bbl
|
September 2020 –
December 2020
|
NYMEX WTI Swaps
(Sale)
|
17,000
Bbl/d
|
US$42.24/Bbl
|
September
2020
|
NYMEX WTI Swaps
(Sale)
|
11,000
Bbl/d
|
US$42.91/Bbl
|
October
2020
|
NYMEX WTI Swaps
(Sale)
|
9,000
Bbl/d
|
US$43.30/Bbl
|
November
2020
|
NYMEX WTI Swaps
(Sale)
|
9,000
Bbl/d
|
US$43.51/Bbl
|
December
2020
|
NYMEX WTI Swaps
(Sale)
|
5,000
Bbl/d
|
US$44.10/Bbl
|
January 2021 –
December 2021
|
Gas
|
Volume
|
Price
|
Remaining term
|
Ventura Swaps (Sale)
(2)
|
20,000
MMBtu/d
|
US$1.69/MMBtu
|
September 2020 –
October 2020
|
Chicago Swaps (Sale)
(2)
|
20,000
MMBtu/d
|
US$1.71/MMBtu
|
September 2020 –
October 2020
|
NYMEX Swaps
(Sale)
|
20,000
MMBtu/d
|
US$2.17/MMBtu
|
September
2020
|
NYMEX Swaps
(Sale)
|
20,000
MMBtu/d
|
US$2.34/MMBtu
|
October
2020
|
NYMEX Swaps
(Sale)
|
30,000
MMBtu/d
|
US$2.92/MMBtu
|
November 2020 – March
2021
|
NYMEX Swaps
(Sale)
|
20,000
MMBtu/d
|
US$2.67/MMBtu
|
November
2020
|
NYMEX Swaps
(Sale)
|
40,000
MMBtu/d
|
US$3.04/MMBtu
|
December
2020
|
NYMEX Swaps
(Sale)
|
60,000
MMBtu/d
|
US$2.71/MMBtu
|
January 2021 –
December 2021
|
Dawn fixed-price
physical
|
45,000
MMBtu/d
|
US$1.56/MMBtu
|
September
2020
|
AECO fixed-price
physical
|
90,000
GJ/d
|
CDN$1.66/GJ
|
September 2020 –
October 2020
|
AECO fixed-price
physical
|
10,000
GJ/d
|
CDN$2.45/GJ
|
September 2020 –
December 2020
|
AECO fixed-price
physical
|
25,000
GJ/d
|
CDN$1.85/GJ
|
September
2020
|
AECO fixed-price
physical
|
40,000
GJ/d
|
CDN$2.68/GJ
|
November 2020 – March
2021
|
AECO fixed-price
physical
|
50,000
GJ/d
|
CDN$2.51/GJ
|
January 2021 –
December 2021
|
__________________________
|
(1)
|
Includes CDN$
denominated oil hedges converted to US$ at the FX strip effective
September 3, 2020.
|
(2)
|
These hedges swap
physical sales of Alberta natural gas production from Chicago and
Ventura index pricing to fixed prices.
|
REVISED 2020 GUIDANCE
Paramount is accelerating activities at Karr and Wapiti
and increasing its 2020 capital guidance to $225 million from $165
million. The additional capital spending will grow 2021
Montney production at Karr and Wapiti, with the acceleration
enabling the Company to continue to maximize capital efficiencies,
drive down per unit operating costs and increase adjusted funds
flow. Paramount now expects higher production in 2021 to drive
adjusted funds flow at recent strip pricing in excess of
anticipated 2021 capital spending, reducing the Company's debt
levels and strengthening leverage metrics. Paramount expects to
finalize its 2021 capital budget in the first quarter of
2021.
The following development projects at Karr are being
accelerated:
- Completion operations on the five-well 5-16 West pad,
initially scheduled for 2021, have recently commenced with all five
wells anticipated to come onstream late this year.
- Drilling operations on the six-well 3-10 pad are
scheduled to commence in September with the Company planning to
complete, tie-in and bring on production all six wells in the first
half of 2021.
- Lease construction for the five-well 7-18 pad, initially
scheduled for 2021, has commenced. Drilling will commence in
December 2020.
The following additional development projects are
anticipated at Wapiti:
- Completion operations on the five-well 5-3 West pad are
scheduled to commence in October with all five wells anticipated to
be on production by early 2021.
- The remaining six wells on the eight-well 6-4 pad will be
drilled in late 2020 with the Company planning to complete, tie-in
and bring on production all eight wells in mid-2021.
The Company continues to retain the flexibility to adjust
its plans depending on prevailing market conditions.
As a result of the impact of the unscheduled outage at the
Wapiti Plant, including the time required to restore shut-in Wapiti
volumes to full production, Paramount expects sales volume to
average between 62,500 and 67,500 Boe/d in the second half of 2020,
broken out by quarter as follows:
- 60,000 to 62,000 Boe/d for the third quarter;
- 67,000 to 72,000 Boe/d for the fourth
quarter.
Assuming realized pricing of $28/Boe, operating costs of $12/Boe, and the midpoint of the production
guidance range, Paramount expects that capital spending will exceed
adjusted funds flow by approximately $40
million for the second half of 2020. The outspend will be
funded with available capacity under the Company's senior secured
revolving bank credit facility.
ABOUT PARAMOUNT
Paramount is an independent, publicly traded,
liquids-focused Canadian energy company that explores for and
develops both conventional and unconventional petroleum and natural
gas reserves and resources, including longer-term strategic
exploration and pre-development plays, and holds a portfolio of
investments in other entities. The Company's principal properties
are located in Alberta and
British Columbia. Paramount's
Class A common shares are listed on the Toronto Stock Exchange
under the symbol "POU".
ADVISORIES
Forward-looking Information
Certain statements in this press release constitute
forward-looking information under applicable securities
legislation. Forward-looking information typically contains
statements with words such as "anticipate", "believe", "estimate",
"will", "expect", "plan", "schedule", "intend", "propose", or
similar words suggesting future outcomes or an outlook.
Forward-looking information in this press release includes, but is
not limited to:
- planned capital expenditures for 2020;
- anticipated sales volumes in the second half of 2020,
including anticipated sales volumes in the third and fourth quarter
of 2020;
- expected operating costs in the second half of
2020;
- estimated DCET costs;
- the expected timing of the completion of repairs and
return to operation of the Wapiti Plant;
- the estimated impact of the outage of the Wapiti Plant on
second half production;
- planned exploration, development and production
activities;
- the impact of increased capital spending on the Company's
ability to maximize capital efficiencies, drive down per unit
operating costs and increase adjusted funds flow;
- the expectation that higher production in 2021 will drive
adjusted funds flow at recent strip pricing in excess of
anticipated 2021 capital spending, reducing the Company's debt
levels and strengthening leverage metrics;
- the expected timing of the finalization of the 2021
capital budget; and
- the expectation that capital spending will exceed
adjusted funds flow by approximately $40
million for the second half of 2020 and the funding of the
resulting outspend with available capacity under the Company's
senior secured revolving bank credit facility.
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 press release:
- future natural gas and liquids prices and
the potential impact of the COVID-19 pandemic thereon;
- the likely impact of the COVID-19 pandemic on
operations;
- the ability to realize expected cost savings;
- the extent of damage to the Wapiti Plant and the time
required to complete repairs to the Wapiti Plant and return it to
operation;
- royalty rates, taxes and capital, operating, general
& administrative and other costs;
- foreign currency exchange rates and interest
rates;
- general business, economic and market
conditions;
- the ability of Paramount to obtain the required capital
to finance its exploration, development and other operations and
meet its commitments and financial obligations;
- 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 and the capacity and reliability of
facilities;
- the ability of Paramount to market its natural gas and
liquids 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, liquids yields and resource
recoveries) and operational improvements, efficiencies and results
consistent with expectations;
- the timely receipt of required governmental and
regulatory approvals;
- the application of regulatory requirements respecting
abandonment and reclamation; and
- anticipated timelines and budgets being met in respect of
drilling programs and other operations (including well completions
and tie-ins, the construction, commissioning and start-up of new
and expanded facilities, including third-party facilities, and
facility turnarounds and maintenance).
Although Paramount believes that the expectations
reflected in such forward-looking information are reasonablebased
on the information available at the time of this press release,
undue reliance should not be placed on the forward-looking
information as Paramount can give no assurance that such
expectations will prove to be correct. Forward-looking information
is based on 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. The material risks
and uncertainties include, but are not limited to:
- those risks set out in the Company's Management's
Discussion and Analysis for the three and six months ended
June 30, 2020 ("MD&A") under
"Risk Factors";
- fluctuations in natural gas and liquids prices, including
in relation to the impact of the COVID-19 pandemic;
- changes in capital spending plans and planned exploration
and development activities;
- unexpected delays in repairing the Wapiti Plant and
returning it to operation;
- changes in foreign currency exchange rates and interest
rates;
- the uncertainty of estimates and projections relating to
future revenue, production, reserve additions, liquids yields
(including condensate to natural gas ratios), resource recoveries,
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, producing
and transporting natural gas and liquids, including the risk of
spills, leaks or blowouts;
- the ability to obtain equipment, services, supplies and
personnel in a timely manner and at an acceptable cost;
- potential disruptions, delays or unexpected technical or
other difficulties in designing, developing, expanding or operating
new, expanded or existing facilities (including third-party
facilities);
- processing, pipeline, and fractionation infrastructure
outages, disruptions and constraints;
- risks and uncertainties involving the geology of oil and
gas deposits;
- the uncertainty of reserves estimates;
- general business, economic and market
conditions;
- the ability to generate sufficient cash flow from
operations and obtain financing to fund planned exploration,
development and operational activities and meet current and future
commitments and obligations (including product processing,
transportation, fractionation and similar commitments and
obligations);
- 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 to obtain and maintain leases and
licenses;
- the effects of weather and other factors including
wildlife and environmental restrictions which affect field
operations and access;
- 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
- other risks and uncertainties described elsewhere in this
document and in Paramount's other filings with Canadian securities
authorities.
The foregoing list of risks is not exhaustive. For more
information relating to risks, see the sections titled "Risk
Factors" in Paramount's annual information form for the year
ended December 31, 2019
and in the MD&A, which are available on SEDAR at
www.sedar.com. The forward-looking
information contained in this press release 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 press release, "adjusted funds flow" is used,
which is a Non-GAAP measure that does not have any standardized
meanings as prescribed by International Financial Reporting
Standards.
"Adjusted funds flow" refers to cash from (used in)
operating activities before net changes in operating non-cash
working capital, geological and geophysical expenses,
reorganization costs, asset retirement obligation settlements and
provision and other. Adjusted funds flow is used to assist
management and investors in measuring the Company's ability to fund
capital programs and meet financial obligations, including the
settlement of asset retirement obligations. Asset retirement
obligation settlements are excluded from the calculation of
adjusted funds flow because such expenditures are not directly
linked to the revenue generating activities of the Company.
Paramount manages the timing of expenditures related to asset
retirement obligation settlements in accordance with regulatory
requirements and its overall approach to managing its asset
retirement obligations and, as a result, amounts incurred may vary
from period to period. Adjusted funds flow is not intended to
represent cash from operating activities, net loss or any other
GAAP measure and should not be construed as being an alternative
to, or more meaningful than, cash flow from operating activities as
determined in accordance with IFRS. The following are the
calculations of adjusted funds flow from the nearest GAAP measure
for the three months ended June 30,
2020 and March 31,
2020:
Three months ended
|
Jun 30,
2020 (MM$)
|
Mar 31,
2020 (MM$)
|
Cash from (used in) operating
activities
|
(14.2)
|
30.5
|
Change in non-cash
working capital
|
24.0
|
(34.3)
|
Geological and
geophysical expenses
|
1.9
|
2.6
|
Asset retirement
obligations settled
|
4.0
|
30.3
|
Reorganization
costs
|
3.0
|
-
|
Provision and
other
|
0.3
|
4.4
|
Adjusted funds flow
|
19.0
|
33.5
|
Non-GAAP measures should not be considered in isolation or
construed as alternatives to their most directly comparable measure
calculated in accordance with GAAP, or other measures of financial
performance calculated in accordance with GAAP. Non-GAAP measures
are unlikely to be comparable to similar measures presented by
other issuers.
Oil and Gas Measures and
Definitions
The term "liquids" includes oil, condensate and other
natural gas liquids (ethane, propane and butane).
Abbreviations
Liquids
|
|
Natural Gas
|
Bbl
|
Barrels
|
|
GJ
|
Gigajoules
|
Bbl/d
|
Barrels per
day
|
|
GJ/d
|
Gigajoules per
day
|
MBbl
|
Thousands of
barrels
|
|
Mcf
|
Thousands of cubic
feet
|
NGLs
|
Natural gas
liquids
|
|
MMcf
|
Millions of cubic
feet
|
Condensate
|
Pentane and heavier
hydrocarbons
|
|
MMcf/d
|
Millions of cubic
feet per day
|
|
|
|
AECO
|
AECO-C reference
price
|
Oil Equivalent
|
WTI
|
West Texas
Intermediate
|
Boe
|
Barrels of oil
equivalent
|
MBoe
|
Thousands of barrels
of oil equivalent
|
MMBoe
|
Millions of barrels
of oil equivalent
|
Boe/d
|
Barrels of oil
equivalent per day
|
This press release contains disclosures expressed as
"Boe", "$/Boe" and "Boe/d". Natural gas equivalency volumes have
been derived using the ratio of six thousand cubic feet of natural
gas to one barrel of oil when converting natural gas to Boe.
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. For the six
months ended June 30, 2020, the value
ratio between crude oil and natural gas was approximately 22:1.
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.
This press release refers to "condensate to gas ratio", a
metric commonly used in the oil and natural gas industry.
Condensate to gas ratio is calculated by dividing
wellhead raw liquids volumes by wellhead raw natural gas volumes.
This metric does not have a standardized meaning and may not be
comparable to similar measures presented by other companies. As
such, it should not be used to make comparisons. Management uses
this oil and gas metric for its own performance measurements and to
provide shareholders with measures to compare the Company's
performance over time; however, such measure is not a reliable
indicator of the Company's future performance and future
performance may not compare to the performance in previous periods
and therefore should not be unduly relied upon.
Additional information respecting the Company's oil and
gas properties and operations, including a breakdown of 2019 annual
and quarterly production volumes by product type, is provided in
the Company's annual information form for the year ended
December 31, 2019 which is available
on SEDAR at www.sedar.com.
SOURCE Paramount Resources Ltd.