Mr. Jim Riddell reports
PARAMOUNT RESOURCES LTD. ANNOUNCES THIRD QUARTER 2023 RESULTS, EXPANSION OF MONTNEY ACREAGE, 2024 BUDGET AND FIVE-YEAR OUTLOOK
Paramount Resources Ltd. has released its third quarter 2023 financial and operating results, which included record production and an expansion of its Montney acreage in the Grande Prairie region. The company has also provided its 2024 capital expenditure budget and guidance and five-year outlook.
HIGHLIGHTS
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Third quarter sales volumes averaged 98,644 barrels of oil equivalent per day (45% liquids), a quarterly record. (1)
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Grande Prairie Region sales volumes averaged a record 74,381 boepd (50% liquids) despite approximately 5,400 boepd in unplanned outages and curtailments associated with third-party midstream facilities.
- Kaybob Region sales volumes increased to 17,027 boepd (32% liquids) due to the recovery from the Alberta wildfires. The Company successfully completed the planned turnaround at its Kaybob 8-9 natural gas processing plant in September, which shut-in the majority of Kaybob Region production for approximately three weeks.
- Central Alberta and Other Region sales volumes averaged 7,236 boepd (30% liquids).
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Paramount has expanded its core Montney land position in the Grande Prairie Region through the addition of 10 net sections of new land at Karr and Wapiti. The Company has also disclosed the location of a further 10 net sections at Wapiti that were previously held confidentially. The Company maintains an active exploration program and is pleased with the progress made to date in capturing additional resource.
- Cash from operating activities was $208 million ($1.45 per basic share) in the third quarter. Adjusted funds flow was $234 million ($1.64 per basic share). (2)
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Free cash flow was $19 million ($0.13 per basic share) in the third quarter. (2)
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Third quarter capital expenditures totaled $199 million. Key activities included:
- Grande Prairie Region (Montney) - nine (9.0 net) wells drilled, five (5.0 net) wells completed and eight (8.0 net) wells brought on production;
- Kaybob Region (Duvernay) - two (2.0 net) wells drilled and three (3.0 net) wells brought on production; and
- Central Alberta and Other Region (Duvernay) - three (3.0 net) wells drilled in Willesden Green and advancement of the liquids handling expansion at Paramount's Leafland natural gas processing plant.
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Initial results at two of the Company's most recent pads brought on production, the Karr 7-33S five-well Montney pad and the Kaybob North 4-13S three-well Duvernay pad, have been exceptional, significantly exceeding type curve.
- Asset retirement obligations settled in the third quarter totaled $14 million. Activities in the quarter included the abandonment of seven wells and reclamation of seven well sites.
- At September 30, 2023, net debt was $44 million and Paramount's $1.0 billion revolving credit facility was undrawn. (1)
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The carrying value of the Company's investments in securities at September 30, 2023 was $578 million.
- Subsequent to September 30, 2023, the Company monetized certain WTI liquids hedges that were outstanding at quarter end for cash consideration of approximately $13 million, which will be included in fourth quarter 2023 adjusted funds flow. Paramount also hedged 10,000 Bbl/d of 2024 liquids sales volumes at an average WTI price of CAD$109.50/Bbl.
UPDATED 2023 GUIDANCE
Third quarter sales volumes were in-line with expectations. Paramount expects average fourth quarter 2023 sales volumes to be between 100,000 boepd and 103,000 boepd (47% liquids), resulting in average second half 2023 and annual 2023 sales volumes in the range of previous guidance. Fourth quarter 2023 sales volumes guidance includes the impact of the previously disclosed 11 day planned outage of the third-party Wapiti natural gas processing plant (the "Wapiti Plant") in October that was rescheduled from earlier in the year due to the Alberta wildfires.
Third quarter capital expenditures were also in-line with expectations. Paramount is narrowing the range of its 2023 capital expenditure guidance to $725 million to $750 million (~50% to growth) from previous guidance of $700 million to $750 million. The narrowing of the range reflects year-to-date spending and anticipated costs for remaining activities to be completed during the fourth quarter.
The Company is updating its forecast of 2023 free cash flow to approximately $165 million from $185 million to incorporate third quarter results and the slightly higher mid-point of forecast capital expenditures. (2)
2024 BUDGET AND GUIDANCE
Paramount is budgeting 2024 capital expenditures of between $830 million and $890 million, $60 million at midpoint more than the previous high range of preliminary guidance. This increase is largely related to (i) the addition of a five-well Willesden Green Duvernay pad to be drilled in the fourth quarter of 2024, (ii) the acceleration of the drilling of a four-well Kaybob North Duvernay pad into the fourth quarter of 2024, and (iii) slightly higher budgeted overall drilling, completion, equipping and tie-in costs due to persistent inflationary pressures.
The Company remains committed to prudently managing its capital resources and has the flexibility to adjust its capital expenditure plans depending on commodity prices and other factors.
The 2024 capital budget at midpoint is broken down as follows:
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$415 million (~50%) to sustaining capital and maintenance activities;
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$45 million (~5%) to growth capital associated with production benefits in 2024; and
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$400 million (~45%) to growth capital associated with production benefits largely in 2025 and beyond, including approximately $150 million related to the construction of the Company's new processing facility in Willesden Green.
The breakdown by region at midpoint is as follows:
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Grande Prairie Region - $425 million;
- Kaybob Region - $185 million; and
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Central Alberta and Other Region - $250 million.
The breakdown by category at midpoint is as follows:
- Drilling, completion, equipping and tie-ins - $575 million;
- Facilities and gathering - $280 million; and
- Corporate and other - $5 million.
The majority of the facilities and gathering capital budgeted for 2024 relates to the first phase of the Company's new processing facility in Willesden Green. This first phase will provide an estimated 50 MMcf/d of raw gas and 10,000 Bbl/d of raw liquids handling capacity upon completion to support Paramount's Willesden Green Duvernay development, with start-up expected in the fourth quarter of 2025.
The Company has budgeted $40 million for abandonment and reclamation activities in 2024.
Average sales volumes in 2024 are expected to be between 108,000 boepd and 116,000 boepd (47% liquids), 3,000 boepd lower at midpoint compared to the previous preliminary guidance primarily due to (i) an increase in planned downtime by the third-party operator of the Wapiti Plant, (ii) a reduction in Paramount's assumption for on-time at the Wapiti Plant, (iii) higher than previously forecast gas lift requirements in the Grande Prairie Region, and (iv) a decision to delay the onstream timing of the second four-well pad in Willesden Green.
First half 2024 average sales volumes are expected to be between 101,000 boepd and 111,000 boepd (46% liquids), with second quarter sales volumes being impacted by a 21 day planned turnaround at the Wapiti Plant. Second half 2024 average sales volumes are expected to be between 115,000 boepd and 121,000 boepd (47% liquids).
Paramount is updating its forecast of 2024 free cash flow to approximately $350 million from $445 million to reflect updated capital expenditures, sales volumes, commodity prices and other assumptions.
The Company's midpoint 2024 sustaining and maintenance capital program and regular monthly dividend would remain fully funded down to an average WTI price in 2024 of about US$55/Bbl. (2) The Company's total midpoint 2024 capital program and regular monthly dividend would remain fully funded down to an average WTI price in 2024 of about US$71/Bbl. (2)
FIVE-YEAR OUTLOOK
Paramount is providing its five-year outlook for the period from 2024 through to the end of 2028.(3) The Company anticipates midpoint cumulative free cash flow of approximately $2.8 billion (approximately $19.40 per basic share(4)) over the period. Paramount anticipates midpoint annual capital expenditures to range between approximately $850 million and $1.0 billion through the period 2024 to 2028, with sales volumes increasing to between 140,000 boepd and 155,000 boepd in 2028, representing a compound annual production growth rate of 8% to 10% between 2023 and 2028. With estimated tax pools of almost $4 billion at September 30, 2023, the majority of which are immediately deductible, Paramount does not forecast cash tax in its five-year outlook until 2027.
NOVEMBER DIVIDEND
Paramount's Board of Directors has declared a cash dividend of $0.125 per Common Share that will be payable on November 30, 2023 to shareholders of record on November 15, 2023. The dividend will be designated as an "eligible dividend" for Canadian income tax purposes.
REVIEW OF OPERATIONS
GRANDE PRAIRIE REGION
Sales volumes and netbacks in the Grande Prairie Region are summarized below:
Sales volumes in the Grande Prairie Region averaged a record 74,381 boepd (50% liquids) in the third quarter compared to 66,950 boepd (51% liquids) in the second quarter of 2023. The quarter-over-quarter increase was primarily attributable to the recovery from the second quarter wildfire related outages and curtailments along with new well production from the three (3.0 net) well Wapiti 1-27 pad that came onstream in late-July and the five (5.0 net) well Karr 7-33S pad that came onstream in mid-September. A number of unplanned outages and curtailments at third-party operated midstream facilities negatively impacted third quarter sales volumes by approximately 5,400 boepd.
Development activities in the Grande Prairie Region in the third quarter included the drilling of nine (9.0 net) Montney wells and the completion of five (5.0 net) Montney wells.
At Karr, all five (5.0 net) wells on the 7-33S pad were brought on production late in the third quarter. Production results from these wells to date have significantly exceeded expectations, averaging gross 30-day peak production per well of 2,554 boepd (4.8 MMcf/d of shale gas and 1,749 Bbl/d of NGLs) with an average CGR of 362 Bbl/MMcf. (1)
At Wapiti, all three (3.0 net) wells on the 1-27 pad were brought on production in the third quarter. Production results from these wells are in-line with expectations, averaging gross 30-day peak production per well of 1,187 boepd (2.7 MMcf/d of shale gas and 730 Bbl/d of NGLs) with an average CGR of 266 Bbl/MMcf. (1) More recently, Paramount began flow testing the eight (8.0 net) well 8-15 pad at Wapiti. All eight wells are expected to be brought on production through permanent facilities in November. The Company recently finished drilling the three (3.0 net) well 6-36 pad at Karr and is close to concluding drilling operations on the eight (8.0 net) well 14-5 pad at Wapiti. Completion operations at the Karr 6-36 pad have commenced and all three wells are expected to be brought on production in the fourth quarter. Completion operations at the Wapiti 14-5 pad are anticipated to commence in mid-2024. Paramount plans to commence drilling at the four (4.0 net) well Karr 7-33N pad, four (4.0 net) well Karr 15-24S pad and seven (7.0 net) well Wapiti 2-18 pad in the fourth quarter of 2023.
Paramount has expanded its core Montney land position in the Grande Prairie Region through the addition of 10 net sections of new land at Karr and Wapiti. The Company has also disclosed the location of a further 10 net sections at Wapiti that were previously held confidentially. The Company maintains an active exploration program and is pleased with the progress made to date in capturing additional resource.
In 2024, the Company plans to drill 41 (41.0 net) wells and bring on production 36 (36.0 net) wells in the Grande Prairie Region, which is expected to result in annual average sales volumes of between 75,000 boepd and 82,000 boepd. Over the first half of 2024, Paramount plans to drill 19 (19.0 net) wells, complete 27 (27.0 net) wells and bring onstream eight (8.0 net) wells. In the second half of 2024, Paramount plans to drill 22 (22.0 net) wells, complete 9 (9.0 net) wells and bring onstream 28 (28.0 net) wells. These plans include the commencement of development activities in the western portion of the Wapiti field where a new compressor node is being installed and commissioned to accommodate the tie-in of a seven-well pad in the second half of 2024 as well as future well development in the area. This portion of the Wapiti field is proximal to the Montney lands previously held confidentially.
The third-party operator of the Wapiti Plant has notified Paramount of a planned increase in the frequency of maintenance outages, with the stated objective of reducing the frequency and severity of unplanned outages in the future. This includes two outages in 2024 (a 21 day full outage in the second quarter and an 8 day 50% curtailment in the fourth quarter). Paramount's 5-year outlook now incorporates a lower on-time factor for the Wapiti Plant, the 2024 planned outages and 15 days of annual planned outages thereafter.
KAYBOB REGION
Kaybob Region sales volumes averaged 17,027 boepd (32% liquids) in the third quarter compared to 13,238 boepd (24% liquids) in the second quarter of 2023. Sales volumes were higher in the third quarter due to the recovery from the wildfire related outages, including the resumption of production from wells that remained shut-in at the end of the second quarter. Sales volumes in the third quarter also benefited from new well production from the three (3.0 net) well Kaybob North Duvernay 4-13S pad that was brought onstream in July. Third quarter sales volumes were impacted by the planned five-year turnaround at the Company's Kaybob 8-9 natural gas processing plant that lasted approximately three weeks.
Production from the three well 4-13S pad has been very strong, averaging gross 30-day peak production per well of 1,601 boepd (1.2 MMcf/d of shale gas and 1,403 Bbl/d of NGLs) with an average CGR of 1,177 Bbl/MMcf.(1) These results are among the best ever recorded for Duvernay wells in the area based on public data, confirming Paramount's decision to begin the active development of its extensive land base. The Company expects to grow Kaybob North Duvernay sales volumes from approximately 2,000 boepd in 2023 to as high as 14,000 boepd within its five-year outlook.
Development activities in the third quarter included the drilling of two wells on the Kaybob North Duvernay six (6.0 net) well 15-7N pad. Drilling of the remaining four wells is ongoing, with completion operations and tie-ins to commence in the fourth quarter of 2023. The Company continues to apply past learnings from the drilling of long reach lateral wells and has once again set a new company record with one of the wells on the 15-7N pad reaching approximately 8,100 meters of total measured depth with a lateral length of approximately 4,800 meters. All six wells are anticipated to be brought onstream in the first quarter of 2024.
Paramount expects annual average Kaybob Region sales volumes to exceed 20,000 boepd in 2024. The Company's 2024 development plans in the Kaybob North Duvernay area consist of the drilling of 11 (11.0 net) wells, the bringing on production of 11 (11.0 net) wells and the commencement of the drilling of a 4 (4.0 net) well pad that has been accelerated into the fourth quarter of 2024. Paramount also plans to further enhance its existing facility infrastructure in 2024 to support future Duvernay development, maximize field netbacks and enhance full cycle returns.
CENTRAL ALBERTA AND OTHER REGION
Central Alberta and Other Region sales volumes averaged 7,236 boepd (30% liquids) in the third quarter compared to 8,055 boepd (30% liquids) in the second quarter 2023.
The drilling of the four (4.0 net) Duvernay wells at the 4-7N pad in Willesden Green was recently concluded. Completion operations have commenced and first production is anticipated to occur in the first quarter of 2024 to coincide with the start-up of the new liquids handling expansion at Paramount's Leafland natural gas processing plant.
In 2024, the Company plans to grow annual average sales volumes in the Central Alberta and Other Region to over 10,000 boepd by bringing eight (8.0 net) Duvernay wells on production in the Willesden Green area. The drilling of an additional four (4.0 net) Duvernay wells off of the existing 4-7 pad is now anticipated to commence in the first quarter of 2024 and all four wells are expected to be brought on production in the second half of 2024. Paramount also plans to commence the drilling of an additional five (5.0 net) Duvernay wells at the 11-1S pad.
Construction of the Company's previously announced second natural gas processing facility at Willesden Green is set to commence in 2024, with start-up expected in the fourth quarter of 2025. The first phase of this new facility will provide an estimated 50 MMcf/d of raw gas and 10,000 Bbl/d of raw liquids handling capacity to support the Willesden Green Duvernay development. It is anticipated that the new facility will ultimately be capable of handling approximately 150 MMcf/d of raw gas and 30,000 Bbl/d of raw liquids, and be constructed in three phases of approximately 50 MMcf/d of raw gas handling and 10,000 Bbl/d of raw liquids handling each.
HEDGING
The Company's commodity and foreign exchange contracts are summarized below:
ABOUT PARAMOUNT
Paramount is an independent, publicly traded, liquids-rich natural gas focused Canadian energy company that explores for and develops both conventional and unconventional petroleum and natural gas, 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 Common Shares are listed on the Toronto Stock Exchange under the symbol "POU".
Paramount's third quarter 2023 results, including Management's Discussion and Analysis and the Company's Consolidated Financial Statements, can be obtained on SEDAR+ at
www.sedarplus.ca
or on Paramount's website at
www.paramountres.com/investors/financial-shareholder-reports
.
A summary of historical financial and operating results is also available on Paramount's website at
www.paramountres.com/investors/financial-shareholder-reports
.
Financial and operating results
(1)
($ millions, except as noted) Q3 2023 Q2 2023 Q3 2022
Net income 87.2 74.2 221.9
per share - basic ($/share) 0.61 0.52 1.57
per share - diluted ($/share) 0.59 0.50 1.51
Cash from operating activities 207.6 172.2 248.9
per share - basic ($/share) 1.45 1.20 1.76
per share - diluted ($/share) 1.40 1.16 1.69
Adjusted funds flow 234.2 178.7 334.3
per share - basic ($/share) 1.64 1.25 2.37
per share - diluted ($/share) 1.58 1.21 2.27
Free cash flow 18.5 30.5 137.5
per share - basic ($/share) 0.13 0.21 0.97
per share - diluted ($/share) 0.12 0.21 0.93
Total assets 4,305.1 4,106.6 4,261.3
Investments in securities 577.5 489.9 451.3
Long-term debt - - 306.3
Net (cash) debt 44.4 2.3 347.0
Common shares outstanding (millions) (2) 143.4 143.1 141.2
Sales volumes (3)
Natural gas (MMcf/d) 323.1 290.2 315.9
Condensate and oil (Bbl/d) 38,161 34,230 38,804
Other NGLs (Bbl/d) 6,627 5,648 6,144
Total (boepd) 98,644 88,243 97,601
% liquids 45 % 45 % 46 %
Grande Prairie Region (boepd) 74,381 66,950 65,981
Kaybob Region (boepd) 17,027 13,238 24,021
Central Alberta & Other Region (boepd) 7,236 8,055 7,599
Total (boepd) 98,644 88,243 97,601
Netback ($/Boe) (4) ($/Boe) (4) ($/Boe) (4)
Natural gas revenue 79.3 2.67 64.1 2.43 185.7 6.39
Condensate and oil revenue 362.9 103.36 294.1 94.42 401.8 112.56
Other NGLs revenue 20.5 33.64 15.9 30.86 28.9 51.20
Royalty income and other revenue 1.1 - 0.3 - 2.5 -
Petroleum and natural gas sales 463.8 51.11 374.4 46.63 618.9 68.92
Royalties (75.2) (8.28) (41.2) (5.12) (89.4) (9.96)
Operating expense (113.9) (12.55) (104.6) (13.03) (110.0) (12.25)
Transportation and NGLs processing (31.2) (3.44) (33.6) (4.19) (34.4) (3.83)
Sales of commodities purchased (5) 42.1 4.64 47.7 5.94 77.9 8.67
Commodities purchased (5) (39.2) (4.32) (49.3) (6.15) (76.4) (8.51)
Netback 246.4 27.16 193.4 24.08 386.6 43.04
Risk management contract settlements 0.2 0.02 (2.7) (0.33) (44.4) (4.94)
Netback including risk management contract settlements 246.6 27.18 190.7 23.75 342.2 38.10
Capital expenditures
Grande Prairie Region 117.6 66.0 133.5
Kaybob Region 41.4 45.5 30.8
Central Alberta & Other Region 35.5 17.1 0.2
Fox Drilling and Cavalier Energy 4.9 7.6 10.8
Corporate (0.5) 4.0 9.0
Total 198.9 140.2 184.3
Asset retirement obligations settled 14.0 5.9 10.2
We seek Safe Harbor.
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