POU Paramount Resources Ltd

CALGARY, AB, March 7, 2023 /CNW/ - Paramount Resources Ltd. ("Paramount" or the "Company") (TSX: POU) is pleased to report 2022 annual financial and operating results highlighted by record production, adjusted funds flow and free cash flow and substantial reserves additions.

HIGHLIGHTS

• The Company achieved record annual sales volumes of 88,672 Boe/d (45% liquids) in 2022. Fourth quarter sales volumes averaged 97,370 Boe/d (45% liquids), of which 64,434 Boe/d (51% liquids) was produced in the Grande Prairie Region. ⁽¹⁾
• Cash from operating activities was a record $1,050 million ($7.45 per basic share) in 2022 and $307 million ($2.17 per basic share) in the fourth quarter. ⁽²⁾
• Adjusted funds flow in 2022 was $1,171 million ($8.32 per basic share) and $341 million ($2.40 per basic share) in the fourth quarter, representing annual and quarterly records for the Company. ⁽²⁾
• Capital expenditures in 2022, which included the pre-ordering of approximately $25 million in materials for future development, totaled $655 million versus the $640 million upper range of prior guidance.
• The Company generated record annual free cash flow in 2022 of $471 million ($3.35 per basic share) compared to prior guidance of $500 million. Fourth quarter free cash flow was $162 million ($1.14 per basic share), also a quarterly record. ⁽²⁾
• Total proved ("TP") reserves increased 31% to 445 MMBoe with an NPV₁₀ of approximately $5.8 billion ($41.18 per basic share). Proved plus probable ("P+P") reserves increased 15% to 759 MMBoe with an NPV₁₀ of approximately $9.1 billion ($64.52 per basic share). ⁽³⁾
• Three-year average finding and development ("F&D") costs were $7.72/Boe for TP reserves and $4.24/Boe for P+P reserves. ⁽⁴⁾

• Paramount continued to successfully execute its strategy of accretive acquisitions and divestitures in 2022 and early 2023. The Company more than tripled its Willesden Green Duvernay land position in two acquisitions at a total cost of $98 million and realized compelling value for its Kaybob Smoky and Kaybob South Duvernay properties and a portion of its road infrastructure in dispositions that generated aggregate proceeds of $434 million.
• Paramount continues to deliver on its free cash flow priorities:
• • The Company achieved its net debt target of $300 million in October 2022 and then further reduced net debt to $161 million at year end, representing a $296 million year-over-year reduction. ⁽¹⁾
  • Paramount more than doubled its regular monthly dividend in 2022 to $0.125 per class A common share ("Common Share").
  • In January 2023, the Company paid a special cash dividend of $1.00 per Common Share and repaid all remaining drawings under its $1.0 billion revolving credit facility. At January 31, 2023, Paramount had a cash balance of approximately $110 million.
• The carrying value of the Company's investments in securities at December 31, 2022 was $557 million.

2022 RESERVES

• Proved developed producing ("PDP") reserves increased 28% year-over-year to 160 MMBoe. TP reserves were up 31% to 445 MMBoe. P+P reserves increased 15% to 759 MMBoe.
• • In the Grande Prairie Region, where the majority of 2022 development activity occurred, PDP reserves were up 33% year-over-year, TP reserves were up 35% and P+P reserves were up 10%.
• With the significant reserves additions in 2022, the Company's reserves replacement ratios were 1.9x for PDP reserves, 4.0x for TP reserves and 3.7x for P+P reserves. ⁽²⁾
• Compared to 2021, the NPV₁₀ of the Company's:
• • PDP reserves increased 75% to $2.5 billion ($17.82 per basic share);
  • TP reserves increased 62% to $5.8 billion ($41.18 per basic share); and
  • P+P reserves increased 46% to $9.1 billion ($64.52 per basic share).
• 2022 F&D costs were: ⁽³⁾
• • $9.58/Boe for PDP reserves (4.5x recycle ratio);
  • $14.11/Boe for TP reserves (3.0x recycle ratio); and
  • $14.87/Boe for P+P reserves (2.9x recycle ratio).
• Three-year average F&D costs were: ⁽⁴⁾
• • $8.13/Boe for PDP reserves (3.4x recycle ratio);
  • $7.72/Boe for TP reserves (3.5x recycle ratio); and
  • $4.24/Boe for P+P reserves (6.5x recycle ratio).

REVISED GUIDANCE

Paramount is reaffirming its 2023 and preliminary 2024 sales volumes guidance, as well as its five-year outlook for sales volumes. Paramount is increasing its 2023 guidance for capital expenditures by $50 million as a result of anticipated inflationary cost pressures. The Company is reaffirming its preliminary 2024 guidance and five-year outlook for capital expenditures. Capital expenditures in 2023 and 2024 are expected to be evenly split between: (i) sustaining and maintenance capital; and (ii) growth. Paramount is revising its free cash flow expectations to reflect lower natural gas prices, updated capital expenditures in 2023 and revised foreign exchange rates and other assumptions. 

The Company's midpoint 2023 sustaining and maintenance capital program and regular monthly dividend would remain fully funded down to an average WTI price of about US$55/Bbl in 2023. The Company's total midpoint 2023 capital program and regular monthly dividend would remain fully funded down to an average WTI price of about US$71/Bbl in 2023. ⁽²⁾ Paramount remains committed to prudently managing its capital resources and has the flexibility to adjust its capital expenditure plans depending on commodity prices, inflationary cost pressures and other factors.

MARCH DIVIDEND

Paramount's Board of Directors has declared a cash dividend of $0.125 per Common Share that will be payable on March 31, 2023 to shareholders of record on March 15, 2023. The dividend will be designated as an "eligible dividend" for Canadian income tax purposes. 

HEDGING

The Company's current commodity and foreign currency exchange contracts are summarized below:

COMPLETE ANNUAL RESULTS

Paramount's: (i) complete annual results, including a review of operations, the Company's audited consolidated financial statements as at and for the year ended December 31, 2022 (the "Consolidated Financial Statements") and the accompanying management's discussion and analysis (the "MD&A"); and (ii) 2022 annual information form, which contains additional important information concerning the Company's reserves, properties and operations, can be obtained on SEDAR at www.sedar.com 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.

ANNUAL GENERAL MEETING

Paramount will hold its annual general meeting of shareholders on Wednesday, May 3, 2023 at 10:30 a.m. (Calgary time) in the McMurray Room of the Calgary Petroleum Club, located at 319 – 5^th Avenue S.W., Calgary Alberta.

FINANCIAL AND OPERATING RESULTS ⁽¹⁾

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".

PRODUCT TYPE INFORMATION

This press release includes references to sales volumes of "natural gas", "condensate and oil", "NGLs", "Other NGLs" and "liquids".  "Natural gas" refers to conventional natural gas and shale gas combined.  "Condensate and oil" refers to condensate, light and medium crude oil and tight oil combined.  "NGLs" refers to condensate and Other NGLs combined.  "Other NGLs" refers to ethane, propane and butane.   "Liquids" refers to condensate and oil and Other NGLs combined.  Below is a complete breakdown of sales volumes for applicable periods by the specific product types of shale gas, conventional natural gas, NGLs, tight oil and light and medium crude oil.  Numbers may not add due to rounding.

The Company forecasts that 2023 annual sales volumes will average between 100,000 Boe/d and 105,000 Boe/d (54% shale gas and conventional natural gas combined, 40% light and medium crude oil, tight oil and condensate combined and 6% other NGLs). First half 2023 sales volumes are expected to average between 96,000 Boe/d and 101,000 Boe/d (55% shale gas and conventional natural gas combined, 38% light and medium crude oil, tight oil and condensate combined and 7% other NGLs). Second half 2023 sales volumes are expected to average between 104,000 Boe/d and 109,000 Boe/d (53% shale gas and conventional natural gas combined, 41% light and medium crude oil, tight oil and condensate combined and 6% other NGLs). The Company's preliminary 2024 guidance provides for annual sales volumes that will average between 110,000 Boe/d and 120,000 Boe/d (52% shale gas and conventional natural gas combined, 41% light and medium crude oil, tight oil and condensate combined and 7% other NGLs). 

SPECIFIED FINANCIAL MEASURES

Non-GAAP Financial Measures

Netback, netback including risk management contract settlements and F&D capital are non-GAAP financial measures. These measures are not standardized measures under IFRS and might not be comparable to similar financial measures presented by other issuers. These measures should not be considered in isolation or construed as alternatives to their most directly comparable measure disclosed in the Company's primary financial statements or other measures of financial performance calculated in accordance with IFRS.

Netback equals petroleum and natural gas sales (the most directly comparable measure disclosed in the Company's primary financial statements) plus sales of commodities purchased less royalties, operating expense, transportation and NGLs processing expense and commodities purchased. Sales of commodities purchased and commodities purchased are treated as corporate items and not allocated to individual regions or properties. Netback is used by investors and management to compare the performance of the Company's producing assets between periods.

Netback including risk management contract settlements equals netback after including (or deducting) risk management contract settlements received (paid). Netback including risk management contract settlements is used by investors and management to assess the performance of the producing assets after incorporating management's risk management strategies.

Refer to the table under the heading "Financial and Operating Results" in this press release for the calculation of netback and netback including risk management contract settlements for the years ended December 31, 2022 and 2021 and for the three months ended December 31, 2022 and 2021. 

F&D capital is a measure used in determining F&D costs and is comprised of capital expenditures (the most directly comparable measure disclosed in the Company's primary financial statements) for the year, excluding expenditures related to Fox Drilling and Cavalier Energy and corporate capital expenditures, plus the change from the prior year in estimated future development capital included in the applicable reserves evaluation prepared by McDaniel.  F&D capital is used by management and investors, in calculating F&D costs, to represent the amount of capital invested in oil and gas exploration and development projects to generate reserves additions.  Set out below is the calculation of F&D capital for the years ended December 31, 2022, 2021 and 2020.  Columns may not add due to rounding.

Non-GAAP Ratios

F&D costs, recycle ratio and netback and netback including risk management contract settlements presented on a $/Boe or $/Mcf basis are non-GAAP ratios as they each have a non-GAAP financial measure as a component. These measures are not standardized measures under IFRS and might not be comparable to similar financial measures presented by other issuers. These measures should not be considered in isolation or construed as alternatives to their most directly comparable measure disclosed in the Company's primary financial statements or other measures of financial performance calculated in accordance with IFRS.

F&D costs are calculated by dividing: (i) F&D capital (a non-GAAP financial measure) for the applicable reserves category and period; by (ii) the net changes to reserves in such reserves category from the prior period from extensions/improved recovery, technical revisions and economic factors, expressed in Boe. F&D costs are a measure commonly used by management and investors to assess the relationship between capital invested in oil and gas exploration and development projects and reserve additions. Readers should refer to the information under the heading "Reserves and Other Oil and Gas Information – Reserves Reconciliation" in the Company's annual information forms for the years ended December 31, 2022, 2021 and 2020, which are available on www.sedar.com or at www.paramountres.com, for a description of the net changes to reserves in each reserves category from the prior year. See "Advisories – Oil and Gas Definitions and Measures" below for more information about this measure. 

Recycle ratio is calculated by dividing the netback (a non-GAAP financial measure) per Boe for the period by the F&D costs for the period. Recycle ratio is used by investors and management to compare the cost of adding reserves to the netback realized from production. See "Advisories – Oil and Gas Definitions and Measures" for more information about this measure.

Set out below are the applicable F&D costs and recycle ratios for 2022, 2021 and 2020. 

Netback on a $/Boe or $/Mcf basis is calculated by dividing netback (a non-GAAP financial measure) for the applicable period by the total production during the period in Boe or Mcf. Netback including risk management contract settlements on a $/Boe or $/Mcf basis is calculated by dividing netback including risk management contract settlements for the applicable period by the total production during the period in Boe or Mcf. These measures are used by investors and management to assess netback and netback including risk management contract settlements on a unit of production basis.

Capital Management Measures

Adjusted funds flow, free cash flow and net debt are capital management measures that Paramount utilizes in managing its capital structure. These measures are not standardized measures and therefore may not be comparable with the calculation of similar measures by other entities. Refer to Note 18 – Capital Structure in the Consolidated Financial Statements for: (i) a description of the composition and use of these measures, (ii) reconciliations of adjusted funds flow and free cash flow to cash from operating activities, the most directly comparable measure disclosed in the Company's primary financial statements, for the years ended December 31, 2022 and 2021 and (iii) a calculation of net debt as at December 31, 2022 and 2021.

The following is a reconciliation of adjusted funds flow to cash from operating activities, the most directly comparable measure disclosed in the Company's primary financial statements, for the three months ended December 31, 2022 and 2021:

The following is a reconciliation of free cash flow to cash from operating activities, the most directly comparable measure disclosed in the Company's primary financial statements, for the three months ended December 31, 2022 and 2021: 

Supplementary Financial Measures

This press release contains supplementary financial measures expressed as: (i) cash from operating activities, adjusted funds flow and free cash flow on a per share – basic and per share – diluted basis and (ii) revenue, petroleum and natural gas sales, royalties, operating expenses, transportation and NGLs processing expenses, sales of commodities purchased and commodities purchased on a $/Bbl, $/Mcf or $/Boe basis.

Cash from operating activities, adjusted funds flow and free cash flow on a per share – basic basis are calculated by dividing cash from operating activities, adjusted funds flow or free cash flow, as applicable, over the referenced period by the weighted average basic shares outstanding during the period determined under IFRS. Cash from operating activities, adjusted funds flow and free cash flow on a per share – diluted basis are calculated by dividing cash from operating activities, adjusted funds flow or free cash flow, as applicable, over the referenced period by the weighted average diluted shares outstanding during the period determined under IFRS. 

Revenue, petroleum and natural gas sales, royalties, operating expenses, transportation and NGLs processing expenses, sales of commodities purchased and commodities purchased on a $/Bbl, $/Mcf or $/Boe basis are calculated by dividing the revenue, petroleum and natural gas sales, royalties, operating expenses, transportation and NGLs processing expenses, sales of commodities purchased and commodities purchased, as applicable, over the referenced period by the aggregate applicable units of production (Bbl, Mcf or Boe) during such period.

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:

• forecast sales volumes for 2023 and certain periods therein;
• planned capital expenditures in 2023;
• planned abandonment and reclamation expenditures in 2023;
• forecast free cash flow in 2023;
• preliminary 2024 sales volumes, capital expenditure and free cash flow guidance;
• the Company's five-year outlook for 2027 average annual sales volumes, capital expenditures and cumulative free cash flow;
• the expectation that capital expenditures in 2023 and 2024 will be evenly split between sustaining and maintenance capital and growth; and
• the payment of future dividends under the Company's monthly dividend program.

Statements relating to reserves are also deemed to be forward looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

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 commodity prices;
• the impact of the Russian invasion of the Ukraine;
• royalty rates, taxes and capital, operating, general & administrative and other costs;
• foreign currency exchange rates, interest rates and the rate and impacts of inflation;
• general business, economic and market conditions;
• the performance of wells and facilities;
• the availability to Paramount of the required capital to fund its exploration, development and other operations and meet its commitments and financial obligations;
• the ability of Paramount to obtain equipment, materials, services and personnel in a timely manner and at expected and acceptable costs to carry out its activities;
• the ability of Paramount to secure adequate processing, transportation, fractionation and storage capacity on acceptable terms and the capacity and reliability of facilities;
• the ability of Paramount to market its production successfully;
• the ability of Paramount and its industry partners to obtain drilling success (including in respect of anticipated production volumes, reserves additions, product 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 reasonable based 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:

• fluctuations in commodity prices;
• changes in capital spending plans and planned exploration and development activities;
• the potential for changes to preliminary 2024 sales volumes, capital expenditure and free cash flow guidance prior to finalization;
• the potential for changes to the Company's five-year outlook for 2027 average annual sales volumes, capital expenditures and cumulative free cash flow;
• changes in foreign currency exchange rates, interest rates and the rate of inflation;
• the uncertainty of estimates and projections relating to production, future revenue, free cash flow, reserve additions, product yields (including condensate to natural gas ratios), resource recoveries, royalty rates, taxes and costs and expenses;
• the ability to secure adequate 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, materials, services and personnel in a timely manner and at expected and acceptable costs, including the potential effects of inflation and supply chain disruptions;
• 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 from operating activities to fund, or to otherwise finance, planned exploration, development and operational activities and meet current and future commitments and obligations (including 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;
• uncertainties as to the timing and cost of future abandonment and reclamation obligations and potential liabilities for environmental damage and contamination;
• uncertainties regarding Indigenous claims and in maintaining relationships with local populations and other stakeholders;
• the outcome of existing and potential lawsuits, insurance claims, 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.

There are risks that may result in the Company changing, suspending or discontinuing its monthly dividend program, including changes to free cash flow, operating results, capital requirements, financial position, market conditions or corporate strategy and the need to comply with requirements under debt agreements and applicable laws respecting the declaration and payment of dividends. There are no assurances as to the continuing declaration and payment of future dividends by the Company or the amount or timing of any such dividends.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled "Risk Factors" in Paramount's annual information form for the year ended December 31, 2022, which is available on SEDAR at www.sedar.com or on the Company's website at www.paramountres.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.

Certain forward-looking information in this press release, including forecast free cash flow in 2023 and future periods, may also constitute a "financial outlook" within the meaning of applicable securities laws. A financial outlook involves statements about Paramount's prospective financial performance or position and is based on and subject to the assumptions and risk factors described above in respect of forward-looking information generally as well as any other specific assumptions and risk factors in relation to such financial outlook noted in this press release. Such assumptions are based on management's assessment of the relevant information currently available and any financial outlook included in this press release is provided for the purpose of helping readers understand Paramount's current expectations and plans for the future. Readers are cautioned that reliance on any financial outlook may not be appropriate for other purposes or in other circumstances and that the risk factors described above or other factors may cause actual results to differ materially from any financial outlook.

Reserves Data

Reserves data set forth in this press release is based upon an evaluation of the Company's reserves prepared by McDaniel & Associates Consultants Ltd. ("McDaniel") dated March 6, 2023 and effective December 31, 2022 (the "McDaniel Report"). The reserves referenced in this press release are gross reserves. The price forecast used in the McDaniel Report is an average of the January 1, 2023 price forecasts for McDaniel and GLJ Petroleum Consultants Ltd. and the December 31, 2022 price forecast of Sproule Associates Ltd. The estimates of reserves contained in the McDaniel Report and referenced in this press release are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates contained in the McDaniel Report and referenced in this press release. There is no assurance that the forecast prices and costs assumptions used in the McDaniel Report will be attained, and variances could be material. Estimated future net revenue does not represent fair market value. The estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effects of aggregation. The reserves referenced in this press release include reserves associated with the Kaybob Smoky and Kaybob South Duvernay properties that were subsequently disposed of in January 2023. Readers should refer to the Company's annual information form for the year ended December 31, 2022, which is available on SEDAR at www.sedar.com or on Paramount's website at www.paramountres.com, for a complete description of the McDaniel Report (including reserves by the specific product types of shale gas, conventional natural gas, NGLs, tight oil and light and medium crude oil) and the material assumptions, limitations and risk factors pertaining thereto. The annual information form also contains a description of the reserves associated with the Kaybob Smoky and Kaybob South Duvernay properties in the section titled "Reserves and Other Oil and Gas Information - Impact of Kaybob Disposition".

Oil and Gas Measures and Definitions

This press release contains disclosures expressed as "Boe", "$/Boe", "MMBoe" 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 year ended December 31, 2022, the value ratio between crude oil and natural gas was approximately 23:1. 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 contains metrics commonly used in the oil and natural gas industry. Each of these metrics is determined by the Company as set out below or elsewhere in this press release. The metrics are F&D costs, recycle ratio and reserves replacement ratio. These metrics do not have standardized meanings and may not be comparable to similar measures presented by other companies. As such, they should not be used to make comparisons. Management uses these oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare the Company's performance over time; however, such measures are not reliable indicators 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.

Refer to the "Specified Financial Measures" section of this press release for a description of the calculation and use of F&D costs and recycle ratio. Reserves replacement ratio is calculated by dividing: (i) the net changes in reserves from the prior year in the applicable category from technical revisions, economic factors and extensions/improved recovery, by (ii) the aggregate production during the year. Reserves replacement ratio is a measure commonly used by management and investors to assess the rate at which reserves depleted by production are being replaced.

Additional information respecting the Company's oil and gas properties and operations is provided in the Company's annual information form for the year ended December 31, 2022 which is available on SEDAR at www.sedar.com or on Paramount's website at www.paramountres.com.

SOURCE Paramount Resources Ltd.