Paramount Resources Ltd. Announces Q3 Results and 2022 Capital Budget

CALGARY, AB, Nov. 4, 2021 /CNW/ – Paramount Resources Ltd. (“Paramount” or the “Company”) (TSX: POU) is pleased to announce strong third quarter 2021 financial and operating results, upwardly revised 2021 guidance and its approved 2022 capital expenditure budget that is forecast to generate approximately $455 million in free cash flow in 2022 on production of between 90,000 Boe/d and 94,000 Boe/d (46 percent liquids).(1)(2) The Company is also pleased to announce a tripling of its regular monthly dividend from $0.02 to $0.06 per class A common share (“Common Share”) effective November 2021.

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Q3 2021 HIGHLIGHTS

  • Sales volumes averaged 82,150 Boe/d (45 percent liquids) in the third quarter of 2021.
    • Karr sales volumes averaged 39,878 Boe/d (52 percent liquids), in line with expectations.
    • Wapiti sales volumes averaged 14,651 Boe/d (62 percent liquids), approximately 4,000 Boe/d higher than in the second quarter despite a 10-day scheduled plant outage. This 38 percent increase in production was mainly the result of new production from the seven well 6-4 pad that was brought onstream in July.
    • Early production rates at the two-well Willesden Green 4-7 pad brought onstream in July are extremely encouraging. Despite being restricted by facility constraints, average gross peak 30-day production per well was 1,498 Boe/d (3.3 MMcf/d of shale gas and 948 Bbl/d of NGLs) with an average CGR of 287 Bbl/MMcf.(3)
  • Cash from operating activities was $97.0 million in the third quarter. Adjusted funds flow was $148.4 million or $1.12 per basic share.(4) Free cash flow was $72.6 million.
  • Third quarter capital spending totaled $68.9 million and was focused on drilling and completion activities at Karr, Wapiti and the Willesden Green Duvernay.
    • Preliminary all-in lease construction, drilling, completion, equip and tie-in (collectively “DCET”) costs at the five-well Karr 5-16 East pad that was brought on production in late October 2021 averaged $6.3 million per well, approximately 15 percent lower than average DCET costs at the 5-16 West pad that was brought onstream in the fourth quarter of 2020.
    • The Company continues to achieve lower costs in its Karr and Wapiti drilling and completion programs despite emerging industry cost inflation by utilizing its wholly-owned Fox Drilling rigs and crews and securing fixed rates with certain service providers.
  • Per unit operating costs continue to decrease and averaged $11.02/Boe in the third quarter of 2021, down from $11.23/Boe in the second quarter and $11.63/Boe in the first quarter. Karr operating costs averaged $9.03/Boe in the third quarter of 2021.
  • Abandonment and reclamation expenditures in the third quarter totaled $6.9 million, net of $0.9 million in funding under the Alberta Site Rehabilitation Program (“ASRP”).
  • The Company implemented a regular monthly dividend in July and repurchased 197,500 Common Shares under its normal course issuer bid (“NCIB”) in the third quarter at an average price of $13.66 per share.
  • Paramount closed the sale of its non-operated Birch asset for proceeds of approximately $85 million.
  • The carrying value of the Company’s investments in securities at September 30, 2021 was approximately $300 million, approximately $75 million higher on a quarter over quarter basis.

UPDATED 2021 GUIDANCE

  • Paramount expects fourth quarter sales volumes to range between 85,000 Boe/d and 86,500 Boe/d (45 percent liquids).  As a result, full year 2021 sales volumes are expected to average approximately 82,000 Boe/d (44 percent liquids), achieving the high end of the previous guidance range of 80,000 Boe/d to 82,000 Boe/d, 1,000 Boe/d higher than the mid-point. 
  • The Company has added approximately $15 million of capital expenditures in the second half of 2021, which include additional activities at Wapiti to accelerate the achievement of targeted plateau production of 30,000 Boe/d into 2023 and further debottlenecking initiatives at Karr. Full year 2021 capital spending is now expected to be between $285 and $295 million.
  • Paramount is forecasting 2021 free cash flow of approximately $215 million, an increase of $30 million from previous guidance. The increase reflects year-to-date actual results, updated sales volumes guidance and revised commodity price and other assumptions for the fourth quarter of 2021.(1)
  • Year-end net debt to adjusted funds flow is forecast to be approximately 0.8x, below the Company’s previously targeted range of 1.0x to 2.0x.(2)

2022 BUDGET AND GUIDANCE

The Company’s 2022 capital budget is expected to range between $500 million and $540 million, excluding land acquisitions and abandonment and reclamation activities, an increase of $165 million at midpoint from preliminary guidance. The budget includes the acceleration of approximately $70 million in activities at Wapiti, $60 million to advance a number of high return opportunities in the Kaybob and Central Alberta & Other Regions and additional growth capital that will primarily benefit 2023 production.  Paramount 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.

Annual average sales volumes in 2022 are now expected to be between 90,000 Boe/d and 94,000 Boe/d (46 percent liquids), an increase of 6,000 Boe/d from previous preliminary guidance.

  • First half 2022 sales volumes are expected to average between 81,000 Boe/d and 85,000 Boe/d (44 percent liquids) after accounting for a planned 16-day full field outage at Karr for turnaround activities at third-party midstream facilities.
  • Second half 2022 sales volumes are expected to average between 99,000 Boe/d and 103,000 Boe/d (47 percent liquids) as numerous wells are brought onstream related to capital activities initiated earlier in 2022.

Paramount is forecasting approximately $455 million of free cash flow in 2022, $135 million higher than the Company’s prior preliminary guidance.(1)

The 2022 capital budget is broken down as follows at midpoint:

  • $290 million of sustaining capital and maintenance activities;
  • $160 million of growth capital associated with production benefits in 2022; and
  • $70 million of growth capital associated with production benefits largely in 2023.

The breakdown by region is as follows at midpoint:

  • Grande Prairie − $365 million;
  • Kaybob − $130 million;
  • Central Alberta & Other − $10 million; and
  • Corporate − $15 million

The Company has budgeted approximately $41 million for abandonment and reclamation activities in 2022. Approximately $8 million is to be funded directly through the ASRP, resulting in approximately $33 million net to Paramount. The majority of these funds will be directed to the Zama area.

FREE CASH FLOW PRIORITIES

Paramount’s free cash flow priorities continue to be (i) the achievement of targeted leverage levels, (ii) shareholder returns and (iii) incremental growth.

  • With strong 2021 performance and commodity prices, the Company expects year-end 2021 net debt to adjusted funds flow will be approximately 0.8x, below the previously targeted range of 1.0x to 2.0x.
  • The Company is reducing its targeted long-term leverage level to approximately $300 million in net debt. This target is expected to be achieved in the third quarter of 2022, implying a net debt to trailing 12-month adjusted funds flow ratio of less than 0.5x at the end of that quarter.(1)
  • Paramount implemented a regular monthly dividend of $0.02 per share in July 2021 and is tripling its monthly dividend beginning in November 2021 to $0.06 per share, implying a 10 percent payout ratio for 2022 and a 3.5 percent current dividend yield.(2)
  • Remaining 2022 free cash flow will be available to:
    • further augment shareholder returns through increases in the regular monthly dividend, special dividends or opportunistic repurchases of Common Shares under the NCIB; and
    • reinvest in incremental organic growth or strategic acquisitions.

Paramount has hedged approximately 23 percent of its 2022 midpoint forecast production to provide greater free cash flow certainty.  With these hedges, the Company’s 2022 capital program, targeted net debt reduction and $0.06 per share regular monthly dividend would remain fully funded down to an annual average WTI price in 2022 of approximately US$52.50/Bbl with no changes to the Company’s natural gas pricing assumptions.

PRELIMINARY 2023 GUIDANCE

Based on preliminary planning and current market conditions, Paramount anticipates 2023 capital spending, excluding land acquisitions and abandonment and reclamation activities, to range between $475 million and $525 million, broken down as follows at midpoint:

  • $330 million of sustaining capital and maintenance activities; and
  • $170 million of growth capital.

The breakdown by region is as follows at midpoint:

  • Grande Prairie − $295 million;
  • Kaybob − $170 million;
  • Central Alberta & Other − $25 million; and
  • Corporate − $10 million.

FIVE-YEAR OUTLOOK

To highlight Paramount’s free cash flow and production growth potential, the Company is providing an initial five-year outlook through to the end of 2026.  At current strip prices and subject to change as conditions evolve, the Company anticipates:

  • annual capital spending, excluding land acquisitions and abandonment and reclamation activities, of approximately $500 million;
  • a compound annual production growth rate of approximately 5 percent; and
  • cumulative free cash flow of over $2.7 billion.(2)

Paramount had total tax pools of approximately $4.7 billion as of September 30, 2021, including approximately $3.5 billion of immediately deductible non-capital loss and SR&ED pools.  At current strip prices, the Company does not expect to pay Canadian income taxes within the next five years.

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