Quarterly / Earnings Reports | Environmental, Health & Safety | Fourth Quarter (4Q) Update | Reserves | Financial Results | Capital Markets | Capital Expenditure | Capital Expenditure - 2020 | 2020 Guidance

Paramount Talks Fourth Quarter 2019 Results; 2020 Guidance

Email    |    Print    |    Bookmark

You Need to login first

   |    Wednesday,March 04,2020

Paramount Resources Ltd. reported its fourth quarter 2019 results.

Highlights:

• Annual sales volumes averaged 82,394 Boe/d (39 percent liquids) in 2019. Fourth quarter 2019 sales volumes averaged 85,411 Boe/d (42 percent liquids).⁽¹⁾ 
• Cash from operating activities was $256 million in 2019. Adjusted funds flow in 2019 was $299 million or $2.29 per share. Fourth quarter 2019 adjusted funds flow was $93.5 million or $0.71 per share.⁽²⁾
• Strong execution and a continued focus on cost control resulted in lower per well capital costs at both Karr and Wapiti. This allowed the Company to accelerate the drilling of two five-well pads and a water disposal well at Karr into the fourth quarter of 2019 (from the first quarter of 2020) and construct a crude oil terminal in the Kaybob Region in 2019, while still maintaining its 2019 base capital budget of $350 million. ⁽²⁾ 
• Base capital spending in 2019 totalled $351 million. The Company spent $29 million on abandonment and reclamation activities in 2019 compared to guidance of $32 million. Net cash proceeds from dispositions in 2019 totalled $393 million.
• At Karr, 5 (5.0 net) new Montney wells on the 4-24 pad were brought on production in the third quarter of 2019, averaging 1,047 Bbl/d per well of raw wellhead liquids (1,635 Boe/d raw wellhead total) over the first five months of production, resulting in an average condensate to gas ratio (“CGR”) of 298 Bbl/MMcf.⁽³⁾ In the fourth quarter of 2019, 3 (3.0 net) new Montney wells on the 1-19 pad were brought on production, averaging 1,542 Boe/d per well of gross peak 30-day production, with an average CGR of 486 Bbl/MMcf.⁽³⁾ Fourth quarter sales volumes at Karr averaged 24,943 Boe/d (54 percent liquids).
• At Wapiti, 11 (11.0 net) new Montney wells on the 9-3 pad were brought on production in 2019, but at restricted rates due to continued intermittent operations at the third-party Wapiti natural gas processing facility (the “Wapiti Plant”). All 12 (12.0 net) new Montney wells on the 5-3 pad were temporarily brought-on production through inline test facilities to recover completion fluids in late 2019. Two of these wells were later brought on production through permanent facilities. Currently, six of these wells are on production. Fourth quarter sales volumes at Wapiti averaged 11,498 Boe/d (66 percent liquids).
  • To date, average well performance at Wapiti has exhibited higher liquids production and lower natural gas production than originally anticipated. As a consequence, additional debottlenecking activities are planned for the second half of 2020 in order to accommodate higher fluid handling requirements.
  • Sales volumes have been, and continue to be, impacted by curtailment and reliability issues at the Wapiti Plant. The Company has lowered its run-time assumptions to account for this in 2020.
• Paramount completed the construction of a crude oil terminal in the Kaybob Region in the fourth quarter of 2019. This terminal is pipeline connected and has been commissioned and placed into service. It will provide Paramount the opportunity to increase netbacks for its Kaybob area crude and condensate volumes (including volumes which were until recently being trucked to third-party terminals) and capture incremental value in price differentials. Total capital expenditures associated with this project were approximately $13 million.
• Paramount closed the sale of its Karr 6-18 facility for gross cash proceeds of $332 million in August 2019. In December 2019, Paramount also closed the sale of certain natural gas-weighted properties in West Central Alberta for gross cash proceeds of $52 million.
• In 2019, the Company commenced its first area-based closure (“ABC”) abandonment and reclamation projects at both Hawkeye and Zama. Economies of scale gained under the ABC programs have resulted in significantly lower costs than prior estimates. In addition, property dispositions coupled with additional abandonment and reclamation spending in 2019 further reduced the Company’s asset retirement obligations (“ARO”). Paramount’s discounted ARO liability at December 31, 2019 was approximately $238 million lower than at year-end 2018.

2020 Guidance

• The Company’s capital budget for 2020 is expected to range between $350 million and $450 million, excluding land acquisitions and abandonment and reclamation activities, assuming average benchmark commodity prices of US$55.00/Bbl for WTI and CDN$1.80/GJ for AECO natural gas and a $0.76 CDN/US exchange rate. The capital plan remains flexible, with the lower end of the range reflecting the deferral of capital expenditures largely associated with production benefits in 2021. Activities denoted as “contingent” in the descriptions below highlight these activities. The 2020 program is largely focused on the ongoing development of Karr and Wapiti, where the Company plans to continue to grow its Montney production, resulting in higher liquids contribution and per-unit netbacks. Recently, world oil prices have been adversely affected by uncertainty surrounding the economic impact of the COVID-19 (Coronavirus) outbreak. The Company is committed to prudently managing its capital resources and may adjust its capital plans depending on commodity prices and other factors. Paramount may also determine to divest of assets or investments in securities to raise capital to reduce indebtedness or fund operations.
  • Activities at Karr in 2020 will focus on drilling and completion operations. Drilling operations on two five-well pads commenced in late 2019, with drilling of a third five-well pad and a contingent four-well pad planned in 2020. These 19 (19.0 net) new Montney wells (4 (4.0 net) of which are contingent) are planned to be staged and brought on production starting in the third quarter of 2020 following the completion of the Karr 6-18 facility expansion by the third-party owner. Paramount also plans to bring into service 3 (3.0 net) water disposal wells at Karr.
  • At Wapiti, Paramount plans to drill a total of 13 (13.0 net) new Montney wells and complete and bring onstream a five-well pad and a contingent eight-well pad. A tenure well that was drilled and completed in 2015 is also scheduled to be brought onstream in 2020. Drilling operations on 6 (6.0 net) additional new Montney wells on the contingent 6-27 pad are planned to commence in late 2020. In addition, several liquids debottlenecking initiatives are planned to alleviate second half 2020 fluid handling constraints.
• Paramount’s December 2019 sales volumes averaged approximately 80,000 Boe/d following the December 2019 disposition of Central Alberta and Other Region assets that had sales volumes of approximately 8,350 Boe/d.
• Paramount’s 2020 annual sales volumes are expected to average between 75,000 Boe/d and 80,000 Boe/d (43 percent liquids).
  • Sales volumes are anticipated to average between 70,000 Boe/d and 74,000 Boe/d in the first half of 2020. Early 2020 production was impacted by extremely cold weather conditions that resulted in unscheduled third-party outages and well freeze offs. More significantly, Wapiti sales volumes were impacted by the unscheduled full shut-down of the Wapiti Plant (due to an electrical failure) for approximately two weeks in January and are expected to be further impacted by an additional scheduled 7-day outage in March. There are two significant scheduled expansion-related outages, totaling two weeks, during the second quarter at the third-party Karr 6-18 facility. Production from a number of older pads at Karr has been temporarily backed out, which is also contributing to lower first half production. Paramount plans to install compression and pumping to minimize these impacts for the second half of 2020. There are also four scheduled turnarounds at other facilities in the Kaybob and Central Alberta and Other Regions planned during the second quarter of 2020.
  • Paramount expects production growth to resume in the second half of the year as volumes ramp up at Karr following the completion of the third-party Karr 6-18 facility expansion and as additional wells are brought onstream at Wapiti. Fourth quarter sales volumes are expected to average between 84,000 Boe/d and 90,000 Boe/d.
  • Average annual sales volumes would be impacted by approximately 1,000 Boe/d by the deferral of contingent capital expenditures.
• The Company has budgeted $39 million for abandonment and reclamation activities in 2020, the majority of which will be directed to Hawkeye and Zama. Over the course of the year, approximately 238 inactive wells are planned to be abandoned.

Reserves

• Despite the disposition of assets in the Central Alberta and Other Region in December 2019, Paramount’s 2019 proved plus probable (ʺP+Pʺ) reserves were relatively unchanged at 632 MMBoe compared to 634 MMBoe in 2018. The liquids weighting of the Company’s 2019 P+P reserves increased to 47 percent (from 43 percent in 2018).
• Paramount’s proved reserves decreased 14 percent to 335 MMBoe in 2019 compared to 391 MMBoe in 2018. The decrease was primarily a result of dispositions and changes in future development capital (primarily in the Kaybob Region).
• The Company’s reserves replacement ratio was 1.5 times for P+P reserves, net of dispositions.
• Total proved plus probable developed reserves were 151 MMBoe in 2019, with an estimated net present value of future net revenue of $1.2 billion (discounted at 10 percent, before tax).
• P+P finding and development costs were $10.28 per Boe in 2019.
• The Company’s estimated net present value of future net revenue at December 31, 2019 totalled $4.5 billion for P+P reserves, up approximately eight percent from December 31, 2018, and $2.4 billion for proved reserves, up approximately 14 percent from December 31, 2018 (in each case discounted at 10 percent, before tax). The increase in net present value of future net revenue is mainly attributed to the Company’s higher liquids weighting and the optimization of future capital spending.

ESG

• As part of our ESG program:
  • Paramount participates in the ABC program introduced by the Alberta Energy Regulator that allows companies to undertake abandonment and reclamation activities in an efficient and cost-effective manner by targeting efforts in concentrated areas. Pursuant to this program Paramount has permanently suspended operations at its legacy Zama and Hawkeye fields and commenced abandonment and reclamation activities in both these areas. The Company abandoned 104 wells in 2019, 84 of which were at Zama and Hawkeye. The Company plans to abandon 238 wells in 2020, including 93 wells at Zama and the remaining 135 wells at Hawkeye.
  • In 2018 and 2019 Paramount replaced approximately 1,700 high-bleed controllers at various sites with modern low-bleed units, eliminating approximately 120,000 tonnes per year of GHG emissions.

Corporate

• Paramount’s average realized natural gas sales price was $2.36/Mcf in 2019, 45 percent higher than AECO monthly index prices for the year, as a result of the Company’s natural gas diversification strategy.
• Paramount’s natural gas sales diversification strategy includes arrangements to sell approximately 60,000 GJ/d of natural gas at Dawn, approximately 22,000 GJ/d of natural gas at Malin, and 40,000 GJ/d of natural gas sales priced in the US Midwest. The Company also has AECO fixed-price physical contracts in place to sell 50,000 GJ/d of natural gas at $2.36/GJ for winter 2020 and 80,000 GJ/d of natural gas at $1.61/GJ for summer 2020.
• Paramount has 4,000 Bbl/d of oil hedged in 2020 at an average price of CDN$80.11/Bbl.
• In November 2019, Paramount completed a private placement of approximately 5.9 million common shares, issued on a ʺflow-throughʺ basis in respect of Canadian development expenses, at a price of $6.65 per share for gross proceeds of approximately $39.2 million.
• The Company’s long-term debt balance at December 31, 2019 was $632 million. Paramount has a $1.5 billion covenant-based bank credit facility that matures in November 2022.
• The Company purchased a total of 2.6 million common shares for cancellation under its 2019 normal course issuer bid program at an average price of $5.47 per share. In January 2020, Paramount implemented a new normal course issuer bid program under which the Company may purchase up to 7.0 million common shares for cancellation.