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Parex Pumps Up Capex After Strong Results

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Parex Resources Inc. has announced unaudited financial and operating results for the three months ended March 31, 2015.

All amounts herein are in United States dollars (USD) unless otherwise stated.

Q1 2015 Financial and Operational Highlights

• Managed quarterly average oil production of 26,729 bopd compared to production guidance of 26,500 bopd, an increase of 45 percent over the comparative quarter in 2014, and a slight increase from the prior period production of 26,544 bopd;
• Capital expenditures for the quarter were $26.9 million compared to $61.4 million in the comparative period. 
• Parex participated in drilling one well (net 0.55) during Q1. However, the 2015 exploration program began with the Block LLA-26 Rumba-1 exploration well which was spud on March 25, 2015;
• Reduced net debt to $29.6 million at March 31, 2015 compared to $31.7 million at December 31, 2014;
• Realized Brent referenced sales price of $49.42 per barrel (bbl) during the period which was a $5.71/bbl discount to the average Brent price, and an operating netback of $21.66/bbl.
• Parex reduced combined operating and transportation unit costs by 17% ($4.76/bbl) to $23.47/bbl compared to the prior quarter;
• Increased the syndicated bank credit facility to a current borrowing base of $200 million from the borrowing base of $175 million at December 31, 2014;
• Subsequent to Q1 2015, on May 5, 2015 Parex closed a CAD$136.8 million bought deal financing, issuing 14.95 million common shares at a price of CAD$9.15 per share. The net proceeds of approximately USD$108 million from the financing will initially be used to pay down bank indebtedness, increase net working capital and subsequently is expected to be used to fund capital expenditures and future growth opportunities as set out below; and
• Upon closing of the bought deal financing and after subsequent repayment of bank indebtedness, the company has approximately USD$80 million of working capital and an undrawn credit facility of USD$200 million.

First Quarter Financial Summary

• For Q1 2015, sales volumes excluding purchased oil averaged 26,909 bpd (working interest before royalty) and the average realized sales price in Colombia was $49.42 per barrel (/bbl), generating an operating netback of $21.66/bbl. Compared to the previous quarter, transportation and operating expenses decreased by $4.76/bbl. Parex anticipates continuing to realize cash costs improvements during 2015 over 2014 levels due to lower levels of industry activity and the depreciation of the Colombian peso against the USD.
• For the Q1 2015, funds flow from operations fully funded capital expenditures of $26.9 million. Included in the capital expenditures total was $5.3 million for acquisition of unproven properties which is related to achieving certain approvals in the acquisition of blocks LLA-26 and Cebucan. Although the Company was active in constructing civil works related to the 2015 drilling program during Q4 2014 and Q1 2015, the only well Parex spud since drilling the Tilo-1 exploration well in December 2014 was the LLA-26 Rumba-1 well on March 25, 2015.
• Despite Brent oil prices being at its lowest since Q1 2009, Parex reduced its net debt, defined as total debt less working capital surplus, to $29.6 million at period end, compared to a net debt of $31.7 million on December 31, 2014. Based on the December 31, 2014 reserves report, the syndicate of lenders increased the Company's credit facility borrowing base to $200 million from $175 million.

Operational Update

• strong>Rumba (Operated, Block LLA-26, WI 100%): The Rumba-1 exploration well was spud on March 25, 2015 and successfully drilled to the Une Formation at a depth of 13,396 feet. The well encountered two potential productive zones in the Mirador Formation that were completed and tested with the drilling rig on location. The lower Mirador interval was tested over a 50 hour period under natural flowing conditions at an average rate of 1,135 bopd. A total of 2,365 barrels of 18.6 API oil was recovered from the interval with a final measured rate of 1,298 bopd and a final measured watercut of 3%. The watercut trend was dropping throughout the test. The lower Mirador interval was then isolated to allow testing of the upper Mirador interval and the drilling rig was moved over to spud the Bazar-1 exploration well while testing the upper Mirador. The upper Mirador was tested under natural flowing conditions for a period of 7 days at an average rate of 832 bopd. A total of 5,824 barrels of 18.6 API oil was recovered from the test with a final measured rate of 860 bopd at a watercut of 0.4%. Pressure recorders have been installed in the well to record the pressure buildup from both tests. Surface pressure data indicates that during testing both zones were being produced with a low bottom hole drawdown and Parex expects initial production rates from both zones to be significantly higher with the use of an electric submersible pump.
• Utilizing the Rumba drilling pad, Parex spud the Bazar-1 exploration well on May 4, 2015 to test a separate structure and subsequently plans to drill Rumba-2 as a delineation well to test the northern limits of the pool. A long-term test facility is being planned and Parex expects to commence production at Rumba in the second half of 2015, subject to regulatory approvals.

• At current oil prices, Parex anticipates funding the increased capital expenditure budget from funds flow from operations. In addition, subsequent to the closing of the bought deal financing on May 5, 2015, Parex has approximately $80 million of net working capital, no bank debt and available bank facility of $200 million available for future growth opportunities.
• Parex plans to use two operated and one non-operated drilling rigs to achieve its 2015 exploration program. We are mobilizing a second drilling rig to commence drilling the Block LLA-20 Zorro Rojo exploration prospect in May 2015 followed by the LLA-32 exploration drilling program. In July/August 2015, we expect a non-operated drilling rig to commence operations on Block LLA-34. Parex expects to be able to revisit its 2015 production guidance following the drilling of Bazar-1, Zorro Rojo-1 and LLA-32 exploration wells and after determining which areas would require further appraisal.