Paramount Resources Ltd. announces record 2022 annual results

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.