Paramount Resources Ltd. (TSX:POU)
OPERATIONAL UPDATE
Oil and Gas Operations
-- Sales volumes in the third quarter were impacted by scheduled and
unscheduled third party downstream NGLs processing disruptions, which
shut-in up to 6,000 Boe/d of Paramount's production. The Company was
able to partially restore sales volumes to approximately 20,000 Boe/d by
the end of October after the affected third party NGLs facility resumed
service. Paramount's production continues to be impacted by the
availability of downstream NGLs fractionation capacity as third party
operators prorate available NGLs processing capacity.
-- Operating expenses decreased to $8.50 per Boe in the third quarter of
2012 from $9.88 per Boe in 2011 due to the cost savings from the
Company's 45 MMcf/d Musreau refrigeration facility (the "Musreau Refrig
Facility") and the sale of higher cost US properties.
-- Paramount received regulatory approval in July 2012 for the 200 MMcf/d
Musreau deep cut facility. Site preparation work commenced in the third
quarter of 2012, construction work is continuing to progress, and
equipment deliveries are expected to begin before the end of the year.
-- Advance drilling for the deep cut facility expansions at Musreau and
Smoky continued. The Company currently has an inventory of 31 (24 net)
wells with estimated first month deliverability exceeding 200 MMcf/d
(150 MMcf/d net) of raw gas.
-- Paramount has completed drilling and fracture stimulation operations at
its first five-well pad at Musreau, where three (2.5 net) Montney
formation wells and two (1.5 net) Falher formation wells were drilled
and completed for an aggregate gross cost of approximately $37 million.
Average gross raw gas test rates for the five wells aggregated to
approximately 55 MMcf/d over the final 24 hours of their test periods,
with flowing pressures averaging 2,500 PSI.
Strategic Investments
-- The Company has commenced drilling its second exploratory vertical
evaluation well on its Liard Basin Besa River shale gas lands.
-- Construction of Paramount's two new walking drilling rigs is nearing
completion with the first rig scheduled to commence drilling for the
Kaybob COU in December and the second expected to commence drilling in
January 2013.
Corporate
-- Paramount raised an aggregate $125.1 million through the issuance of a
total of 4.2 million flow-through Common Shares in late-September and
early-October.
-- Paramount is continuing to work on a proposal from one of its lenders
for an expansion of the Company's bank credit facility and, as a result,
the revolving period and maturity date of the existing $300 million bank
credit facility (the "Existing Facility") have been extended to November
15, 2012 and November 15, 2013, respectively. Paramount expects that the
revolving period and maturity date of the Existing Facility would be
further extended if such facility is not expanded before November 15,
2012.
-- A $6.2 million settlement was received in the third quarter in respect
of a business interruption insurance claim related to an electrical
equipment failure at the Musreau Refrig Facility in the fourth quarter
of 2011.
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Financial and Operating Highlights(1,2)
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($ millions, except as noted)
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Three months ended Nine months ended
September 30 September 30
% %
2012 2011 Change 2012 2011 Change
----------------------------------------------------------------------------
Financial
Petroleum and natural
gas sales 41.3 70.5 (41) 142.5 178.4 (20)
Funds flow from
operations 15.5 32.8 (53) 40.4 70.2 (42)
Per share - diluted
($/share) 0.18 0.42 (57) 0.46 0.91 (49)
Net income (loss) (34.6) (22.4) (54) 89.9 (22.1) 507
Per share - basic
($/share) (0.40) (0.28) (43) 1.05 (0.29) 462
Per share - diluted
($/share) (0.40) (0.28) (43) 1.03 (0.29) 455
Exploration and
development
expenditures 147.7 107.0 38 356.3 321.7 11
Investments in other
entities - market
value(3) 656.6 812.3 (19)
Total assets 1,903.0 1,737.9 9
Net debt(4) 569.1 589.6 (3)
Common shares
outstanding (thousands) 87,489 79,002 11
Operating
Sales volumes
Natural gas (MMcf/d) 95.3 97.8 (3) 96.7 78.2 24
NGLs (Bbl/d) 1,755 2,062 (15) 1,793 1,515 18
Oil (Bbl/d) 1,081 2,344 (54) 1,756 2,269 (23)
Total (Boe/d) 18,712 20,707 (10) 19,663 16,820 17
Average realized price
Natural gas ($/Mcf) 2.58 4.12 (37) 2.46 4.20 (41)
NGLs ($/Bbl) 60.65 80.82 (25) 69.42 80.09 (13)
Oil ($/Bbl) 81.28 79.42 2 83.96 84.81 (1)
Total ($/Boe) 24.00 37.03 (35) 26.46 38.85 (32)
Net wells drilled
(excluding oil sands
evaluation) 9 15 (40) 28 35 (20)
Net oil sands evaluation
wells drilled - - - 1 27 (96)
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(1) Readers are referred to the advisories concerning non-GAAP measures and
oil and gas definitions in the "Advisories" section of this document.
(2) Amounts include the results of discontinued operations. Refer to pages 6
and 7 of Paramount's Management's Discussion and Analysis for the three
and nine months ended September 30, 2012.
(3) Based on the period-end closing prices of publicly traded enterprises
and the book value of the remaining investments.
(4) Net debt is a non-GAAP measure, it is calculated and defined in the
Liquidity and Capital Resources section of Paramount's Management's
Discussion and Analysis for the three and nine months ended September
30, 2012.
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REVIEW OF OPERATIONS
----------------------------------------------------------------------------
Third Quarter Second Quarter
2012 2012(1) % Change
----------------------------------------------------------------------------
Sales volumes
Natural gas (MMcf/d) 95.3 106.2 (10)
NGLs (Bbl/d) 1,755 1,973 (11)
Oil (Bbl/d) 1,081 1,808 (40)
------------------------------------
Total (Boe/d) 18,712 21,474 (13)
------------------------------------
Netbacks ($ millions) % Change
($/Boe)(2) ($/Boe)(2) in $/Boe
Natural gas revenue 22.6 2.58 20.3 2.09 23
NGLs revenue 9.8 60.65 12.5 69.63 (13)
Oil revenue 8.1 81.28 12.8 78.65 3
Royalty and sulphur revenue 0.8 - 0.9 - -
------------------------------------
Petroleum and natural gas
sales 41.3 24.00 46.5 23.82 1
Royalties (2.8) (1.62) (3.9) (2.00) (19)
Operating expense and
production tax (14.6) (8.50) (15.9) (8.20) 4
Transportation (4.9) (2.85) (5.7) (2.90) (2)
------------------------------------
Netback 19.0 11.03 21.0 10.72 3
Financial commodity
contract settlements 0.2 0.10 0.4 0.23 (57)
------------------------------------
Netback including financial
commodity contract
settlements 19.2 11.13 21.4 10.95 2
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(1) Amounts include the results of discontinued operations. Refer to pages 6
and 7 of Paramount's Management's Discussion and Analysis for the three
and nine months ended September 30, 2012.
(2) Natural gas revenue shown per Mcf.
During the third quarter Paramount continued to add production
as new wells were brought-on in the Grande Prairie COU and liquids
handling processes at the Musreau Refrig Facility were optimized.
Natural gas and NGLs sales volumes decreased compared to the second
quarter because of scheduled and unscheduled third party downstream
NGLs processing disruptions (the "NGLs Disruption"). The NGLs
Disruption required Paramount to restrict NGLs recovery rates and
curtail production in the Kaybob and Grande Prairie COUs. As a
result, the Company's sales volumes were reduced by up to 6,000
Boe/d between mid-August and mid-October.
By the end of October, the Company was able to partially restore
sales volumes to approximately 20,000 Boe/d after the affected
third party NGLs facility resumed service. Paramount's production
continues to be impacted by the availability of downstream NGLs
fractionation capacity as third party operators prorate available
NGLs processing capacity.
Petroleum and natural gas sales revenue decreased by $5.2
million quarter over quarter primarily due to lower sales volumes
and lower realized NGLs prices, partially offset by higher realized
natural gas and oil prices. Operating costs per Boe increased four
percent compared to the second quarter, primarily due to third
quarter scheduled maintenance work and the impact of lower sales
volumes over the fixed portion of operating expenses.
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Kaybob
----------------------------------------------------------------------------
Third Quarter Second Quarter
2012 2012 % Change
----------------------------------------------------------------------------
Sales Volumes
Natural gas (MMcf/d) 56.0 66.3 (16)
NGLs (Bbl/d) 843 1,132 (26)
Oil (Bbl/d) 55 61 (10)
------------------------------------
Total (Boe/d) 10,225 12,236 (16)
------------------------------------
Exploration and Development
Expenditures ($ millions)
Exploration, drilling,
completions and tie-ins 70.8 16.9 319
Facilities and gathering 37.7 23.0 64
------------------------------------
108.5 39.9 172
------------------------------------
Gross Net Gross Net
------------------------------------
Wells Drilled 7 5.7 7 4.7
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Sales volumes in the Kaybob COU averaged approximately 11,500
Boe/d through July and August. As a result of the NGLs Disruption,
production across the Kaybob COU was curtailed to less than 6,500
Boe/d by the middle of September, including temporarily reducing
throughput at the Musreau Refrig Facility to 10 MMcf/d. Following
the resolution of the NGLs Disruption in mid-October, Kaybob COU
sales volumes have once again increased to over 11,000 Boe/d.
The Kaybob COU's third quarter operating costs were
approximately $5.00 per Boe, before accounting for the impact of
third party processing income. The Musreau Refrig Facility provides
significant savings to the Company through the elimination of third
party processing fees. In the third quarter, Paramount received a
$6.2 million settlement in respect of a business interruption
insurance claim related to an electrical equipment failure at the
Musreau Refrig Facility in the fourth quarter of 2011.
Paramount has completed drilling and fracture stimulation
operations at its first five-well pad at Musreau, where three (2.5
net) Montney formation wells and two (1.5 net) Falher formation
wells were drilled and completed for an aggregate gross cost of
approximately $37 million. Average gross raw gas test rates for the
five wells aggregated to approximately 55 MMcf/d over the final 24
hours of their test periods, with flowing pressures averaging 2,500
PSI. The efficiencies gained from concentrating activities at a
single pad location have reduced per well capital costs and will
result in lower operating expenses. The Company plans to continue
to utilize multi-well pad sites to realize these cost savings.
Construction activities have commenced at the 200 MMcf/d deep
cut facility at Musreau (the "Musreau Deep Cut Facility").
Foundation work is underway and equipment deliveries are scheduled
to commence by the end of the year. The Company has incurred
approximately $70 million of costs related to the Musreau Deep Cut
Facility to September 30, 2012 and anticipates spending an
additional $50 million during the remainder of 2012. The facility
is expected to be commissioned in the second half of 2013 at an
estimated total cost of approximately $180 million.
Paramount has initiated a project to construct an amine
processing train at the Musreau Deep Cut Facility, which will
provide the capability to treat sour gas production at the plant
instead of at well sites. This enhancement is expected to reduce
ongoing operating costs and decrease equipping costs by over $1
million per well. The Company is currently finalizing the design of
the amine train, which is expected to cost approximately $50
million, and the procurement of long lead-time components has
commenced for a planned start-up in the first half of 2014. The
addition of the amine train will not delay commissioning of the
Musreau Deep Cut Facility.
Paramount is also participating in the expansion of a
non-operated processing facility at Smoky (the "Smoky Deep Cut
Facility"), which is being upgraded to operate as a deep cut
liquids extraction plant. The Company will have a 20 percent
interest in the expanded facility, up from its 10 percent share of
the existing 100 MMcf/d dew point facility. The Smoky Deep Cut
Facility will initially have 200 MMcf/d of raw gas capacity upon
start-up, increasing to 300 MMcf/d through the later installation
of an incremental 100 MMcf/d of compression. As a plant owner,
Paramount has the option at any time to request the installation of
the additional compression, which would bring the Company's total
owned capacity in the plant to 60 MMcf/d. Construction work
commenced at the site in the third quarter with the installation of
pilings and foundations and major equipment is being manufactured.
The expansion is scheduled to be commissioned in the first half of
2014.
Paramount has entered into a long-term firm-service agreement
with a midstream company to de-ethanize and fractionate Kaybob area
NGLs volumes. The midstream company has undertaken to expand its
facilities to process Paramount's NGLs streams, which will secure
NGLs processing for the volumes that will be produced from the
Kaybob area deep cut facilities. Paramount has also entered into an
agreement in principle with a petro-chemical producer on long-term
arrangements for the sale of the Company's ethane production and is
negotiating long-term arrangements for the transportation of its
Kaybob area natural gas and NGLs volumes.
During the third quarter, the Kaybob COU drilled five (3.7 net)
horizontal Falher formation wells, one (1.0 net) horizontal Montney
well and one (1.0 net) horizontal Wilrich well. Twelve (9.3 net)
wells were fracture stimulated including one (1.0 net) Montney
formation well. Test results have been consistent with
expectations, further confirming the Company's well performance
profiles.
Paramount's experience over the past few years in the Deep Basin
has enabled the Company to refine its development programs and
reduce the cost of new wells by improving drilling techniques,
using more cost effective fracture stimulations and improving
logistics with multi-well pad sites. Drilling days for the latest
four Falher wells have been reduced to less than 25 days compared
to 45 or more days for wells drilled in 2010. The latest two
Montney wells were drilled in 45 and 41 days compared to an average
of over 80 days for three similar wells drilled in 2011. Paramount
has also been able to negotiate lower rates for services, equipment
and completion fluids.
The following table summarizes the current status of Kaybob Deep
Basin wells that have been drilled and are awaiting production, the
estimated remaining capital required to complete these wells, and
their anticipated production and sales volumes:
Total
Remaining Estimated Estimated
Capital Net Raw Gas Net Sales
Wells (net) Production(1) Volumes(2)
--------------------------------------------------------------
First First First First
Month Year Month Year
-------------------------------------------------
Gross Net ($ millions) (MMcf/d) (MMcf/d) (Boe/d) (Boe/d)
Shut-in due to
capacity
contraints 4 4 1 13 6 4,100 2,100
Tied-in,
capable of
producing 6 3 - 20 9 5,500 2,500
Completed,
awaiting tie-
in 12 10 11 66 32 20,000 10,000
Drilled,
awaiting
completion 9 7 29 52 22 14,100 6,100
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31 24 41 151 69 43,700 20,700
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(1) Based on the Company's 4.9 Bcf type curve for Falher wells and 3.7 Bcf
type curve for Montney wells.
(2) Based on processing through a deep cut facility.
The Company plans to drill up to an additional six wells for the
remainder of 2012, with more wells to be drilled in 2013 to
continue building behind pipe production in advance of completing
the plant expansions at Musreau and Smoky.
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Grande Prairie
----------------------------------------------------------------------------
Third Quarter Second Quarter
2012 2012 % Change
----------------------------------------------------------------------------
Sales Volumes
Natural gas (MMcf/d) 21.6 21.5 -
NGLs (Bbl/d) 733 658 11
Oil (Bbl/d) 251 269 (7)
------------------------------------
Total (Boe/d) 4,587 4,514 2
------------------------------------
Exploration and Development
Expenditures ($ millions)
Exploration, drilling,
completions and tie-ins 15.1 12.3 23
Facilities and gathering 9.9 6.5 52
------------------------------------
25.0 18.8 33
------------------------------------
Gross Net Gross Net
------------------------------------
Wells Drilled - - 3 2.1
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Average sales volumes in the Grande Prairie COU exceeded 6,000
Boe/d for two weeks in August as wells completed in the first half
of the year were brought-on at Valhalla and Karr-Gold Creek. As a
result of the NGLs Disruption, production at Valhalla that had been
processed through a third party deep cut facility was diverted to a
dew point facility in order to reduce the volume of NGLs extracted
from the gas stream during processing. Paramount is limited to 10
MMcf/d of capacity at the dew point facility, which has resulted in
approximately 8 MMcf/d of natural gas production being shut-in at
Valhalla. The Company is maintaining sales volumes in the Grande
Prairie COU between 4,000 and 4,500 Boe/d due to ongoing NGLs
capacity limitations. Production will be increased as additional
NGLs processing capacity becomes available.
---------------------------------------------------------------------------
Southern
---------------------------------------------------------------------------
Third Quarter Second Quarter(1)
2012 2012 % Change
----------------------------------------------------------------------------
Sales Volumes
Natural gas (MMcf/d) 9.2 9.8 (6)
NGLs (Bbl/d) 148 169 (12)
Oil (Bbl/d) 594 1,250 (52)
------------------------------------
Total (Boe/d) 2,270 3,059 (26)
------------------------------------
Exploration and Development
Expenditures ($ millions)
Exploration, drilling,
completions and tie-ins 6.4 1.9 237
Facilities and gathering 0.3 0.7 (57)
------------------------------------
6.7 2.6 158
------------------------------------
Gross Net Gross Net
------------------------------------
Wells Drilled 2 2.0 - -
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(1) Amounts include the results of discontinued operations. Refer to pages 6
and 7 of Paramount's Management's Discussion and Analysis for the three
and nine months ended September 30, 2012.
Third quarter sales volumes in the Southern COU decreased mainly
because of the May 2012 United States property disposition.
Production volumes were also impacted by a compression equipment
failure at Chain and a turnaround at a third party downstream
facility in Ricinus - Harmattan.
In the third quarter the Southern COU drilled two (2.0 net)
liquids-rich natural gas wells in Harmattan.
---------------------------------------------------------------------------
Northern
---------------------------------------------------------------------------
Third Quarter Second Quarter
2012 2012 % Change
----------------------------------------------------------------------------
Sales Volumes
Natural gas (MMcf/d) 8.5 8.6 (1)
NGLs (Bbl/d) 31 14 121
Oil (Bbl/d) 181 228 (21)
------------------------------------
Total (Boe/d) 1,630 1,665 (2)
------------------------------------
Exploration and Development
Expenditures ($ millions)
Exploration, drilling,
completions and tie-ins 2.0 0.6 233
Facilities and gathering 1.6 1.9 (16)
------------------------------------
3.6 2.5 44
------------------------------------
Gross Net Gross Net
------------------------------------
Wells Drilled 1 1.0 - -
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Third quarter sales volumes in the Northern COU were impacted by
a forest fire near the Company's processing facility at Bistcho
which shut-in approximately 1,250 Boe/d of production for 15 days
in July.
In Northeast British Columbia, modifications are being completed
to surface facilities for the Company's initial well at Birch to be
re-started later in November. Three Birch wells drilled to date
have targeted the upper Montney formation. In the third quarter,
Paramount drilled a vertical evaluation well into the lower Montney
formation at Birch. The well will be completed and, depending on
test results, the Company will have the option of drilling and
completing a horizontal leg in the lower or upper Montney
formation.
STRATEGIC INVESTMENTS
In November 2012, Cavalier Energy Inc. ("Cavalier Energy") plans
to submit a regulatory application for the first phase of
development at the Hoole property, a 10,000 Bbl/d project targeting
the Grand Rapids formation using proven SAGD technologies. Cavalier
Energy believes that first steam could commence as early as the
second half of 2015. Longer-term plans for Hoole include three
additional 30,000 Bbl/d phases that would increase production to
100,000 Bbl/d by 2024.
SHALE GAS
Paramount's Besa River shale gas holdings are focused in the
Liard Basin in Northeast British Columbia and the Northwest
Territories. The Company began drilling its second Liard Basin
shale gas evaluation well at Patry in October. The well is expected
to be drilled to a vertical depth of 3,500 meters and will be cored
and logged for evaluation. In early 2013 Paramount plans to finish
drilling its initial shale gas evaluation well at Dunedin after
drilling was suspended in the spring of 2012 due to warm weather.
Paramount's exploratory drilling activities are expected to extend
the mineral rights surrounding the well locations for an additional
decade and provide information to be used for future
development.
CORPORATE
Paramount is continuing to work on a proposal from one of its
lenders for an expansion of the Company's bank credit facility and,
as a result, the revolving period and maturity date of the Existing
Facility have been extended to November 15, 2012 and November 15,
2013, respectively. Paramount expects that the revolving period and
maturity date of the Existing Facility would be further extended if
such facility is not expanded before November 15, 2012.
Paramount raised an aggregate $125.1 million through the
issuance of a total of 4.2 million flow-through Common Shares in
late-September and early-October.
OUTLOOK
Year-to-date exploration and development expenditures total
approximately $360 million. Planned spending for the remainder of
the year will be focused on the Kaybob deep cut projects, where $65
million will be invested in the Musreau and Smoky deep cut
facilities and drilling will continue to build the inventory of
wells to feed the expansions. Strategic Investment spending for the
remainder of the year will be directed to completing the
construction of the new walking drilling rigs and drilling the
Company's second Liard Basin shale gas evaluation well. The Company
has flexibility within its current capital plan to increase or
decrease spending depending on future economic conditions, among
other factors.
Between August and October, Paramount's sales volumes were
constrained by up to 6,000 Boe/d due to the NGLs Disruption. By the
end of October, the Company was able to partially restore sales
volumes to approximately 20,000 Boe/d after the affected third
party NGLs facility resumed service. Paramount's production
continues to be impacted by the availability of downstream NGLs
fractionation capacity as third party operators prorate available
NGLs processing capacity. The Company's 2012 exit rate will depend
on the extent to which downstream third party NGLs processing
capacity becomes available. Behind pipe volumes in the Kaybob and
Grande Prairie COUs will be brought-on once the Company is able to
access additional fractionation capacity.
Paramount's long-term firm-service agreement with a midstream
company secures processing capacity for NGLs that will be produced
from the Kaybob area deep cut facilities. Sales volumes are
expected to more than double once the Musreau Deep Cut Facility and
the Smoky Deep Cut Facility are operational.
ADDITIONAL INFORMATION
A copy of Paramount's complete results for the three and nine
months ended September 30, 2012, including Management's Discussion
and Analysis and the unaudited Interim Condensed Consolidated
Financial Statements for the three and nine months ended September
30, 2012 can be found at
http://media3.marketwire.com/docs/1106pou.pdf. This information
will also be made available through Paramount's website at
www.paramountres.com and SEDAR at www.sedar.com.
ABOUT PARAMOUNT
Paramount Resources Ltd. is a Canadian oil and natural gas
exploration, development and production company with operations
focused in Western Canada. Paramount's common shares are listed on
the Toronto Stock Exchange under the symbol "POU".
ADVISORIES
FORWARD-LOOKING INFORMATION
Certain statements in this document constitute forward-looking
information under applicable securities legislation.
Forward-looking information typically contains statements with
words such as "anticipate", "believe", "estimate", "expect",
"plan", "intend", "propose", or similar words suggesting future
outcomes or an outlook. Forward looking information in this
document includes, but is not limited to:
-- expected production and sales volumes and the timing thereof;
-- operating and other costs;
-- the negotiation and completion of arrangements for the transportation
and sales of natural gas and NGLs;
-- exploration, development and strategic investment plans and strategies
and the anticipated costs, timing and results thereof;
-- budget allocations and capital spending flexibility;
-- planned drilling programs, well completions, well tie-ins and the
anticipated costs and timing thereof;
-- the availability of facilities to process and transport natural gas and
NGLs production;
-- the anticipated costs, scope and timing of proposed new facilities and
facilities' expansions, the expected capacity and utilization of such
facilities and expected sources of funding for such facilities;
-- the timing and scope of Cavalier Energy's planned development of its oil
sands and carbonate bitumen assets and Paramount's development of its
shale gas assets;
-- the anticipated costs and completion date of the two new triple-sized
walking drilling rigs;
-- business strategies and objectives;
-- sources of and plans for funding Paramount's exploration, development,
facilities and other expenditures;
-- the extension of the Existing Facility and the outcome of discussions
regarding an expansion thereof;
-- acquisition and disposition plans;
-- regulatory applications and the anticipated scope, timing and results
thereof;
-- future taxes payable or owing; and
-- the outcome and timing of any legal claims, audits, assessments or other
regulatory matters or proceedings.
Such forward-looking information is based on a number of
assumptions which may prove to be incorrect. The following
assumptions have been made, in addition to any other assumptions
identified in this document:
-- future crude oil, bitumen, natural gas and NGLs prices and general
economic, business and market conditions;
-- the ability of Paramount to obtain required capital to finance its
exploration and development activities and its new and expanded
facilities;
-- the ability of Paramount to obtain equipment, services, supplies and
personnel in a timely manner and at an acceptable cost to carry out its
activities;
-- the ability of Paramount to market its oil, natural gas and NGLs
successfully to current and new customers;
-- the ability of Paramount to secure adequate product processing,
transportation and storage;
-- the ability of Paramount and its industry partners to obtain drilling
success and production levels consistent with expectations, including
with respect to anticipated reserves additions and NGLs yields;
-- the timely receipt of required regulatory approvals;
-- expected timelines and budgets being met in respect of facilities
development and construction projects;
-- access to capital markets and other sources of funding for Paramount's
operations and planned expenditures;
-- anticipated rates of return from existing and planned projects relative
to other opportunities;
-- estimates of input and labour costs; and
-- currency exchange and interest rates.
Although Paramount believes that the expectations reflected in
such forward looking information is reasonable, undue reliance
should not be placed on it as Paramount can give no assurance that
such expectations will prove to be correct. Forward-looking
information is based on current 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. These risks and uncertainties include, but are not
limited to:
-- fluctuations in crude oil, bitumen, natural gas and NGLs prices, foreign
currency exchange rates and interest rates;
-- the uncertainty of estimates and projections relating to future revenue,
future production, NGLs yields, costs and expenses and the timing
thereof;
-- the ability to secure adequate product processing, transportation and
storage;
-- the uncertainty of exploration, development and drilling activities;
-- operational risks in exploring for, developing and producing crude oil,
bitumen, natural gas, and NGLs, and the timing thereof;
-- the ability to obtain equipment, services, supplies and personnel in a
timely manner and at an acceptable cost;
-- potential disruptions or unexpected technical difficulties in designing,
developing or operating new, expanded or existing facilities including
third party facilities;
-- risks and uncertainties related to the geology of oil and gas deposits;
-- the uncertainty of reserves and resource estimates;
-- the ability to generate sufficient cash flow from operations and obtain
other sources of financing at an acceptable cost to fund planned
exploration, development and operational activities and meet current and
future obligations, including costs of anticipated new and expanded
facilities and other projects;
-- changes to, or in the interpretation of, applicable laws, regulations or
policies;
-- changes in environmental laws including emission reduction obligations;
-- the receipt, timing, and scope of governmental or regulatory approvals;
-- changes in economic, business and market conditions;
-- the uncertainty regarding aboriginal claims and co-existing with local
populations and stakeholders;
-- the effects of weather;
-- the timing and cost of future abandonment and reclamation activities;
-- clean-up costs or business interruptions resulting from environmental
damage and contamination;
-- the ability to enter into or continue leases;
-- existing and potential lawsuits and regulatory actions;
-- future taxes payable; and
-- other risks and uncertainties described elsewhere in this document and
in Paramount's other filings with Canadian securities authorities,
including its Annual Information Form.
The foregoing list of risks is not exhaustive. Additional
information concerning these and other factors which could impact
Paramount are included in Paramount's most recent Annual
Information Form. The forward-looking information contained in this
document 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.
NON-GAAP MEASURES
In this document "Funds flow from operations", "Funds flow from
operations - per Boe", "Funds flow from operations per share -
diluted", "Netback", "Netback including financial commodity
contract settlements", "Net Debt", "Exploration and development
expenditures" and "Investments in other entities - market value",
collectively the "Non-GAAP measures", are used and do not have any
standardized meanings as prescribed by Generally Accepted
Accounting Principles in Canada ("GAAP").
Funds flow from operations refers to cash from operating
activities before net changes in operating non-cash working
capital, geological and geophysical expenses and asset retirement
obligation settlements. Funds flow from operations is commonly used
in the oil and gas industry to assist management and investors in
measuring the Company's ability to fund capital programs and meet
financial obligations. Netback equals petroleum and natural gas
sales less royalties, operating costs, production taxes and
transportation costs. Netback is commonly used by management and
investors to compare the results of the Company's oil and gas
operations between periods. Net Debt is a measure of the Company's
overall debt position after adjusting for certain working capital
amounts and is used by management to assess the Company's overall
leverage position. Refer to the calculation of Net Debt in the
liquidity and capital resources section of Management's Discussion
and Analysis. Exploration and development expenditures refer to
capital expenditures and geological and geophysical costs incurred
by the Company's COUs (excluding land and acquisitions). The
exploration and development expenditure measure provides management
and investors with information regarding the Company's Principal
Property spending on drilling and infrastructure projects, separate
from land acquisition activity. Investments in other entities -
market value reflects the Company's investments in enterprises
whose securities trade on a public stock exchange at their period
end closing price (e.g. Trilogy, MEG Energy, MGM Energy and
others), and investments in all other entities at book value.
Paramount provides this information because the market values of
equity-accounted investments, which are significant assets of the
Company, are often materially different than their carrying
values.
Non-GAAP measures should not be considered in isolation or
construed as alternatives to their most directly comparable measure
calculated in accordance with GAAP, or other measures of financial
performance calculated in accordance with GAAP. The Non-GAAP
measures are unlikely to be comparable to similar measures
presented by other issuers.
OIL AND GAS MEASURES AND DEFINITIONS
This document contains disclosures expressed as "Boe" and
"Boe/d". All oil and natural gas equivalency volumes have been
derived using the ratio of six thousand cubic feet of natural gas
to one barrel of oil. 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. The term "liquids" is used to represent oil and natural gas
liquids.
During the third quarter of 2012, the value ratio between crude
oil and natural gas was approximately 32:1. 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.
TEST RESULTS
Test rates disclosed in this document represent the average rate
of gas-flow during post clean-up production tests up 4 1/2" casing.
All wells were stimulated using frac oil and substantially all
fluids recovered during the test periods were load fluids. As a
result, recovered fluid volumes for the duration of the tests have
not been disclosed. Pressure transient analyses and well-test
interpretations have not been carried out for the wells disclosed
and as such, data should be considered to be preliminary until such
analysis or interpretation has been done. Test results are not
necessarily indicative of long-term performance or of ultimate
recovery.
Contacts: Paramount Resources Ltd. J.H.T. (Jim) Riddell
President and Chief Operating Officer (403) 290-3600 Paramount
Resources Ltd. B.K. (Bernie) Lee Chief Financial Officer (403)
290-3600 (403) 262-7994 (FAX) www.paramountres.com
Paramount Resources (TSX:POU)
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Paramount Resources (TSX:POU)
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