CALGARY, ALBERTA–(Marketwired – March 17, 2016) –
Paramount Resources Ltd. (TSX:POU) (“Paramount” or the “Company”) is pleased to announce that it has entered into an agreement with a wholly-owned subsidiary of Pembina Pipeline Corporation (“Pembina”) for the sale of its Musreau Complex and related midstream assets (the “Midstream Transaction”) for cash and other considerations in excess of $600 million.
The Midstream Transaction includes the 50 MMcf/d Refrigeration Plant, the 200 MMcf/d Deep Cut Plant, the 22,500 Bbl/d Condensate Stabilizer, the Amine Facility and the gas sales pipeline connecting the Musreau Complex to the TCPL meter station, as well as the majority of Paramount’s larger-diameter gathering system in the Musreau area. Also included in the Midstream Transaction are the site and engineering and design work for the future 6-18 gas processing plant (the “6-18 Plant”).
Paramount will receive $556 million in cash at closing, plus a $35 million capital commitment for an enhancement program the Company planned to complete in 2016 at the Musreau Complex. In addition, Pembina has agreed to optimize existing transportation arrangements to match Paramount’s anticipated production growth. Paramount has also secured the right, upon the satisfaction of certain conditions, to call upon Pembina to build and provide up to 200 MMcf/d of gas processing capacity at the 6-18 Plant site.
As part of the Midstream Transaction, Paramount and Pembina have also entered into a Midstream Service Agreement (“MSA”) which includes a 20-year arrangement that secures Paramount priority access to the sold capacity at the Musreau Complex. Paramount will have lower take-or-pay volume commitments in the initial years, ramping up to 200 MMcf/d by 2019 to align with the planned expansion and development of Paramount’s Liquids-rich Montney resources. Under the terms of the MSA, the Company will pay a fixed capital fee per Mcf of raw gas delivered to the Musreau Complex, plus operating expenses. This capital charge will encompass costs for natural gas processing, condensate stabilization, use of the gathering system and transportation of sales gas from the Musreau Complex to the TCPL meter station. This charge at the plant inlet is expected to be equivalent to approximately $3.00/Boe of products sold from the Musreau Complex. Volumes delivered by Paramount in excess of its take-or-pay commitment will have processing priority treatment at the Musreau Complex.
A predetermined methodology has been agreed for the processing capital fee at the future 6-18 Plant as well as the associated scheduled take-or-pay gas delivery for firm processing service.
Upon closing, the proceeds from the Midstream Transaction will be used to pay down the Company’s bank credit facility (the “Facility”). As of February 29, 2016, Paramount had $668.4 million drawn on the Facility. The Company intends to reduce the $900 million Tranche A of the Facility by $300 million to $600 million and cancel the $100 million Tranche B of the Facility, which has never been drawn.
“With this transaction, we have cemented a long-term partnership with Pembina, a reputable and reliable midstream operator. This is a transformational, strategic transaction for Paramount as we unlock the value of our midstream assets. We have also eliminated our future midstream funding requirement for the growth and development of our significant resources in the area, while maintaining the option to call for additional processing capacity,” said Jim Riddell, Paramount’s President and Chief Executive Officer.
The Midstream Transaction is expected to close in the second quarter of 2016, subject to regulatory approvals and customary closing conditions. There are no financing or other non-customary material closing conditions.
RBC Capital Markets is acting as financial advisor to Paramount on the Midstream Transaction.
2015 ANNUAL RESULTS
|•||Sales volumes averaged approximately 51,000 Boe/d from December 2015 through February 2016, approximately 25,000 Bbl/d were Liquids.|
|•||2015 annual sales volumes averaged 44,130 Boe/d, 80 percent higher than 2014, with Liquids sales volumes increasing by 184 percent to 17,345 Boe/d.|
|•||Montney volumes accounted for 67 percent of overall sales in December 2015 compared to 43 percent in December 2014.|
|•||Two six well Ultra-Rich Montney pads were completed in the fourth quarter. Total costs to drill, complete, equip and tie-in the 12 one-mile horizontal wells averaged approximately $8.5 million per well.|
|•||Kaybob operating expense was $3.44/Boe in 2015. Paramount’s corporate operating expense was $5.59/Boe in 2015, 30 percent lower than 2014.|
|•||Funds flow from operations totaled $93.2 million in 2015 compared to $141.0 million in 2014. Paramount continues to generate positive cash flows from operations despite the low commodity price environment as a result of the high Liquids content of its Montney resources and low per unit production costs.|
|•||Capital spending for 2015 totaled $490.4 million, of which $429.9 million was invested in Paramount’s Principal Properties and $60.5 million was invested in Strategic Investments.|
|•||At December 31, 2015, the Company recorded aggregate impairment write-downs of $287.8 million related to its Principal Properties as a result of the decrease in commodity prices and other factors.|
|•||Principal Properties proved and proved plus probable (“P+P”) reserves were 226.3 MMBoe and 337.6 MMBoe, respectively in 2015. There was no material change in reserves volumes from 2014.|
|•||The Company’s reserves continue to be economical despite significantly lower commodity prices because of high Liquids content and continued efforts to reduce operating and capital costs.|
|•||Kaybob area three-year average P+P finding and development costs averaged $11.25/Boe, before infrastructure capital.|
|•||The estimated net present value of Paramount’s proved reserves at December 31, 2015 was $1.6 billion compared to $2.3 billion in 2014 (10 percent discount, before tax). The estimated value of P+P reserves was $3.1 billion compared to $3.8 billion in 2014 (10 percent discount, before tax).|
|•||P+P future development costs decreased $0.6 billion to $2.5 billion in 2015 compared to $3.1 billion in 2014, primarily due to improved capital efficiencies resulting from changes in completion practices, technical improvements and cost reductions in industry services.|
|•||Fox Drilling has completed the construction of its two new triple-sized built-for-purpose walking rigs. They will be deployed as part of Paramount’s Deep Basin drilling programs in 2016.|
|•||Drilling operations resumed at the c-37-D La Biche shale gas well in the Liard Basin in December and the well is expected to be drilled to target depth before spring breakup. Upon the completion of drilling operations, the Company will have secured its mineral rights in the region for another 10 years.|
|•||At December 31, 2015, the Company recorded impairment charges of $160.0 million related to Cavalier Energy and other long-term projects as a result of the lower commodity prices.|
|•||The Company is managing its near-term liquidity by aligning capital expenditures with cash flows. Future spending levels for Paramount’s core developments and other initiatives will be determined following the closing of the Midstream Transaction and will also depend on commodity prices and other factors.|
|•||Paramount continues to implement measures to reduce general and administrative costs. The Company has eliminated most corporate consultant positions, reduced employee salaries by five percent in 2016 and reduced its permanent workforce by approximately 15 percent.|
|•||The Company has 6,000 Bbl/d of liquids sales hedging contracts in place for calendar 2016 at an average WTI price of C$75.72/Bbl. In January 2016, Paramount locked in the unrealized gain for 2,000 Bbl/d of the hedged volumes by entering into a fixed price liquids purchase contract at a WTI price of C$50.64/Bbl.|
|•||For the year ended December 31, 2015, the Company recorded the following non-cash accounting adjustments: a $194.2 million reduction of deferred tax assets, an $81.8 million impairment charge related to investments in other entities and a $60.8 million unrealized foreign exchange loss on the Company’s $450 million US senior notes due 2023.|
|•||As a result of the strengthening of the Canadian dollar relative to the US dollar between December 31, 2015 and March 11, 2016, the year-end unrealized foreign exchange loss of $60.8 million related to the 2023 US senior notes has been reduced by $28.1 million.|
|FINANCIAL AND OPERATING HIGHLIGHTS (1) ($ millions, except as noted)|
|Three months ended
|Twelve months ended
|Natural gas (MMcf/d)||157.8||143.9||10||160.7||110.5||45|
|Condensate and oil (Bbl/d)||9,991||5,320||88||8,610||3,986||116|
|Other NGLs (Bbl/d) (2)||9,175||5,123||79||8,735||2,128||310|
|Petroleum and natural gas sales||91.3||99.4||(8||)||376.8||350.0||8|
|Operating expense ($/Boe)||5.49||7.02||(22||)||5.59||7.96||(30||)|
|Funds flow from operations||21.0||41.6||(50||)||93.2||141.0||(34||)|
|per share – diluted ($/share)||0.20||0.40||0.88||1.39|
|per share – diluted ($/share)||(5.64||)||(1.02||)||(8.52||)||(0.71||)|
|Principal Properties Capital (3)||63.0||224.6||(72||)||429.9||813.9||(47||)|
|Investments in other entities – market value (4)||130.8||256.9||(49||)|
|Common shares outstanding (thousands)||106,212||104,844||1|
|(1)||Readers are referred to the advisories concerning Non-GAAP Measures and Oil and Gas Measures and Definitions in the Advisories section of this document.|
|(2)||Other NGLs means ethane, propane and butane.|
|(3)||Principal Properties Capital includes capital expenditures and geological and geophysical costs related to the Company’s Principal Properties, and excludes land acquisitions and capitalized interest.|
|(4)||Based on the period-end closing prices of publicly-traded investments and the book value of the remaining investments.|
|Proved||Proved & Probable|
|2015||2014||% Change||2015||2014||% Change|
|Natural gas (Bcf)||710.5||703.8||1||1,065.7||1,090.9||2|
|Light and Medium crude oil (MBbl)||788||1,108||(29)||1,074||1,526||(30)|
|F&D costs – three year average|
|Excluding facilities & gathering ($/Boe)||16.93||18.95||(11)||12.20||13.37||(9)|
|(1)||Readers are referred to the advisories concerning Oil and Gas Measures and Definitions in the Advisories section of this document.|
|(2)||Reserves evaluated by the Company’s independent reserves evaluator, McDaniel & Associates Consultants Ltd. as of December 31, 2015 in accordance with National Instrument 51-101 definitions, standards and procedures. Amounts are working interest reserves before royalty deductions. Net present values were determined using forecast prices and costs and do not represent fair market value.|
Paramount is an independent, publicly traded, Canadian corporation that explores for and develops conventional petroleum and natural gas prospects, pursues longer-term non-conventional exploration and pre-development projects and holds investments in other entities. The Company’s properties are primarily located in Alberta, British Columbia and the Northwest Territories. Paramount’s Class A Common Shares are listed on the Toronto Stock Exchange under the symbol “POU”.
Paramount’s 2015 results, including Management’s Discussion and Analysis and the Company’s Consolidated Financial Statements, can be obtained at: http://media3.marketwire.com/docs/paramount2015results.pdf