(Parex, 7.Nov.2023) — Parex Resources Inc. (TSX: PXT) announced its financial and operating results for the three-month period ended 30 Sep. 2023, and the declaration of its Q4 2023 regular dividend of C$0.375 per share.
“With our inaugural well in Arauca, I take pride in our team’s remarkable achievement in drilling the deepest onshore well in Colombia’s history,” commented Imad Mohsen, President & Chief Executive Officer.
“This milestone not only serves as a testament to our operational capability, but also solidifies Parex’s leading position as an operator capable of confidently exploiting higher productivity, deeper targets. In addition to Arauca, we are seeing a series of positive developments from exploitation and near-field exploration that are driving record quarterly production, which make us optimistic for the upcoming fourth quarter and the year ahead,” Mohsen said.
Key Highlights
- Generated Q3 2023 funds flow provided by operations (“FFO”)(1) of $158mn and FFO per share(2)(3) of $1.49.
- Drilled the inaugural well on the Arauca Block (50% W.I.), Arauca-15, to a total depth of 22,350 feet; it is the deepest onshore well in Colombia’s history and is expected to commence production following multi-zone testing.
- Spud the Arauca-8 big ‘E’ exploration well in late Q3 2023, which is at roughly 17,500 feet and expected to total depth in late Q4 2023.
- Reached all-time production rates of over 15,000 bbl/d(8) of heavy crude oil from the Cabrestero Block (100% W.I.), supported by successful exploration efforts and continued success from waterflood injection.
- Recently drilled a well at Cabrestero (100% W.I.) that discovered a new oil pool, which is expected to begin production imminently.
- Declared a Q4 2023 regular dividend of C$0.375 per share(7) or C$1.50 per share annualized; current dividend yield is roughly 5.4%(7).
- Repurchased 4.95 million shares YTD 2023, fulfilling approximately 5% of the public float under the Company’s current normal course issuer bid (“NCIB”).
- Delivering strong production growth; current rates are approximately 59,000 boe/d(8).
Q3 2023 Results
- Record quarterly average oil & natural gas production was 54,573 boe/d(6), an increase of 7% from Q3 2022, and a 1% increase from the prior quarter.
- Increased production per share(3)(7) by 13% compared to Q3 2022, from higher production and the reduction of outstanding shares through the current NCIB.
- Realized net income of $120mn or $1.13 per share basic(3).
- Generated quarterly FFO(1) of $158mn, a 24% decrease from Q3 2022, and FFO per share(2)(3) of $1.49, a 19% decrease from Q3 2022, which was primarily driven by lower crude oil pricing and increased tax, offset by higher production.
- Increased current taxes by $14 million as the company moved from an estimated 10% surtax to a projected 15% surtax with the appreciation of global oil prices in Q3 2023; Colombia has an income surtax, which is linked to the historical Brent oil price.
- Generated an operating netback(2) of $48.97/boe and an FFO netback(2) of $31.28/boe from an average Brent price of $85.92/bbl. The FFO netback(2) was impacted by higher current taxes, and increased production costs from workovers and higher energy input costs.
- Incurred $157mn of capital expenditures(5) while participating in the drilling of 16 gross (10.95 net) wells. Capital expenditures were higher than prior quarters in 2023, primarily driven by starting activity at Arauca (50% W.I.) where Parex agreed with its joint venture partner to solely fund the initial work plan in exchange for a 50% interest in the Arauca and LLA-38 blocks. Management expects Q4 2023 capital expenditures to be lower as the Company’s costs associated with drilling at Arauca revert to a 50% working interest share per the farm-in agreement, as well as overall corporate activity being reduced with a lower rig count.
- Working capital deficit(1) was $58mn, which increased by $55mn from Q2 2023, primarily as a result of the timing of certain capital expenditures. Management expects working capital in Q4 2023 to be positive and build throughout 2024, with forecast production growth, declining capital expenditures and inventory deployment, subject to commodity prices remaining in line with Q3 2023.
- Paid a C$0.375 per share regular quarterly dividend and repurchased 1,239,500 shares.
(1) Capital management measure. See “Non-GAAP and Other Financial Measures Advisory.”
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures Advisory.”
(3) Based on weighted-average basic shares for the period.
(4) See “Operational and Financial Highlights” for a breakdown of production by product type.
(5) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures Advisory.”
(6) See “Operational and Financial Highlights” for a breakdown of production by product type.
(7) Supplementary financial measure. See “Non-GAAP and Other Financial Measures Advisory.”
(8) Estimated average production for the six-day period of November 1, 2023 to November 6, 2023.
| Operational and Financial Highlights | ||||||||
| (unaudited) | Three Months Ended Sep. 30, | Three Months Ended Sep. 30, | Three Months Ended Jun. 30, | Nine Months Ended Sep. 30, | ||||
| 2023 | 2022 | 2023 | 2023 | |||||
| Operational | ||||||||
| Average daily production | ||||||||
| Light Crude Oil and Medium Crude Oil (bbl/d) | 8,837 | 6,903 | 7,982 | 7,984 | ||||
| Heavy Crude Oil (bbl/d) | 44,779 | 43,063 | 45,644 | 44,624 | ||||
| Crude Oil (bbl/d) | 53,616 | 49,966 | 53,626 | 52,608 | ||||
| Conventional Natural Gas (mcf/d) | 5,742 | 6,750 | 2,964 | 4,470 | ||||
| Oil & Gas (boe/d)(1) | 54,573 | 51,091 | 54,120 | 53,353 | ||||
| Operating netback ($/boe) | ||||||||
| Reference price – Brent ($/bbl) | 85.92 | 97.70 | 77.84 | 81.98 | ||||
| Oil & natural gas sales(4) | 75.98 | 88.13 | 67.26 | 70.96 | ||||
| Royalties(4) | (13.72) | (17.92) | (11.15) | (12.38) | ||||
| Net revenue(4) | 62.26 | 70.21 | 56.11 | 58.58 | ||||
| Production expense(4) | (9.73) | (7.40) | (9.14) | (9.25) | ||||
| Transportation expense(4) | (3.56) | (3.35) | (3.51) | (3.39) | ||||
| Operating netback ($/boe)(2) | 48.97 | 59.46 | 43.46 | 45.94 | ||||
| Funds flow provided by operations netback ($/boe)(2) | 31.28 | 45.07 | 31.86 | 32.44 | ||||
| Financial ($000s except per share amounts) | ||||||||
| Net income | 119,736 | 65,632 | 101,415 | 325,526 | ||||
| Per share – basic(6) | 1.13 | 0.59 | 0.95 | 3.05 | ||||
| Funds flow provided by operations(5) | 157,839 | 206,412 | 154,842 | 474,405 | ||||
| Per share – basic(2)(6) | 1.49 | 1.85 | 1.45 | 4.44 | ||||
| Capital expenditures(3) | 156,747 | 127,353 | 121,309 | 391,924 | ||||
| Free funds flow(3) | 1,092 | 79,059 | 33,533 | 82,481 | ||||
| EBITDA(3) | 221,271 | 185,911 | 139,881 | 539,711 | ||||
| Other long-term asset expenditures(long-lead material & equipment inventory) | (374) | 65,725 | 20,903 | 40,296 | ||||
| Dividends paid | 29,239 | 20,042 | 30,101 | 89,171 | ||||
| Per share – Cdn$(4) | 0.375 | 0.25 | 0.375 | 1.125 | ||||
| Shares repurchased | 24,273 | 72,363 | 25,474 | 82,615 | ||||
| Number of shares repurchased (000s) | 1,240 | 4,489 | 1,260 | 4,408 | ||||
| Outstanding shares (end of period) (000s) | ||||||||
| Basic | 105,014 | 109,323 | 106,194 | 105,014 | ||||
| Weighted average basic | 105,621 | 111,631 | 106,830 | 106,872 | ||||
| Diluted(8) | 105,722 | 110,159 | 106,962 | 105,722 | ||||
| Working capital (deficit) surplus(5) | (57,511) | 229,763 | (2,957) | (57,511) | ||||
| Bank debt(7) | — | — | — | — | ||||
| Cash | 34,548 | 353,025 | 133,375 | 34,548 |
(1) Reference to crude oil or natural gas in the above table and elsewhere in this press release refer to the light and medium crude oil and heavy crude oil and conventional natural gas, respectively, product types as defined in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.
(2) Non-GAAP ratio. See “Non-GAAP and Other Financial Measures Advisory”.
(3) Non-GAAP financial measure. See “Non-GAAP and Other Financial Measures Advisory”.
(4) Supplementary financial measure. See “Non-GAAP and Other Financial Measures Advisory”.
(5) Capital management measure. See “Non-GAAP and Other Financial Measures Advisory”.
(6) Per share amounts (with the exception of dividends) are based on weighted average common shares. Dividends paid per share are based on the number of common shares outstanding at each dividend record date.
(7) Syndicated bank credit facility borrowing base of $200.0 million as at September 30, 2023.
(8) Diluted shares as stated include common shares and stock options outstanding at period end; September 30, 2023 closing price was C$25.49 per share.
Operational Update
Parex’s estimated average production in Oct. 2023 was 57,900 boe/d and November month-to-date is approximately 59,000 boe/d.
Building on strong current production, the company is positioned to bring online three key wells over the remainder of Q4 2023: Arauca-15 (50% W.I.); Cabrestero near-field (100% W.I.); and a horizontal well at LLA-34 (55% W.I.).
Northern Llanos Update
Arauca-15 Well (50% W.I.)
- Arauca-15 was drilled to a total depth of 22,350 feet, which encountered three prospective zones and is expected to commence production following testing.
- Once the rig on Arauca-15 has finished completion and initial testing, it will move to an adjacent development well, Arauca-11, to begin drilling.
Arauca-8 (Big ‘E’) Well (50% W.I.)
- Arauca-8 is a multi-zone, high-impact exploration prospect targeting light crude oil that was spud in late Q3 2023 and is at roughly 17,500 feet.
- The well is expected to reach total depth in late Q4 2023, with preliminary results expected in early 2024.
Capachos (50% W.I.)
- Following the previously announced shut-ins in H1 2023, production ramp-up has been slower than expected and remediation steps have been taken, including optimizing the workover program, in order to continue the production build up.
- During Q3 2023, the facility expansion from 15,000 to 25,000 bbl/d of fluid handling capacity was completed on time and on budget.
Southern Llanos, Foothills and LLA-34 Update
Southern Llanos – Cabrestero (100% W.I.)
- Supported by successful exploration efforts and continued success from the waterflood injection program, the block has reached all-time production rates of over 15,000 bbl/d of heavy crude oil.
- Recently drilled a well that discovered a new pool in the Mirador formation that is expected to begin production imminently.
- Continuing to ramp up total injected volume for pressure maintenance with a plan to commence a polymer flooding pilot by year-end 2023 to increase sweep efficiency.
Southern Llanos – LLA-81 (100% W.I.)
- Successfully drilled a follow-up horizontal well to maximize recovery from oil discovered in the Carbonera 7 (“C7”) reservoir.
- The well was brought on stream in early Oct. 2023 and has since averaged production of roughly 2,100 bbl/d of light & medium crude oil.
Llanos Foothills – LLA-122 – Arantes (Big ‘E’) (50% W.I.)
- Arantes is the first well within the Ecopetrol memorandum of understanding coverage (“MOU”), targeting gas and condensate.
- This is the first well to be drilled by Parex within the high-potential Foothills trend and is expected to spud in Q4 2023.
LLA-34 (55% W.I.)
- The first three horizontal wells are demonstrating strong performance and in aggregate are currently producing approximately 4,800 bbl/d of heavy crude oil (gross).
- The fourth horizontal well initiated testing in early November 2023 and is currently producing approximately 2,500 bbl/d of heavy crude oil (gross).
- The fifth horizontal well is drilling and expected to commence production in Q4 2023.
Corporate Guidance
Parex’s 2023 average production guidance of 54,000 to 57,000 boe/d and capital expenditure guidance of $450mn to $475mn remain unchanged. Building on strong current production, Parex expects its Q4 2023 average production to exceed 60,000 boe/d.
The Company expects to release its 2024 formal guidance in January 2024, alongside an updated three-year outlook.
Return of Capital Update
Q4 2023 Dividend
Parex’s Board of Directors has approved a Q4 2023 regular quarterly dividend of C$0.375 per share to be paid on December 29, 2023, to shareholders of record on December 15, 2023. The Company first initiated a regular quarterly dividend at C$0.125 per share in 2021.
This quarterly dividend payment to shareholders is designated as an “eligible dividend” for purposes of the Income Tax Act (Canada).
Active Share Buyback Program Under Current Normal Course Issuer Bids
As at 6 Nov. 2023, Parex has repurchased 4.95 million shares year-to-date under its current NCIB at an average price of C$25.00 per share, for total consideration of roughly C$124mn.
From Q4 2017 to Q3 2023, the company has reduced the fully diluted outstanding shares by 36%.
Q3 2023 Results – Conference Call & Video Webcast
Parex will host a conference call and video webcast to discuss the Q3 2023 results on Wednesday, 8 Nov. 2023, beginning at 9:30 am MT (11:30 am ET). To participate in the conference call or video webcast, please see the access information below:
| Conference ID: | 1 335 335 |
| Participant Toll-Free Dial-In Number: | 1-888-550-5584 |
| Participant Toll Dial-In Number: | 1-646-960-0157 |
| Webcast: | https://events.q4inc.com/attendee/210615525 |
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