Parex Resources Inc.

TSX : PXT


Parex Resources Inc.

March 12, 2014 17:11 ET

Parex Announces Fourth Quarter and Full Year 2013 Results

CALGARY, ALBERTA--(Marketwired - March 12, 2014) -

NOT FOR DISTRIBUTION OR FOR DISSEMINATION IN THE UNITED STATES

Parex Resources Inc. ("Parex" or the "Company") (TSX:PXT), a company focused on Colombian oil exploration and production is pleased to report its operating and financial results for the three months ("fourth quarter" or "Q4") and year ended December 31, 2013. All financial amounts are in United States (US) dollars unless otherwise stated.

2013 Financial and Operational Highlights:

  • Increased annual average oil production by 40 percent and, doubled proved plus probable ("2P") reserves. This annual growth was achieved with capital expenditures that were $36 million less than funds flow from operations;
  • Replaced 2013 production by 3.75 times on a 2P basis;
  • 2P reserve growth per share of 108 percent on a debt adjusted basic share basis;
  • 2P reserve net present value of USD$832 million (CAD$915(1) million or $8.42 per basic share) after tax discounted at 10 percent compared to USD$449 million at 2012 year-end;
  • Finding and developing and acquisition ("FD&A") costs for 2013 of USD$15.67 per barrel including changes in future development costs, generating a recycle ratio of 4.0 times;
  • 2P reserve life index ("RLI") increases to 5.1 years compared to 3.4 years at 2012 year-end;
  • Increased Colombia land holdings by 44 percent (582,836 gross acres) to 1,905,878 gross acres (1,417,023 net) through farm-ins and acquisitions;
  • Participated in drilling 37 gross wells in Colombia resulting in 25 oil wells, 4 disposal wells, 3 untested and 5 dry and abandoned, for a success rate of 83 percent;
  • Generated year end funds flow from operations of $270 million ($2.49 per share basic); and
  • Increased cash balance from $32.0 million to $56.5 million, increased working capital by $36.6 million to $24.0 million and reduced bank debt by $0.6 million to $8.5 million.

1 At current spot rate of approximately 1.10 USD-CAD

Fourth Quarter 2013 Financial and Operational Highlights:

  • Achieved a record quarterly oil production of 17,287 barrels per day, an increase of 7 percent over the three months ending September 30, 2013;
  • Realized sales price in Colombia averaged $101.64 per barrel of oil and an operating netback of $60.78 per bbl;
  • Generated funds flow from operations of $75.8 million ($0.70 per share basic);
  • The Company participated in drilling 9 gross wells in Colombia resulting in 5 oil wells, 1 disposal well, 2 untested and 1 dry and abandoned, for a success rate of 83 percent(2).

2 Oil wells: Adalia-3 (temporarily suspended), Akira-6 (temporarily suspended), La Casona-2 (producing), Rumi-1(temporarily suspended), Tigana Sur-1; Disposal well: Las Maracas-14; Untested: Adalia-2, Aruco-1; Dry & Abandoned: La Guira-1.

Fourth Quarter and 2013 Financial Summary

For the Fourth quarter of 2013, sales volumes averaged 17,365 bopd (net working interest before royalty) and the average realized sales price in Colombia was $101.64 per barrel ("/bbl"), generating an operating netback of $60.78/bbl. In Q1, 2014 the Company will increase oil blending operations which will help narrow differentials closer to historic rates.

Operating plus transportation unit costs were $29.13/bbl compared to $28.78/bbl in the previous quarter. Fourth quarter production expenses were $9.94/bbl comprising of $8.14/bbl in operated fields and $14.11/bbl in non-operated fields.

Funds flow from operations in the Fourth Quarter of 2013 of $75.8 million ($0.70 per share basic) included a net decrease of 9,588 barrels of crude oil inventory. For the year 2013, funds flow from operations was $270 million.

The Company's capital expenditures were $58.8 million in the Fourth Quarter. Capital expenditures included $46.5 million for drilling and completions and $12.5 million for facilities primarily at the Akira, Las Maracas and Tua fields. For the 2013 year capital expenditures were $233.9 million.

Working capital surplus at period end was $24.0 million, including $56.5 million in cash compared to a working capital surplus of $18.8 million in the previous quarter. The Company had bank debt of $8.5 million on a current available facility of $100 million. Net working capital, defined as working capital less bank debt, increased by $37.2 million over December 31, 2012.

Three Months ended, Year ended,
Dec. 31 Sep. 30 Dec. 31 Dec. 31
2013 2013 2013 2012
Operational
Average daily production
Oil (bbl/d) 17,287 16,199 15,854 11,407
Average daily sales
Oil (bbl/d) 17,365 16,041 15,767 11,800
Oil Inventory - end of period (barrels) 137,000 146,588 137,000 146,588
Operating netback ($/bbl)
Reference Price - Brent 109.21 110.22 108.64 111.63
Oil revenue 101.64 106.41 104.20 109.18
Royalties (11.73) (13.75) (13.46) (8.31)
Net revenue 89.91 92.66 90.74 100.87
Production expense (9.94) (10.06) (9.95) (8.40)
Transportation expense (19.19) (18.72) (18.09) (19.06)
Operating netback 60.78 63.88 62.70 73.41
Financial ($000s except per share amounts)(1)
Oil and natural gas revenue 166,959 157,043 636,577 523,514
Net income 21,869 (27,965) 12,672 39,922
Per share - basic 0.20 (0.26) 0.12 0.37
Adjusted Net income (2) 23,201 (23,940) 11,786 32,628
Per share - basic 0.21 (0.22) 0.11 0.30
Funds flow from operations 75,818 68,241 269,923 241,569
Per share - basic 0.70 0.63 2.49 2.23
Capital expenditure 58,817 49,962 233,872(3) 267,688
Total assets 854,808 820,827 854,808 821,201
Working capital (deficit) surplus 24,005 18,801 24,005 (12,640)
Convertible debentures(4) 66,060 66,898 66,060 65,657
Long-term debt (5) 8,530 18,500 8,530 9,100
Outstanding shares (end of period) (000s)
Basic 108,712 108,285 108,712 108,476
Diluted(6) 118,276 112,798 118,276 113,320
(1) The table above contains Non-GAAP measures. See "Non-GAAP Terms" for further discussion.
(2) Net income has been adjusted for the International Financial Reporting Standards ("IFRS") accounting effects of changes in the derivative financial liability related to the convertible debenture. Management considers adjusted net income a better measure of the Company's financial performance.
(3) Includes the Cabrestero Block acquisition of 50% working interest for approximately $12.5 million.
(4) Face value of the convertible debenture is Cdn$85 million with a conversion price of Cdn$10.15 per share.
(5) Borrowing limit currently set at $100 million.
(6) Diluted shares as stated include the effects of common shares and in-the-money stock options outstanding at the period-end. The December 31, 2013 closing stock price was Cdn$6.58 per share.

Parex' Audited Consolidated Financial Statements, as well as Parex' Management's Discussion and Analysis ("MD&A") for years ended December 31, 2013 and 2012, are available on Parex' website at www.parexresources.com and on SEDAR at www.sedar.com.

2014 Outlook

For the months January and February 2014, oil production averaged 18,400 bopd. Following first quarter appraisal and exploration drilling, we expect to review our full year 2014 production guidance. Our current 2014 guidance is production of 17,500-18,500 bopd with a $250-$280 million capital expenditure program fully funded from funds flow from operations.

Operational Update

Parex currently has a catalyst rich 2014 drilling program of 37-45 wells. A summary of the current drilling/testing program plus the immediately following locations is provided below:

# Prospect/Well Block Timing / Status
1 Rumi-1 El Eden Facility Construction Q2
2 Tua-6 LLA-34 Suspended for LTT Approval
3 Aruco-1 LLA-34 Testing
4 Celtis-1 LLA-40 Ready to Test
5 Ardisia-1 LLA-40 Ready to Test
6 Akira-6/7 Cabrestero Facility Construction Q2
7 Akira-8 Cabrestero Ready to Test
8 Tigana-2 LLA-34 Ready to Test
9 Tigana-3 LLA-34 Drilling
10 Tigana Norte-1 LLA-34 Spud following Tigana-3
11 Arlequin-1 Cebucan Spud following Akira-8
12 Begonia-1 LLA-40 Rig Mobilizing from Ardesia-1
13 Kananaskis-1 LLA-32 Drilling

Tigana (Non-Operated, Block LLA-34, WI 45%): Tigana-1 and Tigana Sur-1 are currently producing at a temporary facility restricted combined rate of approximately 4,100 gross bopd. Tigana-2 is located approximately 400 meters north-west of Tigana-1 and was drilled to evaluate the Mirador and Guadalupe formations downdip of Tigana-1. Tigana-3 is drilling and will also evaluate the Mirador and Guadalupe formations further downdip of Tigana-2, approximately 900 meters west of Tigana-1. Civil work is currently underway to build a new pad approximately 900 meters south of the Tigana Sur 1 well to delineate the southern portion of the Tigana structure with drilling expected late Q2 or Q3 2014.

Tua-6 (Non-Operated, Block LLA-34, W I 45%): The objective of the Tua-6 well was to evaluate several zones in the Guadalupe Formation. Tua-6 is located approximately 1,400 meters north-west from the Tua pad and was drilled as far downdip as operationally possible. Log analysis indicates that the well did not encounter an oil water interface and the oil column extends deeper than previously tested. The well is currently suspended awaiting for long-term testing approval and we expect to produce from the Lower Guadalupe Formation which is the primary producing interval in the Akira field.

Aruco (Non-Operated, Block LLA-34, WI 45%): The Aruco-1 well was drilled to a total depth of 10,705 feet and cased for testing. It was drilled from the same pad as Tua-6. The Aruco-1 well is currently conducting testing operations.

Akira (Operated, Cabrestero Block, WI 100%): As previously reported, the Akira-6 and Akira-7 wells were cased and will be completed to coincide with the commissioning of the oil treatment plant during the second quarter of 2014. We expect Cabrestero Block production to increase by approximately 2,000 bopd during the second quarter of 2014 after the oil treatment plant is commissioned.

Rumi (Operated, El Eden Block WI 60%): The Rumi-1 exploration well requires the commissioning of a production facility and we expect that when production resumes during Q2 2014, it would be in the range of 300-500 bopd.

Celtis & Ardisia (Operated, Block LLA-40, WI 50%): The Celtis-1 and Ardisia-1 wells were drilled from the same pad to total depths of 9,990 and 9,515 feet respectively and cased for testing. After interpreting the well logs for potential net pay and the likely structure size, the wells were cased and will be tested later in 2014.

El Porton Block Farm-in

Parex has signed a farm-in agreement for the Exploration Area of the El Porton block in Llanos Basin of Colombia, located adjacent to the Company's El Eden Block. Pursuant to the terms of the farm-in agreement, Parex will pay 80% of the dry-hole cost of one exploration well to earn 50% working interest and operatorship. The Block is approximately 109,000 gross acres and subject to an initial base royalty of 8%. We expect to spud the Crypto-1 exploration well during 2014.

Approval of Advance Notice By-Law

Parex announces that its board of directors (the "Board") has approved certain amendments to the Company's bylaws (the "By-laws"), including an increase to the quorum at any meeting of shareholders from two persons present and holding or representing not less than 5% of the shares entitled to be voted at the meeting to two persons present and holding or representing not less than 25% of the shares entitled to be voted at the meeting, and to remove the chairman's casting vote where there is an equality of votes at a meeting of the Board or a meeting of shareholders.

In addition, the By-laws were amended to include advance notice provisions, which provisions fix a deadline by which shareholders must submit a notice of director nominations to the Chief Financial Officer of Parex prior to any annual or special meeting of shareholders where directors are to be elected, and sets forth the information that a shareholder must include in the notice for an effective nomination to occur. Specifically, the By-laws require advance notice to the Company in circumstances where nominations of persons for election to the Board are made by shareholders of the Company, other than pursuant to: (i) a shareholder proposal made in accordance with the Business Corporations Act (Alberta) (the "Act"); or (ii) a requisition of a meeting made in accordance with the Act. No person will be eligible for election as a director of the Company unless nominated in accordance with the provisions of the By-laws.

In the case of an annual meeting of shareholders, notice to the Chief Financial Officer of Parex must be made not less than 30 nor more than 65 days prior to the date of the annual general meeting of shareholders; provided, however, that in the event that the annual general meeting of shareholders is to be held on a date that is less than 50 days after the date on which the first public announcement of the date of the annual meeting was made, notice may be made not later than the close of business on the 10th day following such public announcement. In the case of a special meeting (which is not also an annual meeting) of shareholders called for the purpose of electing directors (whether or not called for other purposes), notice to the Chief Financial Officer of the Company must be made not later than the close of business on the 15th day following the day on which the first public announcement of the date of the special meeting of shareholders was made.

The By-laws, as amended, are effective and in full force and effect as of the date hereof. The amended By-laws will be put to shareholders of the Company for ratification at the Company's annual and special meeting of shareholders to be held on May 13, 2014 (the "Shareholders Meeting"). If the amended By-laws are not confirmed at the Shareholders Meeting by ordinary resolution of shareholders, the By-laws will terminate and be of no further force and effect following the termination of the Shareholders Meeting.

The full text of the amended By-laws will be available on Parex' profile at www.sedar.com and are also available upon request to the Chief Financial Officer of the Company at Investor.relations@parexresources.com.

Q4 Conference Call Information

Parex will host a conference call to discuss these results on Thursday March 13, 2014 beginning at 9:30 am MT. To participate in the call, dial 1-866-696-5910, pass code: 8740503.

The live audio will be carried at: http://bell.media-server.com/m/p/kca8xoa5

Non-GAAP Terms

Funds flow used in, or from operations, working capital, adjusted net income, operating netback per barrel and net debt may from time to time be used by the Company, but do not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other companies. Funds flow used in, or from operations includes all cash generated from operating activities and is calculated before changes in non-cash working capital. Funds flow used in, or from operations is reconciled with net earnings in the consolidated statements of cash flows. Funds flow per share is calculated by dividing funds flow used in, or from operations by the weighted average number of shares outstanding. Working capital includes current assets less current liabilities but may not include the change in non-cash working capital from one period to the next. Adjusted net income is determined by adding back any losses or deducting any gains associated with the Company's derivative financial liability. Operating netback per barrel equals sales revenue, less royalties, production expense and transportation expense, divided by total equivalent sales volume. Total net debt is a non-GAAP measure defined as the sum of working capital less the convertible debentures (excluding the derivative financial liability associated with the convertible debentures). Diluted shares include common shares plus in-the-money stock options based on the period end common share price. Management uses these non-GAAP measures for its own performance measurement and to provide shareholders and investors with additional measurements of the Company's efficiency and its ability to fund a portion of its future growth expenditures.

This news release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction.

Reserve Advisory

"Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.

"Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.

"Possible" reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10 percent probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.

All evaluations and reviews of future net cash flow are stated prior to any provision for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures for wells to which reserves have been assigned. It should not be assumed that the estimated future net cash flow shown below is representative of the fair market value of the Company's properties. There is no assurance that such price and cost assumptions will be attained, and variances could be material. The recovery and reserve estimates of crude oil reserves provided are estimates only, and there is no guarantee that the estimated reserves will be recovered. Actual crude oil reserves may be greater than or less than the estimates provided.

Advisory on Forward Looking Statements

Certain information regarding Parex set forth in this document contains forward-looking statements that involve substantial known and unknown risks and uncertainties. The use of any of the words "plan", "expect", "prospective", "project", "intend", "believe", "should", "anticipate", "estimate" or other similar words, or statements that certain events or conditions "may" or "will" occur are intended to identify forward-looking statements. Such statements represent Parex's internal projections, estimates or beliefs concerning, among other things, future growth, results of operations, production, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, plans for and results of drilling activity, environmental matters, business prospects and opportunities. These statements are only predictions and actual events or results may differ materially. Although the Company's management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause Parex' actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Parex.

In particular, forward-looking statements contained in this document include, but are not limited to, statements with respect to the performance characteristics of the Company's oil properties; supply and demand for oil; financial and business prospects and financial outlook; results of drilling and testing, results of operations; drilling plans; activities to be undertaken in various areas; capital plans in Colombia and exit rate production; plans to acquire and process 3-D seismic; timing of drilling and completion; and planned capital expenditures and the timing thereof. In addition, statements relating to "reserves" or "resources" are by their nature forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. The recovery and reserve estimates of Parex' reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered.

These forward-looking statements are subject to numerous risks and uncertainties, including but not limited to, the impact of general economic conditions in Canada, Colombia and Trinidad & Tobago; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced, in Canada, Colombia and Trinidad & Tobago; competition; lack of availability of qualified personnel; the results of exploration and development drilling and related activities; obtaining required approvals of regulatory authorities, in Canada, Colombia and Trinidad & Tobago; risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities; volatility in market prices for oil; fluctuations in foreign exchange or interest rates; environmental risks; changes in income tax laws or changes in tax laws and incentive programs relating to the oil industry; ability to access sufficient capital from internal and external sources; the risks that any estimate of potential net oil pay is not based upon an estimate prepared or audited by an independent reserves evaluator; that there is no certainty that any portion of the hydrocarbon resources will be discovered, or if discovered that it will be commercially viable to produce any portion thereof; and other factors, many of which are beyond the control of the Company. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could effect Parex's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

Although the forward-looking statements contained in this document are based upon assumptions which Management believes to be reasonable, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. With respect to forward-looking statements contained in this document, Parex has made assumptions regarding: current commodity prices and royalty regimes; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; the price of oil; the impact of increasing competition; conditions in general economic and financial markets; availability of drilling and related equipment; effects of regulation by governmental agencies; receipt of all required approvals for the Acquisition; royalty rates, future operating costs, and other matters. Management has included the above summary of assumptions and risks related to forward-looking information provided in this document in order to provide shareholders with a more complete perspective on Parex's current and future operations and such information may not be appropriate for other purposes. Parex's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits Parex will derive. These forward-looking statements are made as of the date of this document and Parex disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.

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