Parex Resources Inc.
TSX VENTURE : PXT

Parex Resources Inc.

May 24, 2011 18:29 ET

Parex Resources Announces First Quarter Results

CALGARY, ALBERTA--(Marketwire - May 24, 2011) -

NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Parex Resources Inc. ("Parex" or the "Company") (TSX VENTURE:PXT), a company focused on oil exploration and production in Colombia and Trinidad, is pleased to report its unaudited interim financial and operating results for the three months ended March 31, 2011 ("First Quarter"). Copies of the Company's consolidated financial statements and the related Management's Discussion and Analysis ("MD&A") have been filed with Canadian Securities Regulatory Authorities and will be made available under the Company's profile at www.sedar.com and on the Company's website at www.parexresources.com. All amounts below are in United States dollars unless otherwise stated.

First Quarter highlights include:


--  Recorded net income of $1.0 million and funds flow from operations of
    $3.0 million; 
--  Average daily sales of 1,146 barrels of oil per day ("bopd") net working
    interest on natural flow; 
--  The Company drilled three wells in Colombia (1.5 net) with one producing
    oil well, one suspended oil well and one dry hole (0.5, 0.5 and 0.5 net
    respectively); 
--  Trinidad Snowcap-1 tested average production rates of 580 bopd and 5.4
    million standard cubic feet per day gross (290 bopd and 2.7 mmscfd net)
    on natural flow; and 
--  Parex maintained a strong balance sheet with cash and cash equivalents
    of $105.2 million and working capital of $101.7 million at March 31,
    2011. 

Subsequent to the first quarter of 2011, 2011 highlights include:


--  Announcement that Parex has entered into a definitive agreement to
    acquire a company (the "Acquisition") which will hold the 50 percent
    interest Parex does not already own in four Llanos Basin blocks in
    Colombia, including the Kona discovery on Block LLA-16 for total
    consideration of $255 million before adjustments; 
--  Parex closed a CDN$274 million bought deal public offering, before the
    over-allotment option; 
--  The Kona-2 well tested from the Gacheta Formation 2,634 bopd of 32
    degree API oil; and 
--  Parex received notification from Trinidad's Ministry of Energy that the
    Firecrown-1 sidetrack well qualified as an obligation well under the
    license, thus Parex and its partners have now fulfilled the earning
    commitments for the onshore Moruga Block. 

First Quarter Financial Summary

Sales volumes, net working interest before royalty, for the first quarter of 2011 averaged 1,146 bopd. During the first quarter of 2011 the realized sales price in Colombia was $95.54 per barrel generating an operating netback of $63.10 per barrel.

For first quarter of 2011, the Company's net income was $1.0 million ($0.01 per share fully diluted) and funds flow from operations was $3.0 million ($0.04 per share fully diluted).

The Company's capital expenditure for first quarter of 2011 was $18.2 million, with $14.7 million invested in Colombia and $3.4 million invested in Trinidad. Excluding any potential impact from the successful completion of the Acquisition, Parex' current capital expenditure guidance for 2011 is $95-$105 million.

Parex ended the First Quarter with $101.7 million of working capital, $105.2 of cash and cash equivalents, and no long-term debt.


Financial Highlights(1)                                             

For the three months ended March 31                        2011        2010
(Unaudited)                                                         
----------------------------------------------------------------------------
Average daily sales                                                 
  Oil (bbl/d)                                             1,146           -
  Natural gas (boe/d)                                         -          14
  Total (boe/d)                                           1,146          14

Realized sales price ($/boe)                        $     95.54 $     29.72

Operating netback (per boe)                                         
  Oil and natural gas revenue                       $     95.54 $     29.72
  Royalties                                               (6.61)          -
----------------------------------------------------------------------------
  Net revenue                                             88.93       29.72
  Production expense                                      (4.06)     (15.80)
  Transportation expense                                 (21.77)          -
----------------------------------------------------------------------------
Operating netback                                   $     63.10 $     13.92

Financial ($000s except per share amounts)                          
  Oil and natural gas revenue                             9,853          36
  Net income (loss)                                       1,023      (3,571)
    Per share - basic                                      0.01       (0.06)
    Per share - diluted                                    0.01       (0.06)
  Funds flow from (used in) operations                    2,960      (3,325)
    Per share - basic                                      0.04       (0.05)
    Per share - diluted                                    0.04       (0.05)



Capital expenditure                                                 
  Trinidad                                                3,388       2,009
  Colombia                                               14,726       4,608
Total assets (end of period)                            220,521     128,164
Working capital (end of period)                         101,672      86,487
  Long-term debt (end of period)                              -           -

Weighted average shares outstanding (000s)                          
  Basic                                                  77,123      63,870
  Diluted                                                79,083      63,870
Outstanding shares (end of period) (000s)                           
  Basic                                                  77,165      63,870
  Diluted                                                82,608      67,607
----------------------------------------------------------------------------
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(1) The table above includes non-GAAP measures. Please refer to the "GAAP and Non-GAAP Terms" section for further discussion.

(2) The GLJ Petroleum Consultants Ltd. report was prepared in accordance with the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities. All of the information regarding reserves of the acquired assets only includes the Kona discovery on Block LLA-16.

Llanos Basin Acquisition Update

On April 20, 2011 Parex announced it has entered into a definitive agreement to acquire a company which will hold the 50 percent interest Parex does not already own in four Llanos Basin blocks in Colombia, including Block LLA-16 and the Kona discovery, for total consideration of $255 million, subject to customary adjustments. The Acquisition will be funded through the bought deal public offering of CDN$189.0 million of subscription receipts (prior to an over-allotment option of CDN$28.4 million) and CDN$85.0 million of 5.25 percent extendible convertible unsecured subordinated debentures (the "Offering"). Independent reserve evaluation of the acquired assets as prepared for Parex by GLJ Petroleum Consultants Ltd. effective March 31, 2011 reported proved plus probable reserves of 5.2 million barrels and proved plus probable plus possible reserves of 9.6 million barrels(2). The Acquisition represents a strategic fit for the Company as it doubles the Company's operating income, reserves and production. Parex expects the Acquisition to close on or before June 29, 2011.

The bought deal public offering of subscription receipts and 5.25 percent extendible convertible unsecured subordinated debentures closed on May 17, 2011 realizing gross proceeds of CDN$274 million. The proceeds from the subscription receipts will be held in escrow pending the closing of the Acquisition. Upon the Acquisition closing on or before July 15, 2011, the proceeds will be released to Parex and each subscription receipt will automatically be exchanged for one common share without any further action on the part of the holder and without payment of additional consideration. The underwriters were also granted an over-allotment option exercisable in whole or in part, for a period commencing at closing of the Offering and ending 30 days following closing of the Offering, to purchase up to an additional 4,050,000 subscription receipts at the same Offering price which, if exercised in full, would bring an additional estimated gross proceeds of CDN$28.4 million, and would increase the total gross proceeds to CDN$302.4 million.

Colombia Update

Due to unseasonal wet weather, commissioning of the Kona oil treatment plant is expected to be delayed from mid-May to the end of May 2011. As previously stated, the commissioning of the 25,000 bfpd Kona oil treatment plant is anticipated to allow total production from the Kona field to grow to approximately 4,000-6,000 bopd at or around that time. Current production prior to the Kona oil treatment plant commissioning is approximately 3,000 bopd.

On March 1, 2011, the Kona-4 well was spud. Kona-4, located approximately 420 metres south of Kona-2, was drilled to a total measured depth of 12,827 feet and evaluated the C7, Mirador, and Gacheta formations. Logging-while-drilling tools indicated potential net oil pay of 20 feet and 30 feet in the C7 and Mirador formations respectively. The Mirador Formation was completed and tested approximately 500 bopd of 32 degree API light oil with eight percent water cut with indications of reservoir damage due to cementing and completion. The well is currently on production pending evaluation of the most appropriate stimulation program.

On April 17, 2011 the Kona-6 well on Block LLA-16 was spud. Kona-6, located between Kona-1 and Kona-2, has been drilled as an appraisal well to evaluate the C7 and Mirador formations. Parex plans to drill stand-alone appraisal wells to evaluate the Gacheta Formation. The well has been cased and a service rig is expected to begin completion and testing in late May 2011.

Trinidad Update

As of April 27, 2011, Parex and its partners have received notification from Trinidad's Ministry of Energy that the Firecrown-1 sidetrack well qualified as an obligation well under the license, thus fulfilling the earning commitments for the Moruga Block. Having also satisfied the Moruga Block farm-in agreement, Parex' working interest is 50 percent and an application has been submitted to the Trinidad Ministry of Energy for Parex to be designated the official operator of the Moruga Block. The Company has begun completion and testing operations on the Firecrown-1 well.

On the Central Range Shallow Block, regulatory and lease construction delays have pushed the expected spud date of the first of two shallow exploration wells into the third quarter of 2011.

Conference Call Information

In lieu of Parex' regularly scheduled quarterly conference call, upon the successful closing of the Acquisition the Company expects to host a conference call to discuss its post-Acquisition operations and exploration strategy.

Annual General Meeting

Parex invites its shareholders to attend the Company's Annual General and Special Meeting of Shareholders on Thursday, May 26, 2011 at 10:30 a.m. MST at the Livingston Club, Plus 15 level of the Livingston Building South Tower, 222-3rd Avenue S.W., Calgary.

Corporate Overview

Parex, through its direct and indirect subsidiaries, is engaged in oil and natural gas exploration, development and production in South America and the Caribbean region. Parex is conducting exploration activities on its 595,000 acre holdings in the Llanos Basin of Colombia and 223,500 acre holdings onshore Trinidad. Parex is headquartered in Calgary, Canada.

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.

GAAP and Non-GAAP Terms

Effective January 1, 2011, Parex adopted International Financial Reporting Standards ("IFRS"). The Corporation's interim consolidated financial statements and the 2010 comparative information has been prepared under IFRS which are generally accepted accounting principles ("GAAP") for publically accountable enterprises in Canada.

Funds flow used in, or from operations, working capital and operating netback per barrel may from time to time be used by the Company, but do not have any standardized meaning under GAAP 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 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. Operating netback per barrel equals sales revenue, less royalties, production expense and transportation expense, divided by total equivalent sales volume. 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.

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; timing of completion of Acquisition; expected benefits of Acquisition; 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; failure to receive all required regulatory approvals for the Acquisition; failure to complete the Acquisition; failure to receive the anticipated benefits of the Acquisition; 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 there from. 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 Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Parex Resources Inc.
    Michael Kruchten
    Manager, Investor Relations
    (403) 517-1733
    (403) 265-8216 (FAX)

    Parex Resources Inc.
    Kenneth G. Pinsky
    Vice President, Finance and Chief Financial Officer
    (403) 517-1729
    (403) 265-8216 (FAX)