Parex Resources Inc.
TSX VENTURE : PXT

Parex Resources Inc.

November 24, 2010 16:49 ET

Parex Resources Releases Third Quarter 2010 Results, Provides Exploration Update and Announces 2011 Outlook

CALGARY, ALBERTA--(Marketwire - Nov. 24, 2010) -

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

Parex Resources Inc. ("Parex" or the "Company" or "we") (TSX VENTURE:PXT) announces its operating and financial results for the three and nine months ended September 30, 2010, provides an exploration update for Colombia and Trinidad, and announces its 2011 Outlook. Copies of the Company's consolidated financial statements for the quarter ended September 30, 2010 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.

Third Quarter Results

Parex ended the third quarter of 2010 with working capital of $57.4 million, cash and cash equivalents of $61.1 million and no long-term debt. The Company's capital expenditure for the third quarter of 2010 was $12.6 million, with $9.0 million invested in Colombia and $3.6 million invested in Trinidad. The Company's net loss for the third quarter of 2010 was $4.1 million ($0.06 per share fully diluted), compared to a net loss of $4.4 million ($0.07 per share fully diluted) for the second quarter of 2010. As at September 30, 2010 the Company had no oil and natural gas production or published reserves.



For the three months For the nine months
ended September 30, ended September 30,
2010 2009(1) 2010 2009(1)
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Financial ($000s except
per share amounts)
Net loss (4,140) (1,445) (12,100) (2,413)
Per share -
basic $ (0.06) $ (0.03) $ (0.19) $ (0.05)
Per share -
diluted $ (0.06) $ (0.03) $ (0.19) $ (0.05)
Funds flow used
in operations (3,555) (1,393) (9,497) (2,357)
Per share -
basic $ (0.06) $ (0.03) $ (0.15) $ (0.05)
Per share -
diluted $ (0.06) $ (0.03) $ (0.15) $ (0.05)
Capital expenditures 12,637 5,613 29,744 12,903
Trinidad 3,663 3,380 11,966 9,909
Colombia 8,953 2,233 17,726 2,994
Canada 21 - 52 -
Total assets
(end of period) 128,897 46,147 128,897 46,147
Working capital
(end of period)(2) 57,408 15,986 57,408 15,986
Long-term debt
(end of period) - - - -

Weighted average shares
outstanding (000s)(2)
Basic 63,870 49,214 63,870 49,214
Diluted 63,870 49,214 63,870 49,214
Outstanding shares
(end of period)
(000s)(2)
Basic 63,870 49,214 63,870 49,214
Diluted 68,032 49,214 68,032 49,214
----------------------------------------------------------------------------
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(1) Determined using continuity-of-interest accounting (EIC-89).
(2) On November 16, 2010 Parex closed a bought-deal equity financing with a
syndicate of underwriters to issue 13,000,000 common shares at Cdn$5.80
raising gross proceeds of Cdn$75.4 million (Cdn$71.2 million net).
Outstanding shares as at November 24, 2010 were 76.9 million.


Colombia Exploration Update

During the third quarter 2010 Parex drilled the Kona-2 well on Block LLA-16 (Parex 50 percent working interest) to a depth of 13,200 feet and the Conoto-1 well on Block LLA-20 (Parex 50 percent working interest) to a depth of 8,100 feet. As previously disclosed in our press release dated October 19, 2010, both wells penetrated their objectives and were cased for testing.

The Kona-2 well was initially tested in the Mirador formation and flowed naturally up to a rate of approximately 3,000 barrels per day ("bpd") of total fluid, comprising 1,600 barrels of 35 degree API oil per day ("bopd") plus 1,400 barrels of water per day. Bottom hole pressure measurements during the test indicated a reservoir pressure of 4,710 psi and measured bottom-hole flowing pressure of 4,565 psi indicating a 3 percent drawdown. Cement bond logs demonstrate that, as at the Kona-1 well, the Mirador oil pay section had inadequate isolation from the water saturated underlying reservoir. Management attributes this operational problem to the design of the exploration wells which were drilled along complex highly deviated paths in order to penetrate multiple objectives at the optimal structural position. The complex well paths allowed the evaluation of all the prospective zones but the high deviation through the principle objectives creates a fundamental challenge to casing the wells. To remedy this problem future Kona delineation and development wells will incorporate simpler drilling designs to improve completion performance and reduce time from spud date to on-stream.

The Kona treatment facility and terminal located on the main paved all-season road has been commissioned and the first oil production at a test rate of 500 bopd (net 250 bopd) from Kona-2 began on November 23, 2010.

The service rig was moved from the Kona-2 well to Kona-1 to begin the remediation work on that well. That work is ongoing and we expect to provide an update on that operation prior to December 31, 2010. These operations have been delayed significantly by service rig mechanical problems during routine cementing operations. If production is established in the Mirador formation at Kona-1, Parex plans to return to Kona-2 to remediate and test the C7 formation where logs indicated 50 feet of potential net oil pay, or deepen the well to complete and test the prospective Gacheta formation.

On November 1, 2010, the Llanos Block LLA-16 Goroka-1 exploration prospect was spud. As of November 24, 2010 the Goroka-1 well has reached a measured depth of 10,800 feet and is expected to reach a final total depth of 12,100 feet before year end. Goroka-1 was programmed to test the C7, Mirador and Une formations. On November 2, 2010, the Llanos Block LLA-16 Supremo-1 exploration prospect was spud. As of November 24, 2010 the well has reached a measured depth of 9,800 feet and is expected to reach a final total depth of 11,900 feet before year end. Supremo-1 was programmed to test the C7 and Mirador formations. Further, Parex expects to spud two other Block LLA-16 wells prior to year end targeting light oil. These two wells will be drilled to their target depth in the first quarter of 2011.

On Block LLA-20 the Conoto-1 well has been cased and will be tested following service rig operations on Block LLA-16. The next exploration well on Block LLA-20, Zocay-1, is scheduled to commence drilling and reach its target depth in December, 2010. The Zocay-1 well is programmed to be drilled to a depth of 8,700 feet and to test the C7 and Mirador formations.

Trinidad Exploration Update

During the third quarter the Snowcap-1 well on the Moruga Block (Parex 50 percent working interest) was drilled to a total measured depth of 8,600 feet. The well is targeting oil and penetrated both of its objectives in the Herrera and Eocene formations, and was cased for testing.

Testing of both the 2010 exploration wells drilled on the Moruga Block had been delayed pending the receipt of the regulatory approvals. Environment approval for the multi-zone testing program for Snowcap-1 was received on November 11, 2010 and Parex expects to commence testing the well in early December, 2010. The Firecrown-1 well is not expected to be tested until 2011.

2010 Forecast Outlook

We forecast the total 2010 capital investment to be approximately $45 million, compared to $49 million originally budgeted. In 2010, Parex expects to drill to target depth six wells in Colombia plus the two drilled in Trinidad. Further, the Company anticipates it will spud an additional two wells in Colombia on Llanos Block LLA-16 prior to year end. The 2010 capital investment budget variance is due to the delay in commencing drilling operations on the last two wells of the 2010 Colombia program until the late fourth quarter, and the delay in Trinidad of receiving approvals to drill a well in the Central Range Shallow Block. During the fourth quarter of 2010 as we discussed above, ongoing testing operations in both Colombia and Trinidad is planned. The 2010 production exit rate is highly dependent on the ongoing remediation work on Kona-1 and completion of further zones on Kona-2.

Parex 2011 Capital Program Outlook

Building on our 2010 exploration success, Parex plans a 2011 capital investment program of $93-120 million for exploration and development operations in Colombia and Trinidad that target light oil. This budget includes drilling 19-25 wells gross (net 9.5-12.5), compared to eight wells gross (net four) expected to be drilled by Parex in 2010. In addition, Parex will continue to define its prospect inventory through the acquisition of approximately 395 square kilometres ("km(2)") of 3-D seismic in Colombia's Llanos Basin and in Trinidad's Central Range Blocks. The 2011 capital program is expected to be funded from existing working capital and augmented with estimated funds from operations. A summary of the 2011 capital plans is provided below:



Parex Capex (Net $ million)
# Wells (gross)(1) Drilling Seismic Facilities Total
----------------------------------------------------------------------------
Colombia 16-20 55-70 5 10-13 70-88
Trinidad 3-5 11-18 9 3-5 23-32
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Parex Total 19-25 66-88 14 13-18 93-120
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(1) Average working interest in Colombia and Trinidad is 50 percent


Parex 2011 Production Outlook

Parex estimates the 2011 production exit rate to range between 7,000-9,000 bopd net before royalty, all of which at this time is attributed to Colombia. Parex' current Trinidad portfolio is in the early stages of execution. Upon well testing and the evaluation of the exploration results, and the determination of marketing arrangements, the Company will be better positioned to provide a 2011 production estimate for our Trinidad program.

Colombia 2011 Capital Program Outlook

The 2011 Colombia capital budget is $70-88 million. The Company will continue to advance its exploration and development program through drilling 16-20 wells and acquiring 165 km(2)of 3-D seismic on LLA-57 and 65 km(2)on LLA-16. Parex' average working interest is 50 percent. During 2011, we plan on maintaining our current drilling activity by operating two drilling rigs and one service rig on a continuous basis. The range of capital investment reflects the early stage of the Company's operations in Colombia.

During 2011 Parex plans to drill 14-16 operated wells on Block LLA-16 and Block LLA-20. At the Kona light oil discovery six wells are planned for the initial development and we expect to drill a further eight to ten exploration and appraisal wells on those blocks. In addition, we expect our partner to drill two to four exploration wells on Block LLA-29 and Block LLA-30. Average drilling depth in operated blocks is in excess of 11,300 feet.

A significant focus for Parex in 2011 will be the development of the Kona light oil discovery on Block LLA-16. Along with the planned initial development drilling we expect to initially expand the oil treatment facilities and terminal capacity from 3,500 bpd to 10,000 bpd with the capability of further increasing capacity as warranted. The next generation of Kona development wells will be programmed as production wells and will be targeted to penetrate one or two objectives in the best structural location instead of exploring for multiple zones in the C7, Mirador, Gacheta and Une formations.

Trinidad 2011 Capital Program Outlook

The 2011 Trinidad capital budget is $23-32 million and a plan to drill three to five wells with an average working interest of 50 percent. A significant focus for Parex in 2011 will be fulfilling the Central Range Blocks work commitments. We plan to drill two Central Range Block Shallow wells, one Central Range Block Deep well and acquire 165 km(2) of 3-D seismic. In addition, the Company will continue to advance its Moruga Block exploration and development program with the drilling of two wells, and re-entering Firecrown-1. Parex anticipates fulfilling the earning terms of the Moruga Block by re-entering Firecrown-1 to deepen from its current depth of 8,701 feet to a final depth of 10,500 feet. Drilling the Central Range Deep Block commitment well to a target depth of 12,000 feet and a deep Moruga Block exploration well will require mobilizing a suitable drilling rig to Trinidad.

2011 Outlook Key Assumptions

Key assumptions underlining the 2011 capital program are:



-- World oil prices remain stable;
-- There is no material adverse change to the present fiscal regimes in
Colombia and Trinidad;
-- Drilling and testing results are within the Company's expectations;
-- The Company's partners approve the 2011 capital program; and
-- Regulatory approvals are obtained at a similar pace to 2010.


Conference Call and Webcast

Parex will host a conference call and live webcast to discuss these results on Thursday November 25, 2010 beginning at 10:30 am Mountain Standard Time (12:30 pm Eastern Standard Time). Media, analysts or any other interested parties wishing to participate in the call can access it by calling 1-866-696-5910 (toll free in North America), pass code 7864818. The live audio webcast of the conference call will be available through Windows Media Player by following the link posted under the Investor Relations, Events section of the Company's website at www.parexresources.com. Following the conclusion of the call, a link to a replay of the webcast will also be posted on the Company's website.

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 489,000 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.

Business Continuity

The Company was incorporated for the purpose of completing the Plan of Arrangement ("Arrangement") under the Business Corporations Act (Alberta) with Pluspetrol Resources Corporation N.V., its wholly owned subsidiary, 1462627 Alberta Ltd. (together "Pluspetrol") and Petro Andina Resources Inc. In connection with the Arrangement, through a series of transactions, Parex acquired from Petro Andina all of the issued and outstanding shares of Petro Andina (Barbados) Ltd. ("PABL"), Petro Andina (Colombia) Ltd. ("PACL") and indirectly all of the issued and outstanding shares of Petro Andina (Trinidad) Ltd. ("PATL"), as well as an inter-company loan and other receivables from PABL, PATL and PACL, working capital and other miscellaneous assets. As the shareholders of Petro Andina ultimately continued to hold their respective interests in Parex, there was no resulting change of control of PABL and PACL. Therefore, the acquisition was accounted for using continuity-of-interests accounting under the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract 89 "Exchanges of Ownership Interests between Enterprises Under Common Control - Wholly and Partially-Owned Subsidiaries" ("EIC-89"). Under EIC-89 no fair value adjustments were made for the assets acquired.

The unaudited consolidated financial statements of Parex reflect the assets and liabilities of PABL and PACL at their book value as reported in the financial statements of PABL and PACL for the period ended September 30, 2010. In addition, the comparative consolidated financial statements of Parex were restated to reflect the financial position and results of operations as if Parex, PABL and PACL had been combined since their inception. As a result, references to Parex incorporate the activities of Parex and its subsidiaries from their inception.

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' 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; timing of drilling and completion; planned capital expenditures, the timing thereof and the method of funding.

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. The Company's drilling activities have not yet resulted in continuous production operations and recognized oil and natural gas reserves. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could effect Parex' 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; 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' current and future operations and such information may not be appropriate for other purposes. Parex' 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
    or
    Parex Resources Inc.
    Kenneth G. Pinsky
    Vice President, Finance and Chief Financial Officer
    (403) 517-1729