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 June 30, 2011 ("Second 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.
Second Quarter highlights include:
-- Closed the previously announced acquisition (the "Acquisition") of the
remaining 50% interest Parex did not already own in four Llanos Basin
blocks in Colombia, including the Kona light oil field on Block LLA-16,
for approximately $253 million, net of adjustments. This transaction
doubled the Company's reserves and production;
-- Completed a bought deal financing, issuing 31.05 million shares at
CDN$7.00 per share for gross proceeds of approximately CDN$217 million
and CDN$85 million aggregate principal amount of 5.25% convertible
unsecured subordinated debentures, for total combined gross proceeds of
CDN$302 million;
-- Achieved quarterly oil production of 1,619 barrels of oil per day
("bopd"), a 48% increase over the first quarter of 2011;
-- Delivered June 2011 exit production rate in excess of 6,000 bopd, as a
result of the Acquisition and continued development of the Kona field;
-- Realized sales price in Colombia was $104.67 per barrel generating an
operating netback of approximately $71 per barrel. Throughout the Second
Quarter the Company increased oil delivery with reference pricing to
Colombian Vasconia Blend (which is highly correlated with Brent
benchmark pricing);
-- Drilled three oil wells and one water disposal well in Colombia (4 net);
-- Commissioned and debottlenecked a 30,000 barrel of fluid per day oil
treatment plant and water disposal facility at Kona;
-- Fulfilled the earning commitments for the Trinidad onshore Moruga Block
through drilling the Firecrown-1 sidetrack well;
-- Signed Los Ocarros Block farm-in and commenced drilling Las Maracas-2
sidetrack well; and
-- Maintained a strong balance sheet with cash and cash equivalents of
$115.5 million and working capital of $101.4 million at June 30, 2011.
Subsequent to the Second Quarter of 2011 highlights include:
-- Drilled the Las Maracas-2 side-track well to total depth and preparing
to case;
-- Spud Block LLA-16 Sulawesi-1 exploration well on July 16, 2011 and cased
the well to the Mirador Formation;
-- Spud Central Range Shallow Block Cribo-1 exploration well in Trinidad on
July 22, 2011; and
-- Increased Kona field light oil production to approximately 7,010 bopd.
Second Quarter Financial Summary
Sales volumes, net working interest before royalty, for the Second Quarter of
2011 averaged 1,125 bopd. During the Second Quarter of 2011 the realized sales
price in Colombia was $104.67 per barrel generating an operating netback of
$70.97 per barrel. In addition during the Second Quarter Parex entered into a
new crude oil contract and delivered approximately 90,000 barrels of oil which
was reflected as inventory until subsequently sold in July 2011 for proceeds of
approximately $9.0 million after royalties and transportation charges. The build
up in inventory was not a result of a lack of buyers or inadequate
infrastructure to deliver the oil, but was a consequence of that specific
contract's terms which included pricing referenced to Colombian Vasconia Blend.
For the Second Quarter of 2011, the Company's net loss was $4.7 million ($0.06
per share fully diluted) and funds flow from operations was $0.3 million ($0.00
per share fully diluted). The Company's funds flow from operations would have
increased by $5.9 million ($0.07 per share fully diluted) at the end of the
Second Quarter if oil inventory had been sold in the quarter. All of Parex' oil
inventory in transit was subsequently sold under pricing referenced to Colombian
Vasconia Blend.
As the Acquisition closed on June 29, 2011 the impact of the acquired assets on
Second Quarter results were insignificant. However, the Acquisition transaction
costs of $1.8 million were expensed in the Second Quarter.
The Company's capital expenditures for Second Quarter, excluding the
Acquisition, were $23.3 million, with $21.8 million invested in Colombia and
$1.5 million invested in Trinidad. Capital expenditures were funded from
available cash and funds flow from operations.
Quarterly Highlights(1),(2)
Three Months ended Six Months ended
June 30, June 30,
2011 2010 2011 2010
(Unaudited)
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Operational
Average daily production(3)
Oil (bbl/d) 1,619 - 1,441 -
Natural gas (boe/d) - 11 - 12
Total (boe/d) 1,619 11 1,441 12
Average daily sales
Oil (bbl/d) 1,125 - 1,136 -
Natural gas (boe/d) - 11 - 12
Total (boe/d) 1,125 11 1,136 12
Operating netback ($/boe)
Oil and natural gas revenue 104.67 29.00 100.09 30.00
Royalties (11.67) - (9.13) -
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Net revenue 93.00 29.00 90.96 29.00
Production expense (7.97) (20.98) (6.01) (18.00)
Transportation expense (14.06) - (17.93) -
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Operating netback 70.97 8.02 67.02 11.00
Financial
($000s except per share amounts)
Oil and natural gas revenue 10,719 32 20,572 68
Net loss (4,688) (4,451) (3,665) (8,022)
Per share basic (0.06) (0.07) (0.05) (0.13)
Per share diluted (0.06) (0.07) (0.05) (0.13)
Funds flow from (used in)
operations 334 (2,617) 3,294 (5,942)
Per share basic 0.00 (0.04) 0.04 (0.09)
Per share diluted 0.00 (0.04) 0.04 (0.09)
Capital expenditure
Exploration & Development -
Colombia 21,764 6,197 36,490 8,773
Exploration & Development -
Trinidad 1,539 4,265 4,927 8,303
Corporate Acquisition 252,993 - 252,993 -
Total assets 593,699 127,789 593,699 127,789
Working capital surplus 101,422 72,883 101,422 72,883
Convertible debentures 61,200 - 61,200 -
Bank debt - - - -
Total net debt (excess) (40,222) (72,883) (40,222) (72,883)
Outstanding shares (end of
period) (000s)
Basic 108,215 63,870 108,215 63,870
Diluted 113,783 67,857 113,783 67,857
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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 Company's average working interest during the Second Quarter was
approximately 50 percent in its properties in both Colombia and
Trinidad. Note that on June 29, 2011, Parex closed its Colombia Llanos
Basin Acquisition which increased its working interest to 100 percent
for blocks LLA-16, LLA-20, LLA-29 and LLA-30.
(3) Includes approximately 90,000 barrels of oil inventory which was sold in
July 2011.
Colombia Operations Update
Current production is approximately 7,010 bopd with five wells currently pending
operations as discussed below. A summary of the Company's current operations is
provided below:
Well Formation Status Current bopd
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Kona-1 Mirador Producing 1,840
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Kona-2 Gacheta Producing 1,420
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Kona-3 Mirador Side-tracking 0
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Kona-4 C7 Complete after Kona-8 0
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Kona-5 Mirador Producing 860
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Kona-6 C7 Producing 2,890
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Kona-7 Mirador Drill after Kona-3 0
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Kona-8 Gacheta Casing 0
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Supremo-1 Mirador Suspended 0
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Total 7,010
The Kona-3 well was drilled as a side-track operation to the Mirador Formation.
A whipstock drilling tool failed while logging and as a result the side-track
had to be abandoned. A new side-track operation has commenced and the Company
expects to start production from the well by late September 2011. The Kona-7
well, targeting the Mirador Formation, is located on the same drilling pad as
Kona-3 and will be drilled after the Kona-3 side-track operation.
On July 10, 2011, the Kona-5 well began producing as a twin development well to
Kona-4 from the Mirador Formation. Subsequently, the Kona-4 well has been
suspended in the Mirador Formation and Parex plans to move up-hole and complete
the C7 Formation. As Kona-4 and Kona-8 share the same drilling pad, the Kona-4
C7 Formation completion is scheduled to immediately follow the completion of the
Kona-8 well.
On July 11, 2011, the Kona-8 well was spud and was designed to evaluate the
Gacheta Formation south-eastern field edge. The well was logged and is being
cased for production. The logs indicated approximately 10 feet of oil pay, which
was within the Company's expectations. The well is expected to be on-stream in
late August 2011. A further 3 wells (Kona-9 to Kona-11) are scheduled to be
drilled at Kona in 2011.
The Supremo-1 well extended production testing indicated that this well was at
the Mirador Formation oil/water contact. Well logs and seismic interpretation
indicate that a structurally higher oil target exists. Parex has suspended the
Supremo-1 well and expects to drill Supremo-2 during the third quarter 2011 to
test this prospect up structure.
Colombia Exploration
The Sulawesi-1 well on Block LLA-16 was spud on July 16, 2011. This well was
drilled to a depth of 12,000 feet to test the C7 and Mirador formations and is
located approximately 11 kilometers south-east of the Kona field, along the same
fault trend. Based on hydrocarbon shows and well logs, Sulawesi-1 has been cased
and both primary objectives are expected be completed and tested. Parex expects
to immediately drill Sulawesi-2 as a follow-up appraisal well.
On June 22, 2011, Parex signed a farm-in agreement with Petroamerica Oil Corp.
for the Los Ocarros Block, which is located directly south-west of Block LLA-16.
Under that agreement Parex will fund the first $7 million of the drilling costs
associated with the Las Maracas-2 sidetrack well. Thereafter, Parex will pay 50
percent of the Maracas-2 sidetrack well drilling or completion costs. The side
track operation has been completed. Based on hydrocarbon shows and well logs,
the Las Maracas-2 well is currently being prepared to case.
In addition to the appraisal and delineation activity planned for Kona, Supremo
and Sulawesi, the exploration prospects scheduled to be spud prior to year-end
2011 are Kona Norte, Merida and Java on LLA-16, and Cumbre on LLA-20.
Parex has initiated a large 3-D seismic program that will cover 75 square
kilometres ("km(2)") on Block LLA-16, 135 km(2) on Block LLA-20, and 165 km(2)
on Block LLA-57. The seismic program is expected to be completed by year-end
2011.
At the close of the Acquisition, Parex assumed operatorship on blocks LLA-29 and
LLA-30. Parex has identified several prospects and has begun the regulatory
process to allow for civil work and drilling to commence during early 2012.
Colombia Llanos Basin Acquisition Update
On June 29, 2011 Parex acquired a company that held the 50 percent interest
Parex did not already own in four Llanos Basin blocks in Colombia, including
Block LLA-16 and the Kona field, for approximately $253 million, net of closing
adjustments. The Acquisition represented a strategic fit for the Company as it
doubled the Company's Colombian operating income, reserves and production.
Trinidad Update
On the Central Range Shallow Block (50 percent working interest), the Cribo-1
well was spud on July 22, 2011 and is drilling to a target depth of
approximately 4,500 feet using an existing onshore Trinidad rig. Following the
Cribo-1 well, the final Central Range Shallow Block earning well, Mapepire-1 is
scheduled to be drilled.
In order to accommodate Parex' ongoing Trinidad exploration activity in the
Central Range and Moruga blocks, the Company is continuing discussions with
contractors to mobilize to Trinidad one to two modern and fit for purpose
drilling rigs capable of drilling to depths of up to 12,000 feet. Contingent on
mobilizing suitable rigs, Parex' 2011 capital guidance includes drilling the
following wells in the fourth quarter of 2011: Central Range Deep Block
prospect-1, Snowcap-2 and Firecrown-1 side-track.
2011 Guidance
Parex expects to exit 2011 with oil production of 14,000 bopd. After accounting
for the closing of the Acquisition and the Los Ocarros Block farm-in, Parex'
2011 capital budget for Colombia and Trinidad has increased and is expected to
be approximately $140-$160 million, of which $99-$119 million is expected to be
incurred in the last six months of 2011, including approximately $20 million
contingent on mobilizing up to two rigs to Trinidad. For the remainder of 2011,
Parex expects to operate three drilling rigs and one service rig in Colombia.
Parex expects to fund the remainder of the 2011 capital program largely from
funds flow from operations with any remaining requirements from existing working
capital.
Excluding the net Acquisition purchase price, the 2011 forecast capital
expenditures ("Capex") and exit rate production are:
Colombia Trinidad
----------------------------
Capex: Six Month Ended June 30, 2011 ($
millions) $36 $5
Capex: July 1 - December 31, 2011 ($ millions) $95 $4-$24
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Total Forecast 2011 Capex ($ millions) $131 $9-$29
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Forecast Exit Rate Production (bopd) 14,000 0
Conference Call Information
Parex will host a conference call to discuss these results on Friday August 12,
2011 beginning at 10:30 am MST (12:30 pm EST). Media, analysts and investors
wishing to participate in the call can access it by calling 1-866-696-5910, pass
code: 3726765.
The live audio http://bellwebcasting.ca/audience/index.asp?eventid=70835512
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 705,000 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, operating netback per
barrel and total net debt 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. 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). The principal amount of the convertible debentures is
CDN$85 million. 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 3D 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
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.
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