Parex Resources Inc. (“Parex” or the “Company”) is pleased to announce its financial and operating results for the three-month period ended June 30, 2024, the declaration of its Q3 2024 regular dividend of C$0.385 per share, as well as an operational update. All amounts herein are in United States Dollars (“USD”) unless otherwise stated.
“In the first half of 2024, we enhanced our free funds flow profile by roughly 80% year-over-year compared to 2023. These strong financial results were driven by our core Cabrestero and LLA-34 assets, as well as reduced capital expenditures,” commented Imad Mohsen, President & Chief
Executive Officer.
“For the second half of 2024, we have paused activity at Arauca due to lower-than-expected results, and reallocated capital to LLA-32 and Capachos where we are seeing success. Initial results from these areas support our outlook to grow production into year end and meet the lower end of our annual production guidance range, while we actively work on the delivery of our high-impact, big ‘E’ exploration wells at Arantes (LLA-122) and Hidra (VIM-1)."
Key Highlights
Generated Q2 2024 funds flow provided by operations ("FFO")(1) of $181 million and FFO per share(2)(3) of $1.77.
Successfully drilled an unbooked stepout from a pre-existing field at LLA-32(4), with the drilling of up to three more follow-up wells planned for H2 2024.
Realizing positive results from the polymer injection pilot at Cabrestero(5), with a full field expansion currently being designed and evaluated.
FY 2024 average production guidance of 54,000 to 60,000 boe/d and capital expenditure guidance of $390 to $430 million are trending toward the lower end of their respective ranges.
Declared Q3 2024 regular dividend of C$0.385 per share(7) or C$1.54 per share annualized.
Repurchased approximately 2.7 million shares YTD 2024 under the Company's current normal course issuer bid ("NCIB").
Q2 2024 Results
Quarterly average oil & natural gas production was 53,568 boe/d(8), comparable to Q2 2023 and Q1 2024; increases in the Northern Llanos were offset by lower production at LLA-34 and fields in the Southern Llanos.
Grew production per share(3)(7) by 3% compared to Q2 2023, from steady production and the reduction of outstanding shares through the Company's NCIB programs.
Realized net income of $4 million or $0.04 per share basic(3).
Generated quarterly FFO(1) of $181 million and FFO per share(2)(3) of $1.77, a 17% increase and a 22% increase from Q2 2023, respectively; during the quarter, a $21 million one-time foreign exchange gain was realized related to the settlement of the Company's 2023 Colombian tax payable.
Produced an operating netback(2) of $46.32/boe and an FFO netback(2) of $37.34/boe from an average Brent price of $85.03/bbl.
Incurred $98 million of capital expenditures(6), primarily from activities at Arauca, LLA-34, LLA-32 and LLA-122.
Generated $83 million of free funds flow(6) that was used for return of capital initiatives as well as $10 million of bank debt repayment; working capital surplus(1) was $34 million and cash $119 million at quarter end.
Paid a C$0.385 per share(7) regular quarterly dividend and repurchased 1,298,300 shares.
Operational Update
Cabrestero and LLA-34(1)(2)
The Cabrestero and LLA-34 blocks had average production of over 42,000 bbl/d of heavy crude oil (net) combined in Q2 2024. At both blocks, weather-associated flooding in June 2024 adversely affected production, which has since normalized.
At LLA-34, secondary recovery from the initial waterflood injection patterns is performing strongly, with two additional patterns planned for
H2 2024.
At Cabrestero, the waterflood patterns are fully implemented, with the Company focused on continuing to ramp-up injection rates. Parex is also monitoring its polymer injection pilot that is showing positive results, with a full field expansion currently being designed and evaluated.
(1) Cabrestero: 100% W.I.
(2) LLA-34: 55% W.I.
LLA-32 - Exploitation Update(1)
Near the end of Q2 2024, the Company successfully drilled an unbooked stepout well from a pre-existing field at LLA-32. Parex has since drilled a follow-up appraisal well, which is being used to determine the areal extent of the oil field. Based on success to date, development runway on the block is emerging, with multiple appraisal and development wells that can be drilled.
(1) 87.5% W.I.
Northern Llanos - Arauca & Capachos Update(1)(2)
Following strong initial production from the Arauca Block via the Arauca-8 well, water intrusion from an upper, non-producing formation reduced oil production. A workover focused on best restoring and optimizing production is planned for Q3 2024.
The Arauca-81 well is expected to be onstream in late Q3 2024. Following the drilling and completion of this well, the rig will move to execute the required workover at the Arauca-8 well. Once the workover is completed, the rig is expected to be released.
The Arauca-15 sidetrack came online in late Q2 2024, producing at lower-than-expected average rates of roughly 1,100 bbl/d of light crude oil (gross) in June 2024(3). Following the completion of this well, the rig was relocated to Capachos, where it started a three-well campaign with the first well spud in late Q2 2024. This move allows Parex time to analyze Arauca's initial results before proceeding with the drilling of the Arauca-12 well, expected in 2025.
The Company expects the Arauca field to produce 2,000 to 4,000 bbl/d of light crude oil (gross) in H2 2024. With underperformance to date, Parex is reallocating current year Arauca capital to LLA-32(4) and Capachos drilling.
(1) Arauca: Business Collaboration Agreement with Ecopetrol S.A. (Parex 50% Participating Share); Ecopetrol S.A. currently holds 100% of the working interest in the Convenio Arauca while the assignment procedure is pending.
(2) Capachos: 50% W.I.
(3) Short-term production rate. See "Oil & Gas Matters Advisory."
(4) 87.5% W.I.
Big 'E' Exploration - High-Impact Targets with Transformational Potential
The drilling of Parex's first well in the high-potential Colombian Foothills, Arantes at LLA-122(1), continues to progress. Although the timeline has been extended due to previous mechanical issues and a revised total depth based on recalibrated seismic analysis, the well is currently at roughly 16,500 feet, with a target depth of approximately 19,500 feet. The well is expected to reach total depth in late Q3 2024.
Parex continues to progress the pre-drill work for the Hidra well at VIM-1(1), which is roughly 15 kilometers from the Company's La Belleza discovery. The well is expected to spud in Q3 2024.
As the drilling rig has moved out of the Arauca Block and adjacent LLA-38 Block, Parex plans to replace the drilling of the Berillo Oeste prospect with an exploration well at Capachos, which is expected to spud by year end(1)(2).
(1) 50% W.I.
(2) Subject to partner approval.
Production Outlook and 2024 Corporate Guidance
The Company is positioned to grow production into year-end by executing a workover at Arauca-8, bringing online new wells at Arauca and Capachos, in addition to multiple planned appraisal and development wells at LLA-32.
Parex's FY 2024 average production guidance of 54,000 to 60,000 boe/d and capital expenditure guidance of $390 to $430 million are trending toward the lower end of their respective ranges.
Lower production primarily reflects underperformance at Arauca as well as previously disclosed temporary shut-ins in the Northern Llanos, while lower capital reflects reduced spending at Arauca and LLA-38, with some offset from increased spending at LLA-32, LLA-122 and Capachos.
Return of Capital Update
Q3 2024 Dividend
Parex’s Board of Directors have approved a Q3 2024 regular dividend of C$0.385 per share to be paid on September 16, 2024, to shareholders of record on September 9, 2024. The Company first initiated a regular quarterly dividend at C$0.125 per share in 2021.
This regular 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 Bid
As at July 30, 2024, Parex has repurchased approximately 2.7 million shares under its current NCIB at an average price of C$22.15 per share, for total consideration of roughly C$59 million.