Parex Resources Inc. is a company headquartered in Calgary, Alberta that focuses on sustainable, profitable, conventional oil and gas production. The Company is pleased to announce its financial and operating results for the year and the three months ended (“Fourth Quarter” or “Q4”) December 31, 2020.
All amounts herein are in United States dollars (“USD”) unless otherwise stated. Please note that Parex will hold a conference call on Thursday, March 4, 2021 beginning at 9:30 AM Mountain Time to discuss the 2020 year-end and Q4 results.
2020 Financial and Operational Highlights
- Annual oil and natural gas production in 2020 averaged 46,518 barrels of oil equivalent per day ("boe/d") (consisting of 6,021 barrels per day ("bbls/d") of light crude oil and medium crude oil, 39,197 bbls/d of heavy crude oil and 7,800 thousand cubic feet per day ("mcf/d') of conventional natural gas (97% crude oil)), a decrease of 12% over 2019 average production of 52,687 boe/d (consisting of 7,214 bbl/d of light crude oil and medium crude oil, 44,494 bbls/d of heavy crude oil and 5,874 mcf/d of conventional natural gas (98% crude oil)) or 6% on a production per basic share basis as a result of the Company reducing production volumes in the low oil price environment;
- Recognized net income of $99.3 million ($0.72 (CAD $0.97)(1) per share basic) for the year ended December 31, 2020 compared to net income of $328.0 million ($2.24 (CAD $2.97)(1) per share basic) for the year ended December 31, 2019;
- Generated an operating netback of $20.84/boe and a funds flow provided by operations ("FFO") netback of $17.52/boe from an average Brent price of $43.30/bbl;
- Generated FFO of $297.0 million ($2.15 (CAD $2.88)1 per share basic), a 48% decrease from the year ended December 31, 2019 of $570.5 million ($3.90 (CAD $5.17)1 per share basic); FFO was reduced from the prior year due to lower sales volumes and lower Brent oil prices;
- Utilized free funds flow of $155.8 million to purchase and cancel 13,851,994 of the Company's common shares for a total cost of $171.5 million at an average price of CAD $16.62 pursuant to the Company's normal course issuer bid ("NCIB");
- Capital expenditures ("Capex") were $141.3 million compared to $208.2 million for the year ended December 31, 2019. Capital expenditures were fully funded from FFO;
- Working capital was $320.2 million at December 31, 2020 compared to $344.0 million at December 31, 2019. In addition, the Company has an undrawn syndicated bank credit facility of $200.0 million; and
- Participated in drilling 30 gross (19.45 net) wells in Colombia resulting in 25 oil wells, 2 abandoned wells, 2 wells under test and 1 pressure maintenance well, for a success rate of 93% compared to 43 gross (26.95 net) wells in the comparative period of 2019.
Fourth Quarter Financial and Operational Highlights
- Quarterly oil and natural gas production in Q4 2020 averaged 46,642 boe/d (consisting of 6,637 bbls/d of light crude oil and medium crude oil, 38,332 bbls/d of heavy crude oil and 10,038 mcf/d of conventional natural gas (96% crude oil)), representing a production per share increase of 9% over the previous quarter ended September 30, 2020 and a decrease of 8% on a per basic share basis over the fourth quarter of 2019;
- Recognized net income of $56.2 million ($0.42 (CAD $0.55)(1) per share basic) compared to net income of $87.2 million ($0.61 (CAD $0.81)(1) per share basic) in Q4 2019;
- Generated an operating netback of $24.76/boe and an FFO netback of $19.06/boe from an average Brent price of $45.26/bbl;
- Generated FFO of $81.6 million, a 43% decrease compared to $143.3 million in Q4 2019. On a per share basic basis FFO was $0.61 (CAD $0.79)1 compared to $1.00 (CAD $1.32)1 in Q4 2019. FFO was reduced from Q4 2019 due to lower sales volumes and lower Brent oil prices;
- Utilized free funds flow of $34.6 million to purchase and cancel 6,606,994 of the Company's common shares for a total cost of $77.2 million (average price of CAD $15.77) pursuant to the Company's NCIB program;
- Capex was $46.9 million in the period compared to $58.3 million in the comparative period of 2019 and $141.3 million for the full year 2020. The fourth quarter Capex included $41.1 million for drilling and completion; and
Participated in drilling 8 gross (4.85 net)(2) wells in Colombia resulting in 8 oil wells, for a success rate of 100% in Q4 2020 compared to 22 gross (14.60 net) wells in the preceding nine months of 2020 and 15 gross (9.25 net) wells in the fourth quarter of 2019.
(1) Using USD-CAD Bank of Canada 2020 Q4 average rate of 1.3030 and 2020 annual average rate of 1.3415 and 2019 Q4 average rate of 1.3200 and 2019 annual average rate of 1.3269.
(2) Oil wells: Block LLA-34: Tigana-6, Tigana Sur-16 & 21 and Jacana-37, 39, 41 & 44. Block Fortuna: Cayene-1 & ST.
Parex is entering 2021 in a strong operational and financial position. In 2021, the Company expects to purchase the maximum number of shares under its NCIB and fund its planned capital expenditures with funds flow provided by operations, and if appropriate potentially utilizing a portion of cash reserves. Parex does not currently have any commodity price hedging positions active for 2021.
Additionally, to better reflect the Company's ESG framework and objectives, Parex' 2021 annual incentive plan includes ESG objectives such as GHG intensity reductions, diversity and inclusions goals, and safety, which now represent 30% of the annual incentive weighting.
Q1 2021 Production: Parex expects Q1 2021 average production to be approximately 46,500-47,500 boe/d.
Boranda (Operated, 50% WI): Parex has drilled the Boranda Sur well and is in the process of testing multiple formations. The well encountered deeper oil bearing sands in the Lisama formation which are not present in the Boranda field. Parex is testing the Lisama sands while the drilling rig mobilizes to the Boranda Centro pad, at which time a service rig is expected to be utilized to test the shallower La Paz sands that are productive in the main Boranda field. The Boranda Centro pad is 800 meters from the Boranda field.
VIM-1 (Operated, 50% WI): The Company is completing civil works on two new prospects, Basilea and Planadas, as follow-up to the successful exploration discovery, La Belleza-1. Drilling is expected to start in May 2021.
Shareholder Return: 2021 Share Buy Back of 10% of Outstanding Shares
As of March 2, 2021, Parex has purchased for cancellation 2,373,855 common shares of the Company at an average cost of CAD$20.64 per share, pursuant to the NCIB that commenced on December 23, 2020. Pursuant to the NCIB, Parex may purchase for cancellation up to 12,868,562 common shares prior to December 22, 2021. Since 2017, Parex has purchased for cancellation approximately 34 million shares at an average cost of CAD$18.80, returning CAD$643 million to shareholders.
Environmental, Social & Governance (ESG) Update
Progress across ESG practices remains a strategic priority for Parex. The Company recognizes that gender diversity is an important aspect of ESG and, as a result, the Board has established an objective to achieve and maintain a Board in which women represent at least 30% of directors by May 2023.
Transparent disclosure of ESG performance and related issues remains a key priority in 2021 with Parex reporting through multiple frameworks, including CDP (formerly Carbon Disclosure Project). The Company's score (B) on the CDP climate change response outperformed E&P peers' average score (B-), highlighting Parex' continued progress on climate-related disclosures. Also, Parex began aligning its annual sustainability report with the Sustainability Accounting Standards Board's (SASB) Standard for the Oil & Gas - Exploration & Production Industry; and established an ESG governance structure, with defined roles and responsibilities for the Board and Management, as a first step towards its goal of reporting pursuant to the Task Force on Climate-related Financial Disclosures ("TCFD') recommendations in 2021-2022.
In 2020, Parex completed the upgrades of the new Intermediate Care Unit at the Simón Bolívar Hospital in Bogota. The project commenced in 2019 to mark Parex' 10-year anniversary in Colombia with $1.06 million invested to modernize and increase the capacity of the burn unit. Through this initiative, the Company aimed to share the benefits of its success with the communities where its employees live. In addition, approximately $4.5 million in community initiatives were carried out to improve access to clean water, better housing, health & wellness, and infrastructure. Parex was also active providing medical and food supplies to vulnerable populations at the onset of the Covid-19 pandemic; and enhanced its safety protocols to protect the health of employees and communities.