Paramount Resources Ltd.: Financial and Operating Results for the First Quarter Ended March 31, 2005
CALGARY, ALBERTA - May 4, 2005 /CNW/ - Paramount Resources Ltd.
(TSX:POU) ("Paramount" or the "Company") is pleased to announce its
financial and operating results for the quarter ended March 31, 2005.
/T/
Financial Highlights
($ thousands except per share amounts and where stated otherwise)
Three Months Ended March 31
2005 2004 % Change
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FINANCIAL
Petroleum and natural gas sales, net
of transportation costs 167,343 105,504 59%
Cash flow (1)
From operations 100,038 59,554 68%
Per share - basic 1.57 1.00 57%
- diluted 1.54 0.99 56%
Earnings
Net earnings (loss) (45,558) 3,179 -1533%
Per share - basic (0.72) 0.05 -1540%
- diluted (0.70) 0.05 -1500%
Capital expenditures (2)
Exploration and development 186,377 111,769 67%
Acquisitions, dispositions and other 10,915 (2,939) 471%
Net capital expenditures 197,292 108,830 81%
Total assets (3) 1,679,877 1,542,786 9%
Net debt (3) (4) 633,053 451,187 40%
Shareholders' equity (3) 590,821 625,039 -5%
Common shares outstanding (thousands)
- March 31, 2005 64,098 59,291 8%
- May 3, 2005 64,098
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OPERATING
Production
Natural gas (MMcf/d) 203 141 44%
Crude oil and liquids (Bbl/d) 7,925 5,675 40%
Total production (Boe/d) @ 6:1 41,714 29,178 43%
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Average prices (5)
Natural gas
(pre-financial instruments) ($/Mcf) 7.00 6.54 7%
Natural gas ($/Mcf) (6) 7.59 6.92 10%
Crude oil and liquids
(pre-financial instruments) ($/Bbl) 55.48 41.87 33%
Crude oil and liquids ($/Bbl) (6) 56.11 38.38 46%
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Drilling activity (gross)
Gas 94 81 16%
Oil 10 4 150%
Oilsands evaluation (7) 23 17 35%
D&A 6 4 50%
Total wells 133 106 25%
Success rate (7) 95% 96% -1%
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(1) Cash flow from operations is a non-GAAP term that represents net
earnings adjusted for non-cash items, dry hole costs and geological
and geophysical costs. The Company considers cash flow from
operations a key measure as it demonstrates the Company's ability
to generate the cash necessary to fund future growth through capital
investment and to repay debt. Cash flow should not be considered an
alternative to, or more meaningful than, net earnings as determined
in accordance with Canadian GAAP.
(2) Excludes capital expenditures of discontinued operations and other
minor accounting adjustments.
(3) Comparative figures are as at December 31, 2004.
(4) Net debt is equal to long-term debt including working capital.
(5) Average prices are net of transportation costs.
(6) Excludes non-cash gains and losses on financial instruments.
(7) Success rate excludes oilsands evaluation wells.
/T/
REVIEW OF OPERATIONS
KAYBOB
Production in the first quarter of 2005 averaged 113 MMcf/d of natural
gas and 5,234 Bbl/d of oil and natural gas liquids ("NGLs") for a total
of 24,116 Boe/d, a two percent increase from the fourth quarter
production of 107 MMcf/d of natural gas and 5,911 Bbl/d oil and NGLs for
a total of 23,678 Boe/d. First quarter production volumes were up
substantially from the previous year's average volumes of 20,157 Boe/d
due to acquisitions made in 2004 and the successful drilling program.
Included within these volumes was production from East Kaybob that
became part of Trilogy Energy Trust ("Trilogy") effective April 1, 2005.
Production from East Kaybob in the first quarter of 2005 was 103 MMcf/d
of natural gas and 4,950 Bbl/d oil and NGLs for a total of 22,026 Boe/d.
Additional wells, with production capabilities of 10 MMcf/d and 300
Bbl/d, could be brought onstream in the summer if surface conditions
permit well tie-ins.
Paramount participated in the drilling of 35 (19.6 net) wells in the
first quarter of 2005, as compared to 25 (18.2 net) wells in the first
quarter of 2004. Of these wells, 19 (14.4 net) were drilled in the East
Kaybob area with an average working interest of 75.8 percent and the
remaining 16 (5.2 net) wells were drilled in the West Kaybob area, with
a 31.3 percent average working interest. The difference in working
interest between the two areas reflects Paramount's strategy of reducing
the capital exposure on deeper prospects through farm outs. The majority
of the wells in the East Kaybob area were targeting the Gething as the
primary producing zone, as part of the down spacing program, with
opportunities to exploit additional uphole potential.
First quarter 2005 capital spending was $54 million, before land, versus
$29 million for the same period in 2004. An additional $13 million was
spent acquiring land in the East Kaybob (Trilogy properties) and West
Kaybob properties in the first quarter. This activity and capital
spending represents 40 percent of the expected 2005 capital budget of
$135 million, excluding land, for the both the East Kaybob and West
Kaybob areas. Approximately $44 million (81 percent) was spent on
drilling and completion operations and the remaining $10 million (19
percent) on tie-ins, facilities and seismic expenditures. The cost of
drilling and completing wells in the West Kaybob area are considerably
higher than the typical well in the East Kaybob area, and also
additional capital was required in the West to complete and tie-in wells
that were acquired in the recent acquisition.
The majority of activities for the remainder of the year on the assets
transferred to Trilogy Energy Trust will be focused on down-spacing
opportunities. The West Kaybob area that remains in Paramount will see
continued drilling through the summer to reach its forecasted 2005 exit
rate of 5,000 Boe/d. Finding and development and operating costs should
decline throughout the year as Paramount continues to capitalize on
developing reserves within the existing infrastructure and the winter
activity is completed.
GRANDE PRAIRIE
Production for the first quarter of 2005 averaged 36 MMcf/d of natural
gas and 311 Bbl/d of oil and NGLs for a total of 6,267 Boe/d, a one
percent increase from 2004 fourth quarter production of 6,207 Boe/d.
Included within these volumes was production from Marten Creek, which
became part of Trilogy effective April 1, 2005. During the first quarter
of 2005 production from Marten Creek averaged 19 MMcf/d of natural gas
or a total of 3,166 Boe/d as compared to 2,867 Boe/d in the fourth
quarter of 2004.
The major accomplishments for the first quarter were the drilling of 27
(25.1 net) wells, completing 19 (9.0 net) wells, the tie in of 12 (10.8
net) wells, installing three compressors and completing a large 3D
seismic program. Of these activities 14 (14.0 net) wells drilled, 14
(14.0 net) wells completed and 8 (8.0 net) wells tied-in were related to
Marten Creek. Drilling, completion and construction operations were
hampered by an early spring breakup. An additional three completed wells
with tested capability of 5 MMcf/d are to be tied-in as soon as
conditions permit and a fourth well tested oil at greater than 50 Bbl/d
will be put on a longer-term test. There are also follow up locations to
these wells. Surface conditions permitting, another six standing wells
will be completed and tested, for which, there is a high potential of
success on several of these wells. With the transfer of the Marten Creek
property to Trilogy, the Grande Prairie Operating Unit team will be
focusing on the remaining Grande Prairie assets.
Three strategic farmouts have the potential to result in 1.5 MMcf/d of
net natural gas production. Thus far, one of these farmout wells has
been evaluated and shows commercial rates. The Grande Prairie Operating
Unit is currently drilling a well in British Columbia that has potential
to discover significant reserves with high deliverability.
Paramount expects to drill up to twelve locations targeting multiple
zones in Mirage over the balance of the year. Some of the wells are
following up on the 3D seismic program that covered about one township.
The seismic was primarily focused on the recently acquired farm in lands
that extend Paramount's land base in Mirage.
In addition to the Mirage drilling program, we expect to drill seven to
ten more wells before year end.
NORTHWEST ALBERTA / CAMERON HILLS, NORTHWEST TERRITORIES
Production for the first quarter averaged 19 MMcf/d of natural gas and
941 Bbl/d of oil and NGLs for a total of 4,068 Boe/d a five percent
decrease from 21 MMcf/d of natural gas and 819 Bbl/d of oil and NGLs for
a total of 4,286 Boe/d in the fourth quarter of 2004. The lower
production was due to scheduled facility turnarounds and normal
production declines. Production is expected to peak at 30 MMcf/d of
natural gas and 950 Bbl/d of oil and NGLs in the second quarter with
newly tied-in wells coming on production in the Haro, Bistcho and
Cameron Hills areas.
The Northwest Alberta / Cameron Hills Operating Unit completed its 2005
planned work in the first quarter with the exception of a seismic
acquisition program in Haro and the recompletion of three wells in
Cameron Hills. These projects will be completed in the first quarter of
2006. No further work is scheduled for 2005 as all the areas in the
Northwest Alberta / Cameron Hills Operating Area are winter access only.
Capital expenditures in the first quarter of 2005 were $29 million. The
capital was expended in the participation in the drilling of 27 (15.8
net) and the tie-in of 21 (13.8 net) wells.
NORTHWEST TERRITORIES / NORTHEAST BRITISH COLUMBIA
Production from this operating area in the first quarter of 2005
averaged 22 MMcf/d of natural gas and 50 Bbl/d oil and NGLs for a total
of 3,733 Boe/d, a three percent increase from the 3,618 Boe/d in the
fourth quarter of 2004. Natural gas production levels at the end of
April were approximately 28 MMcf/d of natural gas production which
reflects the tie-ins and recompletions which were delayed until late
March and early April. During the first three months a total of 11 (7.9
net) wells were drilled and workovers/recompletions were conducted on 8
(6 net) wells.
Operational activity in the first quarter was focused on production
optimization at the Liard/Maxhamish, Tattoo and Clarke Lake fields.
Recompletions and workovers added an incremental 6 MMcf/d (net) of
natural gas production. One new well was drilled at Clarke Lake and is
expected to be on production in the second quarter. At West Liard,
workover activity was delayed due to equipment availability, regulatory
approvals and spring breakup. Two wells are currently producing from
this field with a third well expected back on production early in the
second quarter. Two additional workovers are planned for in May once
barging operations across the Liard River commence. Production
operations have expanded outside of the Liard Basin area with the
drilling of two wells and the tie-in of 2 MMcf/d (net) at Caribou,
Northeast British Columbia.
In the Colville Lake area, Paramount and its partner drilled three wells
at Maunoir Ridge and two at Turton Lake. Two of these wells were
abandoned, two were suspended at total depth and one was suspended after
setting surface casing due to spring breakup. Evaluation of the Nogha
gas discovery continued with the re-entering and testing of two wells
drilled last winter. A future development plan for this area will depend
on the interpretation of the results from this year's program as well as
the ongoing Mackenzie Valley Pipeline hearing process.
SOUTHERN
The Southern Operating Unit produced an average of 11 MMcf/d of natural
gas and 1,366 Bbl/d of oil and NGLs in the first quarter of 2005 for a
total of 3,209 Boe/d which was an eight percent decrease from the 2004
fourth quarter production of 3,487 Boe/d. The decrease was the result of
normal production decline in the Chain area. Also operational problems
were experienced in our North Dakota and Montana properties stemming
from cold weather.
In the fourth quarter of 2004, Paramount drilled 18 Coalbed Methane
("CBM") wells and four Belly river gas wells in Chain area. Flow tests
of the wells indicate we have over 3.5 MMcf/d of natural gas capability
which will be tied in during the second quarter of 2005.
In the first quarter of 2005, we participated in 5 (0.7 net)
non-operated wells in Alder flats, Brownfield, Chain and Enchant in
Alberta and 4 (0.4 net) non-operated wells in North Dakota and Montana.
These wells were 95 percent successful.
The main activity in the first quarter was preparing for our large
drilling and construction program in Chain which will commence in the
second quarter and continue to the end of the year. As we have stated
previously, Paramount is well placed in the Horseshoe Canyon CBM trend,
and we are embarking on a multi-year development program to harness this
resource.
HEAVY OIL
During the first quarter of 2005 Paramount formed a Partnership and a
Joint Venture with North American Oil Sands Corporation ("NAOSC") to
find, develop, produce and market potential Paramount and NAOSC bitumen
resources from the central Athabasca oil sands area. Paramount and NAOSC
then procured an additional 12 sections of land in the Hangingstone
area. Each of Paramount and NAOSC now own an undivided 50 percent
interest in the joint assets in the Partnership land holdings, which
comprise of 251.5 sections or approximately 160,000 acres of land in the
Leismer, Corner, Hangingstone and Thornbury areas.
In the first quarter Paramount drilled 5 (5.0 net) oil sands evaluation
wells ("OSE") in the wholly owned Surmont area. Paramount and NAOSC
drilled 18 (9.0 net) oil sands evaluation wells on the partnership
lands. Paramount and its partner intend to proceed with plans for an oil
sands recovery demonstration project upon confirmation of sufficient
recoverable reserves at the first of several potential commercial
development projects.
FINANCIAL
Petroleum and natural gas sales net of transportation but before
financial instruments totaled $167.3 million for the three months ended
March 31, 2005, as compared to $105.5 million for the comparable period
in 2004. The increase is mainly the result of the increase in production
as a result of the acquisitions made after the first quarter of 2004 and
a successful drilling program. Cash flow for the first quarter of 2005
totaled $100 million or $1.57 per basic share as compared to $59.6
million or $1.00 per basic share for the first quarter of 2004. The 68
percent increase in cash flow is primarily due to higher petroleum and
natural gas sales resulting from increased production volumes and higher
commodity prices, partially offset by higher operating costs and general
and administrative expenses.
A net loss of $45.6 million or $0.72 per basic share was recorded for
the three months ended March 31, 2005 as compared to net earnings of
$3.2 million or $0.05 per basic share for the three months ended March
31, 2004. The decrease in earnings is the result of the one time charge
for the premiums paid on the note exchange and consent solicitation and
the increase in financial instrument losses.
TRILOGY ENERGY TRUST
Paramount completed the spin-out of Trilogy Energy Trust on April 1,
2005. The special meeting of securityholders to consider the Trust
Spinout transaction was held on Monday, March 28, 2005. The Trust
Spinout was effected through an arrangement under the Business
Corporations Act (Alberta) by the Court of Queen's Bench of Alberta on
March 29, 2005 and closing of the transaction was April 1, 2005. At the
special meeting, Shareholders and optionholders voted 99.9 percent in
favour of the arrangement, and the arrangement also received the
majority of the minority approval giving overwhelming approval to the
spinout of Trilogy Energy Trust.
At the completion of the Trust Spinout Paramount shareholders owned 100
percent of post-reorganization Paramount and 81 percent of the
outstanding units of Trilogy with Paramount owning the remaining 19
percent of the outstanding units. There are approximately 64.1 million
common shares of Paramount and 79.1 million units of Trilogy outstanding
after completion of the Trust Spinout of which, Paramount retained
ownership of approximately 15 million units.
Trilogy now indirectly own certain of Paramount's existing assets with
current production of approximately 25,000 Boe/d (80 percent natural
gas). These assets, in the Kaybob and Marten Creek areas of Alberta, are
primarily low-risk, high working interest, lower decline properties that
are geographically concentrated with numerous infill drilling
opportunities and good access to infrastructure and processing
facilities to be operated and controlled by Trilogy. Through Trilogy,
unitholders will receive regular distributions of cash derived from the
cash flow produced by Trilogy's low-risk development assets. Due to
Trilogy's extensive development drilling portfolio, it is anticipated
that Trilogy will retain approximately 35 percent of its cash flow for
capital expenditures with the remaining 65 percent of its cash flow
being distributed to unitholders in monthly distributions. This
extensive development drilling portfolio is expected to make Trilogy
less reliant on the competitive acquisition market for developed assets
to maintain and grow distributions. Trilogy Energy Trust's initial
distribution of $0.16 per Trust Unit will be paid on May 16, 2005 for
unitholders of record on May 2, 2005. It is expected that this level of
distributions of $0.16 per unit per month will be sustainable for the
foreseeable future assuming petroleum and natural gas prices remain at
the current forward market level.
OUTLOOK
Paramount has budgeted a total of $340 million for capital expenditures
for 2005; of this, $100 million is to be directed to the Trilogy assets
and the remaining $240 million will be directed to the properties
retained by Paramount Resources Ltd. This capital program of $100
million for Trilogy is intended to replace all of the reserves
forecasted to be produced at 120 MMcf/d of natural gas and 5,000 Bbl/d
of oil and NGLs or 25,000 Boe/d. Paramount's capital program is designed
to grow production from the current 20,000 Boe/d to 25,000 Boe/d by the
end of the year. After giving effect to the spinout of Trilogy Energy
Trust, cash flow for 2005 is anticipated to be $270 million
($4.20/share). We look forward to delivering further value to Paramount
shareholders by continuing to provide growth through its short and
medium term drilling opportunities in each of the operating units as
well as the longer term projects the Company continues to work on such
as Colville Lake in the Northwest Territories and bitumen development
projects in northeast Alberta.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements within the meaning
of applicable securities laws. Forward-looking statements include
estimates, plans, expectations, opinions, forecasts, projections,
guidance or other statements that are not statements of fact. The
forward-looking statements in this news release include statements with
respect to future production, capital expenditures, drilling, operating
costs, cash flow, and the magnitude of oil and natural gas reserves.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, undue reliance should not be
placed on them because we can give no assurance that such expectations
will prove to have been correct. Factors that could cause actual results
to differ materially from those set forward in the forward looking
statements include general economic business and market conditions,
fluctuations in interest rates, production estimates, our future costs,
future crude oil and natural gas prices, and our reserve estimates. The
Company's forward-looking statements are expressly qualified in their
entirety by this cautionary statement. We undertake no obligation to
update our forward-looking statements except as required by law.
A conference call will be held with the senior management of Paramount
Resources Ltd. to answer questions with respect to the 2005 first
quarter results at 9:00 a.m. MST on Thursday, May 5, 2005. To
participate please call 1-800-766-6630 or 1-416-695-5261 approximately
15 minutes before the call is to begin.
The conference call will be live webcast from www.paramountres.com.
A replay of the conference call will be available within an hour of the
call for seven days: until May 12, 2005. The number for the replay is
1-888-509-0082 or 1-416-695-5275.
The conference call will be available for replay on the Company website,
www.paramountres.com within two hours of the webcast.
Paramount is a Canadian oil and natural gas exploration, development and
production company with operations focused in Western Canada.
Paramount's common shares are listed on the Toronto Stock Exchange under
the symbol "POU".
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")
Paramount Resources Ltd. ("Paramount" or the "Company") is pleased to
report its financial and operating results for the three months ended
March 31, 2005.
The following discussion of financial position and results of operations
should be read in conjunction with the interim unaudited consolidated
financial statements and related notes for the three months ended March
31, 2005, as well as the audited consolidated financial statements and
related notes and MD&A for the year ended December 31, 2004. The date of
this MD&A is May 4, 2005.
This MD&A contains forward-looking statements within the meaning of
applicable securities laws. Forward-looking statements include
estimates, plans, expectations, opinions, forecasts, projections,
guidance or other statements that are not statements of fact. The
forward-looking statements in this MD&A include statements with respect
to, among other things: Paramount's business strategy, Paramount's
intent to control marketing and transportation activities, reserve
estimates, production estimates, hedging policies, asset retirement
costs, the size of available income tax pools, the Company's credit
facility, the funding sources for the Company's capital expenditure
program, cash flow estimates, environmental risks faced by the Company
and compliance with environmental regulations, commodity prices, and the
impact of the adoption of various Canadian Institute of Chartered
Accountants Handbook Sections and Accounting Guidelines.
Although Paramount believes that the expectations reflected in such
forward-looking statements are reasonable, undue reliance should not be
placed on them because the Company can give no assurance that such
expectations will prove to have been correct. There are many factors
that could cause forward-looking statements to be incorrect, including
known and unknown risks and uncertainties inherent in the Company's
business. These risks include, but are not limited to: crude oil and
natural gas price volatility, exchange rate and interest rate
fluctuations, availability of services and supplies, market competition,
uncertainties in the estimates of reserves, the timing of development
expenditures, production levels and the timing of achieving such levels,
the Company's ability to replace and expand oil and gas reserves, the
sources and adequacy of funding for capital investments, future growth
prospects and current and expected financial requirements of the
Company, the cost of future asset retirement obligations, the Company's
ability to enter into or renew leases, the Company's ability to secure
adequate product transportation, changes in environmental and other
regulations, the Company's ability to extend its debt on an ongoing
basis, and general economic conditions. The Company's forward-looking
statements are expressly qualified in their entirety by this cautionary
statement. We undertake no obligation to update our forward-looking
statements except as required by law.
Included in this MD&A are references to financial measures such as cash
flow from operations ("cash flow") and cash flow per share. While widely
used in the oil and gas industry, these financial measures have no
standardized meaning and are not defined by Canadian generally accepted
accounting principles ("GAAP"). Consequently, these are referred to as
non-GAAP financial measures. Cash flow appears as a separate caption on
the Company's consolidated statement of cash flows and is reconciled to
net earnings. Paramount considers cash flow a key measure as it
demonstrates the Company's ability to generate the cash necessary to
fund future growth through capital investment and to repay debt.
However, cash flow should not be considered an alternative to, or more
meaningful than, net earnings as determined in accordance with GAAP as
an indicator of the Company's performance.
In this MD&A, certain natural gas volumes have been converted to barrels
of oil equivalent (Boe) on the basis of six thousand cubic feet (Mcf) to
one barrel (Bbl). Boe may be misleading, particularly if used in
isolation. A Boe conversion ratio of 6 Mcf=1 Bbl is based on an energy
equivalency conversion method, primarily applicable at the burner tip
and does not represent equivalency at the wellhead.
Additional information on the Company can be found on the SEDAR website
at www.sedar.com.
Paramount is an exploration, development and production company with
established operations in Alberta, British Columbia, Saskatchewan, the
Northwest Territories, and in Montana, North Dakota and California in
the United States. Management's strategy is to maintain a balanced
portfolio of opportunities, to grow reserves and production in the
Company's core areas while maintaining a large inventory of undeveloped
acreage, to focus on natural gas as a commodity, and to selectively
enter into joint venture agreements for high risk/high return prospects.
Significant Events
APPROVAL OF TRUST SPINOUT
At a special meeting held on March 28, 2005, Paramount's shareholders
and optionholders overwhelmingly approved the arrangement under the
previously announced Trust Spinout transaction described in more detail
in the Offering Circular of Paramount dated February 28, 2005. On March
29, 2005 Paramount received the final order of the Court of Queen's
Bench approving the arrangement, which became effective April 1, 2005.
Through the plan of arrangement, Shareholders of Paramount received in
exchange for each of their Common Shares, one New Common Share of
Paramount and one Trust Unit of the new energy trust, Trilogy Energy
Trust (the "Trust"). Under this transaction, Shareholders of Paramount
would own all the issued and outstanding New Common Shares and 81
percent of the issued and outstanding Trust Units, with the remaining 19
percent of the issued and outstanding Trust Units being held by
Paramount.
Pursuant to the plan of arrangement, the Trust indirectly owns certain
of Paramount's existing assets. The assets intended to become indirectly
owned by the Trust are located in the Kaybob and Marten Creek areas of
Alberta with current production of approximately 25,000 Boe/d. As
holders of Trust Units after the plan of arrangement, the Unitholders
will receive monthly distributions of the cash flow generated by those
assets held by Trilogy Energy LP, a limited partnership, and distributed
to Unitholders through the Trust.
As the Trust Spinout was not completed until April 1, 2005, the
Company's consolidated financial statements as at and for the three
months ended March 31, 2005 still include the financial condition,
results of operations and cash flows relating to the assets included in
the Trust Spinout arrangement.
In connection with the Trust Spinout, Paramount has incurred estimated
reorganization related costs totaling $4.0 million as at March 31, 2005
which are deferred on the consolidated balance sheet. At closing, the
Trust Spinout will not result in a substantial change in ownership of
the Spinout Assets, and therefore the transaction will be accounted for
at the carrying value of the net assets transferred. The accounting for
the Trust Spinout will result in the significant reduction in
Paramount's balance sheet accounts including property, plant and
equipment with net book value of approximately $699 million, future
income tax liabilities of approximately $166 million, asset retirement
obligation of approximately $65 million, goodwill of approximately $19
million and the costs related to the reorganization. The offset to these
adjustments in balances will be to shareholders' equity. There will also
be various reductions recorded to other accounts.
NOTES EXCHANGE
As a condition to the Trust Spinout arrangement described above, on
February 7, 2005, Paramount completed a note exchange offer and consent
solicitation, as amended, issuing US $213,593,000 8 1/2% Senior Notes
due 2013 (the "2013 Notes") and paying aggregate cash consideration of
approximately US$36.2 million (Cdn $45.1 million) in exchange for
approximately 99.31 percent of the outstanding 7 7/8% Senior Notes due
2010 (the "2010 Notes") and 100 percent of the outstanding 8 7/8% Senior
Notes due 2014 (the "2014 Notes") and the note holders' consent to
proceed with the Trust Spinout. The premiums paid with respect to the
notes exchange and consent solicitation together with related deferred
financing charges were charged to income for the three months ended
March 31, 2005. As a result of the note exchange, US $913,000 principal
amount of the 2010 Notes and no 2014 Notes remained outstanding as at
March 31, 2005. Details of the outstanding notes are discussed further
in the Liquidity and Capital Resources section of this MD&A.
INTEREST IN OIL SANDS PARTNERSHIP
During the first quarter of 2005, Paramount and North American Oil Sands
Corporation ("NAOSC") formed a 50-50 owned partnership, 68-475 Alberta
Oil Sands Partnership ("Oil Sands Partnership") for the purpose of
acquiring, drilling and evaluating oil sands interests in the central
portion of the Athabasca Oil Sands region of Alberta. The formation of
the Oil Sands Partnership was completed through a series of related
events including the sale of 50 percent interest on certain lands from
NAOSC to Paramount and vice versa, contribution of the jointly owned
lands to the Oil Sands Partnership in exchange of partnership units,
cash contribution by NAOSC in exchange of partnership units, and
property contribution by Paramount in exchange of cash and partnership
units. The net impact of these events to Paramount is primarily the
contribution of lands in the Athabasca region of Alberta with a total
net book value of approximately $9.6 million to the Oil Sands
Partnership in exchange of the issuance of 20,092,863 partnership units
to Paramount.
Paramount initially retained a 1 percent gross overriding royalty
interest in some of the lands contributed to the Oil Sands Partnership
in accordance with the partnership agreement. On March 21, 2005,
Paramount contributed this royalty interest to the Oil Sands Partnership
in exchange for an additional 8,000,000 partnership units after NAOSC
acquired additional partnership units for cash as required by the
partnership agreement.
Subsequent to the formation of the Oil Sands Partnership, Paramount also
entered into purchase and sale agreements with NAOSC whereby the Company
acquired 50 percent interest in certain lands for $10.4 million and
disposed of 50 percent interest in other lands for $1.1 million. It is
intended that these jointly owned lands will be contributed to the Oil
Sands Partnership in exchange of partnership units.
INTEREST IN GAS MARKETING LIMITED PARTNERSHIP
In early March 2005, Paramount completed a transaction whereby it
acquired an indirect 25 percent interest in a gas marketing limited
partnership, for US$5 million ($6.2 million). The gas marketing limited
partnership commenced operations on March 9, 2005.
In conjunction with the acquisition of this equity interest, Paramount
will make available for delivery an average of 150,000 GJ/d of natural
gas over a five-year term, to be marketed on Paramount's behalf by the
gas marketing limited partnership. The volume and amount of natural gas
sold by Paramount to the gas marketing limited partnership from March 9
to 31, 2005 are disclosed in the Related Party Transactions section of
this MD&A.
Paramount and Trilogy Energy LP have entered into a Call on Production
Agreement whereby Paramount will have the right to purchase all or any
portion of Trilogy Energy LP's available gas production at a price no
less favorable than the price Paramount will receive on the resale of
the natural gas to the gas marketing limited partnership. The term of
the Call on Production Agreement is no longer than five years.
Revenue and Production
/T/
Three Months Ended
March 31,
Revenue (thousands of dollars) 2005 2004
------------------------------------------------------------------------
Natural gas, net of transportation costs $ 127,768 $ 83,879
Oil and natural gas liquids,
net of transportation costs 39,575 21,625
------------------------------------------------------------------------
Petroleum and natural gas revenue,
net of transportation costs 167,343 105,504
Loss on financial instruments (27,930) (6,462)
Gain on sale of investments 2,367 -
------------------------------------------------------------------------
Gross revenue $ 141,780 $ 99,042
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
Natural gas revenue for the three months ended March 31, 2005 increased
52 percent to $127.8 million as compared to $83.9 million for the same
period in 2004. The increase in natural gas revenue resulted primarily
from an increase in production levels combined with higher natural gas
prices. Gas production for the three months ended March 31, 2005
increased 44 percent to average 203 MMcf/d as compared to 141 MMcf/d in
the first quarter of 2004, mainly due to the asset acquisitions in the
Kaybob, Liard and Marten Creek areas made subsequent to March 31, 2004.
This increase in natural gas production contributed a $38.0 million
increase in natural gas revenue during the first quarter 2005. The
average natural gas price (net of transportation costs but before
financial instruments) of $7.00/Mcf for the three months ended March 31,
2005 was higher compared to the average natural gas price of $6.54/Mcf
for the same period in 2004. Higher natural gas prices resulted in a
$5.9 million increase in natural gas revenue for the first quarter 2005.
Oil and NGL revenue for the three months ended March 31, 2005 increased
83 percent to $39.6 million as compared to $21.6 million for the same
period in 2004. The increase in oil and NGL revenue resulted primarily
from higher production volumes combined with higher oil and NGL prices.
During the current quarter, production increased 40 percent to 7,925
Bbl/d compared to 5,675 Bbl/d in the comparable period in 2004. The
increase in oil and NGL production that resulted in a $10.9 million
increase in oil and NGL revenue is primarily a result of the asset
acquisitions in 2004. Oil and NGL prices (net of transportation costs
but before financial instruments) averaged $55.48/Bbl for the three
months ended March 31, 2005 compared to $41.87/Bbl for the same period
in 2004, resulting in an increase in oil and NGL revenue of $7.0 million
for the current period.
Financial Instruments
Paramount's financial success is contingent upon the growth of reserves
and production volumes and the economic environment that creates a
demand for natural gas and crude oil. Such growth is a function of the
amount of cash flow that can be generated and reinvested into a
successful capital expenditure program. To protect cash flow against
commodity price volatility, the Company will, from time to time, manage
cash flow by utilizing forward commodity price contracts. The financial
instrument program is generally for periods of less than one year and
would not exceed 50 percent of Paramount's current production volumes.
At March 31, 2005, Paramount had the following forward financial and
physical contracts in place:
/T/
Amount Price Term
------------------------------------------------------------------------
Financial Sales Contracts
AECO Fixed Price 20,000 GJ/d $ 6.28 April 2005 - June 2005
AECO Fixed Price 20,000 GJ/d $ 6.30 April 2005 - June 2005
AECO Fixed Price 20,000 GJ/d $ 6.80 April 2005 - June 2005
AECO Fixed Price 60,000 GJ/d $ 7.58 July 2005 - October 2005
WTI Fixed Price 1,000 Bbl/d $47.30 March 2005 - September 2005
NYMEX Fixed Price 1,000 Bbl/d $46.77 March 2005 - December 2005
Physical Sales Contracts
Gas Sales contract 10,000 GJ/d $ 7.22 April 2005 - October 2005
Gas Sales contract 10,000 GJ/d $ 7.23 April 2005 - October 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
In addition, the following financial and physical contracts were also
outstanding as at March 31, 2005 but will be part of the Trust Spinout:
Amount Price Term
------------------------------------------------------------------------
Financial Sales Contracts
AECO Fixed Price 10,000 GJ/d $ 7.06 April 2005 - October 2005
AECO Fixed Price 10,000 GJ/d $ 7.10 April 2005 - October 2005
AECO Fixed Price 20,000 GJ/d $ 7.10 April 2005 - October 2005
WTI Fixed Price 1,000 Bbl/d $53.26 April 2005 - September 2005
NYMEX Fixed Price 1,000 Bbl/d $55.25 April 2005 - September 2005
Physical Sales Contracts
Gas Sales contract 10,000 GJ/d $ 6.98 April 2005 - October 2005
Gas Sales contract 10,000 GJ/d $ 7.36 April 2005 - October 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
The Company also has in place foreign exchange forward contracts, which
have fixed the exchange rate on US $9.0 million for CDN $12.9 million
over the next nine months at CDN $1.4337. Additionally, the Company
entered into a fixed to floating interest rate swap whereby the Company
swapped US$ 7 7/8 percent fixed interest for US$ LIBOR plus 320 basis
points on a notional amount of US $175 million.
Subsequent to March 31, 2005, the Company and Trilogy Energy LP (the
transferee of the Spinout Assets) entered into the following financial
instrument contracts:
/T/
Amount Price Term
------------------------------------------------------------------------
Paramount
AECO Fixed Price 10,000 GJ/d $ 8.73 November 2005 - March 2006
AECO Fixed Price 10,000 GJ/d $ 8.71 November 2005 - March 2006
Trilogy Energy
AECO Fixed Price 10,000 GJ/d $ 8.73 November 2005 - March 2006
AECO Fixed Price 10,000 GJ/d $ 8.71 November 2005 - March 2006
WTI Fixed Price 1,000 Bbl/d $57.70 May 2005 - December 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
The Company follows the recommendations set out by the Canadian
Institute of Chartered Accountants ("CICA") in Accounting Guideline
("AcG") 13 - Hedging Relationships and Emerging Issues Committee
Abstract 128 - Accounting for Trading, Speculative or Non-Hedging
Derivative Financial Instruments. According to the recommendations,
financial instruments that do not qualify as a hedge under AcG 13 or are
not designated as a hedge are recorded in the consolidated balance
sheets as either an asset or a liability, with changes in fair value
recorded in net earnings. The Company has chosen not to designate any of
its financial instruments as hedges and accordingly, has used
mark-to-market accounting for these instruments.
During the initial implementation of AcG 13 on January 1, 2004, the
Company recorded deferred financial instrument gains and losses of $3.3
million and $1.8 million, respectively, representing the fair values of
financial contracts outstanding at the beginning of the fiscal year.
These deferred gains and losses are being recognized in earnings over
the term of the related contracts. Amortization of the deferred gains
and losses resulted in a net increase in earnings before tax of $0.4
million (2004 - decrease in net earnings before tax of $0.2 million).
In addition, the Company recognized the fair value of financial
instruments it entered into during the three months ended and are
outstanding as at, March 31, 2005 totaling $37.7 million (2004 - $5.3
million) and a change in the fair value of previously entered financial
instruments but still outstanding as at March 31, 2005 for $1.3 million
(2004 - $4.7 million). These amounts reflect the unrealized changes in
fair value of Paramount's financial instruments.
The total loss on financial instruments for the three months ended March
31, 2005 of $27.9 million (2004 - $6.5 million) is comprised of the
aforementioned mark-to-market valuation before tax loss on forward
contracts of $39.0 million (2004 - $10.0 million), net of amortization
income of $0.4 million (2004 - amortization expense of $0.2 million) and
realized gains on financial instruments of $10.7 million (2004 - 3.7
million) related to monthly settlements with counterparties.
The Company is exposed to credit risk from financial instruments to the
extent of non-performance by third parties, and non-performance by
counterparties to swap agreements. The Company minimizes credit risks
associated with possible non-performance by financial instrument
counterparties by entering into contracts with only highly rated
counterparties and controls third party credit risk with credit
approvals, limits on exposures to any one counterparty, and monitoring
procedures. The Company sells production to a variety of purchasers
under normal industry sale and payment terms. The Company's accounts
receivable are with customers and joint venture partners in the
petroleum and natural gas industry and are subject to normal credit risk.
As noted in the Significant Events section of this MD&A, Paramount will
make available for delivery an average of 150,000 GJ/d of natural gas
over a five year term, to be marketed on Paramount's behalf by the 25
percent owned gas marketing limited partnership. Paramount is not
entitled to demand collateral securities from the gas marketing limited
partnership to ensure payment for the gas volumes delivered, but is
entitled to other means of protection in this regard including stringent
credit and risk management restrictions. The gas marketing limited
partnership's sole counterparty on financial instruments as at March 31,
2005 is a natural gas exchange house.
/T/
Three Months Ended
March 31,
Netbacks ($/Boe) 2005 2004
------------------------------------------------------------------------
Gross revenue before financial instruments(1) $ 45.21 $ 40.14
Royalties 9.38 7.88
Operating costs 7.45 6.96
------------------------------------------------------------------------
Operating netback 28.38 25.30
------------------------------------------------------------------------
Realized gain on financial instruments (2.85) (1.41)
General and administration (2) 2.17 1.98
Interest (3) 1.93 1.54
Lease rentals 0.26 0.46
Current and Large Corporations tax 0.22 0.29
------------------------------------------------------------------------
Cash flow netback $ 26.65 $ 22.44
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Net of transportation costs.
(2) Excluding non-cash general and administrative expenses.
(3) Excluding non-cash interest expense.
/T/
Royalties
Royalties, net of ARTC, amounted to $35.2 million for the three months
ended March 31, 2005, as compared to $20.9 million for the comparable
period in 2004. The increase is due mainly to higher petroleum and
natural gas revenues. As a percentage of petroleum and natural gas sales
net of transportation costs, royalties averaged 21.0 percent in the
current period as compared to 19.8 percent for 2004. The slight increase
in royalties as a percentage of petroleum and natural gas sales net of
transportation costs is primarily the effect of lower gas cost allowance
associated with the properties previously spun out to Paramount Energy
Trust.
Operating Costs
For the three months ended March 31, 2005, operating costs totaled $28.0
million compared to $18.5 million during the same period a year earlier.
On a unit-of-production basis, average operating costs increased 7
percent to $7.45/Boe from $6.96/Boe, reflecting a general increase in
the cost of goods and services in the energy sector and the higher
operating costs related to the properties acquired in the second quarter
2004.
General and Administrative Expenses
/T/
Three Months Ended
General and Administrative Expenses March 31,
(thousands of dollars) 2005 2004
------------------------------------------------------------------------
General and administrative expenses before
stock-based compensation $ 6,122 $ 4,918
Stock-based compensation expense 3,693 956
------------------------------------------------------------------------
General and administrative expenses $ 9,815 $ 5,874
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
General and administrative expenses before stock-based compensation
totaled $6.1 million for the three months ended March 31, 2005, as
compared to $4.9 million recorded for the same period a year earlier.
Paramount has increased its head-office staff levels to enable the
Company to identify and develop new core areas and build its production
portfolio which has resulted in the Company evaluating long-term
projects and developing successful new fields. The Company has also
increased administration staff levels to ensure compliance with the new
corporate and reporting obligations in Canada and the United States. On
a unit-of-production basis, general and administrative expenses before
costs associated with stock-based compensation decreased to $1.63/Boe as
compared to $1.84/Boe for the three-month period ended March 31, 2004.
There were higher production volumes during the current period to cover
fixed general and administrative costs than in the same period in 2004.
Paramount does not capitalize any general and administrative expenses
with the exception of overhead recoveries.
Stock-based compensation increased by $2.7 million during the three
months ended March 31, 2005 mainly as a result of the increase in the
intrinsic value of outstanding stock options and new stock options
granted subsequent to March 31, 2004.
Interest Expense
Interest expense for the three months ended March 31, 2005, increased 78
percent to $7.3 million from $4.1 million for the same period in 2004.
The increase in interest expense is attributed to higher debt levels
resulting from the acquisitions made subsequent to March 31, 2004.
Dry Hole Costs
Under the successful efforts method of accounting petroleum and natural
gas properties, costs of drilling exploratory wells are initially
capitalized and, if subsequently determined to be unsuccessful, are
charged to dry hole expense. Other exploration costs, including
geological and geophysical costs and annual lease rentals, are charged
to exploration expense as incurred. Dry hole costs for the three months
ended March 31, 2005 amounted to $5.0 million as compared to $3.0
million for the same period in 2004. The first quarter 2005 provision
includes $2.1 million of costs associated with wells drilled in the
current quarter and $2.9 million associated with exploratory wells
drilled in previous periods.
Geological and geophysical expenses increased during the three months
ended March 31, 2005 to $5.5 million from $4.0 million for the same
period in 2004.
Depletion and Depreciation
Depletion and depreciation ("D&D") expense increased to $63.4 million
from $41.8 million for the three months ended March 31, 2004, primarily
due to a larger asset base with the major acquisitions, combined with a
higher depletion and depreciation rate. On a unit-of-production basis,
depletion and depreciation costs increased to $16.88/Boe as compared to
$15.75/Boe for the first three months of 2004, due primarily to the
addition of capital costs previously excluded from the depletable base.
Expired mineral leases included in D&D expense for the three-month
period ended March 31, 2005 totaled $3.0 million (2004 - $2.9 million).
Capital costs associated with undeveloped land and exploratory,
non-producing petroleum and natural gas properties of $386 million are
excluded from costs subject to depletion at March 31, 2005 (December 31,
2004 - $300 million).
Income Tax
Income and other tax recovery amounted to $23.6 million in the first
quarter 2005 compared to $6.6 million for the same period in 2004. The
recovery in 2005 resulted mainly from the tax benefit recognized on
current tax losses while the recovery in 2004 was due primarily to the
reduction in statutory tax rate in the first quarter 2004.
Cash Flow and Earnings
For the three months ended March 31, 2005, cash flow from operations
totaled $100.0 million as compared to $59.6 million in the comparable
period in 2004. The 68 percent increase in cash flow is primarily due to
higher petroleum and natural gas sales resulting from increased
production volumes and higher commodity prices, partially offset by
higher operating costs and general and administrative expenses.
The net loss for the three months ended March 31, 2005 totaled $45.6
million compared to a net earnings of $3.2 million for the comparable
period in 2004. This turn around in the net results is due mainly to the
premiums paid on the notes exchange and consent solicitation as
discussed above and the increase in financial instrument losses from
$6.5 million for the three months ended March 31, 2004 to $27.9 million
for the current period.
Quarterly Information
/T/
Three Months Ended
(thousands of dollars, Mar. 31, Dec. 31, Sept. 30, June 30,
except per share amounts) 2005 2004 2004 2004
------------------------------------------------------------------------
Net revenues $ 106,576 $ 162,880 $ 127,192 $ 95,767
Net earnings (loss)
before discontinued
operations $ (45,558) $ (18,873) $ 40,599 $ 10,331
Net earnings (loss)
from discontinued
operations $ - $ 1,120 $ 5,213 $ (395)
------------------------------------------------------------------------
Net earnings (loss) $ (45,558) $ (17,753) $ 45,812 $ 9,936
------------------------------------------------------------------------
Net earnings (loss)
from discontinued
operations per common
share - basic $ - $ (0.30) $ 0.69 $ 0.18
- diluted $ - $ (0.29) $ 0.68 $ 0.17
------------------------------------------------------------------------
Net earnings (loss)
per share - basic $ (0.72) $ (0.28) $ 0.78 $ 0.17
- diluted $ (0.70) $ (0.28) $ 0.76 $ 0.17
------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended
(thousands of dollars, Mar. 31, Dec. 31, Sept. 30, June 30,
except per share amounts) 2004 2003 2003 2003
------------------------------------------------------------------------
Net revenues $ 78,107 $ 76,945 $ 65,415 $ 65,101
Net earnings (loss)
before discontinued
operations $ 2,838 $ 10,899 $ (8,491) $ (1,105)
Net earnings (loss)
from discontinued
operations $ 341 $ 209 $ 108 $ (783)
------------------------------------------------------------------------
Net earnings (loss) $ 3,179 $ 11,108 $ (8,383) $ (1,888)
------------------------------------------------------------------------
Net earnings (loss)
from discontinued
operations per common
share - basic $ 0.05 $ 0.18 $ (0.14) $ (0.02)
- diluted $ 0.05 $ 0.18 $ (0.14) $ (0.02)
------------------------------------------------------------------------
Net earnings (loss)
per share - basic $ 0.05 $ 0.18 $ (0.14) $ (0.03)
- diluted $ 0.05 $ 0.18 $ (0.14) $ (0.03)
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
Except for the decline in the first quarter 2005, quarterly net revenues
have continued to increase since the second quarter 2003 as the Company
has steadily increased production and commodity prices continue to
remain high. Net revenues for the three months ended March 31, 2005
decreased from the previous quarter due mainly to the financial
instrument losses of $27.9 million incurred in the current period
compared to the financial instrument gain of $27.4 million in the
previous quarter. This change and the abovementioned payment of premium
on notes exchange and consent solicitation are the main reasons for the
net loss for the three months ended March 31, 2005.
The net loss for the three months ended December 31, 2004 was due mainly
to the recording of stock option liability using the intrinsic value to
account for stock options as at December 31, 2004.
Capital Expenditures
/T/
Three Months Ended
March 31,
2005 2004
------------------------------------------------------------------------
Wells Drilled Gross (1) Net (2) Gross (1) Net (2)
------------------------------------------------------------------------
Natural Gas 94 62 81 59
Oil 10 5 4 4
Oilsands evaluation 23 14 17 17
Dry 6 3 4 2
------------------------------------------------------------------------
Total 133 84 106 82
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) "Gross" wells means the number of wells in which Paramount has a
working interest or a royalty interest that may be convertible to a
working interest.
(2) "Net" wells means the aggregate number of wells obtained by
multiplying each gross well by Paramount's percentage working
interest therein.
/T/
During the three months ended March 31, 2005, Paramount participated in
the drilling of 133 gross wells (84 net) compared to 106 gross wells (82
net) for the comparable three month period in 2004.
/T/
Three Months Ended
March 31,
Capital Expenditures (thousands of dollars) 2005 2004
------------------------------------------------------------------------
Land $ 17,747 $ 6,722
Geological and geophysical 5,513 3,992
Drilling 119,955 70,200
Production equipment and facilities 43,162 30,855
------------------------------------------------------------------------
Exploration and development expenditures $ 186,377 $ 111,769
Proceeds received on property dispositions (11) (3,165)
Property acquisitions 9,921 -
Other 1,005 226
------------------------------------------------------------------------
Net capital expenditures $ 197,292 $ 108,830
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
For the three months ended March 31, 2005, exploration and development
expenditures totaled $186.4 million, as compared to $111.8 million for
the same period in 2004. This increase in exploration and development
expenditures is due primarily to a higher number of deep wells drilled
in the West Kaybob and Grande Prairie areas. In addition, the drilling
of several wells was commenced in the Grande Prairie area but was not
completed due to the early season break-up. The Company has also
increased land expenditures to $17.7 million from $6.7 million as
Paramount continues to build its strategic land inventory.
The increase in production equipment and facilities expenditures of
$12.3 million in the current quarter was due mainly to tie-in projects
associated with the assets in the Kaybob and Marten Creek areas acquired
in 2004.
Liquidity and Capital Resources
WORKING CAPITAL
The Company's working capital at March 31, 2005 was a $102.4 million
deficit compared to an $8.0 million surplus at December 31, 2004. This
significant change in working capital is primarily the result of higher
capital expenditures during the first quarter 2005 compared to the
fourth quarter 2004, increasing liabilities for capital expenditures by
$63.5 million, partially offset by an increase in receivables from joint
venture partners of $18.7 million, and causing a reduction in short-term
investments by $10.6 million. Drilling activities normally reach their
highest peak during the first quarter winter season of each year. In
addition, the change from a net financial instrument asset of $19.4
million as at December 31, 2004 to a net financial instrument liability
of $19.3 million as at March 31, 2005, and the accruals of
reorganization costs attributable to the Trust Spinout arrangement
amounting to approximately $8.7 million as at March 31, 2005,
contributed to the change in working capital.
The Company's working capital deficiency will be funded by cash flows
from operations and draw downs from the existing credit facility
discussed below.
DEBT
As a result of the notes exchange offer and consent solicitation
described above, Paramount had outstanding notes of US$213,593,000 8
1/2% Senior Notes due 2013 and US$913,000 7 7/8% senior Notes due 2010
as at March 31, 2005. The impact of the note exchange offer on the
remaining 2010 Notes was the elimination of substantially all of the
affirmative and restrictive covenants, events of default, repurchase
rights and related provisions contained in the indenture governing these
Notes.
The 2013 Notes bear interest at a rate of 8 1/2% per year and mature on
January 31, 2013. The 2013 Notes will be secured by 12,755,845 units of
the Trust that are owned by Paramount as a result of the Trust Spinout.
However, Paramount may sell such Trust units provided it makes an offer
to the holders of the 2013 Notes to purchase 2013 Notes with the net
proceeds of any sales at par plus a redemption premium of up to 4 1/4%
depending on when the offer is made. The 2013 Notes cannot be redeemed
with proceeds of equity offerings, but Paramount may, at its option,
redeem all or part of the 2013 Notes after January 31, 2007 at par plus
a redemption premium up to 4 1/4% depending on when the notes are
redeemed. If holders of a majority in aggregate principal amount of the
2013 Notes provide notice on September 30, 2005 that they elect to
increase the interest rate on the 2013 Notes to 10 1/2% per year,
Paramount may, at its option, at any time on or prior to January 31,
2006, redeem all of the 2013 Notes at par.
As at March 31, 2005, the Company had a $330 million committed
revolving/non-revolving term facility with a syndicate of Canadian
banks. Borrowings under the facility bear interest at the lender's prime
rate, banker's acceptance, or LIBOR rate plus an applicable margin
dependent on certain conditions. Advances drawn on the facility are
secured by a fixed and floating charge over the assets of the Company.
On April 1, 2005, the Company's borrowing capacity under this facility
was reduced to $130 million as a result of the Trust Spinout. The
borrowing capacity is affected by the market value of the Trust Units
owned by Paramount. The Company's lenders review the market value of its
Trust Units and amend the borrowing base accordingly at the end of each
month. The revolving nature of the facility is due to expire on March
30, 2006.
On April 1, 2005, the Trust entered into a credit agreement with a
syndicate of Canadian banks. Under the terms of the credit agreement,
the Trust has a $260 million committed revolving/non-revolving term
facility. Borrowings under the facility bear interest at the lenders'
prime rate, banker's acceptance or LIBOR rate, plus an applicable margin
dependent on certain conditions. The revolving nature of the Trust's
facility is due to expire on March 31, 2006. Advances drawn on the
Trust's facility will be secured by a fixed and floating charge over the
assets of the Trust.
Pursuant to the plan of arrangement, Trilogy drew down its line of
credit by $220 million on April 1, 2005 and paid this amount to
Paramount.
The Company has letters of credit totaling $31.2 million (December 31,
2004 - $28.1 million) outstanding with a Canadian chartered bank. These
letters of credit reduce the amount available under the Company's
working capital facility.
Long-term debt increased to $530.6 million at March 31, 2005, compared
to $459.1 million at December 31, 2004, primarily as a result of the
capital expenditures incurred during the first quarter 2005.
SHARE CAPITAL
For the three months ended March 31, 2005, 144,500 stock options were
exercised for cash consideration of $2.7 million compared to 146,259
stock options exercised for cash consideration of $0.4 million for the
same period in 2004. These amounts were charged to the corresponding
stock option liability with the difference charged to earnings during
the periods.
During the three months ended March 31, 2005, 912,450 options were
exercised for shares for cash proceeds of $9.7 million. As a result, the
related stock option liability was reduced by $13.2 million and the
share capital was increased by $22.9 million.
As at March 31, 2005 and April 29, 2005, the Company had 64,098,050
outstanding common shares.
Related Party Transactions
Paramount sold 1,140,000 GJ of natural gas to a 25 percent owned gas
marketing limited partnership for $8.1 million for the period from March
9, 2005 (date of the gas marketing limited partnership's commencement of
operations) to March 31, 2005. The transactions have been recorded at
the exchange amounts.
On February 1, 2005, Wilson Drilling Ltd., a 50 percent owned
subsidiary, sold 721,991Trinidad Energy Services Income Trust units to
the Company for $7.9 million in exchange for a Demand Promissory Note.
This transaction has been recorded at the exchange amount.
Risks and Uncertainties
Companies involved in the exploration for and production of oil and
natural gas face a number of risks and uncertainties inherent in the
industry. The Company's performance is influenced by commodity pricing,
transportation and marketing constraints and government regulation and
taxation.
Natural gas prices are influenced by the North American supply and
demand balance as well as transportation capacity constraints. Seasonal
changes in demand, which are largely influenced by weather patterns,
also affect the price of natural gas.
Stability in natural gas pricing is available through the use of short
and long-term contract arrangements. Paramount utilizes a combination of
these types of contracts, as well as spot markets, in its natural gas
pricing strategy. As the majority of the Company's natural gas sales are
priced to US markets, the Canada/US exchange rate can strongly affect
revenue.
Oil prices are influenced by global supply and demand conditions as well
as by worldwide political events. As the price of oil in Canada is based
on a US benchmark price, variations in the Canada/US exchange rate
further affect the price received by Paramount for its oil.
The Company's access to oil and natural gas sales markets is restricted,
at times, by pipeline capacity. In addition, it is also affected by the
proximity of pipelines and availability of processing equipment.
Paramount intends to control as much of its marketing and transportation
activities as possible in order to minimize any negative impact from
these external factors.
The oil and gas industry is subject to extensive controls, regulatory
policies and income taxes imposed by the various levels of government.
These controls and policies, as well as income tax laws and regulations,
are amended from time to time. The Company has no control over
government intervention or taxation levels in the oil and gas industry;
however, it operates in a manner intended to ensure that it is in
compliance with all regulations and is able to respond to changes as
they occur.
Paramount's operations are subject to the risks normally associated with
the oil and gas industry including hazards such as unusual or unexpected
geological formations, high reservoir pressures and other conditions
involved in drilling and operating wells. The Company attempts to
minimize these risks using prudent safety programs and risk management,
including insurance coverage against potential losses.
The Company recognizes that the industry is faced with an increasing
awareness with respect to the environmental impact of oil and gas
operations. Paramount has reviewed the environmental risks to which it
is exposed and has determined that there is no current material impact
on the Company's operations; however, the cost of complying with
environmental regulations is increasing. Paramount intends to ensure
continued compliance with environmental legislation.
Critical Accounting Estimates
The MD&A is based on the Company's consolidated financial statements,
which have been prepared in Canadian dollars in accordance with GAAP.
The application of GAAP requires management to make estimates, judgments
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if any,
at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Paramount bases its
estimates on historical experience and various other assumptions that
are believed to be reasonable under the circumstances. Actual results
could differ from these estimates under different assumptions or
conditions.
The following is a discussion of the critical accounting estimates that
are inherent in the preparation of the Company's consolidated financial
statements and notes thereto.
ACCOUNTING FOR PETROLEUM AND NATURAL GAS OPERATIONS
Under the successful efforts method of accounting, the Company
capitalizes only those costs that result directly in the discovery of
petroleum and natural gas reserves, including acquisitions, successful
exploratory wells, development costs and the costs of support equipment
and facilities. Exploration expenditures, including geological and
geophysical costs, lease rentals, and exploratory dry holes are charged
to earnings (loss) in the period incurred. Certain costs of exploratory
wells are capitalized pending determination that proved reserves have
been found. Such determination is dependent upon, among other things,
the results of planned additional wells and the cost of required capital
expenditures to produce the reserves found.
The application of the successful efforts method of accounting requires
management's judgment to determine the proper designation of wells as
either developmental or exploratory, which will ultimately determine the
proper accounting treatment of the costs incurred. The results of a
drilling operation can take considerable time to analyze, and the
determination that proved reserves have been discovered requires both
judgment and application of industry experience. The evaluation of
petroleum and natural gas leasehold acquisition costs requires
management's judgment to evaluate the fair value of exploratory costs
related to drilling activity in a given area.
RESERVE ESTIMATES
Estimates of the Company's reserves included in its consolidated
financial statements are prepared in accordance with guidelines
established by the Alberta Securities Commission. Reserve engineering is
a subjective process of estimating underground accumulations of
petroleum and natural gas that cannot be measured in an exact manner.
The process relies on interpretations of available geological,
geophysical, engineering and production data. The accuracy of a reserve
estimate is a function of the quality and quantity of available data,
the interpretation of that data, the accuracy of various mandated
economic assumptions and the judgment of the persons preparing the
estimate.
Paramount's reserve information is based on estimates prepared by its
independent petroleum consultants. Estimates prepared by others may be
different than these estimates. Because these estimates depend on many
assumptions, all of which may differ from actual results, reserve
estimates may be different from the quantities of petroleum and natural
gas that are ultimately recovered. In addition, the results of drilling,
testing and production after the date of an estimate may justify
revisions to the estimate.
The present value of future net revenues should not be assumed to be the
current market value of the Company's estimated reserves. Actual future
prices, costs and reserves may be materially higher or lower than the
prices, costs and reserves used for the future net revenue calculations.
The estimates of reserves impact depletion, dry hole expenses and asset
retirement obligations. If reserve estimates decline, the rate at which
the Company records depletion increases, reducing net earnings. In
addition, changes in reserve estimates may impact the outcome of
Paramount's assessment of its petroleum and natural gas properties for
impairment.
IMPAIRMENT OF PETROLEUM AND NATURAL GAS PROPERTIES
The Company reviews its proved properties for impairment annually on a
field basis. For each field, an impairment provision is recorded
whenever events or circumstances indicate that the carrying value of
those properties may not be recoverable. The impairment provision is
based on the excess of carrying value over fair value. Fair value is
defined as the present value of the estimated future net revenues from
production of total proved and probable petroleum and natural gas
reserves, as estimated by the Company on the balance sheet date. Reserve
estimates, as well as estimates for petroleum and natural gas prices and
production costs may change, and there can be no assurance that
impairment provisions will not be required in the future.
Unproved leasehold costs and exploratory drilling in progress are
capitalized and reviewed periodically for impairment. Costs related to
impaired prospects or unsuccessful exploratory drilling are charged to
earnings (loss). Acquisition costs for leases that are not individually
significant are charged to earnings (loss) as the related leases expire.
Further impairment expense could result if petroleum and natural gas
prices decline in the future or if negative reserve revisions are
recorded, as it may be no longer economic to develop certain unproved
properties. Management's assessment of, among other things, the results
of exploration activities, commodity price outlooks and planned future
development and sales, impacts the amount and timing of impairment
provisions.
ASSET RETIREMENT OBLIGATIONS
The asset retirement obligations recorded in the consolidated financial
statements are based on an estimate of the fair value of the total costs
for future site restoration and abandonment of the Company's petroleum
and natural gas properties. This estimate is based on management's
analysis of production structure, reservoir characteristics and depth,
market demand for equipment, currently available procedures, the timing
of asset retirement expenditures and discussions with construction and
engineering consultants. Estimating these future costs requires
management to make estimates and judgments that are subject to future
revisions based on numerous factors, including changing technology and
political and regulatory environments.
INCOME TAXES
The Company records future tax assets and liabilities to account for the
expected future tax consequences of events that have been recorded in
its consolidated financial statements and its tax returns. These amounts
are estimates; the actual tax consequences may differ from the estimates
due to changing tax rates and regimes, as well as changing estimates of
cash flows and capital expenditures in current and future periods.
Paramount periodically assesses the realizability of its future tax
assets. If Paramount concludes that it is more likely than not that some
portion or all of the future tax assets will not be realized, the tax
asset would be reduced by a valuation allowance.
Recent Accounting Pronouncements
FINANCIAL INSTRUMENTS, OTHER COMPREHENSIVE INCOME AND EQUITY
The Canadian Institute of Chartered Accountants (the "CICA") is expected
to adopt a new standard in 2005 that sets out comprehensive requirements
for recognition and measurement of financial instruments. Under this new
standard, an entity would recognize a financial asset or liability only
when the entity becomes a party to the contractual provisions of the
financial instrument. Financial assets and financial liabilities would,
with certain exceptions, be initially measured at fair value. After
initial recognition, the measurement of financial assets would vary
depending on the category of the asset: financial assets held for
trading (at fair value with the unrealized gains and losses on assets
recorded in income), held-to-maturity investments (at amortized cost),
loans and receivables (at amortized cost), and available-for-sale
financial assets (at fair value with the unrealized gains and losses on
assets recorded in comprehensive income). Financial liabilities held for
trading would be subsequently measured at fair value while all other
financial liabilities would be subsequently measured at amortized cost
using the effective interest method.
In conjunction with the proposed new standard on financial instruments
as discussed above, a new standard on reporting and display of
comprehensive income is also expected. A statement of comprehensive
income would be included in a full set of financial statements for both
interim and annual periods under this new standard. Comprehensive income
is defined as the change in equity (net assets) of an enterprise during
a period from transactions and other events and circumstances from
non-owner sources. The new statement would present net income and each
component to be recognized in other comprehensive income. Likewise, the
CICA is expected to adopt a new standard on Equity that would require
the separate presentation of: the components of equity (retained
earnings, accumulated other comprehensive income, the total of retained
earnings and accumulated other comprehensive income, contributed
surplus, share capital and reserves); and the changes in equity arising
from each of these components of equity.
These new standards are expected to be effective for the year ending
December 31, 2006 for the Company.
/T/
Paramount Resources Ltd.
Consolidated Balance Sheets
Unaudited
(thousands of dollars)
March 31 December 31
2005 2004
------------------------------------------------------------------------
ASSETS (note 4)
Current Assets
Short-term investments
(market value: 2005 - $14,842;
2004 - $27,149) $ 14,401 $ 24,983
Accounts receivable 136,208 107,843
Financial instruments (note 6) 3,293 21,564
Prepaid expenses 7,790 3,260
------------------------------------------------------------------------
161,692 157,650
------------------------------------------------------------------------
Property, Plant and Equipment
Property, plant and equipment, at cost 2,119,566 1,933,104
Accumulated depletion and depreciation (647,640) (587,298)
------------------------------------------------------------------------
1,471,926 1,345,806
------------------------------------------------------------------------
Goodwill 31,621 31,621
Other assets (note 3) 10,638 7,709
Costs related to the Trust Spinout (note 2) 4,000 -
------------------------------------------------------------------------
$ 1,679,877 $ 1,542,786
------------------------------------------------------------------------
------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 241,575 $ 147,508
Financial instruments (note 6) 22,556 2,188
------------------------------------------------------------------------
264,131 149,696
------------------------------------------------------------------------
Long-term debt (note 4) 530,614 459,141
Asset retirement obligations 105,003 101,486
Deferred gain (note 2) 6,528 -
Stock based compensation liability 29,341 41,044
Future income taxes 153,439 166,380
------------------------------------------------------------------------
824,925 768,051
------------------------------------------------------------------------
Commitments and Contingencies (note 8)
Shareholders' Equity
Share capital (note 5)
Issued and outstanding
64,098,050 common shares
(2004 - 63,185,600 common shares) 314,272 302,932
Retained earnings 276,549 322,107
------------------------------------------------------------------------
590,821 625,039
------------------------------------------------------------------------
$ 1,679,877 $ 1,542,786
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Paramount Resources Ltd.
Consolidated Statements of Earnings (Loss) and Retained Earnings
Unaudited
(thousands of dollars except per share amounts)
Three Months Ended
March 31
2005 2004
------------------------------------------------------------------------
(restated
-note 9)
Revenue
Petroleum and natural gas sales $ 176,508 $ 112,923
Transportation costs (9,165) (7,419)
Realized gain on financial
instruments (note 6) 10,709 3,743
Unrealized loss on financial
instruments (note 6) (38,639) (10,205)
Royalties (net of Alberta Royalty
Tax Credit) (35,204) (20,935)
Gain on sale of investments 2,367 -
------------------------------------------------------------------------
106,576 78,107
------------------------------------------------------------------------
Expenses
Operating 27,985 18,487
Interest 7,346 4,140
General and administrative 9,815 5,874
Lease rentals 959 1,234
Geological and geophysical 5,513 3,992
Dry hole costs 4,983 3,015
Gain on sales of property, plant and equipment (985) (491)
Accretion of asset retirement obligations 1,970 1,246
Depletion and depreciation 63,357 41,821
Realized foreign exchange gain on US debt (14,191) -
Unrealized foreign exchange loss on US debt 15,822 2,590
Premium for exchange of US debt and
consent solicitation (note 4) 53,114 -
------------------------------------------------------------------------
175,688 81,908
------------------------------------------------------------------------
Equity loss on investment in gas
marketing limited partnership (76) -
------------------------------------------------------------------------
Loss before income taxes (69,188) (3,801)
------------------------------------------------------------------------
Income and other taxes
Large Corporations Tax and other 841 718
Future income tax recovery (24,471) (7,357)
------------------------------------------------------------------------
(23,630) (6,639)
------------------------------------------------------------------------
Net earnings (loss) from continuing
operations (45,558) 2,838
Net earnings from discontinued
operations (note 9) - 341
------------------------------------------------------------------------
Net earnings (loss) (45,558) 3,179
------------------------------------------------------------------------
Retained earnings, beginning of the period 322,107 295,013
Purchase and cancellation of share capital
(note 5) - (6,326)
------------------------------------------------------------------------
Retained earnings, end of the period $ 276,549 $ 291,866
------------------------------------------------------------------------
------------------------------------------------------------------------
Net earnings (loss) from continuing
operations per common share
- basic $ (0.72) $ 0.05
- diluted $ (0.70) $ 0.05
------------------------------------------------------------------------
Net earnings (loss) from discontinued
operations per common share
- basic $ - $ -
- diluted $ - $ -
------------------------------------------------------------------------
Net earnings (loss) per common share
- basic $ (0.72) $ 0.05
- diluted $ (0.70) $ 0.05
------------------------------------------------------------------------
Weighted average common shares
outstanding (thousands)
- basic 63,564 59,560
- diluted 64,954 60,209
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Paramount Resources Ltd.
Consolidated Statements of Cash Flows
Unaudited
(thousands of dollars except per share amounts)
Three Months Ended
March 31
2005 2004
------------------------------------------------------------------------
(restated
-note 9)
Operating activities
Net earnings (loss) from continuing
operations $ (45,558) $ 2,838
Add (deduct)
Depletion and depreciation 63,357 41,821
Gain on sales of property, plant
and equipment (985) (491)
Accretion of asset retirement obligations 1,970 1,246
Future income tax recovery (24,471) (7,357)
Amortization of other assets 96 258
Non-cash stock based compensation expense 1,673 587
Non-cash loss on financial instruments
(note 6) 38,639 10,205
Realized foreign exchange gain on US debt (14,191)
Unrealized foreign exchange loss on US debt 15,822 2,590
Equity loss on investment in gas marketing
limited partnership 76 -
Premium for exchange of US debt and consent
solicitation 53,114 -
Dry hole costs 4,983 3,015
Geological and geophysical costs 5,513 3,992
------------------------------------------------------------------------
Cash flow from continuing operations 100,038 58,704
Cash flow from discontinued operations - 850
------------------------------------------------------------------------
Cash flow from operations 100,038 59,554
------------------------------------------------------------------------
Change in non-cash operating working capital
from continuing operations 13,422 (35,793)
Change in non-cash operating working capital
from discontinued operations - (560)
------------------------------------------------------------------------
113,460 23,201
------------------------------------------------------------------------
Financing activities
Bank loans - draws 164,801 69,989
Bank loans - repayments (94,957) (24,411)
Debt exchange issuance costs (5,067) -
Premium on exchange of US debt (notes 2 and 4) (45,077) -
Share capital - issued, net of issuance costs 9,495 (8,898)
Discontinued operations - (331)
------------------------------------------------------------------------
29,195 36,349
------------------------------------------------------------------------
Cash flow provided by operating and
financing activities 142,655 59,550
------------------------------------------------------------------------
Investing activities
Property, plant and equipment expenditures (187,382) (110,642)
Petroleum and natural gas property
acquisitions (9,921) -
Proceeds on sale of property, plant and
equipment 11 3,165
Equity investments (note 2) (6,214) -
Asset retirement obligations expenditures (152) (63)
Costs of reorganization (4,000) -
Change in non-cash investing working capital 65,003 49,344
Discontinued operations - (1,354)
------------------------------------------------------------------------
Cash flow used in investing activities (142,655) (59,550)
------------------------------------------------------------------------
Increase (decrease) in cash - -
Cash, beginning of the period - -
------------------------------------------------------------------------
Cash, end of the period $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts expressed in thousands of dollars)
/T/
Paramount Resources Ltd. ("Paramount" or the "Company") is an
independent Canadian energy company involved in the exploration,
development, production, processing, transportation and marketing of
natural gas and oil. The Company's principal properties are located in
Alberta, the Northwest Territories and British Columbia in Canada. The
Company also has properties in Saskatchewan and offshore the East Coast
in Canada, and in Montana, North Dakota and California in the United
States.
1. Summary of Significant Accounting Policies
The interim consolidated financial statements are stated in Canadian
dollars and have been prepared by management in accordance with Canadian
generally accepted accounting principles (GAAP). Certain information and
disclosures normally required to be included in notes to annual
consolidated financial statements have been condensed or omitted. The
interim consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and the notes thereto
in Paramount's Annual Report for the year ended December 31, 2004,
except as noted below:
The timely preparation of the interim financial statements in conformity
with GAAP requires that Management make estimates and assumptions and
use judgment regarding assets, liabilities, revenue and expenses. Such
estimates primarily relate to unsettled transactions and events as of
the date of the financial statements. Accordingly, actual results could
differ from those estimates.
CONSOLIDATION OF VARIABLE INTEREST ENTITIES
On January 1, 2005, the Company adopted the new CICA Accounting
Guideline 15 ("AcG - 15") "Consolidation of Variable Interest Entities."
AcG 15 defines a variable interest entity ("VIE") as a legal entity in
which either the total equity at risk is not sufficient to permit the
entity to finance its activities without additional subordinated
financial support provided by other parties or the equity owners lack a
controlling financial interest. The guideline requires the enterprise
which absorbs the majority of a VIE's expected gains or losses, the
primary beneficiary, to consolidate the VIE.
There was no effect on Paramount's Consolidated Financial Statements on
the adoption of the guideline on January 1, 2005.
2. Significant Transactions
TRUST SPINOUT
At a special meeting held on March 28, 2005, Paramount's shareholders
and optionholders approved the Trust Spinout arrangement under the
Business Corporations Act (Alberta). Through the plan of arrangement,
Shareholders of Paramount received in exchange for each of their Common
Shares, one New Common Share of Paramount and one Trust Unit of the new
energy trust, Trilogy Energy Trust (the "Trust"). Under this
transaction, Shareholders of Paramount would own all the issued and
outstanding New Common Shares and 81 percent of the issued and
outstanding Trust Units, with the remaining 19 percent of the issued and
outstanding Trust Units being held by Paramount.
Pursuant to the plan of arrangement, the Trust indirectly owns certain
of Paramounts existing assets located in the Kaybob and Marten Creek
areas of Alberta ("Spinout Assets"). As holders of Trust Units after the
plan of arrangement, the Unitholders will receive monthly distributions
of the cash flow generated by the Spinout Assets held by Trilogy Energy
LP, a limited partnership, and distributed to Unitholders through the
Trust.
On March 29, 2005 Paramount received the final order of the Court of
Queen's Bench approving the above arrangement, which became effective
April 1, 2005.
In connection with the Trust Spinout, Paramount has capitalized
estimated costs related to the reorganization of $4.0 million as at
March 31, 2005.
As the Trust Spinout was not completed until April 1, 2005, the
Company's consolidated financial statements as at and for the three
months ended March 31, 2005 still include the financial position,
results of operations and cash flows relating to the Spinout Assets. At
closing, the Trust Spinout will not result in a substantial change in
ownership of the Spinout Assets and therefore, the transaction will be
accounted for at the carrying value of the net assets transferred and
will not give rise to a gain or loss in the consolidated financial
statements of Paramount. This will result in reductions to various
accounts currently within the consolidated financial statements of
Paramount Resources Ltd.
Accounts that will be significantly impacted together with the estimated
reductions are as follows:
/T/
$'s (millions)
------------------------------------------------------------------------
Property, plant and equipment, at cost $ 1,065
Accumulated depletion and depreciation (366)
Goodwill 19
Asset retirement obligations (65)
Future income tax liability (166)
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
The offset to these adjustments in balances will be to Shareholders'
Equity.
In addition to the above, there will be various reductions recorded to
other accounts.
INTEREST IN OIL SANDS PARTNERSHIP
During the first quarter of 2005, Paramount and North American Oil Sands
Corporation ("NAOSC"), formed a 50-50 owned partnership, 68-475 Alberta
Oil Sands Partnership ("Oil Sands Partnership"), for the purpose of
acquiring, drilling and evaluating oil sands interests in the central
portion of the Athabasca Oil Sands region of Alberta. The formation of
the Oil Sands Partnership was completed through a series of related
events as follows:
- Paramount acquired 50 percent interests in certain properties (Crown
and Koch Lands) from NAOSC for a cash consideration of $6.3 million.
Likewise, Paramount sold its 50 percent interest in certain properties
to NAOSC (Thornbury Lands) for a cash consideration of $0.3 million.
- Paramount and NAOSC each contributed certain properties (Initial
Lands), with a fair value of $1.5 million for each property, to the Oil
Sands Partnership and were each issued 1.5 million partnership units.
- NAOSC subscribed for an additional 12,000,000 partnership units for
$12 million.
- Paramount transferred certain properties to the Oil Sands Partnership
with an agreed fair value of $19.6 million, in exchange for 12,000,000
partnership units, a cash payment to Paramount of $6 million, and the
assumption of a $1.6 million liability. The $6 million consideration was
an endorsed Paramount cheque from the first transaction above and was
therefore considered a non-cash transaction for purposes of the
consolidated statements of cash flows.
- Paramount and NAOSC contributed their joint properties (Crown and Koch
lands) to the Oil Sands Partnership and were each issued 6,592,863
partnership units.
Paramount initially retained a 1 percent gross overriding royalty
interest in some of the lands contributed to the Oil Sands Partnership
in accordance with the partnership agreement. On March 21, 2005,
Paramount contributed this royalty interest to the Oil Sands Partnership
in exchange for an additional 8,000,000 partnership units after NAOSC
acquired additional partnership units for cash as required by the
partnership agreement.
Subsequent to the formation of the Oil Sands Partnership, Paramount also
entered into purchase and sale agreements with NAOSC whereby the Company
acquired a 50 percent interest in certain lands for $10.4 million and
disposed of a 50 percent interest in other lands for $1.1 million. It is
intended that these jointly owned lands will be contributed into the Oil
Sands Partnership in exchange for partnership units.
These interim consolidated financial statements include Paramount's
proportionate share of the assets, liabilities and expenses of the Oil
Sands Partnership as at and for the period ended March 31, 2005. The
Company has recorded a deferred gain of $6.5 million related to the
contribution of land into the Oil Sands Partnership. The deferred gain
will be recognized in earnings as the properties are depleted.
INTEREST IN GAS MARKETING LIMITED PARTNERSHIP
In early March 2005, Paramount completed a transaction whereby it
acquired an indirect 25 per cent interest in a gas marketing limited
partnership for US$5 million (Cdn$6.2 million). The gas marketing
limited partnership commenced operations on March 9, 2005 and is
accounted for using the equity method.
In conjunction with this transaction, Paramount will make available for
delivery an average of 150,000 GJ/d of natural gas over a five-year
term, to be marketed on Paramount's behalf by the gas marketing limited
partnership. Paramount and Trilogy Energy LP have entered into a Call on
Production Agreement whereby Paramount will have the right to purchase
all or any portion of Trilogy Energy LP's available gas production at a
price no less favorable than the price Paramount will receive on the
resale of the natural gas to the gas marketing limited partnership. The
term of the Call on Production Agreement is no longer than five years.
/T/
3. Other Assets
As at March 31, 2005, other assets are comprised of:
March 31, 2005 December 31, 2004
------------------------------------------------------------------------
Investments in gas marketing
limited partnership $ 5,996 $ -
Deferred financing costs related to
the 8 1/2% US Senior Notes due 2013 4,642 -
Deferred financing costs related to
the 7 7/8% US Senior Notes due 2010 - 4,729
Deferred financing costs related to
the 8 7/8% US Senior Notes due 2014 - 2,980
------------------------------------------------------------------------
$ 10,638 $ 7,709
------------------------------------------------------------------------
------------------------------------------------------------------------
4. Long-Term Debt
Long-term debt was comprised of:
March 31, 2005 December 31, 2004
------------------------------------------------------------------------
8 1/2% US Senior Notes due 2013
(US $213.6 million) $ 258,361 $ -
7 7/8% US Senior Notes due 2010
(2005 - US $0.9 million and
2004 - US $133.3 million) 1,104 160,174
8 7/8% US Senior Notes due 2014
(US $81.3 million) - 97,662
Credit facility - current interest
rate of 3.8% (2004 - 3.8%) 271,149 201,305
------------------------------------------------------------------------
$ 530,614 $ 459,141
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
NOTES OFFERING
On February 7, 2005, Paramount completed a note exchange offer and
consent solicitation, as amended, issuing US$213,593,000 principal
amount of 8 1/2 percent Senior Notes due 2013 (the "2013 Notes") and
paying aggregate cash consideration of approximately US$36.2 million
(CDN$45.1 million) in exchange for approximately 99.31 percent of the
outstanding 7 7/8 percent Senior Notes due 2010 (the "2010 Notes") and
100 percent of the outstanding 8 7/8 percent Senior Notes due 2014 (the
"2014 Notes") and the note holders provided consent for Parmount to
proceed with the Trust Spinout. As a result, US$913,000 principal amount
of the 2010 Notes and no 2014 Notes remain outstanding. The impact of
the note exchange offer on the remaining 2010 Notes was the elimination
of substantially all of the affirmative and restrictive covenants,
events of default, repurchase rights and related provisions contained in
the indenture governing those Notes. The Company has expensed $8.0
million of deferred financing charges associated with the 2010 Notes and
the 2014 Notes.
The 2013 Notes bear interest at a rate of 8 1/2 percent per year and
mature on January 31, 2013. The 2013 Notes are secured by 12,755,845
units of the Trust that are owned by Paramount as a result of the Trust
Spinout; however, Paramount may sell such Trust units provided it makes
an offer to the holders of the 2013 Notes to purchase 2013 Notes with
the net proceeds of any sales at par plus a redemption premium of up to
4 1/4 percent depending on when the offer is made. The 2013 Notes cannot
be redeemed with proceeds of equity offerings, but Paramount may, at its
option, redeem all or part of the 2013 Notes after January 31, 2007 at
par plus a redemption premium up to 4 1/4 percent depending on when the
notes are redeemed. If holders of a majority in aggregate principal
amount of the 2013 Notes provide notice on September 30, 2005 that they
elect to increase the interest rate on the 2013 Notes to 10 1/2 percent
per year, Paramount may, at its option, at any time on or prior to
January 31, 2006, redeem all of the 2013 Notes at par.
CREDIT FACILITIES
As at March 31, 2005, the Company had a $330 million committed
revolving/non-revolving term facility with a syndicate of Canadian
banks. Borrowings under the facility bear interest at the lender's prime
rate, banker's acceptance, or LIBOR rate plus an applicable margin
dependent on certain conditions. Advances drawn on the facility are
secured by a fixed and floating charge over the assets of the Company.
On April 1, 2005, the Company's borrowing capacity under this facility
was reduced to $130 million as a result of the Trust Spinout. The
borrowing capacity is affected by the market value of the Trust Units
owned by Paramount. The Company's lenders review the market value of its
Trust Units and amend the borrowing base accordingly at the end of each
month. The revolving nature of the facility is due to expire on March
30, 2006.
On April 1, 2005, the Trust entered into a credit agreement with a
syndicate of Canadian banks. Under the terms of the credit agreement,
the Trust has a $260 million committed revolving/non-revolving term
facility. Borrowings under the facility bear interest at the lenders'
prime rate, banker's acceptance or LIBOR rate, plus an applicable margin
dependent on certain conditions. The revolving nature of the Trust's
facility is due to expire on March 31, 2006. Advances drawn on the
Trust's facility will be secured by a fixed and floating charge over the
assets of the Trust.
Persuant to the plan of arrangement, Trilogy drew down its line of
credit by $220 million on April 1, 2005, and paid this amount to
Paramount.
The Company has letters of credit totaling $31.2 million (December 31,
2004 - $28.1 million) outstanding with a Canadian chartered bank. These
letters of credit reduce the amount available under the Company's
working capital facility.
5. Share Capital
AUTHORIZED CAPITAL
The authorized capital of the Company is comprised of an unlimited
number of non-voting preferred shares without nominal or par value,
issuable in series, and an unlimited number of common shares without
nominal or par value.
/T/
Common Shares Number Consideration
------------------------------------------------------------------------
------------------------------------------------------------------------
Balance December 31, 2003 60,094,600 $ 200,274
------------------------------------------------------------------------
Shares repurchased - at carrying value (1,629,500) (5,322)
Stock options exercised 220,500 3,057
Common shares issued, net of issuance costs 2,500,000 54,901
Flow through shares issued,net of
issuance costs 2,000,000 57,981
Tax adjustment on share issuance costs
and flow-through share renunciations - (7,959)
------------------------------------------------------------------------
Balance December 31, 2004 63,185,600 $ 302,932
------------------------------------------------------------------------
------------------------------------------------------------------------
Stock options exercised 912,450 22,870
Tax adjustment on flow through
share renunciations - (11,530)
------------------------------------------------------------------------
Balance March 31, 2005 64,098,050 $ 314,272
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
ISSUED CAPITAL
The Company instituted a Normal Course Issuer Bid to acquire a maximum
of five percent of its issued and outstanding shares which commenced May
15, 2003 and expired May 14, 2004. Between January 1, 2004 and May 14,
2004, 1,629,500 shares were purchased pursuant to the plan at an average
price of $11.91 per share. For the three months ended March 31, 2004,
$6.3 million has been charged to retained earnings related to the share
repurchase price in excess of the carrying value of the shares.
On October 15, 2004, Paramount completed the private placement of
2,000,000 common shares issued on a "flow-through" basis at $29.50 per
share. The gross proceeds of the issue were $59 million. As at March 31,
2005, the Company had made renunciations of $54.0 million.
On October 26, 2004, Paramount completed the issuance of 2,500,000
common shares at a price of $23.00 per share. The gross proceeds of the
issue were $57.5 million.
STOCK OPTION PLAN
The Company has an Employee Incentive Stock Option plan (the "plan").
Under the plan, stock options are granted at the current market price on
the day prior to issuance. Participants in the plan, upon exercising
their stock options, may request to receive either a cash payment equal
to the difference between the exercise price and the market price of the
Company's common shares or common shares issued from Treasury.
Irrespective of the participant's request, the Company may choose to
only issue common shares. Cash payments made in respect of the plan are
charged to general and administrative expenses when incurred. Options
granted vest over four years and have a four and a half year contractual
life.
As at March 31, 2005, 4.1 million shares were reserved for issuance
under the Company's Employee Incentive Stock Option Plan, of which 2.3
million options are outstanding, exercisable to August 31, 2009, at
prices ranging from $8.91 to $31.85 per share.
/T/
Three Months
Ended
Stock options March 31, 2005
------------------------------------------------------------------------
Average Grant
Price Options
------------------------------------------------------------------------
Balance, beginning of period $ 10.41 3,212,500
Granted 28.62 148,000
Exercised 10.50 (1,057,000)
Cancelled 26.90 (24,000)
------------------------------------------------------------------------
Balance, end of period $ 11.38 2,279,500
------------------------------------------------------------------------
------------------------------------------------------------------------
Options exercisable, end of period $ 9.32 254,375
------------------------------------------------------------------------
------------------------------------------------------------------------
The following summarizes information about stock options outstanding at
March 31, 2005:
Outstanding Exercisable
Weighted Weighted Weighted
Average Average Average
Exercise Contractual Exercise Exercisable Exercise
Prices Number Life Price Number Price
------------------------------------------------------------------------
$8.91-9.80 1,724,000 2 $ 9.02 208,375 $ 8.99
$10.01-12.02 132,000 1 10.47 42,000 10.66
$12.51-31.85 423,500 4 21.27 4,000 12.51
------------------------------------------------------------------------
Total 2,279,500 3 $ 11.38 254,375 $ 9.32
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
During the three months ended March 31, 2005, 144,550 options were
exercised for cash consideration of $2.7 million (2004 - 146,500 options
- $0.4 million), for which, $2.0 million of this amount was charged to
the stock option liability with the balance charged to earnings during
the period.
During the three months ended March 31, 2005, 912,450 options were
exercised for shares for cash proceeds of $9.5 million. As a result, the
related stock option liability was reduced and share capital increased
by $13.4 million.
FAIR VALUES
The Company uses the intrinsic value method to account for its
stock-based compensation. The Company recognized compensation costs
related to stock options issued and outstanding of $3.7 million (2004 -
$0.6 million).
6. Financial Instruments
The changes in fair value associated with the financial instruments are
recorded on the consolidated balance sheets with the associated
unrealized gain or loss recorded in net earnings. The estimated fair
value of all financial instruments is based on quoted prices or, in the
absence of quoted prices, third party market indications and forecasts.
The following tables present a reconciliation of the change in the
unrealized and realized gains and losses on financial instruments from
December 31, 2004 to March 31, 2005.
/T/
March 31, December 31,
2005 2004
------------------------------------------------------------------------
Financial instrument asset $ 3,293 $ 21,564
Financial instrument liability (22,556) (2,188)
------------------------------------------------------------------------
Net financial instrument asset (liability) $ (19,263) $ 19,376
------------------------------------------------------------------------
Change in net financial instrument asset
(liability) $ (38,639)
------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
------------------------------------------------------------------------
Net Mark-to Net Mark-to
Deferred Market Deferred Market
Amounts on Gain Amounts on Gain
Transition (Loss) Total Transition (Loss) Total
------------------------------------------------------------------------
Fair value of
Contracts,
January 1,
2004 $ - $ - $ - $ (1,450) $ 1,450 $ -
------------------------------------------------------------------------
Change in fair
value of
contracts
recorded on
transition,
still
outstanding
at March 31 - (1,278) (1,278) - (4,727) (4,727)
------------------------------------------------------------------------
Amortization
of deferred
amounts on
transition 412 - 412 (218) - (218)
------------------------------------------------------------------------
Fair value of
contracts entered
into during the
period - (37,773) (37,773) - (5,260) (5,260)
------------------------------------------------------------------------
Unrealized gain
(loss) on
financial
instruments $ 412 $(39,051)$(38,639) $ (1,668) $(8,537)$(10,205)
------------------------------------------------------------------------
Realized gain
on financial
instruments for
the three months
ended March 31 10,709 3,743
------------------------------------------------------------------------
Net gain (loss) on financial
instruments for the three
months ended March 31 $(27,930) $ (6,462)
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
INTEREST RATE CONTRACTS
On June 6, 2004, the Company entered into a fixed to floating interest
rate swap. The fair value of this contract as at March 31, 2005, was a
loss of $1.2 million.
/T/
Description
of Swap Maturity Notional Indenture Effective
Transaction Date Amount Interest Swap to Rate
------------------------------------------------------------------------
7 7/8 percent November 1, US$175 US$ fixed US$ US$ LIBOR
interest 2010 million floating plus 320
rate swap Basis Points
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
(a) FOREIGN EXCHANGE CONTRACTS
The Company has entered into the following currency index swap
transactions, fixing the exchange rate on receipts of US$1 million each
month at CDN$1.4337, expiring December 31, 2005. The US$/CDN$ closing
exchange rate was 1.2096 as at March 31, 2005.
/T/
Year of settlement US dollars Weighted average exchange rate
------------------------------------------------------------------------
2005 $9,000 1.4337
------------------------------------------------------------------------
/T/
On January 1, 2004, upon adoption of Accounting Guideline 13 - Hedging
Relationships, the Company recorded a deferred gain on transition on
financial instruments of $3.3 million related to existing foreign
exchange contracts. The fair value of these contracts at March 31, 2005,
was a gain of $2.0 million. The change in fair value, a $1.3 million
loss, and $0.4 million amortization of the deferred gain have been
recorded in the consolidated statement of earnings.
/T/
(b) COMMODITY PRICE CONTRACTS
At March 31, 2005, Paramount had the following forward financial
contracts in place:
Amount Price Term
------------------------------------------------------------------------
Financial Sales Contracts
AECO Fixed Price 20,000 GJ/d $ 6.28 April 2005 - June 2005
AECO Fixed Price 20,000 GJ/d $ 6.30 April 2005 - June 2005
AECO Fixed Price 20,000 GJ/d $ 6.80 April 2005 - June 2005
AECO Fixed Price 60,000 GJ/d $ 7.58 July 2005 - October 2005
WTI Fixed Price 1,000 Bbl/d $47.30 March 2005 - September 2005
NYMEX Fixed Price 1,000 Bbl/d $46.77 March 2005 - December 2005
------------------------------------------------------------------------
The fair value of these financial contracts as at March 31, 2005 was a
$15.1 million loss.
In addition, the following financial contracts were also outstanding as
at March 31, 2005 but will be part of the Trust Spinout:
Amount Price Term
------------------------------------------------------------------------
Financial Sales Contracts
AECO Fixed Price 10,000 GJ/d $ 7.06 April 2005 - October 2005
AECO Fixed Price 10,000 GJ/d $ 7.10 April 2005 - October 2005
AECO Fixed Price 20,000 GJ/d $ 7.10 April 2005 - October 2005
WTI Fixed Price 1,000 Bbl/d $53.26 April 2005 - September 2005
NYMEX Fixed Price 1,000 Bbl/d $55.25 April 2005 - September 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
The fair value of these financial contracts as at March 31, 2005 was a
$3.8 million loss.
/T/
(c) FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Borrowings under bank credit facilities and the issuance of commercial
paper are for short periods and are market rate based, thus, carrying
values approximate fair value. Fair values for derivative instruments
are determined based on the estimated cash payment or receipt necessary
to settle the contract at period-end. Cash payments or receipts are
based on discounted cash flow analysis using current market rates and
prices available to the Company.
(d) CREDIT RISK
The Company is exposed to credit risk from financial instruments to the
extent of non-performance by third parties, and non-performance by
counterparties to swap agreements. The Company minimizes credit risk
associated with possible non-performance by financial instrument
counterparties by entering into contracts with only highly rated
counterparties and controls third party credit risk with credit
approvals, limits on exposures to any one counterparty, and monitoring
procedures. The Company sells production to a variety of purchasers
under normal industry sale and payment terms. The Company's accounts
receivable are with customers and joint venture partners in the
petroleum and natural gas industry and are subject to normal credit risk.
Paramount will make available for delivery an average of 150,000 GJ/d of
natural gas over a five year term, to be marketed on Paramount's behalf
by the 25 percent owned gas marketing limited partnership. Paramount is
not entitled to demand collateral securities from the gas marketing
limited partnership to ensure payment for the gas volumes delivered, but
is entitled to other means of protection in this regard including
stringent credit and risk management restrictions. The gas marketing
limited partnership's sole counterparty on financial instruments as at
March 31, 2005 is a natural gas exchange house.
(e) INTEREST RATE RISK
The Company is exposed to interest rate risk to the extent that changes
in market interest rates will impact the Company's debts that have a
floating interest rate.
7. Related Party Transactions
GAS MARKETING LIMITED PARTNERSHIP
From March 9, 2005 to March 31, 2005, the Company sold 1,140,000 GJ of
gas for $8.1 million to the gas marketing limited partnership for which
the Company has a 25 percent interest in (note 2). The transactions have
been recorded at the exchange amount.
WILSON DRILLING LTD.
On February 1, 2005, Wilson Drilling Ltd. sold 721,991 Trinidad Energy
Services Income Trust Units to the Company for $7.9 million in exchange
for a Demand Promissory Note. The transaction has been recorded at the
exchange amount.
8. Commitments and Contingencies
CONTINGENCIES
The Company is party to various legal claims associated with the
ordinary conduct of business. The Company does not anticipate that these
claims will have a material impact on the Company's financial position.
The Company indemnifies, to the extent permitted by law, its directors
and officers against any and all claims or losses reasonably incurred in
the performance of their service to the Company. The Company has
acquired and maintains liability insurance for its directors and
officers.
/T/
COMMITMENTS
As at March 31, 2005, Paramount has the following pipeline
transportation commitments:
Year Commitment
------------------------------------------------------------------------
2005 $ 9,305
2006 7,879
2007 7,879
2008 7,879
2009 7,682
Thereafter 46,619
------------------------------------------------------------------------
$ 87,243
------------------------------------------------------------------------
------------------------------------------------------------------------
In addition, the following pipeline transportation commitments were
outstanding as at March 31, 2005 but will be part of the Trust Spinout:
Year Commitment
------------------------------------------------------------------------
2005 $ 6,732
2006 8,976
2007 8,976
2008 8,976
2009 8,976
Thereafter 49,171
------------------------------------------------------------------------
$ 91,807
------------------------------------------------------------------------
------------------------------------------------------------------------
At March 31, 2005, Paramount had the following physical contracts:
Amount Price Term
------------------------------------------------------------------------
Physical Sales Contracts
Gas Sales contract 10,000 GJ/d $7.22 April 2005 - October 2005
Gas Sales contract 10,000 GJ/d $7.23 April 2005 - October 2005
------------------------------------------------------------------------
In addition, the following physical contracts were also outstanding as
at March 31, 2005 but will be transferred as part of the Trust Spinout:
Amount Price Term
------------------------------------------------------------------------
Physical Sales Contracts
Gas Sales contract 10,000 GJ/d $6.98 April 2005 - October 2005
Gas Sales contract 10,000 GJ/d $7.36 April 2005 - October 2005
------------------------------------------------------------------------
/T/
9. Discontinued Operations
On July 27, 2004, Wilson Drilling Ltd. ("Wilson"), a private drilling
company in which Paramount owns a 50 percent equity interest, closed the
sale of its drilling assets for $32 million to a publicly traded Income
Trust. The gross proceeds were $19.2 million cash with the balance in
exchangeable shares.
On September 10, 2004, Paramount completed the disposition of its 99
percent interest in Shehtah Wilson Drilling Partnership for
approximately $1.0 million.
On December 13, 2004, Paramount completed the disposition of a building
acquired as part of the Summit acquisition, for approximately $10.5
million, inclusive of the mortgage assumed by the purchaser of $6.4
million.
Selected financial information of the discontinued operations for the
three months ended March 31, 2004:
/T/
Shehtah
Wilson Wilson
Drilling Drilling
Ltd. Partnership Building Total
------------------------------------------------------------------------
Revenue
Other Income $ 590 $ 482 $ - $ 1,072
------------------------------------------------------------------------
Expenses
Interest 96 - 102 198
General and administrative 17 238 (289) (34)
Depreciation 241 2 76 319
(Gain) loss on sale of
property and equipment 46 - - 46
------------------------------------------------------------------------
400 240 (111) 529
------------------------------------------------------------------------
Net earnings (loss) before
income tax 190 242 111 543
Large Corporation Tax and other - - 58 58
Future income tax expense 139 - 5 144
------------------------------------------------------------------------
Net earnings (loss) from
discontinued operations $ 51 $ 242 $ 48 $ 341
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
10. Comparative Figures
Certain comparative figures have been reclassified to conform to the
current year's financial statement presentation.
/T/
Paramount Resources Ltd.
Supplemental Oil and Gas Operating Statistics - unaudited
For the Period Ended March 31, 2005
Note 1 - The results are presented on the basis of Paramount Resources
Ltd. as a complete entity and does not give effect to the
Trilogy Energy Trust spinoff.
Sales Volumes 2005 2004 2003
------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
------------------------------------------------------------------------
Gas (MMcf/d) 203 198 196 157 141 141 136 142
Oil and Natural
Gas Liquids
(Bbl/d) 7,925 8,903 8,446 6,134 5,675 5,877 7,461 7,465
------------------------------------------------------------------------
Total Sales
Volumes
(Boe/d) (6:1) 41,714 41,878 41,072 32,354 29,178 29,353 30,098 31,129
------------------------------------------------------------------------
------------------------------------------------------------------------
Per-unit Results 2005 2004 2003
------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
------------------------------------------------------------------------
Produced Gas($/Mcf)
Price, before
transporation
and selling 7.47 7.38 6.77 7.52 7.08 5.69 6.29 6.45
Transporation 0.47 0.41 0.41 0.51 0.54 0.55 0.55 0.54
Royalties 1.60 1.27 1.26 1.33 1.33 0.55 1.30 1.14
Operating
expenses, net
of processing
revenue 1.15 1.23 1.16 1.03 1.08 1.26 1.19 0.95
------------------------------------------------------------------------
Cash netback
before
realized
financial
instruments 4.25 4.47 3.94 4.65 4.13 3.33 3.25 3.82
Realized
financial
instruments 0.59 0.57 (0.13) (0.31) 0.42 0.25 (0.72) (1.07)
------------------------------------------------------------------------
Cash netback
including
realized
financial
instruments 4.84 5.04 3.81 4.34 4.55 3.58 2.53 2.75
------------------------------------------------------------------------
------------------------------------------------------------------------
Produced Oil & Natural Gas Liquids ($/Bbl)
Price, before
transporation
and selling 56.32 48.30 50.97 46.17 42.70 37.00 37.17 37.64
Transportation 0.84 0.71 0.71 0.80 0.83 0.98 0.69 0.70
Royalties 8.34 8.82 10.02 7.58 7.52 6.64 6.75 7.28
Operating
expenses, net
of processing
revenue 9.81 10.49 8.04 8.14 8.87 11.01 10.01 8.90
------------------------------------------------------------------------
Cash netback
before realized
financial
instruments 37.33 28.28 32.20 29.65 25.48 18.37 19.72 20.76
Realized
financial
instruments 0.63 (3.53) (0.18) (2.75) (4.93) (3.13) (2.27) (1.67)
------------------------------------------------------------------------
Cash netback
including
realized
financial
instruments 37.96 24.75 32.02 26.90 20.55 15.24 17.45 19.09
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Produced ($/Boe)
Price, before
transporation
and selling 47.01 45.15 42.78 45.31 42.52 34.69 37.59 38.47
Transportation 2.44 2.10 2.12 2.64 2.79 2.82 2.64 2.63
Royalties 9.38 7.89 8.07 7.89 7.88 3.95 7.56 6.95
Operating
expenses, net
of processing
revenue 7.45 8.02 7.18 6.54 6.96 8.25 7.85 6.46
------------------------------------------------------------------------
Cash netback
before realized
financial
instruments 27.74 27.14 25.41 28.24 24.89 19.67 19.54 22.43
Realized
financial
instruments 3.11 1.26 (0.67) (2.03) 1.07 0.57 (3.76) (5.37)
------------------------------------------------------------------------
Cash netback
including
realized
financial
instruments 30.85 28.40 24.74 26.21 25.96 20.24 15.78 17.06
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 2 - Q3 2004 and subsequent periods includes the major asset
acquisitions.
Note 3 - The Alberta Securities Commission released National Instrument
51-101 (the "Instrument") in 2003, with an effective date of
September 30, 2003. The instrument requires all reported
petroleum and natural gas production to be measured in
marketable quantities with adjustments for heat content
included in the commodity price reported. The Company has
adopted the Instrument prospectively. As such, commencing
with the fourth quarter of 2003, natural gas production volumes
are measured in marketable quantities, with adjustments for
heat content and transportation reflected in the reported
natural gas price.
Paramount Resources Ltd.
Proforma Supplemental Oil and Gas Operating Statistics - unaudited
For the Period Ended March 31, 2005
Note 1 - Pro-forma is presented on the basis of removing the results
associated with the properties that were part of the Trilogy
Energy Trust spinoff.
Sales Volumes 2005 2004 2003
------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
------------------------------------------------------------------------
Gas (MMcf/d) 81 79 92 68 61 70 56 66
Oil and Natural
Gas Liquids
(Bbl/d) 2,975 3,231 3,242 3,818 3,408 3,782 5,167 5,516
------------------------------------------------------------------------
Total Sales
Volumes
(Boe/d) (6:1) 16,522 16,440 18,552 15,088 13,494 15,375 14,571 16,546
------------------------------------------------------------------------
------------------------------------------------------------------------
Per-unit Results 2005 2004 2003
------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
------------------------------------------------------------------------
Produced Gas ($/Mcf)
Price, before
transporation
and selling 7.46 7.38 6.57 7.61 6.83 5.41 6.42 6.59
Transporation 0.61 0.41 0.41 0.51 0.54 0.55 0.55 0.54
Royalties 1.17 0.53 0.95 1.19 1.35 (0.09) 1.53 0.81
Operating
expenses, net
of processing
revenue 1.22 1.11 0.96 1.48 1.29 0.71 1.61 1.28
------------------------------------------------------------------------
Cash netback
before realized
financial
instruments 4.46 5.33 4.25 4.43 3.65 4.24 2.73 3.96
Realized
financial
instruments 0.59 0.17 0.10 (0.17) 0.51 0.33 (0.71) (1.04)
------------------------------------------------------------------------
Cash netback
including
realized
financial
instruments 5.05 5.50 4.35 4.26 4.16 4.57 2.02 2.92
------------------------------------------------------------------------
------------------------------------------------------------------------
Produced Oil &
Natural Gas
Liquids ($/Bbl)
Price, before
transporation
and selling 57.83 45.55 46.61 45.97 41.95 36.63 36.90 37.48
Transportation 0.68 0.71 0.71 0.80 0.83 0.98 0.69 0.70
Royalties 5.74 11.08 11.07 7.17 6.49 6.82 6.64 7.37
Operating
expenses, net
of processing
revenue 9.56 10.36 10.96 10.21 9.07 13.99 11.91 9.74
------------------------------------------------------------------------
Cash netback
before realized
financial
instruments 41.85 23.40 23.87 27.79 25.56 14.84 17.66 19.67
Realized
financial
instruments 0.63 (5.17) 1.34 (5.05) (4.66) (3.99) (2.75) (2.02)
------------------------------------------------------------------------
Cash netback
including
realized
financial
instruments 42.48 18.23 25.21 22.74 20.90 10.85 14.91 17.65
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Produced
($/Boe)
Price, before
transporation
and selling 47.11 44.53 40.65 45.91 41.40 33.59 38.23 39.10
Transportation 3.11 2.10 2.12 2.64 2.79 2.82 2.64 2.63
Royalties 6.71 4.73 6.63 7.13 7.68 1.28 8.29 5.69
Operating
expenses, net
of processing
revenue 7.64 7.39 6.66 9.22 8.06 6.65 10.48 8.38
------------------------------------------------------------------------
Cash netback
before realized
financial
instruments 29.65 30.31 25.24 26.92 22.87 22.84 16.82 22.40
Realized
financial
instruments 3.11 (0.22) 0.73 (2.02) 1.12 0.49 (3.73) (4.85)
------------------------------------------------------------------------
Cash netback
including
realized
financial
instruments 32.76 30.09 25.97 24.90 23.99 23.33 13.09 17.55
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 2 - Q3 2004 and subsequent periods includes the major asset
acquisitions.
Note 3 - The Alberta Securities Commission released National Instrument
51-101 (the "Instrument") in 2003, with an effective date of
September 30, 2003. The instrument requires all reported
petroleum and natural gas production to be measured in
marketable quantities with adjustments for heat content
included in the commodity price reported. The Company has
adopted the Instrument prospectively. As such, commencing with
the fourth quarter of 2003, natural gas production volumes are
measured in marketable quantities, with adjustments for heat
content and transportation reflected in the reported natural
gas price.
Paramount Resources Ltd.
Proforma Supplemental Oil and Gas Operating Statistics - unaudited
For the Period Ended March 31, 2005
Note 1 - Pro-forma is presented on the basis of including only the
results associated with the properties that were part of the
Trilogy Energy Trust spinoff.
Sales Volumes 2005 2004 2003
------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
------------------------------------------------------------------------
Gas (MMcf/d) 122 119 104 90 81 71 79 76
Oil and Natural
Gas Liquids
(Bbl/d) 4,950 5,672 5,204 2,316 2,267 2,095 2,294 1,949
------------------------------------------------------------------------
Total Sales
Volumes
(Boe/d) (6:1) 25,192 25,439 22,521 17,266 15,684 13,978 15,527 14,582
------------------------------------------------------------------------
------------------------------------------------------------------------
Per-unit Results 2005 2004 2003
------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
------------------------------------------------------------------------
Produced Gas ($/Mcf)
Price, before
transporation
and selling 7.48 7.38 6.95 7.44 7.26 5.96 6.20 6.16
Transporation 0.38 0.41 0.41 0.51 0.54 0.55 0.55 0.54
Royalties 1.85 1.76 1.54 1.43 1.31 1.16 1.14 1.43
Operating
expenses, net
of processing
revenue 1.25 1.30 1.34 0.69 0.93 1.80 0.89 0.66
------------------------------------------------------------------------
Cash netback
before realized
financial
instruments 4.00 3.91 3.66 4.81 4.48 2.45 3.62 3.53
Realized
financial
instruments 0.59 0.83 (0.34) (0.37) 0.29 0.17 (0.71) (1.13)
------------------------------------------------------------------------
Cash netback
including
realized
financial
instruments 4.59 4.74 3.32 4.44 4.77 2.62 2.91 2.40
------------------------------------------------------------------------
------------------------------------------------------------------------
Produced Oil &
Natural Gas
Liquids ($/Bbl)
Price, before
transporation
and selling 55.42 49.85 53.68 46.50 43.84 37.65 37.76 38.10
Transportation 0.94 0.71 0.71 0.80 0.83 0.98 0.69 0.70
Royalties 11.32 7.55 9.36 8.26 9.07 6.33 6.98 7.01
Operating
expenses, net
of processing
revenue 6.70 10.57 6.22 4.72 8.57 5.63 5.71 6.53
------------------------------------------------------------------------
Cash netback
before realized
financial
instruments 36.46 31.02 37.39 32.72 25.37 24.71 24.38 23.86
Realized
financial
instruments 0.63 (2.62) (1.12) (1.95) (2.30) (1.56) (1.18) (0.67)
------------------------------------------------------------------------
Cash netback
including
realized
financial
instruments 37.09 28.40 36.27 30.77 23.07 23.15 23.20 23.19
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Produced ($/Boe)
Price, before
transporation
and selling 46.95 45.54 44.54 44.78 43.49 35.90 36.99 36.82
Transportation 2.01 2.10 2.12 2.64 2.79 2.82 2.64 2.63
Royalties 11.12 9.89 9.26 8.56 8.06 6.88 6.87 8.39
Operating
expenses, net
of processing
revenue 7.33 8.42 7.60 4.20 6.02 10.01 5.39 4.28
------------------------------------------------------------------------
Cash netback
before realized
financial
instruments 26.49 25.13 25.56 29.38 26.62 16.19 22.09 21.52
Realized
financial
instruments 3.11 3.31 (1.83) (2.16) 1.18 0.66 (3.79) (5.97)
------------------------------------------------------------------------
Cash netback
including
realized
financial
instruments 29.60 28.44 23.73 27.22 27.80 16.85 18.30 15.55
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 2 - Q3 2004 and subsequent periods includes the major asset
acquisitions.
Note 3 - The Alberta Securities Commission released National Instrument
51-101 (the "Instrument") in 2003, with an effective date of
September 30, 2003. The instrument requires all reported
petroleum and natural gas production to be measured in
marketable quantities with adjustments for heat content
included in the commodity price reported. The Company has
adopted the Instrument prospectively. As such, commencing with
the fourth quarter of 2003, natural gas production volumes are
measured in marketable quantities, with adjustments for heat
content and transportation reflected in the reported natural
gas price.
/T/
For further information: Paramount Resources Ltd., J.H.T. (Jim) Riddell, President and Chief Operating Officer, (403) 290-3600 / Paramount Resources Ltd., B.K. (Bernie) Lee, Chief Financial Officer, (403) 290-3600, (403) 262-7994 (FAX), www.paramountres.com, Paramount Resources Ltd., C.H. (Clay) Riddell, Chairman and Chief Executive Officer, (403) 290-3600, (403) 262-7994 (FAX)
