Paramount Resources Ltd. (“Paramount” or the “Company”) is pleased to announce that it has entered into a purchase and sale agreement (the “Agreement”) with Ovintiv Inc. and one of its wholly-owned subsidiaries (together, “Ovintiv”) pursuant to which Ovintiv will acquire Paramount’s Karr, Wapiti and Zama properties (the “Assets”) for $3.325 billion in cash plus certain Horn River Basin properties of Ovintiv (the “Transaction”).
The Assets include approximately 170 net sections of Montney lands with 114 MMBoe of proved developed producing reserves, 270 MMBoe of proved reserves and 523 MMBoe of proved plus probable reserves as at December 31, 2023. (1) The Assets also include the related gathering systems and other field infrastructure. Ovintiv will assume Paramount’s processing and transportation commitments relating to the Assets on closing of the Transaction. Third quarter 2024 sales volumes and netback for the Assets were approximately 67,600 Boe/d (50% liquids) and $150 million, respectively. (2)(3)
The Horn River Basin properties to be received by the Company as part of the Transaction include Ovintiv’s 50% operated interest within the current joint venture with Paramount at the Two Island Lake field and a 50% operated interest at the Kiwigana field. The Two Island Lake field and Ovintiv’s interest in the Kiwigana field were producing over 40 MMcf/d of natural gas prior to being shut-in in March 2024.
“We believe this transaction provides an opportunity to realize compelling value for the Assets while retaining a significant inventory of growth opportunities across our land base”, said Jim Riddell, President and Chief Executive Officer of Paramount. “The transaction demonstrates Paramount’s ability to provide long-term value creation for its shareholders through the low-cost capture, delineation and organic development of early-stage assets, culminating in the realization of attractive value via strategic divestitures. On completion of the transaction, we will be well positioned to continue the development of our high-growth Duvernay assets, advance a number of our exciting early-stage assets and capitalize on new opportunities. We intend to use a portion of the proceeds of the transaction to provide a meaningful return to our shareholders. We expect to disclose further details of our shareholder return strategy in due course.”
TRANSACTION DETAILS
The purchase price will be subject to adjustments based on an effective date of October 1, 2024. Closing of the Transaction is expected to occur in the first quarter of 2025, subject to the receipt of regulatory approvals and the satisfaction of other customary closing conditions. The Agreement provides for a $100 million deposit by Ovintiv. If the Transaction is not completed, the deposit may be forfeited by Ovintiv to Paramount in certain circumstances set out in the Agreement.
A copy of the Agreement will be filed on Paramount’s SEDAR+ profile and will be available for viewing at www.sedarplus.ca.
SHAREHOLDER RETURN STRATEGY
The Transaction, which brings forward the value of the Assets, will enable Paramount to provide shareholders with a meaningful cash distribution. The Company intends to retain a portion of the proceeds of the Transaction to reinvest in its growth opportunities and will continue to have the flexibility to pursue the repurchase of its common shares through its normal course issuer bid.
Paramount views its regular monthly dividend, which has been increased by over 150% in the last three years, as an important part of the return it provides to shareholders. The Company intends to maintain its monthly dividend at the current level of $0.15 per share until the closing of the Transaction. Paramount anticipates reviewing and potentially adjusting the monthly dividend to reflect the updated operations and capital structure of the Company following closing of the Transaction.
POST-TRANSACTION STRATEGY
The sale of the Assets represents a pivotal milestone for Paramount as it continues to successfully execute its strategy of early-stage resource capture, delineation and development followed by strategic value realization. Following closing of the Transaction, Paramount will focus on the development of its Duvernay assets at Willesden Green and Kaybob North, which have significant growth potential and production that all flows through Company owned and operated infrastructure. The Company will also advance the ongoing appraisal of its newly acquired Sinclair Montney property. As always, Paramount will continue to evaluate opportunities for accretive transactions and organic growth, while remaining focused on capital discipline and maintaining a strong balance sheet.
Paramount’s asset base following the Transaction will have approximately 30,000 Boe/d of liquids-rich production and a deep inventory of opportunities at various stages in the development lifecycle:
Kaybob: Continued growth of Kaybob North Duvernay from third quarter 2024 sales volumes of approximately 8,200 Boe/d to targeted plateau production of approximately 16,000 Boe/d, while legacy conventional Montney and Cretaceous production provides stable cash flow to reinvest in other growth assets.
Willesden Green Duvernay: Approximately 249,000 net acres with over 700 internally estimated Duvernay locations supporting growth from third quarter 2024 sales volumes of approximately 5,200 Boe/d to targeted plateau production of over 50,000 Boe/d. (4) The construction of the Company’s second operated natural gas processing plant at Willesden Green is on schedule for completion by the fourth quarter of 2025 and will add approximately 18,000 Boe/d of raw handling capacity (comprised of 50 MMcf/d of raw gas handling and 10,000 Bbl/d of raw liquids handling). Paramount is evaluating the potential to accelerate future phases of the plant to achieve targeted plateau production earlier.
Sinclair Montney: Approximately 107,000 net acres located west of Grande Prairie. The first of two horizontal appraisal wells has recently been spud.
Paramount has additional strategic value and optionality through its long-term assets within the Liard and Horn River Basins, thermal oil and cold flow heavy oil exposure and other investments.
Paramount continues to also own a substantial portfolio of investments in both publicly traded and private entities which had a carrying value of $482 million at September 30, 2024.
ADVISORS AND FAIRNESS OPINION
BMO Capital Markets and Peters & Co. Limited are acting as lead financial advisors to Paramount in connection with the Transaction.
The Transaction has been unanimously approved by Paramount’s board of directors. Peters & Co. Limited has provided an opinion to Paramount’s board of directors to the effect that, as of the date of such opinion and based upon and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by Paramount under the Transaction is fair, from a financial point of view, to Paramount.
Norton Rose Fulbright Canada LLP is acting as legal counsel to Paramount on the Transaction. Scotiabank, RBC Capital Markets and ATB Capital Markets acted as strategic advisors to the Company in connection with the Transaction.
