Parex Resources Inc. is pleased to announce the results of its annual independent reserves assessment as at December 31, 2020 and to provide an operational update.
2020 Year-End Corporate Reserves Report
On a debt adjusted basis, proved developed producing (“PDP”) reserves per share increased by 18% and proved plus probable (“2P”) reserves per share increased by 14%. We exited 2020 with working capital of approximately $320 million and no debt. In 2021, we have multiple opportunities for continued profitable growth and are expecting to generate significant free cash flow, in excess of capital expenditures and sufficient to support the Company’s share buyback program.
For the year ended December 31, 2020, Parex:
- Added 18.5 million barrels of oil equivalent ("MMboe") PDP, 6.3 MMboe proved (“1P”) reserves, and 13.1 MMboe 2P reserves replacing respectively 108%, 37% and 77% of total 2020 production (17.03 MMboe);
- Added significant new reserves, including 7 MMboe of 1P, 17 MMboe of 2P and 34 MMboe of proved plus probable plus possible (“3P”) on blocks VIM-1 (La Belleza) and Fortuna (Cayena). With 3 of 14 planned wells drilled, the new reserves booking was achieved with a limited exploration program due to the COVID-19 pandemic;
- Increased PDP reserves by 2% year-over-year, from 71 MMboe to 72 MMboe (98% crude oil);
- Grew 3P reserves by 7% from 261 MMboe to 280 MMboe (92% crude oil);
- Increased debt adjusted reserves per share as follows: PDP 18%, 1P 7% and 2P 14% as the limited exploration activities was complimented by the share buyback program;
- Realized PDP finding, development & acquisition (“FD&A”) costs of $7.73 per barrel of oil equivalent (“boe”), resulting in a 2.5 times funds flow from operations netback recycle ratio using unaudited Q4 2020 funds flow from operations of $19.15/boe;
- Achieved 2P finding & development (“F&D”) costs and 2P FD&A costs of $8.45/boe. Using the unaudited Q4 2020 funds flow from operations of $19.15/boe, the 2P FD&A funds flow from operations netback recycle ratio was 2.3 times;
- Extended 2P reserve life index to 11 years;
- Realized an after tax 1P net asset value (“NAV”) per share of C$20.91 and 2P NAV of C$27.43 per share, discounted at 10% and using the GLJ 2020 Report (as defined herein) price forecast;
- Using a constant $50/bbl Brent oil price, achieved an after tax 1P NAV per share of C$17.49 and 2P NAV of C$22.47 per share, discounted at 10%; and
- Achieved average daily production of approximately 46,518 boe per day (“boe/d”), representing a 12% decrease over the 2019 daily average production using a conversion of six thousand cubic feet (“Mcf”) of gas to one barrel of oil. Production was less in 2020 due to voluntary shut-in and less drilling activity due to the COVID-19 pandemic and the volatility in crude oil prices. Production consisted of 6,021 barrels per day (“bopd”) of light crude oil and medium crude oil, 39,197 bopd of heavy crude oil and 7,800 Mcf per day (“Mcf/d”) of conventional natural gas.
- We estimate Q4 2020 production to average approximately 46,642 boe/d, up 5% from Q3 2020, consisting of 6,637 bopd of light crude oil and medium crude oil, 38,332 bopd of heavy crude oil and 10,038 Mcf/d of conventional natural gas.
2020 Year-End Reserves Report: Discussion of Reserves
The following tables summarize information contained in the independent reserves report prepared by GLJ Petroleum Consultants Ltd. (“GLJ”) dated February 4, 2021 with an effective date of December 31, 2020 (the "GLJ 2020 Report"), with comparatives to the independent reserves report prepared by GLJ dated February 5, 2020 with an effective date of December 31, 2019 (the "GLJ 2019 Report"), and the independent reserves report prepared by GLJ dated February 7, 2019 with an effective date of December 31, 2018 ("GLJ 2018 Report", and collectively with the GLJ 2020 Report and the GLJ 2019 Report, the "GLJ Reports"). Each GLJ Report was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Additional reserve information as required under NI 51-101 will be included in the Company's Annual Information Form for the 2020 fiscal year which will be filed on SEDAR by March 31, 2021. Consistent with the Company’s reporting currency, all amounts are in United States dollars unless otherwise noted.
The recovery and reserve estimates provided in this news release are estimates only, and there is no guarantee that the estimated reserves will be recovered. Actual reserves may eventually prove to be greater than, or less than, the estimates provided herein. In certain of the tables set forth below, the columns may not add due to rounding.
All December 31, 2020 reserves presented are based on GLJ's forecast pricing effective January 1, 2021; all December 31, 2019 reserves presented are based on GLJ's forecast pricing effective January 1, 2020; and all December 31, 2018 reserves presented are based on GLJ's forecast pricing effective January 1, 2019.
Parex’ reserves are located in Colombia’s Llanos and Magdalena basins. Reserve additions in the GLJ 2020 Report were primarily generated from a successful oil exploration and appraisal drilling program.
The Company recorded material reserve increases in 3P reserves due to the following corporate activities:
- Exploration discovery with the La Belleza well on the VIM-1 Block.
- Drilling extensions with the Cayena well on the Fortuna Block.
Fortuna Block (100% WI, Operator): Parex drilled the horizontal exploration well Cayena-1 to a depth of 8,560 feet and logged potential oil-bearing zones in multiple formations. The Company then successfully drilled 3,042 feet horizontal wellbore in the Galembo Formation, one of the prospective oil-bearing zones identified on open hole logs. The well was completed open hole and tested under natural flowing after an initial cleanup flow on the well. During the 461-hour initial test, a total of 15,812 barrels of 24 API oil was recovered at a gas and oil ratio of 280 standard cubic feet per one barrel of oil (“scf/bbl”) and an average production rate of 824 bopd. The maximum flow rate recorded during the test was 1,375 bopd and the flow rate during the last 24 hours of the test was 540 bopd. The flowing tubing pressure declined from 1,300 psi initially to 400 psi at the end of the test while the watercut remained at 0.4% throughout the test. Bottom hole pressure recorders indicated the maximum drawdown recorded at the end of the test was 55%. A well buildup was conducted for 25 days after the main flow after which the well resumed production at rates of 600-1000 barrels of oil per day. A total of 8,489 barrels of additional oil has been recovered after 253 hours for an average rate of 805 bopd with a constant watercut of 0.4%. To improve productivity, Parex will be installing artificial lift into the Cayena-1 well. To appraise the Cayena discovery, in Q3 2021, the Company plans to drill an additional 1-2 horizontal appraisal wells and will drill the wells underbalanced to minimize potential formation damage.
New CEO & President – Imad Mohsen
Effective February 4, 2021, Imad Mohsen, who is now residing in Calgary, has been appointed President and CEO and a director of the Company. Effective February 4, 2021, Dave Taylor has retired as a director of the Company. Mr. Taylor will remain with Parex as a Special Advisor to the CEO and assist with the transition until his retirement at our AGM on May 6, 2021.
NCIB Share Purchase Plan
As of January 31, 2021, Parex had purchased for cancellation 1,170,000 common shares of the Company at an average cost of C$20.06 per share, pursuant to its normal course issuer bid that commenced on December 23, 2020. Basic shares outstanding as at January 31, 2021 were 129,784,485. Pursuant to the normal course issuer bid, Parex may purchase for cancellation up to an aggregate of 12,868,562 common shares prior to December 22, 2021.