Parex Resources Inc, is a company headquartered in Calgary that focuses on sustainable, profitable, conventional oil and gas production. All currency amounts are in United States dollars, unless otherwise stated.
Operational Update – Applying Free Cash Flow to Accelerate Colombian Appraisal & Exploration Portfolio
Higher Brent oil prices to date in 2021 and Parex’ unhedged oil price exposure are expected to contribute to a significant increase to Parex' 2021 funds flow provided by operations (FFO), compared to the 2021 Budget Guidance released on November 4, 2020. With estimated higher FFO, an increasing cash position and a debt-free balance sheet, Parex is strategically accelerating assessment of its portfolio of operated assets, through increasing exploration and appraisal activity to provide for a strengthened future development inventory. Highlights of the capital expenditure increase are provided below:
- Cabrestero Block (100% WI, Operator): Continue the Bacano Field development and appraisal drilling program and expand the water injection pressure support program;
- Boranda Block (50% WI, Operator): The Boranda Sur-2 appraisal well, located 2.6 kilometers to the southwest of the Boranda-3 discovery is currently producing approximately 200 barrels of oil per day (bopd) in a new horizon. Testing of the main target will begin in approximately two weeks. Parex is also completing the Boranda Centro-1 well, which is the second well in the appraisal program, located 840 meters from Boranda-3 and structurally downdip. The company believes a successful oil test at Boranda Centro-1 would confirm a significant areal extent of the block;
- VIM-1 Block (50% WI, Operator): In Q2 2021 Parex anticipates commencing a two well exploration drilling program to further assess the VIM-1 block. The wells, Basilea and Planadas are located 2.6 and 6.3 kilometers respectively from the La Belleza-1 discovery. The Company is currently evaluating development plans for the La Belleza discovery that include the possible reinjection of gas to increase liquids recovery and maximize the project value, subject to partner approval;
- 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 horizontally in the shallower Galembo Formation resulting in a current medium oil (24 API) production rate of approximately 340 bopd and approximately 54,900 cumulative barrels of oil. Building on the success of Parex’ first horizontal well, the Company plans to drill 2 new horizontal wells targeting the Salada and Olini formations.
The 2021 capital expenditure budget increase targets operated assets and is summarized as follows:
The increased 2021 capital expenditure program, along with the share buy-back program discussed below, is expected to be fully funded from funds flow provided by operations.
Q1 2020 Update
- Production: Q1 2021 average production is estimated at 46,775 barrels of oil equivalent per day (boe/d) compared to Parex’ guidance of 46,500-47,500 boe/d. Q1 2021 production rates were negatively impacted approximately 1,000 bopd by LLA-34 downtime averaging 6% compared to a historic average of 3%. The increase in downtime is primarily related to electrical system reliability. Parex expects LLA-34 downtime to average 4% for the remainder of 2021. We expect Q2 2021 production to average 47,000-48,000 boe/d. With the increase in 2021 capex, Parex expects H2 2021 production rates to be 48,000-50,000 boe/d. The additional Cabrestero oil wells are being drilled to capture the higher Brent pricing and the reduced transportation costs from the planned Cabrestero field pipeline tie-in;
- Crude Quality Discount: Parex continues to realize strong crude oil pricing. The Brent/Vasconia differential is currently approximately $3.00/bbl;
- Integrated ESG Strategy – Colombia’s First Geothermal Project: Demonstrating Parex’ commitment to the environment and sustainable operations, the Company commissioned a geothermal unit at the Las Maracas field that utilizes hot produced water to generate power and reduce emissions. Parex is currently installing a second geothermal unit in the Rumba field; and
- Industry Leading Balance Sheet: Parex unaudited cash position at March 31, 2021 was approximately $365 million. The Company remains debt-free with an undrawn credit facility of $200 million.
Share Buy-Back – Committed to Another 10% Re-purchase in 2021
Since 2017 Parex has repurchased an aggregate of 35 million shares, returning CAD$667 million to shareholders. Under the current NCIB which began on December 23, 2020, Parex has purchased 3.4 million shares of the maximum amount of 12.9 million shares. As of March 31, 2020, Parex had 128.6 million basic shares outstanding. Parex expects to purchase the maximum allowable 12.9 million shares under the NCIB, prior to its expiry in late December 2021.