Paramount Resources Ltd. (POU) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to Paramount's 2025 Annual General Meeting. I'd like to welcome everybody. My name is Jim Riddell. I'm the President, CEO and Chairman of Paramount. And I'll be chairing today's meeting. We will hold the formal part of the meeting, and then I'll give a shareholder update after that, about the company's operations. Before I begin, I would like to acknowledge and thank the directors that are here in person today, James Bell, Wilf Gobert, Dirk Jungé, Keith MacLeod, Jill McAuley and Sue Riddell Rose. And then I'd like to also introduce a new director nominee, Shane Fildes. Again, calling the meeting to order. I'd ask Mark Franko, our Corporate Secretary, to act as Secretary of the meeting; and Bart Wingerak of Odyssey Trust Company to act as scrutineer. A notice of meeting and information circular dated March 25, was sent to all shareholders in advance of the meeting. I direct that the notice of meeting be attached to the minutes of the meeting. I have been advised by the scrutineer that a quorum of shareholders is present. I direct that the scrutineers' report on quorum be attached to the minutes of the meeting. Do notice having been given and quorum being present, I declare the meeting to be regularly called and properly constituted for the transaction of business. Items of business and voting. There are three items of business to be considered at today's meeting: The presentation of the 2024 financial statements; the election of directors; and the appointment of auditors. No vote is required with respect to the financial statements. Voting on election of directors will be by way of ballot, voting on the appointment of auditors will be by show of hands. We have received all proxy voting results for today's resolutions in advance of the meeting. If you have already voted by proxy, there is no need to vote again. The scrutineer provided ballots to registered shareholders and appointed proxy holders as they entered the room. Those ballots were to be completed and returned to the scrutineer prior to the commencement of the meeting. If any registered shareholder or appointed proxy holder did not receive a ballot, please raise your hand so the scrutineer can provide you with one now. As the first item of business, I place before the Paramount's 2024 audited financial statements. A copy of the financial statements has been mailed to the registered shareholders and all beneficial shareholders who have requested one. Extra copies of the financial statements are available on the table by the entrance. Election of directors. The next item of business is the election of directors. In accordance with Paramount's articles, the directors have been fixed -- have fixed the number of directors to be elected at this meeting at 9. May I have the nominations?

Mr. Chairman, my name is Paul Kinvig, and I'm a duly appointed proxy holder. I nominate for director, the 9 persons listed in the information circular being: James Riddell, James Bell, Shane Fildes, Wilfred Gobert, Dirk Junge, Kim Lynch Proctor, Keith MacLeod, Jill McAuley and Susan Riddell Rose.

Thank you. I can confirm that no other nominations were received. Are there any questions on this motion? Voting on this matter will be by ballot. Please raise your hand if you have a ballot that you have not yet submitted to the scrutineer. The scrutineer has provided the voting results, and I declare the persons nominated have been duly elected as directors of Paramount to hold office until the close of the next Annual Meeting of Shareholders. The next item of business is the appointment of the auditor. May I have a motion to reappoint Ernst & Young LLP as auditor. All those in favor of the motion, please raise your hand. Anybody contrary? [Voting]

I declare the motion carried. Is there any other business to discuss at today's meeting? I see none. I will now entertain a motion to end the meeting. Any objections to ending the meeting? No, then I declare the meeting ended. Detailed voting results on the matters considered today will be disclosed in a press release and a voting report to be filed after the meeting. Okay. Thanks for the bearing through that. And yes, now I'll give you an update on your company. So as usual, I do ask that you keep in mind our forward information guidance as anything I say is accurate to the best of our knowledge. But all the small print there protects us against any mistakes that we may make. So yes, so -- let me bring you up to date. We obviously have done a lot in the last year. The major change here, obviously, being closing the major transaction that we closed in the end of January. The sale of our GP assets represented 70,000 BOEs a day of production, 70% of our total production at the time, reserves, cash flow, all similar levels. We sold it for $3.325 billion. We also we're able to include our Zama property and actually acquire back some additional asset in Northeast BC in the Horn River Basin. So in total, $3.325 billion of cash and then those other properties, exchanging hands closed January 31 with cash. We proposed and made in February, a significant return of capital to the shareholders of $12 a share and a special dividend of $3 a share for a total of 3.3 -- sorry, $2.1 billion of total cash returned to the shareholders, $15 a share. And in the first quarter, a total return to shareholders of $15.25, including regular dividends. We also repurchased 5.7 million shares of the company's stock in our NCIB, 4.9 million of those shares in Q1, so reducing our share count to 143.2 million shares, which have now grown a little bit through some additional dilution through option exercises to 143.5 million shares. The market cap of the company is now about $2.5 billion. We have additional cash on the balance sheet of $640 million at the end of this most recent quarter, March 31. We also have additional investments in Level 1 and Level 3 securities, in totaling something in the order of $520 million. And then our Fox Drilling subsidiary as well. And then we continue to pay $0.05 per share per month in dividends. Guidance when we -- maybe just run through some of the highlights that I saw them the first quarter here that we just released this morning, and I guess, bring you up to date. So on the operational front, we produced 54,409 BOEs a day that compared to an analyst consensus expectation of 54,100 BOEs a day. 24,700 BOEs a day of that total was related to the divested assets because we did still retain those in January. 29,705 was the retained assets. That's the base that the company is building from. 42% liquids in that retained 29,700 BOEs a day. And again, that's in line with what we have communicated. We were retaining 30,000 barrels a day as the initial production before we grow. We spent $216 million in the quarter, consensus from analysts -- the analyst community was 217. So in line, $20.4 million of that was related to the sold assets that was spent in January. We spent $22 million on ARO spending and continue to forecast spending $40 million in total for all of 2025. And we do expect to see that ARO spending drop in the subsequent years as our minimum spend requirement will drop with the assets that we included in the transaction. Operating costs in the quarter were $13.85, and I think that's a high watermark for us. And as we see some of the newer production come on stream at Willesden Green, Phase 1, Phase 2 and then subsequent additional new production after that, we see our production cost per unit dropping significantly as we go forward. Funds flow. Adjusted funds flow in the quarter was $149 million or $1.03 per share. That's relative to consensus of $116 million. So quite a bit higher than what the consensus was. And I don't normally talk too much about net income in our business, but we did post net income of $1.289 billion, reflecting the gain on sale of the assets in GP that were reflected in the quarter, and it was actually over $1.6 billion of total earnings and then there's a $383 million deferred tax. And I bring that up because when you relate that back, the $383 million of deferred taxes, tax that we would have paid otherwise, had we not been able to shelter that in -- through some of the tax pools and those tax pools were a large part of the transaction that we executed back in 2017 when we bought Apache Canada. So we paid just a little bit more than that total $383 million. I think we paid $465 million for all of Apache at the time. And then to see it all realized in deferred tax on the sale was quite gratifying. The ARO at the March 31 is $353 million on our balance sheet now. That's a reduction of $290 million related to the assets that were sold in the transaction that closed in the quarter. Again, net debt, we have $638 million of net cash on the balance sheet and no debt. So in a very strong balance sheet position. Again, the securities positioned $520 million. That's mostly our NuVista stake. We own 31.2 million shares of NuVista and totals a little over $400 million at current market prices. Sultran is a private logistics company on the West Coast that we own a significant interest in. In the quarter, we did sell our stake in Westbrick, Westbrick sold itself to Vermilion in the quarter. So we did realize $34 million out of that portfolio in the quarter. And I guess another asset that we have, we have a hedge position that's significantly in the money at the end of the quarter. We have 10,000 barrels a day, which is almost all of our forecast production for 2025. So 10,000 barrels a day hedged at CAD 105 for the rest of 2025. So we're well sheltered on commodity prices on the oil side for the rest of the year. Again, I already mentioned the share buyback that we did and the distributions. Yes. So that's kind of the highlights that I wanted to draw attention to from the first quarter. And then our updated guidance. So the only change we made the guidance is that we have now added $20 million to $50 million of new spending on our Sinclair asset. That prior $760 million to $790 million of CapEx for the year has now been bumped up to $780 million to $840 million, and that's just reflecting that $20 million to $50 million of incremental spending at Sinclair. And the big range there is just a question of how much. So the $20 million is on the side of doing the engineering and, I guess, the scoping and front-end engineering and regulatory work for a new plant at Sinclair, the $50 million on the higher end is if we start to order some of the long lead equipment on the success case where we do FID, Sinclair going forward and start to put in orders for some of that long lead time equipment that we'll need to construct a plant there before the end of this year. On the production guidance side, nothing really changed. We are guiding 37,500 to 42,500 as an average for the year. That has a pretty steady ramp starting in Q4. We did introduce new Q4 guidance of 40,000 to 45,000 BOEs a day, and we've retained that exit guidance of 45,000 BOEs a day, and that's really reflecting 30,000 up to when the Phase 1 of our new plants in Willesden Green comes on stream and adds kind of 18,000 barrels a day of capacity. And so we've used 15,000 as a kind of almost fully utilized capacity on the new plant. ARO, again, $40 million of total spend for the year and then $100 million dividend. That's including having spent $0.15 per share in January and then the lower dividend going forward. I do want to draw attention to just what we've been able to accomplish in the last 5 years. It's pretty interesting. So we've been able to return to shareholders $3 billion of cash $20.83 per share. And you can see the ramp as we introduced the dividend in 2022 and then the major dividend and return of capital at the beginning of 2025. So $3 billion. Over that same period of time, we did also grow the production up. And I guess, paid our debt down somewhere in the order of $800 million to $900 million down to 0 and obviously, now have a cash balance of $640 million in addition to these returns, and we've been able to maintain a pipeline of growth projects to continue with that I'll talk about in a moment. And then we were also able to, again, retire some of the shares. This is our corporate strategy. The corporate strategy really hasn't changed. It's been very similar throughout all of Paramount's 46 or 47 years of history. Core strategy has been to identify early, capture major opportunities at a low cost and tried to delineate them, apply new technologies to them and then start to develop them, get them to a mature state, free cash flow, harvest that cash and oftentimes sell it. We've had a number of major divestitures throughout the history of the company. My view is it's -- we do it a little bit differently. That probably has a lot to do with the capital structure that we have in the company, trying to live within our means, not dilute ourselves and try and create the most incremental value per share that we can without and try and reduce -- or I guess, minimize that share dilution as we try and grow in a very capital-intensive business. So if you look at the center panel, you can see what we're projecting as some very interesting near-term growth, we see ourselves going from 30,000 to 45,000 as our guidance for exit at the end of this year, growing to 60,000 by the end of next year, so basically doubling by the end of next year and then potentially as much as doubling 1 year after that, so the end of 2027 in the success case of bringing on our Sinclair Phase 1 we would see the company add another 60 -- or 50-plus thousand BOEs a day and bring the production for the company up to over 120,000 BOEs a day on the success case. The far right panel is really that S curve just showing that strategy in one little graph just -- and then showing the things that we have in the pipeline and where they sit in our view in that stage of development. So there is additional early-stage things that don't show up on here for competitive reasons. But the ones that we have introduced on here, we have thermal oil sands at Hoole, very early stage. It's been delineated. We think we understand what a development there might look like and starting to look quite interesting with some of the new technologies. Our portfolio of opportunities in the Clearwater and the Bluesky using the new multilateral technologies Northeast BC, Liard, Horn River. Those are all things that there's not a lot of near-term spending, not a lot of cost, but there are enormous opportunities that we've captured for the future. Sinclair is the one that we disclosed today, which I'll talk about a little more. And then some of the ones that are more in the development and getting closer to the harvest stage are the Duvernay projects that we have at Willesden Green and Kaybob North. So I'll just maybe start by talking a little bit about Willesden Green, and what we've been able to put together there. So we've got over 400 sections of land now. Over the last decade, we've proved up, applied and refined the best technology to apply to these development of this resource. It is a very liquids-rich Duvernay resource development, very deep, long multistage fracked wells. We're currently producing about 7,900 BOEs a day, and that was our production in the first quarter. That's through the existing Alhambra plant. So what we did was we have tested a number of wells over, I guess, probably about 3 different pads starting to commercialize that development. We did a small expansion to produce really the test wells into and that facility is full 22 million a day and 6,000 barrels a day, and it's full with those initial wells and it was the ability to use that existing facility, test these new drilling techniques and completion techniques and establish that these wells really can compete for capital in our company. And then based on that success, we've gone out and started a multi-phased expansion building a new plant at Alhambra, 3 50 million a day phases total of 150 million a day when we're done and 10,000 barrels a day associated with each of those. So it's a 50,000 to 60,000 barrel a day total new development. We're currently building Phase 1, and I'll just actually maybe just before I do that, I'll -- we did have a highlight here in the quarter, just the latest 3 wells we did bring on at the beginning of this quarter, and we did disclose IP30s for those wells of just over 1,000 BOEs a day, 1.9 million a day and 750 barrels a day of condensate with those CGR of 393 barrels a million. So you can see how liquids-rich those wells are. So then just bringing you up to date on where we are on the Phase 1 expansion. That plant is nearing completion. On the mechanical side, we're basically 100% complete. On the electrical and instrumentation, we're about half done. I think we have two more ships out there to finish that work. We did get the power to the plant last week, and it's now live, and we started to stand up the commissioning crews to -- when the Eni work is done, they'll be able to go in and start to commission the plant. The other milestones there are the egress, having the TransCanada and the Plains Midstream infrastructure available to take away the gas and the condensate and the HVP high vapor pressure liquids away into the plan system. So both of those as we've worked with those suppliers have shown us that they're on time and going to be available with our timing of completion. Phase 2, we did -- when we completed the transaction, we did accelerate Phase 2 to build the second 50 million a day phase. And so that is now ramping up and falling right in behind Phase 1. So we've started to even we've already built some of the water handling and condensate handling tanks as part of Phase 1 for Phase 2 to be able to take advantage of some of the synergies of building them almost at the same time. So that's in full swing a lot of the long lead time equipment orders were put in the fall as well so that we're in position to set all that this winter and then have it available to come on stream, same timing 1 year later, Q4 of 2026. Just on the drilling side, just to give some indication of where we're at on that. So we were able to -- so in order to bring this plant on stream, we need about 16 wells at startup. So we have broken that into 3 separate pads distribute some of the risk of executing those and having them all available for start-up. So we did drill the first pad last fall completed in first quarter and we're able to test those first 5 wells on cleanup into production facilities, temporary production facilities, and we're quite excited about the results that had from those first 5 wells vis-a-vis the further Southwest deepest highest pressure wells that we've drilled in Willesden Green to date. The next two pads were -- most of the way done the drilling on those. We're drilling them as batch drilling, which means that you're drilling the surface wells on all 5 wells, then you drill all the intermediate through the build section, set them and then you drill the laterals all out all consecutively. And so we have 2 separate well rigs on 2 separate pads doing that. I'll just note one recent success Paramount did just drill the longest Canadian onshore well ever drilled in Canadian history, 9,060 meters, that was successfully cased off on the weekend and cemented and so we're looking forward to completing that wells. 5,700-meter lateral, longest lateral for us and the deepest well again ever drilled in Canada, the longest well ever drilled in Canada onshore. Kaybob, I guess, the main one here, we're -- in the quarter, we produced about 8,500 BOEs a day out of the Duvernay. All of Kaybob produced 21,100-odd BOEs a day in total as you bring on some of the legacy or you include some of the legacy. We're currently producing something more like 9,000 or 10,000 barrels a day as we just brought on one of the most recent drill pads, and then we have drilled and are going to complete and bring on stream before year-end another 5-well pad. Very good success again. IP30 is out of that last 114 4-well pad was just a little over 850 BOEs a day. These are much very, very highly weighted to the liquids. So they produced about 750 barrels a day and about 0.5 million a day of gas in that 850-odd BOEs a day is IP30s. And I'll just make a comment on Paramount has started to understand the way the Duvernay formation responds. And we started to choke back and produce much more slowly, initially our Duvernay wells with the idea that we're going to get a longer-term better performance out of these wells by maintaining a higher bottom hole flowing pressure as long as we can. So we've chosen to restrict the rates and flow them at very high pressures and maintain that pressure with the idea that we're going to get better performance in the long term out of those wells and higher recoveries. Moving on to our Sinclair properties. So again, we disclosed the results of our first drilling campaign out here. So we put together over 150 sections of land, 100% owned. The whole concept to this play was to go out and find a significant resource in the Montney in the dry gas window where we could end up with the lowest supply cost. Our target is to be developing the lowest supply cost gas opportunity in North America. We think we need to do that in order to compete and be confident that we're going to get a return in a very -- in a North American gas macro that frankly, has a lot of gas. If you're the cheapest supply cost, you have a good chance of getting a very good return. And so we chose to go furthest into the basin where the gas is driest, we don't have the incremental costs of building infrastructure for the liquids, the incremental cost of producing the op cost can be quite a bit higher to produce the liquids-rich gas compared to a dry gas. So the first two wells that we went out and drilled to test that concept were done in the fall of 2024. We completed them in January. Flow tested those, and we're happy to report that the flow test came in with results that were above expectations on the flow rates, first 2 wells tested 24 million and 16 million a day and 2 separate distinct intervals that we tested in the Montney. And the other thing we were looking for was to confirm that our mapping was correct and that we we're going to find an -- generally speaking, when you go further into the basin in Alberta in the Montney, you get more and more sour and we thought we had found an area where we were going to see a little less H2S content and, therefore, have a lower cost of development and production. And so we're happy to confirm that the H2S levels came in lower than expectations. So our expectations were set on something that was going to be successful and so we're happy to report that both the flow rates and H2S levels were lower than what we had anticipated, which is a positive. And the gas was extremely dry so that we are, in fact, going to be developing infrastructure and have an operating cost that's going to be lower in value. So based on that success, we've kicked off engineering of a new plants. So the Phase 1 development that we think this first well pad proves up is 400 million a day plant with about 350 million a day of sales. We've had previously gone out and captured egress to be able to bring that onstream in the fourth quarter of 2027. And again, on the positive outcome that we do have a plant cost forecast that is in the neighborhood of what we're expecting, then we would see an FID later that allows us to go forward and potentially be ordering equipment to build that plant and have it on stream for Q4 '27. So yes, so very exciting. I'm going to just make some higher-level comments on some of these longer resource plays that we're working on. So we have 1.3 million acres back in -- the roots of the company back in Northeast Alberta. We're principally targeting, I guess, heavy oil in using the new multilateral technologies and applying it into the Bluesky, the Clearwater, the Wabasca and so our strategy there has been to use other people's money to try and derisk and make some of these discoveries and learn about this play a little more than what we know so far. And then on the success case, try and apply our own capital and grow it around some of these opportunities that we find a positive outcome on. And then the other main focus here is we've been capturing for the longer-term large in-situ opportunities that we think technology is going to eventually unlock and meet those opportunities compete with some of the other ones that we have. So we have a long-standing large, fully delineated opportunity at Hoole. When we used to do the independent engineering for back in the Cavalier days, we had 1.2 billion barrels of resource -- recoverable resource and project scale that was something like 100,000 barrels a day just for Hoole. And we have 4 more additional in-situ opportunities in addition to that. And then we continue to try and add to that. Our view is that capturing very low -- capturing very large resource at very low cost per barrel and seeing the development of some of these new technologies is going to create a lot of value for shareholders in the future. A bit of a similar story in Northeast BC, and this, again, was part of the Ovintiv transaction. So in the last few years, we've been capturing -- we now have 50% of the Liard position up here. This is often referred to as one of the most prolific shale gas opportunities in North America or in the world. And we're a believer in that. Some of these wells, I guess when we look at wells here, we think the type curves are in the order of 100 Bcf of gas and have IPs that are in the order of 100 million a day. And they are deeper, higher pressure, they do cost more. They're probably in the order of $45 million or $50 million to drill, but they're enormous wells. And we've also had and then we've added through the Ovintiv transaction additional resource in the Horn River Basin. So we now have 100% in the Two Island Lake developments and 50% in the Kiwigana development. And I guess all of this is connected to existing infrastructure that is in the order of 2 Bcf a day. It's all currently shut in, but there's pipelines, there's infrastructure and our work has been focused on, how do we improve the wells? There hasn't been a modern frac in 10 years on this resource play in the Liard or in the Horn River and then how do we bring these into these existing facilities at a competitive cost. And so we haven't quite got ourselves to that point where we're confident that we can do that. But I can tell you we're working hard and capturing the resources is the first step in that, which we've done. Okay. And then lastly, I've kind of gone through a lot of this already, but just additional value in the company. I'll just point out again our investment portfolio, the investments in public companies, $430 million at March 31. Private company is $90 million. Our drilling company book value of $80 million so about $600 million in total, including the Fox Drilling item. I think I've talked about everything else on the slide here really other than the top right hand boxer, that's the unconventional resource that -- or I guess the long-term conventional discovers we made in the Northwest territories, we have significant discoveries up in the Mackenzie Delta and the Central Mackenzie that sadly we're actually now going -- they're very exciting massive discoveries that our regulator is now asking us to go up and abandon. So that's my little rant for the meeting here is why we're going up abandoning perfectly good discoveries just because they've sat. But the whole concept there was to go up and find enormous resource. We did that. The shale revolution came along and found cheaper gas closer into the existing infrastructure so that remains for another generation to be exploited. The last thing I'm going to -- main slide I'm going to talk about is just our EH&S. And what I'm really going to -- so we worked very hard to minimize our impact on the environment. Some of the latest things we're doing, we use fully the last 3 or 4 pads we've fracked have all been using natural gas-fired turbines to minimize the amount of diesel we use. We're -- we've converted all of our rigs to work on biofuel, diesel and natural gas and displacing the diesel as much as we can with natural gas, reduces our cost and reduces our impact on environment. We've done a huge program on reducing the emission -- the fugitive emissions out of our pumps using some of the new technologies, and we've been working hard to reduce the amount of ARO that we have in the company and diligently overspending our requirements every year to retire that and bring the environment back to the way we found it. We have great relationships in the communities that we work in. We've been working very hard, particularly in Rocky Mountain House in the last couple of years to go after our Duvernay Willesden Green development, but be respectful of the people that live in that community. And yes -- and then on governance for our company, I would put our governance as second to none. I think we do it right. I think we -- we have a great Board of Directors that gives us great guidance on that. And I think you can be very confident in knowing that our company is really a poster child for how to do it right. So that, I rant on probably long enough. And 45 years of track history, I think our capital structure, our insider ownership allows us to take a long-term things that others might normally not choose to do. A great example is the divestiture and return of capital to shareholders that you don't see a lot of companies undertake. So I think the shareholders have been rewarded because of that. We have a huge amazing large prospect inventory to look forward to. I'm very excited about it all. And I think that has a lot to do with that. It has a lot to do with the staff that are in the room and the whole company. We have an amazing team that executes on this and really creates a ton of value for us and super proud of all that. So that's it. I think I can answer a few questions if anybody has any, and I'm happy to do that. And there is a microphone here if -- I don't think we're webcasting. So if you have a question, you want to come up and ask it, now is your chance. Okay. Not even [ Bernie Lee ] is going to do that. Okay. Thanks very much, everybody, for coming, and appreciate your support.