Parex Resources provides a business update, alongside its 2023 budget and guidance. 

Key Highlights
Current production exceeded 60,000 boe/d in early December 2022, the highest in the Company’s history.
Incorporating recent Colombia tax reform, the Company continues to have robust netbacks; at $80/bbl Brent pricing, Parex’s 2023 guidance is approximately $450 million of capital expenditures (midpoint), average production of roughly 60,000 boe/d (midpoint) and is expected to fully self-fund this plan with capacity for potential incremental dividends as well as normal course issuer bid (“NCIB”) share repurchases.
Making further investments in facilities and infrastructure in 2023 to actively mitigate and arrest declines in core production areas, such as LLA-34 and Cabrestero, which are expected to reduce maintenance capital in future years.
Unveiled plan for 2023 through 2025, where post 2023 annual base production growth is expected to be approximately 5%, excluding exposure to a world-class exploration portfolio that has potential for transformational discoveries in both oil and gas plays.
Signed a memorandum of understanding with Ecopetrol S.A., Colombia’s national oil company, along the high-potential Foothills trend in the Llanos Basin.
Recent positive well test results at the Capachos Block and VIM-1 Block, either of which would currently rank among the top producing wells in Colombia.

“I am extremely proud of our teams in Canada and Colombia that overcame challenges throughout the year and delivered on our promise of a 60,000 boe/d production rate by year end. This achievement demonstrates the resiliency of our employees and contractors, our world-class portfolio, and the potential we see in Colombia for the years to come,” commented Imad Mohsen, President and Chief Executive Officer.

“The 2023 plan builds on our 2022 successes and our three-year outlook shows that even before exploration potential is considered, Parex can grow its production at highly efficient capital rates while increasing its returns to shareholders.”

Strategy

Parex’s corporate strategy is unchanged and based on four key pillars: leveraging our Colombian advantage & ESG performance, driving safe & sustainable operations, strategically providing transformational exploration upside (“big ‘E’”), as well as delivering return of capital to shareholders.

The company's strategic priorities build on 2022 successes and for 2023 their priorities continue to be across three areas:

1. Exploitation & Technology: unlocking our extensive land base using technology as we apply proven techniques to drive step changes in capital efficiency.
2. Onshore Liquids & Gas Potential: increasing our recovery factors and growing liquids production while pursuing longer-term, underexplored gas plays.
3. Outsized Exploration Potential: focusing on material conventional oil and gas prospects and giving investors asymmetric risk and reward opportunities through a world-class exploration portfolio

2023 Budget Highlights

• Program includes approximately 65 gross wells, with five operated rigs and three non-operated rigs.
• Capital expenditures at approximately $450 million (midpoint), which is roughly 18% lower compared to 2022. This demonstrates the Company’s commitment to capital discipline in a lower netback environment, while ensuring strong free funds flow generation that is to be returned to shareholders.
• Approximately 75% of total capital is focused on investments in operated blocks, with balanced deployment across multiple areas and basins as the Company further diversifies its operations from Southern Llanos Blocks LLA-34 and Cabrestero.
• Average production is expected to be between 57,000 to 63,000 boe/d, and forecast to be approximately 15% year-over-year absolute growth (midpoint).
• The production guidance range for 2023 has been widened relative to previous years to better account for uncontrollable above ground factors, with the midpoint including an increased downtime contingency assumption. The low case accounts for increased uncontrollable above ground factors and is not reflective of forecast production decline.
• Free funds flow (“FFF”) estimated to be approximately $230 million at $80/bbl Brent guidance, which is expected to be 100% returned to shareholders through a combination of dividends and share repurchases. Currently, the Company’s regular dividend is C$1.00 per share annualized, which is approximately $80 million, and leaves an estimate of $150 million to be further returned to shareholders.
• In due course, the Company expects that it will submit a notice of intention to make an NCIB to the Toronto Stock Exchange for calendar 2023.
• Capital plan includes the spudding of three big ‘E’ wells (Blocks: Arauca, VIM-43 and LLA-122) that have the potential to be transformational opportunities for the Company.
• Approximately $45 million of capital expenditures relate to carry capital from the Arauca and LLA-38 farm-in agreement with Ecopetrol S.A., announced on July 7, 2021, whereby Parex agreed to solely fund the initial work plan in exchange for proved reserves along with development and drill-ready exploration prospects.

2023 Activity Overview

Development

• Northern Llanos – Arauca (50% W.I.): The first well of a multi-well program is expected to spud in the first half of 2023; first well will be drilled in a discovered field and the second will be an appraisal well; pre-investing in infrastructure and building facility capacity for approximately 40,000 bbl/d.
• Northern Llanos – Capachos (50% W.I.): Two wells are expected to be drilled: one injector well to cycle associated gas and maximize liquids production and one near-field exploration well; beginning a facility expansion to increase fluid handling and allow for future production growth.
• Southern Llanos – LLA-26 and LLA-81 (100% W.I.): Following the drilling successes at LLA-32 and LLA-40, the Company is executing short-cycle opportunistic production adds at LLA-26 (timing shifted to predominantly 2023) and LLA-81 (newly identified area to exploit), representing some of the most attractive paybacks in Parex’ portfolio.
• Southern Llanos – Cabrestero (100% W.I.): 13-15 wells to continue follow-up infill drilling and full waterflood implementation, plus infrastructure investments to continue optimizing operations and maximize reserves recovery.
• LLA-34 (55% W.I.): 35-40 gross wells, plus infrastructure and facilities to replicate Cabrestero success; optimizing operations and expansion of waterflood.
• Big ‘E’ – Parex’ Exploration Targets that have Transformational Properties for the Company
• Northern Llanos – Arauca (50% W.I.): The Arauca-8 well is a multi-zone, high-impact exploration prospect that is targeting light crude oil.
• Magdalena – VIM-43 (100% W.I.): The Chirimoya well is in an area where there are stacked reservoirs, which highly increases the chance of success of a gas and condensate discovery; this prospect is one of the most potentially impactful in the Parex gas exploration portfolio.
• Llanos Foothills – LLA-122 (50% W.I.): Arantes is the first well within the Ecopetrol memorandum of understanding coverage area, targeting gas and condensate in an area where historical pool sizes are significant and the wells can be extremely prolific; this prospect is the first one to be drilled by Parex within the high-potential Foothills trend.

Three-Year Outlook

To highlight Parex’s forecast declining capital expenditure profile, portfolio growth, and FFF potential, the Company has provided an outlook through 2025 in the form of a three-year base development plan. Assuming a commodity price environment of approximately $80/bbl Brent oil price and forecast total capital expenditures within a range of $325 to $450 million per year, the Company is projected to generate cumulative FFF of approximately $1 billion or C$1.35 billion at current foreign exchange rates. Under this scenario, capital reinvestment adheres to the targeted long-term capital allocation framework, projects approximately 5% per annum average production growth, and increases return of capital to shareholders.

The three-year base development plan does not include upside from the big ‘E’ portfolio. Given Parex is forecast to allocate 10% to 15% of the annual capital expenditure budget to actively pursue transformational exploration opportunities, the plan does not include any associated capital and production from successful exploration follow-up that may occur over the outlook period.

Encouraging Well Test Results at Capachos and VIM-1 Blocks

Northern Llanos: Capachos (50% W.I.) – Andina-1 Well
The Andina-1 well has been on production since September 2018 and has accumulated 3.5 MMBBL of oil from the Guadalupe formation. During a well service on the Andina-1 well, a test was conducted on the previously unproduced Mirador formation to test the capability of this zone in the Andina field on the block. The well was tested for 53 hours in mid-November and produced a total of 8,612 barrels of 39 API oil and 1,277 barrels of water, for an average daily rate of 3,900 bopd and 578 bwpd at a measured bottom hole drawdown of 13%. The well was tested at a maximum rate of 6,838 BOPD during a 4-hour period and bottom hole pressure recorders indicated a drawdown of 30% at this rate. The final watercut of the well was 1% and produced water during the test was associated with wellbore completion fluids. Parex has completed the Andina-1 well as a Mirador only producer.

Magdalena: VIM-1 (50% W.I.) – La Belleza-2 Well
The La Belleza-2 well was drilled to a total depth of 14,166 feet, approximately 2.5 kilometres east of the La Belleza-1 well. The well was drilled as a horizontal well and encountered 2,000 feet of porous limestone in the Cielo de Oro (“CDO”) formation then completed for natural flow production. Over an 8-day period in early November the well produced a total of 15,610 barrels of condensate and 62 MMCF of natural gas, representing an average test rate of 1,993 barrels of condensate per day and 8 MMCFD of gas (3,326 boepd). Due to liquid storage limitations, the true capability of the well could only be tested over a one-hour period where the well produced 7,530 barrels of condensate and 38.5 MMCFD of gas (13,953 boepd). Bottom hole pressure recorders indicated a producing drawdown of 4% during the average flow period and a maximum drawdown of 10% at the highest rate tested during the one-hour period. A total of 817 barrels of formation water and water of condensation was produced during the test for an average watercut of 5%, consistent with the long-term trends at the La Belleza-1 well.

Gas Strategy Update

Memorandum of Understanding with Ecopetrol S.A. 
In 2022 Parex signed a memorandum of understanding (“MOU”) with Ecopetrol S.A. (“Ecopetrol”), Colombia’s national oil company. The MOU builds on the relationship between Parex and Ecopetrol, with an area of coverage spanning 13 blocks in the Llanos Basin, along the high-potential Foothills trend, and include the general scope of:

• Build on companies’ strengths to exploit potential synergies in developing gas volume in the area;
• Maximize the use of existing infrastructure; and
• Seek joint cooperation in general when it comes to blocks in the area of coverage.
• In H2 2023, the first well that would be under the MOU area of coverage is expected to be spud at Block LLA-122 (50% W.I.).

Production Update – 2022

• Current production is in excess of 60,000 boe/d; operated production for the Company is over 50% for the first time since 2015.
• For the period of October 1, 2022 to November 30, 2022, estimated total average production was approximately 53,200 boe/d; current production increases have primarily come from operated blocks in Cabrestero, Capachos and VIM-1.
• 2022 full-year production expected to average 52,000 to 53,000 boe/d and Q4 2022 production is expected to average 54,000 to 58,000 boe/d, both in line with prior guidance.

Northern Llanos – Capachos Block (50% W.I.) Update

• On November 19, 2022, the Company proactively shut-in its Capachos Block due to temporary security concerns; for Parex, the safety of our employees and contractors is our top priority. As a result of this shut-in, there was an approximately 5,000 boe/d net production impact from current wells in addition to delays in bringing new production online.
• On December 4, 2022, following meetings with national and local authorities, activities resumed at the Capachos Block and production is actively being brought back online with full operating rates expected in the coming days.

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