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spk01: Good day, ladies and gentlemen, and welcome to the Para Day Energy second quarter 2023 and year-end financial results conference call. Please be advised that today's conference is being recorded, and at this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If you have a question and you are viewing on webcast, please use the Ask a Question button in the top right-hand corner to type your question at any time during the presentation. If you are participating by telephone and would like to ask a question, please dial star 11 at any time. You will then be in the queue for the question and answer session at the end of the call. I would now like to turn the meeting over to Mr. Dallas McConnell, Vice President, Corporate Finance, Please go ahead, Mr. McConnell.
spk04: Thanks very much, Michelle, and good morning, everyone. I would like to welcome everyone to Paraday's second quarter 2023 conference call. With me today are President and Chief Operating Officer, Darcy Redding, and Chief Financial Officer, Adam Gray. Darcy and Adam will begin today with a review of our operating and financial results and certain other company developments. Following their prepared remarks, we will turn the call over to the conference coordinator for your questions. Before Darcy begins, I would like to remind you that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by Paraday with Canadian securities regulators on cdarplus.ca. With that, I will now turn the call over to our President and COO, Darcy Redding, who will provide more detail on our performance last quarter and other corporate developments.
spk07: Thank you, Dallas. We are extremely excited to speak today about our second quarter results and accomplishments, where we successfully achieved one of the more significant milestones in the execution of our strategic plans. In mid-June, the company closed a $150 million U.S. dollar refinancing of long-term debt, materially reducing the cost of capital, while providing additional liquidity via a revolving credit facility and a delayed draw term loan. Adam will be providing additional commentary on this refinancing in a few minutes, while further detail can also be found in our second quarter MD&A. I would also refer you to our original news release of June 15th, which provides ample information on the terms of this exciting new financing. Our second quarter financials were bolstered by our strong commodity hedge position, realizing a hedging gain of nearly $14 million, while successfully mitigating general pricing volatility and continued tepid ACO natural gas pricing that our unhedged portion of production was exposed to. Notably, approximately 60% of our total production was unhedged in the quarter. Pear Day continues to view hedging as an important risk management tool to support our strategy, while also satisfying the requirements of our new senior loan facility. We also benefited from a one-time Alberta Crown royalty rebate that materialized in the second quarter. This was the result of a favorable gas cost allowance adjustment for the 2022 calendar year and the related overpayment of 2022 Crown royalties. While pleased with our second quarter financial results, we experienced production interruptions that negatively impacted our quarterly volumes by over 6,300 BOE per day, correlating to a nearly $12 million impact to net operating income. Approximately 75% of this production impact resulted from unscheduled outages of approximately five weeks at each of our Jumping Pound and Caroline gas plants in April and June, respectively. The remaining 25% of this production impact is resulting from the wildfire situation in Alberta and Northeast British Columbia, with the BC wildfires continuing to impact our operations. I will have some additional commentary on these items in a few moments. Moving to our second quarter operating results, our production volumes were just over 31,000 BOE per day, but as I mentioned, we experienced over 6,300 BOE per day impact due to unscheduled gas plant outages and wildfire impacts. Both the Jumping Pound and Caroline plant outages were initiated as a result of corrosion-related failures of heat exchanger tubes within the sulfur recovery facilities. Although these failures do not present material risks to human health, safety, or the environment, the operational reliability of the process was affected, and in each case, this necessitated a shutdown to complete the required repairs to ensure long-term operational reliability. Of note, there was a silver lining to our Caroline gas plant outage as an opportunity was presented for the company to conduct critical equipment servicing and maintenance during the outage for a nominal additional cost. By doing so, the full maintenance turnaround originally scheduled for the Caroline plant in 2024 has been successfully deferred for an additional year until 2025 without detrimental impact to operational reliability or safety risk. We see this as an opportunistic initiative and an excellent example of the innovative culture we continue to foster at Pear Day. and we thank our field leaders and field staff for continuing to innovate and deliver enhancements that are materially improving our operating cost structure and reliability. On a last note related to our production, after an unscheduled outage in early July at a non-operated gas processing facility in West Central Alberta, significant outages were resolved by the second week of July. Since then, production has largely been restored to pre-outage volumes, averaging approximately 35,500 BOE per day since then, and currently our production is approximately 37,000 BOE per day. We have ongoing production outages of approximately 1,700 BOE per day, with just over half of that caused by the ongoing impact of wildfires near our Equan property in northeast B.C. The remainder is a result of a voluntary temporary shut-in of high variable cost production in West Central Alberta. We expect these Alberta volumes to remain voluntarily shut-in until ACO natural gas prices are sustained at greater than $3 per MCF. Our second quarter operating expense totaled $49 million, or just over $17 per BOE. As a result of most of our operating costs at our operated processing facilities being fixed, the previously mentioned second quarter volume outages tend to increase our per barrel operating expense. We anticipate and look forward to reporting operational results in the third quarter that we are optimistic will be more representative of better runtime and less volatile operating conditions. For those of you accessing our slide deck through the webcast this morning, I'd like to draw your attention to the operating expense trend chart in the top right hand corner of this slide. I'd like to point out that our reported operating expense excludes both third party income and sulfur sales revenue. These revenue streams are made possible primarily through the ownership of our gas processing facilities. In the second quarter, these two income streams combined for $8.4 million, or nearly $3 per BOE, and are reflected in our adjusted operating expense as represented by the red line in the previously mentioned chart. We will continue to report these adjusted operating expenses since we feel our gas plant ownership creates a significant competitive advantage for the company. Our strong second quarter net operating income of $44 million, or $15.50 per BOE, was enhanced by the previously mentioned one-time royalty adjustment and hedging gain While capital spending was primarily directed toward repair work associated with the gas plant outages and development development spending to finish up planned completion and tie in activity on our two well winter drilling program in the Brown Creek area of central Alberta. Adam will be providing an update to our revised guidance, including changes to net operating income and capital spending in a few moments. I'd like to provide a very brief update on the status of our two wells from our Foothills Winter Drilling Program. The first well at Brown Creek 6 of 35 continues to produce at a restricted raw gas rate of approximately 5 million cubic feet a day and 1300 psi flowing surface pressure. The second well at Brown Creek 6 of 29 remains shut in as it awaits stimulation and production testing to better evaluate the potential of the completed mountain park zone. The timing of stimulating and evaluating this well is dependent on resolution with an offsetting well owner to mitigate perceived frac stimulation communication risk and the allocation of available funds flow. And finally, as we look towards the third quarter, we look forward to a successful execution of the first phase of our Waterton gas plant turnaround, which commences in earnest next week. This first phase will address key equipment inspection and repairs, and we anticipate a cumulative capital expenditure of approximately $13 million by the end of the turnaround in mid-September, along with an expected five-week outage. The remainder of the turnaround scope is anticipated for completion in the spring of 2024. Pear Day continues to focus on its operational strategic priorities, including improving runtime reliability, implementing cost reduction initiatives, and optimizing infrastructure. I would like to now hand things off to Adam for a brief review of our financial results, new financing, and our revised guidance.
spk06: Thanks a lot, Darcy. I'll start my comments today by addressing the refinancing transaction which we closed in mid-June. I'm extremely pleased to have delivered on our commitment to refinance the Third Eye Capital Turn Loan in advance of its maturity that was coming up here in October. Our disclosure of the refi has already been substantial. However, I'll take you through the structure and address a number of the benefits that Paraday will and has realized through this transaction. The bulk of our new credit is by way of a senior secured $85 million USD 45 month term loan and a $25 million USD 45 month revolving credit facility provided by our new lenders Prudential and Voya. The $85 million term loan also has available an additional $10 million USD delayed draw component, which we may choose to draw to support our Waterton turnaround capital expenditures between now and the end of 2024. These facilities bear a floating interest rate of SOFR plus 6.75%. Additionally, Prudential provided $30 million USD 51-month subordinated notes bearing an interest rate of a fixed 13%. Both the senior secured and subordinated notes were borrowed by our wholly owned E&P subsidiary, Paraday Alberta Production Limited, or PAPL. Supporting this transaction, and in accordance with our hedge strategy, we executed a number of senior secured financial cash flow hedge contracts for both ACO and WTI with terms ranging from five to 48 months. These contracts protect approximately 50% of our total PDB production over the next four years, ratcheting down between the first 24 months and the following 24 months at prices which support our sustaining capital and debt service obligations, as well as ongoing deleveraging. Concurrently, Third Eye Capital advanced a new 18-month senior secured bridge loan into the parent company, Paraday Energy Limited, which bears a fixed interest rate of 18%, all of which is accrued to the principal and not paid in cash. Proceeds from this loan were contributed into PAPL in order to complete the repayment of the original term loan. Our near-term intention is to monetize certain non-core and non-producing assets of Pear Day Energy Limited in order to repay some or all of that bridge loan. We are actively advancing this initiative and will provide an update to the market as soon as we are able. We are also obligated to seek shareholder approval prior to December 13th of this year to add a conversion option into the bridge loan to allow us or Third Eye to convert whatever amount remains. We will also be working on this initiative throughout the fall. Looking at this refinance transaction holistically, I believe there are three features which are most impactful to Paraday. First, we have reduced our all-in cost of debt from above 22% to approximately 14%, a 36% reduction. Second, we have increased our access to liquidity by nearly $40 million through the addition of both the revolver and delay draw facilities. These liquidity features and associated flexible repayment structures increase our resilience during periods of low gas prices. Third and finally, we now have the ability to engage hedge counterparties on a senior secured basis and have taken advantage of this by removing a significant portion of commodity price risk from the business over the next couple of years, allowing us to focus on aggressively increasing the efficiency of operations while continuing to deliver. I'll now turn our attention to the results for the quarter. Darcy's already spoken at length about the operating results, so I'll only touch on a couple of financial highlights. Overall fund flow from operations was $35M in Q2 and $77M year to date, representing $0.22 and $0.48 per share respectively. Our net back has also remained strong during a period of very low ACO pricing, coming in at about $15.50 per BOE for both the three and six months ended June 30th. As Darcy mentioned, our cash flows and net back were supported this quarter by a royalty refund, which relates to the Alberta Crown's completion of their annual gas cost allowance true-up in June of this year. These annual true-ups are common for gas producers, albeit particularly large for us this year, primarily as a result of high commodity prices and associated royalties last year. Additionally, our risk management activities have continued to be supportive of cash flows. When we combine the impact of physical and financial ACO and WTI contracts, we have benefited by nearly $45 million year-to-date, or $7.34 on a netback basis. Based on how strip price looks today, and keeping in mind the last few weeks have been pretty good for ACO, we expect our hedging to further benefit us by $15 million or $2.50 for BOE on a net back basis in the second half of 2023. These figures do not include the additional benefit we continue to realize by way of our fixed price electricity purchase contracts. The first half cash flows have also allowed us to continue deleveraging with net debt decreasing from $215 million at year end to $182 million at year end. Okay, turning to the next and final slide, I'll provide an update on our guidance as well as our focus and priorities for the rest of the year. First, as discussed by Darcy, production results for the first half of the year were challenged and we've adjusted production guidance to account for that. Second half 2023 production is expected to be within our original guidance range. Secondly, while our net back targets have remained unchanged, the downward adjustment to production has impacted our annual net operating income forecast, and we've brought the expected range down to between 110 and 130 million for 2023. Finally, During the first quarter, we had contemplated our ability to fully defer the 2023 Waterton maintenance turnaround into 2024. In Q2, we determined that a more prudent course of action would be to split that turnaround into a 2023 and 2024 component. The 2023 component will commence in mid-August and is expected to cost approximately $13 million, of which approximately $8 million will be incurred in Q3. So our sustaining capital guidance has been adjusted to reflect this. While breaking large turnarounds into smaller pieces causes slightly higher opportunity costs and some MOB-DEMOB costs, it allows us to better manage our liquidity and smooth capital expenditures over a longer period of time. So in conclusion, we are pleased to have put this refinancing behind us and are turning our attention now to discharging the remaining term loan, and bridge loan, and most importantly, to ramping up our focus on improving base, upstream, and midstream operations. We must improve processing facility reliability and throughput, as well as continue to increase the efficiency and resulting profitability of our field assets. We expect to be able to deliver results on these initiatives in the quarters to come. With that, I'd like to conclude the formal portion of our call, and I'll pass us back over to Dallas McConnell to wrap things up. Thank you.
spk04: Thanks, Adam and Darcy. I'll now ask the conference coordinator if there are any questions on the telephone portion of the call.
spk01: Thank you. We will now take questions. If you have a question and you are viewing on webcast, please use the ask a question button in the top right hand corner to type your question. If you have a question and you are participating by telephone, please press star 1-1 on your telephone keypad. There will be a brief pause while the participants register. Thank you for your patience.
spk09: Thank you.
spk01: I am showing there are no telephone questions at this time. I'd like to turn it back over to Mr. McConnell.
spk04: Thanks, Michelle. We do have a question on the webcast. The question is curious what the second half impact is on volumes due to the phase one of the Waterton plant turnaround and what are you expecting for exit rates this year? I can actually take that one myself. The second half impact is approximately 2,000 barrels a day when spread over the full six-month period. As Adam and Darcy indicated, it's a four to six-week planned production outage, and we expect to exit the year at approximately 37,000 BOEs per day.
spk09: And of course, that is built into our guidance that Adam just spoke to. We have no more questions on the webcast.
spk04: Thanks to all of you for participating today. We very much appreciate your interest in Paraday Energy. If you have further questions, you can call us at 403-261-5900. or email us at investors at paradayenergy.com. Thanks again, and we look forward to speaking with you soon.
spk01: Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation. you Thank you. Thank you. Thank you. music music Amen. Good day, ladies and gentlemen, and welcome to the Para Day Energy second quarter 2023 and year-end financial results conference call. Please be advised that today's conference is being recorded, and at this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If you have a question and you are viewing on webcast, please use the Ask a Question button in the top right-hand corner to type your question at any time during the presentation. If you are participating by telephone and would like to ask a question, please dial star 11 at any time. You will then be in the queue for the question and answer session at the end of the call. I would now like to turn the meeting over to Mr. Dallas McConnell, Vice President, Corporate Finance, Please go ahead, Mr. McConnell.
spk04: Thanks very much, Michelle, and good morning, everyone. I would like to welcome everyone to Paraday's second quarter 2023 conference call. With me today are President and Chief Operating Officer, Darcy Redding, and Chief Financial Officer, Adam Gray. Darcy and Adam will begin today with a review of our operating and financial results and certain other company developments. Following their prepared remarks, we will turn the call over to the conference coordinator for your questions. Before Darcy begins, I would like to remind you that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by Paraday with Canadian securities regulators on cdarplus.ca. With that, I will now turn the call over to our President and COO, Darcy Redding, who will provide more detail on our performance last quarter and other corporate developments.
spk07: Thank you, Dallas. We are extremely excited to speak today about our second quarter results and accomplishments, where we successfully achieved one of the more significant milestones in the execution of our strategic plan. In mid-June, the company closed a $150 million U.S. dollar refinancing of long-term debt, materially reducing the cost of capital while providing additional liquidity via a revolving credit facility and a delayed draw term loan. Adam will be providing additional commentary on this refinancing in a few minutes, while further detail can also be found in our second quarter MD&A. I would also refer you to our original news release of June 15th, which provides ample information on the terms of this exciting new financing. Our second quarter financials were bolstered by our strong commodity hedge position, realizing a hedging gain of nearly $14 million, while successfully mitigating general pricing volatility and continued tepid ACO natural gas pricing that our unhedged portion of production was exposed to. Notably, approximately 60% of our total production was unhedged in the quarter. Pear Day continues to view hedging as an important risk management tool to support our strategy, while also satisfying the requirements of our new senior loan facility. We also benefited from a one-time Alberta Crown royalty rebate that materialized in the second quarter. This was the result of a favorable gas cost allowance adjustment for the 2022 calendar year and the related overpayment of 2022 Crown royalties. While pleased with our second quarter financial results, we experienced production interruptions that negatively impacted our quarterly volumes by over 6,300 BOE per day, correlating to a nearly $12 million impact to net operating income. Approximately 75% of this production impact resulted from unscheduled outages of approximately five weeks at each of our Jumping Pound and Caroline gas plants in April and June, respectively. The remaining 25% of this production impact is resulting from the wildfire situation in Alberta and Northeast British Columbia, with the BC wildfires continuing to impact our operations. I will have some additional commentary on these items in a few moments. Moving to our second quarter operating results, our production volumes were just over 31,000 BOE per day, but as I mentioned, we experienced over 6,300 BOE per day impact due to unscheduled gas plant outages and wildfire impacts. Both the Jumping Pound and Caroline plant outages were initiated as a result of corrosion-related failures of heat exchanger tubes within the sulfur recovery facilities. Although these failures do not present material risks to human health, safety, or the environment, the operational reliability of the process was affected, and in each case, this necessitated a shutdown to complete the required repairs to ensure long-term operational reliability. Of note, there was a silver lining to our Caroline gas plant outage as an opportunity was presented for the company to conduct critical equipment servicing and maintenance during the outage for a nominal additional cost. By doing so, the full maintenance turnaround originally scheduled for the Caroline plant in 2024 has been successfully deferred for an additional year until 2025 without detrimental impact to operational reliability or safety risk. We see this as an opportunistic initiative and an excellent example of the innovative culture we continue to foster at Pear Day. and we thank our field leaders and field staff for continuing to innovate and deliver enhancements that are materially improving our operating cost structure and reliability. On a last note related to our production, after an unscheduled outage in early July at a non-operated gas processing facility in West Central Alberta, significant outages were resolved by the second week of July. Since then, production has largely been restored to pre-outage volumes, averaging approximately 35,500 BOE per day since then, and currently our production is approximately 37,000 BOE per day. We have ongoing production outages of approximately 1,700 BOE per day, with just over half of that caused by the ongoing impact of wildfires near our Equan property in northeast BC. The remainder is a result of a voluntary temporary shut-in of high variable cost production in West Central Alberta. We expect these Alberta volumes to remain voluntarily shut-in until eco-natural gas prices are sustained at greater than $3 per MCF. Our second quarter operating expense totaled $49 million, or just over $17 per BOE. As a result of most of our operating costs at our operated processing facilities being fixed, the previously mentioned second quarter volume outages tend to increase our per barrel operating expense. We anticipate and look forward to reporting operational results in the third quarter that we are optimistic will be more representative of better runtime and less volatile operating conditions. For those of you accessing our slide deck through the webcast this morning, I'd like to draw your attention to the operating expense trend chart in the top right-hand corner of this slide. I'd like to point out that our reported operating expense excludes both third-party income and sulfur sales revenue. These revenue streams are made possible primarily through the ownership of our gas processing facilities. In the second quarter, these two income streams combined for $8.4 million or nearly $3 per BOE. and are reflected in our adjusted operating expense as represented by the red line in the previously mentioned chart. We will continue to report these adjusted operating expenses since we feel our gas plant ownership creates a significant competitive advantage for the company. Our strong second quarter net operating income of $44 million, or $15.50 per BOE, was enhanced by the previously mentioned one-time royalty adjustment and hedging gain while capital spending was primarily directed toward repair work associated with the gas plant outages and development spending to finish up planned completion and tie-in activity on our Two Well winter drilling program in the Brown Creek area of central Alberta. Adam will be providing an update to our revised guidance, including changes to net operating income and capital spending in a few moments. I'd like to provide a very brief update on the status of our two wells from our Foothills winter drilling program. The first well at Brown Creek 6 of 35 continues to produce at a restricted raw gas rate of approximately 5 million cubic feet a day and 1300 psi flowing surface pressure. The second well at Brown Creek 6 of 29 remains shut in as it awaits stimulation and production testing to better evaluate the potential of the completed mountain park zone. The timing of stimulating and evaluating this well is dependent on resolution with an offsetting well owner to mitigate perceived frac stimulation communication risk and the allocation of available funds flow. And finally, as we look towards the third quarter, we look forward to a successful execution of the first phase of our Waterton gas plant turnaround which commences in earnest next week. This first phase will address key equipment inspection and repairs, and we anticipate a cumulative capital expenditure of approximately $13 million by the end of the turnaround in mid-September, along with an expected five-week outage. The remainder of the turnaround scope is anticipated for completion in the spring of 2024. Pear Day continues to focus on its operational strategic priorities, including improving runtime reliability, implementing cost reduction initiatives, and optimizing infrastructure. I would like to now hand things off to Adam for a brief review of our financial results, new financing, and our revised guidance.
spk06: Thanks a lot, Darcy. I'll start my comments today by addressing the refinancing transaction, which we closed in mid-June. I'm extremely pleased to have delivered on our commitment to refinance the Third Eye Capital Turn Loan in advance of its maturity that was coming up here in October. Our disclosure of the refi has already been substantial. However, I'll take you through the structure and address a number of the benefits that Paraday will and has realized through this transaction. The bulk of our new credit is by way of a senior secured $85 million USD 45-month term loan. and a $25 million USD 45-month revolving credit facility provided by our new lenders Prudential and Voya. The $85 million term loan also has available an additional $10 million delayed draw component, which we may choose to draw to support our Waterton turnaround capital expenditures between now and the end of 2024. These facilities bear a floating interest rate of SOFR plus 6.75%. Additionally, Prudential provided $30 million USD 51-month subordinated notes bearing an interest rate of a fixed 13%. Both the senior secured and subordinated notes were borrowed by our wholly owned E&P subsidiary, Paraday Alberta Production Limited, or PAPL. Supporting this transaction, and in accordance with our hedge strategy, we executed a number of senior secured financial cash flow hedge contracts for both ACO and WTI with terms ranging from 5 to 48 months. These contracts protect approximately 50% of our total PDB production over the next four years, ratcheting down between the first 24 months and the following 24 months at prices which support our sustaining capital and debt service obligations, as well as ongoing deleveraging. Concurrently, Third Eye Capital advanced a new 18-month senior secured bridge loan into the parent company, Paraday Energy Limited, which bears a fixed interest rate of 18%, all of which is accrued to the principal and not paid in cash. Proceeds from this loan were contributed into PAPL in order to complete the repayment of the original term loan. Our near-term intention is to monetize certain non-core and non-producing assets of Pear Day Energy Limited in order to repay some or all of that bridge loan. We are actively advancing this initiative and will provide an update to the market as soon as we are able. We are also obligated to seek shareholder approval prior to December 13th of this year to add a conversion option into the bridge loan to allow us or Third Eye to convert whatever amount remains. We will also be working on this initiative throughout the fall. Looking at this refinance transaction holistically, I believe there are three features which are most impactful to Paraday. First, we have reduced our all-in cost of debt from above 22% to approximately 14%, a 36% reduction. Second, we have increased our access to liquidity by nearly $40 million through the addition of both revolver and delay draw facilities. These liquidity features and associated flexible repayment structures increase our resilience during periods of low gas prices. Third and finally, we now have the ability to engage hedge counterparties on a senior secured basis and have taken advantage of this by removing a significant portion of commodity price risk from the business over the next couple of years, allowing us to focus on aggressively increasing the efficiency of operations while continuing to deliver. I'll now turn our attention to the results for the quarter. Darcy's already spoken at length about the operating results, so I'll only touch on a couple of financial highlights. Overall funds flow from operations with $35 million in Q2 and $77 million year-to-date, representing $0.22 and $0.48 per share, respectively. Our net back has also remained strong during a period of very low ACO pricing, coming in at about $15.50 per BOE for both the three and six months ended June 30th. As Darcy mentioned, our cash flows and net back were supported this quarter by a royalty refund, which relates to the Alberta Crown's completion of their annual gas cost allowance true up in June of this year. These annual true-ups are common for gas producers, albeit particularly large for us this year, primarily as a result of high commodity prices and associated royalties last year. Additionally, our risk management activities have continued to be supportive of cash flows. When we combine the impact of physical and financial ACO and WTI contracts, we have benefited by nearly $45 million year-to-date, or $7.34 on a netback basis. Based on how strip price looks today, and keeping in mind the last few weeks have been pretty good for ACO, we expect our hedging to further benefit us by $15 million or $2.50 for BOE on a net back basis in the second half of 2023. These figures do not include the additional benefit we continue to realize by way of our fixed price electricity purchase contracts. The first half cash flows have also allowed us to continue deleveraging with net debt decreasing from $215 million at year end to $182 million at year end. Okay, turning to the next and final slide, I'll provide an update on our guidance as well as our focus and priorities for the rest of the year. First, as discussed by Darcy, production results for the first half of the year were challenged and we've adjusted production guidance to account for that. second half 2023 production is expected to be within our original guidance range. Secondly, while our net back targets have remained unchanged, the downward adjustment to production has impacted our annual net operating income forecast, and we've brought the expected range down to between $110 and $130 million for 2023. Finally, During the first quarter, we had contemplated our ability to fully defer the 2023 Waterton maintenance turnaround into 2024. In Q2, we determined that a more prudent course of action would be to split that turnaround into a 2023 and a 2024 component. The 2023 component will commence in mid August and is expected to cost approximately $13 million, of which approximately $8 million will be incurred in Q3. So our sustaining capital guidance has been adjusted to reflect this. While breaking large turnarounds into smaller pieces causes slightly higher opportunity costs and some MOB-DEMOB costs, it allows us to better manage our liquidity and smooth capital expenditures over a longer period of time. So in conclusion, we are pleased to have put this refinancing behind us and are turning our attention now to discharging the remaining term loan, and most importantly to ramping up our focus on improving base, upstream, and midstream operations. We must improve processing facility reliability and throughput, as well as continue to increase the efficiency and resulting profitability of our field assets. We expect to be able to deliver results on these initiatives in the quarters to come. With that, I'd like to conclude the formal portion of our call, and I will pass us back over to Dallas McConnell to wrap things up. Thank you.
spk04: Thanks, Adam and Darcy. I'll now ask the conference coordinator if there are any questions on the telephone portion of the call.
spk01: Thank you. We will now take questions. If you have a question and you are viewing on webcast, please use the ask a question button in the top right hand corner to type your question. If you have a question and you are participating by telephone, please press star 11 on your telephone keypad. There will be a brief pause while the participants register. Thank you for your patience.
spk09: Thank you.
spk01: I am showing there are no telephone questions at this time. I'd like to turn it back over to Mr. McConnell.
spk04: Thanks, Michelle. We do have a question on the webcast. The question is curious what the second half impact is on volumes due to the phase one of the Waterton plant turnaround and what are you expecting for exit rates this year? I can actually take that one myself. The second half impact is approximately 2000 barrels a day when spread over the full six month period. As Adam and Darcy indicated, it's a call it a four to six week planned production outage. And we expect to exit the year at approximately 37,000 BOEs per day.
spk09: And, of course, that is built into our guidance that Adam just spoke to. We have no more questions on the webcast.
spk04: Thanks to all of you for participating today. We very much appreciate your interest in Paraday Energy. If you have further questions, you can call us at 403-261-5900. or email us at investors at paradayenergy.com. Thanks again, and we look forward to speaking with you soon.
spk01: Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.
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