Parex Resources Inc.

Good morning, everyone, and welcome to Parex Resources' third quarter earnings call and webcast. Yesterday, Parex released its unaudited financial and operating results for the quarter ended September 30th, 2021. Like all Parex disclosure documents, the complete financial statements and related MD&A are available on the company's website at www.parex.com. Before turning the meeting over to Mr. Ken Pinsky, Chief Financial Officer of Pyrex Resources, Inc., I would like to mention that this event is being recorded, so the recording will be available for playback on the company's website. Pyrex would like to remind everyone that remarks made during this session are subject to forward-looking statements, which involve significant risk factors and assumptions. and have been fully described in the company's continuous disclosure reports. The information discussed is made as of today's date and time, and PARACS assumes no obligation to update or revise this information to reflect new events or circumstances, except as required by law. Please note that at any time, participants on the webcast can submit their questions under the Ask a Question tab at the top of the webcast interface. and participants on the phone can press star 1. I would now like to pass on the meeting to Parekh's Chief Financial Officer. Please go ahead Mr. Pinsky.

Thank you operator and thanks to everyone on the line for joining myself and the senior leadership team for our Q3 conference audio webcast. We appreciate your ongoing support for Parekh's resources. Before we begin our Q&A session, I would like to provide some highlights of our Q3 financial results. Q3 production averaged approximately 47,500 barrels a day, which was an 8% increase in the previous quarter, whereby our production was temporarily affected from transportation blockades that were experienced across Colombia in the spring of 2021. PARCS is not currently experiencing any social disruptions, and our production currently is in excess of 49,000 barrels a day. For the third quarter, our funds flow provided by operations totaled $153 million, or $1.24 US per share of basic. And our Q3 capital expenditures were $74 million. We generated free funds flow of $78 million, bringing our year-to-date total of free funds flow to $250 million. We allocated Q3 free funds flow to share buybacks and a regular and special dividend of 12.5 cents and 25 cents per share each respectively for a total of 37.5 cents for the quarter. We also continued to buy back shares under our automatic normal course issuer bid and are over 90% through our 10% share buy back target as we talk. We maintained our financial strength with our working capital of $351 million and continue to have no debt year to date. We exit the third quarter with $200 million of an undrawn credit facility. I'd also like to point out and note that PARACS remains unhedged in 2021, providing full exposure to the current high Brent oil pricing. A further highlight for us in Q3 was PARACS expanded its strategic partnership with ECPATROL, whereby PARACS will earn an operated 50% interest in two blocks, the ARELCA block and the LLA38 exploration block, both located in the proven and highly prolific Leganos Basin in the Iroquois province of northeastern Colombia, very close to our Capachos block that we've been operating with ECHO Patrol for the past four or five years. Attractive for PARACs, the blocks contain approved users along with development and drill-ready exploration prospects. This builds on our operational and commercial success at Capachos. Our goal is to start operations in the first quarter of 2022 in the Iroquois block. Lastly, with ESG as a key value of PARCS, we have released our 2020 Sustainability Report and are committed to reduce our Operated Scopes 1 and 2 greenhouse gas emissions intensity by 50% by 2030 from a 2019 baseline. I would now like to pass this meeting to PARCS' President and CEO, Mr. Ahmad Mohsen, to go over the Q4 outlook and 2022 guidance, which was provided yesterday as well. Go ahead, Ahmad.

Thank you, Ken. As we move through the final quarter, PACS will be focused on the capital program to enhance our long-term sustainability in Colombia and to strengthen our commitment to maximize long-term shareholder value. I'm pleased to report the following upcoming operations in Q4. We have a diverse drilling program in Capastero, Capachos, and Fortuna blocks. Based on the very positive results to date, we expect an additional three to four wells to be drilled by year-end in Capastero, which is estimated to increase our 2021 exit production to over 9,000 barrels of oil per day there. Planning also to commence six-well program at Capaccio's early 2022, and the Fortuna field has two wells already drilled, Cayena Multilateral and Perla Negra, which are awaiting completion activities, and we expect to tend to us prior to year-end this year. With regards to 2022 guidance, I will now move to our 2022 guidance to provide an update on our frameworks for returning capital to shareholders, which we are very excited to describe. One of the elements that attracted me most to JoinParrots was the depth and quality of the company's exploitation and exploration portfolio in Colombia. As current pricing fund flow provided by operation is estimated to be over $725 million. This provides multiple levers to increase shareholder returns. That could be dividends, share buybacks, and assets growth. We are excited to move forward with a capital growth plan that materially expands the boundaries of our current development properties. while also unlocking substantial new opportunities within our portfolio. Underpinning the plan is a portfolio of substantial discovered and placed volumes that are being unlocked right now using techniques which are unfamiliar in Colombia but long proven elsewhere. To name a few, multilateral drilling, hydraulic stimulation, synthetic drilling mods, simulation gowns, radial drilling, or airborne geophysics that could be incorporated in surveying operations. They are all tools we have at our fingertips to unlock our Colombian asset base. At forecast oil price of $70 in 2022, PAREC's corporate guidance consists of the following. Average production range of 52,000 to 54,000 BOE a day. Capital expanded surplus, totaling $400 to $450 million. between developments, appraisals, and exploration programs, two-thirds of which is allocated to exploitation activities. We have substantially increased our capex program in 2022 for multiple reasons. One is we are beginning operations on our ROCA and L38 ecopetrol partnership that Ken referred to earlier. Second is we are catching up on the exploration in gross capital that we deferred from 2021 while we were focusing on the health and safety of our communities during the COVID-19 pandemic. And finally, we have to assess and unlock the deep and diverse portfolio of exploration discoveries already made and that we have amassed over the last three years. All of this is a critical step to demonstrate Paris' future sustainability. With this brief overview, I'd like to return the line back to the operator to start the Q&A session. Operator, over to you.

Thank you. You may press star 1 at this time if you have a question. We have a question from Phil Skolnick from 8 Capital. Please go ahead.

Yeah, thanks. Good morning. Got a few questions. The first one is, what contributed to the rise in production to an excess of 49,000?

Hi, Phil. It's Ken. Mostly that's coming from Cavistero.

OK.

We drilled eight wells to date on that program. We continue to drill more, as Ahmad was saying, and we'll keep drilling in 2022. But yeah, that's where the production volumes increase is primarily coming from.

Okay, perfect. Um, when you're going through your looking at your 2022 budget, I guess how, how should we think about your how's your maintenance capex requirements? Has it changed much versus 2021 and 2020? Or is it kind of pretty much the same? I mean, outside of fact that you do have higher a little bit higher production?

Hi, Phil. It's Mike Hurton. No, it's pretty well the same. You know, the maintenance capital is still primarily allocated to key producing blocks in Soka. And, yeah, we don't see too much of a change there. Certainly, you know, when we look at the development capital, that's really accelerating the discoveries we've had in the past, such as La Beliza. And, you know, so we can get that production on stream in 2022. Okay, perfect.

And then finally... What kind of triggers or targets do you look at in deciding these special dividends? Just kind of give us a way to gauge them.

I guess we looked at it, Phil, in respect of we're mindful of our growth of our balance sheet and we didn't want to continue to grow working capital. So we looked at how our working capital was forecast to grow at strip prices and our free cash flow on our CapEx program for Q4. Looked at where we were at Q3. and wanted to make sure that we came in well below $400 million of working capital for Q4. So that led us to have incremental dollars to either do a share buyback or a special dividend. As I noted, we're almost through our 10% NCIB, didn't feel the need to continue to buy, do an incremental SIB or something this year. So the board approved a special dividend of 25 cents And how you should look at this going forward is we're giving a strong signal to the market that we are going to be managing our working capital at these current levels for the short term, near term. And that as cash flow, as free cash flow then starts to build, we'll be allocating it back to the shareholder in some fashion, some form.

Good. Perfect. Thanks.

Thank you. Once again, you may press star 1 if you have a question. The next question is from Luke Davis from RBC. Please go ahead.

Hey, guys. Good morning. You outlined a fairly robust exploration program for 2022. So just wondering if you could provide some details or rankings, I guess, in terms of prospect viability and just, if possible, some parameters around potential resource additions if drilling is successful there. So just really trying to get a sense for potential impacts here.

Yeah, hi Luke, it's Mike Carpton. You know, we have a pretty diverse set of exploration blocks, especially the blocks that we've accumulated over the last three years, about five blocks and plus the Echo Patrol partnership. So those are the blocks we'll be targeting. Obviously, we didn't do a lot of work in 2020 as we worked our way through COVID. The blocks that we really will focus on include, you know, Branda, Tapachos, which is Block 38, includes the Khalifa Prospect, CPO11, Fortuna Continuation, 134 in Llanos, and some of the lower Magdalena blocks, including VIM1 and VIM43. Now, we generally don't disclose what the resource assessments are. What I can tell you is it's a diverse portfolio, and we're always targeting to keep our reserve life index in that 9 to 11 years, while at the same time accelerating some of those production volumes up front. So that's the way we approach our exploration programs for the year. Okay, helpful. Thanks, Mike.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Mohsen.

Thank you all for attending this session and looking forward to even more results next quarter. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.