Parex Resources Inc.

Thank you for standing by. My name is Janet and I will be your conference operator today. At this time, I would like to welcome everyone to the Paris Resources Q1 operating and financial results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask questions during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw the question, press star one again. Thank you. I would now like to turn the call over to Mike Crofton, Senior Vice President of Capital Markets and Corporate Planning. Please go ahead.

Good morning, everyone, and welcome to Park Resources' first quarter 2025 conference call and webcast. On the call with me today are President and Chief Executive Officer, Ahmad Molson, our Chief Financial Officer, Cam Granger, and our Chief Operating Officer, Eric Furland. Please note that any time telephone participants on the call can press star 1 to submit a question. As a reminder, this conference call includes forward looking statements as well as non-GAAP and other financial measures with the associated risks outlined in our news release and MD&A, which can be found on the website or at www.cedarplus.ca. Note that all amounts discussed today are in US dollars unless otherwise stated. I'll now turn the call over to Ahmad. Please go ahead.

Thank you Mike and good morning everyone. As we committed at the outset of the year in 2025, we are focused on delivering steady performance. By applying a discipline plan. Centered on lower risk activities and high graded set of opportunities. So far this year we are seeing strong base production from our core assets. and have made progress on our 2025 plan. Resulting in first quarter production volumes being in line with management expectations. Additionally, with drilling activities currently in line with our budget, much of the groundwork to support production has been completed, including three key strategic items that I'd like to highlight. First, we closed the tuck-in acquisition at Tiano 32. where we capture the remaining working interest on the block from the partner and gain full control. We are excited about this addition to our portfolio, which we added at strong acquisition metrics. With low cost-free completion opportunities and immediate development inventory, and that we can do this year, we see this area as a high-quality and well-positioned asset with both short-term and long-term upsides. Second, we are realizing new field exploration results. There's two prospects so far this year, yielding positive outcomes. Both successes are in the Southern Llanos, an area well known to PARICS, where we were targeting lower risk, higher chances of success opportunities. Third, we continue to progress groundwork in the Putumayo, where we are focused on starting initial operations in the second quarter, with significant proven oil in place. We have now completed the contracts with our partners to commence work and our team is currently finalizing short-term activities while also continuing the assessment of the basin to identify investment areas with the best capital efficiency going forward. Overall, I'm pleased with our performance in the first quarter where we have led the foundation that will enable us to deliver our plan as the year progresses. And despite our current activity plan largely remaining unchanged and supported by a strong suit of projects, we recognize the current market volatility and are monitoring it closely. With that, I'll now turn it over to Eric to provide an operation update. Please go ahead, Eric. Thanks, Hamad.

For Q1 2025, Production average 43,658 barrels of oil equivalent per day. These volumes are consistent with our expectations and reflective of lower activity levels and a modest capital outlay in the quarter. Our full year production guidance of 43,000 to 47,000 BOE per day remains unchanged. Turning to the second quarter, our activity levels are coming into a more normalized level with three rigs, two of which are operated, drilling multiple development wells from existing well pads. Given the infrastructure already in place following drilling activity, we expect to be able to bring production on stream across parallel operations. At Janus 34, we started drilling this program in the final days of the first quarter, and by the end of the second quarter, we expect to complete roughly six infill wells that will be supportive of our base production. At Janus 32, following completion of the acquisition, we began a re-completion and work over program, which is yielding positive results. In the second quarter, we also initiated a five-wall development campaign with three horizontals and two vertical producing walls planned. The first wall in the program is expected to be completed in late Q2, with subsequent wells drilled thereafter. As Ahmed mentioned, we're excited to kick off this program, which should be one of the key drivers of growth in the second half. At Jan of 74, we saw encouraging results from our near field exploration program. There are two different prospects on the block that have been drilled to date with success. The first prospect was successfully drilled with production beginning in early May. This well is currently producing at roughly 1200 barrels of oil a day with management assessing next steps and updating our interpretations. A second prospect was drilled using a vertical well. Following initial results and a thorough assessment of the subsurface, We expect there to be two hydrocarbon bearing zones resulting in the program to drill two horizontal wells to maximize recovery. The first horizontal is currently being drilled with the first production expected in late May. Lastly, we are making steady progress in the Putumayo. Our teams are now on the ground socializing plans and establishing relationships with local community stakeholders. In the second quarter, we plan to move a work over rig to kick off operational activity with current plans to add a drilling rig in mid summer. While our activity plan for the second quarter is largely set, I would be remiss not to mention the conventional nature of our business, including the structure of our drilling and service contracts. I want to echo Ahmad's comments on flexibility. We have assessed where capital could be scaled back if conditions were to worsen. But today, our conventional projects adding to our production base and have a strong operational netbacks. With that, I'd invite Cam to please go ahead.

Thanks, Eric. For the quarter funds flow provided by operations was 122 million and our FFO net back was strong at $30.90 per BOE based on an average Brent oil price of $74.98 per barrel. During the quarter, results were supported by narrowing Vasconia differentials, which were positive for realization. Current taxes were 12 million in the quarter. Given Columbia's progressive tax and royalty system, And at strip pricing, we expect our full year effective current tax rate to be between 0 to 3%. Quarterly capital expenditures were $57 million, which was in line with lower activity levels. As we look to the second quarter, our capital forecast is expected to increase per our budgeted plan, as Eric mentioned. Right now, we expect to continue benefiting from Baskonia differentials, helping to partially offset lower commodity prices. Alongside pricing volatility, we're prudently running sensitivities on all of our projects to ensure capital allocation is optimized. During the quarter, we repaid 10 million of bank debt. So at quarter end, we increased our working capital surplus to 69 million and cash of 81 million, resulting in a strong balance sheet. which provides both liquidity and the ability to buffer economic headwinds. With that, I will pass it over to Ahmad for some final remarks.

Thank you, Cam. Our progress here today has been steady, and I'm cautiously optimistic on our overall outlook. Notably, starting the development campaign in Janus 32, as well as the positive exploration results, are supportive of production delivery and achieving our 2025 plans. We continue to be focused on evolving our portfolio to maximize shareholder value. For our base assets that provide portfolio stability, we are applying proven technology like water flooding, EOR, and polymer injection, as well as deploying cutting-edge AI seismic interpretation that's allowing us to visualize opportunities we couldn't see in the past. Looking forward, we are focused on replicating our enhanced recovery techniques in the Putemayu where we see seismic upside potential to increase recovery factors and development expand our lower risk inventory with activities such as infiltrating and re-completion. Ultimately, this is complementary to the longer term upside potential that we are working towards in the Janus foothills alongside our strategic partner, Ecopetrol. We are encouraged by the progress we are making on both these projects with them, the Putumayo and the Foothills, and look forward to maintaining this momentum going forward, as they are key platforms to drive long-term shareholder value. To end, I want to thank all our employees and contractors for their hard work. Furthermore, I'd like to thank our shareholders and partners for their ongoing support. This concludes our formal remarks. I would now like to turn the call back to the operator to start the Q&A session for the investment community. Thank you.

At this time, I would like to remind everyone, in order to ask questions, press star, then the number one on your telephone keypad. We will just pause for a moment to file the Q&A roster. Your first question is coming from the line of Alejandro Dermichelli with Jefferies. Please go ahead.

Yes. Good morning, gentlemen. Thank you very much for taking my questions. A couple of questions, if I may, please. I think when we look at the fourth quarter results, you were mentioning by this time, by the second quarter, you would have four rigs. Now you have three rigs operating. So the question is, Is this a timing situation or is this kind of, you know, you being a little bit more cautious in terms of the activity levels and trying to see how oil prices progress? And then the second question is, in the current situation with oil price and so on, what is your appetite for, say, inorganic activities, particularly given that There have been some reports about some Colombian producers looking to sell out.

Thanks, Alejandro. I'll answer the first question regarding the rig scheduling. I would say it's a combination of things. The big one is The efficiency, for example, at the end of last year we weren't clear on the program for janice 32 and now we can put a more focused more efficient program in place with multiple wells. So that allows us to get some efficiencies and complete our program so for that reason we have we are we have three rigs on the slate right now, with the potential to add a fourth. But it's really just efficiencies allowing us to drill campaign-style focused delivery in a couple core areas.

Okay, thank you. And as far as the question number two? So let me add to a bit of detail of the efficiency. An example of that is in Yano 32 right now, we're minimizing rig moves where we'll have one full-time drilling rig, but we set up the pad in the last couple of months so we can do parallel completion work over work while the rig is drilling. So you get quicker wells on stream with work over rig and drilling rig working at the same time. On question number two, I'd like to reconfirm we're committed to Columbia, so I know Jefferies has always very good suit of opportunities worldwide, The commitment is to Colombia. In Colombia, since I've been there, there's always opportunity, but never really, really there. So we'll be watching. We're always looking for maximizing shareholder value, and if that comes organically, we'll go after it. If something really good value comes out organically in Colombia, we're always open.

Okay. Thank you.

Your next question is coming from the line of Conrad Brzezinski with Peters and Company. Please go ahead.

Thanks for taking my question, everyone. I have two questions. So one is just the realized pricing in Q1 was strong, probably from the differentials tightening, but how do you see the outlook playing going forward on the Vasconia differential and then the realized pricing for PAR-X? And then the second question I had was, is there any update on the polymer flood and potential expansion of that longer term at places like Capistero and Block 34.

Hey, Conrad, it's Cam. Yeah, in terms of Asconia, yeah, we've seen some positive developments there on Asconia. In the first quarter, our differential was $2.26. Right now, today, we're around that $2 differential, You know, going forward, what we forecast is really around $3 differential for the rest of the year. So so that's the way we see it right now.

And Conrad, this is Eric. I'll answer your second question. Yes, the polymer expansion is going very well. We have internal goals to have the Cabrissero block on full polymer before the end of 25. We are also working with our partner in Janice 34 to commence polymer operations there and and the initial stages of ordering equipment is underway. So we expect that polymer flood to start up in 26.

And then just a quick follow up, so along those lines, do you see potential for both water flood and polymer in the Putumayo or is it mainly water flood in the Putumayo?

Well, we're looking at, so going back, looking at all of the EOR technologies we're looking at, you know, Southern Cassinary, we are looking at the polymer. We are also looking at surfactants and other other opportunities to increase recovery factor. We have an area with a billion barrels of oil in place and very high quality rock and we will leave no stone unturned to find the best way to maximize recovery there. With that said, most of the work that we're doing in Southern Cassinarii from our modeling to our analysis to our expansion is applicable to the Putumayo. A lot of the oil in the Putumayo is a bit lighter, so it would be more conducive to both water flood potential surfactants, some areas with polymer, but everything we're learning from a characterization and EOR perspective Our advancements, we're looking at implementing that right away in the put a mile in fields that have a large, very large oil in place and relatively low recovery factor on a worldwide standard. Did that answer your question, Conrad?

Oh, yep. No, it did. That did. Thanks for taking my question.

I mean, to put order of magnitude, these are the cheapest barrels we can get in terms of capital efficiency. Like, the total deployment in Capybara is how much, Eric?

It's in the $10-plus million for capital. The beauty of a lot of these EOR schemes is once you have all of the infrastructure in place to do a water flood, which we do, the rest is very simple and is kind of a pay-as-you-go operation, buying polymer, but the upfront capital investment is relatively low. Of all things we could do, looking at EOR, fully developed fields with injection and infrastructure in place, it's the most efficient thing and lowest risk thing we can do.

Your next question is coming from the line of Jeremy McCree with BMO. Please go ahead.

Hey, guys. Two quick questions here. The one is on your Lionel 74 prospect here. So it looks quite successful. I was curious if you could give some context in terms of what expectations were. And just given the success of this, does this change perhaps how you're looking at go forward you know, risk. I know the budget had assumed to pull back to very little risk, but just given some of the success, are you thinking about maybe adding a little bit more, you know, risk? And then the second question is just going back to some of the M&A, just given where commodity prices have moved, and do you expect some things or more JVs to open up here in Columbia here as well, too, in terms of more acquisitions? I'll leave it at that.

Okay, I'll answer the 1st question with regards to the initial exploration results. You know, we decided to refocus as Matt said on on opportunities that have a high probability of success. that are close to infrastructure. So these are what we call our small E program. These are wells that have success rate of typically in the 50% range. And so we've had success on these two wells. It's going to lead to at least three producing wells. So expectation wise, it's always nice to get off to a strong start. You never know if you're going to Drill your successful wells in midway early in the year, but it's always great to start off with with successes. We're going to stay the course as far as that goes. You know, the early success in the exploration has allowed us to optimize things a little bit. In other words, you get early success, you can develop those, they add production early and you don't have to take as much risk drilling exploration wells. So that'll be our focus there. So our program for the most part towards the end of the year is about developing what we've got to build the production and meet our guidance. And secondly, set up for 26 testing concepts. So no big strategic shift. We're still chasing that. And of course, long term, we're looking at the higher risk, higher reward opportunities in the foothills.

This is a good introduction. Second question. So in terms of M&A, our biggest partnership is with Eco Patrol. We like to cement it in the foothills and we keep working towards it. working together with Equipetrol. Equipetrol really has most of the running room of any other partner or company in Colombia. So I do expect that flow of activities with Equipetrol not to stop in the coming years. With regards to private companies, I don't know how things will turn. I know some people are trying to start processes, but at these prices, especially for companies with debt, There's a point where it's hard for them to achieve whatever pricing they're looking after, but we'll be open. I do think that something we might be getting surprises just because of the low oil prices and the way the companies are leveraged in Colombia.

Okay. Thanks, guys, for your answers. Thank you.

Your next question is coming from the line of Nikos Manounais with Ingo Snyder. Please go ahead.

Congratulations on a solid start to the year. I wanted to ask about the prospect for, are you still planning to drill the Hydra exploration well in the second half? And do you have any plans for developing the gas resource at La Belleza in that area?

I'll take that call. Thanks, it's Eric. Yes, we are on track to drill Hedra in the second half of the year, so we will be drilling that. We are currently also finalizing development plans with a plan to monetize the gas from the LABA LASA and looking at pipeline options and working with our partner there. So in short order, we are looking to finalize our development plans to deliver that.

One other thing I'd like to add, Nico, is that in our mdna you'll see that the gas price in q1 was 13 over 13 in mcf and that really provides a lot of motivation for us to increase the gas resources in our portfolio yes i'm aware of that that's why i asked the question um what would the

potential cost and impact be of success at the exploration at Hydra and also the gas development at La Beleza?

You know, at Hydra, I don't want to talk specifically about characterization of internal sizes, but you could generally say it's kind of La Beleza or larger in size, and it would have a fairly material impact. In fact, that the result from that well would or could change our infrastructure plans for the area. So we would like to get the results on that well before the final commitment for the pipeline. Um, as far as commercialization, um, that is underway, you know, we are aware that these wells can deliver very high rates, um, you know, that they can easily deliver 20, 30, 40Million a day. So it's a matter of, uh, of putting together the right development plan with the right pipeline size. Um, and depending what contracts we can get, we see the price outlook very robust, uh, for years to come. So, and we are taking advantage of that. Um, and so.

that should be coming a little clearer to us as we drill the hedra well and finalize plans before the end of 25. okay thank you very much thank you i will now turn the call back over to mike crofton senior vice president of capital market and corporate planning for closing remarks please go ahead thank you operator thank you for all the participants on the call today

If you have any further questions, please feel free to contact us at PARCS. Have a good day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.