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NEWS RELEASE TRANSMITTED BY CCNMatthews FOR: PARAMOUNT RESOURCES LTD. TSX SYMBOL: POU NOVEMBER 27, 2002 - 17:01 EST Paramount Resources Ltd. Announces Third Quarter Results CALGARY, ALBERTA-- /T/ Paramount Resources Ltd. Financial Highlights (unaudited) FINANCIAL (thousands of Three Months Ended Nine Months Ended dollars, except per September 30 September 30 share amounts) 2002 2001 %Change 2002 2001 %Change ------------------------------------------------------------------------ Gross Revenue 116,467 110,965 5% 335,605 440,703 -24% Cash Flow From operations 58,661 66,155 -11% 197,814 256,205 -23% Per share -basic 0.99 1.11 -11% 3.33 4.31 -23% -diluted 0.98 1.11 -12% 3.32 4.19 -21% Earnings Net earnings 6,180 33,249 -81% 51,706 129,335 -60% Per share -basic 0.10 0.56 -82% 0.87 2.18 -60% -diluted 0.10 0.56 -82% 0.86 2.11 -59% ------------------------------------------------------------------------ Capital Expenditures Exploration and development 26,097 28,800 -9% 203,149 225,393 -10% Net capital expenditures 24,327 16,837 44% 603,902 202,069 199% ------------------------------------------------------------------------ Total Assets 1,654,742 1,138,787 45% 1,654,742 1,138,787 45% Net Debt 597,752 271,157 120% 597,752 271,157 120% Shareholders' Equity 587,504 547,589 7% 587,504 547,589 7% ------------------------------------------------------------------------ Common shares outstanding (000's) -Sept. 30 59,459 59,454 - 59,459 59,454 - -Oct. 31 59,459 - 59,459 - ------------------------------------------------------------------------ ------------------------------------------------------------------------ OPERATING Production Natural gas (MMcf/d) 259.3 232.3 12% 234.3 227.3 3% Crude oil and liquids (Bbl/d) 7,832 2,457 219% 4,690 2,220 111% Total Production (MMcfeq/d)@10:1 337.6 256.9 31% 281.2 249.5 13% Total Production (BOE/d)@6:1 51,049 41,173 24% 43,740 40,103 9% ------------------------------------------------------------------------ Average Prices Natural gas (pre-hedge)($/Mcf) 3.04 3.42 -11% 3.15 6.84 -54% Natural gas ($/Mcf) 3.72 4.82 -23% 3.88 6.73 -42% Crude oil and liquids ($/Bbl) 36.71 35.14 4% 34.25 37.82 -9% ------------------------------------------------------------------------ Drilling Activity Gas 2 10 -80% 104 136 -24% Oil 2 4 -50% 5 8 -38% Other - - - 2 1 100% D & A - 2 - 9 17 -47% ------------------------------------------------------------------------ Total Wells 4 16 -75% 120 162 -26% ------------------------------------------------------------------------ ------------------------------------------------------------------------ /T/ REVIEW OF OPERATIONS Paramount is pleased to report its financial and operating results for the nine months ended September 30, 2002. On June 28, 2002, Paramount closed the acquisition of Summit Resources Limited ("Summit") for cash consideration of $251.4 million and assumed net debt of $87.0 million. In conjunction with Paramount's acquisition of Summit, Paramount announced its intention to create an independent Energy Trust ("Trust"), providing shareholders an investment which would complement Paramount's traditional exploration and development strategy. In this regard, a preliminary prospectus and a U.S. Registration Statement was filed on August 15, 2002. On November 7, 2002, in response to comments raised by Canadian and U.S. regulators, an amended preliminary prospectus and U.S. Registration Statement was filed. Upon receipt of all necessary regulatory clearances with respect to a final Canadian prospectus and U.S. Registration Statement, Paramount will transfer a portion of its Northeast Alberta assets to the Trust, and will then issue a dividend in kind to its shareholders. Subsequently, the Trust will initiate a rights offering, any proceeds of which will be used to capitalize the Trust and allow the Trust to purchase from Paramount additional assets in Northeast Alberta. These two very significant events have reenergized and refocused the Company's efforts. The acquisition of Summit will provide additional exposure to crude oil, expose the Company to new prospective areas, and once again provide an opportunity for the Company to focus on exploring for and developing quality assets. A Registration Statement relating to securities of the Trust has been filed with the United States Securities and Exchange Commission but has not yet become effective. In addition, a preliminary prospectus relating to securities of the Trust has been filed with Canadian securities regulators but has not yet become final for the purpose of the sale of those securities. The securities of the Trust may not be sold nor may offers to buy be accepted prior to the time the Registration Statement becomes effective and prior to the time the Canadian prospectus has become final. This Third Quarter Report shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities of the Trust in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. The securities to be offered under the Registration Statement and the prospectus are in connection with a distribution by both the Trust (the issuer of the securities) and Paramount (a security holder of a portion of the securities). A written preliminary prospectus relating to this distribution may be obtained from: /T/ In Canada: In the United States: ---------- --------------------- BMO Nesbitt Burns Inc. BMO Nesbitt Burns Corp. Shane Fildes Bill Schneider 1400, 421 - 7 Avenue SW 700 Louisiana Street, Suite 4425 Calgary Alberta T2P 4K9 Houston, Texas 77002 (403) 515-1500 (713) 223-4400 CIBC World Markets Inc. CIBC World Market Corp. Art Korpach Ron Ormand 9th Floor, Bankers Hall East 1600 Smith Street, Suite 3100 855 - 2 Street SW Houston, Texas 77002 Calgary, Alberta T2P 2Z1 (713) 650-2000 (403) 260-0500 First Energy Capital Corp. First Energy Capital (USA) Corp. John Chambers James Davidson 1600, 333 - 7th Avenue SW 1600, 333 - 7 Avenue SW Calgary, Alberta T2P 2Z1 Calgary, Alberta T2P 2Z1 (403) 262-0600 (403) 262-0600 /T/ FINANCIAL RESULTS The consolidated financial results include those of Paramount Resources Ltd. and its wholly owned subsidiaries including Summit Resources Limited and Summit Resources Inc. from the date of acquisition, June 28, 2002. Petroleum and natural gas revenue totaled $295.5 million for the nine months ended September 30, 2002, as compared to $437.7 million reported for the corresponding period in 2001. Compared to the second quarter 2002, quarterly revenue increased 14 percent from $102.2 million. The increase results primarily from a 31 percent increase in average production to 337.6 MMcfeq/d as compared to 257.8 MMcfeq/d in the second quarter. Cash flow from operations for the nine months ended September 30, 2002, totaled $197.8 million, or $3.33 per common share, representing a 23 percent decrease from the $256.2 million, or $4.31 per common share reported for the same period in 2001. Cash flow during the quarter was 11 percent lower than the $66.2 million or $1.11 per common share reported for the same period in 2001. Net income for the nine months ended September 30, 2002, totaled $51.7 million or $0.87 per common share compared to $129.3 million or $2.18 per common share reported for the same period a year earlier. OPERATIONS Natural gas production for the nine months ended September 30, 2002, averaged 234.3 MMcf/d as compared to 227.3 MMcf/d for the same period in 2001. Crude oil and liquids production increased 111% to 4,690 Bbl/d from 2,220 Bbl/d in 2001. Production during the third quarter, averaged 259.3 MMcf/d of natural gas and 7,832 Bbl/d of crude oil and natural gas liquids. The acquisition of Summit has changed the Company's production profile increasing its exposure to crude oil and natural gas liquids. To achieve Paramount's objective of sustained growth, the Company has taken this opportunity to restructure its core operating area in Central Alberta. This area has now been divided and will be managed independently as Kaybob and Sturgeon Lake/Grand Prairie in order to maximize the contribution each can make to the Company. Kaybob, Alberta Central Alberta crude oil and natural gas production has been reassigned to reflect recent changes in the operating area boundaries. Production in July for the Kaybob Operating Unit averaged 92 MMcf/d and increased in August with the tie-in of three additional gas wells (3.0 net) that were drilled in the second quarter. Production from these wells have averaged 4 MMcf/d increasing August production to 96 MMcf/d. Production in the third quarter averaged 91 MMcf/d and 2,070 Bbl/d for natural gas and liquids respectively. The acquisition of Summit Resources Ltd. added 18.6 MMcf/d of natural gas and 360 Bbl/d of oil and natural gas liquids production to the Kaybob area for the third quarter. Third quarter activity included the drilling of 4 gross (2.1 net) wells, resulting in 1.1 net oil wells, 0.5 net gas wells and 0.5 net standing wells. The completion of one additional standing well was farmed out resulting in one successful gas well (0.5 net). Production from the completed wells is expected to be onstream prior to the end of 2002. Sturgeon Lake/Grand Prairie, Alberta Sturgeon Lake is a new corporate operating area which encompasses the Valleyview (Sturgeon Lake/Sunset) and Grande Prairie (Mirage) areas. Current production averages 2,200 Bbl/d of oil and 12 MMcf/d of natural gas. Paramount operates the Sturgeon Lake South oil treating and sour gas plant at 2-2-69-21 W5 which currently processes 3,000 Bbl/d of oil and 8 MMcf/d of gas. Mirage and Sunset, two of the larger fields in this area were assumed on the acquisition of Summit. A Dunvegan well at Mirage which was drilled through the spring by Summit was turned on during the third quarter at 1 MMcf/d. A joint venture well was also drilled and cased in the Calais field. Northwest Alberta Northwest Alberta production averaged approximately 33 MMcf/d during the third quarter of 2002, up marginally from 32 MMcf/d during the same period in 2001. Natural gas production is forecast to average approximately 30 MMcf/d for the fourth quarter. Cameron Hills, NWT will be the main focus of projected activity in the first quarter of 2003. Plans include the drilling of two additional oil wells, the workover of two existing oil wells, and the construction of an oil battery and gathering system that will tie-in five wells. Crude oil will be transported from Cameron Hills to the Bistcho Lake facility by an existing pipeline; a new pipeline will be constructed in the first quarter of 2003 to transport oil from Bistcho to Zama. Cameron Hills oil production is expected to come on stream at 1,500 Bbl/d early in the second quarter of 2003 and is projected to remain relatively flat throughout 2003. Activities targeting natural gas are also proposed for the first quarter of 2003 in Northwest Alberta. Two new drills in Cameron Hills, NWT if successful, will be tied in to the existing gas gathering system constructed last season. Other opportunities being pursued include: Pleistocene in Negus and Assumption, tie-in of four existing gas wells and successful new drills at Bistcho. Southern Alberta / Saskatchewan / Montana / North Dakota Production through the third quarter from the Southern area averaged 10 MMcf/d and 2,200 Bbl/d. New production came from the tie-in of a Pekisko gas well in Sylvan Lake, Alberta. Operations were focused in Retlaw, Alberta with the completion and testing of two Mannville gas wells drilled earlier in 2002. The average production rate, during testing, from the two wells was 3.0 MMcf/d; tie-ins will be completed in the fourth quarter. Northeast Alberta The Northeast Alberta properties produced an average of 98.7 MMcf/d during the third quarter of 2002, up from 97.3 MMcf/d for the second quarter. Third quarter production reflected the full effects of additions from Paramount's winter 2001/2002 drilling program. Liard, NWT / Northeast British Columbia Natural gas production averaged 15.1 MMcf/d during the third quarter. Production in the Liard/Maxhamish/Tattoo areas averaged 6.9 MMcf/d while production at Clarke Lake averaged 6.7 MMcf/d. During the upcoming winter the Company expects to drill one firm and four contingent locations. Additionally, four firm workovers and two contingent workovers are scheduled. Plans exist to drill a new location at I-40 and to workover the M-25 well in the Liard area in which Paramount has a 2.76% working interest. The water disposal capabilities for the Purcell F-25A well, in which Paramount has a 6.9% working interest will be increased. Exploration Paramount has completed the mobilization of a drilling rig and equipment to Norman Wells, NWT, in advance of the two well program that is planned for Colville Hills. The primary objective is Cambrian sands at a depth of 1,400 meters. The first well at C-49 is expected to spud after Christmas. At Arrowhead, in the southern Northwest Territories, a multiwell drilling program this winter will be primarily targeting Devonian gas potential along the main Bovie fault trend. An additional Devonian test will be drilled at Liard on a structural feature located southeast of the Chevron K-29 Devonian pool. Completion activity is continuing at East Lost Hills and Pyramid Hills in California. ELH#4 was completed and suspended, while additional intervals are being considered for further completion work on ELH#9. The Pyramid Hills completion has been delayed until later in the fourth quarter. CORPORATE INVESTMENTS The Company maintains investments with a book value of approximately $16.7 million which are highly prospective. The combined market value of these investments is estimated to be in excess of book value. The majority of the value, held in two public and three private energy companies, is closely monitored to ultimately maximize our return. OUTLOOK For the remainder of 2002, Paramount will be concentrating its efforts on integrating the Summit assets and developing a strategic 2003 capital budget. Although emphasis will be placed on the winter drilling season, the Company is expected to balance its capital expenditure program through 2003. MANAGEMENT'S DISCUSSION AND ANALYSIS Management's Discussion and Analysis ("MD&A") should be read in conjunction with the Interim Unaudited Consolidated Financial Statements for the three and nine months ended September 30, 2002 and the Audited Consolidated Financial Statements and MD&A for the year ended December 31, 2001. On June 28, 2002, Paramount successfully completed the acquisition of Summit Resources Limited ("Summit") for cash consideration of $7.40 per share or approximately $251.4 million plus acquisition costs and assumed net debt of approximately $87 million. The acquisition, which closed on June 28, 2002, was funded by way of additional bank debt and internally available cash including approximately $47 million received as compensation for the Surmont natural gas/bitumen co-production issue, $27 million received on the sale of its remaining investment in Peyto Exploration and Development Corp. and a $33 million shareholder loan. In conjunction with this transaction, Paramount also announced its intention to create an independent Energy Trust by way of dividend and sale of certain of Paramount's Northeast Alberta development assets effective July 1, 2002. This transaction had not closed as at the end of the third quarter, and consequently, the operating and financial results of the Corporation will continue to reflect the assets in Northeast Alberta. CAPITAL EXPENDITURES During the nine months ended September 30, 2002, Paramount participated in the drilling of 120 wells (93.1 net) including 4 wells (2.1 net) in the third quarter. This compares to 162 wells (128.6 net) during the same period in 2001. /T/ --------------------------------------------------------- Nine Months Ended September 30 --------------------------------------------------------- Wells Drilled 2002 2001 --------------------------------------------------------- Gross (1) Net (2) Gross (1) Net (2) ---------------------------------------- Natural gas 104 80.6 136 109.0 Oil 5 3.9 8 7.0 Standing/Service 2 1.4 1 0.6 Dry 9 7.3 17 12.0 --------------------------------------------------------- Total 120 93.2 162 128.6 --------------------------------------------------------- (1) "Gross" wells means the number of wells in which Paramount has a working interest. (2) "Net" wells means the aggregate number of wells obtained by multiplying each gross well by Paramount's percentage working interest therein. /T/ Exploration and development expenditures of $26.1 million during the third quarter reflect a limited drilling program in which only four gross wells were drilled. The majority of the expenditures resulted from projects initiated in the first half of 2002, the most significant of which amended Paramount's working interest at Cameron Hills and Bistcho Lake where a joint venture partner chose not to participate. The acquisition of Summit, although now assimilated into Paramount, will take some time to review and assess. Consequently, capital expenditures related to these assets during the fourth quarter are anticipated to be minimal. Many of these assets provide year-round access, allowing the Company an opportunity to balance its capital expenditure program. Pursuant to the Trust transaction Paramount will dispose of assets to the newly established Energy Trust effective July 1, 2002. Capital expenditures associated with these assets subsequent to that date will be the responsibility of the Trust. During the third quarter very limited capital was expended in Northeast Alberta. Property acquisitions include the Company's purchase of interests in the Sturgeon Lake area of Alberta for approximately $20 million. Production from this acquisition approximates 1,300 Bbl/d of oil and 2 MMcf/d of natural gas. /T/ ------------------------------------------------------------------------ (thousands of dollars) Nine Months Ended September 30 Capital Expenditures 2002 2001 2000 ------------------------------------------------------------------------ Land $ 5,140 $ 31,507 $ 18,195 Geological and geophysical 8,121 8,907 5,001 Drilling 115,373 99,345 63,061 Production equipment and facilities 74,515 85,634 84,477 ------------------------------------------------------------------------ Net exploration and development expenditures 203,149 225,393 170,734 Summit Resources Limited acquisition 437,933 - - Dry hole and seismic costs expensed (12,270) (17,569) (8,210) Petroleum and natural gas property impairment (50,929) - - Property acquisitions 28,595 12,566 12,652 Property dispositions (4,574) (9,846) (42,198) Other 1,998 (8,475) 1,767 ------------------------------------------------------------------------ Net capital expenditures $ 603,902 $ 202,069 $ 134,745 ------------------------------------------------------------------------ /T/ In conjunction with the cash compensation received from the Alberta Crown related to the Surmont natural gas/bitumen issue, the Company has made a provision of approximately $9.1 million (net of $1.8 million accumulated depletion and depreciation) in recognition of the impairment in asset value resulting from the shut-in. The amount represents the net book value of the assets carried in the financial statements. Paramount has also taken a CDN$40 million charge to dry hole costs related to certain exploratory projects in the United States which the Company has determined to be unsuccessful. Further analysis will be done in the fourth quarter to assess the future of the East Lost Hills project, and whether an additional provision is required. Total capital expenditures in the United States approximate US$49 million. BANK LOAN To finance the acquisition of Summit, the Company negotiated a $600 million credit facility with a syndicate of Canadian Chartered Banks, including a $466 million production facility, a $25 million working capital facility, and a $109 million bridge facility. Upon receipt of the Surmont proceeds the bridge facility was permanently reduced by approximately $47.1 million. The term of the credit facility was initially structured to coincide with the closing of the "Trust" transaction. As the Trust transaction has not yet closed, Paramount has requested a formal extension of the existing facility. Accordingly, the loan facility has been classified as short-term. Upon closing of the "Trust" transaction, any proceeds received by Paramount from the sale of the assets to the Trust will be used to permanently reduce bank indebtedness. SHARE CAPITAL During 2001 Paramount instituted a "Normal Course Issuer Bid" to acquire a maximum of 5 percent of its issued and outstanding shares commencing September 1, 2001 and ending August 31, 2002. As at August 31, 2002 the Company had not purchased any shares pursuant to this plan. REVENUE Petroleum and natural gas revenue totaled $295.5 million for the nine months ended September 30, 2002, as compared to $437.7 million during the same period in 2001. Included in petroleum and natural gas sales are $45.9 million of commodity hedging gains attributed to natural gas hedges. The third quarter hedging gain totaled $14.4 million. On a per share basis the hedging gain for 2002 represents an increase to cash flow of approximately $0.77 per common share. For the three months ended September 30, 2002, petroleum and natural gas revenue totaled $116.5 million as compared to $110.9 million for the same period in 2001. The 5 percent increase in quarter-over-quarter sales is primarily due to the increase in production volumes associated with the acquisition of Summit effective June 28, 2002. Natural gas sales averaged 234.3 MMcf/d to September 30, 2002, as compared to 227.3 MMcf/d reported for the same period in 2001. Third quarter sales totaled 259.3 MMcf/d, a 12 percent increase from 232.3 MMcf/d reported for the equivalent period in 2001. Average oil and natural gas liquids production to September 30, 2002 increased 111 percent to 4,690 Bbl/d as compared to 2,220 Bbl/d in 2001. /T/ ------------------------------------------------------------------------ (thousands of dollars) Nine Months Ended September 30 ------------------------------------------------------------------------ Revenue Analysis 2002 2001 2000 ------------------------------------------------------------------------ Natural gas and other $ 262,828 $ 413,504 $ 223,233 Crude oil and natural gas liquids 32,672 24,217 16,469 Gain on sale of short-term investments 40,105 2,982 - ------------------------------------------------------------------------ Gross revenue 335,605 440,703 239,702 Crown royalties 42,695 82,354 48,866 Other royalties 3,840 5,288 3,168 Alberta royalty tax credit (248) (374) (602) ------------------------------------------------------------------------ Net revenue $ 289,318 $ 353,435 $ 188,270 ------------------------------------------------------------------------ /T/ Paramount's natural gas price averaged $3.88/Mcf during the nine months ended September 30, 2002, 42 percent lower than the $6.73/Mcf recorded during the same period 2001. The average price realized was aided by $0.73/Mcf for net gains related to natural gas commodity hedges. Oil and natural gas liquids prices averaged $34.25/Bbl, as compared to $37.82/Bbl for the same period in 2001. /T/ ------------------------------------------------------------------------ ($/Mcfeq) Nine Months Ended September 30 ------------------------------------------------------------------------ Cash Netbacks Per Unit of Production 2002 2001 2000 ------------------------------------------------------------------------ Sale price $ 3.81 $ 6.47 $ 3.66 Less: Royalties 0.60 1.29 0.79 Operating costs 0.78 0.64 0.53 ------------------------------------------------------------------------ Cash netback $ 2.43 $ 4.54 $ 2.34 ------------------------------------------------------------------------ /T/ BITUMEN/NATURAL GAS CO-PRODUCTION On February 28, 2002, Paramount entered into a Memorandum of Agreement with the Province of Alberta and Conoco Canada Resources Ltd. ("Conoco"), effective May 1, 2000. The Memorandum of Agreement provided, inter alia, for compensation of $85 million to be paid to the Surmont Gas Producers by the Alberta Crown in the form of reduced royalties as well as the granting to the Province of Alberta by the Surmont Gas Producers of an 11 percent gross overriding royalty encompassing certain wells, lands and leases affected by the shut-in order of May 1, 2000. Compensation of $47.1 million was received in June 2002. GAIN ON SALE OF SHORT-TERM INVESTMENTS During the year Paramount disposed of 8.7 million shares of Peyto Exploration and Development Corp. at an average price of approximately $5.17 per share for net proceeds of $45.0 million resulting in a gain of $40.1 million. These gains and losses are included in cash flows from operations. ROYALTIES Alberta Gas Crown royalties are cash royalties calculated on the Crown's share of production using the Alberta Reference Price. The Alberta Reference Price is the monthly weighted average for gas consumed in Alberta and gas exported from Alberta reduced by allowances for transportation and marketing. A subsequent cost of service credit is applied to account for the Crown's share of allowable capital and processing fees to arrive at the net royalty. Generally, the Crown's share of production will increase in a higher price environment. Royalties for the nine months ended September 30, 2002, averaged $0.60/Mcfeq or 15.7 percent of Paramount's average sales price of $3.81/Mcfeq. This compares to $1.29/Mcfeq or 20.0 percent of the average sales price reported for the same period in 2001. For the three months ended September 30, 2002 royalties totaled $20.7 million as compared to $18.2 million during the same period a year earlier. OPERATING COSTS For the nine months ended September 30, 2002, operating costs totaled $62.6 million compared to $43.5 million during the same period a year earlier. On a unit-of-production basis, average operating costs increased 22 percent to $0.78/Mcfeq from $0.64/Mcfeq in 2001. This increase continues to reflect extensive maintenance associated with the Company's facilities as well as the increased cost of services and maintenance required to operate and produce Paramount's increasing well base. For the three months ended September 30, 2002, operating costs totaled $22.0 million as compared to $14.3 million for the same period in 2001. Historically, Paramount's operating costs on a unit-of-production basis have trended down during the second half of the year. This trend reflects characteristics inherent in many of the Company's properties resulting from the remoteness of their locations. As in previous years when new production comes onstream and efficiencies are optimized from work done during the winter, operating costs in total and on a unit-of-production basis will be reduced. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $10.4 million for the nine months ended September 30, 2002, as compared to $8.9 million recorded for the same period a year earlier. On a unit-of-production basis, general and administrative expenses before costs associated with the Share Appreciation Rights Plan and the Employee Incentive Stock Option Plan averaged $0.13/Mcfeq as compared to $0.11/Mcfeq for the period ended September 30, 2001. Although, the Summit acquisition is not expected to have a material effect on general and administrative expenses in future years, additional costs will have been incurred to properly incorporate the assets into Paramount's books. Paramount's reduced capital expenditure program will affect the amount of overhead recoveries and consequently, general and administrative expenses will increase year over year. /T/ ------------------------------------------------------------------------ (thousands of dollars) Nine Months Ended September 30 General and Administrative Expenses 2002 2001 2000 ------------------------------------------------------------------------ General and administrative expenses $ 9,644 $ 7,423 $ 4,282 Share appreciation rights exercised 458 1,453 1,108 Stock-based compensation expensed 342 - - ------------------------------------------------------------------------ Total general and administrative expenses $ 10,444 $ 8,876 $ 5,390 ------------------------------------------------------------------------ /T/ DRY HOLE COSTS The Company follows the Successful Efforts Method of accounting for petroleum and natural gas operations. Under this method the Company capitalizes only those costs that result directly in the discovery of petroleum and natural gas reserves. The cost of unproductive wells, abandoned wells and surrendered leases are charged to earnings in the year of abandonment or surrender. For the nine months ended September 30, 2002, $4.1 million in dry hole costs were recorded. INCOME TAXES /T/ -------------------------------------------------------------- Estimated Income Tax Pools as at December 31, 2001 -------------------------------------------------------------- (thousands of dollars) Paramount Summit Total -------------------------------------------------------------- UCC $ 253,395 $ 48.840 $ 302,235 COGPE 249,139 53,455 302,594 CEE 1,721 13,874 15,595 CDE 48,689 33,229 81,918 Foreign exploration and development expenses 24,861 3 24,864 Other 1,717 2,153 3,870 -------------------------------------------------------------- Total estimated income tax pools $ 579,522 $ 151,554 $ 731,076 -------------------------------------------------------------- /T/ For the nine months ended September 30, 2002, the Company has recorded a provision for future income taxes of $21.1 million. The Company does not anticipate being cash taxable in 2002. CASH FLOW AND EARNINGS Cash flow from operations amounted to $197.8 million or $3.33 per common share, representing a 23 percent decrease from the $256.2 million or $4.31 per common share reported for the first nine months of 2001. Cash flow during the third quarter amounted to $58.7 million or $0.99 per common share, 11 percent lower than the $66.1 million or $1.11 per common share reported for the same period in 2001. The weighted average number of shares outstanding remained unchanged at 59.4 million. Net income for the nine months ended September 30, 2002, totaled $51.7 million or $0.87 per common share, compared to $129.3 million or $2.18 per common share reported for the same period a year earlier. Net income includes third quarter earnings of $6.2 million or $0.10 per common share as compared to $33.2 million or $0.56 per common share in 2001. Paramount is a Canadian oil and natural gas exploration, development and production company with operations focused in Western Canada. The Company's common shares are listed on the Toronto Stock Exchange under the symbol POU. /T/ PARAMOUNT RESOURCES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three months Nine months ended ended September 30 September 30 ------------------------------------------------------------------------ (thousands of dollars, except per share amounts) 2002 2001 2002 2001 ------------------------------------------------------------------------ Operating activities Net earnings $ 6,180 $ 33,249 $ 51,706 $ 129,335 Add (deduct) non-cash items Write-down of Surmont assets - - 9,136 - Future income taxes 1,253 12,453 21,117 61,000 Depletion and depreciation 47,727 14,123 108,327 46,123 Write-down of U.S. petroleum and natural gas properties - - 40,000 - Provision for future site restoration and abandonment costs 618 300 1,818 1,800 (Gain) loss on sale of property and equipment (3) 262 (133) 378 Add items not related to operating activities Surmont compensation 669 - (46,427) - Dry hole 979 4,789 4,149 8,662 Geological and geophysical 1,238 979 8,121 8,907 ------------------------------------------------------------------------ Cash flow from operations 58,661 66,155 197,814 256,205 Increase (decrease) in deferred revenue (11,734) (289) 16,091 (869) Change in non-cash operating working capital (56,123) (24,491) 66,598 (16,747) ------------------------------------------------------------------------ (9,196) 41,375 280,503 238,589 ------------------------------------------------------------------------ Financing activities Bank loan (12,297) (24,246) 209,168 (43,843) Shareholder loan 33,000 - 33,000 - Capital stock (459) - 414 - Drilling rig indebtedness (3,070) (926) - ------------------------------------------------------------------------ 17,174 (24,246) 241,656 (43,843) ------------------------------------------------------------------------ Cash flow provided by operating and financing activities 7,978 17,129 522,159 194,746 ------------------------------------------------------------------------ Investing activities Property and equipment expenditures 25,923 11,213 195,233 200,511 Acquisition of Summit Resources Limited - - 338,581 - Petroleum and natural gas property acquisitions 195 (4,485) 28,595 44,077 Geological and geophysical costs 1,238 979 8,121 8,907 Proceeds on sale of property and equipment (1,374) 4,412 (4,707) (22,743) Surmont compensation 669 - (46,427) - Change in non-cash investing working capital 292 6,344 3,503 (35,598) ------------------------------------------------------------------------ Cash flow used in investing activities 26,943 18,463 522,899 195,154 ------------------------------------------------------------------------ Increase (decrease) in cash (18,965) (1,334) (740) (408) Cash, beginning of period 18,965 1,342 740 416 ------------------------------------------------------------------------ Cash, end of period $ - $ 8 $ - $ 8 ------------------------------------------------------------------------ Cash flow from operations per common share -basic $ 0.99 $ 1.11 $ 3.33 $ 4.31 -diluted $ 0.98 $ 1.11 $ 3.32 $ 4.19 ------------------------------------------------------------------------ Weighted average number of common shares outstanding (thousands) -basic 59,459 59,454 59,457 59,454 -diluted 59,616 59,454 59,554 61,205 ------------------------------------------------------------------------ See accompanying notes to consolidated financial statements PARAMOUNT RESOURCES LTD. CONSOLIDATED BALANCE SHEETS September 30 December 31 ------------------------------------------------------------------------ (thousands of dollars) 2002 2001 ------------------------------------------------------------------------ (unaudited) ASSETS (note 5) Current Assets Cash $ - $ 740 Short-term investments (market value: $17,191; 2001 - $29,598) (note 9) 16,691 13,932 Accounts receivable 60,698 72,356 Prepaid expenses 15,051 13,320 Deferred hedging loss 4,446 17,638 ------------------------------------------------------------------------ 96,886 117,986 ------------------------------------------------------------------------ Property, Plant and Equipment (note 4) Petroleum and natural gas properties, at cost 2,044,007 1,440,105 Accumulated depletion and depreciation (486,151) (381,768) ------------------------------------------------------------------------ 1,557,856 1,058,337 ------------------------------------------------------------------------ $ 1,654,742 $ 1,176,323 ------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 138,322 $ 92,084 Due to shareholder (note 6) 33,000 - Bank loans (notes 3 & 5) 523,316 - ------------------------------------------------------------------------ 694,638 92,084 ------------------------------------------------------------------------ Bank loans (notes 3 & 5) - 314,148 Drilling rig indebtedness 1,526 2,452 Provision for future site restoration and abandonment costs 21,335 8,955 Deferred revenue (note 8) 17,518 1,427 Future income taxes 332,221 221,873 ------------------------------------------------------------------------ 372,600 548,855 ------------------------------------------------------------------------ Shareholders' Equity Share capital (note 3) Issued and outstanding 59,458,600 common shares (2001- 59,453,600 common shares) 190,193 189,320 Retained earnings 397,311 346,064 ------------------------------------------------------------------------ 587,504 535,384 ------------------------------------------------------------------------ $ 1,654,742 $ 1,176,323 ------------------------------------------------------------------------ See accompanying notes to consolidated financial statements PARAMOUNT RESOURCES LTD. CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (unaudited) Three months Nine months ended ended September 30 September 30 ------------------------------------------------------------------------ (thousands of dollars, except per share amounts) 2002 2001 2002 2001 ------------------------------------------------------------------------ Revenue Petroleum and natural gas sales (note 8) $116,467 $110,965 $295,500 $437,721 Royalties (net of ARTC) (20,687) (18,209) (46,287) (87,268) Gain on sale of investments (note 9) - - 40,105 2,982 ------------------------------------------------------------------------ 95,780 92,756 289,318 353,435 ------------------------------------------------------------------------ Expenses Operating 22,051 14,289 62,593 43,515 Surmont compensation - net (note 7) 669 - (37,291) - Interest on bank loan 8,979 4,111 14,216 14,633 General and administrative (note 3) 4,692 2,579 10,444 8,876 Dry hole (note 4) 979 4,789 4,149 8,662 Lease rentals 1,343 1,171 2,967 3,092 Geological and geophysical 1,238 979 8,121 8,907 (Gain) loss on sale of property and equipment (3) 262 (133) 378 Provision for future site restoration and abandonment costs 618 300 1,818 1,800 Depletion and depreciation 47,727 14,123 108,327 46,123 Write-down of US petroleum and natural gas properties (note 4) - - 40,000 - ------------------------------------------------------------------------ 88,293 42,603 215,211 135,986 ------------------------------------------------------------------------ Earnings before income taxes 7,487 50,153 74,107 217,449 Income and other taxes Large corporations tax and other (54) (451) (1,284) (2,114) Current - (4,000) - (25,000) Future income tax (1,253) (12,453) (21,117) (61,000) ------------------------------------------------------------------------ (1,307) (16,904) (22,401) (88,114) ------------------------------------------------------------------------ Net earnings 6,180 33,249 51,706 129,335 ------------------------------------------------------------------------ Retained earnings, beginning of period 391,131 325,020 346,064 228,934 Adoption of new accounting policy (note 3) - (1,772) (459) (1,772) ------------------------------------------------------------------------ Retained earnings, end of period $397,311 $356,497 $397,311 $356,497 ------------------------------------------------------------------------ Net earnings per common share -basic $ 0.10 $ 0.56 $ 0.87 $ 2.18 -diluted $ 0.10 $ 0.56 $ 0.86 $ 2.11 ------------------------------------------------------------------------ Weighted average number of common shares outstanding (thousands) -basic 59,459 59,454 59,457 59,454 -diluted 59,616 59,454 59,554 61,205 ------------------------------------------------------------------------ See accompanying notes to consolidated financial statements /T/ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (all tabular dollar amounts expressed in thousands of dollars) Paramount Resources Ltd. (the "Company") is involved in the exploration and development of petroleum and natural gas primarily in western Canada. The Interim Consolidated Financial Statements are stated in Canadian dollars and have been prepared by management in accordance with Canadian generally accepted accounting principles. Certain information and disclosures normally required to be included in notes to Annual Consolidated Financial Statements have been condensed or omitted. The Interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto in Paramount's Annual Report for the year ended December 31, 2001. The preparation of Interim Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Interim Consolidated Financial Statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Interim Consolidated Financial Statements have been prepared in a manner consistent with accounting policies utilized in the Consolidated Financial Statements for the year ended December 31, 2001, except as discussed in note 3. 2. ACQUISITION OF SUMMIT RESOURCES LIMITED On May 12, 2002, Paramount and Summit Resources Limited ("Summit") jointly announced that they had entered into an agreement pursuant to which Paramount will make an offer to purchase all of the issued and outstanding common shares of Summit for cash consideration of $7.40 per share or approximately $251.4 million, including acquisition costs. This transaction has been accounted for using the purchase method and is being accounted for as of the closing date of June 28, 2002. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The Company has not yet completed its final evaluation of the assets acquired and the liabilities assumed. Therefore, the purchase price is subject to change. /T/ ------------------------------------------------- Assets Accounts receivable $ 13,997 Petroleum and natural gas properties 437,933 ------------------------------------------------- 451,930 ------------------------------------------------- Liabilities Accounts payable 26,339 Future income taxes 88,790 Debt 74,513 Other liabilities 10,866 ------------------------------------------------- 200,508 ------------------------------------------------- Net assets acquired $ 251,422 ------------------------------------------------- /T/ 3. CHANGE IN ACCOUNTING POLICY A) STOCK-BASED COMPENSATION Effective January 1, 2002, the Company adopted the new Canadian Institute of Chartered Accountants Standard on Stock-Based Compensation. Under this new standard, the Company's stock options and SARs, which can be settled in cash at the discretion of the employee, are accounted for at an amount equal to the difference between the exercise price and the fair value at the date of grant, resulting in a liability and corresponding compensation expense being recognized. The awards are remeasured at each reporting date. As permitted by the new standard, the Company applied the change retroactively for the SARs without restatement of prior periods. The impact of the adoption of the new standard on the financial statements as at January 1, 2002, was as follows: /T/ --------------------------------------------- Increase in liability $ 459,000 Decrease in retained earnings $ 459,000 --------------------------------------------- /T/ The recognized expenses for the three- and nine-month periods ended September 30, 2002, were nil and $342,000 respectively. This new standard requires the presentation of pro forma net earnings as if the Company had accounted for its employee stock options granted after December 31, 2001, under the fair value method. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant date of these awards, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below: /T/ ----------------------------------------------------------------------- Three months Nine months ended Sept. 30, 2002 ended Sept. 30, 2002 ----------------------------------------------------------------------- Net earnings as reported $ 6,180 $ 51,706 pro forma $ 6,159 $ 51,669 Net earnings per common share - basic as reported $ 0.10 $ 0.87 pro forma $ 0.10 $ 0.87 Net earnings per common share - diluted as reported $ 0.10 $ 0.86 pro forma $ 0.10 $ 0.86 ----------------------------------------------------------------------- /T/ The fair value for these options was estimated at the date of granting using a Black-Scholes Option Pricing Model with the following assumptions: weighted-average risk-free interest rate of 5.8%; dividend yield of 0%; weighted-average volatility factor of the expected market price of the Company's common shares of 39.5%; and a weighted-average expected life of the options of 4 years. B) TREATMENT OF FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT In accordance with a newly issued Canadian Institute of Chartered Accountants ("CICA") accounting standard, the Company no longer defers and amortizes the gains or losses on foreign currency denominated long-term debt as described in note 1(g) of the December 31, 2001, Consolidated Financial Statements. Such gains or losses are reflected in the Income Statement in the period incurred. The new standard has been applied retroactively and the financial statements of comparative periods have been restated. The impact of the new standard on the results of the three- and nine-month periods ended September 30, 2002 was to reduce net income by $1.4 million and $0.2 million, respectively (September 30, 2001 - reduce net income by $1.4 million and $1.5 million, respectively) and reduce other assets and retained earnings by $1.8 million, representing the cumulative deferred foreign exchange losses at the beginning of the period. C) BANK LOANS During the quarter, the Company adopted the new CICA recommendation regarding Balance Sheet Classification of Callable Debt Obligations and Debt Obligations Expected to be Refinanced. All borrowings where the lender has the right to demand repayment within 12 months (other than in the event of a default or breach of covenants) or where the lender has the right to refuse to roll-over the borrowing for a further lending period of longer than 12 months are required to be classified as current liabilities. The impact of this change has been to increase current liabilities by the amount of any such borrowings then in place. At September 30, 2002, this change has increased current liabilities by $523.3 million and reduced long-term bank loans by a corresponding amount. 4. PETROLEUM AND NATURAL GAS PROPERTIES The Company follows the Successful Efforts method of accounting for petroleum and natural gas operations. Under this method, the Company capitalizes only those costs that result directly in the discovery of petroleum and natural gas reserves. The cost of unproductive wells, abandoned wells and surrendered leases are charged to earnings in the year of abandonment or surrender. For the three- and nine-month periods ended September 30, 2002, the Company recorded $0.9 million and $4.1 million in dry hole costs, respectively (three- and nine-month periods ended September 30, 2001 - $4.8 million and $8.7 million, respectively). An additional provision of $40.0 million has been recorded related to certain exploratory projects in the United States which the Company has determined to be unsuccessful. 5. BANK LOAN To finance the acquisition of Summit, the Company negotiated a $600 million credit facility with a syndicate of Canadian Chartered banks, including a $466 million production facility, a $109 million bridge facility and a $25 million working capital facility. The term of the facility is to November 30, 2002. Available borrowings under the bridge facility were permanently reduced by $47.1 million upon receipt of the Surmont settlement. The term of the credit facility was initially structured to coincide with the closing of the transfer by Paramount to a newly formed Energy Trust of a portion of its Northeast Alberta assets. As the Trust transaction has not yet closed, Paramount has requested a formal extension of the existing facility. Accordingly, the loan facility has been classified as short-term. Upon closing of the "Trust" transaction any proceeds received by Paramount from the sale of the assets to the Trust will be used to permanently reduce bank indebtedness. The Company has provided a first floating charge over all the assets and a limited recourse guarantee from Paramount Oil and Gas Ltd., a related entity with a significant ownership interest in the Company. The facility bears interest at prime rates, bankers acceptance rates or libor rates plus a margin ranging from 250 to 800 basis points. On October 1, 2002, the margins increase by 50 basis points and shall increase by the same amount on the first day of each month thereafter. 6. RELATED PARTY TRANSACTIONS The Company has a note payable in the amount of $33 million to Paramount Oil and Gas Ltd. The note bears interest at bank prime plus 1 percent, and is repayable upon closing of a proposed rights offering by Paramount Energy Trust. 7. SURMONT COMPENSATION During 2000, the Alberta Energy and Utilities Board issued a decision regarding the Surmont natural gas/bitumen co-production issue. As a result of this decision, the Board ordered the shut-in of approximately 22 MMcf/d of the Company's production. On February 28, 2002, the Company and the Surmont Gas Producers entered into a Memorandum of Agreement with the Province of Alberta effective May 1, 2000. The Memorandum provided for compensation of approximately $85 million to be paid to the Surmont Gas Producers by the Alberta Crown in the form of reduced royalties, as well as the granting to the Province of Alberta by the Surmont Gas Producers of an 11 percent gross overriding royalty encompassing certain wells, land and leases affected by the shut-in order of May 1, 2000. In June 2002, the Company received approximately $47 million in the form of reduced royalties from the Province of Alberta as compensation for its proportionate share of the settlement. The cash settlement, net of the net book value of wells, and lands and leases in the affected area, has been recorded in net earnings in the current period. 8. FINANCIAL INSTRUMENTS Certain financial instruments used to manage the Company's exposure to fluctuations in commodity prices and foreign exchange rates were outstanding at September 30, 2002. A) COMMODITY PRICE HEDGES The Company has entered into financial forward sales arrangements as follows: /T/ AECO Price Term ---------------------------------------------------------- 10,000 GJ/d $ 3.69 January 2002 - December 2002 20,000 GJ/d $ 4.38 January 2002 - November 2002 60,000 GJ/d $ 4.38 December 2002 10,000 GJ/d $ 5.46 November 2002 - October 2003 20,000 GJ/d $ 5.06 November 2002 - October 2003 20,000 GJ/d $ 5.25 November 2002 - October 2003 NYMEX ---------------------------------------------------------- 20 MMcf/d US$ 3.83 November 2002 - October 2003 20 MMcf/d US$ 3.90 November 2002 - October 2003 10 MMcf/d US$ 4.10 November 2002 - October 2003 WTI ---------------------------------------------------------- 1,000 Bbl/d US$24.07 May 2002 - April 2004 1,000 Bbl/d US$24.33 January 2003 - December 2003 ---------------------------------------------------------- /T/ Had these financial contracts been settled on September 30, 2002, using prices in effect at that time, the mark to market before tax loss would have totaled $14.8 million. The Company periodically settles outstanding commodity hedging contracts. Cash proceeds on settlement are included in deferred revenue and amortized over the life of the initial hedging contract. During the three- and nine-month periods ended September 30, 2002, $14.4 million and $45.9 million, respectively of net gains related to commodity hedging contracts (2001 - $30.0 million of net gains and $6.8 million of net losses, respectively) are included in sales revenue. B) FOREIGN EXCHANGE HEDGES Foreign currency index swap transactions entered into by the Company are unchanged from those outstanding at December 31, 2001. At September 30, 2002, the estimated fair value of these hedges based on the Company's assessment of available market information was a loss of $1.7 million. 9. GAIN ON SALE OF INVESTMENTS During the nine-month period ended September 30, 2002, the Company recorded a gain on the disposal of its investment in Peyto Exploration and Development Corp. of $40.1 million. 10. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with current presentation. -30-
FOR FURTHER INFORMATION PLEASE CONTACT:
Paramount Resources Ltd. C.H. Riddell Chairman of the Board and CEO (403) 290-3600 or Paramount Resources Ltd. J.H.T. Riddell President (403) 290-3600 or Paramount Resources Ltd. D.J. Broshko Chief Financial Officer (403) 290-3693 (403) 262-7994 (FAX) | ||||||
