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PARAMOUNT ANNOUNCES THIRD QUARTER 2016 RESULTS
Calgary, Alberta
November 9, 2016
HIGHLIGHTS
Paramount completed the divestiture of its oil and gas properties in the Musreau / Kakwa area of Alberta
(the "Sale Transaction") in August 2016, significantly de-leveraging the Company and bolstering its
balance sheet.
Total proceeds from the Sale Transaction were $2.1 billion, including $0.5 billion in cash, 33.5 million
shares of Seven Generations Energy Ltd. ("7G") and $0.6 billion of debt assumed by 7G. A $1.2 billion
pre-tax gain was recorded on the sale.
In the third quarter, the Company monetized 24.7 million of its 7G shares for gross proceeds of
approximately $735 million.
Paramount exited the third quarter of 2016 with a working capital surplus of $681 million, a portfolio of
equity investments with a market value of $467 million and no drawings on its $100 million bank credit
facility. The Company has $286.6 million principal amount of senior unsecured notes outstanding that
are due in December 2019.
The Company’s next growth platform is its Montney development at Karr-Gold Creek, where five drilling
rigs will be working in the fourth quarter of 2016 and a 40 MMcf/d expansion of the 6-18 compression
and dehydration plant is scheduled to be completed in mid-2017, doubling available capacity.
In the third quarter, Paramount completed its first 2.0 mile horizontal Montney well at Karr-Gold Creek.
Over its initial 30 days on-stream, the well averaged 7.2 MMcf/d of raw natural gas and 1,280 Bbl/d of
wellhead Liquids.
Sales volumes for Paramount’s ongoing operations averaged 11,148 Boe/d in the third quarter of 2016,
including 3,235 Bbl/d of Liquids.
Paramount implemented a normal course issuer bid in October 2016 under which it may purchase up
to 5.4 million Common Shares for cancellation. To date, the Company has purchased 622,900
Common Shares at a total cost of $9.7 million.
ONGOING OPERATIONS
Paramount’s average sales volumes for the third quarter of 2016 were 24,786 Boe/d, which included sales
volumes from the properties sold to 7G up to August 18, 2016, the closing date of the sale. Sales volumes
from the Company’s ongoing operations were 11,148 Boe/d.
Following the Sale Transaction, the Company’s main areas of operation are Karr-Gold Creek and Smoky-
Resthaven in west central Alberta, Birch in northeast British Columbia and Willesden Green in southern
Alberta. Near-term development activities are expected to be directed towards Montney production growth
at Karr-Gold Creek.
Karr-Gold Creek
The Company is drilling longer horizontal Montney wells with higher intensity completions in its 2016/2017
capital program at Karr-Gold Creek. The Company continues to refine its well completion design and is
including more frack stages and higher proppant loading intensities in future wells. Key elements of new
wells being drilled and completed at Karr-Gold Creek include:
2.0 mile horizontal laterals;
managed pressure drilling;
slickwater completion fluids;
up to 72 stages per lateral; and
up to 100 metric tonnes of proppant placed per stage.
The new well design is expected to increase well productivity and recoverable reserves.
Paramount completed its initial 2.0 mile well (the 15-14 Well) at Karr-Gold Creek in August 2016 with
slickwater completion fluids and 5,000 tonnes of proppant placed over 50 stages in a 2.0-mile lateral. Drilling
of the 15-14 Well was completed in 41 days. Meters drilled per day for this well were 15 to 20 percent higher
than rates for 1.0 mile wells drilled historically. Further reductions in drilling days are being pursued with
the Company now executing on batch drilled multi-well pads. Newly completed wells will be tied in to
infrastructure as soon as saleable hydrocarbons are recovered during post-frack flowback, limiting
emissions and accelerating first sales from the wells. The Company has been implementing initial flowback
and production procedures to manage operational risks and maximize the recovery of condensate.
The 15-14 Well was brought on production at controlled rates in early September. Initial flow rates from the
well are shown in the table below:
15-14 Well IP 30 Cumulative
Natural gas(1) 7.2 MMcf/d 387.0 MMcf
Wellhead liquids(1) 1,280 Bbl/d 66,874 Bbl
CGR(2) 178 Bbl/MMcf 173 Bbl/MMcf
(1) Production volumes are the gross volumes measured at the wellhead separator over the initial 30 days of production ("IP 30") and cumulative volumes produced to November 3, 2016 ("Cumulative"). Excludes days when the well did not produce. Natural gas sales volumes are approximately 10 percent lower and stabilized condensate sales volumes are approximately 15 percent lower.
(2) Condensate to natural gas ratios (CGRs) were calculated by dividing total wellhead separator liquids volumes by total wellhead separator natural gas volumes.
Paramount plans to drill up to 24 and complete up to twelve 2.0 mile Montney wells at Karr-Gold Creek by
mid-2017, with the first of the new wells scheduled to be brought on production in the first quarter of 2017.
Capital costs to drill, complete and equip these wells are expected to average approximately $10.5 million.
Sales volumes at Karr-Gold Creek in the third quarter of 2016 averaged 5,237 Boe/d, including 1,714 Bbl/d
of Liquids. Sales volumes increased to approximately 6,500 Boe/d in September following the start-up of
Paramount Resources Ltd. Third Quarter 2016
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the 15-14 Well. The Company currently has design capacity for 40 MMcf/d of raw gas production at its 6-
18 compression and dehydration facility (the "Karr Facility"). The 2016/2017 drilling and completion program
is expected to increase production in the first half of 2017 to fully utilize this existing Karr Facility.
Sales volumes are expected to increase further in the third quarter of 2017 as the 40 MMcf/d Karr Facility
expansion is brought on-stream and additional new wells are brought on production. The remaining capital
costs to complete the Karr Facility expansion are estimated to be approximately $20 million.
Other Areas
At Willesden Green, a previously drilled Duvernay well is scheduled to be completed in the fourth quarter
of 2016 at a cost of approximately $6 million. The Company also plans to spud two Cretaceous wells at
Smoky-Resthaven in the fourth quarter of 2016. These wells are expected to be brought on production in
mid-2017 at an aggregate cost of approximately $20 million.
Paramount Resources Ltd. Third Quarter 2016
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OPERATING AND FINANCIAL HIGHLIGHTS (1)
($ millions, except as noted)
Three months ended
September 30 Nine months ended
September 30
2016 2015 % Change 2016 2015 % Change
Sales volumes – Ongoing Operations (2)
Natural gas (MMcf/d) 47.5 51.8 (8) 49.0 50.2 (2)
Condensate and oil (Bbl/d) 2,378 3,216 (26) 2,600 2,621 (1)
Other NGLs (Bbl/d) (3) 857 1,112 (23) 822 1,178 (30)
Ongoing Operations (Boe/d) 11,148 12,952 (14) 11,583 12,165 (5)
Sold Properties (Boe/d) (2) 13,638 37,038 (63) 26,979 31,515 (14)
Total (Boe/d) 24,786 49,990 (50) 38,562 43,680 (12)
Operating Results – Ongoing Operations (2)
Petroleum and natural gas sales 25.8 31.0 (17) 66.6 85.2 (22)
Average realized price ($/Boe) 25.12 26.05 (4) 20.99 25.65 (18)
Netback including commodity contract settlements 17.9 21.2 (16) 48.2 41.5 16
$/Boe 17.49 17.83 (2) 15.19 12.50 22
Principal Properties Capital (4)
Kaybob 19.6 59.3 (67) 54.9 237.9 (77)
Grande Prairie 22.8 15.5 47 30.8 64.4 (52)
Other 4.2 15.7 (73) 7.2 64.6 (89)
Total 46.6 90.5 (49) 92.9 366.9 (75)
Funds flow from operations 3.8 36.9 (90) 21.3 72.2 (70) per share – diluted ($/share) 0.04 0.35 (89) 0.20 0.68 (70)
Net income (loss) 1,029.4 (171.8) 699 952.9 (302.3) 415 per share – diluted ($/share) 9.64 (1.62) 695 8.97 (2.86) 414
Total assets 2,130.3 3,367.8 (37)
Working capital surplus (deficit) (5) 681.3 (131.3) 619
Investments in other entities – market value (6) 466.7 131.4 255
Long term debt (7) 284.4 1,678.3 (83)
Common shares outstanding (millions) 106.3 106.2 –
(1) Readers are referred to the advisories concerning Non-GAAP Measures and Oil and Gas Measures and Definitions in the Advisories section of this document. (2) Sold Properties represent the Musreau / Kakwa oil and gas properties sold to 7G in the third quarter of 2016. Results of the Sold Properties are included in Paramount’s
results to the closing date of the sale, August 18, 2016. Results of Ongoing Operations, including Sales Volumes and Operating Results consist of Paramount’s total results less amounts attributable to the Sold Properties.
(3) Other NGLs means ethane, propane and butane. (4) Principal Properties Capital includes capital expenditures and geological and geophysical costs related to the Company’s Principal Properties, excluding land acquisitions
and capitalized interest. (5) Working capital surplus (deficit) calculated as current assets less current liabilities, excluding accounts payable and accrued liabilities relating to the Company’s obligation
to renounce qualifying expenditures for flow-through share issuances. (6) Based on the period-end closing prices of publicly-traded investments and the book value of the remaining investments. (7) Net of unamortized issuance costs.
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Paramount is an independent, publicly traded, Canadian corporation that explores for and develops
conventional petroleum and natural gas prospects, pursues longer-term non-conventional exploration and
pre-development projects and holds investments in other entities. The Company’s properties are primarily
located in Alberta and British Columbia. Paramount's Class A Common Shares are listed on the Toronto
Stock Exchange under the symbol "POU".
Paramount’s third quarter 2016 results, including Management’s Discussion and Analysis and the Company’s Consolidated Financial Statements will be made available through Paramount’s website at www.paramountres.com and SEDAR at www.sedar.com.
For further information, please contact:
Paramount Resources Ltd.
J.H.T. (Jim) Riddell, President and Chief Executive Officer
B.K. (Bernie) Lee, Chief Financial Officer
www.paramountres.com
Phone: (403) 290-3600
Fax: (403) 262-7994
ADVISORIES
Forward Looking Information
Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as "anticipate", "believe", "estimate", "will", "expect", "plan", "schedule", "intend", "propose", or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:
projected sales volumes (including increased well productivity and enhanced capital efficiencies from 2.0 mile wells); exploration, development, and associated operational plans and strategies (including planned drilling programs, well tie-
ins, and facility expansions) and the anticipated timing and costs of such activities; and general business strategies and objectives.
Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:
future natural gas and Liquids prices; royalty rates, taxes and capital, operating, general & administrative and other costs; foreign currency exchange rates and interest rates; general business, economic and market conditions; the ability of Paramount to obtain the required capital to finance its exploration, development and other operations and
meet its commitments and financial obligations; the ability of Paramount to obtain equipment, services, supplies and personnel in a timely manner and at an acceptable
cost to carry out its activities; the ability of Paramount to secure adequate product processing, transportation, de-ethanization, fractionation, and storage
capacity on acceptable terms; the ability of Paramount to market its natural gas and Liquids successfully to current and new customers; the ability of Paramount and its industry partners to obtain drilling success (including in respect of anticipated production
volumes, reserves additions, Liquids yields and resource recoveries) and operational improvements, efficiencies and results consistent with expectations;
the timely receipt of required governmental and regulatory approvals; and
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anticipated timelines and budgets being met in respect of drilling programs and other operations (including well completions and tie-ins and the construction, commissioning and start-up of new and expanded facilities).
Although Paramount believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as Paramount can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Paramount and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:
fluctuations in natural gas and Liquids prices; changes in foreign currency exchange rates and interest rates; the uncertainty of estimates and projections relating to future revenue, future production, reserve additions, Liquids yields
(including condensate to natural gas ratios), resource recoveries, royalty rates, taxes and costs and expenses; the ability to secure adequate product processing, transportation, de-ethanization, fractionation, and storage capacity on
acceptable terms; operational risks in exploring for, developing and producing, natural gas and Liquids; the ability to obtain equipment, services, supplies and personnel in a timely manner and at an acceptable cost; potential disruptions, delays or unexpected technical or other difficulties in designing, developing, expanding or operating
new, expanded or existing facilities (including third-party facilities); processing, pipeline, de-ethanization, and fractionation infrastructure outages, disruptions and constraints; risks and uncertainties involving the geology of oil and gas deposits; the uncertainty of reserves and resources estimates; general business, economic and market conditions; the ability to generate sufficient cash flow from operations and obtain financing to fund planned exploration, development
and operational activities and meet current and future commitments and obligations (including product processing, transportation, de-ethanization, fractionation and similar commitments and debt obligations);
changes in, or in the interpretation of, laws, regulations or policies (including environmental laws); the ability to obtain required governmental or regulatory approvals in a timely manner, and to enter into and maintain
leases and licenses; the effects of weather; the timing and cost of future abandonment and reclamation obligations and potential liabilities for environmental damage
and contamination; uncertainties regarding aboriginal claims and in maintaining relationships with local populations and other stakeholders; the outcome of existing and potential lawsuits, regulatory actions, audits and assessments; and other risks and uncertainties described elsewhere in this document and in Paramount’s other filings with Canadian
securities authorities.
The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled "RISK FACTORS" in Paramount's current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, Paramount undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.
Non-GAAP Measures
In this document "Funds flow from operations", "Netback", "Principal Properties Capital", "Working Capital Surplus (Deficit)" and "Investments in other entities – market value", collectively the "Non-GAAP measures", are used and do not have any standardized meanings as prescribed by International Financial Reporting Standards.
Funds flow from operations refers to cash from operating activities before net changes in operating non-cash working capital, geological and geophysical expenses and asset retirement obligation settlements. Funds flow from operations is commonly used in the oil and gas industry to assist management and investors in measuring the Company’s ability to fund capital programs and meet financial obligations. Netback equals petroleum and natural gas sales less royalties, operating costs and transportation and NGLs processing costs. Netback is commonly used by management and investors to compare the results of the Company’s oil and gas operations between periods. Principal Properties Capital includes capital expenditures and geological and geophysical costs related to the Company’s Principal Properties business segment, and excludes land acquisitions and capitalized interest. The Principal Properties Capital measure provides management and investors with information regarding the Company’s Principal Properties spending on wells and infrastructure projects separate from land acquisition activity and capitalized interest. Refer to
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the Exploration and Capital Expenditures section of the Company’s Management’s Discussion and Analysis for the period. Working Capital Surplus (Deficit) is calculated as current assets less current liabilities, excluding accounts payable and accrued liabilities relating to the Company’s obligation to renounce qualifying expenditures for flow-through share issuances. Investments in other entities – market value reflects the Company’s investments in enterprises whose securities trade on a public stock exchange at their period end closing price (e.g. 7G, Trilogy Energy Corp., MEG Energy Corp., Marquee Energy Ltd., RMP Energy Inc., Strategic Oil & Gas Ltd. and others), and investments in all other entities at book value. Paramount provides this information because the market values of equity-accounted investments, which are significant assets of the Company, are often materially different than their carrying values.
Non-GAAP measures should not be considered in isolation or construed as alternatives to their most directly comparable measure calculated in accordance with GAAP, or other measures of financial performance calculated in accordance with GAAP. The Non-GAAP measures are unlikely to be comparable to similar measures presented by other issuers.
Oil and Gas Measures and Definitions
This document contains disclosures expressed as "Boe", "$/Boe" and "Boe/d". Natural gas equivalency volumes have been derived using the ratio of six thousand cubic feet of natural gas to one barrel of oil. Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head. For the nine months ended September 30, 2016, the value ratio between crude oil and natural gas was approximately 28:1. This value ratio is significantly different from the energy equivalency ratio of 6:1. Using a 6:1 ratio would be misleading as an indication of value. The term "Liquids" is used to represent oil, condensate and Other NGLs. NGLs consist of condensate and Other NGLs. The term "Other NGLs" means ethane, propane and butane.
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Management’s Discussion and Analysis For the three and nine months ended September 30, 2016
This Management’s Discussion and Analysis ("MD&A"), dated November 8, 2016, should be read in
conjunction with the unaudited Interim Condensed Consolidated Financial Statements of Paramount
Resources Ltd. ("Paramount" or the "Company") as at and for the three and nine months ended
September 30, 2016 and Paramount’s audited Consolidated Financial Statements as at and for the year
ended December 31, 2015. Financial data included in this MD&A has been prepared in accordance with
International Financial Reporting Standards ("IFRS" or "GAAP") and is stated in millions of Canadian
dollars, unless otherwise noted. The Company’s accounting policies have been applied consistently to all
periods presented.
The disclosures in this document include forward-looking information, non-GAAP measures and certain
oil and gas measures. Readers are referred to the Advisories section of this document concerning such
matters. Certain comparative figures have been reclassified to conform to the current years’ presentation.
Additional information concerning Paramount, including its Annual Information Form, can be found on the
SEDAR website at www.sedar.com.
ABOUT PARAMOUNT
Paramount is an independent, publicly traded, Canadian corporation that explores for and develops
conventional petroleum and natural gas prospects, pursues long-term non-conventional exploration and
pre-development projects and holds a portfolio of investments in other entities. The Company’s principal
properties are primarily located in Alberta and British Columbia. Paramount’s Class A Common Shares
("Common Shares") are listed on the Toronto Stock Exchange under the symbol "POU".
Paramount’s operations are divided into three business segments which have been established by
management to assist in resource allocation, to assess operating performance and to achieve long-term
strategic objectives: i) Principal Properties; ii) Strategic Investments; and iii) Corporate.
Paramount’s Principal Properties are divided into four Corporate Operating Units ("COUs"):
the Kaybob COU, which includes properties in west central Alberta;
the Grande Prairie COU, which includes properties in the Peace River Arch area of Alberta;
the Southern COU, which includes properties in southern Alberta; and
the Northern COU, which includes properties in northeast British Columbia and northern Alberta.
Strategic Investments include: (i) investments in other entities, including affiliates; (ii) investments in
exploration and development stage assets, where there is no near-term expectation of commercial
production, but a longer-term value proposition based on spin-outs, dispositions, or future revenue
generation, including oil sands and carbonate bitumen interests held by Paramount’s wholly-owned
subsidiary Cavalier Energy Inc. ("Cavalier"), and prospective shale gas acreage; and (iii) drilling rigs
owned by Paramount’s wholly-owned subsidiary, Fox Drilling Limited Partnership ("Fox Drilling").
The Corporate segment is comprised of income and expense items, including general and administrative
expense and interest expense, which have not been specifically allocated to Principal Properties or
Strategic Investments.
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FINANCIAL AND OPERATING HIGHLIGHTS (1)
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
FINANCIAL
Petroleum and natural gas sales 51.7 110.7 216.5 285.5
Funds flow from operations 3.8 36.9 21.3 72.2 per share – basic & diluted ($/share) 0.04 0.35 0.20 0.68
Net income (loss) 1,029.4 (171.8) 952.9 (302.3) per share – basic ($/share) 9.69 (1.62) 8.97 (2.86)
per share – diluted ($/share) 9.64 (1.62) 8.97 (2.86)
Principal Properties Capital (2) 46.6 90.5 92.9 366.9
Investments in other entities – market value (3) 466.7 131.4
Total assets 2,130.3 3,367.8
Long-term debt 284.4 1,678.3
OPERATIONAL
Sales volumes
Natural gas (MMcf/d) 88.6 181.8 124.0 161.7
Condensate and oil (Bbl/d) 5,335 10,214 9,342 8,144
Other NGLs (Bbl/d) (4) 4,687 9,483 8,556 8,587
Total (Boe/d) 24,786 49,990 38,562 43,680
FUNDS FLOW FROM OPERATIONS ($/Boe)
Petroleum and natural gas sales 22.66 24.07 20.49 23.94
Royalties (0.02) (0.60) (0.20) (0.61)
Operating expense (10.96) (5.67) (8.15) (5.63)
Transportation and NGLs processing (5) (5.56) (4.23) (4.94) (4.14)
Netback 6.12 13.57 7.20 13.56
Commodity contract settlements 4.78 1.66 3.54 0.64
Netback including commodity contract settlements 10.90 15.23 10.74 14.20
General and administrative – corporate (1.18) (0.63) (1.39) (1.16)
General and administrative – strategic investments (0.60) (0.34) (0.44) (0.36)
Interest and financing (7.67) (6.26) (6.93) (6.68)
Other 0.22 0.02 0.04 0.06
Funds flow from operations 1.67 8.02 2.02 6.06
(1) Readers are referred to the advisories concerning non-GAAP measures and Oil and Gas Measures and Definitions in the Advisories section of this document. (2) Principal Properties Capital includes capital expenditures and geological and geophysical costs related to the Company’s Principal Properties, and excludes land
acquisitions and capitalized interest. (3) Based on the period-end closing prices of publicly-traded investments and the book value of the remaining investments. (4) Other NGLs means ethane, propane and butane. (5) Includes downstream natural gas, NGLs and oil transportation costs and NGLs fractionation costs incurred by the Company.
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CONSOLIDATED RESULTS
Net Income (Loss)
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Principal Properties 1,215.5 (27.6) 1,245.5 (112.5)
Strategic Investments (15.0) (90.0) (44.7) (110.9)
Corporate (33.7) (77.9) (80.7) (157.7)
Income tax (expense) recovery (137.4) 23.7 (167.2) 78.8
Net income (loss) 1,029.4 (171.8) 952.9 (302.3)
In April 2016, Paramount closed the sale of its natural gas processing facility and related midstream
assets at Musreau for net cash proceeds of $560.3 million (the "Midstream Sale"), resulting in the
recognition of a gain on sale of $125.5 million. In connection with the Midstream Sale, the Company
entered into a long-term natural gas processing arrangement with the purchaser (the "Processing
Arrangement").
In August 2016, the Company sold the majority of its oil and gas properties in the Musreau/Kakwa area of
west central Alberta (the "Sold Assets") to Seven Generations Energy Ltd. ("Seven Generations" or the
"Acquiror") for total consideration of approximately $2.1 billion (the "Musreau/Kakwa Disposition"), subject
to customary post-closing adjustments. Consideration was comprised of: (i) $496 million in cash; (ii) 33.5
million class A common shares of the Acquiror having a market value of approximately $972 million
based on the closing market price of the shares on the day prior to closing, (iii) the assumption by the
Acquiror of Paramount’s US$450 million 6.875% senior unsecured notes due 2023 (the "2023 Senior
Notes"); and (iv) certain oil and gas properties of the Acquiror valued at approximately $6 million. In
connection with the Musreau/Kakwa Disposition, the Acquiror assumed Paramount’s processing and
transportation commitments relating to the Sold Assets, including the Processing Arrangement. A gain on
sale of $1.2 billion was recorded in respect of the Musreau/Kakwa Disposition.
Results of the Sold Assets are included in Paramount’s results to August 18, 2016, the closing date of the
sale. When used herein, "Ongoing Operations" represents Paramount’s total results less amounts
attributable to the Sold Assets.
Additional information concerning the Musreau/Kakwa Disposition can be found in Paramount’s Material
Change Report dated July 12, 2016 and Information Circular dated July 15, 2016, both of which are
available on SEDAR at www.sedar.com.
Paramount Resources Ltd. Third Quarter 2016
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Paramount recorded net income of $1,029.4 million for the three months ended September 30, 2016
compared to a net loss $171.8 million in the same period in 2015. Significant factors contributing to the
change are shown below:
Three months ended September 30
Net loss – 2015 (171.8)
Gain on the sale of oil and gas assets primarily due to the Musreau/Kakwa Disposition in 2016 1,239.4
Lower depletion and depreciation due to the Musreau/Kakwa Disposition in 2016 98.8
Lower write-downs of investments in securities 68.4
Foreign exchange gain in 2016 compared to a loss in 2015 47.0
Lower interest and financing expense due to lower average debt balances in 2016 11.6
Lower loss from equity-accounted investments 9.6
Income tax expense in 2016 compared to a recovery in 2015 (161.1)
Lower netback in 2016 (48.4)
Lower gain on commodity contracts (35.7)
Debt extinguishment expense in 2016 due to the redemption and the Acquiror’s assumption of senior notes (18.3)
Higher exploration and evaluation expense primarily due to higher dry hole expense in 2016 (12.4)
Other 2.3
Net income – 2016 1,029.4
Paramount recorded net income of $952.9 million for the nine months ended September 30, 2016
compared to a net loss of $302.3 million in the same period in 2015. Significant factors contributing to the
change are shown below:
Nine months ended September 30
Net loss – 2015 (302.3)
Gain on the sale of oil and gas assets primarily due to the Musreau/Kakwa Disposition and Midstream Sale in 2016 1,379.5
Lower depletion and depreciation due to the Musreau/Kakwa Disposition in 2016 94.8
Foreign exchange gain in 2016 compared to a loss in 2015 84.4
Lower write-downs of investments in securities 66.5
Lower loss from equity-accounted investments 8.4
Income tax expense in 2016 compared to a recovery in 2015 (246.0)
Lower netback in 2016 (85.6)
Lower gain on commodity contracts (26.4)
Higher exploration and evaluation expense primarily due to higher dry hole expense in 2016 (8.4)
Other (12.0)
Net income – 2016 952.9
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Funds Flow from Operations (1)
The following is a reconciliation of funds flow from operations to the nearest GAAP measure:
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Cash from operating activities 9.7 36.4 52.1 73.9
Change in non-cash working capital (7.8) (3.2) (35.5) (11.0)
Geological and geophysical expenses 1.7 1.4 3.9 3.9
Asset retirement obligations settled 0.2 2.3 0.8 5.4
Funds flow from operations 3.8 36.9 21.3 72.2
Funds flow from operations ($/Boe) 1.67 8.02 2.02 6.06
(1) Refer to the advisories concerning non-GAAP measures in the Advisories section of this document.
Funds flow from operations for the three months ended September 30, 2016 was $3.8 million compared
to $36.9 million in the same period in 2015. Significant factors contributing to the change are shown
below:
Three months ended September 30
Funds flow from operations – 2015 36.9
Lower netback in 2016 (48.4)
Lower interest and financing expense due to lower average debt balances in 2016 11.3
Higher receipts from commodity contract settlements in 2016 3.3
Other 0.7
Funds flow from operations – 2016 3.8
Funds flow from operations for the nine months ended September 30, 2016 was $21.3 million compared
to $72.2 million in the same period in 2015. Significant factors contributing to the change are shown
below:
Nine months ended September 30
Funds flow from operations – 2015 72.2
Lower netback in 2016 (85.6)
Higher receipts from commodity contract settlements in 2016 29.8
Lower interest and financing expense due to lower average debt balances in 2016 6.4
Higher general and administrative expense (1.2)
Other (0.3)
Funds flow from operations – 2016 21.3
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PRINCIPAL PROPERTIES
Netback and Segment Income (Loss)
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
($/Boe)(1) ($/Boe)(1) ($/Boe)(1) ($/Boe)(1)
Natural gas revenue 21.6 2.65 50.3 3.01 68.6 2.02 128.9 2.92
Condensate and oil revenue 25.1 51.15 49.3 52.43 121.7 47.54 123.2 55.40
Other NGLs revenue (2) 4.8 11.11 10.0 11.42 25.3 10.79 30.6 13.04
Royalty and sulphur revenue 0.2 – 1.1 – 0.9 – 2.8 –
Petroleum and natural gas sales 51.7 22.66 110.7 24.07 216.5 20.49 285.5 23.94
Royalties (0.1) (0.02) (2.8) (0.60) (2.1) (0.20) (7.3) (0.61)
Operating expense (25.0) (10.96) (26.1) (5.67) (86.1) (8.15) (67.1) (5.63)
Transportation and NGLs processing (3) (12.7) (5.56) (19.5) (4.23) (52.2) (4.94) (49.4) (4.14)
Netback 13.9 6.12 62.3 13.57 76.1 7.20 161.7 13.56
Commodity contract settlements 10.9 4.78 7.6 1.66 37.4 3.54 7.6 0.64
Netback including commodity contract settlements 24.8 10.90 69.9 15.23 113.5 10.74 169.3 14.20
Other principal property items (see below) 1,190.7 (97.5) 1,132.0 (281.8)
Segment income (loss) 1,215.5 (27.6) 1,245.5 (112.5)
(1) Natural gas revenue shown per Mcf. (2) Other NGLs means ethane, propane and butane. (3) Includes downstream natural gas, NGLs and oil transportation costs and NGLs fractionation costs incurred by the Company.
Petroleum and natural gas sales were $51.7 million in the third quarter of 2016, a decrease of $59.0
million from the third quarter of 2015. Petroleum and natural gas sales were $216.5 million in the nine
months ended September 30, 2016, a decrease of $69.0 million compared to the same period of 2015.
The impact of changes in prices and sales volumes on petroleum and natural gas sales are as follows:
Natural gas Condensate
and oil Other NGLs Royalty and
sulphur Total
Three months ended September 30, 2015 50.3 49.3 10.0 1.1 110.7
Effect of changes in sales volumes (25.8) (23.5) (5.0) – (54.3)
Effect of changes in prices (2.9) (0.7) (0.2) – (3.8)
Change in royalty and sulphur revenue – – – (0.9) (0.9)
Three months ended September 30, 2016 21.6 25.1 4.8 0.2 51.7
Natural gas Condensate
and oil Other NGLs Royalty and
sulphur Total
Nine months ended September 30, 2015 128.9 123.2 30.6 2.8 285.5
Effect of changes in sales volumes (29.7) 18.6 – – (11.1)
Effect of changes in prices (30.6) (20.1) (5.3) – (56.0)
Change in royalty and sulphur revenue – – – (1.9) (1.9)
Nine months ended September 30, 2016 68.6 121.7 25.3 0.9 216.5
Paramount Resources Ltd. Third Quarter 2016
14
Sales Volumes
Three months ended September 30
Natural Gas (MMcf/d)
Condensate and Oil (Bbl/d)
Other NGLs (Bbl/d)
Total (Boe/d)
2016 2015 % Change 2016 2015 % Change 2016 2015 % Change 2016 2015 % Change
Kaybob (1) 11.2 16.7 (33) 216 572 (62) 356 698 (49) 2,447 4,049 (40)
Grande Prairie (1) 27.2 29.9 (9) 1,750 2,411 (27) 218 294 (26) 6,496 7,693 (16)
Southern 2.6 2.4 8 264 230 15 135 120 13 832 748 11
Northern 6.5 2.8 132 148 3 NM 148 – 100 1,373 462 197
Ongoing Operations 47.5 51.8 (8) 2,378 3,216 (26) 857 1,112 (23) 11,148 12,952 (14)
Sold Assets 41.1 130.0 (68) 2,957 6,998 (58) 3,830 8,371 (54) 13,638 37,038 (63)
Total 88.6 181.8 (51) 5,335 10,214 (48) 4,687 9,483 (51) 24,786 49,990 (50)
(1) Excludes the results of Sold Assets
NM – Not meaningful
Sales volumes from Ongoing Operations decreased 14 percent to 11,148 Boe/d in the third quarter of
2016 compared to 12,952 Boe/d in the same period in 2015. The decrease was primarily due to natural
production declines on existing wells in the Kaybob and Grande Prairie COUs as a result of limited capital
investment, partially offset by sales volumes from new Montney formation wells brought on production at
Birch in the Northern COU and at Karr-Gold Creek in the Grande Prairie COU. Sales volumes in the third
quarter of 2016 at Smoky and Resthaven in the Kaybob COU were also impacted by unscheduled third
party outages and disruptions related to processing facilities and pipelines. Sales volumes for the Sold
Assets were lower in the third quarter of 2016 due to the sale of those properties closing on August 18,
2016 and because of lower production due to natural declines.
Nine months ended September 30
Natural Gas (MMcf/d)
Condensate and Oil (Bbl/d)
Other NGLs (Bbl/d)
Total (Boe/d)
2016 2015 % Change 2016 2015 % Change 2016 2015 % Change 2016 2015 % Change
Kaybob (1) 13.4 18.3 (27) 313 494 (37) 255 701 (64) 2,802 4,241 (34)
Grande Prairie (1) 26.0 26.8 (3) 1,825 1,784 2 316 338 (7) 6,469 6,584 (2)
Southern 2.6 2.6 – 245 336 (27) 109 139 (22) 785 914 (14)
Northern 7.0 2.5 180 217 7 NM 142 – 100 1,527 426 258
Ongoing Operations 49.0 50.2 (2) 2,600 2,621 (1) 822 1,178 (30) 11,583 12,165 (5)
Sold Assets 75.0 111.5 (33) 6,742 5,523 22 7,734 7,409 4 26,979 31,515 (14)
Total 124.0 161.7 (23) 9,342 8,144 15 8,556 8,587 – 38,562 43,680 (12)
(1) Excludes the results of Sold Assets
NM – Not meaningful
Sales volumes from Ongoing Operations decreased 5 percent to 11,583 Boe/d in the nine months ended
September 30, 2016 compared to 12,165 Boe/d in the same period in 2015. The decrease was primarily
due to natural production declines on existing wells in the Grand Prairie and Kaybob COUs and the shut-
in of the Valhalla property in the Grande Prairie COU from mid-April to early-July 2016 due to low natural
gas prices. These decreases were partially offset by sales volumes from new Montney formation wells
brought on production throughout 2015 and 2016 at Karr-Gold Creek in the Grande Prairie COU and at
Birch in the Northern COU. Sales volumes in the nine months ended September 30, 2016 at Smoky and
Resthaven in the Kaybob COU were also impacted by third party outages and disruptions related to
processing facilities and pipelines. Sales volumes for the Sold Assets were lower in the nine months
ended September 30, 2016 as those properties were sold on August 18, 2016.
Paramount Resources Ltd. Third Quarter 2016
15
Commodity Prices
Three months ended September 30
Nine months ended September 30
2016 2015 % Change 2016 2015 % Change
Natural Gas
Paramount realized price ($/Mcf) 2.65 3.01 (12) 2.02 2.92 (31)
AECO daily spot ($/GJ) 2.19 2.75 (20) 1.76 2.63 (33)
AECO monthly index ($/GJ) 2.09 2.65 (21) 1.76 2.66 (34)
Malin (US$/MMbtu) 2.69 2.65 2 2.18 2.65 (18)
Crude Oil
Paramount average realized condensate & oil price ($/Bbl) 51.15 52.43 (2) 47.54 55.40 (14)
Edmonton Light Sweet ($/Bbl) 54.19 55.10 (2) 50.14 59.09 (15)
West Texas Intermediate (US$/Bbl) 44.94 46.43 (3) 41.33 51.00 (19)
Foreign Exchange
$CDN / 1 $US 1.31 1.31 – 1.32 1.26 5
Paramount’s average realized natural gas price decreased 31 percent in the first nine months of 2016
compared to the same period in 2015, consistent with decreases in benchmark natural gas prices.
Paramount’s natural gas portfolio primarily consists of sales priced at the Alberta spot market, Chicago
and California markets and is sold in a combination of daily and monthly contracts.
The Company’s average realized condensate and oil price decreased 14 percent in the first nine months
of 2016 compared to the same period in 2015, consistent with decreases in benchmark prices.
Paramount sells its condensate volumes in both stabilized and unstabilized condition, depending upon
the location of production and the availability of stabilization capacity. Stabilized condensate volumes
delivered through pipelines receive prices for condensate quoted at Edmonton, which are generally
higher than prices for unstabilized volumes, and are adjusted for applicable transportation, quality and
density differentials. Unstabilized condensate volumes trucked to receipt terminals typically receive prices
based on the Edmonton Light Sweet oil price, which are generally lower than prices for stabilized
volumes, and are adjusted for transportation, quality and density differentials.
Commodity Price Management
From time-to-time Paramount uses financial and physical commodity price contracts to manage exposure
to commodity price volatility. At September 30, 2016, the Company had the following financial commodity
contracts outstanding:
Subsequent to September 30, 2016, Paramount entered into the following financial commodity contracts:
Instruments Total notional Average fixed price Fair value Remaining term
Oil – NYMEX WTI Swaps (Sale) 6,000 Bbl/d CDN$75.72/Bbl 6.8 October 2016 – December 2016
Oil – NYMEX WTI Swap (Purchase) 2,000 Bbl/d CDN$50.64/Bbl 2.5 October 2016 – December 2016
9.3
Instruments Total notional Fixed price Term
Gas – NYMEX Swap (Sale) 10,000 MMBtu/d US$3.40/MMBtu January 2017 – December 2017
Gas – NYMEX Swap (Purchase) 10,000 MMBtu/d US$3.04/MMBtu January 2017 – December 2017
Oil – NYMEX WTI Swap (Sale) 1,000 Bbl/d CDN$69.45/Bbl January 2017 – December 2017
Paramount Resources Ltd. Third Quarter 2016
16
Royalties
Three months ended
September 30 Nine months ended
September 30
2016 Rate 2015 Rate 2016 Rate 2015 Rate
Royalties 0.1 0.2% 2.8 2.5% 2.1 1.0% 7.3 2.6%
$/Boe 0.02 0.60 0.20 0.61
Third quarter royalties were $0.1 million in 2016 compared to $2.8 million in the same period in 2015.
Royalties for the nine months ended September 30, 2016 decreased $5.2 million to $2.1 million
compared to $7.3 million in the same period in 2015. Year-to-date royalties in 2016 decreased primarily
as a result of $3.0 million of annual gas cost allowance adjustments related to 2015 and a combination of
lower petroleum and natural gas sales and lower royalty rates. Third quarter royalties were lower primarily
as a result of annual gas cost allowance adjustments related to 2015 and the Musreau/Kakwa
Disposition.
Excluding the impact of the gas cost allowance adjustments related to prior periods, the royalty rate was
2.4 percent for the nine months ended September 30, 2016 compared to 3.1 percent in the same period
in 2015. The majority of Paramount’s new wells qualify for Alberta new well royalty incentive programs,
which reduce the Company’s overall royalty rate.
Operating Expense
Three months ended
September 30 Nine months ended
September 30
2016 2015 % Change 2016 2015 % Change
Operating expense 25.0 26.1 (4) 86.1 67.1 28
$/Boe 10.96 5.67 93 8.15 5.63 45
Operating expense decreased $1.1 million or 4 percent in the third quarter of 2016 to $25.0 million
compared to $26.1 million in the same period in 2015. Operating expense increased $19.0 million or 28
percent in the first nine months of 2016 to $86.1 million compared to $67.1 million in the same period in
2015. Year-to-date, operating expense is higher in 2016 primarily due to higher third-party processing
fees and lower processing income in the Kaybob COU following the Midstream Sale in April 2016, higher
trucking costs at Musreau in the Kaybob COU and higher operating costs at Birch in the Northern COU as
a result of new production being brought on in the fourth quarter of 2015. These increases were partially
offset by the lower operating expenses in the remaining properties. Third quarter operating expenses
were lower as a result of the Musreau/Kakwa Disposition.
Transportation and NGLs Processing
Three months ended
September 30 Nine months ended
September 30
2016 2015 % Change 2016 2015 % Change
Transportation and NGLs processing 12.7 19.5 (35) 52.2 49.4 6
$/Boe 5.56 4.23 31 4.94 4.14 19
Transportation and NGLs processing expense was $12.7 million in the third quarter of 2016, a decrease
of $6.8 million compared to the same period in 2015. Transportation and NGLs processing expense for
the nine months ended September 30, 2016 increased $2.8 million to $52.2 million compared to $49.4
million in the same period of 2015. Year-to-date transportation and NGLs processing is higher in 2016
Paramount Resources Ltd. Third Quarter 2016
17
primarily due to increased transportation and NGLs fractionation costs related to incremental firm service
capacity contracted for the Company’s Deep Basin production volumes. Third quarter transportation and
NGLs processing expenses were lower as a result of the Musreau/Kakwa Disposition. In connection with
the Musreau/Kakwa Disposition, the Acquiror assumed Paramount’s processing and transportation
commitments relating to the Sold Assets, including the Processing Arrangement.
Other Principal Property Items
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Commodity contracts – net of settlements (8.5) 30.4 (30.9) 25.3
Depletion and depreciation (excluding impairments) (23.0) (100.4) (183.9) (260.0)
Impairment – (22.2) – (22.2)
Exploration and evaluation (16.7) (4.1) (20.5) (11.8)
Gain (loss) on sale of oil and gas assets 1,239.3 (0.1) 1,370.3 (9.3)
Other (0.4) (1.1) (3.0) (3.8)
Total 1,190.7 (97.5) 1,132.0 (281.8)
Third quarter depletion and depreciation expense decreased to $23.0 million in 2016 compared to $100.4
million in 2015. Depletion and depreciation expense decreased to $183.9 million in the nine months
ended September 30, 2016 compared to $260.0 million in the same period in 2015. The decrease in
depletion and depreciation in 2016 is primarily due to the Musreau/Kakwa Disposition in the third quarter
of 2016.
The Company recorded an impairment write-down of $22.2 million at September 30, 2015 related to the
petroleum and natural gas assets in the Southern COU. The impairment resulted from a combination of
higher well costs than reserve values assigned and decreases in estimated future net revenues due to
lower forecasted oil and natural gas prices.
Exploration and evaluation expense in the third quarter of 2016 includes dry hole expense of $13.8 million
(2015 - $0.1 million), expired undeveloped land leases costs of $1.8 million (2015 - $2.9 million) and
geological and geophysical costs of $1.1 million (2015 - $1.1 million). Exploration and evaluation expense
for the nine months ended September 30, 2016 includes dry hole expense of $13.8 million (2015 - $2.0
million), expired undeveloped land leases costs of $3.9 million (2015 - $6.4 million) and geological and
geophysical costs of $2.8 million (2015 - $3.4 million).
The gain on sale of oil and gas assets in the nine months ended September 30, 2016 primarily related to
the Musreau/Kakwa Disposition and the Midstream Sale.
Paramount Resources Ltd. Third Quarter 2016
18
Ongoing Operations
The following tables set out the sales volumes and netback of Paramount excluding the Sold Assets:
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Natural gas (MMcf/d) 47.5 51.8 49.0 50.2
Condensate and oil (Bbl/d) 2,378 3,216 2,600 2,621
Other NGLs (1) (Bbl/d) 857 1,112 822 1,178
Total (Boe/d) 11,148 12,952 11,583 12,165
(1) Other NGLs means ethane, propane and butane.
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
($/Boe) (1) ($/Boe) (1) ($/Boe) (1) ($/Boe) (1)
Natural gas revenue 13.8 3.16 13.7 2.87 30.9 2.31 39.4 2.88
Condensate and oil revenue 11.1 50.53 15.0 50.77 33.2 46.63 38.3 53.49
Other NGLs revenue (2) 0.6 7.91 1.4 13.29 1.5 6.70 4.9 15.33
Royalty and sulphur revenue 0.3 – 0.9 – 1.0 – 2.6 –
Petroleum and natural gas sales 25.8 25.12 31.0 26.05 66.6 20.99 85.2 25.65
Royalties (0.1) (0.02) (1.0) (0.85) (0.7) (0.20) (3.0) (0.87)
Operating expense (12.6) (12.31) (15.8) (13.29) (39.1) (12.33) (41.3) (12.44)
Transportation and NGLs processing (3) (6.1) (5.92) (3.0) (2.54) (16.0) (5.05) (9.5) (2.87)
Netback 7.0 6.87 11.2 9.37 10.8 3.41 31.4 9.47
(1) Natural gas revenue shown per Mcf. (2) Other NGLs means ethane, propane and butane. (3) Includes downstream natural gas, NGLs and oil transportation costs and NGLs fractionation costs incurred by the Company.
Netback for the three and nine months ended September 30, 2016 decreased primarily due to lower
average realized prices and higher transportation and NGLs processing expense as a result of
incremental firm service contracted for the Company’s Deep Basin production volumes.
STRATEGIC INVESTMENTS
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
General and administrative (1.4) (1.6) (4.6) (4.3)
Share-based compensation (0.5) (1.6) (5.3) (5.7)
Depletion and depreciation (0.9) (0.2) (3.9) (0.1)
Exploration and evaluation (0.7) (0.8) (1.0) (1.4)
Interest and financing (0.7) (0.6) (2.7) (1.7)
Loss from equity-accounted investments (2.8) (12.4) (11.6) (20.0)
Write-down of investments in securities (4.6) (73.0) (11.1) (77.6)
Drilling rig revenue 0.2 0.6 0.2 1.0
Drilling rig expense (0.3) (0.2) (1.1) (0.5)
Loss on sale of investments (3.3) – (3.3) –
Other – (0.2) (0.4) (0.6)
Segment loss (15.0) (90.0) (44.8) (110.9)
Paramount Resources Ltd. Third Quarter 2016
19
Strategic Investments at September 30, 2016 include:
Investments in the shares of Seven Generations, Trilogy Energy Corp. ("Trilogy"), MEG Energy Corp. ("MEG"), Marquee Energy Ltd. ("Marquee"), RMP Energy Inc. ("RMP"), Strategic Oil & Gas Ltd. ("SOG") and other public and private corporations;
Oil sands and carbonate bitumen interests owned by Paramount’s wholly owned subsidiary, Cavalier, including those at Hoole, situated within the western portion of the Athabasca Oil Sands region, and carbonate bitumen holdings in northeast Alberta, including at Saleski;
Prospective shale gas acreage in the Liard and Horn River Basins in northeast British Columbia and the Northwest Territories; and
Seven drilling rigs owned by Paramount’s wholly-owned subsidiary, Fox Drilling.
For the nine months ended September 30, 2016, aggregate unrealized losses of $11.1 million related to
the Company’s investments in MEG, Marquee and other securities previously recorded in other
comprehensive loss were charged to net earnings as a result of significant decreases in the market prices
of the securities. The aggregate write-downs of investments in securities of $77.6 million in 2015 resulted
from the recognition of unrealized losses due to significant decreases in the market values of certain
securities, including a $71.3 million write-down related to the Company’s investment in MEG recorded in
the third quarter of 2015.
Investments
Paramount holds investments in a number of publicly-traded and private corporations as part of its
portfolio of strategic investments. The Company’s investments in the shares of Trilogy were principally
obtained in the course of its spin-out from Paramount. Investments in the shares of most other entities,
including Seven Generations and MEG, were received as consideration for properties sold to such
entities. Paramount’s investments are summarized as follows:
Carrying Value Market Value (1)
As at September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Seven Generations 277.9 – 277.9 –
Trilogy 46.8 58.4 138.0 70.1
MEG 21.9 29.7 21.9 29.7
Other (2) 28.9 31.0 28.9 31.0
Total 375.5 119.1 466.7 130.8
(1) Based on the period-end closing price of publicly traded investments and the book value of remaining investments. (2) Includes investments in Marquee, RMP, SOG and other public and private corporations.
In the third quarter of 2016, Paramount monetized 24.7 million of the 33.5 million Seven Generations
shares received through the Musreau/Kakwa Disposition. The Company received net cash proceeds of
$306.2 million in the third quarter in connection with the monetization and an additional $408.3 million in
cash is due in December 2016 (the "Cash Proceeds Receivable on Share Monetization"). The Cash
Proceeds Receivable on Share Monetization is due from an investment grade counterparty that has a
short-term debt rating of A-1 from Standard & Poors. A loss on disposition of $4.2 million was recorded on
the monetization transaction based on the difference between the aggregate net proceeds and the market
value of the shares on the closing of the Musreau/Kakwa Disposition.
Paramount Resources Ltd. Third Quarter 2016
20
Shale Gas
Drilling operations in the Liard Basin resumed at the c-37-D well at La Biche in December 2015 and the
well was drilled to target depth in March 2016. With the completion of drilling operations for the c-37-D
well, the Company has secured its mineral rights in the region for another 10 years.
Fox Drilling
Fox Drilling completed the construction of its two new triple-sized built-for-purpose walking rigs at a cost
of approximately $25 million each in early 2016. The new rigs have been deployed on the Company’s
lands since the second quarter of 2016.
CORPORATE
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Interest and financing 17.1 28.8 72.2 79.5
Debt extinguishment 18.3 – 18.3 12.0
General and administrative 2.7 2.9 14.7 13.9
Share-based compensation 0.9 4.6 18.8 11.8
Foreign exchange (5.5) 41.5 (43.9) 40.4
Other 0.2 0.1 0.6 0.1
Segment loss 33.7 77.9 80.7 157.7
The Corporate segment loss decreased to $33.7 million in the third quarter of 2016 compared to $77.9
million in the same period in 2015. The Corporate segment loss decreased to $80.7 million for the nine
months ended September 30, 2016 compared to $157.7 million in the same period in 2015.
Interest and financing in the third quarter of 2016 was $17.1 million, a decrease of $11.7 million from the
third quarter of 2015 primarily due to lower average debt balances in 2016. In connection with the
Musreau/Kakwa Disposition, $18.3 million of debt extinguishment expense was recorded, $6.2 million of
which related to the redemption premium on the Company’s senior unsecured notes due 2019 (the "2019
Senior Notes") redeemed in the quarter and the remainder of which related to unamortized financing fees
related to the 2019 Senior Notes redeemed and the 2023 Senior Notes assumed by the Acquiror. In the
second quarter of 2015, the Company recorded $12.0 million of debt extinguishment expense related to
the June 2015 redemption of senior notes. Share-based compensation for the nine months ended
September 30, 2016 includes $13.8 million related to options cancelled in the second quarter of 2016. A
$43.9 million foreign exchange gain was recorded for the nine months ended September 30, 2016, mainly
related to the US$450 million 2023 Senior Notes.
Paramount Resources Ltd. Third Quarter 2016
21
EXPLORATION AND CAPITAL EXPENDITURES
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Geological and geophysical 1.0 1.1 2.9 3.4
Drilling, completion and tie-ins 45.5 70.5 80.2 265.5
Facilities and gathering 0.1 18.9 9.8 98.0
Principal Properties Capital (1) 46.6 90.5 92.9 366.9
Land and property acquisitions and capitalized interest 0.1 0.9 10.9 6.4
Principal Properties 46.7 91.4 103.8 373.3
Strategic Investments (2) 1.6 8.0 21.5 50.7
Corporate 0.3 0.3 0.8 0.9
48.6 99.7 126.1 424.9
Principal Properties Capital by COU (1)
Kaybob 19.6 59.3 54.9 237.9
Grande Prairie 22.8 15.5 30.8 64.4
Southern, Northern and other 4.2 15.7 7.2 64.6
46.6 90.5 92.9 366.9
(1) Principal Properties Capital includes capital expenditures and geological and geophysical costs related to the Company’s Principal Properties, excluding land acquisitions and capitalized interest.
(2) Strategic Investments for the three and nine months ended September 30, 2015 include $0.4 million and $1.1 million of capitalized interest, respectively.
Principal Properties Capital was $46.6 million in the third quarter of 2016 compared to $90.5 million in the
same period in 2015. Principal Properties Capital was $92.9 million in the first nine months of 2016
compared to $366.9 million in the same period in 2015. Expenditures in 2016 consisted mainly of drilling
and completion costs related to new multi-well pads spudded in the Kaybob and Grande Prairie COUs
and the completion of a previously drilled well in the Kaybob COU. The majority of Principal Properties
Capital in the Kaybob COU in 2016 related to the Sold Assets.
Strategic Investments capital expenditures for the first nine months of 2016 included $19.1 million related
to the Company’s exploratory shale gas drilling activities in northeast British Columbia.
Following the Musreau/Kakwa Disposition, the Company’s main areas of operation are Karr-Gold Creek,
Smoky and Resthaven in west central Alberta, Birch in northeast British Columbia and Willesden Green in
southern Alberta.
Near-term development activities are expected to be directed towards Montney production growth at Karr-
Gold Creek in the Grande Prairie COU. The Company is drilling longer horizontal wells with higher
intensity completions in its 2016 / 2017 capital program at Karr-Gold Creek. Paramount plans to drill up to
24 and complete up to twelve 2.0 mile Montney wells at Karr-Gold Creek by mid-2017, with the first of the
new wells scheduled to be brought on production in the first quarter of 2017. Capital costs to drill,
complete and equip these wells are expected to average approximately $10.5 million.
The Company currently has design capacity for 40 MMcf/d of raw gas production at its 6-18 compression
and dehydration facility (the "Karr Facility"). The 2016 / 2017 drilling and completion program is expected
to increase production in the first half of 2017 to fully utilize this existing Karr Facility.
A 40 MMcf/d expansion of the Karr Facility is scheduled to be completed in mid-2017, doubling available
capacity. Sales volumes are expected to increase further in the third quarter of 2017 as the Karr Facility
Paramount Resources Ltd. Third Quarter 2016
22
expansion is brought on-stream and additional new wells are brought on production. The remaining
capital costs to complete the Karr Facility expansion are estimated to be approximately $20 million.
At Willesden Green, a previously drilled Duvernay well is scheduled to be completed in the fourth quarter
of 2016 at a cost of approximately $6 million. The Company also plans to spud two Cretaceous wells at
Smoky/Resthaven in the Kaybob COU in the fourth quarter of 2016. These wells are expected to be
brought on production in mid-2017 at an aggregate cost of approximately $20 million.
Wells drilled(1):
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Gross (2) Net (3) Gross (2) Net (3) Gross (2) Net (3) Gross (2) Net (3)
Natural gas – Ongoing Operations 2 2 1 1 3 3 13 11
Natural gas – Sold Assets 10 10 2 1 11 11 21 20
Total 12 12 3 2 14 14 34 31
(1) Represents wells rig released in the period. (2) Gross is the number of wells in which Paramount has a working interest or a royalty interest that may be converted to a working interest. (3) Net is the aggregate number of wells obtained by multiplying each gross well by Paramount’s percentage of working interest.
LIQUIDITY AND CAPITAL RESOURCES
Paramount manages its capital structure to support current and future business plans and periodically
adjusts the structure in response to changes in economic conditions and the risk characteristics of the
Company’s underlying assets and operations. Paramount may adjust its capital structure by issuing or
repurchasing shares, altering debt levels, modifying capital programs, acquiring or disposing of assets or
participating in joint ventures.
Net Cash (Debt)
As at September 30, 2016 December 31, 2015
Adjusted working capital surplus (deficit) (1) 671.9 (37.9)
Limited-recourse demand facilities – (100.9)
Credit facility – (693.0)
2019 Senior Notes (2) (286.6) (450.0)
2023 Senior Notes (2) – (622.8)
Net cash (debt) 385.3 (1,904.6)
(1) Adjusted working capital excludes accounts payable and accrued liabilities relating to the Company’s obligation to renounce qualifying expenditures for flow-through share issuances (September 30, 2016 – nil, December 31, 2015 – $4.1 million), risk management assets and liabilities and limited-recourse demand facilities.
(2) Excludes unamortized issue premiums and financing costs.
Paramount Resources Ltd. Third Quarter 2016
23
Shareholders’ Equity
As at September 30, 2016 December 31, 2015
Share capital 1,647.6 1,647.0
Accumulated deficit (244.8) (1,197.6)
Reserves 144.9 99.3
Total Shareholders’ Equity 1,547.7 548.7
Paramount had an adjusted working capital surplus at September 30, 2016 of $671.9 million compared to
a deficit of $37.9 million at December 31, 2015. The adjusted working capital surplus at September 30,
2016 included $313.4 million of cash and cash equivalents, $22.1 million of accounts receivable, the
$408.3 million Cash Proceeds Receivable on Share Monetization, $3.1 million of prepaid amounts and
$74.8 million of accounts payable and accrued liabilities.
In April 2016, proceeds from the Midstream Sale were used to pay down the Company’s bank credit
facility.
In June 2016, the Cavalier limited recourse demand credit facility was repaid and cancelled.
In connection with the Musreau/Kakwa Disposition in August 2016:
(i) the Company repaid the remaining balance drawn on its syndicated bank credit facility;
(ii) the Company paid $1.4 million to holders of 2019 Senior Notes that provided consent to the
Musreau/Kakwa Disposition (the "Consent Payment");
(iii) the Company redeemed $163.4 million aggregate principal amount of 2019 Senior Notes,
paying $169.6 million plus accrued and unpaid interest to the redemption date; and
(iv) the Acquiror assumed all US$450 million aggregate principal amount of 2023 Senior Notes
and Paramount was discharged and released from all obligations and covenants under the
2023 Senior Notes Indenture and the 2023 Senior Notes.
Following the Musreau/Kakwa Disposition, the Company has a $100 million revolving credit facility (the
"Facility") with a Canadian chartered bank (the "Lender"). The revolving period of the Facility ends on
April 28, 2017. In the event the revolving period is not extended, any undrawn availability would be
cancelled and all amounts then outstanding would be permitted to remain outstanding on a non-revolving
basis until April 28, 2018, the maturity date of the Facility.
The borrowing base governs the maximum amount which can be drawn on the Facility. The Lender has
the right to review and re-determine Paramount’s borrowing base on a semi-annual basis and more
frequently in certain other circumstances. The borrowing base amount is based on the Company’s
reserves, the Lender’s projections of future commodity prices and the value attributed by the Lender to
Paramount’s equity investments and other assets, among other factors.
Borrowings on the Facility bear interest at the Lender’s prime lending rate, US base rates, bankers’
acceptance rates, or LIBOR rates, as selected at the discretion of the Company, plus an applicable
margin which is dependent upon the Company’s debt-to-cash flow ratio and the total amount drawn. The
Facility is secured by a fixed and floating charge over substantially all of the assets of Paramount,
excluding the assets of Fox Drilling.
Paramount Resources Ltd. Third Quarter 2016
24
Paramount continues to have no financial maintenance covenants under the terms of the Facility or the
2019 Senior Notes. The agreements include certain standard restrictions on Paramount’s ability to
repurchase equity, issue or refinance debt, acquire or dispose of assets and pay dividends.
At September 30, 2016, no amounts were drawn on the Facility. Paramount had undrawn letters of credit
outstanding totaling $22.6 million that reduce the amount available to be drawn on the Facility.
In September 2016, the Fox Drilling limited recourse demand credit facility was repaid and cancelled.
At September 30, 2016, Paramount had an adjusted working capital surplus of $671.9 million which is
available to fund its planned operations, obligations and capital expenditures for the remainder of 2016.
Share Capital
The Company has incurred sufficient qualifying expenditures to satisfy commitments related to Canadian
exploration expense flow-through shares issued in 2015.
At November 7, 2016, Paramount had 105,684,345 Common Shares and 2,396,510 Paramount Options
outstanding, of which 914,330 Paramount Options were exercisable.
Paramount implemented a normal course issuer bid ("NCIB") on October 13, 2016. The NCIB will
terminate on the earlier of: (i) October 12, 2017; and (ii) the date on which the maximum number of
Common Shares that can be acquired pursuant to the NCIB are purchased. Purchases of Common
Shares under the NCIB will be effected through the facilities of the TSX or alternative Canadian trading
systems at the market price at the time of purchase. Paramount may purchase up to 5,441,602 Common
Shares under the NCIB. Pursuant to the rules of the TSX, the maximum number of Common Shares that
the Company may purchase under the NCIB in any one day is 188,705 Common Shares. Paramount
may also make one block purchase per calendar week which exceeds such daily purchase restriction,
subject to the rules of the TSX. Any Common Shares purchased pursuant to the NCIB will be cancelled
by the Company. Any shareholder may obtain, for no charge, a copy of the notice in respect of the NCIB
filed with the TSX by contacting the Company at 403-290-3600.
To November 7, 2016, the Company has purchased and cancelled 622,900 Common Shares at a cost of
$9.7 million pursuant to the NCIB.
Paramount Resources Ltd. Third Quarter 2016
25
QUARTERLY INFORMATION
Significant Items Impacting Quarterly Results
Quarterly earnings variances include the impacts of changing production volumes and market prices.
Third quarter 2016 earnings include the impacts related to the Musreau/Kakwa Disposition, including
a $1.2 billion gain on sale, lower depletion and depreciation expense, higher income tax expense and
lower netback.
Second quarter 2016 earnings include a $131.8 million gain on the sale of oil and gas assets primarily
in respect of the Midstream Sale, partially offset by $17.7 million of share-based compensation
expense.
First quarter 2016 earnings include a foreign exchange gain of $40.3 million and a $13.7 million gain
on commodity contracts.
Fourth quarter 2015 earnings include $241.5 million of aggregate impairment write-downs of property,
plant and equipment, $184.1 million of impairment write-offs of exploration and evaluation assets and
deferred tax income expense of $66.3 million.
Third quarter 2015 earnings include $100.7 million of depletion and depreciation, a $22.2 million
impairment write-down of oil and gas assets, a $73.0 million write-down of investments in securities
and a foreign exchange loss of $41.5 million, partially offset by $38.1 million of gains on commodity
contracts.
Second quarter 2015 earnings include $82.9 million of depletion and depreciation expense and $12.0
million of debt extinguishment expense in respect of the redemption of the Company’s unsecured
senior notes due 2017, partially offset by an income tax recovery of $38.5 million.
First quarter 2015 earnings include $77.4 million of depletion and depreciation expense and a $8.9
million net loss on the sale of oil and gas assets.
2016 2015 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Petroleum and natural gas sales 51.7 73.6 91.2 91.3 110.7 94.6 80.2 99.4 Funds flow from operations 3.8 (4.9) 22.4 21.0 36.9 19.6 15.7 41.6
Per share – basic & diluted ($/share) 0.04 (0.05) 0.21 0.20 0.35 0.19 0.15 0.40
Net income (loss) 1,029.4 (30.6) (46.0) (599.0) (171.8) (60.2) (70.3) (106.5)
Per share – basic ($/share) 9.69 (0.29) (0.43) (5.64) (1.62) (0.57) (0.67) (1.02) Per share – diluted ($/share) 9.64 (0.29) (0.43) (5.64) (1.62) (0.57) (0.67) (1.02)
Sales volumes
Natural gas (MMcf/d) 88.6 129.8 153.9 157.8 181.8 154.4 148.6 143.9 Condensate and oil (Bbl/d) 5,335 9,490 13,245 9,991 10,214 7,595 6,583 5,320 Other NGLs (Bbl/d) 4,687 9,764 11,259 9,175 9,483 9,282 6,968 5,123 Total (Boe/d) 24,786 40,890 50,161 45,466 49,990 42,604 38,317 34,430
Average realized price
Natural gas ($/Mcf) 2.65 1.49 2.09 2.57 3.01 2.74 2.99 3.98 Condensate and oil ($/Bbl) 51.15 52.83 42.28 46.60 52.43 65.66 48.16 68.45 Other NGLs ($/Bbl) 11.11 11.19 10.31 12.59 11.42 12.18 16.43 26.64 Total ($/Boe) 22.66 19.79 19.98 21.82 24.07 24.40 23.26 31.37
Paramount Resources Ltd. Third Quarter 2016
26
Fourth quarter 2014 earnings include $108.5 million of depletion, depreciation and impairment write-
downs of oil and gas assets and a $23.3 million loss from equity-accounted investments, partially
offset by an income tax recovery of $20.7 million.
OTHER INFORMATION
Contractual Obligations
Paramount had the following contractual obligations at September 30, 2016:
Within 1
year
After one year but
not more than three
years
After three years but not more than five
years More than five years Total
Senior notes (1) 22 44 290 – 356
Transportation and processing commitments (2) 36 95 94 236 461
Asset retirement obligations 8 11 55 131 205
Operating leases and other 5 5 4 2 16
71 155 443 369 1,038
(1) Including interest. (2) Certain of the transportation and processing commitments are secured by outstanding letters of credit totaling $7.0 million at September 30, 2016 (December 31, 2015
- $104.6 million).
Transportation and processing commitments mainly relate to long-term firm service arrangements for the
processing of natural gas and the transportation of natural gas and Liquids. In connection with the
Musreau/Kakwa Disposition, the Acquiror assumed Paramount’s processing and transportation
commitments relating to the Sold Assets, including the Processing Arrangement.
Contingencies
In 2016, a release occurred from a non-operated pipeline in which the Company owns a 50 percent
interest. The operator, and owner of the remaining 50 percent, has initiated response, containment and
remediation activities (“Response Activities”). Total costs to complete the Response Activities are
estimated at approximately $45 million. It is Paramount’s assessment that it is not responsible for the
costs of the Response Activities and as a result, no provision has been recorded in the Company’s
financial statements.
CHANGE IN ACCOUNTING POLICIES
There were no new accounting standards adopted by the Company for the nine months ended
September 30, 2016. A description of accounting standards that will be effective in the future is included
in the notes to the Company’s audited Consolidated Financial Statements as at and for the year ended
December 31, 2015.
Paramount Resources Ltd. Third Quarter 2016
27
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the three months ended September 30, 2016, there was no change in the Company’s internal
control over financial reporting that materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with policies or procedures may deteriorate.
ADVISORIES
Forward Looking Information
Certain statements in this document constitute forward-looking information under applicable securities
legislation. Forward-looking information typically contains statements with words such as "anticipate",
"believe", "estimate", "will", "expect", "plan", "schedule", "intend", "propose", or similar words suggesting
future outcomes or an outlook. Forward-looking information in this document includes, but is not limited
to:
projected sales volumes;
exploration, development, and associated operational plans and strategies (including planned
drilling programs, well tie-ins and facility expansions) and the anticipated timing and costs of such
activities;
Paramount’s expectation to fund its operations, obligations and capital expenditures for the
remainder of 2016 with its working capital surplus; and
general business strategies and objectives.
Such forward-looking information is based on a number of assumptions which may prove to be incorrect.
Assumptions have been made with respect to the following matters, in addition to any other assumptions
identified in this document:
future natural gas and Liquids prices;
royalty rates, taxes and capital, operating, general & administrative and other costs;
foreign currency exchange rates and interest rates;
general business, economic and market conditions;
the ability of Paramount to obtain the required capital to finance its exploration, development and
other operations and meet its commitments and financial obligations;
the ability of Paramount to obtain equipment, services, supplies and personnel in a timely manner
and at an acceptable cost to carry out its activities;
the ability of Paramount to secure adequate product processing, transportation, de-ethanization,
fractionation, and storage capacity on acceptable terms;
the ability of Paramount to market its natural gas and Liquids successfully to current and new
customers;
the ability of Paramount and its industry partners to obtain drilling success (including in respect of
anticipated production volumes, reserves additions, Liquids yields and resource recoveries) and
operational improvements, efficiencies and results consistent with expectations;
the timely receipt of required governmental and regulatory approvals; and
Paramount Resources Ltd. Third Quarter 2016
28
anticipated timelines and budgets being met in respect of drilling programs and other operations
(including well completions and tie-ins and the construction, commissioning and start-up of new
and expanded facilities).
Although Paramount believes that the expectations reflected in such forward-looking information are
reasonable, undue reliance should not be placed on them as Paramount can give no assurance that such
expectations will prove to be correct. Forward-looking information is based on expectations, estimates
and projections that involve a number of risks and uncertainties which could cause actual results to differ
materially from those anticipated by Paramount and described in the forward-looking information. The
material risks and uncertainties include, but are not limited to:
fluctuations in natural gas and Liquids prices;
changes in foreign currency exchange rates and interest rates;
the uncertainty of estimates and projections relating to future revenue, future production, reserve
additions, Liquids yields (including condensate to natural gas ratios), resource recoveries, royalty
rates, taxes and costs and expenses;
the ability to secure adequate product processing, transportation, de-ethanization, fractionation,
and storage capacity on acceptable terms;
operational risks in exploring for, developing and producing natural gas and Liquids;
the ability to obtain equipment, services, supplies and personnel in a timely manner and at an
acceptable cost;
potential disruptions, delays or unexpected technical or other difficulties in designing, developing,
expanding or operating new, expanded or existing facilities (including third-party facilities);
processing, pipeline, de-ethanization and fractionation infrastructure outages, disruptions and
constraints;
risks and uncertainties involving the geology of oil and gas deposits;
the uncertainty of reserves and resources estimates;
general business, economic and market conditions;
the ability to generate sufficient cash flow from operations and obtain financing to fund planned
exploration, development and operational activities and meet current and future commitments and
obligations (including product processing, transportation, de-ethanization, fractionation and similar
commitments and debt obligations);
changes in, or in the interpretation of, laws, regulations or policies (including environmental laws);
the ability to obtain required governmental or regulatory approvals in a timely manner, and to enter
into and maintain leases and licenses;
the effects of weather;
the timing and cost of future abandonment and reclamation obligations and potential liabilities for
environmental damage and contamination;
uncertainties regarding aboriginal claims and in maintaining relationships with local populations
and other stakeholders;
the outcome of existing and potential lawsuits, regulatory actions, audits and assessments; and
other risks and uncertainties described elsewhere in this document and in Paramount's other
filings with Canadian securities authorities.
The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled
"RISK FACTORS" in Paramount's current annual information form. The forward-looking information
contained in this document is made as of the date hereof and, except as required by applicable securities
law, Paramount undertakes no obligation to update publicly or revise any forward-looking statements or
information, whether as a result of new information, future events or otherwise.
Paramount Resources Ltd. Third Quarter 2016
29
Non-GAAP Measures
In this document "Funds flow from operations", "Netback", "Net Cash (Debt)", "Adjusted Working
Capital", "Exploration and Capital Expenditures", "Principal Properties Capital" and "Investments in other
entities – market value", collectively the "Non-GAAP measures", are used and do not have any
standardized meanings as prescribed by IFRS.
Funds flow from operations refers to cash from operating activities before net changes in operating
non-cash working capital, geological and geophysical expenses and asset retirement obligation
settlements. Funds flow from operations is commonly used in the oil and gas industry to assist
management and investors in measuring the Company’s ability to fund capital programs and meet
financial obligations. Netback equals petroleum and natural gas sales less royalties, operating costs and
transportation and NGLs processing costs. Netback is commonly used by management and investors to
compare the results of the Company’s oil and gas operations between periods. Net Cash (Debt) is a
measure of the Company’s overall debt position after adjusting for certain working capital amounts and is
used by management to assess the Company’s overall leverage position. Refer to the liquidity and capital
resources section of the Company’s Management’s Discussion and Analysis for the period for the
calculation of Net Cash (Debt) and Adjusted Working Capital. Exploration and capital expenditures
consist of the Company’s spending on wells and infrastructure projects, other property, plant and
equipment, land and property acquisitions, capitalized interest and geological and geophysical costs
incurred. The closest GAAP measure to exploration and development expenditures is property, plant and
equipment and exploration cash flows under investing activities in the Company’s Consolidated
Statement of Cash Flows, which includes all of the items included in exploration and capital expenditures,
except for geological and geophysical costs for the three and nine months ended September 30, 2016 of
$1.7 million and $3.9 million, respectively (2015 - $1.4 million and $4.0 million, respectively), which are
expensed as incurred. Principal Properties Capital includes capital expenditures and geological and
geophysical costs related to the Company’s Principal Properties business segment, and excludes land
acquisitions and capitalized interest. The Principal Properties Capital measure provides management and
investors with information regarding the Company’s Principal Properties spending on wells and
infrastructure projects separate from land acquisition activity and capitalized interest. Refer to the
Exploration and Capital Expenditures section of the Company’s Management’s Discussion and Analysis
for the period. Investments in other entities – market value reflects the Company’s investments in
enterprises whose securities trade on a public stock exchange at their period end closing price (e.g.
Seven Generations, Trilogy, MEG, Marquee, RMP, SOG and others), and investments in all other entities
at book value. Paramount provides this information because the market values of equity-accounted
investments, which are significant assets of the Company, are often materially different than their carrying
values.
Non-GAAP measures should not be considered in isolation or construed as alternatives to their most
directly comparable measure calculated in accordance with GAAP, or other measures of financial
performance calculated in accordance with GAAP. The Non-GAAP measures are unlikely to be
comparable to similar measures presented by other issuers.
Paramount Resources Ltd. Third Quarter 2016
30
Oil and Gas Measures and Definitions
Abbreviations
Liquids Natural Gas
Bbl Barrels Mcf Thousands of cubic feet
Bbl/d Barrels per day MMcf/d Millions of cubic feet per day NGLs Natural gas liquids
Pentane and heavier hydrocarbons GJ MMbtu
Gigajoule Millions of British thermal units Condensate
Oil Equivalent
Boe Barrels of oil equivalent
Boe/d Barrels of oil equivalent per day
Measures
This document contains disclosures expressed as "Boe", "$/Boe" and "Boe/d". Natural gas equivalency
volumes have been derived using the ratio of six thousand cubic feet of natural gas to one barrel of oil.
Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of six
thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value equivalency at the well head.
The term "Liquids" is used to represent oil, condensate and Other NGLs. The term "Other NGLs" means
ethane, propane and butane.
During the nine months ended September 30, 2016, the value ratio between crude oil and natural gas
was approximately 28:1. This value ratio is significantly different from the energy equivalency ratio of 6:1.
Using a 6:1 ratio would be misleading as an indication of value.
Paramount Resources Ltd. Third Quarter 2016
31
Interim Condensed Consolidated Financial Statements (Unaudited) September 30, 2016
Paramount Resources Ltd. Third Quarter 2016
INTERIM CONDENSED CONSOLIDATED BALANCE SHEET ($ thousands)
As at Note
September 30 2016
December 31 2015
ASSETS (Unaudited)
Current assets
Cash and cash equivalents 15 313,355 11,941
Accounts receivable 22,079 48,730
Cash proceeds receivable on share monetization 6 408,254 –
Prepaid expenses and other 3,089 5,049
Risk management 14 9,347 40,207
756,124 105,927
Exploration and evaluation 3 314,721 363,724
Property, plant and equipment, net 4 683,931 2,034,353
Equity-accounted investments 5 46,792 58,370
Investments in securities 6 328,753 60,714
Deferred income tax 13 – 154,823
Goodwill 4 – 3,124
2,130,321 2,781,035
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Limited-recourse demand facilities 7 – 100,911
Accounts payable and accrued liabilities 74,847 107,624
74,847 208,535
Long-term debt 8 284,443 1,750,226
Asset retirement obligations 9 204,683 273,580
Deferred income tax 13 18,651 –
582,624 2,232,341
Commitments and contingencies 16
Shareholders’ equity
Share capital 10 1,647,576 1,646,984
Accumulated deficit (244,751) (1,197,627)
Reserves 11 144,872 99,337
1,547,697 548,694
2,130,321 2,781,035
See the accompanying notes to these Interim Condensed Consolidated Financial Statements.
33
Paramount Resources Ltd. Third Quarter 2016
INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited) ($ thousands, except as noted)
Three months ended September 30
Nine months ended September 30
Note 2016 2015 2016 2015
Petroleum and natural gas sales 51,681 110,707 216,505 285,512
Royalties (51) (2,774) (2,128) (7,317)
Revenue 51,630 107,933 214,377 278,195
Gain on commodity contracts 2,389 38,067 6,519 32,953
54,019 146,000 220,896 311,148
Expenses
Operating expense 25,001 26,089 86,097 67,084
Transportation and NGLs processing 12,675 19,455 52,170 49,392
General and administrative 4,040 4,470 19,381 18,160
Share-based compensation 12 1,421 6,191 24,164 17,437
Depletion and depreciation 24,171 122,940 188,463 283,235
Exploration and evaluation 3 17,337 4,926 21,561 13,207
(Gain) loss on sale of oil and gas assets (1,239,304) 140 (1,370,299) 9,195
Interest and financing 17,808 29,450 74,862 81,220
Accretion of asset retirement obligations 9 1,003 1,425 3,614 4,264
Foreign exchange (5,548) 41,535 (43,947) 40,424
Debt extinguishment 8 18,283 – 18,283 11,994
(1,123,113) 256,621 (925,651) 595,612
Loss from equity-accounted investments 5 (2,829) (12,399) (11,578) (19,968)
Write-down of investments in securities 6 (4,602) (73,014) (11,095) (77,630)
Other income (loss) (2,930) 544 (3,818) 934
Income (loss) before tax 1,166,771 (195,490) 1,120,056 (381,128)
Income tax expense (recovery) 13
Current – – – 11
Deferred 137,367 (23,693) 167,180 (78,851)
137,367 (23,693) 167,180 (78,840)
Net income (loss) 1,029,404 (171,797) 952,876 (302,288)
Other comprehensive income (loss), net of tax Items that may be reclassified to net income (loss):
Change in market value of securities 53,890 (51,237) 50,581 (37,644) Reclassification of accumulated (gains) losses on securities to net income (loss) (32,371) 73,014 (25,877) 77,630
Deferred tax on other comprehensive income related to securities (3,079) 28 (3,079) (1,425)
Comprehensive income (loss) 1,047,844 (149,992) 974,501 (263,727)
Net income (loss) per common share ($/share) 10
Basic 9.69 (1.62) 8.97 (2.86)
Diluted 9.64 (1.62) 8.97 (2.86)
See the accompanying notes to these Interim Condensed Consolidated Financial Statements.
34
Paramount Resources Ltd. Third Quarter 2016
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($ thousands)
Three months ended September 30
Nine months ended September 30
Note 2016 2015 2016 2015
Operating activities
Net income (loss) 1,029,404 (171,797) 952,876 (302,288)
Add (deduct):
Items not involving cash 15 (1,045,582) 207,291 (953,713) 358,542
Asset retirement obligations settled 9 (207) (2,269) (823) (5,407)
Debt extinguishment 18,283 – 18,283 11,994
Change in non-cash working capital 7,839 3,212 35,524 11,046
Cash from operating activities 9,737 36,437 52,147 73,887
Financing activities
Net draw (repayment) of demand facilities 7 (58,710) 4,062 (100,911) 16,161
Net draw (repayment) of long-term debt 8 (224,369) (58,340) (695,384) 244,126
Redemption of senior notes 8 (169,648) – (169,648) (380,175)
Proceeds from 2023 Senior Notes, net of issue costs – (119) – 549,656
Common shares issued, net of issue costs 257 – 338 41,817
Common shares purchased under stock incentive plan – – – (316)
Cash from (used in) financing activities (452,470) (54,397) (965,605) 471,269
Investing activities
Property, plant and equipment and exploration (46,904) (98,277) (122,218) (420,854)
Proceeds on sale of oil and gas assets 496,077 (37) 1,060,994 5,418
Proceeds on sale of investments, net of costs 306,192 – 306,192 –
Change in non-cash working capital (10,901) (4,755) (29,693) (129,428)
Cash from (used in) investing activities 744,464 (103,069) 1,215,275 (544,864)
Net increase (decrease) 301,731 (121,029) 301,817 292
Foreign exchange on cash and cash equivalents 4 1,313 (403) 2,680 Cash and cash equivalents, beginning of period 11,620 141,008 11,941 18,320
Cash and cash equivalents, end of period 313,355 21,292 313,355 21,292
Supplemental cash flow information 15
See the accompanying notes to these Interim Condensed Consolidated Financial Statements.
35
Paramount Resources Ltd. Third Quarter 2016
INTERIM CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited) ($ thousands, except as noted)
Nine months ended September 30 Note 2016 2015
Shares (000’s)
Shares (000’s)
Share Capital
Balance, beginning of period 106,212 1,646,984 104,843 1,603,436
Issued 41 474 1,337 43,175
Change in vested and unvested common shares for stock incentive plan 19 118 32 294
Balance, end of period 106,272 1,647,576 106,212 1,646,905
Accumulated Deficit
Balance, beginning of period (1,197,627) (296,326)
Net income (loss) 952,876 (302,288)
Balance, end of period (244,751) (598,614)
Reserves 11
Balance, beginning of period 99,337 46,172
Other comprehensive income 21,625 38,561
Contributed surplus 23,910 11,736
Balance, end of period 144,872 96,469
Total Shareholders’ Equity 1,547,697 1,144,760
See the accompanying notes to these Interim Condensed Consolidated Financial Statements.
36
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
1. Basis of Presentation
Paramount Resources Ltd. ("Paramount" or the "Company") is an independent, publicly traded, Canadian
corporation that explores for and develops conventional petroleum and natural gas prospects, pursues
long-term non-conventional exploration and pre-development projects and holds a portfolio of investments
in other entities. Paramount’s principal properties are primarily located in Alberta and British Columbia. The
Company’s operations are divided into three business segments, which have been established by
management to assist in resource allocation, to assess operating performance and to achieve long-term
strategic objectives: i) Principal Properties; ii) Strategic Investments; and iii) Corporate.
Paramount is the ultimate parent company of a consolidated group of companies and is incorporated and
domiciled in Canada. The address of its registered office is 4700, 888 3rd Street S.W., Calgary, Alberta,
Canada, T2P 5C5. The consolidated group includes the following wholly-owned subsidiaries: Fox Drilling
Limited Partnership ("Fox Drilling") and Cavalier Energy Inc. ("Cavalier"). Paramount also holds a 15
percent equity interest in Trilogy Energy Corp. ("Trilogy"), which is accounted for using the equity method
of investment accounting. The financial statements of Paramount’s subsidiaries and partnerships are
prepared for the same reporting periods as the parent in accordance with the Company’s accounting
policies. All intercompany balances and transactions have been eliminated.
These unaudited Interim Condensed Consolidated Financial Statements, as at and for the three and nine
months ended September 30, 2016 (the "Interim Financial Statements"), were authorized for issuance by
the Audit Committee of Paramount’s Board of Directors on November 8, 2016.
These Interim Financial Statements have been prepared in accordance with International Accounting
Standard 34 – Interim Financial Reporting on a basis consistent with the accounting, estimation and
valuation policies described in the Company’s audited Consolidated Financial Statements as at and for the
year ended December 31, 2015 (the "Annual Financial Statements"). These Interim Financial Statements
are stated in thousands of Canadian dollars, unless otherwise noted, and have been prepared on a
historical cost basis, except for certain financial instruments which are stated at fair value. Certain
information and disclosures normally required to be included in the notes to the Annual Financial
Statements prepared in accordance with International Financial Reporting Standards have been condensed
or omitted. Certain comparative amounts have been reclassified to conform with the current year’s
presentation. These Interim Financial Statements should be read in conjunction with the Annual Financial
Statements.
Changes in Accounting Standards
There were no new accounting standards adopted by the Company for the nine months ended September
30, 2016. A description of accounting standards that will be effective in the future is included in the notes
to the Company’s Annual Financial Statements.
37
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
2. Segmented Information
Three months ended September 30, 2016 Principal
Properties Strategic
Investments Corporate Inter-segment
Eliminations Total
Revenue 51,630 – – – 51,630 Gain on commodity contracts 2,389 – – – 2,389
54,019 – – – 54,019
Expenses Operating expense 25,001 – – – 25,001 Transportation and NGLs processing 12,675 – – – 12,675 General and administrative – 1,358 2,682 – 4,040 Share-based compensation – 535 886 – 1,421 Depletion and depreciation 23,011 2,891 260 (1,991) 24,171 Exploration and evaluation 16,666 671 – – 17,337 Gain on sale of oil and gas assets (1,239,304) – – – (1,239,304) Interest and financing – 671 17,137 – 17,808 Accretion of asset retirement obligations 910 93 – – 1,003 Foreign exchange – – (5,548) – (5,548) Debt extinguishment – – 18,283 – 18,283 (1,161,041) 6,219 33,700 (1,991) (1,123,113)
Loss from equity-accounted investments – (2,829) – – (2,829) Write-down of investments in securities – (4,602) – – (4,602) Other 385 (3,296) 35 – (2,876) Drilling rig revenue – 9,062 – (8,839) 223 Drilling rig expense – (4,040) – 3,763 (277)
1,215,445 (11,924) (33,665) (3,085) 1,166,771
Inter-segment eliminations – (3,085) – 3,085 –
Segment income (loss) 1,215,445 (15,009) (33,665) – 1,166,771
Income tax expense (137,367)
Net income 1,029,404
Three months ended September 30, 2015 Principal
Properties Strategic
Investments Corporate Inter-segment
Eliminations Total
Revenue 107,933 – – – 107,933 Gain on commodity contracts 38,067 – – – 38,067 146,000 – – – 146,000
Expenses Operating expense 26,089 – – – 26,089 Transportation and NGLs processing 19,455 – – – 19,455 General and administrative – 1,578 2,892 – 4,470 Share-based compensation – 1,610 4,581 – 6,191 Depletion and depreciation 122,560 397 141 (158) 122,940 Exploration and evaluation 4,083 843 – – 4,926 Loss on sale of oil and gas assets 140 – – – 140 Interest and financing – 607 28,843 – 29,450 Accretion of asset retirement obligations 1,345 80 – – 1,425 Foreign exchange – – 41,535 – 41,535
173,672 5,115 77,992 (158) 256,621
Loss from equity-accounted investments – (12,399) – – (12,399) Write-down of investments in securities – (73,014) – – (73,014) Other 104 – 58 – 162 Drilling rig revenue – 1,222 – (622) 600 Drilling rig expense – (1,057) – 839 (218)
(27,568) (90,363) (77,934) 375 (195,490)
Inter-segment eliminations – 375 – (375) –
Segment loss (27,568) (89,988) (77,934) – (195,490)
Income tax recovery 23,693
Net loss (171,797)
38
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
Nine months ended September 30, 2016 Principal
Properties Strategic
Investments Corporate Inter-segment
Eliminations Total
Revenue 214,377 – – – 214,377 Gain on commodity contracts 6,519 – – – 6,519
220,896 – – – 220,896
Expenses Operating expense 86,097 – – – 86,097 Transportation and NGLs processing 52,170 – – – 52,170 General and administrative – 4,648 14,733 – 19,381 Share-based compensation – 5,334 18,830 – 24,164 Depletion and depreciation 183,881 6,993 648 (3,059) 188,463 Exploration and evaluation 20,545 1,016 – – 21,561 Gain on sale of oil and gas assets (1,370,279) (20) – – (1,370,299) Interest and financing – 2,706 72,156 – 74,862 Accretion of asset retirement obligations 3,338 276 – – 3,614 Foreign exchange – – (43,947) – (43,947) Debt extinguishment – – 18,283 – 18,283
(1,024,248) 20,953 80,703 (3,059) (925,651)
Loss from equity-accounted investments – (11,578) – – (11,578) Write-down of investments in securities – (11,095) – – (11,095) Other 344 (3,296) 35 – (2,917) Drilling rig revenue – 17,978 – (17,755) 223 Drilling rig expense – (7,258) – 6,134 (1,124)
1,245,488 (36,202) (80,668) (8,562) 1,120,056
Inter-segment eliminations – (8,562) – 8,562 –
Segment income (loss) 1,245,488 (44,764) (80,668) – 1,120,056
Income tax expense (167,180)
Net income 952,876
Nine months ended September 30, 2015 Principal
Properties Strategic
Investments Corporate Inter-segment
Eliminations Total
Revenue 278,195 – – – 278,195 Gain on commodity contracts 32,953 – – – 32,953
311,148 – – – 311,148
Expenses Operating expense 67,084 – – – 67,084 Transportation and NGLs processing 49,392 – – – 49,392 General and administrative – 4,270 13,890 – 18,160 Share-based compensation – 5,662 11,775 – 17,437 Depletion and depreciation 282,222 4,159 299 (3,445) 283,235 Exploration and evaluation 11,783 1,424 – – 13,207 (Gain) loss on sale of oil and gas assets 9,327 (132) – – 9,195 Interest and financing – 1,717 79,503 – 81,220 Accretion of asset retirement obligations 4,097 167 – – 4,264 Foreign exchange – – 40,424 – 40,424 Debt extinguishment – – 11,994 – 11,994
423,905 17,267 157,885 (3,445) 595,612
Loss from equity-accounted investments – (19,968) – – (19,968) Write-down of investments in securities – (77,630) – – (77,630) Other 267 – 173 – 440 Drilling rig revenue – 15,568 – (14,620) 1,038 Drilling rig expense – (8,745) – 8,201 (544)
(112,490) (107,952) (157,712) (2,974) (381,128)
Inter-segment eliminations – (2,974) – 2,974 –
Segment loss (112,490) (110,926) (157,712) – (381,128)
Income tax recovery 78,840
Net loss (302,288)
39
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
3. Exploration and Evaluation
Nine months ended September 30, 2016
Twelve months ended December 31, 2015
Balance, beginning of period 363,724 567,420
Additions 37,680 93,411
Change in asset retirement provision – 2,550
Transfers to property, plant and equipment (3,200) (112,000)
Dry hole (13,792) (15,019)
Expired lease costs (3,884) (3,728)
Write-downs – (162,516)
Dispositions (65,807) (6,394)
Balance, end of period 314,721 363,724
Exploration and Evaluation Expense
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Geological and geophysical 1,704 1,424 3,885 3,979
Dry hole 13,827 93 13,792 2,279
Expired lease costs 1,806 3,409 3,884 6,949
17,337 4,926 21,561 13,207
4. Property, Plant and Equipment
Nine months ended September 30, 2016
Petroleum and natural gas assets Drilling rigs Other Total
Cost
Balance, December 31, 2015 3,655,956 155,107 29,166 3,840,229
Additions 93,265 1,422 2,330 97,017
Transfers from exploration and evaluation 3,200 – – 3,200
Dispositions (1,849,413) – (665) (1,850,078)
Change in asset retirement provision 3,630 – – 3,630
Cost, September 30, 2016 1,906,638 156,529 30,831 2,093,998
Accumulated depletion, depreciation and write-downs
Balance, December 31, 2015 (1,741,988) (42,677) (21,211) (1,805,876)
Depletion and depreciation (183,013) (8,492) (1,039) (192,544)
Dispositions 588,185 – 168 588,353
Accumulated depletion, depreciation and write-downs, September 30, 2016 (1,336,816) (51,169) (22,082) (1,410,067)
Net book value, December 31, 2015 1,913,968 112,430 7,955 2,034,353
Net book value, September 30, 2016 569,822 105,360 8,749 683,931
In April 2016, Paramount closed the sale of its natural gas processing facility and related midstream assets
at Musreau for net cash proceeds of $560.3 million, resulting in the recognition of a gain on sale of $125.5
million.
In August 2016, Paramount sold the majority of its oil and gas properties in the Musreau/Kakwa area of
west central Alberta (the "Musreau/Kakwa Assets") to Seven Generations Energy Ltd. ("Seven
Generations" or the "Acquiror") for total consideration of $2.1 billion (the "Sale Transaction"), subject to
customary post-closing adjustments. Consideration was comprised of: (i) $496 million in cash; (ii) 33.5
40
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
million class A common shares of the Acquiror having a market value of approximately $972 million based
on the closing market price of the shares on the day prior to closing), (iii) the assumption by the Acquiror of
all US$450 million principal amount of the Company’s senior unsecured notes due in 2023 (the "2023 Senior
Notes"); and (iv) certain oil and gas properties of the Acquiror valued at approximately $6 million. In
connection with the Sale Transaction, the Acquiror also assumed Paramount’s processing and
transportation commitments relating to the Musreau/Kakwa Assets. Goodwill with a carrying value of $3.1
million related to the sold properties was derecognized in connection with the disposition. A gain on sale of
$1.2 billion was recorded in respect of the Sale Transaction.
Depletion and Depreciation
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Depletion and depreciation 26,498 101,380 192,548 265,934
Write-down of property, plant and equipment – 22,216 – 22,216
Inter-segment eliminations (2,327) (656) (4,085) (4,915)
24,171 122,940 188,463 283,235
5. Equity-Accounted Investments
As at September 30, 2016 December 31, 2015
Shares (000’s)
Carrying Value
Market Value (1)
Shares (000’s)
Carrying Value
Market Value (1)
Trilogy 19,144 46,792 138,031 19,144 58,370 70,068
(1) Based on the period-end trading price.
Loss from equity-accounted investments is comprised of the following:
Three months ended
September 30 Nine months ended
September 30 2016 2015 2016 2015
Equity loss (2,829) (11,946) (11,558) (19,638)
Dilution gain (loss) – – (20) 123
Write-down of other equity-accounted investment – (453) – (453)
(2,829) (12,399) (11,578) (19,968)
41
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
The following tables summarize the assets, liabilities, equity, revenue and income of Trilogy and
Paramount’s investment in Trilogy:
As at September 30 2016 2015
Current assets 34,112 45,322
Non-current assets (1) 1,187,241 1,362,489
Current liabilities (54,740) (69,479)
Non-current liabilities (790,056) (876,502)
Equity (1) 376,557 461,830
Multiply by: Paramount’s equity interest 15.2% 15.2%
Paramount’s proportionate share of equity 57,184 70,101
Less: portion of share-based compensation recorded in equity of Trilogy (10,392) (8,681)
Carrying value of Paramount’s investment 46,792 61,420
(1) Includes adjustments to Trilogy’s carrying values required in the application of the equity method of investment accounting for shares of Trilogy purchased by the Company in the open market in prior years. Excluding such adjustments, Trilogy’s non-current assets as at September 30, 2016 totaled $1,191.9 million (2015 – $1,365.5 million) and equity totaled $381.2 million (2015 - $464.9 million).
Nine months ended September 30 2016 2015
Revenue 123,745 215,004
Comprehensive loss (1) (76,100) (122,308)
Paramount’s share of Trilogy’s comprehensive loss (11,558) (18,582)
(1) Includes amortization of the adjustments to Trilogy’s non-current assets required in the application of the equity method of investment accounting for shares of Trilogy purchased by the Company in prior years in the open market. Excluding such adjustments, Trilogy’s comprehensive loss for the nine months ended September 30, 2016 was $75.3 million (2015 – comprehensive loss $118.4 million).
Trilogy had 4.7 million stock options outstanding (1.6 million exercisable) at September 30, 2016 at exercise
prices ranging from $4.49 to $26.87 per share.
6. Investments in Securities
As at September 30, 2016 December 31, 2015
Shares (000’s)
Market Value
Shares (000’s)
Market Value
Seven Generations 8,800 277,904 – –
MEG Energy Corp. 3,700 21,941 3,700 29,674
Privateco 18,675 18,675
Other (1) 10,233 12,365
328,753 60,714
(1) Includes investments in Marquee Energy Ltd., RMP Energy Inc., Strategic Oil & Gas Ltd. and other public corporations.
Investments in publicly traded securities are carried at their period-end trading price, which are level one
fair value hierarchy inputs. The estimated fair value of the Company’s investment in the shares of a private
oil and gas company ("Privateco") is based on equity issuances by Privateco from time-to-time (level two
fair value hierarchy inputs).
In the third quarter of 2016, Paramount monetized 24.7 million of the 33.5 million Seven Generations shares
received through the Sale Transaction. The Company received net cash proceeds of $306.2 million in the
third quarter in connection with the monetization and an additional $408.3 million in cash is due in December
2016 (the "Cash Proceeds Receivable on Share Monetization"). The Cash Proceeds Receivable on Share
Monetization is due from an investment grade counterparty which has a short-term debt rating of A-1 from
Standard & Poors. A loss on disposition of $4.2 million was recorded on the monetization transaction based
on the difference between the aggregate net proceeds and the market value of the shares on the closing
of the Sale Transaction.
42
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
For the nine months ended September 30, 2016 aggregate unrealized losses of $11.1 million related to the
Company’s investments in MEG Energy Corp., Marquee Energy Ltd., and other securities previously
recorded in other comprehensive loss were charged to net earnings as a result of significant decreases in
the market prices of the securities.
7. Limited-Recourse Demand Facilities
As at September 30
2016 December 31
2015
Fox Drilling Facility – 63,380
Cavalier Facility – 37,531
– 100,911
In June 2016, the Cavalier Facility was repaid and cancelled. In September 2016, the Fox Drilling Facility
was repaid and cancelled.
8. Long-Term Debt
As at September 30
2016 December 31
2015
Bank credit facility – 693,045
7⅝% Senior Notes due 2019 ("2019 Senior Notes") 286,583 450,000
6⅞% US Senior Notes due 2023 – 622,800
286,583 1,765,845
Unamortized financing costs, net of premiums (2,140) (15,619)
284,443 1,750,226
In connection with the Sale Transaction:
(i) the Company repaid its syndicated bank credit facility;
(ii) the Company paid $1.4 million to holders of 2019 Senior Notes that provided consent to the
Sale Transaction (the "Consent Payment");
(iii) the Company redeemed $163.4 million aggregate principal amount of 2019 Senior Notes for
which consent to the Sale Transaction was not provided, paying $169.6 million plus accrued
and unpaid interest to the redemption date; and
(iv) the Acquiror assumed all US$450 million aggregate principal amount of 2023 Senior Notes and
Paramount was discharged and released from all obligations and covenants under the 2023
Senior Notes Indenture and the 2023 Senior Notes.
The redemption premium of $6.2 million for the 2019 Senior Notes and unamortized financing fees related
to the 2019 Senior Notes redeemed and the 2023 Senior Notes totaling $11.9 million were recorded as
debt extinguishment expense. The Consent Payment was recorded as a cost of the Sale Transaction.
Following the Sale Transaction, the Company has a $100 million revolving credit facility (the "Facility") with
a Canadian chartered bank (the "Lender"). The revolving period of the Facility ends on April 28, 2017. In
the event the revolving period is not extended, any undrawn availability would be cancelled and all amounts
then outstanding would be permitted to remain outstanding on a non-revolving basis until April 28, 2018,
the maturity date of the Facility.
43
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
The borrowing base governs the maximum amount which can be drawn on the Facility. The Lender has
the right to review and re-determine Paramount’s borrowing base on a semi-annual basis and more
frequently in certain other circumstances. The borrowing base amount is based on the Company’s reserves,
the Lender’s projections of future commodity prices and the value attributed by the Lender to Paramount’s
equity investments and other assets, among other factors.
Borrowings on the Facility bear interest at the Lender’s prime lending rate, US base rates, bankers’
acceptance rates, or LIBOR rates, as selected at the discretion of the Company, plus an applicable margin
which is dependent upon the Company’s debt-to-cash flow ratio and the total amount drawn. The Facility
is secured by a fixed and floating charge over substantially all of the assets of Paramount, excluding the
assets of Fox Drilling.
Paramount continues to have no financial maintenance covenants under the terms of the Facility or the
2019 Senior Notes. The agreements include certain standard restrictions on Paramount’s ability to
repurchase equity, issue or refinance debt, acquire or dispose of assets and pay dividends.
At September 30, 2016, no amounts were drawn on the Facility. Paramount had undrawn letters of credit
outstanding totaling $22.6 million that reduce the amount available to be drawn on the Facility.
At September 30, 2016, the 2019 Senior Notes had a market value of 104.0 percent of their principal amount
(December 31, 2015 – 82.0 percent). The market value of the 2019 Senior Notes is estimated using a
market approach based on prices quoted from financial institutions, which are level two fair value hierarchy
inputs.
9. Asset Retirement Obligations
Nine months ended September 30, 2016
Twelve months ended December 31, 2015
Asset retirement obligations, beginning of period 273,580 287,415
Retirement obligations incurred 1,571 5,010
Revisions to estimated retirement costs 2,059 (18,791)
Obligations settled (823) (6,641)
Dispositions (75,318) (119)
Assumed on corporate acquisition – 1,011
Accretion expense 3,614 5,695
Asset retirement obligations, end of period 204,683 273,580
Asset retirement obligations at September 30, 2016 were determined using a weighted average risk-free
rate of 2.00 percent (December 31, 2015 – 2.00 percent) and an inflation rate of 2.00 percent (December
31, 2015 – 2.00 percent).
10. Share Capital
At September 30, 2016, 106,272,460 (December 31, 2015 – 106,212,487) Class A Common Shares
("Common Shares") of the Company were outstanding, net of 2,865 (December 31, 2015 – 21,508)
Common Shares held in trust under the stock incentive plan.
Paramount implemented a normal course issuer bid ("NCIB") on October 13, 2016. The NCIB will terminate
on the earlier of: (i) October 12, 2017; and (ii) the date on which the maximum number of Common Shares
that can be acquired pursuant to the NCIB are purchased. Paramount may purchase up to 5,441,602
Common Shares under the NCIB. Any Common Shares purchased pursuant to the NCIB will be cancelled
44
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
by the Company. To November 7, 2016, the Company has purchased and cancelled 622,900 Common
Shares under the NCIB at a total cost of $9.7 million.
Weighted Average Common Shares
Three months ended September 30 2016 2015
Wtd. Avg. Shares (000’s) Net income
Wtd. Avg. Shares (000’s) Net loss
Net income (loss) - basic 106,254 1,029,404 106,212 (171,797)
Dilutive effect of Paramount options 546 – – –
Net income – diluted 106,800 1,029,404 106,212 (171,797)
Nine months ended September 30 2016 2015
Wtd. Avg. Shares (000’s) Net income
Wtd. Avg. Shares (000’s) Net loss
Net income (loss)– basic 106,233 952,876 105,662 (302,288)
Dilutive effect of Paramount options – – – –
Net income – diluted 106,233 952,876 105,662 (302,288)
Outstanding Paramount Options can be exchanged for the Company’s Common Shares in accordance with
the terms of the stock option plan. As a result, they are potentially dilutive and are included in Paramount’s
diluted per share calculations when they are dilutive to net income. The Company had 2.4 million
Paramount Options outstanding at September 30, 2016 (September 30, 2015 – 7.4 million), of which 1.9
million were anti-dilutive for the three months ended September 30, 2016. For the nine months ended
September 30, 2016, all Paramount Options outstanding were anti-dilutive.
11. Reserves
Reserves at September 30, 2016 include unrealized gains and losses related to changes in the market
value of the Company’s investments in securities classified as available for sale and changes in contributed
surplus amounts in respect of Paramount Options and Cavalier Options. The changes in reserves are as
follows:
Unrealized gains
on securities Contributed
surplus Total
reserves
Balance, December 31, 2015 8,637 90,700 99,337
Other comprehensive income 21,625 – 21,625
Share-based compensation – 24,047 24,047
Stock options exercised – (137) (137)
Balance, September 30, 2016 30,262 114,610 144,872
45
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
12. Share-Based Compensation
Paramount Options
Changes in outstanding Paramount Options are as follows:
Nine months ended September 30, 2016
Twelve months ended December 31, 2015
Number
Wtd. Avg. exercise price
($/share) Number
Wtd. Avg. exercise price
($/share)
Balance, beginning of period 7,238,650 34.66 7,275,850 33.75 Granted 2,520,100 8.28 694,000 33.43 Exercised (41,330) 8.17 (435,950) 13.69 Cancelled (6,227,300) 35.41 – – Forfeited (131,240) 22.70 (291,000) 40.52 Expired (930,450) 29.83 (4,250) 25.85
Balance, end of period 2,428,430 8.31 7,238,650 34.66
Options exercisable, end of period 457,030 8.26 3,991,050 34.85
Share-based compensation expense for the nine months ended September 30, 2016 includes $13.8 million related to options cancelled in June 2016.
The weighted average remaining contractual life and exercise prices of Paramount Options outstanding as
of September 30, 2016 are as follows:
Awards Outstanding
Number
Remaining contractual life (years)
Weighted average exercise
price
$8.17 2,343,430 3.6 8.17
$8.18 - $13.02 85,000 4.0 12.11
2,428,430 3.6 8.31
The grant date fair value of Paramount Options was estimated using the Black-Scholes-Merton model
incorporating the following weighted average inputs:
Options awarded in
2016
Options awarded in
2015
Weighted average exercise price ($ / share) 8.28 33.43
Expected volatility (%) 62.1 41.9
Expected life of share options (years) 3.5 2.1
Pre-vest annual forfeiture rate (%) 4.9 3.7
Risk-free interest rate (%) 0.6 0.6
Expected dividend yield (%) nil nil
Weighted average fair value of awards per share ($ / share) 3.62 8.02
The estimated expected life of Paramount Options is based on historical exercise patterns. The expected
volatility is estimated based on the historical volatility of the trading price of the Company’s Common Shares
over the most recent period that is generally commensurate with the expected term of the option.
46
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
Stock Incentive Plan – Shares Held in Trust
Nine months ended September 30, 2016
Twelve months ended December 31, 2015
Shares (000’s)
Shares (000’s)
Balance, beginning of period 22 135 54 508
Shares purchased – – 9 316
Change in vested and unvested shares (19) (118) (41) (689)
Balance, end of period 3 17 22 135
13. Income Tax
The following table reconciles income taxes calculated at the Canadian statutory rate to Paramount’s
recorded income tax expense (recovery):
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Income (loss) before tax 1,166,771 (195,490) 1,120,056 (381,128)
Effective Canadian statutory income tax rate 27.0% 26.0% 27.0% 26.0%
Expected income tax expense (recovery) 315,028 (50,827) 302,415 (99,093)
Effect on income taxes of:
Statutory and other rate differences 193 (1,111) 460 (16,458)
Gain on sale of oil and gas assets – – (13,448) –
Loss from equity-accounted investments 764 3,224 3,126 5,192
Write-down of investments in securities 1,244 18,984 2,996 20,184
Change in unrecognized deferred income tax asset (180,886) – (125,718) –
Flow-through share renunciations 182 – 1,472 956
Share-based compensation 382 1,589 6,493 5,117
Foreign exchange on US Senior Notes 915 10,680 (9,172) 10,592
Non-deductible items and other (455) (6,232) (1,444) (5,330)
Income tax expense (recovery) 137,367 (23,693) 167,180 (78,840)
14. Financial Instruments and Risk Management
The Company had the following financial commodity contracts in place at September 30, 2016:
The fair values of risk management financial instruments are estimated using a market approach
incorporating level two fair value hierarchy inputs, including forward market curves and price quotes for
similar instruments, provided by financial institutions.
Instruments Total notional Average fixed price Fair value Remaining term
Oil – NYMEX WTI Swaps (Sale) 6,000 Bbl/d CDN$75.72/Bbl 6,846 October 2016 – December 2016
Oil – NYMEX WTI Swap (Purchase) 2,000 Bbl/d CDN$50.64/Bbl 2,501 October 2016 – December 2016
9,347
47
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
Changes in the fair value of risk management assets and liabilities are as follows:
Nine months ended September 30, 2016
Twelve months ended December 31, 2015
Fair value, beginning of period 40,207 –
Changes in fair value 6,519 55,215
Settlements received (37,379) (15,008)
Fair value, end of period 9,347 40,207
Subsequent to September 30, 2016, Paramount entered into the following financial commodity contracts:
15. Consolidated Statement of Cash Flows – Selected Information
Items Not Involving Cash
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Commodity contracts 8,505 (30,439) 30,860 (25,325)
Share-based compensation 1,421 6,191 24,164 17,437
Depletion and depreciation 24,171 122,940 188,463 283,235
Exploration and evaluation 15,633 3,502 17,676 9,228
(Gain) loss on sale of oil and gas assets (1,239,304) 140 (1,370,299) 9,195
Accretion of asset retirement obligations 1,003 1,425 3,614 4,264
Foreign exchange (5,457) 41,170 (43,423) 40,152
Loss from equity-accounted investments 2,829 12,399 11,578 19,968
Write-down of investments in securities 4,602 73,014 11,095 77,630
Loss on sale of investment 3,294 – 3,294 –
Deferred income tax 137,367 (23,693) 167,180 (78,851)
Other 354 642 2,085 1,609
(1,045,582) 207,291 (953,713) 358,542
Supplemental Cash Flow Information
Three months ended
September 30 Nine months ended
September 30
2016 2015 2016 2015
Interest paid 4,367 8,064 54,672 60,023
Current tax refunded – – – (10)
Components of cash and cash equivalents
September 30, 2016 December 31, 2015
Cash 7,534 11,941
Cash equivalents 305,821 –
313,355 11,941
Instruments Total notional Fixed price Term
Gas – NYMEX (Sale) 10,000 MMBtu/d US$3.40/MMBtu January 2017 – December 2017
Gas – NYMEX (Purchase) 10,000 MMBtu/d US$3.04/MMBtu January 2017 – December 2017
Oil – NYMEX WTI (Sale) 1,000 Bbl/d CDN$69.45/Bbl January 2017 – December 2017
48
Paramount Resources Ltd. Third Quarter 2016
(Unaudited)
(Tabular amounts stated in $ thousands, except as noted)
16. Commitments and Contingencies
Paramount had the following commitments as at September 30, 2016:
Within one
year
After one year but not
more than five years
More than five years
Petroleum and natural gas transportation and processing commitments (1) 35,891 189,629 235,933
Operating leases and other 5,057 9,344 1,719
40,948 198,973 237,652
(1) Certain of the transportation and processing commitments are secured by outstanding letters of credit totaling $7.0 million at September 30, 2016 (December 31, 2015 – $104.6 million).
The Company has incurred sufficient qualifying expenditures to satisfy commitments related to Canadian
exploration expense flow-through shares issued in 2015.
In 2016, a release occurred from a non-operated pipeline in which the Company owns a 50 percent
interest. The operator, and owner of the remaining 50 percent, has initiated response, containment and
remediation activities (“Response Activities”). Total costs to complete the Response Activities are estimated
at approximately $45 million. It is Paramount’s assessment that it is not responsible for the costs of the
Response Activities and as a result, no provision has been recorded in the Interim Financial Statements.
49
CORPORATE INFORMATION
OFFICERS C. H. Riddell Executive Chairman J. H. T. Riddell President and Chief Executive Officer B. K. Lee Chief Financial Officer L. M. Doyle Corporate Operating Officer G. W. P. McMillan Corporate Operating Officer D. S. Purdy Corporate Operating Officer J. Wittenberg Corporate Operating Officer M. S. Han V.P. Information Services P. R. Kinvig V.P. Finance and Controller M. Ockenden V.P. Corporate Planning P. G. Tahmazian V.P. Midstream E. M. Shier General Counsel and Corporate Secretary, Manager Land L. A. Friesen Assistant Corporate Secretary
DIRECTORS C. H. Riddell Executive Chairman Paramount Resources Ltd. Calgary, Alberta J. H. T. Riddell (2) President and Chief Executive Officer Paramount Resources Ltd. Calgary, Alberta J. G. M. Bell (1) (3) (4) General Counsel Founders Advantage Capital Corp. Calgary, Alberta J. C. Gorman (1) (3) (4) Independent Businessman Calgary, Alberta D. Jungé C.F.A. (2) (4) Chairman of the Board Pitcairn Trust Company Bryn Athyn, Pennsylvania D. M. Knott (4) Managing General Partner Knott Partners, L.P. Syosset, New York S. L. Riddell Rose President and Chief Executive Officer Perpetual Energy Inc. Calgary, Alberta J. B. Roy (1) (2) (3) (4) Independent Businessman Calgary, Alberta (1) Member of Audit Committee (2) Member of Environmental,
Health and Safety Committee (3) Member of Compensation
Committee (4) Member of Corporate
Governance Committee
CORPORATE OFFICE 4700 Bankers Hall West
888 Third Street S.W.
Calgary, Alberta
Canada T2P 5C5 Telephone: (403) 290-3600 Facsimile: (403) 262-7994 www.paramountres.com
REGISTRAR AND TRANSFER AGENT Computershare Trust Company of Canada Calgary, Alberta Toronto, Ontario
BANK Bank of Montreal Calgary, Alberta
CONSULTING ENGINEERS
McDaniel & Associates Consultants Ltd. Calgary, Alberta
AUDITORS
Ernst & Young LLP Calgary, Alberta
STOCK EXCHANGE LISTING
The Toronto Stock Exchange (“POU”)