Paramount Resources Pitch (POU.

TO)
ENERGY & POWER Exploration & Production
Jonathan J. ChangBComm, 2017
Aditya Patel
Ziyi Jin

BA, Economics, 2015

BA, Economics, 2016

Matas Sriubikis

Jan 29, 2015

BA, Economics, 2017

This presentation is for informational purposes only, and is not an offer to buy or sell or a solicitation to buy
or sell any securities, investment products or other financial product or service, an official confirmation of
any transaction, or an official statement of Queens Economics Investment Council (QEIC). Any views or
opinions presented are solely those of the author and do not necessarily represent those of QEIC.

Our Agenda

Industry
Breakdown
Investment
Thesis Point #2
Price Target
Summary

Company
Overview
Company
Valuation

Management
Team
Projected
Catalysts

Investment
Thesis Point #1
Associated
Risks

Sector Overview and Outlook

S&P Global Energy Index (iShares)
55

50

45

When will there be a

bounce back if
possible?

40

35

30

Sources: Capital IQ

Historical Commodity Pricing and 2015E Projections

Natural Gas HP
5.00

Natural Gas - Henry Hub (NYMEX) Historical Pricing

Natural Gas - Henry Hub (NYMEX) Future Contracts

4.50
4.00
3.50
3.00
2.50
2.00

Crude Oil HP
Crude Oil - Light (NYMEX) Historical Pricing

Crude Oil - Light (NYMEX) Future Contracts

110.00
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00

Sources: Capital IQ

Company Overview
Paramount Resources Business Description

Price Volume Performance

Paramount Resources Ltd., an independent energy

company, is engaged in the exploration, development,
production, processing, transportation, and marketing
of natural gas, crude oil, and natural gas liquids in
Canada and the United States.
Its principal properties are located in west central
Alberta; the Peace River Arch area of Alberta;
southern Alberta; and northern Alberta and northeast
British Columbia.
The company was founded in 1978 and is
headquartered in Calgary, Canada.

70

4.0M

60

3.5M
3.0M

50

2.5M

40

2.0M
30

1.5M

20

1.0M

10

0.5M

0.0M

Volume

Price

Financial Metrics (CDN, MM)

Total Revenue

292.8

Market Capitalization

2,990.6

TEV/Total Revenue

13.9 x

EBITDA

129.9

Total Enterprise Value

4,081.6

TEV/EBITDA

24.1 x

EBIT

(36.6)

Cash & ST Invst.

P/Diluted EPS Before

Extra

82.8 x

Net Income
Capital Expenditure

Sources: Capital IQ

35.1
(877.9)

14.8

Total Debt

1,105.7

Price/Tang BV

2.0 x

Total Assets

3,090.9

Total Debt/EBITDA

8.5 x

Company Overview
Production Split

Paramounts Investments

Heavy Oil ($US

/ bbl);/ bbl);
4% 0%
Light/Medium
Oil ($US
NGL ($US / bbl); 12%

Natural Gas ($US / mcf); 84%

Market Value of ~$348 MM or ~$3.32 / share

as of January 2015

Sources: Capital IQ

Executive Team
Clayton Riddell, CEO

James Riddell, President & COO

Joined in 1978

Since June 2002

Was President
prior to 2002

Been with company

since 1991

Experience in
various areas of
O&G

CEO of Trilogy
Energy and director
of Strategic Oil &
Gas Ltd.

Bernard Lee, CFO

Phil Tahmazian, VP Midstream

Since May 2003

Instrumental in
spin-off of Trilogy
Energy Corp

Over 25 years of
experincein O&G
industry

Previously held
senior position with
Alberta Energy
Company Ltd.

Served as VP
Midstream at
Encana previously

Sources: Paramount Resources Company Website

Investment Thesis Outline

I: Increased Production

II: Attractive Gross Margins

Though costly to build a new plant ($250M) it went

online in the spring of 2014
Increasing output through 2017 to 160,000 Boe/d
15,000 Bbl/d condenser coming online in April

Competing in unstable oil market, Paramount has

done exceptional well to maintain solid gross
margins
Currently sits at 55%
Indicates ability to compete in low oil prices and is
positioned to outperform competition

Projected Netback per boe Growth

Projected Production Growth

Production - mboe

Production - mboe/d

25,000

$70.88
60.0
50.0

20,000

$53.13

$55.17

$43.31

40.0
15,000
30.0
10,000
20.0
5,000

10.0

2013 2014 2015 2016 2017 2018 2019 2020

Sources: Capital IQ, Equity Research Reports

0.0

$8.10

$9.70

2015

2016

$11.45

2017

$13.34

2018

$15.41

2019

$17.42

2020

2021

2022

2023

2024

Argument I: Increasing Production

Projected Production Capacity Increases

Sources: Paramount Investor Presentation

Argument I: Increased Production

Production Capacity Increase

New Processing Plants

Capacity was at 40,000 Boe/d by the end of Q3

2014
Increased to 50,000 Boe/d by the end of 2015
On track to hit 70,000 Boe/d by April of 2015
Capacity increase from improved infrastructure at
the Musreau Deep cut facility

At a cost of $180mm/facility they will be starting

construction on two new processing plants
Expected to be complete in H2 2016
Starting capacity of 100mmcf/d increased to a total
capacity of 200mmcf/d at a later date

Condensate Stabilization Capacity

Fully Financed Plant Increases

25,000

All plants improvements and new construction

projects are fully funded

20,000
15,000
10,000
5,000
0
Current Capacity
Projected Capacity

Condensate stabilization is
a process of utilizing what
was once considered
waste of the production
process and filters it so
more can be used
New facility going online in
April of 2015 will increase
the companies condensate
stabilization capacity to
23,500 bbl/d from 8,500
bbl/d

Sources: Equity Research Reports and Investor Presentations

High level of debt but once the plants are at full

capacity they will be producing 70,000 Boe/d which
even at $50Bbl/d there will be increasing cash
flows
Nearly doubling production
Decreasing to under $9/Boe

10

Plants and Facilities

Plant
Musreau Deep
Cut
Musreasu
Refridge

Capacity

Potential Sales
Volume

200 MMcf/d

50,000 Boe/d

45 MMc/fd

8,500 Boe/d

Smoky Deep Cut 200 MMcf/d

10,000 Boe/d

Karr

40 MMcf/d

10,000 Boe/d

Other

70 MMcf/d

4,500 Boe/d

Subtotal

555 MMcf/d

83,000 Boe/d

Under
Construction
Condensate
Stabilizer
Expansion

N/A

15,000 Boe/d

Karr Expansion

40 MMcf/d

10,000 Boe/d

6 - 18

100 MMcf/d

25,000 Boe/d

3 - 15

100 MMcf/d

25,000 Boe/d

Subtotal

240 MMcf/d

75,000 Boe/d

Projected Total

795 MMcf/d

158,000 Boe/d

Capacity

Sources: Investor Presentation

Potential Sales
Volume

11

Argument II: Substantial Gross Margins

Strong Pricing Power

Combination of Margins & Production

Paramounts high gross margins allows them to

compete in rough periods of low prices
Have better ability to absorb the low price shock
Allows Paramount the flexibility to maintain profits
and continue investments

Paramount has done excellent job in maintaining

the high margins but also aims to increase
production
Increase in production paired with their margins will
be lead to a strong 2015 for Paramount

Gross Margins - Increase

350

60%

300

50%

250

40%

200
30%
150
20%
100

Oil prices are seeing a bit of surge after hitting the

low point during last week

Recovery form ISIS

In midst of this recovery, we are bullish going

forward at the target of $65/bbl by Q4, in line with
most analysts

10%

50
0

Oil Market

2009

2010

Revenue (M)

2011

2012

2013

Gross Profit (M)

Sources: Capital IQ, Equity Research Report

2014

0%

Gross Margins

12

Argument II: Substantial Gross Margins

Paramounts Average Production Cost

$14.31
$12.72
$10.70

$10.40
$9.22
$8.22

2008

2009

2010

2011

2012

2013

Comparably lower in terms of average production cost to rest of the industry.

Paramount decided to build its own infrastructure and its own gas processing plant
This allows Paramount to cut out mid-stream operators such as Keyera Corp.

Sources: Capital IQ, Equity Research Report

13

Valuation Net Asset Value (Operating Model)

NAV model based on 2013 AIF. No previous operations in terms of production

for oil sand bitumen so conservative projection was made.
Sources: Capital IQ, Equity Research Reports

14

Valuation Net Asset Value (Netback Calculations)

Sources: Capital IQ, Equity Research Reports

15

Catalysts
Musreau and Future Plants
Paramount has
completed their new
Smoky and Musreau
deep cut plant
.
Thanks to the new
expansion, their output at
this plant alone can triple
from 8,500 barrels per
day to 23,500.

Western Expansion
The Company has drilled and completed its first
well in the Willesden Green area of western
Alberta. The Company has also entered into a joint
venture agreement that will increase its Willesden
Green Duvernay land position to 86 wells.

Expanding Montney
drilling program in the
Kaybob area with two
plants, one scheduled to
be online in the second
half of 2016 and the
second one six months
later.
First sales of new plant
completed in Q3 of 2014,
enables Paramount to
begin ramp-up production
from their wells to be
processed at new plant

Sources: Capital IQ, Equity Research Reports

16

Risks
Downturn in Prices
-

E&Ps (Exploration &

Production) companies are
involved in the high-risk/highreward area of exploration
and production focus on
finding, augmenting,
producing and
merchandising different
types of oil and gas

Like all E&Ps, Paramount

Resources faces risks from
any material downturn in
commodity prices.

Volatility in crude oil and

natural gas prices can
materially affect financial
performance and the
accuracy of estimates

Plant Reliance & Competition Natural Risks

Any mechanical issues would
impact the rate of forecasted
growth
Margins concentrated on
Musreau plant expansion at a
cost of $35 million.
Due to its exploratory nature,
large scale technological
improvements in E&P
competition would destroy any
competitive position and future
margins

Geological, engineering,
regulatory and environmental
risks related to the exploration
for and development of crude oil
and natural gas resources
Access on favourable terms to
oilfield services, equipment and
labour.
Cold or warm winters will affect
natural gas prices

Condensate stabilizer has been

delayed a couple of times any
further delays could be
detrimental

17

Sources: Equity Research Reports

Summary - Price Target

Analyst Price Targets

Implied Return

Jan. 29 Share Price

Target Share Price
Equity Upside
Dividend Yield

$26.90
$45.00
67.28%
-

Suggested Return

67.3%

NAV Sensitivity

Sources: Capital IQ, Equity Research Reports

18