Parex Resources : Q1 2024 Financial Statements & MD&A

CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Consolidated Balance Sheets (unaudited)

	As at				March 31,		December 31,
	(thousands of United States dollars)		NOTE		2024		2023
	ASSETS
	Current assets
	Cash and cash equivalents		18	$	61,052	$	140,352
	Accounts receivable		5		146,927		118,567
	Prepaids and other current assets			39,013		44,990
	Current income tax receivable				20,458		29,012
	Crude oil inventory		6		8,663		4,254
					276,113		337,175
	Deferred tax asset				209,670		246,678
	Goodwill				73,452		73,452
	Exploration and evaluation		7		255,566		211,590
	Property, plant and equipment		8		1,323,739		1,338,175
	Long-term inventory		9		208,544		204,701
	Other long-term assets		18		8,428		3,556
				$	2,355,512	$	2,415,327
	LIABILITIES AND SHAREHOLDERS' EQUITY
	Current liabilities
	Accounts payable and accrued liabilities		$	214,457	$	252,148
	Current portion of decommissioning and environmental liabilities	14		5,755		6,000
					220,212		258,148
	Bank debt		10		60,000		90,000
	Lease obligation		11		5,557		5,736
	Cash settled share-based compensation liabilities	16		8,575		16,284
	Decommissioning and environmental liabilities	14		88,963		89,732
					383,307		459,900
	Shareholders' equity
	Share capital		15		656,662		660,817
	Contributed surplus				19,344		19,248
	Retained earnings				1,296,199		1,275,362
					1,972,205		1,955,427
				$	2,355,512	$	2,415,327
Commitments and Contingencies (note 22)
See accompanying Notes to the Consolidated Interim Financial Statements
Approved by the Board:
"signed"	"signed"
Sigmund Cornelius	Bob MacDougall
Director	Director

Consolidated Statements of Comprehensive Income (unaudited)

			For the three months
			ended March 31,
(thousands of United States dollars, except per share amounts)	NOTE		2024		2023
Oil and natural gas sales(1)	12	$	335,298	$	327,230
Royalties			(53,082)		(57,631)
Net revenue			282,216		269,599
Other revenue(1)	12		1,421		1,761
Revenue			283,637		271,360
Expenses
Production			59,824		41,759
Transportation			16,097		14,578
Purchased oil			101		1,420
General and administrative			19,168		13,969
Equity settled share-based compensation expense	15		198		269
Cash settled share-based compensation (recovery) expense	16		(2,661)		10,282
Depletion, depreciation and amortization	8		52,231		41,952
Foreign exchange (gain) loss			(1,168)		10,266
			143,790		134,495
Finance (income)(1)	13		(1,257)		(4,386)
Finance expense	13		5,194		3,704
Net finance expense (income)			3,937		(682)
Income before income taxes			135,910		137,547
Income tax expense
Current tax expense			38,810		39,905
Deferred tax expense (recovery)			37,007		(6,733)
			75,817		33,172
Net income and comprehensive income for the period		$	60,093	$	104,375
Basic net income per common share	17	$	0.58	$	0.96
Diluted net income per common share	17	$	0.58	$	0.96

1. Certain comparative figures have been reclassified to conform with the current period's presentation as described in Note 2. See accompanying Notes to the Consolidated Interim Financial Statements

2	March 31, 2024

Consolidated Statements of Changes in Equity (unaudited)

For the three months ended March 31,
(thousands of United States dollars)		2024		2023
Share capital
Balance, beginning of period	$	660,817	$	682,718
Issuance of common shares under share-based compensation plans		411		3,722
Repurchase of shares		(4,566)		(9,457)
Balance, end of period	$	656,662	$	676,983
Contributed surplus
Balance, beginning of period	$	19,248	$	20,334
Share-based compensation		198		269
Options and RSUs exercised		(102)		(1,579)
Balance, end of period	$	19,344	$	19,024
Retained earnings
Balance, beginning of period	$	1,275,362	$	1,011,940
Net income for the period		60,093		104,375
Repurchase of shares		(10,725)		(23,411)
Dividends		(28,531)		(29,831)
Balance, end of period	$	1,296,199	$	1,063,073
	$	1,972,205	$	1,759,080

See accompanying Notes to the Consolidated Interim Financial Statements

3	March 31, 2024

Consolidated Statements of Cash Flows (unaudited)

			For the three months
			ended March 31,
(thousands of United States dollars)	NOTE		2024		2023
Operating activities
Net income		$	60,093	$	104,375
Add (deduct) non-cash items
Depletion, depreciation and amortization	8		52,231		41,952
Non-cash finance expense	13		2,466		2,358
Equity settled share-based compensation expense	15		198		269
Cash settled share-based compensation (recovery) expense	16		(2,661)		10,282
Deferred tax expense (recovery)			37,007		(6,733)
Unrealized foreign exchange (gain) loss			(1,387)		8,992
Loss on settlement of decommissioning liabilities	14		360		229
Net change in non-cash working capital	18		(50,895)		(30,451)
Cash provided by operating activities			97,412		131,273
Investing activities
Property, plant and equipment expenditures	8		(40,831)		(83,224)
Exploration and evaluation expenditures	7		(44,590)		(30,644)
Long-term inventory expenditures, net of transfers	9		(3,843)		(19,767)
Net change in non-cash working capital	18		(8,674)		11,633
Cash (used in) investing activities			(97,938)		(122,002)
Financing activities
Common shares repurchased	15		(15,291)		(32,868)
Dividends	15		(28,531)		(29,831)
Bank debt repayment	10		(30,000)		-
Issuance of common shares under equity-settled plans	15		309		2,143
Payments on lease obligation	11		(194)		(170)
Cash (used in) financing activities			(73,707)		(60,726)
(Decrease) in cash and cash equivalents for the period			(74,233)		(51,455)
Impact of foreign exchange on foreign currency-denominated cash balances			(195)		4,872
Cash and cash equivalents and restricted cash and cash equivalents, beginning of period	18		143,908		419,002
Cash and cash equivalents and restricted cash and cash equivalents, end of period	18	$	69,480	$	372,419
Supplemental Disclosure of Cash Flow Information (note 18)
See accompanying Notes to the Consolidated Interim Financial Statements

4	March 31, 2024

Notes to the Condensed Interim Consolidated Financial Statements

For the period ended March 31, 2024

(Tabular amounts in thousands of United States dollars, unless otherwise stated. Amounts in text are in United States dollars, unless otherwise stated.)

1. Corporate Information

Parex Resources Inc. and its subsidiaries ("Parex" or "the Company") are in the business of the exploration, development, production and marketing of oil and natural gas in Colombia.

Parex Resources Inc. is a publicly traded company, incorporated and domiciled in Canada. Its registered office is at 2400, 525-8th Avenue S.W., Calgary, Alberta T2P 1G1. The Company was incorporated on August 17, 2009, pursuant to the Business Corporations Act (Alberta).

The condensed interim consolidated financial statements were approved and authorized for issuance by the Board of Directors on May 8, 2024.

2. Basis of Presentation and Material Accounting Policies

a) Statement of compliance

The condensed interim consolidated financial statements for the three months ended March 31, 2024 has been prepared in accordance with IAS 34, 'Interim financial reporting'. The condensed interim consolidated financial statements should be read in conjunction with the annual financial statements for the year ended December 31, 2023, which have been prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards").

The policies applied in these condensed interim consolidated financial statements are based on IFRS Accounting Standards issued and outstanding as of May 8, 2024, the date the Board of Directors approved the condensed interim consolidated financial statements.

b) Basis of measurement

The condensed interim consolidated financial statements have been prepared under the historical cost convention except for derivative financial instruments and share-based compensation transactions which are measured at fair value. The methods used to measure fair values are discussed in note 4 - Determination of Fair Values.

1. Change in presentation

Prior period revenue items have been reclassified to conform to the current period's presentation.

Pipeline transportation revenue, that was previously included in Oil and natural gas sales, has been included in Other revenue:

		For the three months ended
Consolidated Statements of Comprehensive Income (unaudited)		March 31, 2023
Oil and natural gas sales, as previously presented	$	328,733
Reclassification to Other revenue		(1,503)
Oil and natural gas sales, as currently presented	$	327,230

Revenues related to the energy generation and use of infrastructure, that were previously included in Finance income, have been included in Other revenue:

		For the three months ended
Consolidated Statements of Comprehensive Income (unaudited)		March 31, 2023
Finance income, as previously presented	$	4,644
Reclassification to Other revenue		(258)
Finance income, as currently presented	$	4,386

5	March 31, 2024

d) Use of management estimates, judgments and measurement uncertainty

The timely preparation of the condensed interim consolidated financial statements requires that management make estimates and use judgment regarding the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the date of the condensed interim consolidated financial statements and the reported amounts of revenues and expenses during the period. Such estimates primarily relate to unsettled transactions and events as at the date of the condensed interim consolidated financial statements. Accordingly, actual results could differ from estimated amounts as future confirming events occur.

In preparing these condensed interim consolidated financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended December 31, 2023.

3. Summary of Material Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year as described in note 3 of the Company's consolidated financial statements for the year ended December 31, 2023 with the addition of the below Amendment to IAS 1 Presentation of Financial Statements.

On January 1, 2024, the Company adopted the amendment to IAS 1 Presentation of Financial Statements. The amendment clarifies the requirements for the presentation of liabilities as current or non-current in the statements of financial position which specify the classification and disclosure of a liability with covenants. There was not a material impact to the Company's financial statements.

4. Determination of Fair Values

The methods used in the determination of fair value, for financial and non-financial assets and liabilities have not changed from the previous financial year. Refer to note 4 of the December 31, 2023 consolidated financial statements for details concerning determination of fair values.

5. Accounts Receivable

		March 31, 2024		December 31, 2023
Trade receivables	$	134,034	$	105,625
Value added taxes (VAT)		12,893		12,942
	$	146,927	$	118,567

Trade receivables consist primarily of oil sale receivables related to the Company's oil sales. VAT receivable is $12.9 million as at March 31, 2024 (December 31, 2023 - $12.9 million) and is recoverable within one year. All accounts receivable are expected to be received within twelve months and are thus recognized as current assets.

6. Crude Oil Inventory

		March 31, 2024		December 31, 2023
Crude oil inventory	$	8,663	$	4,254

Crude oil inventory consists of crude oil in transit at the balance sheet date and is valued at the lower of cost using the weighted average cost method and net realizable value. Costs include direct and indirect expenditures incurred in bringing the crude oil to its existing condition and location.

6	March 31, 2024

7. Exploration and Evaluation Assets

Cost

Balance at December 31, 2022	$	115,745
Additions and transfers		172,410
Changes in decommissioning liability		6,293
Exploration and evaluation impairment		(82,858)
Balance at December 31, 2023	$	211,590
Additions and transfers		44,590
Changes in decommissioning liability		(614)
Balance at March 31, 2024	$	255,566

Exploration and Evaluation ("E&E") assets consist of the Company's exploration projects which are pending either the determination of proved or probable reserves or impairment. Additions and transfers of $44.6 million for the three months ended March 31, 2024 represent the Company's share of costs incurred on E&E assets during the period. For the three months ended March 31, 2024 $1.5 million of general and administrative costs (three months ended March 31, 2023 - $0.6 million) have been capitalized in respect of exploration and evaluation activities during the current period.

There were no indicators of exploration and evaluation impairment in the period ended March 31, 2024.

At March 31, 2024 and December 31, 2023 the Company did not have any E&E assets in Canada.

8.	Property, Plant and Equipment
			Canada		Colombia		Total
Cost
Balance at December 31, 2022	$	15,796	$	3,051,099	$	3,066,895
	Additions and transfers		1,816		309,117		310,933
	Changes in decommissioning and environmental liability		-		25,721		25,721
Balance at December 31, 2023	$	17,612	$	3,385,937	$	3,403,549
	Additions and transfers		174		40,657		40,831
	Changes in decommissioning and environmental liability		-		(1,794)		(1,794)
Balance at March 31, 2024	$	17,786	$	3,424,800	$	3,442,586
Accumulated Depreciation, Depletion and Amortization
Balance at December 31, 2022	$	7,847	$	1,803,653	$	1,811,500
	Depletion and depreciation for the year		1,164		192,225		193,389
	Depreciation - Right-of-use-asset		767		73		840
	DD&A included in crude oil inventory costing		-		(37)		(37)
	Property, plant and equipment impairment		-		59,682		59,682
Balance at December 31, 2023	$	9,778	$	2,055,596	$	2,065,374
	Depletion and depreciation for the period		352		51,668		52,020
	Depreciation - Right-of-use-asset		193		18		211
	DD&A included in crude oil inventory costing		-		1,242		1,242
Balance at March 31, 2024	$	10,323	$	2,108,524	$	2,118,847
Net book value:
As at December 31, 2022	$	7,949	$	1,247,446	$	1,255,395
As at December 31, 2023	$	7,834	$	1,330,341	$	1,338,175
As at March 31, 2024	$	7,463	$	1,316,276	$	1,323,739

In the three months ended March 31, 2024 property, plant and equipment ("PPE") additions and transfers of $40.8 million mainly relate to drilling costs in Colombia at Blocks LLA-34, Cabrestero and LLA-32 and facility costs at Blocks LLA-34, Cabrestero, Capachos and VIM-1.

7	March 31, 2024

For the three months ended March 31, 2024 future development costs of $396.4 million (three months ended March 31, 2023 - $469.0 million) were included in the depletion calculation for development and production assets. For the three months ended March 31, 2024 $0.2 million of general and administrative costs (three months ended March 31, 2023 - $1.3 million) have been capitalized in respect of development and production activities during the current period.

At March 31, 2024 there were no indicators of impairment noted, or indicators requiring a reversal of previously recorded impairments.

9. Long-term Inventory

The Company has long-lead material inventory such as drill casing, natural gas compressors, and other major equipment.

Cost

Balance at December 31, 2022	$	165,271
Additions		114,803
Transfers to E&E and PP&E assets		(75,373)
Balance at December 31, 2023	$	204,701
Additions		22,476
Transfers to E&E and PP&E assets		(18,633)
Balance at March 31, 2024	$	208,544

10. Bank Debt

		March 31, 2024		December 31, 2023
Bank debt	$	60,000	$	90,000

The Company has a senior secured credit facility with a syndicate of banks which at March 31, 2024 had a borrowing base of $200.0 million (December 31, 2023 - $200.0 million). The credit facility is intended to serve as means to increase liquidity and fund cash or letter of credit needs as they arise. At March 31, 2024, $60.0 million (December 31, 2023 - $90.0 million) was drawn on the credit facility.

The credit facility bears interest based in the following manner:

1. each SOFR based Loan will bear interest at a rate per annum equal to SOFR plus the applicable margin indicated in the pricing table in the agreement; payable on repayment date in arrears; and
2. each U.S. Base Rate Loan will bear interest at a variable rate of interest per annum equal to the U.S. Base Rate plus the applicable margin indicated in the pricing table in the agreement; payable quarterly in arrears;
3. each Canadian Prime Rate Loan will bear interest at a variable rate of interest per annum equal to the Canadian Prime Rate plus the applicable margin indicated in the pricing table in the agreement; payable quarterly in arrears; and
4. the commitment fees payable quarterly in arrears will be calculated based in the pricing table in the agreement.

The credit facility is secured by the Company's Colombian assets and has final maturity date of May 21, 2025. The next annual review is scheduled to occur in May 2024.

Key covenants include a rolling four quarters total funded debt to adjusted EBITDA test of 3:50:1, and other standard business operating covenants for each reporting period. The Company was in compliance with all key covenants at March 31, 2024.

At March 31, 2024, performance guarantees are in place with the Colombian National Hydrocarbon Agency ("ANH") and Empresa Colombiana de Petróleos S.A., ("Ecopetrol") joint venture blocks related to the exploration work commitments on its Colombian concessions in the amount of $147.7 million (December 31, 2023 - $141.0 million) (see note 22 - Commitments and Contingencies). The guarantees have been provided in the form of letters of credit for varying terms that are mainly provided by select Latin American banks on an unsecured basis. The letters of credit issued to the ANH and Ecopetrol are reduced from time to time to reflect the work performed on the various blocks.

8	March 31, 2024

11.	Lease Obligation
			Canada		Colombia		Total
Balance at December 31, 2022	$	5,779	$	1,055	$	6,834
	Interest expense		43		151		194
	Lease payments		(746)		(160)		(906)
	Foreign exchange loss		78		270		348
Balance at December 31, 2023	$	5,154	$	1,316	$	6,470
	Interest expense		10		34		44
	Lease payments		(195)		(43)		(238)
Foreign exchange (gain)		(138)		(2)		(140)
Balance at March 31, 2024	$	4,831	$	1,305	$	6,136
Current obligation		(566)		(13)		(579)
Long-term obligation	$	4,265	$	1,292	$	5,557

12. Oil and Natural Gas Sales and Other Revenue

The Company's oil and natural gas production sales is determined pursuant to the terms of the revenue agreements. The transaction price for crude oil and natural gas is based on the commodity price in the month of production, adjusted for quality, location, allowable deductions, if any, or other factors. Commodity prices are based on market indices that are determined on a monthly or daily basis.

The Company's oil and natural gas sales by product are as follows:
		For the three months ended
		March 31,
		2024		2023
Crude oil	$	332,743	$	325,031
Natural gas		2,555		2,199
Oil and natural gas sales	$	335,298	$	327,230

At March 31, 2024, receivables from contracts with customers, which are included in accounts receivable, were $134.0 million (December 31, 2023 - $105.6 million).

The Company's other revenue includes pipeline transportation revenue and revenue related to the energy generation and use of infrastructure.

		For the three months ended
		March 31,
		2024		2023
Other revenue	$	1,421	$	1,761

9	March 31, 2024

13.	Net Finance Expense (Income)
			For the three months ended
			March 31,
			2024		2023
Bank charges and credit facility fees	$	1,889	$	1,076
Accretion on decommissioning and environmental liabilities		2,390		1,899
Interest and other income		(1,257)		(4,386)
Right-of-use-asset interest		44		45
Loss on settlement of decommissioning liabilities		360		229
Expected credit loss provision		75		455
Other			436		-
Net finance expense (income)	$	3,937	$	(682)
			For the three months ended
			March 31,
			2024		2023
Non-cash finance expense	$	2,826	$	2,587
Cash finance expense (income)		1,111		(3,269)
Net finance expense (income)	$	3,937	$	(682)

14. Decommissioning and Environmental Liabilities

	Decommissioning		Environmental		Total
Balance, December 31, 2022	$	38,818	$	14,474	$	53,292
Additions		9,676		1,379		11,055
Settlements of obligations during the year		(3,110)		(3,695)		(6,805)
Loss on settlement of obligations		199		-		199
Accretion expense		6,098		2,603		8,701
Change in estimate - inflation and discount rates		17,592		2,316		19,908
Change in estimate - costs		(1,331)		2,382		1,051
Foreign exchange loss		3,581		4,750		8,331
Balance, December 31, 2023	$	71,523	$	24,209	$	95,732
Additions		331		170		501
Settlements of obligations during the period		(890)		(246)		(1,136)
Loss on settlement of obligations		360		-		360
Accretion expense		1,624		766		2,390
Change in estimate - inflation and discount rates		(758)		(2,629)		(3,387)
Change in estimate - costs		372		106		478
Foreign exchange (gain)		(76)		(144)		(220)
Balance, March 31, 2024	$	72,486	$	22,232	$	94,718
Current obligation		(3,000)		(2,755)		(5,755)
Long-term obligation	$	69,486	$	19,477	$	88,963

The total environmental, decommissioning and restoration obligations were determined by management based on the estimated costs to settle environmental impact obligations incurred and to reclaim and abandon the wells and well sites based on contractual requirements. The obligations are expected to be funded from the Company's internal resources available at the time of settlement.

The total decommissioning and environmental liability is estimated based on the Company's net ownership in wells drilled as at March 31, 2024, the estimated costs to abandon and reclaim the wells and well sites and the estimated timing of the costs to be paid in future periods. The total undiscounted amount of cash flows required to settle the Company's decommissioning liability is approximately $202.9 million as at March 31, 2024 (December 31, 2023 - $201.4 million) with the majority of these costs anticipated to occur in 2033 or later in Colombia. A risk-free discount rate of 9.5% and an inflation rate of 4.0% were used in the valuation of the liabilities (December 31, 2023 - 9.4% risk-free discount rate and a 4.0% inflation rate). The risk-free discount rate and the inflation rate used are based on forecast Colombia rates.

10	March 31, 2024