Paramount Resources increases dividend 20%.Another Kay Bob Duvernay winner

Paramount (POU) had a good first quarter producing on average 101,000 barrels a day which was only slightly lower than Q4.At the same time it showed an increase of 22,000 barrels/day from it's multi-pad wells in the Kay Bob region.Kay Bob is the new shale oil discovery that is showing superior oil and natural gas production.This area was explored before with below average results because of the low porosity of shale.But with the advent of new technology in horizontal drilling, production has become much more successful.In fact,the Kay Bob area is condidered the most productive in the Duvernay.In 2023,4 out of the top 5 producing wells, in Alberta were from the Kay Bob region.But these wells deliver oil,liquids and natural gas.It is not a pure oil play.

   POU has increased it's capital expenditures to$214 million in Q1.And it is drilling 15 new wells.9 of these wells are in the Grande Prairie Duvernay region and 4 in the Kay Bob area.This leaves Paramount with about 200,000 acres of unexplored land in the Duvernay region.                                         

   Financially Speaking

   Paramount is unlike most oil companies in the oil patch as it has almost no debt and $570 million in investments including 31.5 million shares of Nuvista Energy (NVA).Recently it sold 6 million shares of NVA for $75 million.This will largely be used to finance it's capital construction program.In addition, it's Q1 operating results were good enough for POU to increase it's dividend by 20% to $.15 per share.It had operating income of $201 million and adjusted funds flow of $226 million but negative free cash flow of $10 million.The latter fas been caused by accounting adjustments.

   Paramount sold some non-core assets for $47 million in 2023 and this reduced total production to 97,000 boe/day.But additional production from newly drilled Kay Bob wells brought Q1 production to 101,000 boe/day.Guidance for the rest of 2024 remains about the same as for Q1.This blog sees increases in the average price of oil and natural gas for the rest of 2024 (above the Q1 average price).This could easily create a positive free cash flow and operating income of $225-$240 million by Q3.If so then POU should be trading around $35-$37 per share by Q3.                          https://www.zacks.com/            

Dale Mcintyre is a freelance writer writing for Marketbeat.com And Zacks.