CONSOLIDATED INTERIM FINANCIAL STATEMENTS …

[Pages:46]CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Consolidated Balance Sheets (unaudited)

As at (thousands of United States dollars)

ASSETS Current assets

Cash and cash equivalents Accounts receivable Prepaids and other current assets Crude oil inventory

Deferred tax asset Goodwill Exploration and evaluation Property, plant and equipment

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities

Accounts payable and accrued liabilities Derivative financial instruments Current income tax payable Current portion of decommissioning and environmental liabilities

Lease obligation Cash settled share-based compensation liabilities Decommissioning and environmental liabilities Deferred tax liability

Shareholders' equity Share capital Contributed surplus Retained earnings

Commitments (note 21)

See accompanying Notes to the Consolidated Interim Financial Statements Approved by the Board:

"signed" Paul Wright Director

"signed" Ron Miller Director

NOTE

March 31, 2019

December 31, 2018

$

432,906 $

462,891

5

194,568

148,211

6,326

4,935

6

2,049

1,446

$

635,849 $

617,483

15

124,246

132,706

73,452

73,452

7

134,216

127,800

8

793,373

775,531

$ 1,761,136 $ 1,726,972

$

164,490 $

160,535

19

3,259

8,290

15

254,046

220,821

12

6,640

9,311

428,435

398,957

9

1,540

--

14

6,587

5,175

12

49,891

48,290

15

3,703

1,518

490,156

453,940

13

826,530

848,946

53,067

54,742

391,383

369,344

1,270,980

1,273,032

$ 1,761,136 $ 1,726,972

Consolidated Statements of Comprehensive Income (unaudited)

(thousands of United States dollars, except per share amounts)

Oil and natural gas sales Royalties Revenue Commodity risk management contracts (loss)

NOTE

10

$

19

Expenses

Production

Transportation

Purchased oil

General and administrative

Equity settled share-based compensation expense

13

Cash settled share-based compensation expense

14

Depletion, depreciation and amortization

8

Foreign exchange loss

Finance (income)

11

Finance expense

11

Net finance (income) expense

Income before income taxes

Income tax expense

Current tax expense

15

Deferred tax expense

15

Net income and comprehensive income for the period Basic net income per common share Diluted net income per common share

See accompanying Notes to the Consolidated Interim Financial Statements

$

16

$

16

$

For the three months ended March 31,

2019

2018

246,594 $ (29,270) 217,324

-- 217,324

202,450 (26,179) 176,271

(396) 175,875

26,157 19,146

5,653 8,527 2,219 6,938 29,465 6,686 104,791

(7,631) 3,039 (4,592)

117,125

19,202 15,343

1,436 8,155 3,513

771 22,439

4,579 75,438

(545) 1,640 1,095

99,342

24,466 10,645 35,111

82,014 $

0.54 $ 0.53 $

27,280 550

27,830

71,512

0.46 0.45

2

March 31, 2019

Consolidated Statements of Changes in Equity (unaudited)

For the three months ended March 31, (thousands of United States dollars) Share capital Balance, beginning of period Issuance of common shares under share-based compensation plans Repurchase of shares Balance, end of period Contributed surplus Balance, beginning of period Share-based compensation Options exercised Balance, end of period Retained earnings Balance, beginning of period Net income for the period Repurchase of shares Balance, end of period

See accompanying Notes to the Consolidated Interim Financial Statements

2019

$

848,946

$

6,200

(28,616)

826,530

54,742 2,219 (3,894)

53,067

369,344

82,014

(59,975)

391,383

$

1,270,980

$

2018

836,166 13,028 (3,673)

845,521

52,431 3,513 (4,730)

51,214

(323) 71,512 (7,478) 63,711 960,446

3

March 31, 2019

Consolidated Statements of Cash Flows (unaudited)

(thousands of United States dollars)

Operating activities Net income Add (deduct) non-cash items Depletion, depreciation and amortization Non-cash finance (income) expense Equity settled share-based compensation Cash settled share-based compensation Deferred tax expense Unrealized foreign exchange loss Unrealized loss on commodity risk management contracts Gain on settlement of decommissioning liabilities Abandonment costs paid Cash settled share-based compensation paid Funds flow provided by operations Net change in non-cash working capital Cash provided by operating activities

Investing activities Property, plant and equipment expenditures Exploration and evaluation expenditures Net change in non-cash working capital Cash (used in) investing activities

Financing activities Issuance of common shares under option plans Common shares repurchased Payments on lease obligation Net change in non-cash working capital Cash (used in) financing activities

(Decrease) increase in cash for the period

Impact of foreign exchange on foreign currency-denominated cash balances

Cash, beginning of period

Cash, end of period

Supplemental Disclosure of Cash Flow Information (note 17) See accompanying Notes to the Consolidated Interim Financial Statements

NOTE

For the three months ended March 31,

2019

2018

$

8 11 13 14 15

19 12 12

17

82,014 $

29,465 (3,965) 2,219 6,938 10,645 6,200

-- (11) (2,659) (4,266) 126,580 (13,504) 113,076

71,512

22,439 1,220 3,513 771 550 3,516 216 -- (875) (1,961)

100,901 11,792

112,693

8

(46,013)

(39,280)

7

(6,520)

(18,930)

17

(6,759)

7,498

(59,292)

(50,712)

13 13 9 17

$

2,306 (88,591)

(167) 2,333 (84,119) (30,335)

350

462,891

432,906 $

8,298 (11,151)

-- -- (2,853) 59,128

327

235,042

294,497

4

March 31, 2019

Notes to the Condensed Interim Consolidated Financial Statements

For the period ended March 31, 2019 (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 7, 2019.

2.

Basis of Presentation and Adoption of International Financial Reporting Standards ("IFRS")

a) Statement of compliance The condensed interim consolidated financial information for the three months ended March 31, 2019 has been prepared in accordance with IAS 34, `Interim financial reporting'. The condensed interim consolidated financial information should be read in conjunction with the annual financial statements for the year ended December 31, 2018, which have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").

The policies applied in these condensed interim consolidated financial statements are based on IFRS issued and outstanding as of May 7, 2019, the date of approval by the Board of Directors.

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.

c) 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 that applied to the consolidated financial statements for the year ended December 31, 2018.

3.

Summary of Significant 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, 2018, except for the following adoption of new accounting standards effective January 1, 2019:

a) Adoption of IFRS 16, Leases

Effective January 1, 2019, the Company adopted IFRS 16 Leases ("IFRS 16"), which replaces previous IFRS guidance on leases: IAS 17 Leases ("IAS 17"). Under IAS 17, lessees were required to determine if the lease was a finance or operating lease, based on specified criteria of whether the lease transferred significantly all the risks and rewards associated with ownership of the underlying asset. Finance leases were recognized on the consolidated balance sheet while operating leases were recognized in net income (loss) and comprehensive income (loss) in the consolidated statements of comprehensive income (loss). IFRS 16 introduced a single lease accounting model for lessees which requires a right-of-use asset and liability to be recognized on the balance sheet for contracts that are, or contain, a lease. The Company adopted IFRS 16 using the modified

5

March 31, 2019

retrospective approach, whereby the cumulative effect of initially applying the standard was recognized as a $2.2 million increase to right-of-use assets (included in "Property, Plant and Equipment") with a corresponding increase to lease obligations (the non-current portion of $1.5 million is recorded in "Lease Obligation" and the current portion of $0.7 million is recorded in "accounts payable and accrued liabilities"). On adoption of IFRS 16, the Company's lease liabilities related to contracts classified as a lease are measured at the discounted present value of the remaining minimum lease payments, excluding short-term and low-value leases. The right -of -use assets recognized were measured at amounts equal to the present value of the lease obligations. The weighted average incremental borrowing rate used to determine the lease obligation at adoption was approximately 5.0%. The right-of-use asset and lease obligation recognized relate to the Company's head office lease in Calgary. The Company elected to not apply lease accounting to certain leases for which the lease term ends within 12 months of the date of initial application. The measurement of lease obligations are subject management's judgment and the application incremental borrowing rate.

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, 2018 consolidated financial statements for details concerning determination of fair values.

5.

Accounts Receivable

Trade receivables Receivables from partners Colombia income taxes receivable Value added taxes (VAT)

March 31, 2019 December 31, 2018

$

84,426 $

55,987

418

--

103,180

84,852

6,544

7,372

$

194,568 $

148,211

Trade receivables consist primarily of oil sale receivables related to the Company's oil sales. Colombia income tax receivable is a result of withholding tax incurred on Colombia oil sales and tax installments. The balance can either be received in cash or applied to Colombian cash income tax payable. VAT receivable is $6.5 million as at March 31, 2019 (December 31, 2018 - $7.4 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

Crude oil inventory

March 31, 2019 December 31, 2018

$

2,049 $

1,446

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.

7.

Exploration and Evaluation Assets

Cost Balance at December 31, 2017

Additions Transfers to PP&E Changes in decommissioning liability Exploration and evaluation impairment Balance at December 31, 2018 Additions Changes in decommissioning liability Balance at March 31, 2019

$

107,144

103,523

(68,484)

789

(15,172)

$

127,800

6,520

(104)

$

134,216

6

March 31, 2019

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 of $6.5 million for the three months ended March 31, 2019 represent the Company's share of costs incurred on E&E assets during the period.

There were no indicators of impairment noted as of March 31, 2019.

During the year ended December 31, 2018, additions of $103.5 million represent the Company's share of costs incurred on E&E assets during the period. During the year ended December 31, 2018 $68.5 million of E&E assets were transferred to PP&E mainly related to the Capachos Block. Also in 2018, the Company recorded $15.2 million of impairment charges primarily associated with VMM-9 in the Middle Magdalena basin.

At March 31, 2019 the Company did not have E&E assets in Canada.

8.

Property, Plant and Equipment

Cost Balance at December 31, 2017

Additions Transfers from E&E assets Changes in decommissioning and environmental liability Balance at December 31, 2018 Additions Right-of-use-asset addition (non-cash) Changes in decommissioning and environmental liability Balance at March 31, 2019

Canada

Colombia

Total

$

3,780

$ 1,787,822

$ 1,791,602

87

198,733

198,820

--

68,484

68,484

--

9,841

9,841

$

3,867

$ 2,064,880

$ 2,068,747

22

45,991

46,013

2,227

--

2,227

--

(733)

(733)

$

6,116

$ 2,110,138

$ 2,116,254

Accumulated Depreciation, Depletion and Amortization Balance at December 31, 2017

Depletion and depreciation for the year DD&A included in crude oil inventory costing Balance at December 31, 2018 Depletion and depreciation for the period Depreciation - Right of Use Asset DD&A included in crude oil inventory costing Balance at March 31, 2019

$

3,533

$ 1,186,632

$ 1,190,165

145

103,161

103,306

--

(255)

(255)

$

3,678

$ 1,289,538

$ 1,293,216

34

29,241

29,275

190

--

190

--

200

200

$

3,902

$ 1,318,979

$ 1,322,881

Net book value: As at December 31, 2017 As at December 31, 2018 As at March 31, 2019

$

247

$

601,190

$

601,437

$

189

$

775,342

$

775,531

$

2,214

$

791,159

$

793,373

In the three months ended March 31, 2019 property, plant and equipment ("PPE") additions of $46.0 million mainly relate to drilling costs in Colombia at Block LLA-34, Capachos, Cabrestero and the Aguas Blancas blocks.

For the three months ended March 31, 2019 future development costs of $399.8 million (three months ended March 31, 2018 - $389.4 million) were included in the depletion calculation for development and production assets. For the three months ended March 31, 2019 -$2.2 million of general and administrative costs (three months ended March 31, 2018 - $2.4 million) have been capitalized in respect of development and production activities during the current period.

There were no indicators of impairment noted as of March 31, 2019.

During the year ended December 31, 2018, additions of $198.8 million mainly related to drilling costs in Colombia at Block LLA-34, Cabrestero block, and the Aguas Blancas block. For the year ended December 31, 2018, $68.5 million of E&E assets were transferred to PP&E related to the Capachos block.

7

March 31, 2019

9.

Lease Obligation

The Company has the following future commitments associated with its office lease obligation:

Less than 1 year 2-3 years Total lease payments Amounts representing interest over the term of the lease Present value of net lease payments Current portion of lease obligations Non-current portion of lease obligations

March 31, 2019

$

919

1,350

$

2,269

(181)

2,088

(548)

$

1,540

For the three months ended March 31, 2019, non-cash interest expense of $27,263 was recognized relating to lease obligations. Total cash outflows were $0.2 million for the three months ended March 31, 2019.

10. Revenue

The Company's oil and natural gas production revenue 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 revenues by product are as follows:

Crude oil Natural gas Oil and natural gas sales

For the three months ended March 31,

2019

$

243,732 $

2,862

$

246,594 $

2018 200,496

1,954 202,450

At March 31, 2019, receivables from contracts with customers, which are included in accounts receivable, were $84.4 million (December 31, 2018 - $56.0 million).

11. Net Finance Expense (Income)

Bank charges and credit facility fees Accretion on decommissioning and environmental liabilities Interest and other income Realized loss on foreign currency risk management contracts Unrealized (gain) on foreign currency risk management contracts Right of use asset interest Gain on settlement of decommissioning liabilities Net finance (income) expense

For the three months ended March 31,

2019

$

624 $

2018 420

1,040 (2,599) 1,359 (5,032)

1,220 (545)

-- --

27

(11)

$

(4,592) $

-- -- 1,095

Non-cash finance (income) expense Cash finance (income) Net finance (income) expense

For the three months ended March 31,

2019

$

(3,976) $

(616)

$

(4,592) $

2018 1,220 (125) 1,095

8

March 31, 2019

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