Parex Resources (PXT:TSX), who recently increased its 2013 exit rate guidance from 15,500bpd to 15,700bpd due to stellar production success from their light oil assets in Colombia's Llanos Basin have now sets the bar high for 2014. The company announced their 2014 production guidance and capital budget plans which set Parex up for a profitable 2014. PXT expects to produce 17,500-18,500bpd by year-end 2014. This represents growth of approximately 12-18% over 2013 and 53-62% growth from 2012 (11,407bpd in 2012). In connection with their growth plans, PXT plans to spend $250 million in exploration and development which it anticipates to be able to fund through cash flow and existing facilities.
Parex is planning to drill at least a total (gross) of 37 wells of which they will be on the hook to finance 23.4 of them. Of these total gross wells to be drilled, 15 are to be appraisal and development wells of existing fields, 19 are to be drilled proven exploration targets and 3 will test completely new concepts. Including budgets for drilling, facilities and other items, the development wells will cost a total of $90 million, exploration of proven plays will cost $125 million and the new concepts will cost roughly $35 million. Parex has also allocated an additional $30 million which it will spend if certain plays warrant the increased drilling expenditures.
Parex expects Vasconia/Brent pricing to average roughly $100/bbl over 2014 and expects its production and transportation costs to range from $27-$30/bbl. Other netback components are expected to be inline with 2013, except for royalties which are expected to be 15% higher in 2014 due to their planned drilling on high royalty rate fields.
PXT expects to focus its development and appraisal drilling on the Cabrestero (100% operated), LLA-30 (100% operated) and LLA-34 (45% non-operated; Geopark and P1). These are high quality blocks within the productive Llanos Basin of Colombia. On Cabrestero and LLA-34 the company expects to drill 12 development/appraisal wells and 5 exploration wells. LLA-30 discovered significant oil in the second quarter of 2013 and flowed 38 degree API light oil at over 1,000bpd from the Adalia well.
Parex's exploration drilling schedule provides for a catalyst rich program with 17 of a possible 22 exploration prospects expected to be drilled in the first half of 2014. Parex also has the opportunity to drill another 8-10 appraisal wells in 2014 as follow- up to exploration success. In total the company is spending 10% more in total capital in 2014 than 2013 and expect to grow production by over 15% (at least). With management's history of beating guidance with production success, we would expect guidance to be revised to the upside in H2/2014. Parex grew 2013 2P reserves by over 47% from 2012, to 23.7mmbbl and expects to grow that even further over 2014 as part of their budget.
PXT has consistently strong operating netbacks and heavy focus on light oil, Parex is a ripe takeover target due to its strategic locations within the Llanos Basin. Active acquirers such as Pacific Rubiales will be looking for more light oil assets over 2014 and Parex offers some of the best performing blocks in the basin. If Parex goes, then Petroamerica Oil (PTA:TSXV) is likely to go with them (or shortly after). Parex is the operating partner on PTA's Los Ocarros and El Eden blocks. Los Ocarros hosts the highly productive Las Maracas well series which have had high success rates of both exploration and production.