PARAMOUNT ANNOUNCES THIRD QUARTER 2016 RESULTS … · 2019. 12. 3. · Paramount Resources Ltd. Third Quarter 2016 Paramount is an independent, publicly traded, Canadian corporation

PARAMOUNT ANNOUNCES THIRD QUARTER 2016 RESULTS

Calgary, Alberta

November 9, 2016

HIGHLIGHTS

Paramount completed the divestiture of its oil and gas properties in the Musreau / Kakwa area of Alberta

(the "Sale Transaction") in August 2016, significantly de-leveraging the Company and bolstering its

balance sheet.

Total proceeds from the Sale Transaction were $2.1 billion, including $0.5 billion in cash, 33.5 million

shares of Seven Generations Energy Ltd. ("7G") and $0.6 billion of debt assumed by 7G. A $1.2 billion

pre-tax gain was recorded on the sale.

In the third quarter, the Company monetized 24.7 million of its 7G shares for gross proceeds of

approximately $735 million.

Paramount exited the third quarter of 2016 with a working capital surplus of $681 million, a portfolio of

equity investments with a market value of $467 million and no drawings on its $100 million bank credit

facility. The Company has $286.6 million principal amount of senior unsecured notes outstanding that

are due in December 2019.

The Company’s next growth platform is its Montney development at Karr-Gold Creek, where five drilling

rigs will be working in the fourth quarter of 2016 and a 40 MMcf/d expansion of the 6-18 compression

and dehydration plant is scheduled to be completed in mid-2017, doubling available capacity.

In the third quarter, Paramount completed its first 2.0 mile horizontal Montney well at Karr-Gold Creek.

Over its initial 30 days on-stream, the well averaged 7.2 MMcf/d of raw natural gas and 1,280 Bbl/d of

wellhead Liquids.

Sales volumes for Paramount’s ongoing operations averaged 11,148 Boe/d in the third quarter of 2016,

including 3,235 Bbl/d of Liquids.

Paramount implemented a normal course issuer bid in October 2016 under which it may purchase up

to 5.4 million Common Shares for cancellation. To date, the Company has purchased 622,900

Common Shares at a total cost of $9.7 million.

ONGOING OPERATIONS

Paramount’s average sales volumes for the third quarter of 2016 were 24,786 Boe/d, which included sales

volumes from the properties sold to 7G up to August 18, 2016, the closing date of the sale. Sales volumes

from the Company’s ongoing operations were 11,148 Boe/d.

Following the Sale Transaction, the Company’s main areas of operation are Karr-Gold Creek and Smoky-

Resthaven in west central Alberta, Birch in northeast British Columbia and Willesden Green in southern

Alberta. Near-term development activities are expected to be directed towards Montney production growth

at Karr-Gold Creek.

Karr-Gold Creek

The Company is drilling longer horizontal Montney wells with higher intensity completions in its 2016/2017

capital program at Karr-Gold Creek. The Company continues to refine its well completion design and is

including more frack stages and higher proppant loading intensities in future wells. Key elements of new

wells being drilled and completed at Karr-Gold Creek include:

2.0 mile horizontal laterals;

managed pressure drilling;

slickwater completion fluids;

up to 72 stages per lateral; and

up to 100 metric tonnes of proppant placed per stage.

The new well design is expected to increase well productivity and recoverable reserves.

Paramount completed its initial 2.0 mile well (the 15-14 Well) at Karr-Gold Creek in August 2016 with

slickwater completion fluids and 5,000 tonnes of proppant placed over 50 stages in a 2.0-mile lateral. Drilling

of the 15-14 Well was completed in 41 days. Meters drilled per day for this well were 15 to 20 percent higher

than rates for 1.0 mile wells drilled historically. Further reductions in drilling days are being pursued with

the Company now executing on batch drilled multi-well pads. Newly completed wells will be tied in to

infrastructure as soon as saleable hydrocarbons are recovered during post-frack flowback, limiting

emissions and accelerating first sales from the wells. The Company has been implementing initial flowback

and production procedures to manage operational risks and maximize the recovery of condensate.

The 15-14 Well was brought on production at controlled rates in early September. Initial flow rates from the

well are shown in the table below:

15-14 Well IP 30 Cumulative

Natural gas(1) 7.2 MMcf/d 387.0 MMcf

Wellhead liquids(1) 1,280 Bbl/d 66,874 Bbl

CGR(2) 178 Bbl/MMcf 173 Bbl/MMcf

(1) Production volumes are the gross volumes measured at the wellhead separator over the initial 30 days of production ("IP 30") and cumulative volumes produced to November 3, 2016 ("Cumulative"). Excludes days when the well did not produce. Natural gas sales volumes are approximately 10 percent lower and stabilized condensate sales volumes are approximately 15 percent lower.

(2) Condensate to natural gas ratios (CGRs) were calculated by dividing total wellhead separator liquids volumes by total wellhead separator natural gas volumes.

Paramount plans to drill up to 24 and complete up to twelve 2.0 mile Montney wells at Karr-Gold Creek by

mid-2017, with the first of the new wells scheduled to be brought on production in the first quarter of 2017.

Capital costs to drill, complete and equip these wells are expected to average approximately $10.5 million.

Sales volumes at Karr-Gold Creek in the third quarter of 2016 averaged 5,237 Boe/d, including 1,714 Bbl/d

of Liquids. Sales volumes increased to approximately 6,500 Boe/d in September following the start-up of

Paramount Resources Ltd. Third Quarter 2016

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the 15-14 Well. The Company currently has design capacity for 40 MMcf/d of raw gas production at its 6-

18 compression and dehydration facility (the "Karr Facility"). The 2016/2017 drilling and completion program

is expected to increase production in the first half of 2017 to fully utilize this existing Karr Facility.

Sales volumes are expected to increase further in the third quarter of 2017 as the 40 MMcf/d Karr Facility

expansion is brought on-stream and additional new wells are brought on production. The remaining capital

costs to complete the Karr Facility expansion are estimated to be approximately $20 million.

Other Areas

At Willesden Green, a previously drilled Duvernay well is scheduled to be completed in the fourth quarter

of 2016 at a cost of approximately $6 million. The Company also plans to spud two Cretaceous wells at

Smoky-Resthaven in the fourth quarter of 2016. These wells are expected to be brought on production in

mid-2017 at an aggregate cost of approximately $20 million.


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OPERATING AND FINANCIAL HIGHLIGHTS (1)

($ millions, except as noted)

Three months ended

September 30 Nine months ended

September 30

2016 2015 % Change 2016 2015 % Change

Sales volumes – Ongoing Operations (2)

Natural gas (MMcf/d) 47.5 51.8 (8) 49.0 50.2 (2)

Condensate and oil (Bbl/d) 2,378 3,216 (26) 2,600 2,621 (1)

Other NGLs (Bbl/d) (3) 857 1,112 (23) 822 1,178 (30)

Ongoing Operations (Boe/d) 11,148 12,952 (14) 11,583 12,165 (5)

Sold Properties (Boe/d) (2) 13,638 37,038 (63) 26,979 31,515 (14)

Total (Boe/d) 24,786 49,990 (50) 38,562 43,680 (12)

Operating Results – Ongoing Operations (2)

Petroleum and natural gas sales 25.8 31.0 (17) 66.6 85.2 (22)

Average realized price ($/Boe) 25.12 26.05 (4) 20.99 25.65 (18)

Netback including commodity contract settlements 17.9 21.2 (16) 48.2 41.5 16

$/Boe 17.49 17.83 (2) 15.19 12.50 22

Principal Properties Capital (4)

Kaybob 19.6 59.3 (67) 54.9 237.9 (77)

Grande Prairie 22.8 15.5 47 30.8 64.4 (52)

Other 4.2 15.7 (73) 7.2 64.6 (89)

Total 46.6 90.5 (49) 92.9 366.9 (75)

Funds flow from operations 3.8 36.9 (90) 21.3 72.2 (70) per share – diluted ($/share) 0.04 0.35 (89) 0.20 0.68 (70)

Net income (loss) 1,029.4 (171.8) 699 952.9 (302.3) 415 per share – diluted ($/share) 9.64 (1.62) 695 8.97 (2.86) 414

Total assets 2,130.3 3,367.8 (37)

Working capital surplus (deficit) (5) 681.3 (131.3) 619

Investments in other entities – market value (6) 466.7 131.4 255

Long term debt (7) 284.4 1,678.3 (83)

Common shares outstanding (millions) 106.3 106.2 –

(1) Readers are referred to the advisories concerning Non-GAAP Measures and Oil and Gas Measures and Definitions in the Advisories section of this document. (2) Sold Properties represent the Musreau / Kakwa oil and gas properties sold to 7G in the third quarter of 2016. Results of the Sold Properties are included in Paramount’s

results to the closing date of the sale, August 18, 2016. Results of Ongoing Operations, including Sales Volumes and Operating Results consist of Paramount’s total results less amounts attributable to the Sold Properties.

(3) Other NGLs means ethane, propane and butane. (4) Principal Properties Capital includes capital expenditures and geological and geophysical costs related to the Company’s Principal Properties, excluding land acquisitions

and capitalized interest. (5) Working capital surplus (deficit) calculated as current assets less current liabilities, excluding accounts payable and accrued liabilities relating to the Company’s obligation

to renounce qualifying expenditures for flow-through share issuances. (6) Based on the period-end closing prices of publicly-traded investments and the book value of the remaining investments. (7) Net of unamortized issuance costs.


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Paramount is an independent, publicly traded, Canadian corporation that explores for and develops

conventional petroleum and natural gas prospects, pursues longer-term non-conventional exploration and

pre-development projects and holds investments in other entities. The Company’s properties are primarily

located in Alberta and British Columbia. Paramount's Class A Common Shares are listed on the Toronto

Stock Exchange under the symbol "POU".

Paramount’s third quarter 2016 results, including Management’s Discussion and Analysis and the Company’s Consolidated Financial Statements will be made available through Paramount’s website at www.paramountres.com and SEDAR at www.sedar.com.

For further information, please contact:

Paramount Resources Ltd.

J.H.T. (Jim) Riddell, President and Chief Executive Officer

B.K. (Bernie) Lee, Chief Financial Officer

www.paramountres.com

Phone: (403) 290-3600

Fax: (403) 262-7994

ADVISORIES

Forward Looking Information

Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as "anticipate", "believe", "estimate", "will", "expect", "plan", "schedule", "intend", "propose", or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:

projected sales volumes (including increased well productivity and enhanced capital efficiencies from 2.0 mile wells); exploration, development, and associated operational plans and strategies (including planned drilling programs, well tie-

ins, and facility expansions) and the anticipated timing and costs of such activities; and general business strategies and objectives.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

future natural gas and Liquids prices; royalty rates, taxes and capital, operating, general & administrative and other costs; foreign currency exchange rates and interest rates; general business, economic and market conditions; the ability of Paramount to obtain the required capital to finance its exploration, development and other operations and

meet its commitments and financial obligations; the ability of Paramount to obtain equipment, services, supplies and personnel in a timely manner and at an acceptable

cost to carry out its activities; the ability of Paramount to secure adequate product processing, transportation, de-ethanization, fractionation, and storage

capacity on acceptable terms; the ability of Paramount to market its natural gas and Liquids successfully to current and new customers; the ability of Paramount and its industry partners to obtain drilling success (including in respect of anticipated production

volumes, reserves additions, Liquids yields and resource recoveries) and operational improvements, efficiencies and results consistent with expectations;

the timely receipt of required governmental and regulatory approvals; and


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anticipated timelines and budgets being met in respect of drilling programs and other operations (including well completions and tie-ins and the construction, commissioning and start-up of new and expanded facilities).

Although Paramount believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as Paramount can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Paramount and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

fluctuations in natural gas and Liquids prices; changes in foreign currency exchange rates and interest rates; the uncertainty of estimates and projections relating to future revenue, future production, reserve additions, Liquids yields

(including condensate to natural gas ratios), resource recoveries, royalty rates, taxes and costs and expenses; the ability to secure adequate product processing, transportation, de-ethanization, fractionation, and storage capacity on

acceptable terms; operational risks in exploring for, developing and producing, natural gas and Liquids; the ability to obtain equipment, services, supplies and personnel in a timely manner and at an acceptable cost; potential disruptions, delays or unexpected technical or other difficulties in designing, developing, expanding or operating

new, expanded or existing facilities (including third-party facilities); processing, pipeline, de-ethanization, and fractionation infrastructure outages, disruptions and constraints; risks and uncertainties involving the geology of oil and gas deposits; the uncertainty of reserves and resources estimates; general business, economic and market conditions; the ability to generate sufficient cash flow from operations and obtain financing to fund planned exploration, development

and operational activities and meet current and future commitments and obligations (including product processing, transportation, de-ethanization, fractionation and similar commitments and debt obligations);

changes in, or in the interpretation of, laws, regulations or policies (including environmental laws); the ability to obtain required governmental or regulatory approvals in a timely manner, and to enter into and maintain

leases and licenses; the effects of weather; the timing and cost of future abandonment and reclamation obligations and potential liabilities for environmental damage

and contamination; uncertainties regarding aboriginal claims and in maintaining relationships with local populations and other stakeholders; the outcome of existing and potential lawsuits, regulatory actions, audits and assessments; and other risks and uncertainties described elsewhere in this document and in Paramount’s other filings with Canadian

securities authorities.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled "RISK FACTORS" in Paramount's current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, Paramount undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

Non-GAAP Measures

In this document "Funds flow from operations", "Netback", "Principal Properties Capital", "Working Capital Surplus (Deficit)" and "Investments in other entities – market value", collectively the "Non-GAAP measures", are used and do not have any standardized meanings as prescribed by International Financial Reporting Standards.

Funds flow from operations refers to cash from operating activities before net changes in operating non-cash working capital, geological and geophysical expenses and asset retirement obligation settlements. Funds flow from operations is commonly used in the oil and gas industry to assist management and investors in measuring the Company’s ability to fund capital programs and meet financial obligations. Netback equals petroleum and natural gas sales less royalties, operating costs and transportation and NGLs processing costs. Netback is commonly used by management and investors to compare the results of the Company’s oil and gas operations between periods. Principal Properties Capital includes capital expenditures and geological and geophysical costs related to the Company’s Principal Properties business segment, and excludes land acquisitions and capitalized interest. The Principal Properties Capital measure provides management and investors with information regarding the Company’s Principal Properties spending on wells and infrastructure projects separate from land acquisition activity and capitalized interest. Refer to


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the Exploration and Capital Expenditures section of the Company’s Management’s Discussion and Analysis for the period. Working Capital Surplus (Deficit) is calculated as current assets less current liabilities, excluding accounts payable and accrued liabilities relating to the Company’s obligation to renounce qualifying expenditures for flow-through share issuances. Investments in other entities – market value reflects the Company’s investments in enterprises whose securities trade on a public stock exchange at their period end closing price (e.g. 7G, Trilogy Energy Corp., MEG Energy Corp., Marquee Energy Ltd., RMP Energy Inc., Strategic Oil & Gas Ltd. and others), and investments in all other entities at book value. Paramount provides this information because the market values of equity-accounted investments, which are significant assets of the Company, are often materially different than their carrying values.

Non-GAAP measures should not be considered in isolation or construed as alternatives to their most directly comparable measure calculated in accordance with GAAP, or other measures of financial performance calculated in accordance with GAAP. The Non-GAAP measures are unlikely to be comparable to similar measures presented by other issuers.

Oil and Gas Measures and Definitions

This document contains disclosures expressed as "Boe", "$/Boe" and "Boe/d". Natural gas equivalency volumes have been derived using the ratio of six thousand cubic feet of natural gas to one barrel of oil. Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head. For the nine months ended September 30, 2016, the value ratio between crude oil and natural gas was approximately 28:1. This value ratio is significantly different from the energy equivalency ratio of 6:1. Using a 6:1 ratio would be misleading as an indication of value. The term "Liquids" is used to represent oil, condensate and Other NGLs. NGLs consist of condensate and Other NGLs. The term "Other NGLs" means ethane, propane and butane.


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Management’s Discussion and Analysis For the three and nine months ended September 30, 2016

This Management’s Discussion and Analysis ("MD&A"), dated November 8, 2016, should be read in

conjunction with the unaudited Interim Condensed Consolidated Financial Statements of Paramount

Resources Ltd. ("Paramount" or the "Company") as at and for the three and nine months ended

September 30, 2016 and Paramount’s audited Consolidated Financial Statements as at and for the year

ended December 31, 2015. Financial data included in this MD&A has been prepared in accordance with

International Financial Reporting Standards ("IFRS" or "GAAP") and is stated in millions of Canadian

dollars, unless otherwise noted. The Company’s accounting policies have been applied consistently to all

periods presented.

The disclosures in this document include forward-looking information, non-GAAP measures and certain

oil and gas measures. Readers are referred to the Advisories section of this document concerning such

matters. Certain comparative figures have been reclassified to conform to the current years’ presentation.

Additional information concerning Paramount, including its Annual Information Form, can be found on the

SEDAR website at www.sedar.com.

ABOUT PARAMOUNT

Paramount is an independent, publicly traded, Canadian corporation that explores for and develops

conventional petroleum and natural gas prospects, pursues long-term non-conventional exploration and

pre-development projects and holds a portfolio of investments in other entities. The Company’s principal

properties are primarily located in Alberta and British Columbia. Paramount’s Class A Common Shares

("Common Shares") are listed on the Toronto Stock Exchange under the symbol "POU".

Paramount’s operations are divided into three business segments which have been established by

management to assist in resource allocation, to assess operating performance and to achieve long-term

strategic objectives: i) Principal Properties; ii) Strategic Investments; and iii) Corporate.

Paramount’s Principal Properties are divided into four Corporate Operating Units ("COUs"):

the Kaybob COU, which includes properties in west central Alberta;

the Grande Prairie COU, which includes properties in the Peace River Arch area of Alberta;

the Southern COU, which includes properties in southern Alberta; and

the Northern COU, which includes properties in northeast British Columbia and northern Alberta.

Strategic Investments include: (i) investments in other entities, including affiliates; (ii) investments in

exploration and development stage assets, where there is no near-term expectation of commercial

production, but a longer-term value proposition based on spin-outs, dispositions, or future revenue

generation, including oil sands and carbonate bitumen interests held by Paramount’s wholly-owned

subsidiary Cavalier Energy Inc. ("Cavalier"), and prospective shale gas acreage; and (iii) drilling rigs

owned by Paramount’s wholly-owned subsidiary, Fox Drilling Limited Partnership ("Fox Drilling").

The Corporate segment is comprised of income and expense items, including general and administrative

expense and interest expense, which have not been specifically allocated to Principal Properties or

Strategic Investments.


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FINANCIAL AND OPERATING HIGHLIGHTS (1)

Three months ended


September 30

2016 2015 2016 2015

FINANCIAL

Petroleum and natural gas sales 51.7 110.7 216.5 285.5

Funds flow from operations 3.8 36.9 21.3 72.2 per share – basic & diluted ($/share) 0.04 0.35 0.20 0.68

Net income (loss) 1,029.4 (171.8) 952.9 (302.3) per share – basic ($/share) 9.69 (1.62) 8.97 (2.86)

per share – diluted ($/share) 9.64 (1.62) 8.97 (2.86)

Principal Properties Capital (2) 46.6 90.5 92.9 366.9

Investments in other entities – market value (3) 466.7 131.4

Total assets 2,130.3 3,367.8

Long-term debt 284.4 1,678.3

OPERATIONAL

Sales volumes

Natural gas (MMcf/d) 88.6 181.8 124.0 161.7

Condensate and oil (Bbl/d) 5,335 10,214 9,342 8,144

Other NGLs (Bbl/d) (4) 4,687 9,483 8,556 8,587

Total (Boe/d) 24,786 49,990 38,562 43,680

FUNDS FLOW FROM OPERATIONS ($/Boe)

Petroleum and natural gas sales 22.66 24.07 20.49 23.94

Royalties (0.02) (0.60) (0.20) (0.61)

Operating expense (10.96) (5.67) (8.15) (5.63)

Transportation and NGLs processing (5) (5.56) (4.23) (4.94) (4.14)

Netback 6.12 13.57 7.20 13.56

Commodity contract settlements 4.78 1.66 3.54 0.64

Netback including commodity contract settlements 10.90 15.23 10.74 14.20

General and administrative – corporate (1.18) (0.63) (1.39) (1.16)

General and administrative – strategic investments (0.60) (0.34) (0.44) (0.36)

Interest and financing (7.67) (6.26) (6.93) (6.68)

Other 0.22 0.02 0.04 0.06

Funds flow from operations 1.67 8.02 2.02 6.06

(1) Readers are referred to the advisories concerning non-GAAP measures and Oil and Gas Measures and Definitions in the Advisories section of this document. (2) Principal Properties Capital includes capital expenditures and geological and geophysical costs related to the Company’s Principal Properties, and excludes land

acquisitions and capitalized interest. (3) Based on the period-end closing prices of publicly-traded investments and the book value of the remaining investments. (4) Other NGLs means ethane, propane and butane. (5) Includes downstream natural gas, NGLs and oil transportation costs and NGLs fractionation costs incurred by the Company.


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CONSOLIDATED RESULTS

Net Income (Loss)

Three months ended


September 30

2016 2015 2016 2015

Principal Properties 1,215.5 (27.6) 1,245.5 (112.5)

Strategic Investments (15.0) (90.0) (44.7) (110.9)

Corporate (33.7) (77.9) (80.7) (157.7)

Income tax (expense) recovery (137.4) 23.7 (167.2) 78.8

Net income (loss) 1,029.4 (171.8) 952.9 (302.3)

In April 2016, Paramount closed the sale of its natural gas processing facility and related midstream

assets at Musreau for net cash proceeds of $560.3 million (the "Midstream Sale"), resulting in the

recognition of a gain on sale of $125.5 million. In connection with the Midstream Sale, the Company

entered into a long-term natural gas processing arrangement with the purchaser (the "Processing

Arrangement").

In August 2016, the Company sold the majority of its oil and gas properties in the Musreau/Kakwa area of

west central Alberta (the "Sold Assets") to Seven Generations Energy Ltd. ("Seven Generations" or the

"Acquiror") for total consideration of approximately $2.1 billion (the "Musreau/Kakwa Disposition"), subject

to customary post-closing adjustments. Consideration was comprised of: (i) $496 million in cash; (ii) 33.5

million class A common shares of the Acquiror having a market value of approximately $972 million

based on the closing market price of the shares on the day prior to closing, (iii) the assumption by the

Acquiror of Paramount’s US$450 million 6.875% senior unsecured notes due 2023 (the "2023 Senior

Notes"); and (iv) certain oil and gas properties of the Acquiror valued at approximately $6 million. In

connection with the Musreau/Kakwa Disposition, the Acquiror assumed Paramount’s processing and

transportation commitments relating to the Sold Assets, including the Processing Arrangement. A gain on

sale of $1.2 billion was recorded in respect of the Musreau/Kakwa Disposition.

Results of the Sold Assets are included in Paramount’s results to August 18, 2016, the closing date of the

sale. When used herein, "Ongoing Operations" represents Paramount’s total results less amounts

attributable to the Sold Assets.

Additional information concerning the Musreau/Kakwa Disposition can be found in Paramount’s Material

Change Report dated July 12, 2016 and Information Circular dated July 15, 2016, both of which are

available on SEDAR at www.sedar.com.


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Paramount recorded net income of $1,029.4 million for the three months ended September 30, 2016

compared to a net loss $171.8 million in the same period in 2015. Significant factors contributing to the

change are shown below:

Three months ended September 30

Net loss – 2015 (171.8)

Gain on the sale of oil and gas assets primarily due to the Musreau/Kakwa Disposition in 2016 1,239.4

Lower depletion and depreciation due to the Musreau/Kakwa Disposition in 2016 98.8

Lower write-downs of investments in securities 68.4

Foreign exchange gain in 2016 compared to a loss in 2015 47.0

Lower interest and financing expense due to lower average debt balances in 2016 11.6

Lower loss from equity-accounted investments 9.6

Income tax expense in 2016 compared to a recovery in 2015 (161.1)

Lower netback in 2016 (48.4)

Lower gain on commodity contracts (35.7)

Debt extinguishment expense in 2016 due to the redemption and the Acquiror’s assumption of senior notes (18.3)

Higher exploration and evaluation expense primarily due to higher dry hole expense in 2016 (12.4)

Other 2.3

Net income – 2016 1,029.4

Paramount recorded net income of $952.9 million for the nine months ended September 30, 2016

compared to a net loss of $302.3 million in the same period in 2015. Significant factors contributing to the

change are shown below:

Nine months ended September 30

Net loss – 2015 (302.3)

Gain on the sale of oil and gas assets primarily due to the Musreau/Kakwa Disposition and Midstream Sale in 2016 1,379.5

Lower depletion and depreciation due to the Musreau/Kakwa Disposition in 2016 94.8

Foreign exchange gain in 2016 compared to a loss in 2015 84.4

Lower write-downs of investments in securities 66.5

Lower loss from equity-accounted investments 8.4

Income tax expense in 2016 compared to a recovery in 2015 (246.0)


Lower gain on commodity contracts (26.4)

Higher exploration and evaluation expense primarily due to higher dry hole expense in 2016 (8.4)

Other (12.0)

Net income – 2016 952.9


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Funds Flow from Operations (1)

The following is a reconciliation of funds flow from operations to the nearest GAAP measure:

Three months ended


September 30

2016 2015 2016 2015

Cash from operating activities 9.7 36.4 52.1 73.9

Change in non-cash working capital (7.8) (3.2) (35.5) (11.0)

Geological and geophysical expenses 1.7 1.4 3.9 3.9

Asset retirement obligations settled 0.2 2.3 0.8 5.4

Funds flow from operations 3.8 36.9 21.3 72.2

Funds flow from operations ($/Boe) 1.67 8.02 2.02 6.06

(1) Refer to the advisories concerning non-GAAP measures in the Advisories section of this document.

Funds flow from operations for the three months ended September 30, 2016 was $3.8 million compared

to $36.9 million in the same period in 2015. Significant factors contributing to the change are shown

below:


Funds flow from operations – 2015 36.9



Higher receipts from commodity contract settlements in 2016 3.3

Other 0.7


Funds flow from operations for the nine months ended September 30, 2016 was $21.3 million compared

to $72.2 million in the same period in 2015. Significant factors contributing to the change are shown

below:




Higher receipts from commodity contract settlements in 2016 29.8


Higher general and administrative expense (1.2)

Other (0.3)



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PRINCIPAL PROPERTIES

Netback and Segment Income (Loss)

Three months ended


September 30

2016 2015 2016 2015

($/Boe)(1) ($/Boe)(1) ($/Boe)(1) ($/Boe)(1)

Natural gas revenue 21.6 2.65 50.3 3.01 68.6 2.02 128.9 2.92

Condensate and oil revenue 25.1 51.15 49.3 52.43 121.7 47.54 123.2 55.40

Other NGLs revenue (2) 4.8 11.11 10.0 11.42 25.3 10.79 30.6 13.04

Royalty and sulphur revenue 0.2 – 1.1 – 0.9 – 2.8 –

Petroleum and natural gas sales 51.7 22.66 110.7 24.07 216.5 20.49 285.5 23.94

Royalties (0.1) (0.02) (2.8) (0.60) (2.1) (0.20) (7.3) (0.61)

Operating expense (25.0) (10.96) (26.1) (5.67) (86.1) (8.15) (67.1) (5.63)

Transportation and NGLs processing (3) (12.7) (5.56) (19.5) (4.23) (52.2) (4.94) (49.4) (4.14)

Netback 13.9 6.12 62.3 13.57 76.1 7.20 161.7 13.56

Commodity contract settlements 10.9 4.78 7.6 1.66 37.4 3.54 7.6 0.64

Netback including commodity contract settlements 24.8 10.90 69.9 15.23 113.5 10.74 169.3 14.20

Other principal property items (see below) 1,190.7 (97.5) 1,132.0 (281.8)

Segment income (loss) 1,215.5 (27.6) 1,245.5 (112.5)

(1) Natural gas revenue shown per Mcf. (2) Other NGLs means ethane, propane and butane. (3) Includes downstream natural gas, NGLs and oil transportation costs and NGLs fractionation costs incurred by the Company.

Petroleum and natural gas sales were $51.7 million in the third quarter of 2016, a decrease of $59.0

million from the third quarter of 2015. Petroleum and natural gas sales were $216.5 million in the nine

months ended September 30, 2016, a decrease of $69.0 million compared to the same period of 2015.

The impact of changes in prices and sales volumes on petroleum and natural gas sales are as follows:

Natural gas Condensate

and oil Other NGLs Royalty and

sulphur Total

Three months ended September 30, 2015 50.3 49.3 10.0 1.1 110.7

Effect of changes in sales volumes (25.8) (23.5) (5.0) – (54.3)

Effect of changes in prices (2.9) (0.7) (0.2) – (3.8)

Change in royalty and sulphur revenue – – – (0.9) (0.9)

Three months ended September 30, 2016 21.6 25.1 4.8 0.2 51.7

Natural gas Condensate

and oil Other NGLs Royalty and

sulphur Total

Nine months ended September 30, 2015 128.9 123.2 30.6 2.8 285.5

Effect of changes in sales volumes (29.7) 18.6 – – (11.1)

Effect of changes in prices (30.6) (20.1) (5.3) – (56.0)

Change in royalty and sulphur revenue – – – (1.9) (1.9)

Nine months ended September 30, 2016 68.6 121.7 25.3 0.9 216.5


14

Sales Volumes


Natural Gas (MMcf/d)

Condensate and Oil (Bbl/d)

Other NGLs (Bbl/d)

Total (Boe/d)

2016 2015 % Change 2016 2015 % Change 2016 2015 % Change 2016 2015 % Change

Kaybob (1) 11.2 16.7 (33) 216 572 (62) 356 698 (49) 2,447 4,049 (40)

Grande Prairie (1) 27.2 29.9 (9) 1,750 2,411 (27) 218 294 (26) 6,496 7,693 (16)

Southern 2.6 2.4 8 264 230 15 135 120 13 832 748 11

Northern 6.5 2.8 132 148 3 NM 148 – 100 1,373 462 197

Ongoing Operations 47.5 51.8 (8) 2,378 3,216 (26) 857 1,112 (23) 11,148 12,952 (14)

Sold Assets 41.1 130.0 (68) 2,957 6,998 (58) 3,830 8,371 (54) 13,638 37,038 (63)

Total 88.6 181.8 (51) 5,335 10,214 (48) 4,687 9,483 (51) 24,786 49,990 (50)

(1) Excludes the results of Sold Assets

NM – Not meaningful

Sales volumes from Ongoing Operations decreased 14 percent to 11,148 Boe/d in the third quarter of

2016 compared to 12,952 Boe/d in the same period in 2015. The decrease was primarily due to natural

production declines on existing wells in the Kaybob and Grande Prairie COUs as a result of limited capital

investment, partially offset by sales volumes from new Montney formation wells brought on production at

Birch in the Northern COU and at Karr-Gold Creek in the Grande Prairie COU. Sales volumes in the third

quarter of 2016 at Smoky and Resthaven in the Kaybob COU were also impacted by unscheduled third

party outages and disruptions related to processing facilities and pipelines. Sales volumes for the Sold

Assets were lower in the third quarter of 2016 due to the sale of those properties closing on August 18,

2016 and because of lower production due to natural declines.


Natural Gas (MMcf/d)

Condensate and Oil (Bbl/d)

Other NGLs (Bbl/d)

Total (Boe/d)

2016 2015 % Change 2016 2015 % Change 2016 2015 % Change 2016 2015 % Change

Kaybob (1) 13.4 18.3 (27) 313 494 (37) 255 701 (64) 2,802 4,241 (34)

Grande Prairie (1) 26.0 26.8 (3) 1,825 1,784 2 316 338 (7) 6,469 6,584 (2)

Southern 2.6 2.6 – 245 336 (27) 109 139 (22) 785 914 (14)

Northern 7.0 2.5 180 217 7 NM 142 – 100 1,527 426 258

Ongoing Operations 49.0 50.2 (2) 2,600 2,621 (1) 822 1,178 (30) 11,583 12,165 (5)

Sold Assets 75.0 111.5 (33) 6,742 5,523 22 7,734 7,409 4 26,979 31,515 (14)

Total 124.0 161.7 (23) 9,342 8,144 15 8,556 8,587 – 38,562 43,680 (12)

(1) Excludes the results of Sold Assets

NM – Not meaningful

Sales volumes from Ongoing Operations decreased 5 percent to 11,583 Boe/d in the nine months ended

September 30, 2016 compared to 12,165 Boe/d in the same period in 2015. The decrease was primarily

due to natural production declines on existing wells in the Grand Prairie and Kaybob COUs and the shut-

in of the Valhalla property in the Grande Prairie COU from mid-April to early-July 2016 due to low natural

gas prices. These decreases were partially offset by sales volumes from new Montney formation wells

brought on production throughout 2015 and 2016 at Karr-Gold Creek in the Grande Prairie COU and at

Birch in the Northern COU. Sales volumes in the nine months ended September 30, 2016 at Smoky and

Resthaven in the Kaybob COU were also impacted by third party outages and disruptions related to

processing facilities and pipelines. Sales volumes for the Sold Assets were lower in the nine months

ended September 30, 2016 as those properties were sold on August 18, 2016.


15

Commodity Prices



2016 2015 % Change 2016 2015 % Change

Natural Gas

Paramount realized price ($/Mcf) 2.65 3.01 (12) 2.02 2.92 (31)

AECO daily spot ($/GJ) 2.19 2.75 (20) 1.76 2.63 (33)

AECO monthly index ($/GJ) 2.09 2.65 (21) 1.76 2.66 (34)

Malin (US$/MMbtu) 2.69 2.65 2 2.18 2.65 (18)

Crude Oil

Paramount average realized condensate & oil price ($/Bbl) 51.15 52.43 (2) 47.54 55.40 (14)

Edmonton Light Sweet ($/Bbl) 54.19 55.10 (2) 50.14 59.09 (15)

West Texas Intermediate (US$/Bbl) 44.94 46.43 (3) 41.33 51.00 (19)

Foreign Exchange

$CDN / 1 $US 1.31 1.31 – 1.32 1.26 5

Paramount’s average realized natural gas price decreased 31 percent in the first nine months of 2016

compared to the same period in 2015, consistent with decreases in benchmark natural gas prices.

Paramount’s natural gas portfolio primarily consists of sales priced at the Alberta spot market, Chicago

and California markets and is sold in a combination of daily and monthly contracts.

The Company’s average realized condensate and oil price decreased 14 percent in the first nine months

of 2016 compared to the same period in 2015, consistent with decreases in benchmark prices.

Paramount sells its condensate volumes in both stabilized and unstabilized condition, depending upon

the location of production and the availability of stabilization capacity. Stabilized condensate volumes

delivered through pipelines receive prices for condensate quoted at Edmonton, which are generally

higher than prices for unstabilized volumes, and are adjusted for applicable transportation, quality and

density differentials. Unstabilized condensate volumes trucked to receipt terminals typically receive prices

based on the Edmonton Light Sweet oil price, which are generally lower than prices for stabilized

volumes, and are adjusted for transportation, quality and density differentials.

Commodity Price Management

From time-to-time Paramount uses financial and physical commodity price contracts to manage exposure

to commodity price volatility. At September 30, 2016, the Company had the following financial commodity

contracts outstanding:

Subsequent to September 30, 2016, Paramount entered into the following financial commodity contracts:

Instruments Total notional Average fixed price Fair value Remaining term

Oil – NYMEX WTI Swaps (Sale) 6,000 Bbl/d CDN$75.72/Bbl 6.8 October 2016 – December 2016

Oil – NYMEX WTI Swap (Purchase) 2,000 Bbl/d CDN$50.64/Bbl 2.5 October 2016 – December 2016

9.3

Instruments Total notional Fixed price Term

Gas – NYMEX Swap (Sale) 10,000 MMBtu/d US$3.40/MMBtu January 2017 – December 2017

Gas – NYMEX Swap (Purchase) 10,000 MMBtu/d US$3.04/MMBtu January 2017 – December 2017

Oil – NYMEX WTI Swap (Sale) 1,000 Bbl/d CDN$69.45/Bbl January 2017 – December 2017


16

Royalties

Three months ended


September 30

2016 Rate 2015 Rate 2016 Rate 2015 Rate

Royalties 0.1 0.2% 2.8 2.5% 2.1 1.0% 7.3 2.6%

$/Boe 0.02 0.60 0.20 0.61

Third quarter royalties were $0.1 million in 2016 compared to $2.8 million in the same period in 2015.

Royalties for the nine months ended September 30, 2016 decreased $5.2 million to $2.1 million

compared to $7.3 million in the same period in 2015. Year-to-date royalties in 2016 decreased primarily

as a result of $3.0 million of annual gas cost allowance adjustments related to 2015 and a combination of

lower petroleum and natural gas sales and lower royalty rates. Third quarter royalties were lower primarily

as a result of annual gas cost allowance adjustments related to 2015 and the Musreau/Kakwa

Disposition.

Excluding the impact of the gas cost allowance adjustments related to prior periods, the royalty rate was

2.4 percent for the nine months ended September 30, 2016 compared to 3.1 percent in the same period

in 2015. The majority of Paramount’s new wells qualify for Alberta new well royalty incentive programs,

which reduce the Company’s overall royalty rate.

Operating Expense

Three months ended


September 30

2016 2015 % Change 2016 2015 % Change

Operating expense 25.0 26.1 (4) 86.1 67.1 28

$/Boe 10.96 5.67 93 8.15 5.63 45

Operating expense decreased $1.1 million or 4 percent in the third quarter of 2016 to $25.0 million

compared to $26.1 million in the same period in 2015. Operating expense increased $19.0 million or 28

percent in the first nine months of 2016 to $86.1 million compared to $67.1 million in the same period in

2015. Year-to-date, operating expense is higher in 2016 primarily due to higher third-party processing

fees and lower processing income in the Kaybob COU following the Midstream Sale in April 2016, higher

trucking costs at Musreau in the Kaybob COU and higher operating costs at Birch in the Northern COU as

a result of new production being brought on in the fourth quarter of 2015. These increases were partially

offset by the lower operating expenses in the remaining properties. Third quarter operating expenses

were lower as a result of the Musreau/Kakwa Disposition.

Transportation and NGLs Processing

Three months ended


September 30

2016 2015 % Change 2016 2015 % Change

Transportation and NGLs processing 12.7 19.5 (35) 52.2 49.4 6

$/Boe 5.56 4.23 31 4.94 4.14 19

Transportation and NGLs processing expense was $12.7 million in the third quarter of 2016, a decrease

of $6.8 million compared to the same period in 2015. Transportation and NGLs processing expense for

the nine months ended September 30, 2016 increased $2.8 million to $52.2 million compared to $49.4

million in the same period of 2015. Year-to-date transportation and NGLs processing is higher in 2016


17

primarily due to increased transportation and NGLs fractionation costs related to incremental firm service

capacity contracted for the Company’s Deep Basin production volumes. Third quarter transportation and

NGLs processing expenses were lower as a result of the Musreau/Kakwa Disposition. In connection with

the Musreau/Kakwa Disposition, the Acquiror assumed Paramount’s processing and transportation

commitments relating to the Sold Assets, including the Processing Arrangement.

Other Principal Property Items

Three months ended


September 30

2016 2015 2016 2015

Commodity contracts – net of settlements (8.5) 30.4 (30.9) 25.3

Depletion and depreciation (excluding impairments) (23.0) (100.4) (183.9) (260.0)

Impairment – (22.2) – (22.2)

Exploration and evaluation (16.7) (4.1) (20.5) (11.8)

Gain (loss) on sale of oil and gas assets 1,239.3 (0.1) 1,370.3 (9.3)

Other (0.4) (1.1) (3.0) (3.8)

Total 1,190.7 (97.5) 1,132.0 (281.8)

Third quarter depletion and depreciation expense decreased to $23.0 million in 2016 compared to $100.4

million in 2015. Depletion and depreciation expense decreased to $183.9 million in the nine months

ended September 30, 2016 compared to $260.0 million in the same period in 2015. The decrease in

depletion and depreciation in 2016 is primarily due to the Musreau/Kakwa Disposition in the third quarter

of 2016.

The Company recorded an impairment write-down of $22.2 million at September 30, 2015 related to the

petroleum and natural gas assets in the Southern COU. The impairment resulted from a combination of

higher well costs than reserve values assigned and decreases in estimated future net revenues due to

lower forecasted oil and natural gas prices.

Exploration and evaluation expense in the third quarter of 2016 includes dry hole expense of $13.8 million

(2015 - $0.1 million), expired undeveloped land leases costs of $1.8 million (2015 - $2.9 million) and

geological and geophysical costs of $1.1 million (2015 - $1.1 million). Exploration and evaluation expense

for the nine months ended September 30, 2016 includes dry hole expense of $13.8 million (2015 - $2.0

million), expired undeveloped land leases costs of $3.9 million (2015 - $6.4 million) and geological and

geophysical costs of $2.8 million (2015 - $3.4 million).

The gain on sale of oil and gas assets in the nine months ended September 30, 2016 primarily related to

the Musreau/Kakwa Disposition and the Midstream Sale.


18

Ongoing Operations

The following tables set out the sales volumes and netback of Paramount excluding the Sold Assets:

Three months ended


September 30

2016 2015 2016 2015

Natural gas (MMcf/d) 47.5 51.8 49.0 50.2

Condensate and oil (Bbl/d) 2,378 3,216 2,600 2,621

Other NGLs (1) (Bbl/d) 857 1,112 822 1,178

Total (Boe/d) 11,148 12,952 11,583 12,165

(1) Other NGLs means ethane, propane and butane.

Three months ended


September 30

2016 2015 2016 2015

($/Boe) (1) ($/Boe) (1) ($/Boe) (1) ($/Boe) (1)

Natural gas revenue 13.8 3.16 13.7 2.87 30.9 2.31 39.4 2.88

Condensate and oil revenue 11.1 50.53 15.0 50.77 33.2 46.63 38.3 53.49

Other NGLs revenue (2) 0.6 7.91 1.4 13.29 1.5 6.70 4.9 15.33

Royalty and sulphur revenue 0.3 – 0.9 – 1.0 – 2.6 –

Petroleum and natural gas sales 25.8 25.12 31.0 26.05 66.6 20.99 85.2 25.65

Royalties (0.1) (0.02) (1.0) (0.85) (0.7) (0.20) (3.0) (0.87)

Operating expense (12.6) (12.31) (15.8) (13.29) (39.1) (12.33) (41.3) (12.44)

Transportation and NGLs processing (3) (6.1) (5.92) (3.0) (2.54) (16.0) (5.05) (9.5) (2.87)

Netback 7.0 6.87 11.2 9.37 10.8 3.41 31.4 9.47

(1) Natural gas revenue shown per Mcf. (2) Other NGLs means ethane, propane and butane. (3) Includes downstream natural gas, NGLs and oil transportation costs and NGLs fractionation costs incurred by the Company.

Netback for the three and nine months ended September 30, 2016 decreased primarily due to lower

average realized prices and higher transportation and NGLs processing expense as a result of

incremental firm service contracted for the Company’s Deep Basin production volumes.

STRATEGIC INVESTMENTS

Three months ended


September 30

2016 2015 2016 2015

General and administrative (1.4) (1.6) (4.6) (4.3)

Share-based compensation (0.5) (1.6) (5.3) (5.7)

Depletion and depreciation (0.9) (0.2) (3.9) (0.1)

Exploration and evaluation (0.7) (0.8) (1.0) (1.4)

Interest and financing (0.7) (0.6) (2.7) (1.7)

Loss from equity-accounted investments (2.8) (12.4) (11.6) (20.0)

Write-down of investments in securities (4.6) (73.0) (11.1) (77.6)

Drilling rig revenue 0.2 0.6 0.2 1.0

Drilling rig expense (0.3) (0.2) (1.1) (0.5)

Loss on sale of investments (3.3) – (3.3) –

Other – (0.2) (0.4) (0.6)

Segment loss (15.0) (90.0) (44.8) (110.9)


19

Strategic Investments at September 30, 2016 include:

Investments in the shares of Seven Generations, Trilogy Energy Corp. ("Trilogy"), MEG Energy Corp. ("MEG"), Marquee Energy Ltd. ("Marquee"), RMP Energy Inc. ("RMP"), Strategic Oil & Gas Ltd. ("SOG") and other public and private corporations;

Oil sands and carbonate bitumen interests owned by Paramount’s wholly owned subsidiary, Cavalier, including those at Hoole, situated within the western portion of the Athabasca Oil Sands region, and carbonate bitumen holdings in northeast Alberta, including at Saleski;

Prospective shale gas acreage in the Liard and Horn River Basins in northeast British Columbia and the Northwest Territories; and

Seven drilling rigs owned by Paramount’s wholly-owned subsidiary, Fox Drilling.

For the nine months ended September 30, 2016, aggregate unrealized losses of $11.1 million related to

the Company’s investments in MEG, Marquee and other securities previously recorded in other

comprehensive loss were charged to net earnings as a result of significant decreases in the market prices

of the securities. The aggregate write-downs of investments in securities of $77.6 million in 2015 resulted

from the recognition of unrealized losses due to significant decreases in the market values of certain

securities, including a $71.3 million write-down related to the Company’s investment in MEG recorded in

the third quarter of 2015.

Investments

Paramount holds investments in a number of publicly-traded and private corporations as part of its

portfolio of strategic investments. The Company’s investments in the shares of Trilogy were principally

obtained in the course of its spin-out from Paramount. Investments in the shares of most other entities,

including Seven Generations and MEG, were received as consideration for properties sold to such

entities. Paramount’s investments are summarized as follows:

Carrying Value Market Value (1)

As at September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015

Seven Generations 277.9 – 277.9 –

Trilogy 46.8 58.4 138.0 70.1

MEG 21.9 29.7 21.9 29.7

Other (2) 28.9 31.0 28.9 31.0

Total 375.5 119.1 466.7 130.8

(1) Based on the period-end closing price of publicly traded investments and the book value of remaining investments. (2) Includes investments in Marquee, RMP, SOG and other public and private corporations.

In the third quarter of 2016, Paramount monetized 24.7 million of the 33.5 million Seven Generations

shares received through the Musreau/Kakwa Disposition. The Company received net cash proceeds of

$306.2 million in the third quarter in connection with the monetization and an additional $408.3 million in

cash is due in December 2016 (the "Cash Proceeds Receivable on Share Monetization"). The Cash

Proceeds Receivable on Share Monetization is due from an investment grade counterparty that has a

short-term debt rating of A-1 from Standard & Poors. A loss on disposition of $4.2 million was recorded on

the monetization transaction based on the difference between the aggregate net proceeds and the market

value of the shares on the closing of the Musreau/Kakwa Disposition.


20

Shale Gas

Drilling operations in the Liard Basin resumed at the c-37-D well at La Biche in December 2015 and the

well was drilled to target depth in March 2016. With the completion of drilling operations for the c-37-D

well, the Company has secured its mineral rights in the region for another 10 years.

Fox Drilling

Fox Drilling completed the construction of its two new triple-sized built-for-purpose walking rigs at a cost

of approximately $25 million each in early 2016. The new rigs have been deployed on the Company’s

lands since the second quarter of 2016.

CORPORATE

Three months ended


September 30

2016 2015 2016 2015

Interest and financing 17.1 28.8 72.2 79.5

Debt extinguishment 18.3 – 18.3 12.0

General and administrative 2.7 2.9 14.7 13.9

Share-based compensation 0.9 4.6 18.8 11.8

Foreign exchange (5.5) 41.5 (43.9) 40.4

Other 0.2 0.1 0.6 0.1

Segment loss 33.7 77.9 80.7 157.7

The Corporate segment loss decreased to $33.7 million in the third quarter of 2016 compared to $77.9

million in the same period in 2015. The Corporate segment loss decreased to $80.7 million for the nine

months ended September 30, 2016 compared to $157.7 million in the same period in 2015.

Interest and financing in the third quarter of 2016 was $17.1 million, a decrease of $11.7 million from the

third quarter of 2015 primarily due to lower average debt balances in 2016. In connection with the

Musreau/Kakwa Disposition, $18.3 million of debt extinguishment expense was recorded, $6.2 million of

which related to the redemption premium on the Company’s senior unsecured notes due 2019 (the "2019

Senior Notes") redeemed in the quarter and the remainder of which related to unamortized financing fees

related to the 2019 Senior Notes redeemed and the 2023 Senior Notes assumed by the Acquiror. In the

second quarter of 2015, the Company recorded $12.0 million of debt extinguishment expense related to

the June 2015 redemption of senior notes. Share-based compensation for the nine months ended

September 30, 2016 includes $13.8 million related to options cancelled in the second quarter of 2016. A

$43.9 million foreign exchange gain was recorded for the nine months ended September 30, 2016, mainly

related to the US$450 million 2023 Senior Notes.


21

EXPLORATION AND CAPITAL EXPENDITURES

Three months ended


September 30

2016 2015 2016 2015

Geological and geophysical 1.0 1.1 2.9 3.4

Drilling, completion and tie-ins 45.5 70.5 80.2 265.5

Facilities and gathering 0.1 18.9 9.8 98.0

Principal Properties Capital (1) 46.6 90.5 92.9 366.9

Land and property acquisitions and capitalized interest 0.1 0.9 10.9 6.4

Principal Properties 46.7 91.4 103.8 373.3

Strategic Investments (2) 1.6 8.0 21.5 50.7

Corporate 0.3 0.3 0.8 0.9

48.6 99.7 126.1 424.9

Principal Properties Capital by COU (1)

Kaybob 19.6 59.3 54.9 237.9

Grande Prairie 22.8 15.5 30.8 64.4

Southern, Northern and other 4.2 15.7 7.2 64.6

46.6 90.5 92.9 366.9

(1) Principal Properties Capital includes capital expenditures and geological and geophysical costs related to the Company’s Principal Properties, excluding land acquisitions and capitalized interest.

(2) Strategic Investments for the three and nine months ended September 30, 2015 include $0.4 million and $1.1 million of capitalized interest, respectively.

Principal Properties Capital was $46.6 million in the third quarter of 2016 compared to $90.5 million in the

same period in 2015. Principal Properties Capital was $92.9 million in the first nine months of 2016

compared to $366.9 million in the same period in 2015. Expenditures in 2016 consisted mainly of drilling

and completion costs related to new multi-well pads spudded in the Kaybob and Grande Prairie COUs

and the completion of a previously drilled well in the Kaybob COU. The majority of Principal Properties

Capital in the Kaybob COU in 2016 related to the Sold Assets.

Strategic Investments capital expenditures for the first nine months of 2016 included $19.1 million related

to the Company’s exploratory shale gas drilling activities in northeast British Columbia.

Following the Musreau/Kakwa Disposition, the Company’s main areas of operation are Karr-Gold Creek,

Smoky and Resthaven in west central Alberta, Birch in northeast British Columbia and Willesden Green in

southern Alberta.

Near-term development activities are expected to be directed towards Montney production growth at Karr-

Gold Creek in the Grande Prairie COU. The Company is drilling longer horizontal wells with higher

intensity completions in its 2016 / 2017 capital program at Karr-Gold Creek. Paramount plans to drill up to

24 and complete up to twelve 2.0 mile Montney wells at Karr-Gold Creek by mid-2017, with the first of the

new wells scheduled to be brought on production in the first quarter of 2017. Capital costs to drill,

complete and equip these wells are expected to average approximately $10.5 million.

The Company currently has design capacity for 40 MMcf/d of raw gas production at its 6-18 compression

and dehydration facility (the "Karr Facility"). The 2016 / 2017 drilling and completion program is expected

to increase production in the first half of 2017 to fully utilize this existing Karr Facility.

A 40 MMcf/d expansion of the Karr Facility is scheduled to be completed in mid-2017, doubling available

capacity. Sales volumes are expected to increase further in the third quarter of 2017 as the Karr Facility


22

expansion is brought on-stream and additional new wells are brought on production. The remaining

capital costs to complete the Karr Facility expansion are estimated to be approximately $20 million.

At Willesden Green, a previously drilled Duvernay well is scheduled to be completed in the fourth quarter

of 2016 at a cost of approximately $6 million. The Company also plans to spud two Cretaceous wells at

Smoky/Resthaven in the Kaybob COU in the fourth quarter of 2016. These wells are expected to be

brought on production in mid-2017 at an aggregate cost of approximately $20 million.

Wells drilled(1):

Three months ended


September 30

2016 2015 2016 2015

Gross (2) Net (3) Gross (2) Net (3) Gross (2) Net (3) Gross (2) Net (3)

Natural gas – Ongoing Operations 2 2 1 1 3 3 13 11

Natural gas – Sold Assets 10 10 2 1 11 11 21 20

Total 12 12 3 2 14 14 34 31

(1) Represents wells rig released in the period. (2) Gross is the number of wells in which Paramount has a working interest or a royalty interest that may be converted to a working interest. (3) Net is the aggregate number of wells obtained by multiplying each gross well by Paramount’s percentage of working interest.

LIQUIDITY AND CAPITAL RESOURCES

Paramount manages its capital structure to support current and future business plans and periodically

adjusts the structure in response to changes in economic conditions and the risk characteristics of the

Company’s underlying assets and operations. Paramount may adjust its capital structure by issuing or

repurchasing shares, altering debt levels, modifying capital programs, acquiring or disposing of assets or

participating in joint ventures.

Net Cash (Debt)

As at September 30, 2016 December 31, 2015

Adjusted working capital surplus (deficit) (1) 671.9 (37.9)

Limited-recourse demand facilities – (100.9)

Credit facility – (693.0)

2019 Senior Notes (2) (286.6) (450.0)

2023 Senior Notes (2) – (622.8)

Net cash (debt) 385.3 (1,904.6)

(1) Adjusted working capital excludes accounts payable and accrued liabilities relating to the Company’s obligation to renounce qualifying expenditures for flow-through share issuances (September 30, 2016 – nil, December 31, 2015 – $4.1 million), risk management assets and liabilities and limited-recourse demand facilities.

(2) Excludes unamortized issue premiums and financing costs.


23

Shareholders’ Equity


Share capital 1,647.6 1,647.0

Accumulated deficit (244.8) (1,197.6)

Reserves 144.9 99.3

Total Shareholders’ Equity 1,547.7 548.7

Paramount had an adjusted working capital surplus at September 30, 2016 of $671.9 million compared to

a deficit of $37.9 million at December 31, 2015. The adjusted working capital surplus at September 30,

2016 included $313.4 million of cash and cash equivalents, $22.1 million of accounts receivable, the

$408.3 million Cash Proceeds Receivable on Share Monetization, $3.1 million of prepaid amounts and

$74.8 million of accounts payable and accrued liabilities.

In April 2016, proceeds from the Midstream Sale were used to pay down the Company’s bank credit

facility.

In June 2016, the Cavalier limited recourse demand credit facility was repaid and cancelled.

In connection with the Musreau/Kakwa Disposition in August 2016:

(i) the Company repaid the remaining balance drawn on its syndicated bank credit facility;

(ii) the Company paid $1.4 million to holders of 2019 Senior Notes that provided consent to the

Musreau/Kakwa Disposition (the "Consent Payment");

(iii) the Company redeemed $163.4 million aggregate principal amount of 2019 Senior Notes,

paying $169.6 million plus accrued and unpaid interest to the redemption date; and

(iv) the Acquiror assumed all US$450 million aggregate principal amount of 2023 Senior Notes

and Paramount was discharged and released from all obligations and covenants under the

2023 Senior Notes Indenture and the 2023 Senior Notes.

Following the Musreau/Kakwa Disposition, the Company has a $100 million revolving credit facility (the

"Facility") with a Canadian chartered bank (the "Lender"). The revolving period of the Facility ends on

April 28, 2017. In the event the revolving period is not extended, any undrawn availability would be

cancelled and all amounts then outstanding would be permitted to remain outstanding on a non-revolving

basis until April 28, 2018, the maturity date of the Facility.

The borrowing base governs the maximum amount which can be drawn on the Facility. The Lender has

the right to review and re-determine Paramount’s borrowing base on a semi-annual basis and more

frequently in certain other circumstances. The borrowing base amount is based on the Company’s

reserves, the Lender’s projections of future commodity prices and the value attributed by the Lender to

Paramount’s equity investments and other assets, among other factors.

Borrowings on the Facility bear interest at the Lender’s prime lending rate, US base rates, bankers’

acceptance rates, or LIBOR rates, as selected at the discretion of the Company, plus an applicable

margin which is dependent upon the Company’s debt-to-cash flow ratio and the total amount drawn. The

Facility is secured by a fixed and floating charge over substantially all of the assets of Paramount,

excluding the assets of Fox Drilling.


24

Paramount continues to have no financial maintenance covenants under the terms of the Facility or the

2019 Senior Notes. The agreements include certain standard restrictions on Paramount’s ability to

repurchase equity, issue or refinance debt, acquire or dispose of assets and pay dividends.

At September 30, 2016, no amounts were drawn on the Facility. Paramount had undrawn letters of credit

outstanding totaling $22.6 million that reduce the amount available to be drawn on the Facility.

In September 2016, the Fox Drilling limited recourse demand credit facility was repaid and cancelled.

At September 30, 2016, Paramount had an adjusted working capital surplus of $671.9 million which is

available to fund its planned operations, obligations and capital expenditures for the remainder of 2016.

Share Capital

The Company has incurred sufficient qualifying expenditures to satisfy commitments related to Canadian

exploration expense flow-through shares issued in 2015.

At November 7, 2016, Paramount had 105,684,345 Common Shares and 2,396,510 Paramount Options

outstanding, of which 914,330 Paramount Options were exercisable.

Paramount implemented a normal course issuer bid ("NCIB") on October 13, 2016. The NCIB will

terminate on the earlier of: (i) October 12, 2017; and (ii) the date on which the maximum number of

Common Shares that can be acquired pursuant to the NCIB are purchased. Purchases of Common

Shares under the NCIB will be effected through the facilities of the TSX or alternative Canadian trading

systems at the market price at the time of purchase. Paramount may purchase up to 5,441,602 Common

Shares under the NCIB. Pursuant to the rules of the TSX, the maximum number of Common Shares that

the Company may purchase under the NCIB in any one day is 188,705 Common Shares. Paramount

may also make one block purchase per calendar week which exceeds such daily purchase restriction,

subject to the rules of the TSX. Any Common Shares purchased pursuant to the NCIB will be cancelled

by the Company. Any shareholder may obtain, for no charge, a copy of the notice in respect of the NCIB

filed with the TSX by contacting the Company at 403-290-3600.

To November 7, 2016, the Company has purchased and cancelled 622,900 Common Shares at a cost of

$9.7 million pursuant to the NCIB.


25

QUARTERLY INFORMATION

Significant Items Impacting Quarterly Results

Quarterly earnings variances include the impacts of changing production volumes and market prices.

Third quarter 2016 earnings include the impacts related to the Musreau/Kakwa Disposition, including

a $1.2 billion gain on sale, lower depletion and depreciation expense, higher income tax expense and

lower netback.

Second quarter 2016 earnings include a $131.8 million gain on the sale of oil and gas assets primarily

in respect of the Midstream Sale, partially offset by $17.7 million of share-based compensation

expense.

First quarter 2016 earnings include a foreign exchange gain of $40.3 million and a $13.7 million gain

on commodity contracts.

Fourth quarter 2015 earnings include $241.5 million of aggregate impairment write-downs of property,

plant and equipment, $184.1 million of impairment write-offs of exploration and evaluation assets and

deferred tax income expense of $66.3 million.

Third quarter 2015 earnings include $100.7 million of depletion and depreciation, a $22.2 million

impairment write-down of oil and gas assets, a $73.0 million write-down of investments in securities

and a foreign exchange loss of $41.5 million, partially offset by $38.1 million of gains on commodity

contracts.

Second quarter 2015 earnings include $82.9 million of depletion and depreciation expense and $12.0

million of debt extinguishment expense in respect of the redemption of the Company’s unsecured

senior notes due 2017, partially offset by an income tax recovery of $38.5 million.

First quarter 2015 earnings include $77.4 million of depletion and depreciation expense and a $8.9

million net loss on the sale of oil and gas assets.

2016 2015 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4

Petroleum and natural gas sales 51.7 73.6 91.2 91.3 110.7 94.6 80.2 99.4 Funds flow from operations 3.8 (4.9) 22.4 21.0 36.9 19.6 15.7 41.6

Per share – basic & diluted ($/share) 0.04 (0.05) 0.21 0.20 0.35 0.19 0.15 0.40

Net income (loss) 1,029.4 (30.6) (46.0) (599.0) (171.8) (60.2) (70.3) (106.5)

Per share – basic ($/share) 9.69 (0.29) (0.43) (5.64) (1.62) (0.57) (0.67) (1.02) Per share – diluted ($/share) 9.64 (0.29) (0.43) (5.64) (1.62) (0.57) (0.67) (1.02)

Sales volumes

Natural gas (MMcf/d) 88.6 129.8 153.9 157.8 181.8 154.4 148.6 143.9 Condensate and oil (Bbl/d) 5,335 9,490 13,245 9,991 10,214 7,595 6,583 5,320 Other NGLs (Bbl/d) 4,687 9,764 11,259 9,175 9,483 9,282 6,968 5,123 Total (Boe/d) 24,786 40,890 50,161 45,466 49,990 42,604 38,317 34,430

Average realized price

Natural gas ($/Mcf) 2.65 1.49 2.09 2.57 3.01 2.74 2.99 3.98 Condensate and oil ($/Bbl) 51.15 52.83 42.28 46.60 52.43 65.66 48.16 68.45 Other NGLs ($/Bbl) 11.11 11.19 10.31 12.59 11.42 12.18 16.43 26.64 Total ($/Boe) 22.66 19.79 19.98 21.82 24.07 24.40 23.26 31.37


26

Fourth quarter 2014 earnings include $108.5 million of depletion, depreciation and impairment write-

downs of oil and gas assets and a $23.3 million loss from equity-accounted investments, partially

offset by an income tax recovery of $20.7 million.

OTHER INFORMATION

Contractual Obligations

Paramount had the following contractual obligations at September 30, 2016:

Within 1

year

After one year but

not more than three

years

After three years but not more than five

years More than five years Total

Senior notes (1) 22 44 290 – 356

Transportation and processing commitments (2) 36 95 94 236 461

Asset retirement obligations 8 11 55 131 205

Operating leases and other 5 5 4 2 16

71 155 443 369 1,038

(1) Including interest. (2) Certain of the transportation and processing commitments are secured by outstanding letters of credit totaling $7.0 million at September 30, 2016 (December 31, 2015

- $104.6 million).

Transportation and processing commitments mainly relate to long-term firm service arrangements for the

processing of natural gas and the transportation of natural gas and Liquids. In connection with the

Musreau/Kakwa Disposition, the Acquiror assumed Paramount’s processing and transportation

commitments relating to the Sold Assets, including the Processing Arrangement.

Contingencies

In 2016, a release occurred from a non-operated pipeline in which the Company owns a 50 percent

interest. The operator, and owner of the remaining 50 percent, has initiated response, containment and

remediation activities (“Response Activities”). Total costs to complete the Response Activities are

estimated at approximately $45 million. It is Paramount’s assessment that it is not responsible for the

costs of the Response Activities and as a result, no provision has been recorded in the Company’s

financial statements.

CHANGE IN ACCOUNTING POLICIES

There were no new accounting standards adopted by the Company for the nine months ended

September 30, 2016. A description of accounting standards that will be effective in the future is included

in the notes to the Company’s audited Consolidated Financial Statements as at and for the year ended

December 31, 2015.


27

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the three months ended September 30, 2016, there was no change in the Company’s internal

control over financial reporting that materially affected, or is reasonably likely to materially affect, the

Company’s internal control over financial reporting.

Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those

systems determined to be effective can provide only reasonable assurance with respect to financial

statement preparation and presentation. Also, projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate because of changes in conditions, or

that the degree of compliance with policies or procedures may deteriorate.

ADVISORIES

Forward Looking Information

Certain statements in this document constitute forward-looking information under applicable securities

legislation. Forward-looking information typically contains statements with words such as "anticipate",

"believe", "estimate", "will", "expect", "plan", "schedule", "intend", "propose", or similar words suggesting

future outcomes or an outlook. Forward-looking information in this document includes, but is not limited

to:

projected sales volumes;

exploration, development, and associated operational plans and strategies (including planned

drilling programs, well tie-ins and facility expansions) and the anticipated timing and costs of such

activities;

Paramount’s expectation to fund its operations, obligations and capital expenditures for the

remainder of 2016 with its working capital surplus; and

general business strategies and objectives.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect.

Assumptions have been made with respect to the following matters, in addition to any other assumptions

identified in this document:

future natural gas and Liquids prices;

royalty rates, taxes and capital, operating, general & administrative and other costs;

foreign currency exchange rates and interest rates;

general business, economic and market conditions;

the ability of Paramount to obtain the required capital to finance its exploration, development and

other operations and meet its commitments and financial obligations;

the ability of Paramount to obtain equipment, services, supplies and personnel in a timely manner

and at an acceptable cost to carry out its activities;

the ability of Paramount to secure adequate product processing, transportation, de-ethanization,

fractionation, and storage capacity on acceptable terms;

the ability of Paramount to market its natural gas and Liquids successfully to current and new

customers;

the ability of Paramount and its industry partners to obtain drilling success (including in respect of

anticipated production volumes, reserves additions, Liquids yields and resource recoveries) and

operational improvements, efficiencies and results consistent with expectations;

the timely receipt of required governmental and regulatory approvals; and


28

anticipated timelines and budgets being met in respect of drilling programs and other operations

(including well completions and tie-ins and the construction, commissioning and start-up of new

and expanded facilities).

Although Paramount believes that the expectations reflected in such forward-looking information are

reasonable, undue reliance should not be placed on them as Paramount can give no assurance that such

expectations will prove to be correct. Forward-looking information is based on expectations, estimates

and projections that involve a number of risks and uncertainties which could cause actual results to differ

materially from those anticipated by Paramount and described in the forward-looking information. The

material risks and uncertainties include, but are not limited to:

fluctuations in natural gas and Liquids prices;

changes in foreign currency exchange rates and interest rates;

the uncertainty of estimates and projections relating to future revenue, future production, reserve

additions, Liquids yields (including condensate to natural gas ratios), resource recoveries, royalty

rates, taxes and costs and expenses;

the ability to secure adequate product processing, transportation, de-ethanization, fractionation,

and storage capacity on acceptable terms;

operational risks in exploring for, developing and producing natural gas and Liquids;

the ability to obtain equipment, services, supplies and personnel in a timely manner and at an

acceptable cost;

potential disruptions, delays or unexpected technical or other difficulties in designing, developing,

expanding or operating new, expanded or existing facilities (including third-party facilities);

processing, pipeline, de-ethanization and fractionation infrastructure outages, disruptions and

constraints;

risks and uncertainties involving the geology of oil and gas deposits;

the uncertainty of reserves and resources estimates;

general business, economic and market conditions;

the ability to generate sufficient cash flow from operations and obtain financing to fund planned

exploration, development and operational activities and meet current and future commitments and

obligations (including product processing, transportation, de-ethanization, fractionation and similar

commitments and debt obligations);

changes in, or in the interpretation of, laws, regulations or policies (including environmental laws);

the ability to obtain required governmental or regulatory approvals in a timely manner, and to enter

into and maintain leases and licenses;

the effects of weather;

the timing and cost of future abandonment and reclamation obligations and potential liabilities for

environmental damage and contamination;

uncertainties regarding aboriginal claims and in maintaining relationships with local populations

and other stakeholders;

the outcome of existing and potential lawsuits, regulatory actions, audits and assessments; and

other risks and uncertainties described elsewhere in this document and in Paramount's other

filings with Canadian securities authorities.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled

"RISK FACTORS" in Paramount's current annual information form. The forward-looking information

contained in this document is made as of the date hereof and, except as required by applicable securities

law, Paramount undertakes no obligation to update publicly or revise any forward-looking statements or

information, whether as a result of new information, future events or otherwise.


29

Non-GAAP Measures

In this document "Funds flow from operations", "Netback", "Net Cash (Debt)", "Adjusted Working

Capital", "Exploration and Capital Expenditures", "Principal Properties Capital" and "Investments in other

entities – market value", collectively the "Non-GAAP measures", are used and do not have any

standardized meanings as prescribed by IFRS.

Funds flow from operations refers to cash from operating activities before net changes in operating

non-cash working capital, geological and geophysical expenses and asset retirement obligation

settlements. Funds flow from operations is commonly used in the oil and gas industry to assist

management and investors in measuring the Company’s ability to fund capital programs and meet

financial obligations. Netback equals petroleum and natural gas sales less royalties, operating costs and

transportation and NGLs processing costs. Netback is commonly used by management and investors to

compare the results of the Company’s oil and gas operations between periods. Net Cash (Debt) is a

measure of the Company’s overall debt position after adjusting for certain working capital amounts and is

used by management to assess the Company’s overall leverage position. Refer to the liquidity and capital

resources section of the Company’s Management’s Discussion and Analysis for the period for the

calculation of Net Cash (Debt) and Adjusted Working Capital. Exploration and capital expenditures

consist of the Company’s spending on wells and infrastructure projects, other property, plant and

equipment, land and property acquisitions, capitalized interest and geological and geophysical costs

incurred. The closest GAAP measure to exploration and development expenditures is property, plant and

equipment and exploration cash flows under investing activities in the Company’s Consolidated

Statement of Cash Flows, which includes all of the items included in exploration and capital expenditures,

except for geological and geophysical costs for the three and nine months ended September 30, 2016 of

$1.7 million and $3.9 million, respectively (2015 - $1.4 million and $4.0 million, respectively), which are

expensed as incurred. Principal Properties Capital includes capital expenditures and geological and

geophysical costs related to the Company’s Principal Properties business segment, and excludes land

acquisitions and capitalized interest. The Principal Properties Capital measure provides management and

investors with information regarding the Company’s Principal Properties spending on wells and

infrastructure projects separate from land acquisition activity and capitalized interest. Refer to the

Exploration and Capital Expenditures section of the Company’s Management’s Discussion and Analysis

for the period. Investments in other entities – market value reflects the Company’s investments in

enterprises whose securities trade on a public stock exchange at their period end closing price (e.g.

Seven Generations, Trilogy, MEG, Marquee, RMP, SOG and others), and investments in all other entities

at book value. Paramount provides this information because the market values of equity-accounted

investments, which are significant assets of the Company, are often materially different than their carrying

values.

Non-GAAP measures should not be considered in isolation or construed as alternatives to their most

directly comparable measure calculated in accordance with GAAP, or other measures of financial

performance calculated in accordance with GAAP. The Non-GAAP measures are unlikely to be

comparable to similar measures presented by other issuers.


30

Oil and Gas Measures and Definitions

Abbreviations

Liquids Natural Gas

Bbl Barrels Mcf Thousands of cubic feet

Bbl/d Barrels per day MMcf/d Millions of cubic feet per day NGLs Natural gas liquids

Pentane and heavier hydrocarbons GJ MMbtu

Gigajoule Millions of British thermal units Condensate

Oil Equivalent

Boe Barrels of oil equivalent

Boe/d Barrels of oil equivalent per day

Measures

This document contains disclosures expressed as "Boe", "$/Boe" and "Boe/d". Natural gas equivalency

volumes have been derived using the ratio of six thousand cubic feet of natural gas to one barrel of oil.

Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of six

thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion

method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

The term "Liquids" is used to represent oil, condensate and Other NGLs. The term "Other NGLs" means

ethane, propane and butane.

During the nine months ended September 30, 2016, the value ratio between crude oil and natural gas

was approximately 28:1. This value ratio is significantly different from the energy equivalency ratio of 6:1.

Using a 6:1 ratio would be misleading as an indication of value.


31

Interim Condensed Consolidated Financial Statements (Unaudited) September 30, 2016


INTERIM CONDENSED CONSOLIDATED BALANCE SHEET ($ thousands)

As at Note

September 30 2016

December 31 2015

ASSETS (Unaudited)

Current assets

Cash and cash equivalents 15 313,355 11,941

Accounts receivable 22,079 48,730

Cash proceeds receivable on share monetization 6 408,254 –

Prepaid expenses and other 3,089 5,049

Risk management 14 9,347 40,207

756,124 105,927

Exploration and evaluation 3 314,721 363,724

Property, plant and equipment, net 4 683,931 2,034,353

Equity-accounted investments 5 46,792 58,370

Investments in securities 6 328,753 60,714

Deferred income tax 13 – 154,823

Goodwill 4 – 3,124

2,130,321 2,781,035

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Limited-recourse demand facilities 7 – 100,911

Accounts payable and accrued liabilities 74,847 107,624

74,847 208,535

Long-term debt 8 284,443 1,750,226

Asset retirement obligations 9 204,683 273,580

Deferred income tax 13 18,651 –

582,624 2,232,341

Commitments and contingencies 16

Shareholders’ equity

Share capital 10 1,647,576 1,646,984

Accumulated deficit (244,751) (1,197,627)

Reserves 11 144,872 99,337

1,547,697 548,694

2,130,321 2,781,035

See the accompanying notes to these Interim Condensed Consolidated Financial Statements.

33


INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited) ($ thousands, except as noted)



Note 2016 2015 2016 2015

Petroleum and natural gas sales 51,681 110,707 216,505 285,512

Royalties (51) (2,774) (2,128) (7,317)

Revenue 51,630 107,933 214,377 278,195

Gain on commodity contracts 2,389 38,067 6,519 32,953

54,019 146,000 220,896 311,148

Expenses

Operating expense 25,001 26,089 86,097 67,084

Transportation and NGLs processing 12,675 19,455 52,170 49,392

General and administrative 4,040 4,470 19,381 18,160

Share-based compensation 12 1,421 6,191 24,164 17,437

Depletion and depreciation 24,171 122,940 188,463 283,235

Exploration and evaluation 3 17,337 4,926 21,561 13,207

(Gain) loss on sale of oil and gas assets (1,239,304) 140 (1,370,299) 9,195

Interest and financing 17,808 29,450 74,862 81,220

Accretion of asset retirement obligations 9 1,003 1,425 3,614 4,264

Foreign exchange (5,548) 41,535 (43,947) 40,424

Debt extinguishment 8 18,283 – 18,283 11,994

(1,123,113) 256,621 (925,651) 595,612

Loss from equity-accounted investments 5 (2,829) (12,399) (11,578) (19,968)

Write-down of investments in securities 6 (4,602) (73,014) (11,095) (77,630)

Other income (loss) (2,930) 544 (3,818) 934

Income (loss) before tax 1,166,771 (195,490) 1,120,056 (381,128)

Income tax expense (recovery) 13

Current – – – 11

Deferred 137,367 (23,693) 167,180 (78,851)

137,367 (23,693) 167,180 (78,840)

Net income (loss) 1,029,404 (171,797) 952,876 (302,288)

Other comprehensive income (loss), net of tax Items that may be reclassified to net income (loss):

Change in market value of securities 53,890 (51,237) 50,581 (37,644) Reclassification of accumulated (gains) losses on securities to net income (loss) (32,371) 73,014 (25,877) 77,630

Deferred tax on other comprehensive income related to securities (3,079) 28 (3,079) (1,425)

Comprehensive income (loss) 1,047,844 (149,992) 974,501 (263,727)

Net income (loss) per common share ($/share) 10

Basic 9.69 (1.62) 8.97 (2.86)

Diluted 9.64 (1.62) 8.97 (2.86)


34


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($ thousands)



Note 2016 2015 2016 2015

Operating activities

Net income (loss) 1,029,404 (171,797) 952,876 (302,288)

Add (deduct):

Items not involving cash 15 (1,045,582) 207,291 (953,713) 358,542

Asset retirement obligations settled 9 (207) (2,269) (823) (5,407)

Debt extinguishment 18,283 – 18,283 11,994

Change in non-cash working capital 7,839 3,212 35,524 11,046

Cash from operating activities 9,737 36,437 52,147 73,887

Financing activities

Net draw (repayment) of demand facilities 7 (58,710) 4,062 (100,911) 16,161

Net draw (repayment) of long-term debt 8 (224,369) (58,340) (695,384) 244,126

Redemption of senior notes 8 (169,648) – (169,648) (380,175)

Proceeds from 2023 Senior Notes, net of issue costs – (119) – 549,656

Common shares issued, net of issue costs 257 – 338 41,817

Common shares purchased under stock incentive plan – – – (316)

Cash from (used in) financing activities (452,470) (54,397) (965,605) 471,269

Investing activities

Property, plant and equipment and exploration (46,904) (98,277) (122,218) (420,854)

Proceeds on sale of oil and gas assets 496,077 (37) 1,060,994 5,418

Proceeds on sale of investments, net of costs 306,192 – 306,192 –

Change in non-cash working capital (10,901) (4,755) (29,693) (129,428)

Cash from (used in) investing activities 744,464 (103,069) 1,215,275 (544,864)

Net increase (decrease) 301,731 (121,029) 301,817 292

Foreign exchange on cash and cash equivalents 4 1,313 (403) 2,680 Cash and cash equivalents, beginning of period 11,620 141,008 11,941 18,320

Cash and cash equivalents, end of period 313,355 21,292 313,355 21,292

Supplemental cash flow information 15


35


INTERIM CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited) ($ thousands, except as noted)

Nine months ended September 30 Note 2016 2015

Shares (000’s)

Shares (000’s)

Share Capital

Balance, beginning of period 106,212 1,646,984 104,843 1,603,436

Issued 41 474 1,337 43,175

Change in vested and unvested common shares for stock incentive plan 19 118 32 294

Balance, end of period 106,272 1,647,576 106,212 1,646,905

Accumulated Deficit

Balance, beginning of period (1,197,627) (296,326)

Net income (loss) 952,876 (302,288)

Balance, end of period (244,751) (598,614)

Reserves 11

Balance, beginning of period 99,337 46,172

Other comprehensive income 21,625 38,561

Contributed surplus 23,910 11,736

Balance, end of period 144,872 96,469

Total Shareholders’ Equity 1,547,697 1,144,760


36


(Unaudited)

(Tabular amounts stated in $ thousands, except as noted)

1. Basis of Presentation

Paramount Resources Ltd. ("Paramount" or the "Company") is an independent, publicly traded, Canadian

corporation that explores for and develops conventional petroleum and natural gas prospects, pursues

long-term non-conventional exploration and pre-development projects and holds a portfolio of investments

in other entities. Paramount’s principal properties are primarily located in Alberta and British Columbia. The

Company’s operations are divided into three business segments, which have been established by

management to assist in resource allocation, to assess operating performance and to achieve long-term

strategic objectives: i) Principal Properties; ii) Strategic Investments; and iii) Corporate.

Paramount is the ultimate parent company of a consolidated group of companies and is incorporated and

domiciled in Canada. The address of its registered office is 4700, 888 3rd Street S.W., Calgary, Alberta,

Canada, T2P 5C5. The consolidated group includes the following wholly-owned subsidiaries: Fox Drilling

Limited Partnership ("Fox Drilling") and Cavalier Energy Inc. ("Cavalier"). Paramount also holds a 15

percent equity interest in Trilogy Energy Corp. ("Trilogy"), which is accounted for using the equity method

of investment accounting. The financial statements of Paramount’s subsidiaries and partnerships are

prepared for the same reporting periods as the parent in accordance with the Company’s accounting

policies. All intercompany balances and transactions have been eliminated.

These unaudited Interim Condensed Consolidated Financial Statements, as at and for the three and nine

months ended September 30, 2016 (the "Interim Financial Statements"), were authorized for issuance by

the Audit Committee of Paramount’s Board of Directors on November 8, 2016.

These Interim Financial Statements have been prepared in accordance with International Accounting

Standard 34 – Interim Financial Reporting on a basis consistent with the accounting, estimation and

valuation policies described in the Company’s audited Consolidated Financial Statements as at and for the

year ended December 31, 2015 (the "Annual Financial Statements"). These Interim Financial Statements

are stated in thousands of Canadian dollars, unless otherwise noted, and have been prepared on a

historical cost basis, except for certain financial instruments which are stated at fair value. Certain

information and disclosures normally required to be included in the notes to the Annual Financial

Statements prepared in accordance with International Financial Reporting Standards have been condensed

or omitted. Certain comparative amounts have been reclassified to conform with the current year’s

presentation. These Interim Financial Statements should be read in conjunction with the Annual Financial

Statements.

Changes in Accounting Standards

There were no new accounting standards adopted by the Company for the nine months ended September

30, 2016. A description of accounting standards that will be effective in the future is included in the notes

to the Company’s Annual Financial Statements.

37


(Unaudited)


2. Segmented Information

Three months ended September 30, 2016 Principal

Properties Strategic

Investments Corporate Inter-segment

Eliminations Total

Revenue 51,630 – – – 51,630 Gain on commodity contracts 2,389 – – – 2,389

54,019 – – – 54,019

Expenses Operating expense 25,001 – – – 25,001 Transportation and NGLs processing 12,675 – – – 12,675 General and administrative – 1,358 2,682 – 4,040 Share-based compensation – 535 886 – 1,421 Depletion and depreciation 23,011 2,891 260 (1,991) 24,171 Exploration and evaluation 16,666 671 – – 17,337 Gain on sale of oil and gas assets (1,239,304) – – – (1,239,304) Interest and financing – 671 17,137 – 17,808 Accretion of asset retirement obligations 910 93 – – 1,003 Foreign exchange – – (5,548) – (5,548) Debt extinguishment – – 18,283 – 18,283 (1,161,041) 6,219 33,700 (1,991) (1,123,113)

Loss from equity-accounted investments – (2,829) – – (2,829) Write-down of investments in securities – (4,602) – – (4,602) Other 385 (3,296) 35 – (2,876) Drilling rig revenue – 9,062 – (8,839) 223 Drilling rig expense – (4,040) – 3,763 (277)

1,215,445 (11,924) (33,665) (3,085) 1,166,771

Inter-segment eliminations – (3,085) – 3,085 –

Segment income (loss) 1,215,445 (15,009) (33,665) – 1,166,771

Income tax expense (137,367)

Net income 1,029,404

Three months ended September 30, 2015 Principal



Eliminations Total

Revenue 107,933 – – – 107,933 Gain on commodity contracts 38,067 – – – 38,067 146,000 – – – 146,000

Expenses Operating expense 26,089 – – – 26,089 Transportation and NGLs processing 19,455 – – – 19,455 General and administrative – 1,578 2,892 – 4,470 Share-based compensation – 1,610 4,581 – 6,191 Depletion and depreciation 122,560 397 141 (158) 122,940 Exploration and evaluation 4,083 843 – – 4,926 Loss on sale of oil and gas assets 140 – – – 140 Interest and financing – 607 28,843 – 29,450 Accretion of asset retirement obligations 1,345 80 – – 1,425 Foreign exchange – – 41,535 – 41,535

173,672 5,115 77,992 (158) 256,621

Loss from equity-accounted investments – (12,399) – – (12,399) Write-down of investments in securities – (73,014) – – (73,014) Other 104 – 58 – 162 Drilling rig revenue – 1,222 – (622) 600 Drilling rig expense – (1,057) – 839 (218)

(27,568) (90,363) (77,934) 375 (195,490)

Inter-segment eliminations – 375 – (375) –

Segment loss (27,568) (89,988) (77,934) – (195,490)

Income tax recovery 23,693

Net loss (171,797)

38


(Unaudited)


Nine months ended September 30, 2016 Principal



Eliminations Total


220,896 – – – 220,896

Expenses Operating expense 86,097 – – – 86,097 Transportation and NGLs processing 52,170 – – – 52,170 General and administrative – 4,648 14,733 – 19,381 Share-based compensation – 5,334 18,830 – 24,164 Depletion and depreciation 183,881 6,993 648 (3,059) 188,463 Exploration and evaluation 20,545 1,016 – – 21,561 Gain on sale of oil and gas assets (1,370,279) (20) – – (1,370,299) Interest and financing – 2,706 72,156 – 74,862 Accretion of asset retirement obligations 3,338 276 – – 3,614 Foreign exchange – – (43,947) – (43,947) Debt extinguishment – – 18,283 – 18,283

(1,024,248) 20,953 80,703 (3,059) (925,651)

Loss from equity-accounted investments – (11,578) – – (11,578) Write-down of investments in securities – (11,095) – – (11,095) Other 344 (3,296) 35 – (2,917) Drilling rig revenue – 17,978 – (17,755) 223 Drilling rig expense – (7,258) – 6,134 (1,124)

1,245,488 (36,202) (80,668) (8,562) 1,120,056


Segment income (loss) 1,245,488 (44,764) (80,668) – 1,120,056

Income tax expense (167,180)

Net income 952,876

Nine months ended September 30, 2015 Principal



Eliminations Total


311,148 – – – 311,148

Expenses Operating expense 67,084 – – – 67,084 Transportation and NGLs processing 49,392 – – – 49,392 General and administrative – 4,270 13,890 – 18,160 Share-based compensation – 5,662 11,775 – 17,437 Depletion and depreciation 282,222 4,159 299 (3,445) 283,235 Exploration and evaluation 11,783 1,424 – – 13,207 (Gain) loss on sale of oil and gas assets 9,327 (132) – – 9,195 Interest and financing – 1,717 79,503 – 81,220 Accretion of asset retirement obligations 4,097 167 – – 4,264 Foreign exchange – – 40,424 – 40,424 Debt extinguishment – – 11,994 – 11,994

423,905 17,267 157,885 (3,445) 595,612

Loss from equity-accounted investments – (19,968) – – (19,968) Write-down of investments in securities – (77,630) – – (77,630) Other 267 – 173 – 440 Drilling rig revenue – 15,568 – (14,620) 1,038 Drilling rig expense – (8,745) – 8,201 (544)

(112,490) (107,952) (157,712) (2,974) (381,128)


Segment loss (112,490) (110,926) (157,712) – (381,128)

Income tax recovery 78,840

Net loss (302,288)

39


(Unaudited)


3. Exploration and Evaluation

Nine months ended September 30, 2016

Twelve months ended December 31, 2015

Balance, beginning of period 363,724 567,420

Additions 37,680 93,411

Change in asset retirement provision – 2,550

Transfers to property, plant and equipment (3,200) (112,000)

Dry hole (13,792) (15,019)

Expired lease costs (3,884) (3,728)

Write-downs – (162,516)

Dispositions (65,807) (6,394)

Balance, end of period 314,721 363,724

Exploration and Evaluation Expense

Three months ended


September 30

2016 2015 2016 2015

Geological and geophysical 1,704 1,424 3,885 3,979

Dry hole 13,827 93 13,792 2,279

Expired lease costs 1,806 3,409 3,884 6,949

17,337 4,926 21,561 13,207

4. Property, Plant and Equipment


Petroleum and natural gas assets Drilling rigs Other Total

Cost

Balance, December 31, 2015 3,655,956 155,107 29,166 3,840,229

Additions 93,265 1,422 2,330 97,017

Transfers from exploration and evaluation 3,200 – – 3,200

Dispositions (1,849,413) – (665) (1,850,078)

Change in asset retirement provision 3,630 – – 3,630

Cost, September 30, 2016 1,906,638 156,529 30,831 2,093,998

Accumulated depletion, depreciation and write-downs

Balance, December 31, 2015 (1,741,988) (42,677) (21,211) (1,805,876)

Depletion and depreciation (183,013) (8,492) (1,039) (192,544)

Dispositions 588,185 – 168 588,353

Accumulated depletion, depreciation and write-downs, September 30, 2016 (1,336,816) (51,169) (22,082) (1,410,067)

Net book value, December 31, 2015 1,913,968 112,430 7,955 2,034,353

Net book value, September 30, 2016 569,822 105,360 8,749 683,931

In April 2016, Paramount closed the sale of its natural gas processing facility and related midstream assets

at Musreau for net cash proceeds of $560.3 million, resulting in the recognition of a gain on sale of $125.5

million.

In August 2016, Paramount sold the majority of its oil and gas properties in the Musreau/Kakwa area of

west central Alberta (the "Musreau/Kakwa Assets") to Seven Generations Energy Ltd. ("Seven

Generations" or the "Acquiror") for total consideration of $2.1 billion (the "Sale Transaction"), subject to

customary post-closing adjustments. Consideration was comprised of: (i) $496 million in cash; (ii) 33.5

40


(Unaudited)


million class A common shares of the Acquiror having a market value of approximately $972 million based

on the closing market price of the shares on the day prior to closing), (iii) the assumption by the Acquiror of

all US$450 million principal amount of the Company’s senior unsecured notes due in 2023 (the "2023 Senior

Notes"); and (iv) certain oil and gas properties of the Acquiror valued at approximately $6 million. In

connection with the Sale Transaction, the Acquiror also assumed Paramount’s processing and

transportation commitments relating to the Musreau/Kakwa Assets. Goodwill with a carrying value of $3.1

million related to the sold properties was derecognized in connection with the disposition. A gain on sale of

$1.2 billion was recorded in respect of the Sale Transaction.

Depletion and Depreciation

Three months ended


September 30

2016 2015 2016 2015


Write-down of property, plant and equipment – 22,216 – 22,216

Inter-segment eliminations (2,327) (656) (4,085) (4,915)

24,171 122,940 188,463 283,235

5. Equity-Accounted Investments


Shares (000’s)

Carrying Value

Market Value (1)

Shares (000’s)

Carrying Value

Market Value (1)

Trilogy 19,144 46,792 138,031 19,144 58,370 70,068

(1) Based on the period-end trading price.

Loss from equity-accounted investments is comprised of the following:

Three months ended


September 30 2016 2015 2016 2015

Equity loss (2,829) (11,946) (11,558) (19,638)

Dilution gain (loss) – – (20) 123

Write-down of other equity-accounted investment – (453) – (453)

(2,829) (12,399) (11,578) (19,968)

41


(Unaudited)


The following tables summarize the assets, liabilities, equity, revenue and income of Trilogy and

Paramount’s investment in Trilogy:

As at September 30 2016 2015

Current assets 34,112 45,322

Non-current assets (1) 1,187,241 1,362,489

Current liabilities (54,740) (69,479)

Non-current liabilities (790,056) (876,502)

Equity (1) 376,557 461,830

Multiply by: Paramount’s equity interest 15.2% 15.2%

Paramount’s proportionate share of equity 57,184 70,101

Less: portion of share-based compensation recorded in equity of Trilogy (10,392) (8,681)

Carrying value of Paramount’s investment 46,792 61,420

(1) Includes adjustments to Trilogy’s carrying values required in the application of the equity method of investment accounting for shares of Trilogy purchased by the Company in the open market in prior years. Excluding such adjustments, Trilogy’s non-current assets as at September 30, 2016 totaled $1,191.9 million (2015 – $1,365.5 million) and equity totaled $381.2 million (2015 - $464.9 million).

Nine months ended September 30 2016 2015

Revenue 123,745 215,004

Comprehensive loss (1) (76,100) (122,308)

Paramount’s share of Trilogy’s comprehensive loss (11,558) (18,582)

(1) Includes amortization of the adjustments to Trilogy’s non-current assets required in the application of the equity method of investment accounting for shares of Trilogy purchased by the Company in prior years in the open market. Excluding such adjustments, Trilogy’s comprehensive loss for the nine months ended September 30, 2016 was $75.3 million (2015 – comprehensive loss $118.4 million).

Trilogy had 4.7 million stock options outstanding (1.6 million exercisable) at September 30, 2016 at exercise

prices ranging from $4.49 to $26.87 per share.

6. Investments in Securities


Shares (000’s)

Market Value

Shares (000’s)

Market Value

Seven Generations 8,800 277,904 – –

MEG Energy Corp. 3,700 21,941 3,700 29,674

Privateco 18,675 18,675

Other (1) 10,233 12,365

328,753 60,714

(1) Includes investments in Marquee Energy Ltd., RMP Energy Inc., Strategic Oil & Gas Ltd. and other public corporations.

Investments in publicly traded securities are carried at their period-end trading price, which are level one

fair value hierarchy inputs. The estimated fair value of the Company’s investment in the shares of a private

oil and gas company ("Privateco") is based on equity issuances by Privateco from time-to-time (level two

fair value hierarchy inputs).

In the third quarter of 2016, Paramount monetized 24.7 million of the 33.5 million Seven Generations shares

received through the Sale Transaction. The Company received net cash proceeds of $306.2 million in the

third quarter in connection with the monetization and an additional $408.3 million in cash is due in December

2016 (the "Cash Proceeds Receivable on Share Monetization"). The Cash Proceeds Receivable on Share

Monetization is due from an investment grade counterparty which has a short-term debt rating of A-1 from

Standard & Poors. A loss on disposition of $4.2 million was recorded on the monetization transaction based

on the difference between the aggregate net proceeds and the market value of the shares on the closing

of the Sale Transaction.

42


(Unaudited)


For the nine months ended September 30, 2016 aggregate unrealized losses of $11.1 million related to the

Company’s investments in MEG Energy Corp., Marquee Energy Ltd., and other securities previously

recorded in other comprehensive loss were charged to net earnings as a result of significant decreases in

the market prices of the securities.

7. Limited-Recourse Demand Facilities

As at September 30

2016 December 31

2015

Fox Drilling Facility – 63,380

Cavalier Facility – 37,531

– 100,911

In June 2016, the Cavalier Facility was repaid and cancelled. In September 2016, the Fox Drilling Facility

was repaid and cancelled.

8. Long-Term Debt

As at September 30

2016 December 31

2015

Bank credit facility – 693,045

7⅝% Senior Notes due 2019 ("2019 Senior Notes") 286,583 450,000

6⅞% US Senior Notes due 2023 – 622,800

286,583 1,765,845

Unamortized financing costs, net of premiums (2,140) (15,619)

284,443 1,750,226

In connection with the Sale Transaction:

(i) the Company repaid its syndicated bank credit facility;

(ii) the Company paid $1.4 million to holders of 2019 Senior Notes that provided consent to the

Sale Transaction (the "Consent Payment");

(iii) the Company redeemed $163.4 million aggregate principal amount of 2019 Senior Notes for

which consent to the Sale Transaction was not provided, paying $169.6 million plus accrued

and unpaid interest to the redemption date; and

(iv) the Acquiror assumed all US$450 million aggregate principal amount of 2023 Senior Notes and

Paramount was discharged and released from all obligations and covenants under the 2023

Senior Notes Indenture and the 2023 Senior Notes.

The redemption premium of $6.2 million for the 2019 Senior Notes and unamortized financing fees related

to the 2019 Senior Notes redeemed and the 2023 Senior Notes totaling $11.9 million were recorded as

debt extinguishment expense. The Consent Payment was recorded as a cost of the Sale Transaction.

Following the Sale Transaction, the Company has a $100 million revolving credit facility (the "Facility") with

a Canadian chartered bank (the "Lender"). The revolving period of the Facility ends on April 28, 2017. In

the event the revolving period is not extended, any undrawn availability would be cancelled and all amounts

then outstanding would be permitted to remain outstanding on a non-revolving basis until April 28, 2018,

the maturity date of the Facility.

43


(Unaudited)


The borrowing base governs the maximum amount which can be drawn on the Facility. The Lender has

the right to review and re-determine Paramount’s borrowing base on a semi-annual basis and more

frequently in certain other circumstances. The borrowing base amount is based on the Company’s reserves,

the Lender’s projections of future commodity prices and the value attributed by the Lender to Paramount’s

equity investments and other assets, among other factors.

Borrowings on the Facility bear interest at the Lender’s prime lending rate, US base rates, bankers’

acceptance rates, or LIBOR rates, as selected at the discretion of the Company, plus an applicable margin

which is dependent upon the Company’s debt-to-cash flow ratio and the total amount drawn. The Facility

is secured by a fixed and floating charge over substantially all of the assets of Paramount, excluding the

assets of Fox Drilling.

Paramount continues to have no financial maintenance covenants under the terms of the Facility or the

2019 Senior Notes. The agreements include certain standard restrictions on Paramount’s ability to

repurchase equity, issue or refinance debt, acquire or dispose of assets and pay dividends.

At September 30, 2016, no amounts were drawn on the Facility. Paramount had undrawn letters of credit

outstanding totaling $22.6 million that reduce the amount available to be drawn on the Facility.

At September 30, 2016, the 2019 Senior Notes had a market value of 104.0 percent of their principal amount

(December 31, 2015 – 82.0 percent). The market value of the 2019 Senior Notes is estimated using a

market approach based on prices quoted from financial institutions, which are level two fair value hierarchy

inputs.

9. Asset Retirement Obligations



Asset retirement obligations, beginning of period 273,580 287,415

Retirement obligations incurred 1,571 5,010

Revisions to estimated retirement costs 2,059 (18,791)

Obligations settled (823) (6,641)

Dispositions (75,318) (119)

Assumed on corporate acquisition – 1,011

Accretion expense 3,614 5,695

Asset retirement obligations, end of period 204,683 273,580

Asset retirement obligations at September 30, 2016 were determined using a weighted average risk-free

rate of 2.00 percent (December 31, 2015 – 2.00 percent) and an inflation rate of 2.00 percent (December

31, 2015 – 2.00 percent).

10. Share Capital

At September 30, 2016, 106,272,460 (December 31, 2015 – 106,212,487) Class A Common Shares

("Common Shares") of the Company were outstanding, net of 2,865 (December 31, 2015 – 21,508)

Common Shares held in trust under the stock incentive plan.

Paramount implemented a normal course issuer bid ("NCIB") on October 13, 2016. The NCIB will terminate

on the earlier of: (i) October 12, 2017; and (ii) the date on which the maximum number of Common Shares

that can be acquired pursuant to the NCIB are purchased. Paramount may purchase up to 5,441,602

Common Shares under the NCIB. Any Common Shares purchased pursuant to the NCIB will be cancelled

44


(Unaudited)


by the Company. To November 7, 2016, the Company has purchased and cancelled 622,900 Common

Shares under the NCIB at a total cost of $9.7 million.

Weighted Average Common Shares

Three months ended September 30 2016 2015

Wtd. Avg. Shares (000’s) Net income

Wtd. Avg. Shares (000’s) Net loss

Net income (loss) - basic 106,254 1,029,404 106,212 (171,797)

Dilutive effect of Paramount options 546 – – –

Net income – diluted 106,800 1,029,404 106,212 (171,797)

Nine months ended September 30 2016 2015

Wtd. Avg. Shares (000’s) Net income

Wtd. Avg. Shares (000’s) Net loss

Net income (loss)– basic 106,233 952,876 105,662 (302,288)

Dilutive effect of Paramount options – – – –

Net income – diluted 106,233 952,876 105,662 (302,288)

Outstanding Paramount Options can be exchanged for the Company’s Common Shares in accordance with

the terms of the stock option plan. As a result, they are potentially dilutive and are included in Paramount’s

diluted per share calculations when they are dilutive to net income. The Company had 2.4 million

Paramount Options outstanding at September 30, 2016 (September 30, 2015 – 7.4 million), of which 1.9

million were anti-dilutive for the three months ended September 30, 2016. For the nine months ended

September 30, 2016, all Paramount Options outstanding were anti-dilutive.

11. Reserves

Reserves at September 30, 2016 include unrealized gains and losses related to changes in the market

value of the Company’s investments in securities classified as available for sale and changes in contributed

surplus amounts in respect of Paramount Options and Cavalier Options. The changes in reserves are as

follows:

Unrealized gains

on securities Contributed

surplus Total

reserves

Balance, December 31, 2015 8,637 90,700 99,337

Other comprehensive income 21,625 – 21,625

Share-based compensation – 24,047 24,047

Stock options exercised – (137) (137)

Balance, September 30, 2016 30,262 114,610 144,872

45


(Unaudited)


12. Share-Based Compensation

Paramount Options

Changes in outstanding Paramount Options are as follows:



Number

Wtd. Avg. exercise price

($/share) Number

Wtd. Avg. exercise price

($/share)

Balance, beginning of period 7,238,650 34.66 7,275,850 33.75 Granted 2,520,100 8.28 694,000 33.43 Exercised (41,330) 8.17 (435,950) 13.69 Cancelled (6,227,300) 35.41 – – Forfeited (131,240) 22.70 (291,000) 40.52 Expired (930,450) 29.83 (4,250) 25.85

Balance, end of period 2,428,430 8.31 7,238,650 34.66

Options exercisable, end of period 457,030 8.26 3,991,050 34.85

Share-based compensation expense for the nine months ended September 30, 2016 includes $13.8 million related to options cancelled in June 2016.

The weighted average remaining contractual life and exercise prices of Paramount Options outstanding as

of September 30, 2016 are as follows:

Awards Outstanding

Number

Remaining contractual life (years)

Weighted average exercise

price

$8.17 2,343,430 3.6 8.17

$8.18 - $13.02 85,000 4.0 12.11

2,428,430 3.6 8.31

The grant date fair value of Paramount Options was estimated using the Black-Scholes-Merton model

incorporating the following weighted average inputs:

Options awarded in

2016

Options awarded in

2015

Weighted average exercise price ($ / share) 8.28 33.43

Expected volatility (%) 62.1 41.9

Expected life of share options (years) 3.5 2.1

Pre-vest annual forfeiture rate (%) 4.9 3.7

Risk-free interest rate (%) 0.6 0.6

Expected dividend yield (%) nil nil

Weighted average fair value of awards per share ($ / share) 3.62 8.02

The estimated expected life of Paramount Options is based on historical exercise patterns. The expected

volatility is estimated based on the historical volatility of the trading price of the Company’s Common Shares

over the most recent period that is generally commensurate with the expected term of the option.

46


(Unaudited)


Stock Incentive Plan – Shares Held in Trust



Shares (000’s)

Shares (000’s)

Balance, beginning of period 22 135 54 508

Shares purchased – – 9 316

Change in vested and unvested shares (19) (118) (41) (689)

Balance, end of period 3 17 22 135

13. Income Tax

The following table reconciles income taxes calculated at the Canadian statutory rate to Paramount’s

recorded income tax expense (recovery):

Three months ended


September 30

2016 2015 2016 2015

Income (loss) before tax 1,166,771 (195,490) 1,120,056 (381,128)

Effective Canadian statutory income tax rate 27.0% 26.0% 27.0% 26.0%

Expected income tax expense (recovery) 315,028 (50,827) 302,415 (99,093)

Effect on income taxes of:

Statutory and other rate differences 193 (1,111) 460 (16,458)

Gain on sale of oil and gas assets – – (13,448) –

Loss from equity-accounted investments 764 3,224 3,126 5,192

Write-down of investments in securities 1,244 18,984 2,996 20,184

Change in unrecognized deferred income tax asset (180,886) – (125,718) –

Flow-through share renunciations 182 – 1,472 956

Share-based compensation 382 1,589 6,493 5,117

Foreign exchange on US Senior Notes 915 10,680 (9,172) 10,592

Non-deductible items and other (455) (6,232) (1,444) (5,330)

Income tax expense (recovery) 137,367 (23,693) 167,180 (78,840)

14. Financial Instruments and Risk Management

The Company had the following financial commodity contracts in place at September 30, 2016:

The fair values of risk management financial instruments are estimated using a market approach

incorporating level two fair value hierarchy inputs, including forward market curves and price quotes for

similar instruments, provided by financial institutions.

Instruments Total notional Average fixed price Fair value Remaining term

Oil – NYMEX WTI Swaps (Sale) 6,000 Bbl/d CDN$75.72/Bbl 6,846 October 2016 – December 2016

Oil – NYMEX WTI Swap (Purchase) 2,000 Bbl/d CDN$50.64/Bbl 2,501 October 2016 – December 2016

9,347

47


(Unaudited)


Changes in the fair value of risk management assets and liabilities are as follows:



Fair value, beginning of period 40,207 –

Changes in fair value 6,519 55,215

Settlements received (37,379) (15,008)

Fair value, end of period 9,347 40,207

Subsequent to September 30, 2016, Paramount entered into the following financial commodity contracts:

15. Consolidated Statement of Cash Flows – Selected Information

Items Not Involving Cash

Three months ended


September 30

2016 2015 2016 2015

Commodity contracts 8,505 (30,439) 30,860 (25,325)

Share-based compensation 1,421 6,191 24,164 17,437


Exploration and evaluation 15,633 3,502 17,676 9,228

(Gain) loss on sale of oil and gas assets (1,239,304) 140 (1,370,299) 9,195

Accretion of asset retirement obligations 1,003 1,425 3,614 4,264

Foreign exchange (5,457) 41,170 (43,423) 40,152

Loss from equity-accounted investments 2,829 12,399 11,578 19,968

Write-down of investments in securities 4,602 73,014 11,095 77,630

Loss on sale of investment 3,294 – 3,294 –

Deferred income tax 137,367 (23,693) 167,180 (78,851)

Other 354 642 2,085 1,609

(1,045,582) 207,291 (953,713) 358,542

Supplemental Cash Flow Information

Three months ended


September 30

2016 2015 2016 2015

Interest paid 4,367 8,064 54,672 60,023

Current tax refunded – – – (10)

Components of cash and cash equivalents

September 30, 2016 December 31, 2015

Cash 7,534 11,941

Cash equivalents 305,821 –

313,355 11,941

Instruments Total notional Fixed price Term

Gas – NYMEX (Sale) 10,000 MMBtu/d US$3.40/MMBtu January 2017 – December 2017

Gas – NYMEX (Purchase) 10,000 MMBtu/d US$3.04/MMBtu January 2017 – December 2017

Oil – NYMEX WTI (Sale) 1,000 Bbl/d CDN$69.45/Bbl January 2017 – December 2017

48


(Unaudited)


16. Commitments and Contingencies

Paramount had the following commitments as at September 30, 2016:

Within one

year

After one year but not

more than five years

More than five years

Petroleum and natural gas transportation and processing commitments (1) 35,891 189,629 235,933

Operating leases and other 5,057 9,344 1,719

40,948 198,973 237,652

(1) Certain of the transportation and processing commitments are secured by outstanding letters of credit totaling $7.0 million at September 30, 2016 (December 31, 2015 – $104.6 million).

The Company has incurred sufficient qualifying expenditures to satisfy commitments related to Canadian

exploration expense flow-through shares issued in 2015.

In 2016, a release occurred from a non-operated pipeline in which the Company owns a 50 percent

interest. The operator, and owner of the remaining 50 percent, has initiated response, containment and

remediation activities (“Response Activities”). Total costs to complete the Response Activities are estimated

at approximately $45 million. It is Paramount’s assessment that it is not responsible for the costs of the

Response Activities and as a result, no provision has been recorded in the Interim Financial Statements.

49

CORPORATE INFORMATION

OFFICERS C. H. Riddell Executive Chairman J. H. T. Riddell President and Chief Executive Officer B. K. Lee Chief Financial Officer L. M. Doyle Corporate Operating Officer G. W. P. McMillan Corporate Operating Officer D. S. Purdy Corporate Operating Officer J. Wittenberg Corporate Operating Officer M. S. Han V.P. Information Services P. R. Kinvig V.P. Finance and Controller M. Ockenden V.P. Corporate Planning P. G. Tahmazian V.P. Midstream E. M. Shier General Counsel and Corporate Secretary, Manager Land L. A. Friesen Assistant Corporate Secretary

DIRECTORS C. H. Riddell Executive Chairman Paramount Resources Ltd. Calgary, Alberta J. H. T. Riddell (2) President and Chief Executive Officer Paramount Resources Ltd. Calgary, Alberta J. G. M. Bell (1) (3) (4) General Counsel Founders Advantage Capital Corp. Calgary, Alberta J. C. Gorman (1) (3) (4) Independent Businessman Calgary, Alberta D. Jungé C.F.A. (2) (4) Chairman of the Board Pitcairn Trust Company Bryn Athyn, Pennsylvania D. M. Knott (4) Managing General Partner Knott Partners, L.P. Syosset, New York S. L. Riddell Rose President and Chief Executive Officer Perpetual Energy Inc. Calgary, Alberta J. B. Roy (1) (2) (3) (4) Independent Businessman Calgary, Alberta (1) Member of Audit Committee (2) Member of Environmental,

Health and Safety Committee (3) Member of Compensation

Committee (4) Member of Corporate

Governance Committee

CORPORATE OFFICE 4700 Bankers Hall West

888 Third Street S.W.

Calgary, Alberta

Canada T2P 5C5 Telephone: (403) 290-3600 Facsimile: (403) 262-7994 www.paramountres.com

REGISTRAR AND TRANSFER AGENT Computershare Trust Company of Canada Calgary, Alberta Toronto, Ontario

BANK Bank of Montreal Calgary, Alberta

CONSULTING ENGINEERS

McDaniel & Associates Consultants Ltd. Calgary, Alberta

AUDITORS

Ernst & Young LLP Calgary, Alberta

STOCK EXCHANGE LISTING

The Toronto Stock Exchange (“POU”)



Documents

PARAMOUNT ANNOUNCES THIRD QUARTER 2016 RESULTS … · 2019. 12. 3. · Paramount Resources Ltd. Third Quarter 2016 Paramount is an independent, publicly traded, Canadian corporation