Parex Resources (OTCPK:PARXF) is a small-cap oil company with a market value of $2.25 billion USD. The company has a strong asset portfolio and has prioritized expansion in Colombia. As we’ll see throughout this article, the company’s impressive and rising asset portfolio will allow for higher shareholder returns.

Overview of Parex Resources

Parex Resources is Colombia’s largest independent oil and gas business, offering a number of exploring potentials.

Parex Resources has a debt-free financial sheet, which gives the company substantial strength. It enables the corporation to make acquisitions opportunistically and to weather a downturn with significant added strength. The company’s aim of return is 100% of FFF to shareholders, which can only be obtained from a debt-free corporation.

The corporation produces slightly under 55,000 barrels per day on average and has 5.5 million net acres of land. The corporation has around 110 million shares outstanding and a dividend yield of 6%. We anticipate that the company will be able to continue lowering its outstanding shares, demonstrating its overall strength.

Track Record of Parex Resources

Even in a tumultuous environment, the company has a great track record of producing shareholder returns.

The net metrics are more important than production and reserves, as are the per-share figures. Over the last five years, the corporation has more than doubled production per share while increasing overall production by nearly 60%. Similarly, the corporation managed to more than double the reserves per share despite only a 60% rise in raw reserves.

As a result of the pricing impact, the company’s output fell from 2019 to 2020. It was able to stabilize that in 2021 and raise it in 2022. It will be able to increase production in the future.

The corporation is committed to reducing its share count while returning funds. In 2022, the business returned $384 million CAD mostly through share repurchases, with a target of $400 million in 2023F. That indicates the company’s target yield is 13%. The corporation is aiming for a total return of $1.7 billion and intends to increase it further.

The corporation has actively reduced its share count. From 2017 to 2022, it managed to lower its share count from 164 million to 110 million, a 33% decrease in share count.

Growth Prospects for Parex Resources in 2023

The company’s 2023 forecast calls for higher shareholder returns and cash flow.

The company’s output goal is 60 thousand barrels per day, a 15% increase over 2022. This is scattered across the company’s excellent asset portfolio, primarily with its operated assets. The business estimates $450 million in capital expenditures, down 18% year on year, which is extremely good given its output growth plan.

The company’s aim for fund flows is $750 million at $80 Brent, which leaves significant cash flow after capital expenditures. The company’s 65 wells, located in significant growth basins, will contribute to future shareholder returns. Initially, the corporation quadrupled its land area while aiming to enhance operations and increase water flood.

Future Shareholder Returns for Parex Resources

We anticipate an increase in direct shareholder returns based on the company’s 2023 guidance.

Going forward, the company has the potential to generate significant shareholder returns. LLA-34 output is dropping, although it will be offset by other assets, particularly in the Northern Llanos, where the business is investing 30% of its capital. On top of its core capital, the corporation is spending $10 million on exploration, which will boost returns.

15 high-impact possibilities have been recognized by the company. From 2023 through 2025, the company anticipates $1.2 billion in cumulative FFF, which will account for over half of the total shareholder returns. The company expects 2023E to be its lowest year, but it expects to significantly strengthen its operations in 2024-2025.

Thesis Peril

Crude oil prices pose the greatest risk to our theory. The corporation is able to pay capital expenditures at $60 per barrel while generating high FCF at $80 per barrel. Above that, FCF rises dramatically. However, prices have plummeted below $60/barrel and remained there. This could have a significant impact on the ability to deliver shareholder returns.

Conclusion

Parex Resources has an exceptional asset portfolio. The company is the largest independent oil and gas company in Colombia, and it plans to expand farther there, where previous war has kept things locked off. That puts the company at a competitive advantage. Its land area has more than doubled in the last few years.

The most crucial factor for investors to consider is whether the company will be able to meet its production growth plans for 2023. It also depends on whether the corporation can maintain its FCF and share repurchases. However, if the company spends that FCF, as long as it is debt-free, we anticipate excellent shareholder returns.

Overall, this makes the company a strong investment.

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