Wayne Foo - CEO Ken Pinsky - CFO Dave Taylor - President

Nathan Piper - RBC Capital Markets David Dudlyke - Dundee Capital Markets Kimberly Hedlin - Canaccord Genuity Dave Popowich - CIBC World Markets

Thank you operator and thank you all for joining us today for Parex’s third quarter earnings conference call. With me today is Ken Pinsky, our Chief Financial Officer.

The format for today’s conference call will be a question-and-answer session with our audience. So we’re opening the line to questions right away.

Operator, over to you.

Good morning guys. Thanks for the call.

And I guess a quick question or states a point really. I just wanted to understand how you've crafted your production guidance going into 2017 and it appears on the quarter itself the production is a wee bit less than people are expecting given some of the test rates from the Jacana wells.

So I just wanted, if you could help us translate where you are now from a production point of view and how you get to the sort of 35,000 barrels a day MIP case given the significant number of developing wells you’re drilling?

Hi Nathan, it’s Ken. For this year we’ve given guidance targets and we’ve produced the targets notwithstanding what test rates are doing or anything else.

We've got a target and we'll adhere to the target. So I think that takes you through 2017 and 2017 we're forecasting about a 16% decline off the base which would be considered for actually fourth quarter 2016.

If you want to use rough numbers, let’s just say we exit around 30,000 barrels a day, your decline then is around 4500 barrels a day. And that’s taken – that gets accounted for under the maintenance program which is 45 million to 55 million.

We’re drilling 12 gross 6.6 net wells, we’ve got some pad costs and some workover costs and some facilities costs. And then to get to the 35,000 barrels a day average we have our Cerrero [ph], Aguas Blancas and Capachos and we have our exploration.

Exploration, we're being pretty conservative as we always are. We are forecasting about a one in three chance success.

If you look at how we're drilling the wells throughout the year, that gives us the production number that we’ve quoted in our press release between 2000 to 3000 barrels a day on the exploration activities. And that gets you up to that 30, 36,000 barrel a day range for 2017.

Is that adequate?

It’s adequate, I guess, particularly the decline, or the mechanics of it all add together of course. And I wonder though, is it partly an aspect of the fact that what you find on LLA-34 is much bigger than you expected initially.

And so it just takes time to develop a larger field. Are there any aspects on doing that correctly rather than quickly that translates into production, not moving perhaps faster than it might?

Well I think you have to remember that we produce with production behind pump, we would like to make our production targets. So you can't just go and drill wells in and out at gross peak performance rates and expect that’s how our production will move.

We’ve shown production increases just the past 16 quarters and we expect to carry that through the next five quarters and into 2018. That’s just the mandate or mantra of the company.

So adding and subtracting wells into the production forecast is a little difficult for us, we admit that but if you go to our targets that’s what we will produce too. And again we’ve had 16 quarters of production increases.

So I think the market sees our targets are very achievable and we’re very certain to be achieved.

Thank you. And good morning everyone.

A follow on question to Nathan's. I guess the first question would be: are there any capacity constraints on block 34 that I need to be aware of, whether it's oil handling or water handling, water injection?

Because, for the same point, I've looked at -- and I hear what you said that you produce to a target. But I look at the gross adds second half from Jacana and Tigana, I look at the portfolio – your portfolio of the blocks and I see you've naturally -- I'm seeing production falling off probably at a higher rate than natural declines on various other fields, and again it makes sense from a portfolio to product your highest value oil and keep some behind.

But I guess to drive towards the second question beyond capacity constraints on block 34 would be, what scale of productive capacity does Parex currently have behind the pipe, which essentially is a question about the risking of your forward growth? I suspect that there are quite a few thousand barrels of production behind pipe that you're sitting on right now.

Yeah, I mean that’s a fair question, Dave. It’s Ken again.

Though there is not anything with respect to facilities or capacity handling that is causing us to have a wait. As I said in my previous response, maintenance capital includes money for facilities on block 34, approximately 15 million net our share, gross add would be 24 million to 25 million.

So that takes into account new facilities. And as you know from previous discussions, our facilities are pretty simple.

They're tankage and water separation, nothing really fancy that requires a lot of pre-built time. And they're also modular so that as we start to build facilities you can increase your tankage and increase your -- therefore your capacity you’re handing.

In respect to what’s currently behind pump, the company typically runs 5% to 10% at any given time of spare capacity. Sometimes it goes over 10%.

Sometimes it's closer to 5% but that's kind of what we run at any given time.

I mean, again I suspect that Nathan's and I can speak a mind on the questioning is we’re comparing and contrasting rights, some of which may be less conservative than you and I'm just trying to get a measure of what sort of growth the next year might well be achieved as an independent analyst looking in to your risk portfolio? If I move on, if I may, just quickly just a bit of housekeeping, on the seven non-block 34 exploration wells, I can account for – I can get to 4 or 5, perhaps you can help me just name which blocks you’re drilling on, but one well on VIM-1, three on VMM-11 and then the question is I think there may be one on block 32 and one on De Mares, is that counted as an exploration well, although it’s re-entry?

And that gets me six.

Right. Yeah.

So you're pretty much on there. We’ve got wells on VMM-11 in the middle Mag, VIM-1 in the lower Mag, we're just finishing up the 3D seismic on that program now and expect to have a prospect identified and drill next year.

We've got a well or two on block 32 and we have an exploration well in Capachos as well. As you know, Capachos has a development scenarios we’re drilling in between two existing wells.

We also have exploration areas that would be well outside anything that would be considered 3P today. So that a well or two there as well.

So we've got a couple of wells in the Northern Llanos, as we like to say and then the rest you have at bank on [ph].

Thanks for the call. I am wondering if you could provide a little bit of color on your exploration program on the Llanos 34 block, I guess the exploration and appraisal there.

What we can expect in terms of kind of drilling between the fields and so on?

Hi, Kim, it’s Wayne. Generally the theme is -- next year, the year we're going to determine what's actually on block 24 we have.

We've already commenced construction of a pad to the southwest of Jacana. So it’s called in a burst of creativity of Jacana southwest and that should allow us to move farther down towards the south boundary with Cabrestero, that we're drilling the Bacano well to get a sense of what's happening along the truncation [indiscernible] Cabrestero block.

That takes us in that direction. We've budgeted one or two pads to fill in the gap between Jacana and Tigana and we'll be drilling those wells.

We have wells programmed over on what we call [Sansate] which is the next fault trend to the west of Jacana and Tigana and it's the continuation along trend of the one that we tested at Chachalaca. So that's generally the activity Tigana and west, we have a couple of other prospects that detour to the east of Jacana and Tigana and we're looking to build a pad on one of those final locations still in discussion.

But we'll be testing at probably another prospect along the Cerrero trend.

Great. Separate question, kind of gets back to the earlier questions on the guidance.

What kind of IP rate are you using on the 34 block? I noticed the mean seems to have gone from a thousand to 1300 barrels a day.

I am just wondering what you're using in your internal forecast.

Yeah, for development wells we are using 1000, 1300 barrels a day as our IP, probably the average would be closer to 1300 barrels a day.

Thanks guys. I just had kind of a high level strategy question.

But in the past you guys have talked about managing your reserve additions with the goal of optimizing your reserve life index. So I just want to get a sense of how the 2017 program sets the stage for additional reserve growth, if you guys kind of just try and target reserve growth in line with production, and also if you guys -- in the past you've been knocked for having too short a reserve life.

I was just wondering if you guys see any high end -- what's your high target for a reserve like the next going forward. I guess?

Thank you.

It's a good question. I think it ties back to what David and Nathan were asking.

With production growth, our commitment to the market some time ago was that we would continue to grow or maintain RLI as we grew out production. So before we see year-end reserves we don't like to really stretch our next.

We’ve indicated 2018 guidance. I think you can see what we're forecasting in terms of building out a reserve book.

But in the end it's going to be that brought us in that discussion with GLJ at the end the year. The market’s been very receptive to our lengthening reserve life.

We were at 7.8, call it eight years the end of 2015. Certainly don't see any reason to harvest that and just strategically in periods of low oil prices we favor having longer RLI and in periods of higher oil prices we favor harvesting some of the -- harvesting but showing production growth and maintaining RLI in order to capture the incremental cash flow for reinvestment.

And it's a balance that we set and refine as we go through the year, month to month. People ask us what we're going to do at $60 oil and then ask us what we're going to do at $40 oil?

And the answer is we have the flexibility to work within that. We're giving our guidance point, that’s around $50 and that shows what we see as our production growth.

The reserves will come through the fourth quarter and be released and discussed in February.

Just a follow-up question on the exploration portfolio beyond your existing asset base. If I look at block 34, as I understand that there is relinquished acreage to the east, north, I think pretty much north, southeast and west actually in and around the block.

So the question is, first of all, how attractive is such relinquished acreage from a geological point of view? And what moves have you and prospect of your partner at block 34 made with A&H, and how does that process work on an unsolicited basis, if there is no formal bid process?

So you want me to talk about open acreage around the block?

Perhaps you could – well – perhaps you could talk about what –

The process is pretty well. I mean you can apply the A&H but I don't think it would be considered smart for me to talk much about open acreage around the block that we are drilling on.

What process exists – perhaps you could just talk more generically, is there a formal process or is it simply – if you like something, you make an approach and then they've been presented?

Yeah, quite frankly there is a couple of different processes and we've never done it. So I wouldn't know how to say, how it’s exactly worked out.

But there is a process whereby you are -- you can but it's not that clear to us yet how it works.

Fortunately for us, we own a 1005 of the Cabrestero block, which is the direction in which we're taking exploration at the moment. And that's where we're headed with it.

That's where the Jacana Southwest pad is under construction. End of Q&A

All right. I’d like to take this opportunity to thank everyone on the call for your interest in Parex Resources and your continued support of the company.

For further information we invite you to visit our website or call us. Thank you again and have a good day.