Shares of Parex Resources Inc. (PXT.TO) experienced a sharp decline in early trading on Thursday, following the Calgary-based oil and gas producer’s announcement of significant operational challenges in Colombia and the resignation of its Chief Financial Officer (CFO).
The company’s stock, listed on the Toronto Stock Exchange, dropped as much as 34 percent in early trading before closing the day 23.64 percent lower at $13.18 per share.
Operational Difficulties in Colombia
Parex Resources, which focuses on onshore exploration and development in Colombia, revealed on Wednesday that underwhelming results from its Arauca site would substantially affect its production forecasts for 2024. The company has revised its mid-point production estimate down by 14 percent, from 57,000 barrels of oil equivalent per day (boe/d) to 49,000 boe/d. This adjustment has led Parex to withdraw its three-year outlook plan due to the Arauca site’s performance issues.
Leadership Change
In addition to the operational difficulties, Parex announced the resignation of CFO Sanjay Bishnoi, who will be leaving the company to pursue other opportunities effective September 20. Cameron Grainger, who has been with Parex since 2011 and has held various financial roles, will take over the CFO position.
Analyst Reactions and Downgrades
In response to the news, RBC Capital Markets analyst Greg Pardy reduced his target price for Parex shares from $23 to $17 and downgraded the company’s rating from ‘outperform’ to ‘sector perform.’ Pardy attributed the downgrade to disappointing well productivity and water incursion issues at the Arauca site. He noted that Parex will need to reevaluate its investment strategy and focus on lower-risk development initiatives while it addresses the challenges at Arauca.
Revised Financial Projections
Parex also lowered its cash flow guidance by 19 percent at the mid-point, reducing the forecast from US$215 million to US$175 million. Scotiabank Global Equity Research analyst Kevin Fisk highlighted that the weaker performance is expected to negatively impact Parex’s share price, citing the reduced production and free cash flow outlook as well as the unexpected resignation of the CFO. Despite these issues, Fisk maintained a $23 per share target for Parex stock.
As Parex Resources navigates these challenges, investors will be watching closely to see how the company adjusts its strategies and addresses its operational hurdles in the coming months.
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