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Management’s Discussion and Analysis For the three months ended March 31, 2020

This Management’s Discussion and Analysis ("MD&A"), dated May 12, 2020 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 months ended March 31, 2020 (the "Interim Financial Statements") and Paramount’s audited Consolidated Financial Statements as at and for the year ended December 31, 2019 (the "Annual Financial Statements"). 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. 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, liquids-focused Canadian energy company that explores for and develops both conventional and unconventional petroleum and natural gas reserves and resources. The Company also pursues longer-term strategic exploration and pre-development plays and holds a portfolio of investments in other entities. Paramount’s principal properties are located in Alberta and British Columbia. The Company’s Class A common shares ("Common Shares") are listed on the Toronto Stock " " Exchange under the symbol POU .

The Company’s operations are organized into the following three regions:

the Grande Prairie Region, located in the Peace River Arch area of Alberta, which is focused on Montney developments at Karr and Wapiti;
the Kaybob Region, located in west-central Alberta, which is focused on Montney and Duvernay developments at Kaybob, Smoky River, Pine Creek and Ante Creek; and
the Central Alberta and Other Region, which includes Duvernay development plays in Central Alberta at Willesden Green and the East Shale Basin, lands and production in British Columbia and approximately 180,000 acres of fee simple land and various associated royalty interests.

Paramount also holds a portfolio of: (i) investments in other entities; (ii) investments in exploration and development stage assets, including oil sands and carbonate bitumen interests held by Paramount’s wholly-owned subsidiary Cavalier Energy and prospective shale gas acreage in the Liard and Horn River Basins; and (iii) drilling rigs owned by Paramount’s wholly-owned limited partnership, Fox Drilling Limited Partnership.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 1

FINANCIAL AND OPERATING HIGHLIGHTS[(1) ]

Three months ended March 31	2020	2019	% Change
FINANCIAL
Petroleum and natural gas sales	172.1	246.1	(30)
Net loss	(235.1)	(76.7)	207
per share – basic & diluted ($/share)	*(1.76)*	(0.59)
Cash from operating activities	30.5	88.5	(66)
per share – basic & diluted ($/share)	*0.23*	0.68
Adjusted funds flow	33.5	100.5	(67)
per share – basic & diluted ($/share)	*0.25*	0.77
Total assets	3,009.5	4,108.0	(27)
Long-term debt	651.5	827.3	(21)
Net debt	771.9	903.3	(15)
Common shares outstanding (thousands)(2)	133,346	130,331	2
OPERATIONAL
Sales volumes
Natural gas (MMcf/d)	261.5	308.0	(15)
Condensate and oil (Bbl/d)	21,898	23,679	(8)
Other NGLs (Bbl/d)(3)	4,539	6,284	(28)
Total (Boe/d)	70,022	81,296	(14)
% Liquids	*38%*	37%
Realized prices
Natural gas revenue ($/Mcf)	2.25	3.37	(33)
Condensate and oil revenue ($/Bbl)	55.92	63.26	(12)
Other NGLs revenue ($/Bbl)(3)	10.75	28.55	(62)
Petroleum and natural gas sales ($/Boe)	27.01	33.63	(20)
Total capital expenditures	63.8	104.1	(39)

(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 and to the reconciliations of such Non-GAAP measures to their most directly comparable measure under GAAP in the applicable sections of this document. This table contains the following Non-GAAP measures: Adjusted funds flow, Net debt and Total capital expenditures.

(2) Common Shares are presented net of shares held in trust under the Company’s restricted share unit plan (000’s of Common Shares): 2020: 852 and 2019: 574.

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

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 2

IMPACT OF COVID-19 PANDEMIC AND PARAMOUNT’S RESPONSE

The erosion of global demand for crude oil and petroleum products in connection with the COVID-19 pandemic, combined with disputes among members of OPEC+ concerning production levels, led to a material deterioration in Liquids prices received by the Company in the latter part of the quarter ended March 31, 2020. Adverse pricing conditions for Liquids have persisted, with the negative impact magnified in Canada by widening differentials between West Texas Intermediate and Canadian sales prices. In response to these conditions, the Company has moved aggressively to further reduce its cost structure:

Paramount has revised its 2020 capital guidance to $165 million. This revised guidance reflects expected cost reductions at planned activity levels generally unchanged from the low end of previous capital guidance of $185 million.
Measures to reduce operating costs, including securing lower contractor and supplier rates, are expected to result in total savings of approximately $25 million over the final three quarters of 2020.
Workforce reductions, a 20 percent reduction in the salary of the Chief Executive Officer and in the cash compensation of the Board of Directors, a 10 percent reduction in the salaries of all other staff and the suspension or elimination of a number of benefits and incentive compensation programs are expected, when combined with previous initiatives, to reduce 2020 general and administrative costs by approximately $15 million.
Paramount has temporarily shut-in approximately 6,600 Boe/d of production at various properties and will adjust shut-in levels as required to maximize the economics of its production base.

The Company has also entered into incremental 2020 and 2021 natural gas hedges and near-term Liquids hedges to mitigate volatility and protect cash flows.

Paramount has implemented a corporate pandemic response plan aimed at ensuring the health and safety of its staff and contractors and the people they come in contact with. Under the plan, Paramount staff are working remotely other than in situations where physical workplace attendance is essential. Paramount has taken action to ensure its field operations are being conducted in compliance with public health requirements and guidelines, including by providing additional personal protective equipment and restricting access to its work sites to critical personnel. Paramount continues to monitor the effect of the COVID-19 pandemic on its supply chain and the availability of third party services. To date, the Company has not observed a material interruption in supplies or services related to the pandemic. The course of the COVID19 pandemic and its ultimate economic impact remain highly uncertain. Paramount will continue to proactively respond to the pandemic and the risks that it poses to the Company, including the risks described in this MD&A under "Risk Factors".

GUIDANCE

Paramount announced by a press release issued on March 19, 2020 that it had revised its 2020 capital guidance to a range of $185 million to $250 million (down from $350 million to $450 million) and its forecast average sales volumes for 2020 to a range of between 70,000 Boe/d to 75,000 Boe/d (down from 75,000 Boe/d to 80,000 Boe/d). A copy of the March 19, 2020 press release is available under the Company’s profile on SEDAR at www.sedar.com.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 3

Paramount has revised its 2020 capital guidance to $165 million. Given significant ongoing uncertainty in market conditions and the unknown extent and duration of shut-ins, Paramount is withdrawing 2020 sales volume guidance.

CONSOLIDATED RESULTS

Net Loss

Paramount recorded a net loss of $235.1 million for the three months ended March 31, 2020 compared to a net loss of $76.7 million in the same period in 2019. Significant factors contributing to the change are shown below:

Three months ended March 31
Net loss – 2019	(76.7)
• Higher depletion, depreciation and impairment in 2020, mainly due to impairment charges of $191.8	(184.2)
million in 2020
• Income tax expense in 2020 compared to a recovery in 2019, due to the derecognition of $130.0 million	(120.6)
of the deferred income tax asset
• Lower netback in 2020, mainly due to lower commodity prices and sales volumes	(71.2)
• Gain on commodity contracts in 2020 compared to a loss in 2019	115.0
• Recovery related to changes in asset retirement obligations in 2020	94.8
• Closure program provision recognized in 2019 in respect of the Zama field	13.4
• Other	(5.6)
Net loss – 2020	(235.1)

Cash From Operating Activities

Cash from operating activities for the three months ended March 31, 2020 was $30.5 million compared to $88.5 million in the same period in 2019. Significant factors contributing to the change are shown below:

Three months ended March 31
Cash from operating activities – 2019	88.5
• Lower netback in 2020, mainly due to lower commodity prices and sales volumes	(71.2)
• Higher asset retirement obligation settlements in 2020	(24.5)
• Provision in 2020	(4.7)
• Change in non-cash working capital	37.5
• Lower general and administrative expenses in 2020	3.5
• Other	1.4
Cash from operating activities – 2020	30.5

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 4

Adjusted Funds Flow[(1)]

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

Three months ended March 31	2020	2019
Cash from operating activities	30.5	88.5
Change in non-cash working capital	(34.3)	3.2
Geological and geophysical expenses	2.6	3.0
Asset retirement obligations settled	30.3	5.8
Provision and other	4.4	–
Adjusted funds flow	33.5	100.5
Adjusted funds flow($/Boe)	5.26	13.74

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

Adjusted funds flow for the three months ended March 31, 2020 was $33.5 million compared to $100.5 million in the same period in 2019. Significant factors contributing to the change are shown below:

Three months ended March 31
Adjusted funds flow – 2019	100.5
• Lower netback in 2020, mainly due to lower commodity prices and sales volumes	(71.2)
• Lower general and administrative expense in 2020	3.5
• Other	0.7
Adjusted funds flow – 2020	33.5

OPERATING RESULTS

Netback[(1) ]

Three months ended March 31	2020		2019
		*($/Boe)(2)*		($/Boe) (2)
Natural gas revenue	53.6	*2.25*	93.3	3.37
Condensate and oil revenue	111.4	*55.92*	134.8	63.26
Other NGLs revenue(3)	4.4	*10.75*	16.2	28.55
Royalty and sulphur revenue	2.7	─	1.8	–
Petroleum and natural gas sales	172.1	*27.01*	246.1	33.63
Royalties	(11.7)	*(1.84)*	(15.4)	(2.10)
Operating expense	(92.3)	*(14.49)*	(90.4)	(12.35)
Transportation and NGLs processing(4)	(23.6)	*(3.70)*	(24.6)	(3.36)
Netback	44.5	*6.98*	115.7	15.82
Commodity contract settlements	7.0	*1.10*	5.6	0.77
Netback including commodity contract settlements	51.5	*8.08*	121.3	16.59

(1) Readers are referred to the advisories concerning Non-GAAP measures in the Advisories section of this document.

(2) Natural gas revenue presented per Mcf.

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

(4) Includes downstream transportation costs and NGLs fractionation costs.

Petroleum and natural gas sales were $172.1 million in the first quarter of 2020, a decrease of $74.0 million from the same period in the prior year, due to lower prices and sales volumes.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 5

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

	Natural	Condensate	Other	Royalty and
	gas	and oil	NGLs	sulphur	Total
Three months ended March 31, 2019	93.3	134.8	16.2	1.8	246.1
Effect of changes in sales volumes	(13.2)	(8.8)	(4.4)	–	(26.4)
Effect of changes in prices	(26.5)	(14.6)	(7.4)	–	(48.5)
Change in royalty and sulphur revenue	–	–	–	0.9	0.9
Three months ended March 31, 2020	53.6	111.4	4.4	2.7	172.1

Sales Volumes

Three months ended March 31	Three months ended March 31	Three months ended March 31	Three months ended March 31
Natural gas (MMcf/d)	Condensate and oil (Bbl/d)	Other NGLs (Bbl/d)	Total (Boe/d)
2020 2019 % Change	2020 2019 % Change	2020 2019 % Change	2020 2019 % Change
Grande Prairie 74.6 78.0 (4) Kaybob 140.2 150.5 (7) Central Alberta & Other 46.7 79.5 (41)	14,097 10,929 29	1,680 1,602 5	28,214 25,530 11 32,700 37,143 (12) 9,108 18,623 (51)
	7,123 9,733 (27)	2,218 2,324 (5)
	678 3,017 (78)	641 2,358 (73)
Total 261.5 308.0 (15)	21,898 23,679 (8)	4,539 6,284 (28)	70,022 81,296 (14)

Sales volumes were 70,022 Boe/d in the first quarter of 2020 compared to 81,296 Boe/d in the same period in 2019. The decrease was primarily due to the sale of certain natural gas-weighted properties in West Central Alberta (the "West Central Alberta Assets") in 2019, natural declines and the closure of the Zama property. In addition, production at Karr in the Grande Prairie Region was impacted by severe cold weather and the back-out of production from certain legacy wells due to high pressures from new wells brought on production later in 2019.

These decreases were partially offset by higher sales volumes at Wapiti in the Grande Prairie Region following start-up of the new third-party Wapiti natural gas processing plant in the second quarter of 2019 and at South Duvernay and Ante Creek in the Kaybob Region as a result of new wells being brought-on production. In the first quarter of 2020, production at Wapiti was impacted by approximately 4,300 Boe/d due to three separate outages (two unscheduled and one scheduled) at the third-party processing facility, which amounted to approximately one full month of downtime.

In December 2019, Paramount closed the sale of the West Central Alberta Assets for gross cash proceeds of approximately $52.4 million. The West Central Alberta Assets were included in the Central Alberta & Other Region and had average sales volumes of approximately 8,200 Boe/d (60 percent natural gas) and a netback of approximately $8.1 million in the first quarter of 2019.

Following the end of the first quarter of 2020, Paramount has temporarily shut-in approximately 6,600 Boe/d of production at various properties and will adjust shut-in levels as required to maximize the economics of its production base.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 6

Commodity Prices

Three months ended March 31	2020	2019	% Change
Natural Gas
Paramount realized price ($/Mcf)	2.25	3.37	(33)
AECO daily spot ($/GJ)	1.93	2.49	(22)
AECO monthly index ($/GJ)	2.03	1.84	10
Dawn ($/MMbtu)	2.35	3.90	(40)
NYMEX (US$/MMbtu)	1.87	2.86	(35)
Malin – monthly index (US$/MMbtu)	2.27	3.88	(41)
Condensate and Oil
Paramount average realized condensate & oil price ($/Bbl)	55.92	63.26	(12)
Edmonton Light Sweet ($/Bbl)	52.02	66.92	(22)
West Texas Intermediate (US$/Bbl)	46.17	54.81	(16)
Other NGLs(1)
Paramount realized Other NGLs price ($/Bbl)	10.75	28.55	(62)
Conway – propane ($/Bbl)	19.19	32.33	(41)
Belvieu – butane ($/Bbl)	31.82	42.29	(25)
Foreign Exchange
$CDN / 1$US	1.34	1.33	1

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

Paramount’s natural gas portfolio primarily consists of sales at Alberta, California, Chicago, Ventura and Eastern Canada markets, which are sold in a combination of daily and monthly contracts. The Company’s natural gas portfolio includes arrangements to sell approximately 60,000 GJ/d of natural gas at Dawn, approximately 22,000 GJ/d of natural gas at Malin and 40,000 GJ/d of natural gas sales priced in the US Midwest.

As at March 31, 2020 the Company had AECO fixed-price physical contracts in place to sell 80,000 GJ/d of natural gas at a price of $1.61/GJ from April 2020 to October 2020.

Subsequent to March 31, 2020, the Company entered into the following AECO fixed-price physical contracts:

Quantity	Fixedprice	Remaining term
10,000 GJ/d	$2.11/GJ	May 2020 to October 2020
10,000 GJ/d	$2.65/GJ	November 2020 to March 2021
20,000 GJ/d	$2.50/GJ	January2021 to December 2021

Paramount ships a portion of its crude oil and condensate production on third-party pipelines for sale in Edmonton, Alberta, where volumes sold generally receive higher prices due to the greater diversity of potential purchasers. A portion of the Company’s production continues to be sold at truck terminals or at the lease when warranted by economic or operational factors. Sales prices for condensate and oil are based on West Texas Intermediate reference prices, adjusted for transportation, quality and density differentials.

The Company’s butane and propane volumes are sold under contracts that are renewed annually. Depressed local demand for butane and propane, combined with elevated storage levels during the renewal

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 7

period in 2019 resulted in wider price differentials applicable for the quarter ended March 31, 2020 compared to the same period in 2019.

Commodity Price Management

From time-to-time Paramount uses financial commodity contracts to manage exposure to commodity price volatility. As at March 31, 2020, the Company had the following financial commodity contracts in place:

Instruments	Aggregate notional	Average fixedprice	Fair value		Remaining term
Oil – NYMEX WTI Swaps(Sale)	4,000 Bbl/d	CDN$80.11/Bbl	41.4	April	2020 – December 2020
Changes in the fair value of the Company’s financial commodity contracts are				as follows:
		Three months ended			Twelve months ended
			March 31,	2020	December 31, 2019
Fair value, beginning of period				6.1	64.4
Changes in fair value				42.3	(45.1)
Settlements received				(7.0)	(13.2)
Fair value, end ofperiod				41.4	6.1

Subsequent to March 31, 2020, the Company entered into the following financial commodity contracts:

Instruments	Aggregate notional	Average fixedprice Remaining term
Gas – NYMEX Swaps (Sale)	10,000 MMBtu/d	US$2.93/MMBtu November 2020 to March 2021
Gas – NYMEX Swaps (Sale)	20,000 MMBtu/d	US$2.75/MMBtu January 2021 to December 2021
Oil – NYMEX WTI Swaps (Sale)	6,000 Bbl/d	CDN$38.78/Bbl May 2020
Oil – NYMEX WTI Swaps(Sale)	6,000 Bbl/d	CDN$40.15/Bbl June 2020

Royalties

Three months ended March 31	2020	Rate	2019	Rate
Royalties	11.7	6.9%	15.4	6.3%
$/Boe	*1.84*		2.10

Royalties expense was $11.7 million in the first quarter of 2020, $3.7 million lower than the same period in 2019. Royalties decreased in 2020 primarily as a result of lower petroleum and natural gas sales revenue.

Operating Expense

Three months ended March 31	2020	2019	% Change
Operating expense	92.3	90.4	2
$/Boe	*14.49*	12.35	17

Operating expense was $92.3 million for first quarter of 2020, $1.9 million higher than the same period in 2019. The increase in operating expenses is primarily due to higher operating costs at Karr as a result of incremental natural gas processing fees following the sale of the Karr 6-18 natural gas facility in August 2019 (the ʺMidstream Transactionʺ) and at Wapiti related to new production. These increases were partially offset by lower operating costs in the Central Alberta and Other Regions following the disposition of the West Central Alberta Assets and the closure of the Zama property.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 8

Transportation and NGLs Processing

Three months ended March 31	2020	2019	% Change
Transportation and NGLsprocessing	23.6	24.6	(4)
$/Boe	*3.70*	3.36	10

Transportation and NGLs processing expense was $23.6 million for the first quarter of 2020 compared to $24.6 million in the same period in 2019. Transportation and NGLs processing costs decreased in 2020 as a result of lower production, partially offset by higher contracted transportation capacity for new production at Wapiti.

Other Operating Items

Three months ended March 31	2020	2019
Depletion and depreciation (excluding impairment)	(73.1)	(80.7)
Impairment of petroleum and natural gas assets	(191.8)	–
Exploration and evaluation expense	(11.9)	(5.1)
Gain on sale of oil andgas assets	2.3	6.0

In light of the significant deterioration in commodity prices in connection with the COVID-19 pandemic, the Company has determined that indicators of impairment existed at March 31, 2020. An impairment test was performed at March 31, 2020 and the Company recorded impairments of $188.3 million and $3.5 million related to petroleum and natural gas assets in the Kaybob and Northern cash generating units (ʺCGUsʺ), respectively. The impairments were recorded because the carrying value of the CGUs exceeded their estimated recoverable amount, which were estimated based on expected net cash flows from the production of reserves ascribed to each CGU. The impairments resulted from decreases in estimated future net revenues, mainly due to lower forecasted oil and natural gas prices.

Recoverable amounts were estimated on a fair value less cost of disposal basis using a discounted cash flow method (level three fair value hierarchy estimate). Cash flows were determined based on internally estimated after-tax discounted future net cash flows from the production of proved plus probable reserves assigned to the Kaybob and Northern CGUs, at discount rates of 11.5 percent and 13.5 percent, respectively. The net cash flows from the reserves estimated by Paramount’s independent qualified reserves evaluator as at December 31, 2019 were internally updated by Management to reflect commodity price estimates at March 31, 2020 and for changes to certain operating and capital assumptions to reflect the current economic environment. The reserves process is inherently subjective and involves considerable estimation uncertainty.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 9

The following table sets out the forecast benchmark commodity prices and exchange rates used to determine estimated recoverable amounts[(1)] :

	(Apr-Dec)
(Average for the period)	2020	2021	2022	2023	2024	2025-2032	Thereafter
Natural Gas(2)
AECO ($/MMBtu)	1.74	2.20	2.38	2.45	2.53	2.60-3.04	+2%/yr
Henry Hub (US$/MMBtu)	2.10	2.58	2.79	2.86	2.93	3.00-3.45	+2%/yr
Liquids(2)
Edmonton Condensate ($/Bbl)	34.35	50.72	62.80	68.49	71.73	73.16-84.23	+2%/yr
WTI (US$/Bbl)	29.17	40.45	49.17	53.28	55.66	56.87-65.33	+2%/yr
Foreign Exchange
$US / 1$CDN	0.71	0.73	0.75	0.75	0.75	0.75	0.75

(1) Average of forecasts published by: (i) McDaniel & Associates Consultants Ltd. and GLJ Petroleum Consultants Ltd. at April 1, 2020 and (ii) Sproule Associates Ltd. at March 31, 2020.

(2) Forecast benchmark prices are adjusted for quality differentials, heat content, distance to market and other factors in determining estimated recoverable amounts.

INVESTMENTS IN SECURITIES

As at	March 31, 2020	December 31, 2019
Level one fair value hierarchy securities	17.3	88.4
Level three fair value hierarchy securities	20.7	68.5
	38.0	156.9

Investments in level one fair value hierarchy securities (ʺLevel One Securitiesʺ) are carried at their periodend trading price. Estimates of fair values for investments in level three fair value hierarchy securities (ʺLevel Three Securitiesʺ) are based on valuation techniques that incorporate unobservable inputs (level three fair value hierarchy inputs). The valuation techniques utilize market-based metrics of comparable companies and transactions, indications of value based on equity transactions of the entities and other indicators of value including financial and operational results of the entities. Fair value estimates of Level Three Securities are updated at each balance sheet date to confirm whether the carrying value of the investment continues to fall within a range of possible fair values indicated by such techniques.

At March 31, 2020, the Company recorded a charge of $118.2 million to other comprehensive income (“OCI”) as a result of changes in the fair value estimates of Level One Securities and Level Three Securities and a charge to earnings of $1.5 million related to a change in the estimated fair value of Strath Resources Ltd. (“Strath”) warrants.

Changes in the fair value of investments in securities are as follows:

	Three months ended	Twelve months ended
	March 31, 2020(1)	December 31, 2019(1)
Investments in securities, beginning of period	156.9	231.7
Changes in fair value of Level One Securities – recorded in OCI	(72.1)	6.3
Changes in fair value of Level Three Securities(2)– recorded in OCI	(46.1)	(118.1)
Changes in fair value of Strath warrants – recorded in earnings	(1.5)	(9.2)
Acquired – cash	0.9	55.1
Acquired – non-cash	–	4.5
Dispositions	–	(13.6)
Investments in securities, end ofperiod	38.0	156.9

(1) Column does not add due to rounding.

(2) Primarily related to the change in fair value of 85 million Strath common shares and excluding Strath warrants.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 10

CORPORATE

Three months ended March 31	2020	2019
General and administrative	(10.2)	(13.7)
Share-based compensation	–	(4.9)
Interest and financing	(9.5)	(9.2)
Accretion of asset retirement obligations	(10.5)	(14.5)
Change in asset retirement obligations	94.8	–
Closure costs	–	(13.4)
Deferred income tax(expense)recovery	(106.7)	13.9

General and administrative and share-based compensation expense was lower in the first quarter of 2020 compared to the same period in 2019 primarily due to cost reduction initiatives, including the suspension or elimination of a number of benefits and incentive compensation programs.

In the first quarter of 2020, the Company recorded a recovery of $94.8 million (three months ended March 31, 2019 - $nil) to earnings related to changes in the discounted carrying value of estimated asset retirement obligations in respect of properties that had a nil carrying value ascribed to property, plant and equipment. The changes resulted from a revision in the weighted average credit-adjusted risk-free rate used to discount obligations.

In early 2019, the Company made the decision to cease its production operations at the Zama property in northern Alberta and commenced a closure program at the property. The Company recognized a provision of $13.4 million at March 31, 2019 in respect of the expected costs of the program.

At each reporting date, Paramount assesses the recoverability of the deferred income tax asset to determine whether it is more likely than not that the carrying value of the asset will be realized. As at March 31, 2020, the Company determined that a portion of the carrying value of the deferred income tax asset was not probable of realization and, accordingly, $130.0 million of the deferred income tax asset was derecognized.

PROPERTY, PLANT AND EQUIPMENT AND EXPLORATION EXPENDITURES

Three months ended March 31	2020	2019
Drilling, completion and tie-ins	53.3	58.4
Facilities and gathering(1)	9.4	42.2
Corporate	1.1	2.5
Land and property acquisitions	–	1.0
Total capital expenditures(2)	63.8	104.1
Grande Prairie Region(1)	49.8	67.7
Kaybob Region	10.1	27.4
Central Alberta and Other Region	2.8	5.5
Corporate	1.1	2.5
Land and property acquisitions	–	1.0
Total capital expenditures(2)	63.8	104.1

(1) Total capital expenditures for the three months ended March 31, 2019 includes $34.5 million of capital spending related to the Karr 6-18 natural gas facility prior to its sale.

(2) Readers are referred to the advisories concerning Non-GAAP measures in the Advisories section of this document.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 11

Total capital expenditures were $63.8 million in the first quarter of 2020 compared to $104.1 million in the first quarter of 2019. Expenditures in the first quarter of 2020 were mainly related to drilling programs in the Grande Prairie Region. Significant capital program activities undertaken in the first quarter of 2020 are described below:

At Karr, Paramount completed the drilling of 5 (5.0 net) wells on the 12-18 pad that had commenced in the fourth quarter of 2019. In addition, drilling commenced on 5 (5.0 net) wells and gas lift and related compression were installed to mitigate the impact from new higher-pressure wells upstream. The Company also brought into service two additional water disposal wells towards the end of the first quarter of 2020. These new wells are anticipated to reduce operating costs by reducing the need to truck and dispose of water at third-party facilities.
At Wapiti, the Company commenced drilling operations on the five-well 5-3 West pad and completed the drilling of 2 (2.0 net) new Montney wells at the 6-4 pad.
In the Kaybob Region, the Company completed the drilling of 1 (1.0 net) oil well at Ante Creek for land retention purposes.

The Company has revised its 2020 capital guidance to $165 million. Capital plans remain focused on the Company’s liquids-rich Montney assets in the Grande Prairie Region. The Company is committed to prudently managing its capital resources and may adjust its capital expenditure plans depending on commodity prices and other factors.

ASSET RETIREMENT OBLIGATIONS

Abandonment and reclamation projects at Hawkeye and Zama under the area-based closure program continued in the first quarter of 2020, with the Company abandoning 224 wells between the two properties, including all remaining operated wells in the Hawkeye area. An additional 24 wells were abandoned in other areas for a total of 248 well abandonments in the first quarter of 2020 at a total cost of $30.3 million. Paramount’s abandonment and reclamation activities for the year are budgeted at $33 million and are now largely complete.

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 through a number of means, including by issuing or repurchasing shares, altering debt levels, modifying capital spending programs, acquiring or disposing of assets, and participating in joint ventures, the availability of any such means being dependent upon market conditions.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 12

As at	March 31, 2020	December 31, 2019
Cash and cash equivalents	(5.7)	(6.0)
Accounts receivable	(68.5)	(116.6)
Prepaid expenses and other	(9.5)	(11.0)
Accounts payable and accrued liabilities	204.1	204.8
Adjusted working capital deficit(1)	120.4	71.2
Paramount Facility	651.5	632.3
Net Debt(2)	771.9	703.5
Share capital	2,207.3	2,207.5
Accumulated deficit	(377.6)	(128.5)
Reserves	(113.3)	4.2
Total Capital	2,488.3	2,786.7

(1) Adjusted working capital excludes current risk management assets and liabilities, current accounts receivable relating to subleases (March 31, 2020 - $2.1 million, December 31, 2019 – $2.0 million) and the current portion of asset retirement obligations and other.

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

Paramount’s operations are capital intensive and adequate sources of liquidity are required to fund ongoing exploration and development activities, discharge asset retirement obligations and satisfy contractual commitments. Paramount’s available capital resources include adjusted funds flow and available credit capacity under its senior secured revolving bank credit facility (the "Paramount Facility"), the terms of which are described further below. The relative contribution of adjusted funds flow to satisfy the Company’s funding requirements in 2020 and in future years is variable and dependent on a number of factors, including commodity prices; sales volumes; royalties; operating and transportation costs; general and administrative and interest expenses; and foreign exchange rates. Paramount may also determine to divest of assets or investments in securities to raise capital to reduce indebtedness or fund operations. Subject to market conditions and availability, proceeds from new debt and/or equity financings may also provide additional sources of capital from time to time.

A continuation of the current adverse pricing conditions for Liquids would significantly reduce the Company’s revenue and adjusted funds flow. In response, the Company has taken the actions to reduce costs and expenditures described under "Impact of COVID-19 Pandemic and Paramount’s Response". The Company expects to utilize credit capacity under the Paramount Facility for any additional liquidity required to fund its expenditures and adjusted working capital deficit.

As at March 31, 2020, Paramount was in compliance with the financial covenants under the Paramount Facility described below. The current adverse pricing conditions for Liquids that have arisen in connection with the COVID-19 pandemic have resulted in a risk of non-compliance with the financial covenants in future periods. In response to such risk, Paramount has initiated negotiations for financial covenant relief, which negotiations remain ongoing. Paramount anticipates that any agreement for such relief will include a reduction in the size of the Paramount Facility, among other changes. Although Paramount expects that such negotiations will be successful, there is no assurance that an agreement will be reached on acceptable " " terms. See Risk Factors .

Paramount Facility

The Company has a $1.5 billion financial covenant-based senior secured revolving bank credit facility. The maturity date of the Paramount Facility is currently November 16, 2022, which may be extended from timeto-time at the option of Paramount and with the agreement of the lenders.

Borrowings under the Paramount Facility bear interest at the lenders’ prime lending rate, US base rate, bankers’ acceptance rate, or LIBOR, as selected at the discretion of the Company, plus an applicable

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 13

margin which is dependent upon the Company’s Senior Secured Debt to Consolidated EBITDA ratio. The Paramount Facility is secured by a charge over substantially all of the assets of Paramount, excluding the assets of Cavalier and Fox Drilling.

Paramount is subject to the following two financial covenants under the Paramount Facility, which are tested at the end of each fiscal quarter:

i. Senior Secured Debt to Consolidated EBITDA to be 3.50 to 1.00 or less; and
ii. Consolidated EBITDA to Consolidated Interest Expense to be 2.50 to 1.00 or greater.

Senior Secured Debt currently consists of amounts drawn under the Paramount Facility and the undrawn face amounts of letters of credit outstanding under the Paramount Facility.

Consolidated EBITDA is determined on a trailing twelve month basis, is adjusted for material acquisitions and dispositions, and is generally calculated as net income before Consolidated Interest Expense, taxes, depletion, depreciation, amortization, impairment, exploration and evaluation expense and is also adjusted to exclude non-recurring items and other non-cash items including unrealized mark-to-market amounts on derivatives, unrealized foreign exchange, share-based compensation expense and accretion.

Consolidated Interest Expense is reduced by any interest income and other customary exclusions and is calculated on a trailing twelve-month basis.

Paramount had letters of credit outstanding under the Paramount Facility totaling $2.9 million at March 31, 2020 that reduce the amount available to be drawn on the Paramount Facility.

Unsecured Letter of Credit Facility

Paramount has a $40 million unsecured demand revolving letter of credit facility (the "LC Facility") with a Canadian bank under which $36.3 million of letters of credit were outstanding at March 31, 2020. Paramount’s obligations under the LC Facility are supported by a performance security guarantee ("PSG") from Export Development Canada ("EDC"). The PSG is valid to July 31, 2020 and may be extended from time-to-time at the option of Paramount and with the agreement of EDC.

Interest Rate Swaps

The Company had the following floating-to-fixed interest rate swaps in place at March 31, 2020:

			Fixed
Contract Type	Aggregate notional	Maturity Date	Contract Rate	Reference	Fair value
Interest Rate Swap	$250 million	January 2023	2.3%	CDOR	(10.8)
Interest Rate Swap	$250 million	January 2026	2.4%	CDOR	(20.7)
					(31.5)

In 2019, Paramount entered into interest rate swap contracts to manage the uncertainty of variable interest rates by fixing the underlying Canadian dollar offered rate ("CDOR") of interest on a portion of the Company’s long-term debt. The Company classified these arrangements as cash flow hedges and has applied hedge accounting. As at March 31, 2020, there were no changes to the critical terms of the hedging relationship and no hedge ineffectiveness was identified.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 14

Share Capital

In November 2019, Paramount issued 5.9 million Common Shares on a "flow-through" basis in respect of Canadian development expenses at a price of $6.65 per share for gross proceeds of $39.2 million. The Company has incurred sufficient qualifying expenditures to satisfy commitments associated with the issuance.

Paramount implemented a normal course issuer bid program in January 2020. The Company has not purchased any Common Shares under the program to date.

At May 9, 2020, Paramount had 133,783,857 Common Shares outstanding (net of 414,860 Common Shares held in trust under the Company’s restricted share unit plan) and 10,935,979 options to acquire Common Shares outstanding, of which 3,577,889 options are exercisable.

QUARTERLY INFORMATION

2020 2019 2018	2020 2019 2018	2020 2019 2018
Q1	Q4 Q3 Q2 Q1	Q4 Q3 Q2
Petroleum and natural gas sales 172.1 Net income (loss) (235.1) per share – basic & diluted ($/share) *(1.76)* Cash from operating activities 30.5 per share – basic & diluted ($/share) *0.23* Adjusted funds flow 33.5 per share – basic & diluted ($/share) *0.25* Sales volumes Natural gas (MMcf/d) 261.5 Condensate and oil (Bbl/d) 21,898 Other NGLs (Bbl/d) 4,539 Total (Boe/d) 70,022 Average realized price Natural gas ($/Mcf) 2.25 Condensate and oil ($/Bbl) 55.92 Other NGLs ($/Bbl) 10.75 Total($/Boe) 27.01	259.9 199.8 209.2 246.1 (31.1) 141.0 (121.0) (76.7) (0.24) 1.08 (0.93) (0.59) 70.5 48.6 48.1 88.5 0.54 0.37 0.37 0.68 93.5 50.9 54.2 100.5 0.71 0.39 0.41 0.77 299.0 296.6 309.7 308.0 28,516 24,761 23,312 23,679 7,064 6,851 6,859 6,284 85,411 81,046 81,793 81,296 2.73 1.58 1.76 3.37 66.70 65.73 71.02 63.26 13.03 9.78 11.01 28.55 33.08 26.80 28.10 33.63	207.4 248.5 239.7 (170.5) (13.1) (119.0) (1.31) (0.10) (0.90) 12.4 73.8 52.0 0.10 0.56 0.39 45.5 58.2 62.6 0.35 0.44 0.47 315.2 303.8 334.1 24,898 22,868 23,815 7,059 6,963 7,242 84,495 80,471 86,741 2.73 1.93 1.71 45.54 79.83 77.25 31.39 32.16 27.35 26.68 33.57 30.37

Significant Items Impacting Quarterly Results

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

The first quarter 2020 loss includes a $191.8 million impairment of petroleum and natural gas assets, and a derecognition of $130.0 million of the deferred income tax asset, partially offset by a recovery of $94.8 million related to changes in the discounted carrying value of estimated asset retirement obligations in respect of properties that had a nil carrying value ascribed to property, plant and equipment.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 15

The fourth quarter 2019 loss includes a recovery of $33.8 million related to changes in the discounted carrying value of estimated asset retirement obligations in respect of properties that had a nil carrying value ascribed to property, plant and equipment.
Third quarter 2019 earnings include a $157.3 million gain on the sale of oil and gas assets, primarily related to the Midstream Transaction and a recovery of $73.5 million related to changes in the discounted carrying value of estimated asset retirement obligations in respect of properties that had a nil carrying value ascribed to property, plant and equipment.
The second quarter 2019 loss includes $102.1 million of deferred income tax expense, primarily related to a reduction in Alberta income tax rates and a $27.6 million gain on financial commodity contracts.
The first quarter 2019 loss includes a $72.6 million loss on financial commodity contracts.
The fourth quarter 2018 loss includes a $502.5 million impairment of petroleum and natural gas assets, partially offset by a $170.3 million gain on financial commodity contracts and a recovery of $120.4 million related to changes in the discounted carrying value of estimated asset retirement obligations in respect of properties that had a nil carrying value ascribed to property, plant and equipment.
The third quarter 2018 loss includes a $48.8 million gain on the sale of oil and gas assets and a $31.1 million loss on financial commodity contracts.
The second quarter 2018 loss includes an $84.6 million loss on financial commodity contracts.

OTHER INFORMATION

Contingencies

In the normal course of Paramount’s operations, the Company may become involved in, named as a party to, or be the subject of, various legal proceedings, including regulatory proceedings, tax proceedings and legal actions. The outcome of outstanding, pending or future proceedings cannot be predicted with certainty. Paramount does not anticipate that these claims will have a material impact on its financial position.

Tax and royalty legislation and regulations, and government interpretation and administration thereof, continually change. As a result, there are often tax and royalty matters under review by relevant government authorities. All tax and royalty filings are subject to subsequent government audit and potential reassessments. Accordingly, the final amounts may differ materially from amounts estimated and recorded.

Provision

In the first quarter of 2020, a provision of $4.7 million was recorded related to a pending partner dispute.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the three months ended March 31, 2020, there was no change in the Company’s internal control over financial reporting ("ICFR") that materially affected, or is reasonably likely to materially affect, the Company’s ICFR. Paramount does not believe that remote work arrangements or any other process changes adopted in connection with the COVID-19 pandemic have materially affected ICFR.

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.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 16

CRITICAL ACCOUNTING ESTIMATES

The timely preparation of financial statements requires Management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures regarding contingent assets and liabilities. Estimates and assumptions are regularly evaluated and are based on Management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Changes in judgments, estimates and assumptions based on new information could result in a material change to the carrying amount of assets or liabilities and have a material impact on assets, liabilities, revenues and expenses recognized in future periods.

The course of the COVID-19 pandemic is highly uncertain. The ultimate impact of the pandemic on Paramount’s future operations and financial performance is currently unknown and will be dependent on a number of unpredictable factors outside of the knowledge and control of Management, including: (i) the duration and severity of the pandemic; (ii) the impact of the pandemic on economic growth, commodity prices and financial and capital markets; and (iii) governmental responses and restrictions. These uncertainties may continue to persist beyond the point where the initial outbreak of the COVID-19 virus has subsided. The potential impact of the COVID-19 pandemic has been considered by Management in making judgments, estimates and assumptions used in the preparation of the Interim Financial Statements, but the inherent risks and uncertainties resulting from the pandemic may result in material changes to such judgments, estimates and assumptions in future financial periods as additional information becomes available.

Note 3 to the Annual Financial Statements contains a description of the accounting judgments, estimates and assumptions that are considered significant. Current conditions have increased the complexity in making judgments, estimates and assumptions used to prepare the Interim Financial Statements, particularly related to: (i) estimating recoverable amounts used in impairment and impairment reversal assessments; (ii) estimating the fair value of the Company’s investments in securities of corporations that are not publicly traded; (iii) estimating the weighted average credit-adjusted risk-free discount rate used to discount asset retirement obligations; and (iv) assessing the likelihood of realizing deferred income tax assets.

RISK FACTORS

The following risk factor supplements the "Risk Factors" section in the Company's Annual Information Form for the year ended December 31, 2019, which is available under the Company’s profile on SEDAR at www.sedar.com.

The COVID-19 pandemic and current adverse pricing conditions for Liquids increase the Company’s exposure to many of the risks described under "Risk Factors" in the Company’s 2019 Annual Information Form, including, but not limited to, the risks described therein under "Volatility of Oil, NGLs and Natural Gas Prices and Price Differentials", "Credit Facility and Indebtedness", "Access to Capital and Funding of Expenditures" and "Reserves Estimates". Readers are encouraged to review such Risk Factors in conjunction with the disclosure contained in this MD&A.

There is a risk that the COVID-19 pandemic and the response thereto may result in a prolonged continuation of adverse pricing conditions for commodities, storage constraints, increased volatility in financial markets and foreign currency exchange rates, significantly depressed share prices, health restrictions or guidelines adversely affecting the ability of Paramount or third parties to efficiently conduct operations and/or an overall slowdown in the national and global economy. These and other risks associated with the COVID-19 pandemic could result in events and circumstances that have a material adverse impact on Paramount’s

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 17

business, assets, financial condition and results of operations, including, but not limited to: (i) reductions in revenue and adjusted funds flow; (ii) reduced liquidity; (iii) the shut-in or curtailment of production; (iv) reductions in capital expenditures; (v) the recording of further impairments of petroleum and natural gas assets and derecognitions of deferred tax assets; (vi) reductions in reserves volumes and values; (vii) supply chain interruptions; (viii) restricted access to capital and/or increased costs of capital; (ix) delay of planned operations; (x) non-compliance with the financial covenants under the Paramount Facility; (xi) counterparties being unable to fulfill their contractual obligations; and (xii) disruptions to the availability of required processing and transportation capacity.

The course of the COVID-19 pandemic remains highly uncertain. The extent to which COVID-19 impacts Paramount’s business, assets, financial condition and results of operations will depend on future developments which are currently unknown and are difficult to predict, including, but not limited to, the duration and severity of the pandemic, the impact of the pandemic on economic growth, commodity prices and financial and capital markets and governmental responses and restrictions. The adverse impacts of the COVID-19 pandemic may be more significant in upcoming financial periods as compared with the first quarter of 2020. Even after the COVID-19 pandemic has subsided, Paramount may continue to experience materially adverse effects as a result of the pandemic's global economic impact.

ADVISORIES

Forward-looking Information

Certain statements in this MD&A 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:

planned capital expenditures in 2020;
expected reductions in costs and expenditures;
planned exploration, development and production activities;
planned abandonment and reclamation expenditures;
the expectation that new water disposal wells will reduce operating costs at Karr;
the availability of the Paramount Facility and the expected utilization of credit capacity under the Paramount Facility for any additional liquidity required to fund expenditures and the adjusted working capital deficit;
the expectation that negotiations for financial covenant relief under the Paramount Facility will be successful and the terms thereof;
the anticipation that legal proceedings will not have a material impact on Paramount’s financial position; and
COVID-19 pandemic response measures and the potential impacts of the pandemic.

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 and the potential impact of the COVID-19 pandemic thereon;
the likely impact of the COVID-19 pandemic on operations;
the likely result of negotiations for financial covenant relief under the Paramount Facility;
the ability to realize expected cost savings;
the ability to successfully implement measures to reduce costs and expenses;

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 18

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, fractionation and storage capacity on acceptable terms and the capacity and reliability of facilities;
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;
the application of regulatory requirements respecting abandonment and reclamation;
the merits of outstanding and pending legal proceedings; and
anticipated timelines and budgets being met in respect of drilling programs and other operations (including well completions and tie-ins, the construction, commissioning and start-up of new and expanded facilities, including third-party facilities, and facility turnarounds and maintenance).

Although Paramount believes that the expectations reflected in such forward-looking information are reasonable based on the information available at the time of this MD&A, undue reliance should not be placed on the forward-looking information 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:

those risks set out in this MD&A under "Risk Factors";
fluctuations in natural gas and liquids prices, including in relation to the impact of the COVID-19 pandemic;
the risk that negotiations for financial covenant relief under the Paramount Facility will not be successful and the risks set out under "Risk Factors - Credit Facility and Indebtedness" in Paramount's annual information form;
changes in capital spending plans and planned exploration and development activities;
changes in foreign currency exchange rates and interest rates;
the uncertainty of estimates and projections relating to future revenue, future production, reserves 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, fractionation, and storage capacity on acceptable terms;
operational risks in exploring for, developing, producing and transporting natural gas and liquids, including the risk of spills, leaks or blowouts;
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 and fractionation infrastructure outages, disruptions and constraints;
• risks and uncertainties involving the geology of oil and gas deposits;

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 19

the uncertainty of reserves 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, fractionation and similar commitments and 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 to obtain leases and licenses;
the effects of weather and other factors including wildlife and environmental restrictions which affect field operations and access;
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 annual information form for the year ended December 31, 2019, which is available on SEDAR at www.sedar.com. 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, "Adjusted funds flow", "Netback", "Net debt", “Adjusted working capital” and "Total capital expenditures", collectively the "Non-GAAP Measures", are used and do not have any standardized meanings as prescribed by IFRS.

“Adjusted funds flow” refers to cash from operating activities before net changes in operating non-cash working capital, geological and geophysical expenses, asset retirement obligation settlements and provision and other. Adjusted funds flow is used to assist management and investors in measuring the Company’s ability to fund capital programs and meet financial obligations, including the settlement of asset retirement obligations. Asset retirement obligation settlements are excluded from the calculation of adjusted funds flow because such expenditures are not directly linked to the revenue generating activities of the Company. Paramount manages the timing of expenditures related to asset retirement obligation settlements in accordance with regulatory requirements and its overall approach to managing its asset retirement obligations and, as a result, amounts incurred may vary from period to period. Adjusted funds flow is not intended to represent cash from operating activities, net loss or any other GAAP measure and should not be construed as being an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with IFRS. Refer to the Consolidated Results section of this MD&A for the calculation thereof.

“Netback” equals petroleum and natural gas sales less royalties, operating costs, 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. Refer to the Operating Results section of this MD&A for the calculation thereof.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 20

“Net debt” is a measure of the Company’s overall debt position after adjusting for certain working capital and other amounts and is used by management to assess the Company’s overall leverage position. Refer to the Liquidity and Capital Resources section of this MD&A for the calculation of “Net debt” and “Adjusted working capital”.

“Total capital expenditures” refers to the Company’s property, plant and equipment and exploration expenditures. Refer to the Property, Plant and Equipment and Exploration Expenditures section of this MD&A for the calculation thereof.

The 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

The term "Liquids" includes oil, condensate and Other NGLs (ethane, propane and butane). NGLs consist of condensate and Other NGLs.

Abbreviations

Liquids Bbl Barrels Bbl/d Barrels per day NGLs Natural gas liquids Condensate Pentane and heavier hydrocarbons Oil Equivalent Boe Barrels of oil equivalent Boe/d Barrels of oil equivalent per day	Natural Gas
	Mcf Thousands of cubic feet MMcf/d Millions of cubic feet per day GJ Gigajoule MMbtu Millions of British thermal units AECO AECO-C reference price NYMEX New York Mercantile Exchange WTI West Texas Intermediate

This MD&A 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 when converting natural gas to Boe. 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 three months ended March 31, 2020, the value ratio between crude oil and natural gas was approximately 26:1. 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.

Paramount Resources Ltd. First Quarter 2020 Management’s Discussion & Analysis 21