Paramount Resources Ltd. - Interim / Quarterly Report 2021

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Management’s Discussion and Analysis For the three months ended March 31, 2021

This Management’s Discussion and Analysis ("MD&A"), dated May 4, 2021 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, 2021 (the "Interim Financial Statements") and Paramount’s audited Consolidated Financial Statements as at and for the year ended December 31, 2020 (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 and financial outlooks, Non-GAAP financial 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, liquids-focused Canadian energy company that explores for and develops both conventional and unconventional petroleum and natural gas reserves and resources. Paramount’s principal properties are located in Alberta and British Columbia. Paramount commenced operations as a public company in 1978 and has adapted to a multitude of operating and economic climates over the years. The Company’s Class A common shares ("Common Shares") are listed on the Toronto " " Stock Exchange under the symbol POU .

Paramount’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 includes the Kaybob North and Ante Creek Montney oil developments, Duvernay developments at Kaybob Smoky, Kaybob North and Kaybob South and other shale gas and conventional natural gas producing properties; and
the Central Alberta and Other Region, which includes the Willesden Green Duvernay development in central Alberta and shale gas producing properties in the Horn River Basin and at Birch in northeast British Columbia.

The Company’s assets include: (i) strategic investments in exploration and pre-development stage assets, including prospective shale gas acreage in the Liard Basin, prospective natural gas and oil acreage in the Mackenzie Delta and Central Mackenzie and interests held by the Company’s wholly-owned subsidiary Cavalier Energy Inc. prospective for in-situ thermal oil recovery and heavy oil production; (ii) drilling rigs owned by the Company’s wholly-owned limited partnership Fox Drilling Limited Partnership; and (iii) investments in other entities.

NOTE REGARDING PRODUCT TYPES

" " " " " " This MD&A includes references to sales volumes of natural gas , condensate and oil and Other NGLs . "Natural gas" refers to conventional natural gas and shale gas combined. "Condensate and oil" refers to condensate, light and medium crude oil and tight oil combined. "Other NGLs" refers to ethane, propane and butane combined. Readers are referred to the Product Type Information section of this document for a

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 1

complete breakdown of sales volumes for applicable periods by the specific product types of shale gas, conventional natural gas, NGLs, tight oil and light and medium crude oil.

FINANCIAL AND OPERATING HIGHLIGHTS[(1)(2) ]

Three months ended March 31	2021	2020	% Change
FINANCIAL
Petroleum and natural gas sales	279.9	172.1	63
Net loss	(82.5)	(235.1)	(65)
Per share – basic & diluted ($/share)	*(0.62)*	(1.76)
Cash from operating activities	81.3	30.5	167
Per share – basic & diluted ($/share)	*0.61*	0.23
Adjusted funds flow	90.9	33.5	171
Per share – basic & diluted ($/share)	*0.69*	0.25
Total assets	3,583.1	3,009.5	19
Long-term debt	712.7	651.5	9
Net debt	761.7	771.9	(1)
Total liabilities	1,548.1	1,293.1	20
Common shares outstanding (thousands)(3)	132,754	133,346	–
OPERATIONAL
Sales volumes
Natural gas (MMcf/d)	273.1	261.5	4
Condensate and oil (Bbl/d)	29,854	21,898	36
Other NGLs (Bbl/d)	5,170	4,539	14
Total (Boe/d)	80,540	70,022	15
% Liquids	*43%*	38%
Realized prices
Natural gas ($/Mcf)	3.14	2.25	40
Condensate and oil ($/Bbl)	69.20	55.92	24
Other NGLs ($/Bbl)	32.29	10.75	200
Petroleum and natural gas sales ($/Boe)	38.61	27.01	43
Total capital expenditures	59.3	63.8	(7)

(1) Readers are referred to the advisories concerning Non-GAAP financial measures and Oil and Gas Measures and Definitions in the Advisories section and to the reconciliations of such Non-GAAP financial measures to their most directly comparable measure under GAAP in the applicable sections of this document. This table contains the following Non-GAAP financial measures: Adjusted funds flow, Net debt and Total capital expenditures.

(2) "Natural gas" refers to conventional natural gas and shale gas combined. "Condensate and oil" refers to condensate, light and medium crude oil and tight oil combined. "Other NGLs" refers to ethane, propane and butane combined. Readers are referred to the Product Type Information section of this document for a complete breakdown of sales volumes and revenues for all applicable periods by the specific product types of shale gas, conventional natural gas, NGLs, tight oil and light and medium crude oil.

(3) Common Shares are presented net of shares held in trust under the Company’s restricted share unit plan (000’s of Common Shares): 2021: 1,914 and 2020: 852.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 2

Q1 2021 OVERVIEW

Paramount’s financial and operating results in the first quarter of 2021 reflect the Company’s continuing success at its Karr and Wapiti developments, where higher sales volumes, lower per unit operating costs and sustained capital cost savings are being achieved, as well as the strengthening of crude oil and condensate prices.

Sales volumes averaged 80,540 Boe/d (43% liquids) in the first quarter of 2021 compared to 73,460 Boe/d (42% liquids) in the fourth quarter of 2020. Sales volumes at Karr averaged 33,230 Boe/d (55% liquids) in the first quarter of 2021 compared to 26,914 Boe/d (56% liquids) in the fourth quarter of 2020. The increase in sales volumes at Karr was driven by strong performance from six Montney wells brought onstream in the first quarter of 2021, five Montney wells brought onstream in the fourth quarter of 2020, as well as by workovers that were completed on two wells in the fourth quarter of 2020. Sales volumes at Wapiti averaged 14,107 Boe/d (62% liquids) compared to 10,764 Boe/d (64% liquids) in the fourth quarter of 2020. The increase in sales volumes at Wapiti was primarily due to new production from five Montney wells brought onstream partway through the fourth quarter of 2020.

Capital spending in the first quarter of 2021 totaled $59.3 million, which was primarily directed to drilling and completion activities at Karr and Wapiti. All-in lease construction, drilling, completion, equip and tie-in (collectively "DCET") costs for the six wells brought on production at Karr in the quarter averaged a pacesetting $6.8 million per well, $0.2 million lower per well than prior estimates and representing a 12% reduction relative to average DCET costs for Karr wells in 2020. Preliminary DCET costs for three wells brought onstream at Karr in April 2021 were $6.9 million per well.

Paramount’s continued focus on strong execution, cost control and innovation has contributed to anticipated cost savings of $30 million in the Company’s 2021 capital program.

The Company successfully closed non-core asset dispositions for cash proceeds of $79.6 million in the first quarter of 2021 and completed a private placement of $35.0 million of senior unsecured convertible debentures.

Cash from operating activities was $81.3 million in the quarter compared to $53.2 million in the fourth quarter of 2020. Adjusted funds flow was $90.9 million in the quarter compared to $67.9 million in the fourth quarter of 2020. Paramount generated $23.2 million of free cash flow in the quarter that, along with the $79.6 million in cash proceeds from non-core dispositions, was directed to debt reduction.[(1)]

Subsequent to quarter end, Paramount entered into a definitive agreement for the sale of its non-operated Birch asset in the Central Alberta and Other Region for total consideration of approximately $77 million (the "Birch Disposition"). Closing is subject to customary conditions and is anticipated to occur in July 2021. Estimated second half 2021 production from the asset, net to Paramount, was approximately 1,900 Boe/d.

General economic conditions and crude oil and condensate pricing continue to remain subject to the impact of the COVID-19 pandemic. The course of the COVID-19 pandemic and its ultimate impact remain highly uncertain. Paramount conducts its operations in accordance with its corporate pandemic response plan, which is aimed at ensuring the health and safety of its staff and contractors and the people they come in contact with, and in compliance with public health requirements and guidelines. The Company continues to proactively respond to the pandemic and the risks that it poses, including the risks described in this MD&A under "Risk Factors".

(1) "Adjusted funds flow" and "Free cash flow" are Non-GAAP financial measures. See "Non-GAAP Financial Measures" in the Advisories section.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 3

REVISED 2021 GUIDANCE

Paramount is increasing its 2021 sales volume forecast as a result of strong year-to-date performance. Sales volumes in 2021 are now expected to average between 80,000 Boe/d and 82,000 Boe/d (44% liquids) after taking into account the Birch Disposition. This is an increase from previous guidance of 77,000 Boe/d to 80,000 Boe/d (45% liquids).

Second quarter 2021 sales volumes are expected to average between 77,000 Boe/d and 78,000 Boe/d (42% liquids). Second half 2021 sales volumes guidance remains unchanged at between 80,000 Boe/d and 84,000 Boe/d (45% liquids) notwithstanding the Birch Disposition.

The Company will be advancing approximately $60 million of activities in the Wapiti area by six months into the second half of 2021, capitalizing on the $30 million of anticipated cost savings in its 2021 capital program, incremental cash flow generation in light of higher production guidance and the Birch Disposition. Accordingly, the Company’s capital budget for 2021 is being increased to between $265 million and $285 million, excluding land acquisitions and abandonment and reclamation activities. This is an increase of $30 million at the mid-point from the previous guidance range of between $230 million and $260 million. Additional activities at Wapiti will include drilling, completing and bringing onstream the seven well 9-22 pad, the tie-in of a pre-existing well from the 10-22 pad and the installation of associated infrastructure. Initial production from these activities is anticipated to come onstream in December 2021.

Inclusive of the increased capital at Wapiti, Paramount forecasts 2021 free cash flow of approximately $140 million. This is based on the following assumptions for 2021: (i) the midpoint of forecast capital spending and production, (ii) $25 million in abandonment and reclamation costs, (iii) realized pricing of $39.50/Boe (US$60.84/Bbl WTI, US$2.84/MMBtu NYMEX, $2.78/GJ AECO), (iv) royalties of $2.60/Boe, (v) operating costs of $11.30/Boe and (vi) transportation and processing costs of $3.85/Boe.

Approximately 52% of forecast midpoint production is hedged over the final three quarters of 2021. After taking such hedging into account, 2021 forecast free cash flow would still be approximately $60 million at an average WTI oil price of US$40.00/Bbl over the final three quarters of the year and would rise to $155 million at an average WTI oil price of US$65.00/Bbl over the final three quarters of the year.

The Company targets net debt to adjusted funds flow of between 1.0x and 2.0x. Free cash flow in 2021 is expected to be directed towards debt reduction, with anticipated year-end net debt to adjusted funds flow of less than 1.5x.[ (1)] The Company currently prioritizes the allocation of free cash flow to: (i) achieving the targeted range of net debt to adjusted funds flow; (ii) shareholder returns; and (iii) incremental growth.

(1) "Net debt to adjusted funds flow" is a Non-GAAP financial measures. See "Non-GAAP Financial Measures" in the Advisories section.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis

PRELIMINARY 2022 GUIDANCE

Paramount expects to finalize its 2022 capital budget and related guidance in the first quarter of 2022. Based on preliminary planning and current market conditions, Paramount anticipates 2022 capital spending, excluding land acquisitions and abandonment and reclamation activities, to range between $325 million and $385 million, broken down as follows:

$250 million of sustaining capital and maintenance activities;
$75 million of growth capital with production benefits in 2022; and
$60 million of discretionary growth capital with production benefits largely in 2023.

A capital program in this range would be expected to result in 2022 annual average sales volumes of between 84,000 Boe/d and 88,000 Boe/d (45% liquids) and free cash flow of approximately $185 million. The free cash flow estimate is based on the following assumptions for 2022: (i) the midpoint of forecast capital spending and production, (ii) $30 million in abandonment and reclamation costs, (iii) realized pricing of $37.25/Boe (US$57.78/Bbl WTI, US$2.71/MMBtu NYMEX, $2.43/GJ AECO), (iv) royalties of $2.35/Boe, (v) operating costs of $11.10/Boe and (vi) transportation and processing costs of $3.75/Boe. If all expected free cash flow was directed towards debt reduction, anticipated year-end 2022 net debt to adjusted funds flow would be significantly less than 1.0x.

CONSOLIDATED RESULTS

Net Loss

Paramount recorded a net loss of $82.5 million for the three months ended March 31, 2021 compared to a net loss of $235.1 million in the same period in 2020. Significant factors contributing to the change are shown below:

Three months ended March 31
Net loss – 2020	(235.1)
• Lower depletion, depreciation and impairment in 2021, mainly due to impairment charges of $191.8	191.8
million in 2020
• Income tax recovery in 2021 compared to an expense in 2020; 2020 included the derecognition of	128.8
$130.0 million of the deferred income tax asset
• Higher netback in 2021, mainly due to higher commodity prices and condensate and oil sales volumes	104.6
• Higher gain on the sale of oil and gas assets in 2021	39.1
• Expense related to changes in asset retirement obligations in 2021 compared to a recovery in 2020	(164.3)
• Loss on financial commodity contracts in 2021 compared to a gain in 2020	(123.5)
• Higher exploration and evaluation expense in 2021	(9.0)
• Higher interest and financing expense in 2021	(7.2)
• Other	(7.7)
Net loss – 2021	(82.5)

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 5

Cash From Operating Activities

Cash from operating activities for the three months ended March 31, 2021 was $81.3 million compared to $30.5 million in the same period in 2020. Significant factors contributing to the change are shown below:

Three months ended March 31
Cash from operating activities – 2020	30.5
• Higher netback in 2021, mainly due to higher commodity prices and condensate and oil sales volumes	104.6
• Lower asset retirement obligation settlements in 2021	21.9
• Payments on financial commodity contract settlements in 2021 compared to receipts in 2020	(39.7)
• Change in non-cash working capital	(26.4)
• Higher interest and financing expense in 2021	(6.4)
• Other	(3.2)
Cash from operating activities – 2021	81.3

Adjusted Funds Flow[(1)]

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

Three months ended March 31	2021	2020
Cash from operating activities	81.3	30.5
Change in non-cash working capital	(7.9)	(34.3)
Geological and geophysical expenses	1.6	2.6
Asset retirement obligations settled	8.4	30.3
Provisions and other	7.5	4.4
Adjusted funds flow	90.9	33.5
Adjusted funds flow($/Boe)	12.54	5.26

(1) "Adjusted funds flow" is a Non-GAAP financial measure. See "Non-GAAP Financial Measures" in the Advisories section.

Adjusted funds flow for the three months ended March 31, 2021 was $90.9 million compared to $33.5 million in the same period in 2020. Significant factors contributing to the change are shown below:

Three months ended March 31
Adjusted funds flow – 2020	33.5
• Higher netback in 2021, mainly due to higher commodity prices and condensate and oil sales volumes	104.6
• Payments on financial commodity contract settlements in 2021 compared to receipts in 2020	(39.7)
• Higher interest and financing expense in 2021	(6.4)
• Other	(1.1)
Adjusted funds flow – 2021	90.9

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 6

OPERATING RESULTS

Netback[(1) ]

Three months ended March 31	2021		2020	2020
		*($/Boe)(2)*		($/Boe) (2)
Natural gas revenue	77.3	*3.14*	53.6	2.25
Condensate and oil revenue	185.9	*69.20*	111.4	55.92
Other NGLs revenue	15.0	*32.29*	4.4	10.75
Royalty and other revenue	1.7	–	2.7	–
Petroleum and natural gas sales	279.9	*38.61*	172.1	27.01
Royalties	(18.6)	*(2.57)*	(11.7)	(1.84)
Operating expense	(84.3)	*(11.63)*	(92.3)	(14.49)
Transportation and NGLs processing(3)	(27.9)	*(3.84)*	(23.6)	(3.70)
Netback	149.1	*20.57*	44.5	6.98
Financial commodity contract settlements	(32.7)	*(4.51)*	7.0	1.10
Netback including financial commodity contract settlements	116.4	*16.06*	51.5	8.08

(1) "Netback" is a Non-GAAP financial measure. See "Non-GAAP Financial Measures" in the Advisories section.

(2) Natural gas revenue presented per Mcf.

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

Petroleum and natural gas sales were $279.9 million in the first quarter of 2021, an increase of $107.8 million from the same period in the prior year mainly due to higher commodity prices and condensate and oil sales volumes.

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	other	Total
Three months ended March 31, 2020	53.6	111.4	4.4	2.7	172.1
Effect of changes in sales volumes	1.8	38.8	0.6	–	41.2
Effect of changes in prices	21.9	35.7	10.0	–	67.6
Change in royalty and other revenue	–	–	–	(1.0)	(1.0)
Three months ended March 31, 2021	77.3	185.9	15.0	1.7	279.9

Sales Volumes[(1)]

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)
2021 2020 % _Change _	2021 2020 % _Change _	2021 2020 % Change	2021 2020 % _Change _
Grande Prairie 122.6 74.6 64 Kaybob 107.9 140.2_(23) Central Alberta & Other 42.6 46.7 (9)_	23,974 14,097 70	2,984 1,680 78	47,385 28,214 68 24,938 32,700 (24) 8,217 9,108 (10)
	5,274 7,123 (26)	1,677 2,218 (24)
	606 678 (11)	509 641 (21)
Total 273.1 261.5 4	29,854 21,898 36	5,170 4,539_14_	80,540 70,022 15

(1) Readers are referred to the Product Type Information section of this document for more information respecting the composition of sales volumes by the specific product types of shale gas, conventional natural gas, NGLs, tight oil and light and medium crude oil.

Sales volumes were 80,540 Boe/d (43% liquids) in the first quarter of 2021 compared to 70,022 Boe/d (38% liquids) in the same period in 2020. The Company focused its capital program in 2020 and the first quarter of 2021 on its developments at Karr and Wapiti, which resulted in higher 2021 sales volumes in the liquids

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 7

rich Grande Prairie Region and lower sales volumes in the Kaybob and Central Alberta & Other Regions due to declines. First quarter 2021 sales volumes in the Kaybob and Central Alberta & Other Regions were also lower by approximately 2,000 Boe/d (11.4 MMcf/d of conventional gas and 98 Bbl/d of NGLs) compared to the first quarter of 2020 due to non-core dispositions completed in the first quarter of 2021.

At Karr, first quarter 2021 sales volumes were 33,230 Boe/d (55% liquids) compared to 20,885 Boe/d (53% liquids) in the same period in 2020. The increase resulted from development activities where Paramount brought six wells on production in the first quarter of 2021 in addition to the 15 wells brought onstream in the second half of 2020. In the third quarter of 2020, Paramount also completed a debottlenecking project at Karr which enabled the Company to increase production previously impacted by gathering system constraints. The strong performance at Karr has contributed to the upward revision of the Company’s forecasted sales volume guidance for 2021 as discussed under "Revised 2021 Guidance" in this MD&A.

Sales volumes at Wapiti increased to 14,107 Boe/d (62% liquids) in the first quarter of 2021 compared to 7,209 Boe/d (66% liquids) in the first quarter of 2020. The increase was mainly due to two factors: (i) first quarter 2020 sales volumes were impacted by approximately 4,300 Boe/d due to downtime at the thirdparty Wapiti natural gas processing plant; and (ii) five wells were brought onstream in the fourth quarter of 2020 at Wapiti.

Commodity Prices

Three months ended March 31	2021	2020	% Change
Natural Gas
Paramount realized price ($/Mcf)	3.14	2.25	40
AECO daily spot ($/GJ)	2.99	1.93	55
AECO monthly index ($/GJ)	2.77	2.03	36
Dawn ($/MMbtu)	3.72	2.35	58
NYMEX (US$/MMbtu)	2.73	1.87	46
Malin – monthly index (US$/MMbtu)	2.70	2.27	19
Condensate and Oil
Paramount realized condensate & oil price ($/Bbl)	69.20	55.92	24
Edmonton light sweet crude oil($/Bbl)	68.62	52.02	32
West Texas Intermediate (US$/Bbl)	57.84	46.17	25
Other NGLs(1)
Paramount realized Other NGLs price ($/Bbl)	32.29	10.75	200
Conway – propane ($/Bbl)	48.77	19.19	154
Belvieu – butane ($/Bbl)	50.35	31.82	58
Foreign Exchange
$CDN / 1$US	1.27	1.34	(5)

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

Paramount’s natural gas portfolio primarily consists of sales priced at Alberta, British Columbia, California, Chicago, Ventura and Eastern Canada markets, which are sold in a combination of daily, monthly, seasonal and fixed-priced physical 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 at the US Midwest.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 8

The Company had the following AECO fixed-price physical contracts to sell natural gas at March 31, 2021:

Quantity	Location	Average fixedprice	Remaining term
50,000 GJ/d	AECO	CDN$2.52/GJ	April 2021–October 2021
50,000 GJ/d	AECO	CDN$2.51/GJ	April 2021–December 2021

Paramount ships a portion of its condensate and crude oil production on third-party pipelines for sale in Edmonton, Alberta, where volumes generally receive higher prices due to the greater diversity of potential purchasers. A limited 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 generally sold under contracts that are renewed annually in April each year. The Company’s propane and butane contracts in place in the first quarter of 2021 had more favorable differentials to West Texas Intermediate reference prices than the same period in 2020.

Financial Commodity Contracts

From time-to-time Paramount uses financial commodity contracts to manage exposure to commodity price volatility. Changes in the fair value of the Company’s financial commodity contracts are as follows:

	Three months ended	Twelve months ended
	March 31, 2021	December 31, 2020
Fair value, beginning of period	(22.7)	6.1
Changes in fair value	(81.2)	8.8
Settlements paid (received)	32.7	(37.6)
Fair value, end ofperiod	(71.2)	(22.7)

For further details on the Company’s financial commodity contracts, refer to Note 11 of the Interim Financial Statements.

The following table summarizes the Company’s financial commodity contracts and fixed-price physical contracts for the remainder of 2021:

	Type (1)	Q2 2021	Q3 2021	Q4 2021	Average Price(2)
Oil –WTI Swaps (Sale) (Bbl/d)	Financial	23,000	15,000	10,000	US$46.37/Bbl
Oil – WTI Swap (Sale) (Bbl/d)	Financial	3,000	3,000	–	C$65.29/Bbl
Condensate – Basis Swap (Sale) (Bbl/d)	Financial	4,000	–	–	WTI + US$0.06/Bbl
Gas – NYMEX Swaps (Sale) (MMbtu/d)	Financial	60,000	60,000	60,000	US$2.71/MMbtu
Gas – AECO fixedprice(GJ/d)	Physical	100,000	100,000	66,848	C$2.51/GJ

(1) Financial, refers to financial commodity contracts. Physical, refers to fixed-priced physical contracts.

(2) Average price is calculated using a weighted average of notional volumes and prices.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 9

Royalties

Three months ended March 31	2021	Rate	2020	Rate
Royalties	18.6	6.7%	11.7	6.9%
$/Boe	*2.57*		1.84

Royalties were $18.6 million in the first quarter of 2021, $6.9 million higher than the same period in 2020. Royalties increased in 2021 primarily as a result of higher petroleum and natural gas sales revenues, partially offset by lower average royalty rates at Karr due to new wells that qualify for royalty incentive programs in Alberta being brought onstream.

Operating Expense

Three months ended March 31	2021	2020	% Change
Operating expense	84.3	92.3	(9)
$/Boe	*11.63*	14.49	(20)

Operating expense was $84.3 million in the first quarter of 2021, $8.0 million lower compared to the same period in 2020, primarily as a result of the Company’s prior cost reduction initiatives, including lowering costs related to maintenance, labour and water disposal as well as supplier cost savings. Lower production in the Kaybob Region also contributed to the decrease in operating expense. The decreases in operating expense in the first quarter of 2021 were partially offset by higher processing fees in the Grande Prairie Region.

Operating expense was $11.63 per Boe in the first quarter of 2021 compared to $14.49 per Boe in the same period of 2020, mainly due to the impact of higher production and the cost reductions described above.

Transportation and NGLs Processing

Three months ended March 31	2021	2020	% Change
Transportation and NGLsprocessing	27.9	23.6	18
$/Boe	*3.84*	3.70	4

Transportation and NGLs processing expense was $27.9 million in the first quarter of 2021 compared to $23.6 million in the same period in 2020. Transportation and NGLs processing costs increased in the first quarter of 2021 mainly as a result of higher contracted capacity for Karr and Wapiti, partially offset by lower production in the Kaybob Region.

Other Operating Items

Three months ended March 31	2021	2020
Depletion and depreciation (excluding impairment)	(73.1)	(73.1)
Impairment of petroleum and natural gas assets	–	(191.8)
Gain on sale of oil and gas assets	41.4	2.3
Exploration and evaluation expense	(20.9)	(11.9)

Depletion and depreciation expense was $73.1 million in the first quarter of 2021, unchanged compared to the same period in 2020, with the impact of higher sales volumes being offset by lower depletion rates in the Grande Prairie Region.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 10

At March 31, 2020, 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 ("CGUs"), respectively. At December 31, 2020, the Company recorded aggregate impairment reversals of $333.7 million from previously recorded impairment charges, comprised of $287.7 million, $30.6 million and $15.4 million related to petroleum and natural gas assets in the Kaybob, Northern and Central Alberta CGUs, respectively. For additional information on impairments and impairment reversals in 2020, refer to Note 5 of the Annual Financial Statements.

In the first quarter of 2021, the Company sold certain non-core properties in the Kaybob and Central Alberta CGUs for aggregate cash proceeds of approximately $80 million. These assets had average sales volumes of approximately 2,700 Boe/d (15.4 MMcf/d of conventional natural gas and 142 Bbl/d of NGLs) and a netback of approximately $3 million in the fourth quarter of 2020, representing the last full quarter prior to sale. A gain of $41.4 million was recognized on these sales.

Exploration and Evaluation ("E&E") expense was $20.9 million in 2021, an increase of $9.0 million compared to 2020, primarily due to higher expenses for expired mineral leases.

INVESTMENTS IN SECURITIES

As at	March 31, 2021	December 31, 2020
Level one fair value hierarchy securities (ʺLevel One Securitiesʺ)	110.0	48.4
Level three fair value hierarchy securities (ʺLevel Three Securitiesʺ)	19.9	11.1
	129.9	59.5

Paramount holds investments in a number of publicly-traded and private corporations as part of its portfolio of investments. Investments that are categorized as Level One Securities are carried at their period-end trading prices. Estimates of fair values for investments that are categorized as Level Three Securities are based on valuation techniques that incorporate unobservable 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 operating 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.

For the three months ended, March 31, 2021, the Company recorded $70.2 million of other comprehensive income ("OCI") as a result of changes in the fair value estimates of Level One Securities and Level Three Securities.

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

	Three months ended	Twelve months ended
	March 31, 2021(1)	December 31, 2020
Investments in securities, beginning of period	59.5	156.9
Changes in fair value of Level One Securities – recorded in OCI	61.6	(50.6)
Changes in fair value of Level Three Securities – recorded in OCI	8.6	32.5
Transfer to dissent payment entitlement	–	(89.3)
Changes in fair value of warrants – recorded in earnings	0.1	(1.7)
Acquired–cash	–	11.7
Investments in securities, end ofperiod	129.9	59.5

(1) Column does not add due to rounding.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 11

ASSET RETIREMENT OBLIGATIONS

The area-based closure program introduced by the Alberta Energy Regulator in September 2018 allows companies to approach abandonment and reclamation activities in an efficient and cost-effective manner by targeting efforts in a concentrated area. Paramount’s strategy is to utilize the advantages of the areabased closure program by focusing its abandonment and reclamation activities on the Hawkeye property, which was shut-in in 2018, and the Zama property, which was shut-in in 2019.

Abandonment and reclamation expenditures in the first quarter of 2021 totaled $8.4 million, net of approximately $1.7 million in funding under the Alberta Site Rehabilitation Program (the "ASRP"). Activities in the first quarter of 2021 included the abandonment of 120 wells, 119 of which were abandoned under the Company’s ongoing area-based closure program at Zama.

The Company’s budget for abandonment and reclamation activities in 2021 remains unchanged at approximately $31 million. Approximately $6 million is to be funded directly under the ASRP, resulting in approximately $25 million net to Paramount. The majority of 2021 closure activities will be performed at the Zama property.

As at March 31, 2021, estimated undiscounted, uninflated asset retirement obligations were $1,307.8 million (December 31, 2020 – $1,351.7 million). As at March 31, 2021, the Company’s discounted asset retirement obligations were $542.8 million (discounted at 8.25 percent and using an inflation rate of 2.0 percent) compared to $419.5 million as at December 31, 2020 (discounted at 11.0 percent and using an inflation rate of 2.0 percent). For further details concerning the Company’s asset retirement obligations, refer to the Interim Financial Statements.

CORPORATE

Three months ended March 31	2021	2020
General and administrative	(8.7)	(10.2)
Share-based compensation	(6.0)	–
Interest and financing	(16.7)	(9.5)
Accretion of asset retirement obligations	(10.8)	(10.5)
Change in asset retirement obligations	(69.5)	94.8
Deferred income tax recovery (expense)	22.1	(106.7)

General and administrative expenses were lower in the first quarter of 2021 compared to the same period in 2020 primarily due to cost reduction initiatives implemented in 2020.

Share-based compensation expense was higher in the first quarter of 2021 compared to the same period in 2020 mainly due to incentive compensation programs that had been suspended in the first quarter of 2020 as part of cost reduction initiatives.

Interest and financing expense was $16.7 million in 2021, an increase of $7.2 million compared to 2020, as a result of higher average debt balances and interest rates under the Paramount Facility.

In the first quarter of 2021, the Company recorded a charge of $69.5 million (three months ended March 31, 2020 - $94.8 million recovery) to earnings mainly 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 mainly resulted from a revision in the credit-adjusted risk-free rate used to discount asset retirement obligations.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 12

PROPERTY, PLANT AND EQUIPMENT AND EXPLORATION EXPENDITURES

Three months ended March 31	2021	2020
Drilling, completion and tie-ins	55.7	53.3
Facilities and gathering	1.8	9.4
Corporate	1.8	1.1
Total capital expenditures(1)	59.3	63.8
Grande Prairie Region	51.3	49.8
Kaybob Region	5.0	10.1
Central Alberta and Other Region	1.2	2.8
Corporate	1.8	1.1
Total capital expenditures(1)	59.3	63.8

(1) "Total Capital Expenditures" is a Non-GAAP financial measure. See "Non-GAAP Financial Measures" in the Advisories section.

Total capital expenditures were $59.3 million in the first quarter of 2021 compared to $63.8 million in the first quarter of 2020. Expenditures in the first quarter of 2021 were mainly directed to drilling and completion programs in the Grande Prairie Region. Significant capital program activities undertaken in the first quarter of 2021 are described below:

At Karr, the Company drilled 9 (9.0 net) wells, commenced drilling operations on 4 (4.0 net) wells, commenced completion activities on 3 (3.0 net) wells and completed and brought on production 6 (6.0 net) wells.
At Wapiti, Paramount drilled 4 (4.0 net) wells.
In the Kaybob Region, the Company completed 1 (1.0 net) oil well at Ante Creek.
In the Central Alberta & Other region, the Company commenced drilling of 1 (1.0 net) well at Willesden Green.

Paramount has continued to realize capital cost savings to date in 2021, with DCET costs at Karr averaging lower than prior estimates and below average 2020 DCET costs as described in this MD&A under "Q1 2021 Overview".

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 13

LIQUIDITY AND CAPITAL RESOURCES

Paramount’s primary objectives in managing its capital structure are to:

i. maintain a flexible capital structure which optimizes the cost of capital at an acceptable level of risk;
ii. maintain sufficient liquidity to support ongoing operations, capital expenditure programs, strategic initiatives and the settlement of obligations when due; and

iii. maximize shareholder returns.

Paramount targets net debt to adjusted funds flow of between 1.0x (during periods of higher commodity prices) and 2.0x (during periods of lower commodity prices), with anticipated 2021 year-end net debt to adjusted funds flow of less than 1.5x.

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.

As at	March 31, 2021	December 31, 2020
Cash and cash equivalents	(7.4)	(4.6)
Accounts receivable(1)	(117.7)	(97.7)
Prepaid expenses and other	(8.0)	(9.9)
Accounts payable and accrued liabilities	182.1	152.8
Adjusted working capital deficit(1) (2)	49.0	40.6
Long-term debt	712.7	813.5
Net debt(2)	761.7	854.1
Share capital	2,212.2	2,207.4
Accumulated deficit	(317.5)	(235.1)
Equity component of convertible debentures	1.7	–
Reserves	138.7	65.4
Total Capital	2,796.8	2,891.8

(1) Adjusted working capital excludes risk management assets and liabilities, accounts receivable relating to subleases (March 31, 2021 – $2.4 million, December 31, 2020 – $2.3 million) and the current portion of asset retirement obligations and other.

(2) "Net Debt" is a Non-GAAP financial measure. See "Non-GAAP Financial Measures" in the Advisories section.

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 cash from operating activities and available capacity under its senior secured revolving bank credit facility (the "Paramount Facility"), the terms of which are described further below.

Based on the forecasts of 2021 sales volumes and the pricing assumptions set out in this MD&A under "Revised 2021 Guidance", Paramount expects to fully fund budgeted 2021 capital expenditures of between $265 million and $285 million and net budgeted expenditures for abandonment and reclamation activities of $25 million with cash from operating activities. Paramount may utilize borrowing capacity under the Paramount Facility for liquidity from time to time to fund operations during periods of the year in which expenditures exceed cash from operating activities.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 14

The ability of cash from operating activities to satisfy the Company’s funding requirements in 2021 and future years is 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 from time to time to reduce indebtedness or fund operations. In the first quarter of 2021, the Company sold non-core properties for aggregate cash proceeds of approximately $80 million and used such proceeds to reduce indebtedness under the Paramount Facility.

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. In January 2021, as described below under "Convertible Debentures", the Company issued $35.0 million of senior unsecured convertible debentures and used the proceeds to reduce indebtedness under the Paramount Facility.

Paramount Facility

Paramount was in compliance with the financial covenants under its $1.0 billion financial-covenant based Paramount Facility at March 31, 2021.

The Company had undrawn letters of credit outstanding under the Paramount Facility totaling $1.3 million at March 31, 2021 that reduce the amount available to be drawn on the Paramount Facility.

For additional information on the Paramount Facility, refer to Note 8 of the Annual Financial Statements.

Unsecured Letter of Credit Facility

The Company has a $70 million unsecured demand revolving letter of credit facility (the "LC Facility") with a Canadian bank. 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 June 30, 2021 and may be extended at the option of Paramount and with the agreement of EDC.

At March 31, 2021, $40.7 million in undrawn letters of credit were outstanding under the LC Facility (December 31, 2020 – $40.7 million).

Convertible Debentures

In January 2021, the Company completed a private placement of $35.0 million of senior unsecured convertible debentures (the "Convertible Debentures"). An entity controlled by Paramount’s President and Chief Executive Officer and Chairman purchased $25.0 million of the Convertible Debentures. An entity controlled by the Company’s Executive Vice President, Corporate Development and Planning, purchased $0.1 million of the Convertible Debentures. The Convertible Debentures mature on January 31, 2024 (the "Maturity Date"), bear interest at 7.50 percent per annum payable monthly in arrears and are convertible by the holder into Common Shares at any time prior to the Maturity Date at a conversion price of $6.72 per Common Share prior to January 31, 2022, $7.33 per Common Share on or after January 31, 2022 and prior to January 31, 2023 and $7.94 per Common Share on or after January 31, 2023.

The Convertible Debentures are redeemable by Paramount, in whole or in part, at any time prior to the Maturity Date, at a redemption price (expressed as percentages of principal amount) equal to 107.50 percent prior to January 31, 2022, 103.75 percent on or after January 31, 2022 and prior to January 31, 2023 and 101.875 percent on or after January 31, 2023.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 15

The Convertible Debentures are treated as a compound financial instrument that contain a liability and an equity component and were initially recognized at fair value, net of issue costs of $0.1 million. The fair value of the liability component was initially recognized at the date of issuance using the effective interest method, discounted using the estimated interest rate of a debt instrument having similar terms but without a conversion feature. The fair value of the conversion feature was determined at the date of issuance as the difference between the principal amount and the fair value of the liability component at the date of issue, which has been classified within shareholders’ equity.

The liability component of the Convertible Debentures is carried at amortized cost and is accreted over the term of the Convertible Debentures to the original principal amount using the effective interest method. This accretion, along with interest on the Convertible Debentures, is recorded as interest and financing expense. The equity component is not remeasured subsequent to initial recognition. The equity component and the accreted liability component will be reclassified to share capital should the Convertible Debentures be converted into Common Shares.

As at March 31, 2021, there were $35.0 million aggregate principal amount of Convertible Debentures outstanding.

Cash Flow Hedges

The Company had the following floating-to-fixed interest rate and electricity swaps at March 31, 2021:

	Aggregate		Average fixed
Contract type	notional	Remaining term	contract rate	Reference	Fair value
Interest Rate Swaps	$250 million	April 2021–January 2023	2.3%	CDOR(1)	(7.8)
Interest Rate Swaps	$250 million	April 2021–January 2026	2.4%	CDOR(1)	(12.2)
Electricity Swaps	5 MWh/d(2)	April 2021–December 2021	$51.68/MWh	AESO Pool Price(3)	0.5
					(19.5)

(1) Canadian Dollar Offered Rate.

(2) "MWh" means MegaWatt hour.

(3) Floating hourly rate established by the Alberta Electric System Operator.

The Company classified its floating-to-fixed interest rate swaps and electricity swaps as cash flow hedges and has applied hedge accounting. As at March 31, 2021, there were no changes to the critical terms of the hedging relationship and no hedge ineffectiveness was identified.

Share Capital

At April 30, 2021, Paramount had 133,166,380 Common Shares outstanding (net of 1,553,017 Common Shares held in trust under the Company’s restricted share unit plan) and 9,089,915 options to acquire Common Shares outstanding, of which 1,884,390 options are exercisable.

At April 30, 2021, $35.0 million aggregate principal amount of Convertible Debentures were issued and outstanding. A total maximum of 5.2 million Common Shares are issuable upon conversion of the outstanding Convertible Debentures at the current conversion price of $6.72 per Common Share.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 16

QUARTERLY INFORMATION

2021 2020 2019	2021 2020 2019	2021 2020 2019
Q1	Q4 Q3 Q2 Q1	Q4 Q3 Q2
Petroleum and natural gas sales 279.9 Net income (loss) (82.5) Per share – basic & diluted ($/share) *(0.62)* Cash from (used in) operating activities 81.3 Per share – basic & diluted ($/share) *0.61* Adjusted funds flow 90.9 Per share – basic & diluted ($/share) *0.69* Sales volumes (1) Natural gas (MMcf/d) 273.1 Condensate and oil (Bbl/d) 29,854 Other NGLs (Bbl/d) 5,170 Total (Boe/d) 80,540 Realized prices Natural gas ($/Mcf) 3.14 Condensate and oil ($/Bbl) 69.20 Other NGLs ($/Bbl) 32.29 Total($/Boe) 38.61	202.0 138.8 113.2 172.1 311.5 (23.3) (75.7) (235.1) 2.35 (0.17) (0.57) (1.76) 53.2 11.4 (14.2) 30.5 0.40 0.09 (0.11) 0.23 67.9 29.5 19.0 33.5 0.51 0.22 0.14 0.25 256.3 224.0 253.2 261.5 25,752 19,782 22,823 21,898 4,987 3,952 3,817 4,539 73,460 61,064 68,839 70,022 2.83 1.94 1.94 2.25 52.03 48.74 29.05 55.92 20.61 18.10 12.28 10.75 29.89 24.70 18.07 27.01	259.9 199.8 209.2 (31.1) 141.0 (121.0) (0.24) 1.08 (0.93) 70.5 48.6 48.1 0.54 0.37 0.37 93.5 50.9 54.2 0.71 0.39 0.41 299.0 296.6 309.7 28,516 24,761 23,312 7,064 6,851 6,859 85,411 81,046 81,793 2.73 1.58 1.76 66.70 65.73 71.02 13.03 9.78 11.01 33.08 26.80 28.10

Significant Items Impacting Quarterly Results

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

The first quarter 2021 loss includes an $81.2 million loss on financial commodity contracts, a charge of $69.5 million mainly related to changes in the discounted carrying value of estimated asset retirement obligations in respect of properties that had a nil carrying value and a $41.4 million gain on the sale of oil and gas assets.
Fourth quarter 2020 earnings include aggregate impairment reversals of $333.7 million from previously recorded impairment charges of petroleum and natural gas assets and a deferred income tax recovery of $64.4 million, partially offset by a charge of $29.7 million related to changes in the discounted carrying value of estimated asset retirement obligations in respect of properties that had a nil carrying value.
The third quarter 2020 loss includes a recovery of $25.6 million related to changes in the discounted carrying value of estimated asset retirement obligations in respect of properties that had a nil carrying value.
The second quarter 2020 loss includes a recovery of $13.6 million related to deferred income tax.
• 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 2021 Management’s Discussion & Analysis 17

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 sale of the Karr 6-18 natural gas facility and related midstream assets 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.

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 2021, the Company recorded a provision of $7.5 million with respect to arrangements with a service provider. The Company has unsettled claims against the same service provider for significantly larger amounts with respect to certain related matters which have not been recognized. The outcome of all of these matters remains uncertain.

ADOPTION OF ACCOUNTING STANDARDS

Financial Instruments

Effective January 1, 2021, the Company adopted the phase two amendments to IFRS 9 – Financial Instruments, IAS 39 – Financial Instruments: Recognition and Measurement , IFRS 7 – Financial Instruments: Disclosures, IFRS 4 – Insurance Contracts and IFRS 16 – Leases . These amendments provide guidance in applying IFRS when changes are made to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate from the Interbank Offered Rate ("IBOR") reform. There has been no impact on the recognized assets, liabilities or comprehensive loss of the Company resulting from the adoption of these amendments. The Company’s floating-to-fixed interest rate swaps, which are described in Note 11 of the Interim Financial Statements, may be impacted by these amendments in the future as hedge accounting is applied to these instruments and hedging relationships may be impacted by the IBOR reform.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 18

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the three months ended March 31, 2021, 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 process changes put in place 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.

RISK FACTORS

Readers should, in conjunction with their review of this MD&A, carefully review the "Risk Factors" section in the Company's Annual Information Form for the year ended December 31, 2020, which is available under the Company’s profile on SEDAR at www.sedar.com.

The course of the COVID-19 pandemic and its ultimate impact remain highly uncertain. The ultimate impact of the pandemic on Paramount’s future operations and financial performance is unknown and is 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 outbreak of the COVID-19 virus has subsided. See "Risk Factors – COVID 19 Pandemic" in the Annual Information Form.

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 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 periods as additional information becomes available.

PRODUCT TYPE INFORMATION

This MD&A includes references to sales volumes of "natural gas", "condensate and oil" and "Other NGLs" and revenues therefrom. "Natural gas" refers to conventional natural gas and shale gas combined. "Condensate and oil" refers to condensate, light and medium crude oil and tight oil combined. "Other NGLs" refers to ethane, propane and butane combined. Below is a complete breakdown of sales volumes for applicable periods by the specific product types of shale gas, conventional natural gas, NGLs, tight oil and light and medium crude oil. Numbers may not add due to rounding.

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 19

	2021	2020	2019	Annual
	Q1	Q4 Q3 Q2 Q1	Q4 Q3 Q2	2020 2019
SALES VOLUMES - BY PRODUCT TYPE
Shale gas (MMcf/d) Conventional naturalgas(MMcf/d)	197.8	170.7 141.0 156.0 158.9 85.6 83.0 97.2 102.6	176.6 159.3 164.1 122.4 137.3 145.6	156.7 166.0 92.0 137.3
	75.3
Naturalgas(MMcf/d)	273.1	256.3 224.0 253.2 261.5	299.0 296.6 309.7	248.7 303.3
Condensate (Bbl/d) Other NGLs(Bbl/d)	27,017	22,782 17,020 19,615 17,908 4,987 3,952 3,817 4,539	23,956 20,230 17,781 7,064 6,851 6,859	19,334 19,746 4,325 6,767
	5,170
NGLs(Bbl/d)	32,187	27,769 20,972 23,432 22,447	31,020 27,081 24,640	23,659 26,513
Tight oil (Bbl/d) Light and Medium crude oil(Bbl/d)	479	437 457 381 575 2,533 2,305 2,827 3,416	745 523 603 3,815 4,008 4,928	462 631 2,768 4,703
	2,358
Crude oil(Bbl/d)	2,837	2,970 2,762 3,208 3,991	4,560 4,531 5,531	3,230 5,334
Total(Boe/d)	80,540	73,460 61,064 68,839 70,022	85,411 81,046 81,793	68,340 82,394

SALES VOLUMES – BY REGION BY PRODUCT TYPE
GRANDE PRAIRIE REGION
Shale gas (MMcf/d) Conventional naturalgas(MMcf/d)	120.6	92.7 66.0 76.8 73.1 1.6 1.3 1.5 1.5	91.5 70.5 73.4 1.9 1.6 1.2	77.2 78.0 1.4 1.5
	2.0
Naturalgas(MMcf/d)	122.6	94.3 67.3 78.3 74.6	93.4 72.1 74.6	78.6 79.5
Condensate (Bbl/d) Other NGLs(Bbl/d)	23,974	19,635 13,959 16,292 14,058 2,429 2,060 1,680 1,680	18,760 14,269 11,678 2,376 1,587 1,686	15,991 13,920 1,964 1,814
	2,984
NGLs(Bbl/d)	26,958	22,064 16,019 17,972 15,738	21,136 15,856 13,364	17,955 15,734
Tight oil (Bbl/d) Light and medium crude oil (Bbl/d)	–	– – – – – 1 17 39	– – – 91 61 13	– – 14 53
	–
Crude oil(Bbl/d)	–	– 1 17 39	91 61 13	14 53
Total(Boe/d)	47,385	37,782 27,237 31,039 28,214	36,789 27,927 25,804	31,076 29,040

KAYBOB REGION
Shale gas (MMcf/d) Conventional naturalgas(MMcf/d)	42.1	41.9 40.4 44.4 48.6 76.3 73.4 87.1 91.6	48.3 52.4 51.6 89.1 91.8 101.5	43.8 50.3 82.1 95.9
	65.8
Naturalgas(MMcf/d)	107.9	118.2 113.8 131.5 140.2	137.4 144.2 153.1	125.9 146.2
Condensate (Bbl/d) Other NGLs(Bbl/d)	2,611	2,631 2,577 2,954 3,385 1,953 1,363 1,718 2,218	3,899 4,411 4,526 2,504 2,450 2,622	2,885 4,361 1,812 2,476
	1,677
NGLs(Bbl/d)	4,288	4,584 3,940 4,672 5,603	6,403 6,861 7,148	4,697 6,837
Tight oil (Bbl/d) Light and medium crude oil(Bbl/d)	342	299 308 203 394 2,480 2,257 2,762 3,343	541 329 286 3,331 3,391 4,182	301 360 2,709 3,929
	2,321
Crude oil(Bbl/d)	2,663	2,779 2,565 2,965 3,737	3,872 3,720 4,468	3,010 4,289
Total (Boe/d)	24,938	27,056 25,477 29,561 32,700	33,167 34,615 37,127	28,685 35,500

CENTRAL ALBERTA & OTHER REGION
Shale gas (MMcf/d) Conventional naturalgas(MMcf/d)	35.1	36.1 34.6 34.8 37.1 7.7 8.3 8.6 9.6	36.8 36.4 39.1 31.4 43.9 42.9	35.7 37.7 8.5 39.9
	7.5
Naturalgas(MMcf/d)	42.6	43.8 42.9 43.4 46.7	68.2 80.3 82.0	44.2 77.6
Condensate (Bbl/d) Other NGLs(Bbl/d)	433	515 484 369 465 605 529 419 641	1,298 1,551 1,577 2,184 2,814 2,551	458 1,464 549 2,477
	509
NGLs(Bbl/d)	942	1,120 1,013 788 1,106	3,482 4,365 4,128	1,007 3,941
Tight oil (Bbl/d) Light and Medium crude oil (Bbl/d)	136	138 149 178 180 54 47 48 33	203 194 317 393 556 733	161 271 46 721
	37
Crude oil(Bbl/d)	173	192 196 226 213	596 750 1,050	207 992
Total(Boe/d)	8,217	8,622 8,350 8,239 9,108	15,455 18,504 18,862	8,579 17,854

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 20

	2021	2020	2019	Annual
	Q1	Q4 Q3 Q2 Q1	Q4 Q3 Q2	2020 2019
SALES VOLUMES – KARR BY PRODUCT TYPE
Shale gas (MMcf/d) Conventional naturalgas(MMcf/d)	89.1	69.6 48.6 45.5 58.7 0.9 0.6 0.6 0.7	68.6 57.9 68.0 0.5 0.4 0.5	55.6 67.2 0.7 0.5
	1.1
Naturalgas(MMcf/d)	90.2	70.5 49.2 46.1 59.4	69.1 58.3 68.5	56.3 67.7
Condensate (Bbl/d) Other NGLs(Bbl/d)	16,095	13,348 9,541 7,501 9,691 1,817 1,503 829 1,290	11,816 8,712 8,858 1,614 1,117 1,505	10,028 10,024 1,361 1,453
	2,108
NGLs(Bbl/d)	18,203	15,165 11,044 8,330 10,981	13,430 9,829 10,363	11,389 11,477
Total(Boe/d)	33,230	26,914 19,246 16,009 20,885	24,943 19,542 21,782	20,777 22,755

SALES VOLUMES – WAPITI BY PRODUCT TYPE
Shale gas (MMcf/d) Conventional naturalgas(MMcf/d)	31.5	22.8 17.4 31.3 14.5 0.5 0.4 0.6 0.3	22.9 12.6 5.3 0.7 0.4 0.2	21.5 10.8 0.4 0.3
	0.6
Naturalgas(MMcf/d)	32.1	23.3 17.8 31.9 14.8	23.6 13.0 5.5	21.9 11.1
Condensate (Bbl/d) Other NGLs(Bbl/d)	7,884	6,286 4,414 8,786 4,364 589 548 841 386	6,865 5,548 2,814 706 454 168	5,959 3,879 591 344
	867
NGLs(Bbl/d)	8,751	6,875 4,962 9,627 4,750	7,571 6,002 2,982	6,550 4,223
Total(Boe/d)	14,107	10,764 7,925 14,940 7,209	11,498 8,163 3,903	10,207 6,082

The Company forecasts that 2021 sales volumes will average between 80,000 Boe/d and 82,000 Boe/d (56% shale gas and conventional natural gas combined, 38% light and medium crude oil, tight oil and condensate combined and 6% other NGLs). Second quarter 2021 sales volumes are expected to average between 77,000 Boe/d and 78,000 Boe/d (58% shale gas and conventional natural gas combined, 36% light and medium crude oil, tight oil and condensate combined and 6% other NGLs). Second half 2021 sales volumes are expected to average between 80,000 Boe/d and 84,000 Boe/d (55% shale gas and conventional natural gas combined, 39% light and medium crude oil, tight oil and condensate combined and 6% other NGLs).

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:

the anticipated closing of the Birch Disposition;
forecast sales volumes for 2021 and certain periods therein;
forecast free cash flow in 2021;
anticipated cost savings in the Company’s 2021 capital program;
planned capital expenditures in 2021;
the Company’s expectation that 2021 free cash flow will be directed towards debt reduction;
forecast 2021 year-end net debt to annual adjusted funds flow;
preliminary anticipated capital expenditures in 2022 and the resulting expected 2022 average sales volumes, free cash flow and year-end net debt to adjusted funds flow;
planned exploration, development and production activities, including the expected timing of drilling, completing and bringing new wells on production;

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 21

planned abandonment and reclamation expenditures and activities in 2021 and anticipated funding under the ASRP;
the expectation that the Company will be able to fund budgeted capital expenditures and budgeted expenditures for abandonment and reclamation activities from cash from operating activities;
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 commodity prices and the potential impact of the COVID-19 pandemic thereon;
the likely impact of the COVID-19 pandemic on operations;
the satisfaction of the conditions to closing of the Birch Disposition;
the ability to realize expected cost savings;
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;
the ability of Paramount to market its production 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, product yields and resource recoveries) and operational improvements, efficiencies and results consistent with expectations;
the timely receipt of required governmental and regulatory approvals;
the receipt of benefits under government programs;
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. There are no assurances that the Birch Disposition will close at the anticipated time or at all. 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 commodity prices, including in relation to the impact of the COVID-19 pandemic;
the failure to satisfy the conditions to closing of the Birch Disposition;
changes in capital spending plans and planned exploration and development activities;

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 22

the potential for changes to preliminary anticipated 2022 capital expenditures prior to finalization and changes to the resulting expected 2022 average sales volumes, free cash flow and year-end net debt to adjusted funds flow;
changes in foreign currency exchange rates and interest rates;
the uncertainty of estimates and projections relating to future revenue, free cash flow, production, reserves additions, product 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 sales volumes, 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;
the uncertainty of reserves estimates;
general business, economic and market conditions;
the ability to generate sufficient cash flow from operating activities 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 maintain 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, 2020, 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.

Certain forward-looking information in this MD&A, including forecast free cash flow in 2021 and forecast 2021 year-end net debt to adjusted funds flow, may also constitute a "financial outlook" within the meaning of applicable securities laws. A financial outlook involves statements about Paramount’s prospective financial performance or position and is based on and subject to the assumptions and risk factors described above in respect of forward-looking information generally as well as any other specific assumptions and risk factors in relation to such financial outlook noted in this MD&A. Such assumptions are based on management's assessment of the relevant information currently available and any financial outlook included

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 23

in this MD&A is provided for the purpose of helping readers understand Paramount’s current expectations and plans for the future. Readers are cautioned that reliance on any financial outlook may not be appropriate for other purposes or in other circumstances and that the risk factors described above or other factors may cause actual results to differ materially from any financial outlook.

Non-GAAP Financial Measures

In this document, "adjusted funds flow", "free cash flow", "netback", "net debt", "adjusted working capital" "net debt to adjusted funds flow" and "total capital expenditures", collectively the "Non-GAAP Financial Measures", are used and do not have any standardized meanings as prescribed by IFRS.

"Adjusted funds flow" refers to cash from (used in) operating activities before net changes in non-cash working capital, geological and geophysical expenses, asset retirement obligation settlements, closure costs, transaction and reorganization costs, provisions and other and dispute settlements. 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 significantly 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.

"Free cash flow" refers to adjusted funds flow less total capital expenditures and asset retirement obligation settlements. Free cash flow is used by Management and investors to assess the amount of internally generated cash available to repay debt, reinvest in the business or return to shareholders.

The following is the calculation of free cash flow from the nearest GAAP measure for the three months ended March 31, 2021:

Three months ended March 31, 2021 ($Millions)	Three months ended March 31, 2021 ($Millions)	Three months ended March 31, 2021 ($Millions)
Cash from operating activities Change in non-cash working capital Geological and geophysical expenses Asset retirement obligations settled Provisions and other		81.3
		(7.9)
		1.6
		8.4
		7.5
Adjusted funds flow		90.9
Total capital expenditures Asset retirement obligation settlements		(59.3)
		(8.4)
Free cash flow		23.2

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

Paramount Resources Ltd. First Quarter 2021 Management’s Discussion & Analysis 24

"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”.

"Net debt to adjusted funds flow" is a ratio calculated as the period end net debt divided by the sum of adjusted funds flow for the trailing four quarters. The ratio of net debt to adjusted funds flow is commonly used by management and investors to assess the Company’s overall debt position and to measure the strength of the Company's balance sheet.

"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 Financial 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 Financial 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 WTI West Texas Intermediate 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 GJ/d Gigajoule per day MMbtu Millions of British thermal units MMbtu/d Millions of British thermal units per day NYMEX New York Mercantile Exchange AECO AECO-C reference price

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, 2021, the value ratio between crude oil and natural gas was approximately 25:1. 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 2021 Management’s Discussion & Analysis 25