Parex Resources Inc. — Annual Report 2020

Mar 4, 2021

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MANAGEMENT’S REPORT

Management is responsible for the reliability and integrity of the consolidated financial statements, the notes to the consolidated financial statements, and other financial information presented elsewhere in this annual report.

The consolidated financial statements were prepared by management in accordance with International Financial Reporting Standards. Since a precise determination of many assets and liabilities is dependent on future events, the timely preparation of financial statements requires that management make estimates and assumptions and use judgment. When alternative accounting methods exist, management has chosen those that it deems most appropriate in the circumstances.

PricewaterhouseCoopers LLP were appointed by the Company’s shareholders to express an audit opinion on the consolidated financial statements. Their examination included such tests and procedures as they considered necessary to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

The Board of Directors is responsible for overseeing that management fulfills its responsibilities for financial reporting and internal control. The Board exercises this responsibility through the Finance & Audit Committee. The Finance & Audit Committee recommends appointment of the external auditors to the Board, evaluates their independence and approves their fees. The Finance & Audit Committee meets regularly with management and the external auditors to oversee that management’s responsibilities are properly discharged, to review the consolidated financial statements and recommend that the consolidated financial statements be presented to the Board for approval. The external auditors have full and unrestricted access to the Finance & Audit Committee to discuss their audit and their findings.

"signed" "signed" Imad Mohsen Kenneth G. Pinsky President and Chief Executive Officer Chief Financial Officer

March 3, 2021

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Independent auditor’s report

To the Shareholders of Parex Resources Inc.

Our opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Parex Resources Inc. and its subsidiaries (together, the Company) as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

What we have audited

The Company’s consolidated financial statements comprise:

• the consolidated balance sheets as at December 31, 2020 and 2019;

• the consolidated statements of comprehensive income for the years then ended;

• the consolidated statements of changes in equity for the years then ended;

• the consolidated statements of cash flows for the years then ended; and

• the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. These matters were

PricewaterhouseCoopers LLP 111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3 T: +1 403 509 7500, F: +1 403 781 1825

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

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addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter

How our audit addressed the key audit matter

The impact of oil and natural gas reserves on net property, plant and equipment (PP&E)

Refer to note 2 – Basis of preparation, significant accounting estimates and judgments, note 3 – Summary of significant accounting policies, note 4 – Determination of fair values and note 8 – Property, plant and equipment to the consolidated financial statements.

The Company has $902.9 million of net PP&E as at December 31, 2020. Depletion, depreciation and amortization (DD&A) expense was $114.2 million for the year then ended.

Costs accumulated within each cash generating unit (CGU) are depleted using the unit-ofproduction method based on proved plus probable reserves incorporating estimated future prices and costs. Costs subject to depletion include estimated future costs to be incurred in developing proved plus probable reserves. Costs of major development projects are excluded from the costs subject to depletion until they are available for use.

For the purpose of impairment testing, assets are grouped into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. The carrying amounts of the Company’s long-term assets are reviewed at each reporting date to determine whether there is any indication of impairment. If an indication of impairment exists, management estimates the asset’s recoverable amount. Impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. The fair value less cost of disposal (FVLCD) is based on available market information, where

Our approach to addressing the matter included the following procedures, among others:

• Tested how management determined the recoverable amount for each of the Company’s CGUs and DD&A expense, which included the following:

• Evaluated the appropriateness of the methods used by management in making these estimates;

• Tested the data used in determining these estimates;

• Evaluated the reasonableness of significant assumptions used in developing the underlying estimates:

  • Proved plus probable reserves, future development costs and operating costs by considering the past performance of each significant CGU, and whether these assumptions were consistent with evidence obtained in other areas of the audit.

  • Future commodity prices by comparing those forecasts with other reputable third party industry forecasts.

  • The discount rate by determining whether it is consistent with evidence obtained.

• Recalculated the unit-of-production rates used to calculate DD&A expense for each of the Company’s CGUs.

• The work of management’s experts was used in performing the procedures to evaluate the reasonableness of the proved plus probable oil and natural gas reserves used to determine

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Key audit matter

applicable. In the absence of such information, FVLCD is determined using discounted future after tax net cash flows of proved plus probable reserves using forecast prices and costs prepared by the Company’s independent qualified reserve evaluators (management’s experts).

An indication of impairment was identified for all CGUs at March 31, 2020 and impairment tests were performed. The Company determined that the carrying amount for the Boranda CGU exceeded its recoverable amount and an impairment of $7.0 million was recorded. The recoverable amount was determined using fair value less cost of disposal.

How our audit addressed the key audit matter

DD&A expense and the recoverable amount of the Company’s PP&E for each CGU. As a basis for using this work, management’s experts’ competence, capability and objectivity were evaluated, their work performed was understood and the appropriateness of their work as audit evidence was evaluated by considering the relevance and reasonableness of the assumptions, methods and findings.

At December 31, 2020, there were no indicators of impairment noted, or indicators requiring a reversal of previously recorded impairments.

Determining the recoverable amount of a CGU or an individual asset requires the use of estimates and assumptions, which are subject to change as new information becomes available. Changes in reserve estimates impact the financial results of the Company as reserves and estimated future development costs are used to calculate depletion and are also used in measuring fair value less costs of disposal of property, plant and equipment for impairment calculations.

We determined that this is a key audit matter due to (i) the significant judgment made by management, including the use of management’s experts, when developing the expected future after tax net cash flows to determine the recoverable amount and the proved plus probable oil and natural gas reserves; and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures relating to the significant assumptions.

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Other information

Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and

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are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is John Williamson.

/s/PricewaterhouseCoopers LLP

Chartered Professional Accountants

Calgary, Alberta March 3, 2021

CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets

CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets
As at (thousands of United States dollars)	NOTE		December 31, 2020		December 31, 2019
ASSETS
Current assets
Cash and cash equivalents		$	330,564	$	396,839
Accounts receivable	5		80,166		149,510
Prepaids and other current assets			13,457		8,363
Derivative financial instruments	22		—		511
Current income tax receivable	17		16,534		—
Crude oil inventory	6		1,915		653
		$	442,636	$	555,876
Deferred tax asset	17		42,729		89,254
Goodwill	10		73,452		73,452
Exploration and evaluation	7		79,365		142,916
Property, plant and equipment	8		902,899		823,083
		$	1,541,081	$	1,684,581
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities		$	115,427	$	141,716
Current income tax payable	17		—		61,763
Currentportion of decommissioningand environmental liabilities	14		7,054		8,366
			122,481		211,845
Lease obligation	9		1,820		770
Cash settled share-based compensation liabilities	13		11,843		12,379
Decommissioning and environmental liabilities	14		44,057		43,569
Deferred tax liability	17		20,402		13,573
			200,603		282,136
Shareholders’ equity
Share capital	15		763,372		812,684
Contributed surplus			43,228		48,573
Retained earnings			533,878		541,188
			1,340,478		1,402,445
		$	1,541,081	$	1,684,581

Commitments and Contingencies (note 24)

See accompanying Notes to the Consolidated Financial Statements Approved by the Board:

"signed" Paul Wright Director

"signed"

Bob MacDougall Director

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8

December 31, 2020

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income
For the year ended December 31,
(thousands of United States dollars,exceptper share amounts)	NOTE		2020		2019
Oil and natural gas sales	11	$	587,520	$	1,113,622
Royalties			**(55,655) **		(136,068)
Revenue			531,865		977,554
Commodityrisk management contracts(loss)	22		**(3,940) **		—
			527,925		977,554
Expenses
Production			87,272		111,061
Transportation			59,147		88,974
Purchased oil			28,241		52,791
General and administrative			36,058		34,214
Impairment of property, plant and equipment assets	8		7,000		—
Impairment of exploration and evaluation assets	7		6,166		22,767
Equity settled share-based compensation expense	15		4,235		7,603
Cash settled share-based compensation expense	16		5,275		20,081
Depletion, depreciation and amortization	8		113,758		125,899
Foreign exchange loss	22		409		6,924
			347,561		470,314
Finance (income)	12		(2,129)		(7,382)
Finance expense	12		9,142		10,958
Net finance expense			7,013		3,576
Income before income taxes			173,351		503,664
Income tax expense
Current tax expense	17		20,674		120,163
Deferred tax expense	17		53,355		55,507
			74,029		175,670
Net income and comprehensive income for theyear		$	99,322	$	327,994
Basic net income per common share	18	$	0.72	$	2.24
Diluted net incomeper common share	18	$	0.71	$	2.20

See accompanying Notes to the Consolidated Financial Statements

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9

December 31, 2020

Consolidated Statements of Changes in Equity

Consolidated Statements of Changes in Equity
For the year ended December 31,
(thousands of United States dollars)		2020		2019
Share Capital
Balance, beginning of year	$	812,684	$	848,946
Issuance of common shares under share-based compensation plans		15,570		31,509
Repurchase of shares		**(64,882) **		(67,771)
Balance,end ofyear	$	763,372	$	812,684
Contributed Surplus
Balance, beginning of year	$	48,573	$	54,742
Share-based compensation		4,235		7,603
Options,RSUs and PSUs exercised		**(9,580) **		(13,772)
Balance,end ofyear	$	43,228	$	48,573
Retained earnings
Balance, beginning of year	$	541,188	$	369,344
Net income for the year		99,322		327,994
Repurchase of shares		**(106,632) **		(156,150)
Balance,end ofyear		533,878		541,188
	$	1,340,478	$	1,402,445

See accompanying Notes to the Consolidated Financial Statements

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10

December 31, 2020

Consolidated Statements of Cash Flows

Consolidated Statements of Cash Flows
For the year ended December 31,
(thousands of United States dollars)	NOTE	2020		2019
Operating activities
Net income	$	99,322	$	327,994
Add non-cash items
Depletion, depreciation and amortization	8	113,758		125,899
Non-cash finance expense	12	5,655		6,853
Equity settled share-based compensation expense	15	4,235		7,603
Cash settled share-based compensation expense	16	5,275		20,081
Deferred tax expense	17	53,355		55,507
Impairment of property, plant and equipment assets	8	7,000		—
Impairment of exploration and evaluation assets	7	6,166		22,767
Unrealized foreign exchange loss	22	1,472		3,417
Loss on settlement of decommissioning liabilities	14	803		359
Net change in non-cash workingcapital	19	**(7,023) **		(205,413)
Cash provided by operating activities		290,018		365,067
Investing activities
Property, plant and equipment expenditures	8	(116,915)		(148,519)
Exploration and evaluation expenditures	7	(24,349)		(59,677)
Net change in non-cash workingcapital	19	**(38,534) **		(10,796)
Cash (used in) investing activities		(179,798)		(218,992)
Financing activities
Issuance of common shares under share-based compensation plans	15	5,990		17,737
Common shares repurchased	15	(171,514)		(223,921)
Payments on lease obligation	9	(872)		(592)
Net change in non-cash workingcapital	19	**(2,046) **		(3,793)
Cash (used in) financing activities		(168,442)		(210,569)
Decrease in cash for the year		(58,222)		(64,494)
Impact of foreign exchange on foreign currency-denominated cash balances		(8,053)		(1,558)
Cash, beginning of year		396,839		462,891
Cash, end ofyear	$	330,564	$	396,839

Supplemental Disclosure of Cash Flow Information (note 19) See accompanying Notes to the Consolidated Financial Statements

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11

December 31, 2020

Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

(Tabular amounts in thousands of United States dollars, unless otherwise stated. Amounts in text are in United States dollars, unless otherwise stated.)

1. Corporate Information

Parex Resources Inc. and its subsidiaries (“Parex” or “the Company”) are in the business of the exploration, development, production and marketing of oil and natural gas in Colombia.

Parex Resources Inc. is a publicly traded Company, incorporated and domiciled in Canada. Its registered office is at 2400, 525-8th Avenue S.W., Calgary, Alberta T2P 1G1. The Company was incorporated on August 17, 2009, pursuant to the Business Corporations Act (Alberta).

The consolidated financial statements were approved and authorized for issuance by the Board of Directors on March 3, 2021.

2. Basis of Preparation, Significant Accounting Estimates and Judgements

a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standard Boards (“IASB”).

The policies applied in these consolidated financial statements are based on IFRS issued and outstanding as of March 3, 2021, the date the Board of Directors approved the consolidated financial statements.

b) Basis of measurement

The consolidated financial statements have been prepared under the historical cost convention except for derivative financial instruments and share-based compensation transactions which are measured at fair value. The methods used to measure fair values are discussed in note 4 - Determination of Fair Values.

c) Use of management estimates, judgments and measurement uncertainty

The timely preparation of the consolidated financial statements requires that management make estimates and use judgment regarding the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Such estimates primarily relate to unsettled transactions and events as at the date of the consolidated financial statements. Accordingly, actual results could differ from estimated amounts as future confirming events occur.

In March 2020, the World Health Organization declared a global pandemic following the emergence and rapid spread of a novel strain of the coronavirus (“COVID-19”). The outbreak and subsequent measures intended to limit the pandemic contributed to significant declines and volatility in financial markets. The pandemic has adversely impacted global commercial activity, including significantly reducing worldwide demand for crude oil. As a result of declining commodity prices and financial markets, the Company’s share price and market capitalization declined from December 31, 2019.

The full extent of the impact of COVID-19 on the Company’s operations and future financial performance is currently unknown. It will depend on future developments that are uncertain and unpredictable, including the duration and spread of COVID-19, its continued impact on capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus. These uncertainties may persist beyond when it is determined how to contain the virus or treat its impact. The outbreak presents uncertainty and risk with respect to the Company, its performance, and estimates and assumptions used by Management in the preparation of its financial results.

Determining the recoverable amount of a cash-generating unit (“CGU”) or an individual asset requires the use of estimates and assumptions, which are subject to change as new information becomes available. Significant estimates and judgments made by management in the preparation of these consolidated financial statements are outlined below:

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12

December 31, 2020

(i) Depletion, depreciation and reserves

Depletion is based on the proved plus probable reserves as evaluated in accordance with National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and incorporating the estimated future cost of developing and extracting those. The process of estimating reserves is complex. It requires significant judgments and decisions based on available geological, geophysical, engineering, and economic data. These estimates may change substantially as additional data from ongoing development activities and production performance becomes available and as economic conditions impacting oil and gas prices and costs change. The reserve estimates are based on current production forecasts, prices and economic conditions. As circumstances change and additional data becomes available, reserve estimates may also change. Estimates made are reviewed and revised, either upward or downward, as warranted by the new information. Revisions of reserve estimates are often required due to changes in well performance, prices, economic conditions and governmental regulations.

Although every reasonable effort is made to determine that reserve estimates are accurate, reserve estimation is an inferential science. As a result, subjective decisions, new geological or production information and a changing environment may impact these estimates. Revisions to reserve estimates can arise from changes in year-end oil and gas prices and reservoir performance. Such revisions can be either positive or negative. Changes in reserve estimates impact the financial results of the Company as reserves and estimated future development costs are used to calculate depletion and are also used in measuring fair value less costs of disposal of property, plant and equipment for impairment calculations (see note 8 - Property, Plant and Equipment).

(ii) Determination of cash-generating units (“CGUs”)

The determination of CGUs requires judgment in defining a group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. CGUs are determined by similar geological structure, shared infrastructure, geographical proximity, commodity type, similar exposure to market risks and materiality.

(iii) Exploration and evaluation (“E&E”)

The decision to transfer assets from E&E to property, plant and equipment (“PP&E”) is primarily based on the estimated proved plus probable reserves used in the determination of an area’s technical feasibility and commercial viability (see note 7 – Exploration and Evaluation Assets).

(iv) Decommissioning and environmental liabilities

Decommissioning and restoration costs will be incurred by the Company at the end of the operating life of certain of its assets. The ultimate decommissioning and restoration costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal and regulatory requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change in response to changes in reserves, laws and regulations or their interpretation, the timing and likelihood of the settlement of the obligation, discount rates, and future interest rates. As a result, there could be significant adjustments to the provisions established which would affect future financial results. The Company uses a risk-free discount rate based on forecasted Colombia interest rates.

Liabilities for environmental costs are recognized in the period in which they are incurred, normally when the asset is developed and the associated costs can be estimated. These liabilities are in addition to the decommissioning liabilities due to government regulations that require the Company to perform additional mitigation against the environmental issues attributed to water usage and deforestation from oil and gas activities performed. In addition, the timing of expected settlement of the environmental liabilities differs from the timing of expected settlement of the decommissioning liabilities. Refer to note 14 – Decommissioning and Environmental Liabilities.

(v) Impairment indicators and discount rate

The recoverable amounts of CGUs and individual assets have been determined as the greater of either an asset’s or CGU’s value in use or fair value less costs of disposal. These calculations require the use of estimates and assumptions and are subject to changes as new information becomes available including information on future commodity prices, quantity of reserves and discount rates as well as future development and operating costs. It is reasonably possible that the commodity price assumptions may change, which may impact the estimated life of the oil and natural gas reserves and the recoverable economical reserves and may require a material adjustment to the carrying value of oil and natural gas assets. The Company monitors internal and external indicators of impairment relating to its property, plant and equipment, and exploration and evaluation assets. Refer to note 7 – Exploration and Evaluation Assets, note 8 – Property, Plant and Equipment and note 10 – Goodwill.

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13

December 31, 2020

(vi) Share-based compensation

Compensation costs accrued for under the Company's Stock Option plan and Share Appreciation Right (“SAR”) plan are subject to the estimation of what the ultimate payout will be using the Black-Scholes pricing model which is based on significant assumptions such as the future volatility of the market price of Parex shares and expected term of the issued stock option or SAR. Compensation costs accrued for under the Company’s Restricted Share Unit (“RSU") plan pursuant to which RSUs and Performance Share Units ("PSUs") may be issued, Deferred Share Unit (“DSU”) plan, Cash Settled Restricted Share Units ("CRSU") plan and Cash or share settled Restricted Share Units ("CosRSU") and Performance Share Units ("CosPSU") plan pursuant to which CosRSUs and CosPSUs are measured at fair value based on the market price of Parex shares on the date of issuance. Refer to note 15 - Share Capital and note 16 - Cash Settled Incentive Plans.

(vii) Derivative financial asset/liability

The estimated fair value of derivative instruments and resulting derivative assets and liabilities depends on estimated forward prices and volatility in those prices and by their nature are subject to measurement uncertainty.

(viii) Income taxes

Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiaries operate are subject to change and interpretation. As such, income taxes are subject to measurement uncertainty. The Company follows the liability method for calculating deferred taxes. Assessing the recoverability of deferred tax assets requires the Company to make significant estimates related to the expectations of future cash flows from operations and the application of existing tax laws. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the deferred tax assets and liabilities recorded at the balance sheet date could be impacted. Additionally, changes in tax laws could limit the ability of the Company to obtain tax deductions in the future.

(ix) Business combinations, corporate and property acquisitions

Business combinations, corporate and property acquisitions are accounted for using the acquisition method of accounting whereby the assets acquired and the liabilities assumed are recorded at fair values. The determination of fair value often requires management to make assumptions and estimates about future events. The fair value of property, plant and equipment recognized in a business combination, corporate or property acquisition is based on market values. The market value of property, plant and equipment is the estimated amount for which PP&E could be exchanged on the acquisition date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of oil and natural gas interests (included in PP&E) are estimated with reference to the discounted cash flows expected to be derived from oil and natural gas production based on externally prepared reserve reports. The market value of E&E assets are estimated with reference to the market values of current arm’s length transactions in comparable locations. Assumptions are also required to determine the fair value of decommissioning obligations associated with the properties. Changes in any of these assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned to assets, liabilities and goodwill (or gain from a bargain purchase) in the acquisition equation. Future net earnings can be affected as a result of changes in future depletion and depreciation, asset impairment or goodwill impairment.

3. Summary of Significant Accounting Policies

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements, and have been applied consistently by the Company and its subsidiaries.

a) Consolidation

The consolidated financial statements include the accounts of the Company and all of its subsidiaries at December 31, 2020. The principal operating subsidiaries and their activities are:

		Country of
	Country of	principle
Entity	incorporation	business activity	Ownership % Principle business activity
Parex Resources (Colombia) Ltd.	Barbados	Colombia	100	Oil and natural gas exploration and development
Verano EnergyLimited	Bermuda	Colombia	100	Oil and naturalgas exploration and development

The above listing does not include the wholly-owned holding company subsidiaries or inactive operating company subsidiaries of Parex. All companies in the Parex group are wholly-owned subsidiaries.

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14

December 31, 2020

Inter-company balances and transactions are eliminated on consolidation. Interests in joint arrangements are classified as either joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangement. Joint operations arise when the Company has rights to the assets and obligations for the liabilities of the arrangement. The Company recognizes its share of assets, liabilities, revenues and expenses of a joint operation. A significant portion of the Company’s operating cash flows is derived through joint operations which are involved in the development and production of crude oil in Colombia. Joint ventures arise when the Company has rights to the net assets of the arrangement. Joint ventures are accounted for under the equity method.

b) Foreign currency translation

(i) Functional and presentation currency

Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the Company operates (the “functional currency”). The consolidated financial statements are presented in United States dollars, which is the functional currency of Parex.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Generally, foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at periodend exchange rates of monetary assets and liabilities denominated in currencies other than an operation’s functional currency are recognized in the statement of comprehensive income.

c) Financial instruments

Financial instruments are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are not offset unless the Company has the current legal right to offset and intends to settle on a net basis or settle the asset and liability simultaneously.

The Company characterizes its fair value measurements into a three-level hierarchy depending on the degree to which the inputs are observable, as follows:

• Level 1 inputs are quoted prices in active markets for identical assets and liabilities;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

Classification and Measurement of Financial Assets

The initial classification of a financial asset depends upon the Company’s business model for managing its financial assets and the contractual terms of the cash flows. There are three measurement categories into which the Company classified its financial assets:

• Amortized Cost: Includes assets that are held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that represent solely payments of principal and interest;

• Fair Value through Other Comprehensive Income ("FVOCI"): Includes assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets, where its contractual terms give rise on specified dates to cash flows that represent solely payments of principal and interest; or

• Fair Value Through Profit or Loss ("FVTPL"): Includes assets that do not meet the criteria for amortized cost or FVOCI and are measured at fair value through profit or loss. This includes all derivative financial instruments.

On initial recognition, the Company may irrevocably designate a financial asset that meets the amortized cost or FVOCI criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. On initial recognition of an equity investment that is not held-fortrading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. There is no subsequent reclassification of fair value changes to earnings following the derecognition of the investment. However, dividends that reflect a return on investment continue to be recognized in net earnings. This election is made on an investment-by-investment basis.

At initial recognition, the Company measures a financial asset at its fair value and, in the case of a financial asset not at FVTPL, including transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are recorded as an expense in net earnings.

Financial assets are reclassified subsequent to their initial recognition only if the business model for managing those financial assets changes. The affected financial assets will be reclassified on the first day of the first reporting period following the change in the business model. A financial asset is derecognized when the rights to receive cash flows from the asset have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

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Impairment of Financial Assets

The Company recognizes loss allowances for Expected Credit Losses ("ECLs") on its financial assets measured at amortized cost. Due to the nature of its financial assets, the Company measures loss allowances at an amount equal to expected lifetime ECLs. Lifetime ECLs are the anticipated ECLs that result from all possible default events over the expected life of a financial asset. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the related financial asset. The Company does not have any financial assets that contain a financing component.

As at December 31, 2020, all of the Company's receivables were outstanding for less than 90 days. The average expected credit loss on the Company’s trade accounts receivable was 1.3% at December 31, 2020.

Classification and Measurement of Financial Liabilities

A financial liability is initially classified as measured at amortized cost or FVTPL. A financial liability is classified as measured at FVTPL if it is held-for-trading, a derivative, or designated as FVTPL on initial recognition. The classification of a financial liability is irrevocable.

Financial liabilities at FVTPL are measured at fair value with changes in fair value, along with any interest expense, recognized in net earnings. Other financial liabilities are initially measured at fair value less directly attributable transaction costs and are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in net earnings. Any gain or loss on derecognition is also recognized in net earnings.

A financial liability is derecognized when the obligation is discharged, cancelled or expired. When an existing financial liability is replaced by another from the same counterparty with substantially different terms, or the terms of an existing liability are substantially modified, it is treated as a derecognition of the original liability and the recognition of a new liability. When the terms of an existing financial liability are altered, but the changes are considered non-substantial, it is accounted for as a modification to the existing financial liability. Where a liability is substantially modified it is considered to be extinguished and a gain or loss is recognized in net earnings based on the difference between the carrying amount of the liability derecognized and the fair value of the revised liability. Where a liability is modified in a non-substantial way, the amortized cost of the liability is remeasured based on the new cash flows and a gain or loss is recorded in net earnings.

Derivative Financial Instruments

Derivative financial instruments are used to manage economic exposure to market risks relating to commodity prices, foreign currency exchange rates and interest rates. Policies and procedures are in place with respect to required documentation and approvals for the use of derivative financial instruments. Where specific financial instruments are executed, the Company assesses, both at the time of purchase and on an ongoing basis, whether the financial instrument used in the particular transaction is effective in offsetting changes in fair values or cash flows of the transaction.

Risk management assets and liabilities are derivative financial instruments classified as measured at FVTPL. Derivatives financial instruments are recorded using mark-to-market accounting whereby instruments are recorded in the consolidated balance sheets as either an asset or liability with changes in fair value recognized in net earnings as a gain or loss on risk management. The estimated fair value of all derivative instruments is based on quoted market prices or, in their absence, third-party market indications and forecasts.

d) Capital assets

(i) Exploration and evaluation

All costs directly associated with the exploration and evaluation of oil and natural gas reserves are initially capitalized. E&E costs are those expenditures for an area where technical feasibility and commercial viability have not yet been determined. These costs include unproved property acquisition costs, exploration costs, geological and geophysical costs, decommissioning costs, E&E drilling, sampling and appraisals. Costs incurred prior to acquiring the legal rights to explore an area are charged directly to comprehensive income as E&E expenses.

When an area is determined to be technically feasible and commercially viable the accumulated costs are transferred to PP&E, where they are depleted. When an area is determined not to be technically feasible and commercially viable or the Company decides not to continue with its activity, the unrecoverable costs are charged to comprehensive income as impairment of exploration and evaluation assets. Net proceeds from any disposal of an intangible exploration asset are recorded as a reduction in intangible assets.

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(ii) Property, plant and equipment

All costs directly associated with the development of oil and natural gas reserves are capitalized on an area-by-area basis. Development costs include expenditures for areas where technical feasibility and commercial viability have been determined. These costs include proved property acquisitions, development drilling, completion of wells, gathering facilities and infrastructure, decommissioning and restoration costs and transfers of E&E assets.

Costs accumulated within each CGU are depleted using the unit-of-production method based on proved plus probable reserves incorporating estimated future prices and costs. Costs subject to depletion include estimated forecast costs to be incurred in developing proved plus probable reserves. Costs of major development projects are excluded from the costs subject to depletion until they are available for use.

Costs associated with office furniture, fixtures and leasehold improvements are carried at cost and depreciated on a straight-line basis over the estimated service lives of the assets, which range from 1 to 5 years.

e) Impairment of long-term assets

The carrying amounts of the Company’s long-term assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. E&E assets are also assessed for impairment when they are reclassified to PP&E, and, if facts and circumstances suggest that the carrying amount exceeds the recoverable amount. E&E assets are allocated to related CGUs where they are assessed for impairment upon their eventual reclassification to PP&E. E&E assets not reclassified to PP&E are assessed for impairment on a block by block basis. If an indication of impairment exists, management estimates the asset’s recoverable amount.

For the purpose of impairment testing, assets are grouped into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs of disposal (“FVLCD”).

The value in use is determined by estimating the present value of the pre-tax future net cash flows expected to be derived from the continued use of the asset or CGU. The FVLCD is based on available market information, where applicable. In the absence of such information, FVLCD is determined using discounted future after tax net cash flows of proved plus probable reserves using forecast prices and costs prepared by the Company's independent qualified reserve evaluators.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in comprehensive income.

The recoverable amount of goodwill is determined as the fair value less costs of disposal using a discounted cash flow method. Goodwill is evaluated at the Colombia segment level as business combinations giving rise to goodwill do not have specifically identifiable benefits to any one CGU.

Impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depletion and depreciation or amortization, if no impairment loss had been recognized.

f) Crude oil inventory and overlift oil volumes

Crude oil inventory consists of crude oil in transit at the balance sheet date and is valued at the lower of cost, using the weighted average cost method, and net realizable value. Costs include direct and indirect expenditures incurred in bringing the crude oil to its existing condition and location. The liability for overlift oil volumes is valued based on the Brent oil price at the balance sheet date. Sales revenue is subsequently recorded at the Brent oil price once the overlifted pipeline volumes are returned. A gain/loss on overlifted oil volumes is recorded on the difference between the original liability and the revenue recorded on the returned barrels.

g) Purchased oil

Purchased oil includes costs to buy third party oil and accruals for overlifted oil volumes. The costs for third party oil are initially recorded in inventory until the crude oil title is transferred. The costs for overlifted oil volumes are originally recorded as an accrued liability until the volumes are returned.

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h) Goodwill

Goodwill is recorded on a business acquisition when the purchase price is in excess of the fair values assigned to assets acquired and liabilities assumed. Goodwill is not amortized and an impairment test is performed annually or as events occur that could indicate impairment. To test for impairment, goodwill is allocated to each of the Company’s CGUs, groups of CGUs, or an operating segment expected to benefit from the acquisition. Goodwill is tested by combining the carrying amounts of property, plant and equipment and exploration and evaluation assets and goodwill and comparing this to the recoverable amount. Fair value less costs of disposal, is derived by estimating the discounted after-tax future net cash flows as described in the property, plant and equipment impairment test, plus the fair market value of undeveloped land, seismic and inventory. Value in use is assessed using the present value of the expected future cash flows. Any excess of the carrying amount over the recoverable amount is recorded as impairment. Impairment charges, which are not tax affected, are recognized in comprehensive income and are not reversed. Goodwill is reported at cost less any impairment.

i) Revenue recognition

Parex principally generates revenue from the sale of commodities, which include crude oil and natural gas. Revenue associated with the sale of commodities is recognized when control is transferred from Parex to its customers. The Company's commodity sale contracts represent a series of distinct transactions. The Company considers its performance obligations to be satisfied and control to be transferred when all the following conditions are satisfied:

• Parex has transferred title and physical possession of the commodity to the buyer;

• Parex has transferred the significant risks and rewards of ownership of the commodity to the buyer; and

• Parex has the present right to payment.

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Company sells its production of crude oil and natural gas pursuant to variable price contracts. The transaction price for variable price contracts is based on the commodity price, adjusted for quality, location and other factors. The amount of revenue recognized is based on the agreed transaction price with any variability in transaction price recognized in the same period. The Company does not have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a result, Parex does not adjust its revenue transactions for the time value of money.

Parex enters into contracts with customers that can have performance obligations that are unsatisfied (or partially unsatisfied) at the reporting date. The Company applies a practical expedient of IFRS 15 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, or for performance obligations where the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date. The Company also applies a practical expedient of IFRS 15 that allows any incremental costs of obtaining contracts with customers to be recognized as an expense when incurred rather than being capitalized.

Contract modifications with the Company’s customers could change the scope of the contract, the price of the contract, or both. A contract modification exists when the parties to the contract approve the modification either in writing, orally, or based on the parties’ customary business practices. Contract modifications are accounted for either as a separate contract when there is an additional product at a stand-alone selling price, or as part of the existing contract, through either a cumulative catch-up adjustment or prospectively over the remaining term of the contract, depending on the nature of the modification and whether the remaining products are distinct.

The Company’s revenue transactions do not contain significant financing components.

j) Equity settled share-based compensation

The Company has an incentive stock option plan and a restricted unit plan pursuant to which the Company may issue Restricted Share Units ("RSUs") and Performance Share Units ("PSUs") for certain employees, officers and directors as described in note 15 - Share Capital. The Company records share-based compensation expense using the fair value method. The fair value of an option granted is calculated at the grant date using the Black-Scholes pricing model, and expensed over the vesting period of the option. The fair value of each RSU and PSU granted is calculated using the market price of Parex shares on the date of issuance, and expensed over the vesting period of the RSU and PSU. The Company determines an appropriate forfeiture rate by examining the history of its forfeitures. The Company records the cumulative share-based compensation as contributed surplus. When options, RSUs or PSUs are exercised, contributed surplus is reduced and share capital is increased by the amount of accumulated share-based compensation for the exercised security. Any consideration received on the exercise of stock options, RSUs or PSUs is credited to share capital.

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PSUs may be granted with certain performance measures, specified at the grant date as determined by the Company's Board of Directors. Based upon the achievement of the performance measures, a pre-determined adjustment factor of between 0-2x is applied to PSUs eligible to vest at the end of the performance period. The expense recognized over the vesting period of PSUs is the fair value of the PSUs with an estimated adjustment factor. If the actual final adjustment factor is higher than estimated at grant, additional expense is recognized on vesting for the incremental fair value. Upon the exercise of the options, RSUs and PSUs consideration paid together with the amount previously recognized in contributed surplus is recorded as an increase to share capital.

k) Cash settled share-based compensation

The Company has a share appreciation rights plan for certain employees of Parex Colombia as described in note 16 - Cash Settled Incentive Plans. Obligations for payments of cash under the foreign subsidiaries’ SARs plan are accrued as compensation expense over the vesting period based on the fair value of SARs, subject to appreciation limits specified in the plan. The fair value of SARs is measured using the Black-Scholes pricing model. In accordance with the fair value method, increases or decreases in the fair value of the SARs result in a corresponding change in the recorded liability. The accrued compensation for a right that is forfeited is adjusted by decreasing compensation cost in the period of forfeiture.

The Company has a Cash Settled Restricted Share Unit ("CRSUs") plan which allows the Company to issue CRSUs to certain employees of Parex Colombia as described in note 16 - Cash Settled Incentive Plans. Obligations for payments of cash under the foreign subsidiaries’ CRSUs plan are accrued as compensation expense over the vesting period based on the fair value of CRSUs. The fair value of CRSUs is equal to the market price of the Company’s common shares at the valuation date. In accordance with the fair value method, increases or decreases in the fair value of the CRSUs result in a corresponding change in the recorded liability. The accrued compensation for a right that is forfeited is adjusted by decreasing compensation cost in the period of forfeiture. The CRSUs liability cannot be settled by the issuance of common shares.

The Company has a Deferred Share Unit ("DSU") plan which allows the Company to issue DSUs to all non-employee directors of Parex Resources Inc, as described in note 16 - Cash Settled Incentive Plans. As DSUs vest immediately on issuance, obligations for payments of cash under the DSUs plan are accrued as compensation expense immediately on issuance based on the fair value of the DSUs. The fair value of DSUs at each reporting period is equal to the market price of the Company’s common shares at the valuation date. In accordance with the fair value method, increases or decreases in the fair value of the DSUs result in a corresponding change in the recorded liability. The accrued compensation for a unit that is forfeited is adjusted by decreasing compensation cost in the period of forfeiture.

During 2019 the Company put in place a Cash or Share Settled Restricted Share Unit/Performance Share Unit ("CosRSU/CosPSU") incentive plan to issue CosRSUs and CosPSUs to certain employees of Parex Canada as described in note 16 - Cash Settled Incentive Plans. This new plan will replace the equity settled RSU/PSU plan. Obligations for payments of cash or settlement of shares under the CosRSUs and CosPSUs plan are accrued as compensation expense over the vesting period based on the fair value of the CosRSUs and CosPSUs. The fair value of CosRSUs and CosPSUs is equal the market price of the Company's common shares at the valuation date. In accordance with the fair value method, increases or decreases in the fair value of the CosRSUs and CosPSUs result in a corresponding change in the recorded liability. The accrued compensation for a right that is forfeited is adjusted by decreasing compensation cost in the period of forfeiture. The CosRSUs and CosPSUs liability can be settled in cash or by the issuance of common shares at the election of the employee.

l) Provisions

A provision is recognized if, as a result of a past event, the Company has a current legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Provisions are not recognized for future operating losses.

m) Decommissioning and environmental liabilities

The Company’s activities give rise to dismantling, decommissioning, environmental, abandonment and site disturbance remediation activities. Provisions are made for the estimated cost of the future site restoration and capitalized in the relevant asset category.

Decommissioning and environmental liabilities are measured at the present value of management’s best estimate of the cost and future timing of the expenditure required to settle the present obligation at the balance sheet date using a risk-free discount rate. Subsequent to the initial measurement, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The increase in the provision due to the passage of time is recognized as a finance expense whereas increases (decreases) due to changes in the estimated future cash flows are capitalized. Actual costs incurred upon settlement of the decommissioning and environmental liabilities are charged against the provision to the extent the provision was established.

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n) Operating Segments

Management has determined the operating segments based on information regularly reviewed for the purposes of decision making, allocating resources and assessing operational performance by the Company’s chief operating decision makers. The operating segments are Canada and Colombia. The Company evaluates the financial performance of its operating segments primarily based on operating cash flow.

o) Finance income and expense

Finance expense comprises standby fees related to the undrawn credit facility, bank taxes, accretion on provisions, loss (gain) on settlement of provisions, loss on disposition of tangible assets and expected credit loss provision (recovery). Finance income comprises interest earned on cash and other income and gains on property acquisitions.

p) Cash

Cash is comprised of cash and other short-term highly liquid investments with maturities less than 3 months held in chartered banks in Canada and recognized financial institutions in Colombia and the Caribbean with BBB+ credit ratings or higher.

q) Income taxes

Income tax expense comprises current and deferred tax. Income tax expense is recognized in comprehensive income.

Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

In general, deferred tax is recognized in respect of temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined on a non-discounted basis using tax rates, currency exchange rates and laws enacted or substantively enacted by the balance sheet date and expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered. Deferred tax is not provided on temporary differences arising on investments in subsidiaries except, in the case of subsidiaries, where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not be reversed in the foreseeable future. Deferred tax assets and liabilities are presented as non-current.

r) Per share information

Basic net income per share is calculated by dividing the income or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted net income per share is determined by adjusting the income or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive instruments such as options granted to employees, except when the effect would be anti-dilutive.

s) Leases

The Company adopted IFRS 16 on January 1, 2019 using the modified retrospective approach, whereby the cumulative effect of initially applying the standard was recognized as a $2.2 million increase to right-of-use assets (included in "Property, Plant and Equipment") with a corresponding increase to lease obligations (the non-current portion of $1.5 million is recorded in "Lease Obligation" and the current portion of $0.7 million is recorded in "accounts payable and accrued liabilities"). On adoption of IFRS 16, the Company’s lease liabilities related to contracts classified as a lease are measured at the discounted present value of the remaining minimum lease payments, excluding short-term and low-value leases. The right-of-use assets recognized were measured at amounts equal to the present value of the lease obligations. The weighted average incremental borrowing rate used to determine the lease obligation at adoption was approximately 5.0%. The right-of-use asset and lease obligation recognized relate to the Company's head office lease in Calgary, Alberta. The Company elected to not apply lease accounting to certain leases for which the lease term ends within 12 months of the date of initial application. The measurement of lease obligations are subject to management's judgment and the application of the incremental borrowing rate.

Of the $9.5 million operating lease commitments as at December 31, 2018, $2.2 million related to lease obligations recognized as at January 1, 2019. Non-lease components were $6.5 million and $0.8 million related to short-term and low-value leases.

4. Determination of Fair Values

A number of the Company’s accounting policies and disclosures require the determination of fair value for financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the methods below. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

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a) PP&E and intangible exploration assets

The fair value of PP&E and intangible exploration assets are determined if there are indicators of impairment. The fair value of PP&E is the estimated amount for which PP&E could be exchanged on the acquisition date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The fair value of oil and natural gas assets (included in PP&E) is estimated with reference to the discounted cash flows expected to be derived from oil and natural gas production based on the reserve reports prepared by the Company's independent qualified reserve evaluators. The risk-adjusted discount rate is specific to the asset with reference to general market conditions.

b) Cash, accounts receivable, and accounts payable and accrued liabilities

The fair value of cash, accounts receivable and accounts payable and accrued liabilities is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. At December 31, 2020 and 2019 the fair value of these balances approximated their carrying value due to their short-term to maturity.

c) Stock options

The fair value of stock options is measured using the Black-Scholes pricing model. Measurement inputs include the share price on measurement date, exercise price of the option, expected future share price volatility, weighted average expected life of the instruments (based on historical experience and general option-holder behavior), expected dividends and the risk-free interest rate (based on Government of Canada Bonds) for the relevant expected life as described in note 15 - Share Capital.

d) Share appreciation rights

The fair value of SARs is measured using the Black-Scholes pricing model. Measurement inputs include the share price on each balance sheet date, expected future share price volatility, weighted average expected life of the instruments (based on historical experience and general SARholder behavior), expected dividends and the risk-free interest rate (based on Government of Canada Bonds) for the relevant expected life as described in note 16 - Cash Settled Incentive Plans.

e) Restricted share units, performance share units, cash settled restricted share units, cash or share settled restricted

share units and performance share units and deferred share units

The fair value of stock RSUs, PSUs, CRSUs, DSUs, CosRSU and CosPSU are measured based on the market price of Parex shares on each balance sheet date. Refer to note 15 - Share Capital and note 16 - Cash Settled Incentive Plans.

f) Derivative financial asset /liability

Risk management contracts are initially recognized at fair value on the date a derivative contract is entered into and are remeasured at their fair value at each subsequent reporting date. The fair value of the risk management contract on initial recognition is normally the transaction price. Subsequent to initial recognition, the fair values are based on quoted market prices where available from active markets, otherwise fair values are estimated based on market prices at the reporting date for similar assets or liabilities with similar terms and conditions.

5. Accounts Receivable

5. Accounts Receivable
	December	31, 2020		December 31,2019
Trade receivables	$	80,166	$	143,577
Value added taxes(VAT)		—		5,933
	$	80,166	$	149,510

Trade receivables consist primarily of oil sale receivables related to the Company’s oil sales. VAT receivable is $nil as at December 31, 2020 (December 31, 2019 - $5.9 million). All accounts receivable are expected to be received within twelve months and are thus recognized as current assets.

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6. Inventory

6. Inventory
		December	31, 2020		December 31,2019
Crude oil inventory	$		1,915	$	653

Crude oil inventory consists of crude oil in transit at the balance sheet date and is valued at the lower of cost, using the weighted average cost method, and net realizable value. Costs include direct and indirect expenditures incurred in bringing the crude oil to its existing condition and location. During 2020 $0.7 million (year ended December 31, 2019 - $1.4 million) of produced crude oil inventory cost was expensed to the consolidated statements of comprehensive income. Purchased crude oil is sold immediately. The cost associated with purchased oil is shown in the consolidated statements of comprehensive income as purchased oil expense.

7. Exploration and Evaluation Assets

7. Exploration and Evaluation Assets
Cost
Balance at December 31, 2018	$	127,800
Additions		59,677
Transfers to PP&E		(25,590)
Changes in decommissioning liability		3,796
Exploration and evaluation impairment		(22,767)
Balance at December 31, 2019	$	142,916
Additions		24,349
Transfers to PP&E		(82,110)
Changes in decommissioning liability		376
Exploration and evaluation impairment		(6,166)
Balance at December 31, 2020	$	79,365

Additions and Transfers

E&E assets consist of the Company’s exploration projects which are pending either the determination of proved or probable reserves or impairment. During the year ended December 31, 2020 additions of $24.3 million (year ended December 31, 2019 - $59.7 million) represent the Company’s share of costs incurred on E&E assets during the period. During the year ended December 31, 2020 $82.1 million of E&E assets were transferred to PP&E related to the VIM-1 and Fortuna Blocks. During the year ended December 31, 2019 - $25.6 million of E&E assets were transferred to PP&E related to the Boranda Block.

2020 Impairments

During 2020, the Company completed impairment reviews of its E&E assets. It was determined that the carrying amount of certain E&E assets, primarily associated with the costs in blocks which are in the process of being relinquished, won't be recovered. The impairment review compared the carrying value of the assets to the recoverable amount which was determined to be $nil for these assets. It was determined that the impairment was $6.2 million which is recorded in the consolidated statements of comprehensive income for the year ended December 31, 2020.

2019 Impairments

During 2019, the Company completed impairment reviews of its E&E assets. It was determined that the carrying amount of certain E&E assets primarily associated with the LLA-10 block and the Morpho block wouldn't be recovered as the Company had plans to relinquish or had already relinquished the block, respectively. The impairment review compared the carrying value of the assets to the recoverable amount which was determined to be $nil for these assets. It was determined that the impairment was $22.8 million which is recorded in the consolidated statements of comprehensive income for the year ended December 31, 2019.

At December 31, 2020 and December 31, 2019 the Company did not have any E&E assets in Canada.

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December 31, 2020

8. Property, Plant and Equipment

		Canada		Colombia		Total
Cost
Balance at December 31, 2018	$	3,867	$	2,064,880	$	2,068,747
Additions		121		148,398		148,519
Right-of-use asset addition (non-cash)		2,227		—		2,227
Transfers from E&E assets		—		25,590		25,590
Changes in decommissioningand environmental liability		—		(3,077)		(3,077)
Balance at December 31, 2019		6,215		2,235,791		2,242,006
Additions		145		116,770		116,915
Right-of-use asset addition (non-cash)		1,805		—		1,805
Transfers from E&E assets		—		82,110		82,110
Changes in decommissioningand environmental liability		—		229		229
Balance at December 31, 2020	$	8,165	$	2,434,900	$	2,443,065
Accumulated Depreciation, Depletion and Amortization
Balance at December 31, 2018	$	3,678	$	1,289,538	$	1,293,216
Depletion and depreciation for the year		136		124,996		125,132
Depreciation - Right-of-use asset		767		—		767
DD&A included in crude oil inventorycosting		—		(192)		(192)
Balance at December 31, 2019		4,581		1,414,342		1,418,923
Depletion and depreciation for the year		110		112,889		112,999
Depreciation - Right-of-use asset		759		—		759
DD&A included in crude oil inventory costing		—		485		485
Property, plant and equipment impairment		—		7,000		7,000
Balance at December 31, 2020	$	5,450	$	1,534,716	$	1,540,166
Net book value:
As at December 31, 2018	$	189	$	775,342	$	775,531
As at December 31, 2019	$	1,634	$	821,449	$	823,083
As at December 31, 2020	$	2,715	$	900,184	$	902,899

Additions and Transfers

During 2020, property, plant and equipment (“PPE”) additions of $116.9 million mainly relate to drilling costs in Colombia at Blocks LLA-34, Cabrestero and Aguas Blancas and facility costs at Blocks LLA-34 and Capachos. During the year ended December 31, 2019, additions of $148.5 million mainly related to drilling costs in Colombia at Blocks LLA-34, Capachos and Aguas Blancas. For the year ended December 31, 2020, $82.1 million of E&E assets were transferred to PP&E related to the VIM-1 and Fortuna Blocks (year ended December 31, 2019 - $25.6 million E&E assets were transferred to PP&E related to the Boranda Block).

For the year ended December 31, 2020 future development costs of $422.7 million (year ended December 31, 2019 - $453.1 million) were included in the depletion calculation for development and production assets. For the year ended December 31, 2020 $7.2 million of general and administrative costs (year ended December 31, 2019 - $10.2 million) have been capitalized in respect of development and production activities during the current period.

Impairments

The carrying amounts of the Company’s PP&E assets are reviewed at each reporting date to determine whether there is any indication of impairment. As a result of the COVID-19 pandemic and the drastic decrease in forecast global crude oil prices compared to those at December 31, 2019, an indication of impairment was identified for all CGUs at March 31, 2020 and impairment tests were performed. The Company determined that the carrying amount of the Boranda CGU in the Magdalena Basin exceeded its recoverable amount and an impairment of $7.0 million was recorded in the consolidated statements of comprehensive for the three month period ended March 31, 2020. All other CGU's were found to have recoverable amounts greater than carrying amounts. The recoverable amount was determined using fair value less cost of disposal. Future cash flows for the CGU's declined due to lower crude oil prices.

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23

December 31, 2020

The fair value as determined for the Company's producing properties was consistent with the Company's independent qualified reserve evaluators reserve estimate at December 31, 2019, updated for forecast crude oil prices at March 31, 2020 and adjusting for the first quarter production and future development capital expenditures. There are no E&E assets associated with this CGU. Future cash flows were discounted using a rate of 11%. As at March 31, 2020, the recoverable amount of the CGU was estimated to be $16.5 million. A 1% change to the assumed discount rate or a 5% change in forward price estimates over the life of the reserves would have an immaterial impact on the impairment.

The fair value estimation approach used, requires assumptions about revenue, future oil prices, tax rate and discount rates, all of which are level 3 inputs. The future oil prices used in the model are based on a forecast of crude oil prices by Parex' independent reserve evaluators.

Prices used at March 31, 2020 are as follows:

	2020	2021	2022	2023	2024	Thereafter
Brent($US/bbl)	38.64	45.50	52.50	57.50	62.50	2% increaseperyear
Prices used at December 31, 2019 are as follows:
	2020	2021	2022	2023	2024	Thereafter
Brent($US/bbl)	67.00	68.00	71.00	73.00	75.00	2% increaseperyear

At December 31, 2020 and 2019 there were no indicators of impairment noted, or indicators requiring a reversal of previously recorded impairments.

9. Lease Obligation

The Company has the following future commitments associated with its office lease obligation:

			December 31, 2020		December 31,2019
Balance beginning of year		$	1,637	$	—
Additions			—		2,227
Interest expense			54		99
Lease payments			(926)		(689)
Modifications			1,805		—
Balance end of year			2,570		1,637
Currentportion of lease obligations			**(750) **		(867)
Non-currentportion of lease obligations		$	1,820	$	770

During the year ended December 31, 2020, the Company has included the extension for the office lease where the Company has the right to extend the lease at its discretion and is reasonably certain to exercise the extension period.

The consolidated statements of comprehensive income for the year ended December 31, 2020 includes expenses related to leases as follows: $0.1 million (year ended December 31, 2019 - $0.1 million) of interest expense related to the lease obligation, $0.8 million (year ended December 31, 2019 - $0.8 million) of depreciation for right-of-use assets, $0.6 million (year ended December 31, 2019 - $0.6 million) of nonlease components associated with the office lease obligation and $1.7 million (year ended December 31, 2019 - $0.8 million) related to shortterm and low value leases.

Total cash outflows related to the office lease obligation were $2.2 million for the year ended December 31, 2020 (year ended December 31, 2019 - $2.1 million).

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December 31, 2020

10. Goodwill

10. Goodwill
		December	31, 2020		December 31,2019
Goodwill	$		73,452	$	73,452

Impairment test of goodwill

The Company performed its annual test for goodwill impairment at the balance sheet date in accordance with its policy described in note 3 - Summary of Significant Accounting Policies. The Company has allocated goodwill to the Colombia operating segment.

The estimated fair value less costs of disposal of the Colombia operating segment exceeded the carrying value. As a result, no goodwill impairment was recorded.

Valuation Techniques

The recoverable amount of the group of CGUs to which the goodwill was assigned is based on fair value less costs of disposal. The technique used in determining the recoverable amount is based on the net present value of the after-tax cash flows from oil and gas reserves of the group of CGU’s based on reserves estimated by Parex’ independent reserve evaluator and the fair value of undeveloped land based on estimates with consideration given to acquisition metrics of recent transactions completed on similar assets to those contained within the relevant group of CGU’s. The discounting process uses a rate of return that is commensurate with the risk associated with the assets and the time value of money. This approach requires assumptions about revenue, future oil prices, tax rates and discount rates, all of which are level 3 inputs.

Significant Assumptions

Oil Reserves

Assumptions that are valid at the time of reserve estimation may change significantly when new information becomes available. Changes in forward price estimates, production costs or recovery rates may change the economic status of reserves and may ultimately result in reserves being restated.

Future Oil Prices

Oil forward price estimates are used in the cash flow model. Commodity prices have fluctuated widely in recent years due to global and regional factors including supply and demand fundamentals, inventory levels, exchange rates, weather, economic and geopolitical factors. The future oil prices used in the model are based on a forecast of crude oil prices by Parex’ independent reserve evaluator.

Prices used at December 31, 2020 are as follows:

		2021	2022	2023	2024	2025	Thereafter
	Brent($US/bbl)	50.75	55.00	58.50	61.79	62.95	2% increaseperyear
Prices used at December 31, 2019 are as follows:
		2020	2021	2022	2023	2024	Thereafter
	Brent($US/bbl)	67.00	68.00	71.00	73.00	75.00	2% increaseperyear

Discount Rate

The Company assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represented a weighted average cost of capital (“WACC”) for comparable companies operating in similar industries, based on publicly available information. The WACC is an estimate of the overall required rate of return on an investment for both debt and equity owners and serves as the basis for developing an appropriate discount rate. Its determination requires separate analysis of the cost of equity and debt, and considers a risk premium based on an assessment of risks related to the projected cash flows of the group of Colombia based CGUs whose revenues are denominated in USD. The after tax discount rate used in performing the impairment test was 12% (year ended December 31, 2019 - 11%).

The fair value of the group of Colombian CGUs was in excess of its carrying value. Based on sensitivity analysis, no reasonably possible change in discount rate assumptions would cause the carrying amount of the group of Colombia CGUs to exceed its recoverable amount.

11. Revenue

The Company’s oil and natural gas production revenue is determined pursuant to the terms of the revenue agreements. The transaction price for crude oil and natural gas is based on the commodity price in the month of production, adjusted for quality, location, allowable deductions, if any, or other factors. Commodity prices are based on market indices that are determined on a monthly or daily basis.

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December 31, 2020

The Company's oil and natural gas revenues by product are as follows:

For theyear ended December 31,		2020		2019
Crude oil	$	570,187	$	1,101,060
Naturalgas		17,333		12,562
Oil and naturalgas sales	$	587,520	$	1,113,622

At December 31, 2020, receivables from contracts with customers, which are included in accounts receivable, were $80.2 million (December 31, 2019 - $143.6 million).

12. Net Finance Expense

12. Net Finance Expense
For theyear ended December 31,		2020		2019
Bank charges and credit facility fees	$	2,630	$	3,647
Accretion on decommissioning and environmental liabilities		4,125		4,592
Interest and other income		(2,129)		(7,382)
Right of use asset interest		54		99
Loss on settlement of decommissioning liabilities		803		359
Loss on disposition of tangible assets		1,345		235
Expected credit loss provision		1,006		—
Other		**(821) **		2,026
Net finance expense	$	7,013	$	3,576
For theyear ended December 31,		2020		2019
Non-cash finance expense	$	6,458	$	7,212
Cash finance expense(income)		555		(3,636)
Net finance expense	$	7,013	$	3,576

13. Cash Settled Share-Based Compensation Liabilities

Cash settled share-based compensation liabilities are comprised of the following:

		December 31, 2020		December 31,2019
Long-term DSUs payable	$	2,988	$	4,496
Long-term CRSUs payable		2,570		4,004
Long-term CosRSUs and CosPSUspayable		6,285		3,879
Total cash settled-share based compensationpayable	$	11,843	$	12,379

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December 31, 2020

14. Decommissioning and Environmental Liabilities

		Decommissioning		Environmental		Total
Balance,December 31,2018	$	42,052	$	15,549	$	57,601
Additions		10,524		1,355		11,879
Settlements of obligations during the year		(10,536)		(1,229)		(11,765)
Loss on settlement of obligations		359		—		359
Accretion expense		3,166		1,426		4,592
Change in estimate - inflation and discount rates		1,455		170		1,625
Change in estimate - costs		(10,253)		(2,532)		(12,785)
Foreign exchange loss(gain)		477		(48)		429
Balance,December 31,2019	$	37,244	$	14,691	$	51,935
Additions		2,554		480		3,034
Settlements of obligations during the year		(3,560)		(1,070)		(4,630)
Loss on settlement of obligations		803		—		803
Accretion expense		2,286		1,839		4,125
Change in estimate - inflation and discount rates		360		(2,062)		(1,702)
Change in estimate - costs		(441)		(286)		(727)
Foreign exchange(gain)		(1,036)		(691)		(1,727)
Balance, December 31, 2020		38,210		12,901		51,111
Current obligation		(3,629)		(3,425)		(7,054)
Long-term obligation	$	34,581	$	9,476	$	44,057

The total environmental, decommissioning and restoration obligations were determined by management based on the estimated costs to settle environmental impact obligations incurred and to reclaim and abandon the wells and well sites based on contractual requirements. The obligations are expected to be funded from the Company’s internal resources available at the time of settlement.

The total decommissioning and environmental liability is estimated based on the Company’s net ownership in wells drilled as at December 31, 2020, the estimated costs to abandon and reclaim the wells and well sites and the estimated timing of the costs to be paid in future periods. The total undiscounted amount of cash flows required to settle the Company’s decommissioning liability is approximately $60.4 million as at December 31, 2020 (December 31, 2019 – $63.3 million) with the majority of these costs anticipated to occur in 2033 or later. A risk-free discount rate of 5.25% and an inflation rate of 2.0% were used in the valuation of the liabilities (December 31, 2019 – 6.74% risk-free discount rate and a 3.1% inflation rate). The risk-free discount rate and the inflation rate used in 2020 are based on forecast Colombia rates.

Included in the decommissioning liability is $3.6 million (December 31, 2019 – $4.3 million) that is classified as a current obligation.

The total undiscounted amount of cash flows required to settle the Company’s environmental liability is approximately $20.5 million as at December 31, 2020 (December 31, 2019 – $21.5 million) with the majority of these costs anticipated to occur in 2033 or later in Colombia. A risk-free discount rate of 5.25% and an inflation rate of 2.0% were used in the valuation of the liabilities (December 31, 2019 – 6.74% risk-free discount rate and a 3.1% inflation rate). The risk-free discount rate and the inflation rate used in 2020 are based on forecast Colombia rates.

Included in the environmental liability is $3.4 million (December 31, 2019 – $4.1 million) that is classified as a current obligation.

15. Share Capital

a) Issued and outstanding common shares

a) Issued and outstanding common shares
	Number of shares		Amount
Balance,December 31,2018	155,013,908	$	848,946
Issued for cash – exercise of options and RSUs	2,960,620		17,737
Allocation of contributed surplus – exercise of options and RSUs	—		13,772
Repurchase of shares	(14,679,474)	$	(67,771)
Balance,December 31,2019	143,295,054		812,684
Issued for cash – exercise of options, RSUs and PSUs	1,429,616		5,990
Allocation of contributed surplus – exercise of options, RSUs and PSUs	—		9,580
Repurchase of shares	(13,851,994)		(64,882)
Balance, December 31, 2020	130,872,676	$	763,372

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27

December 31, 2020

The Company has authorized an unlimited number of voting common shares without nominal or par value.

In 2020, a total of 1,429,616 options, RSUs and PSUs were exercised for proceeds of $6.0 million (year ended December 31, 2019 - 2,960,620 options and RSUs were exercised for $17.7 million).

In 2020, the Company repurchased 13,851,994 common shares pursuant to its Normal Course Issuer Bid for $171.5 million at an average cost per share of Cdn$16.62 (year ended December 31, 2019 - 14,679,474 common shares repurchased for $223.9 million at an average cost per share of Cdn$20.41). The cost to repurchase common shares at a price in excess of their average book value has been charged to retained earnings.

b) Stock options

The Company has a stock option plan which provides for the issuance of options to the Company’s officers and certain employees to acquire common shares. The maximum number of options reserved for issuance under the stock option plan may not exceed 5% of the number of common shares issued and outstanding. The stock options vest over a three-year period and expire five years from the date of grant.

		Weighted average
	Number of options	exerciseprice Cdn$/option
Balance,December 31,2018	4,341,747	13.14
Granted	228,300	19.23
Exercised	(2,104,304)	11.12
Balance,December 31,2019	2,465,743	15.42
Granted	265,788	21.83
Exercised	(624,270)	12.62
Forfeited	(44,800)	11.75
Balance, December 31, 2020	2,062,461	17.17

Stock options outstanding and the weighted average remaining life of the stock options at December 31, 2020 are as follows:

Exerciseprice Cdn$	Options outstanding	Options vested
	Number of options Weighted average remaining life (years) Weighted average exercise price Cdn$/option	Number of options Weighted average remaining life (years) Weighted average exercise price Cdn$/option
$14.74 - $15.41 $15.42 - $15.84 $15.85 - $17.13 $17.14 - $19.81 $19.82 -$22.18	41,850 1.37 14.87 861,352 0.87 15.66 480,937 1.19 16.02 368,172 2.64 18.63 310,150 4.00 21.75	41,850 1.37 14.87 861,352 0.87 15.66 480,937 1.19 16.02 180,776 2.44 18.60 16,583 3.34 20.95
	2,062,461 1.74 17.17	1,581,498 1.18 16.14

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

For theyear ended December 31,	2020	2019
Risk-free interest rate (%)	1.31	1.75
Expected life (years)	4	4
Expected volatility (%)	37	40
Forfeiture rate (%)	3	3
Expected dividends	—	—

The weighted average fair value at the grant date for the year ended December 31, 2020 was Cdn$6.67 per option (year ended December 31, 2019 – Cdn$6.42 per option). The weighted average share price on the exercise date for options exercised in 2020 was Cdn$19.23 (year ended December 31, 2019 – Cdn$21.62).

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28

December 31, 2020

c) Restricted and performance share units

The Company has in place a restricted share unit plan pursuant to which the Company may grant restricted shares to certain employees. The restricted shares vest at 33% on each of the first, second and third anniversaries of the grant date and expire five years from date of grant.

In 2019 the Company put in place a new Cash or Share settled RSU/PSU plan ("CosRSU") which will replace this equity settled RSU/PSU plan.

		Weighted average
	Number of RSU’s	exercise price Cdn$/RSU
Balance,December 31,2018	2,527,068	0.01
Exercised	(856,316)	0.01
Forfeited	(7,434)	0.01
Balance,December 31,2019	1,663,318	0.01
Exercised	(600,416)	0.01
Forfeited	(37,543)	0.01
Balance, December 31, 2020	1,025,359	0.01

RSUs outstanding and the weighted average remaining life of the RSUs at December 31, 2020 are as follows:

Exerciseprice Cdn$	RSUs outstanding	RSUs vested
	Number of RSUs Weighted average remaininglife(years)	Number of RSUs Weighted average remaining life(years)
0.01	1,025,359 1.43	859,199 1.30

The fair value of each RSU granted is based on the market price of Parex shares on the date of issuance. For the year ended December 31, 2020 and 2019 a weighted average forfeiture rate of 3% was applied.

Pursuant to the restricted share unit plan, the Company may grant performance share units to certain employees. The performance share units vest three years after the grant date and expire one month after the performance multiplier has been determined. PSUs may be granted with certain performance measures, specified at the grant date as determined by the Company's Board of Directors. Based upon the achievement of the performance measures, a pre-determined adjustment factor of between 0-2x is applied to PSUs eligible to vest at the end of the performance period. In March 2020 the board of directors approved a multiplier of 1.98X be applied to the 2017 PSU grant resulting in 101,430 PSU's issued.

		Weighted average
	Number of PSU’s	exerciseprice Cdn$/PSU
Balance,December 31,2018	320,500	0.01
Balance,December 31,2019	320,500	0.01
Granted by performance factor	101,430	0.01
Exercised	(204,930)	0.01
Balance, December 31, 2020	217,000	0.01

The fair value of each PSU granted is based on the share price at which the common shares of the Company traded for on the grant date. The weighted average fair value at the grant date for the year ended December 31, 2020 was Cdn$16.01 per PSU.

d) Equity settled share-based compensation

For theyear ended December 31,		2020		2019
Option expense	$	1,219	$	1,867
Restricted andperformance share units expense		3,016		5,736
Total equity settled share-based compensation expense	$	4,235	$	7,603

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29

December 31, 2020

16. Cash Settled Incentive Plans

a) Share appreciation rights ("SARs")

Parex Colombia has a SARs plan that provides for the issuance of SARs to certain employees of Parex Colombia. The plan entitles the holders to receive a cash payment equal to the excess of the market price of the Company’s common shares at the time of exercise over the grant price. At any time, if the current market price of the Company’s common shares exceeds four times the grant price, Parex has the option to require the holders to exercise all vested SARs. SARs typically vest over a three-year period and expire five years from the date of grant. The SARs liability cannot be settled by the issuance of common shares.

		Weighted average
	Number of SARs	exercise price Cdn$/SAR
Balance,December 31,2018	1,591,866	13.90
Exercised	(989,225)	13.33
Forfeited	(33,869)	15.42
Balance,December 31,2019	568,772	14.80
Exercised	(224,711)	13.33
Forfeited	(5,771)	11.22
Balance, December 31, 2020	338,290	15.84

As at December 31, 2020 338,290 SARs were vested (December 31, 2019 – 531,844 SARs were vested).

Obligations for payments of cash under the SARs plan are accrued as compensation expense over the vesting period based on the fair value of SARs, subject to appreciation limits specified in the plan. The fair value of SARs is measured using the Black-Scholes pricing model at each reporting date based on weighted average pricing assumptions noted below:

For theyear ended December 31,	2020	2019
Risk-free interest rate (%)	0.20	1.71
Expected life (years)	1	1
Expected volatility (%)	55	34
Forfeiture rate (%)	3	—
Share price ($/Cdn)	17.52	24.15
Expected dividends	—	—

As at December 31, 2020, the total SARs liability accrued is $1.2 million (December 31, 2019 - $4.6 million) all of which is classified as current in accordance with the three-year vesting period.

b) Deferred share units ("DSUs")

The Company has in place a deferred share unit plan pursuant to which the Company may grant deferred shares to all non-employee directors. The deferred share units vest immediately and are settled in cash upon the retirement of the non-employee director from the Parex Board. The value of the DSUs at the exercise date is equivalent to the five day weighted average share price at which the common shares of the Company traded for immediately preceding the exercise date. DSUs can only be redeemed following retirement from the Board of Directors of the Company in accordance with the terms of the DSU Plan. The DSUs liability cannot be settled by the issuance of common shares.

		Weighted average
	Number of DSU’s	exerciseprice Cdn$/DSU
Balance,December 31,2018	219,350	—
Granted	26,435	—
Balance,December 31,2019	245,785	—
Granted	35,320	—
Exercised on board retirement	(63,960)	—
Balance, December 31, 2020	217,145	—

The fair value at the grant date is equivalent to the five day weighted average share price at which the common shares of the Company traded for immediately preceding the grant date. The weighted average fair value at the grant date for the year ended December 31, 2020 was Cdn$15.41 per DSU (year ended December 31, 2019 - Cdn$21.47 per DSU).

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30

December 31, 2020

Given the DSUs vest immediately, obligations for payments of cash under the DSUs plan are accrued as compensation expense immediately based on the fair value of the DSU. As at December 31, 2020 the total DSUs liability accrued is $3.0 million (December 31, 2019 - $4.5 million) all of which is classified as long-term in accordance with the terms of the DSU plan.

c) Cash settled restricted share units ("CRSUs")

Parex Colombia has a CRSUs plan that provides for the issuance of CRSUs to certain employees of Parex Colombia. The plan entitles the holders to receive a cash payment equal to the market price of the Company’s common shares at the time of exercise. CRSUs vest over a three-year period and are exercised at the vest date. The CRSUs liability cannot be settled by the issuance of common shares.

		Weighted average
	Number of CRSUs	exercise price Cdn$/CRSU
Balance,December 31,2018	785,075	—
Granted	551,020	—
Exercised	(306,251)	—
Forfeited	(38,174)	—
Balance,December 31,2019	991,670	—
Granted	381,278	—
Exercised	(476,705)	—
Forfeited	(20,542)	—
Balance, December 31, 2020	875,701	—

The weighted average fair value at the grant date for the year ended December 31, 2020 was Cdn$21.03 per CRSU (year ended December 31, 2019 - Cdn$19.19 per CRSU).

Obligations for payments of cash under the CRSUs plan are accrued as compensation expense over the vesting period based on the fair value of CRSUs. The fair value of CRSUs is equivalent to the trading value of a common share of the Company on the valuation date. As at December 31, 2020, the total CRSUs liability accrued is $8.2 million (December 31, 2019 - $11.8 million) of which $2.6 million (December 31, 2019 - $4.0 million) is classified as long-term in accordance with the three-year vesting period.

d) Cash or share settled Restricted Share Units and Performance Share Units ("CosRSU and CosPSU")

In 2019 Parex put in place a new Cash or share settled RSU/PSU incentive plan. This new plan will replace the equity settled RSU/PSU plan. This plan provides for the issuance of RSUs and PSUs to certain employees of Parex Canada. The plan entitles the holders to receive a cash payment equal to the market price of the Company’s common shares at the time of exercise or the employee can elect to receive the award in Parex common shares. CosRSUs and CosPSUs vest over a three-year period and are exercised at the vest date.

CosRSU:

	Number of CosRSUs
Balance,December 31,2018	—
Granted	655,185
Forfeited	(6,000)
Balance,December 31,2019	649,185
Granted	618,649
Exercised	(221,813)
Balance, December 31, 2020	1,046,021

CosPSU:

	Number of CosPSUs
Balance,December 31,2018	—
Granted	222,100
Balance,December 31,2019	222,100
Granted	211,600
Balance, December 31, 2020	433,700

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31

December 31, 2020

As at December 31, 2020, no CosRSUs and CosPSUs were vested.

The weighted average fair value at the grant date for the year ended December 31, 2020 was Cdn$21.31 per CosRSU and CosPSU (year ended December 31, 2019 - Cdn $19.50 per CosRSU and CosPSU).

Obligations for payments of cash under the CosRSUs and CosPSUs plans are accrued as compensation expense over the vesting period based on the fair value of RSUs and PSUs. The fair value of CosRSUs and CosPSUs is equivalent to the trading value of a common share of the Company on the valuation date. As at December 31, 2020, the total CosRSUs and CosPSUs liability accrued is $11.3 million (December 31, 2019 - $7.1 million) of which $6.3 million (December 31, 2019 - $3.9 million) is classified as long-term in accordance with the three-year vesting period.

e) Cash settled share-based compensation

e) Cash settled share-based compensation
For theyear ended December 31,		2020		2019
SARs (recovery) expense	$	(2,149)	$	1,784
CRSUs expense		813		9,460
DSUs (recovery) expense		(811)		1,748
CosRSUs and CosPSUs expense		7,422		7,089
Total cash settled-share based compensation expense	$	5,275	$	20,081
Cashpayments made upon exercise	$	12,119	$	9,173

17. Income Tax

The components of tax expense for 2020 and 2019 were as follows:

For theyear ended December 31,		2020		2019
Current tax expense	$	20,703	$	120,987
Adjustments in respect ofpriorperiod		**(29) **		(824)
Total current tax expense	$	20,674	$	120,163
Deferred tax		53,355		55,507
Total tax expense	$	74,029	$	175,670

Factors affecting tax expense for the year

The standard Colombian corporate income tax rate for 2020 was 32% (year ended December 31, 2019 – 33%). The following is a reconciliation of income taxes calculated at the Colombian corporate tax rate to the tax expense for 2020 and 2019:

For theyear ended December 31,		2020		2019
Income before tax	$	173,351	$	503,664
Income before tax multiplied by the standard rate of Colombian corporate tax of 32% (2019 – 33%)		55,472		166,209
Effects of:
Income taxes recorded at rates different from the Colombian tax rate		(16,161)		(1,082)
Impact of Colombian tax rate changes		(257)		(134)
Impact of deferred tax rate changes		3,526		860
Non-deductible expense and other permanent differences		25,140		9,059
Share-based compensation		1,016		4,110
Adjustment in respect of prior period		(7,016)		(1,178)
Foreign exchange impact on tax pools denominated in foreign currency		15,130		(2,187)
Change in unrecognized deferred tax assets		**(2,821) **		13
Total tax expense	$	74,029	$	175,670

Colombian current tax rates are as follows: 32% for 2020; 31% in 2021, and 30% thereafter.

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December 31, 2020

The analysis of deferred income tax assets as follows:

	December	31, 2020		December 31, 2019
Deferred tax assets to be settled within 12 months	$	1,068	$	1,092
Deferred tax assets to be settled after more than 12 months		41,661		88,162
Deferred income tax assets	$	42,729	$	89,254
The analysis of deferred income tax liabilities as follows:
	December	31, 2020		December 31,2019
Deferred tax liabilities to be settled within 12 months	$	(8,182)	$	(9,556)
Deferred tax liabilities to be settled after more than 12 months		28,584		23,129
Deferred income tax liability	$	20,402	$	13,573
Net deferred tax liability (asset)	$	**(22,327) **	$	(75,681)

The deferred income tax liabilities and assets to be settled (recovered) within 12 months represents management’s estimate of the timing of the reversal of temporary differences and does not correlate to the current income tax expense of the subsequent year.

The movement during the year in the deferred income tax (liabilities) assets and the net components is as follows:

			Charged (credited)		Charged (credited)
			to the statement of		to the statement of
			comprehensive		comprehensive
Deferred Tax(Liability)	December	31, 2020	income/(loss)	December 31,2019	income/(loss)
PP&E	$	(36,457)$	(4,707) $	(31,750) $	(9,525)
Decommissioning liability		9,961	(188)	10,149	(1,399)
Cash-settled equity based compensation		2,822	(2,086)	4,908	1,510
Other		3,272	152	3,120	(2,641)
Balance, end ofperiod	$	(20,402) $	(6,829) $	(13,573) $	(12,055)

The movement during the year in the deferred income tax assets and the net components is as follows:

				Charged (credited)			Charged (credited)
				to the statement of			to the statement of
				comprehensive			comprehensive
Deferred Tax Asset	December	31, 2020		income/(loss)	December 31,2019		income/(loss)
PP&E	$	33,410	$	(43,840) $	77,250	$	(36,307)
Loss carry forwards		3,696		(2,143)	5,839		(7,336)
Decommissioning liability		5,513		(170)	5,683		(341)
Other		110		(372)	482		532
Balance, end ofperiod	$	42,729	$	(46,525) $	89,254	$	(43,452)

The Company has losses as well as other cumulative tax deductions in excess of book value in Canada available to reduce future taxable income in future years. At December 31, 2020 the deferred tax asset amount recorded in Canada is $7.0 million. The Company did not recognize deferred income tax assets on capital losses and other items in Canada of $150.4 million. Non-capital losses in Canada expire in 20 years and capital losses carry-forward indefinitely. The Company does not have losses available in Colombia. Amounts denominated in foreign currency have been translated at the December 31, 2020 exchange rate. At December 31, 2020 the Company had the following losses carryforward:

		Canada
Year of expiry
2033	$	3,554
2034		2,365
2035		9,344
2036		808
Indefinitely		167,116
	$	183,187

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December 31, 2020

Earnings retained by subsidiaries amounted to $706.7 million at December 31, 2020 (December 31, 2019 - $772.3 million). No provision has been made for withholding and other taxes that would become payable on the distribution of these earnings as it is not expected that they will be remitted in the foreseeable future.

18. Net income per Share

a) Basic net income per share

a) Basic net income per share
For theyear ended December 31,		2020		2019
Net income
Net income for thepurpose of basic net incomeper share	$	99,322	$	327,994
Weighted average number of shares for the purposes of basic net income per share (000’s)		138,356		146,380
Basic net incomeper share	$	0.72	$	2.24
b) Diluted net income per share
For theyear ended December 31,		2020		2019
Net income
Net income used to calculate diluted net incomeper share	$	99,322	$	327,994
Weighted average number of shares for the purposes of basic net income per share (000’s)		138,356		146,380
Dilutive effect of share options and RSUs onpotential common shares		1,263		2,645
Weighted average number of shares for the purposes of diluted net income per share		139,619		149,025
Diluted net incomeper share	$	0.71	$	2.20

For the year ended December 31, 2020, 678,322 stock options (December 31, 2019 - 228,300) were excluded from the diluted weighted average shares calculation as they were anti-dilutive.

19. Supplemental Disclosure of Cash Flow Information

a) Net change in non-cash working capital

a) Net change in non-cash working capital
For theyear ended December 31,		2020		2019
Accounts receivable	$	69,344	$	(86,151)
Prepaids and other current assets		(5,094)		(3,428)
Crude oil inventory		(1,262)		793
Accounts payable and accrued liabilities		(106,446)		(119,259)
Depletion related to crude oil inventory		485		(192)
Decommissioningand environmental liabilities		**(4,630) **		(11,765)
Net change in non-cash workingcapital	$	**(47,603) **	$	(220,002)
Operating	$	(7,023)	$	(205,413)
Investing		(38,534)		(10,796)
Financing		**(2,046) **		(3,793)
Net change in non-cash workingcapital	$	**(47,603) **	$	(220,002)
b) Interest and taxes paid
For theyear ended December 31,		2020		2019
Cash interest paid	$	—	$	—
Cash income taxespaid	$	45,008	$	136,251

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December 31, 2020

20. Employee Salaries and Benefit Expenses

20. Employee Salaries and Benefit Expenses
For theyear ended December 31,		2020		2019
Salaries, bonuses and other short-term benefits	$	29,709	$	30,961
Equity settled share-based compensation		4,235		7,603
Cash settled share-based compensation		5,275		20,081
	$	39,219	$	58,645

Employee salaries, bonuses and short-term benefits are included in general and administrative expenses in the consolidated statement of comprehensive income. Stock option, SARs, RSUs, PSUs, CosRSUs, CosPSUs and DSUs expense are included in share-based compensation expense in the consolidated statements of comprehensive income.

21. Capital Management

The Company’s strategy is to maintain a strong capital base in order to provide flexibility in the future development of the business and maintain the confidence of investors and capital markets.

Parex has a senior secured credit facility which at December 31, 2020 had a borrowing base in the amount of $200.0 million (December 31, 2019 - $200.0 million). The credit facility is intended to serve as means to increase liquidity and fund cash or letter of credit needs as they arise. As at December 31, 2020, $nil (December 31, 2019 - $nil) was drawn on the credit facility.

The Company has also provided a general security agreement to Export Development Canada (“EDC”) in connection with the performance security guarantees that support letters of credit provided to the Colombian National Hydrocarbon Agency (“ANH”) related to the exploration work commitments on its Colombian concessions (see note 24 - Commitments). This performance guarantee facility has a limit of $150.0 million (December 31, 2019 - limit of $150.0 million) of which $21.9 million (December 31, 2019 - $25.4 million) is utilized at December 31, 2020. At December 31, 2020, there is an additional $24.5 million (December 31, 2019 - $22.5 million) of letters of credit that are provided by a Latin American bank on an unsecured basis.

As at December 31, 2020 the Company’s net working capital surplus was $320.2 million (December 31, 2019 - $344.0 million), of which $330.6 million is cash.

On December 21, 2020, the Toronto Stock Exchange ("TSX") approved the Company's NCIB application to purchase up to 12,868,562 of the Company's common shares for cancellation between the periods of December 23, 2020 and December 22, 2021.

On December 19, 2019 the Toronto Stock Exchange ("TSX") approved the Company's NCIB application to purchase up to 13,986,994 of the Company's common shares for cancellation and the Company repurchased the maximum amount of shares in the period between December 23, 2019 and December 22, 2020.

Parex has the ability to adjust its capital structure by issuing new equity or debt and making adjustments to its capital expenditure and share buy-back programs to the extent the capital expenditures are not committed. The Company considers its capital structure at this time to include shareholders’ equity, the credit facility and its working capital. As at December 31, 2020 shareholders’ equity was $1,340.5 million (December 31, 2019 - $1,402.4 million).

22. Financial Instruments and Risk Management

The Company’s non-derivative financial instruments recognized on the consolidated balance sheet consist of cash, accounts receivable, accounts payable and accrued liabilities. Non-derivative financial instruments are recognized initially at fair value. The fair values of the current financial instruments approximate their carrying value due to their short-term maturity. The fair value of the revolving credit facility is equal to its carrying amount as the facility bears interest at floating rates and the credit spreads within the facility are indicative of market rates.

Long-term financial instruments of the Company carried on the consolidated balance sheet are carried at amortized cost. Financial derivative instruments, specifically fixed price contracts, are carried at fair value. There are no significant differences between the carrying amount of derivative financial instruments and their estimated fair values as at December 31, 2020.

The fair value of the Company’s financial derivative instruments are quoted in active markets. The Company classifies the fair value of these transactions according to the following hierarchy.

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December 31, 2020

Level 1 – quoted prices in active markets for identical financial instruments.

Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 3 – valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The Company’s financial derivative instruments have been classified as level 2 based on the fair value hierarchy described above. The Company used the following techniques to determine the fair value measurements: Crude oil and foreign currency contracts are recorded at their estimated fair value based on the difference between the contracted price and the period end forward price for the same commodity and foreign currency, using quoted market prices or the period end forward price for the same commodity and foreign currency, extrapolated to the end of the contract term.

a) Credit risk

Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. The Company is exposed to the risk that third parties that owe it money do not meet their obligations. The Company assesses the financial strength of its joint venture partners and oil marketing counterparties in its management of credit exposure.

The Company for the year ended December 31, 2020 had the majority of its oil sales to 10 counterparties. Accounts receivable balance as at December 31, 2020 are substantially made up of receivables with customers in the oil and gas industry and are subject to normal industry credit risks. The Company historically has not experienced any collection issues with its crude oil customers. At December 31, 2020 there are no accounts receivable past due (December 31, 2019 - $nil).

As at December 31, 2020 and 2019 the Company’s accounts receivable are aged as follows:

For theyear ended December 31,		2020		2019
Current (less than 90 days)	$	80,166	$	149,510
Past due(more than 90 days)		—		—
Total	$	80,166	$	149,510

None of the Company’s receivables are impaired at December 31, 2020. The maximum credit risk exposure associated with accounts receivable is the total carrying value.

b) Liquidity risk

The Company’s approach to managing liquidity risk is to have sufficient cash and/or credit facilities to meet its obligations when due. Management typically forecasts cash flows for a period of 12 to 36 months to identify any financing requirements. Liquidity is managed through daily and longer-term cash, debt and equity management strategies. These include estimating future cash generated from operations based on reasonable production and pricing assumptions, estimating future discretionary and non-discretionary capital expenditures and assessing the amount of equity or debt financing available. The Company is committed to maintaining a strong balance sheet and has the ability to change its capital program based on expected operating cash flows. The balance drawn on the Company’s $200.0 million credit facility at December 31, 2020 was $nil.

The following are the contractual maturities of financial liabilities at December 31, 2020:

	Less than 1	Less than 1
		year	2-3 Years	4-5 Years	Thereafter		Total
Accounts payable and accrued liabilities	$	102,815	—	—	—	$	102,815
Lease obligation		750	1,820	—	—		2,570
Cash settled equity planspayable		11,862	11,843	—	—		23,705
Total	**$ **	115,427	13,663	—	—	**$ **	129,090

The following are the contractual maturities of financial liabilities at December 31, 2019:

	Less than 1	Less than 1
		year	2-3 Years	4-5 Years	Thereafter		Total
Accounts payable and accrued liabilities	$	125,282	—	—	—	$	125,282
Current income tax payable		61,763	—	—	—		61,763
Lease obligation		867	770	—	—		1,637
Cash settled equity planspayable		15,567	12,379	—	—		27,946
Total	$	203,479	13,149	—	—	$	216,628

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December 31, 2020

c) Commodity price risk

The Company is exposed to commodity price movements as part of its operations, particularly in relation to the prices received for its oil production. Crude oil is sensitive to numerous worldwide factors, many of which are beyond the Company’s control. Changes in global supply and demand fundamentals in the crude oil market and geopolitical events can significantly affect crude oil prices. Consequently, these changes could also affect the value of the Company’s properties, the level of spending for exploration and development and the ability to meet obligations as they come due. The Company’s oil production is sold under short-term contracts, exposing it to the risk of near-term price movements.

As at December 31, 2020 the Company had no outstanding commodity price risk management contracts.

The table below summarizes the loss on the commodity risk management contracts that were in place during the year ended December 31, 2020 and 2019:

For theyear ended December 31,		2020		2019
Realized loss on commodityrisk management contracts	$	3,940	$	—
Total	$	3,940	$	—

d) Foreign currency risk

The Company is exposed to foreign currency risk as various portions of its cash balances are held in Canadian dollars (Cdn$) and Colombian pesos (COP$) while its committed capital expenditures are expected to be primarily denominated in US dollars.

As at December 31, 2020 the Company had no outstanding foreign currency risk management contracts.

The table below summarizes the loss (gain) on the foreign currency risk management contracts that were in place during the year ended December 31, 2020 and 2019:

For theyear ended December 31,		2020		2019
Premiums paid on foreign currency risk management contracts	$	—	$	389
Unrealized (gain) on foreign currency risk management contracts		—		(8,591)
Realized loss on foreign currencyrisk management contracts		511		4,469
Total	$	511	$	(3,733)

The Company recorded a realized $0.5 million loss on these contracts in the year ended December 31, 2020 which is recorded in the financial statement line item “Foreign exchange (gain) loss in the consolidated statements of comprehensive income. The Company recorded an $8.6 million unrealized gain and $4.9 million loss realized on these contracts in the year ended December 31, 2019 which is recorded in the financial statement line item “Foreign exchange (gain) loss".

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December 31, 2020

23. Segmented Information

The Company has foreign subsidiaries and the following segmented information is provided:

For theyear ended December 31, 2020		Canada		Colombia		Total
Oil and natural gas sales	$	—	$	587,520	$	587,520
Royalties		—		(55,655)		(55,655)
Revenue		—		531,865		531,865
Commodityrisk management contracts(loss)		—		(3,940)		(3,940)
		—		527,925		527,925
Expenses
Production		—		87,272		87,272
Transportation		—		59,147		59,147
Purchased oil		—		28,241		28,241
General and administrative		17,496		18,562		36,058
Impairment of property, plant and equipment assets		—		7,000		7,000
Impairment of exploration and evaluation assets		—		6,166		6,166
Equity settled share-based compensation expense		4,235		—		4,235
Cash settled share-based compensation expense (recovery)		6,611		(1,336)		5,275
Depletion, depreciation and amortization		869		112,889		113,758
Foreign exchange loss(gain)		957		(548)		409
		30,168		317,393		347,561
Finance (income)		(544)		(1,585)		(2,129)
Finance expense		1,499		7,643		9,142
Net finance expense		955		6,058		7,013
Income (loss) before taxes		(31,123)		204,474		173,351
Current tax expense		2		20,672		20,674
Deferred tax expense(recovery)		(552)		53,907		53,355
Net income(loss)	$	**(30,573) **	$	129,895	$	99,322
Capital assets (end of year)	$	2,715	$	979,549	$	982,264
Capital expenditures	$	145	$	141,119	$	141,264
Total assets(end ofyear)	$	167,415	$	1,373,666	$	1,541,081

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December 31, 2020

For theyear ended December 31, 2019		Canada		Colombia		Total
Oil and natural gas sales	$	—	$	1,113,622	$	1,113,622
Royalties		—		(136,068)		(136,068)
Revenue		—		977,554		977,554
Expenses
Production		—		111,061		111,061
Transportation		—		88,974		88,974
Purchased oil		—		52,791		52,791
General and administrative		18,706		15,508		34,214
Impairment of exploration and evaluation assets		—		22,767		22,767
Equity settled share-based compensation expense		7,603		—		7,603
Cash settled share-based compensation expense		8,837		11,244		20,081
Depletion, depreciation and amortization		903		124,996		125,899
Foreign exchange loss(gain)		(290)		7,214		6,924
		35,759		434,555		470,314
Finance (income)		(4,228)		(3,154)		(7,382)
Finance expense		1,699		9,259		10,958
Net finance expense (income)		(2,529)		6,105		3,576
Income (loss) before taxes		(33,230)		536,894		503,664
Current tax expense		2,397		117,766		120,163
Deferred tax expense		5,139		50,368		55,507
Net income(loss)	$	**(40,766) **	$	368,760	$	327,994
Capital assets (end of year)	$	1,634	$	964,365	$	965,999
Capital expenditures	$	121	$	208,075	$	208,196
Total assets(end ofyear)	$	151,514	$	1,533,067	$	1,684,581

In Colombia in the year 2020 the majority of oil sales were with ten counterparties (year ended December 31, 2019 – ten counterparties) in the oil and gas industry and are subject to normal industry credit risks.

24. Commitments and Contingencies

a) Colombia

At December 31, 2020 performance guarantees are in place with the ANH for certain blocks. The guarantees are in the form of issued letters of credit totaling $46.4 million (December 31, 2019 - $47.9 million) to support the exploration work commitments in respect of the 24 blocks in Colombia.

At December 31, 2020 EDC has provided the Company’s bank with performance security guarantees to support approximately $21.9 million (December 31, 2019 - $25.4 million) of the letters of credit issued on behalf of Parex. The EDC guarantees have been secured by a general security agreement issued by Parex in favour of EDC. The letters of credit issued to the ANH are reduced from time to time to reflect completed work on an ongoing basis. At December 31, 2020, there are an additional $24.5 million (December 31, 2019 - $22.5 million) letters of credit that are provided by a Latin American bank on an unsecured basis.

The value of the Company’s exploration commitments as at December 31, 2020 in respect of the Colombia blocks are estimated to be as follows:

(000s)
2021	$	37,507
2022		5,425
2023		37,385
Thereafter		89,091
	$	169,408

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December 31, 2020

b) Operating leases

In the normal course of business, Parex has entered into arrangements and incurred obligations that will impact the Company’s future operations and liquidity. These commitments include leases for office space and accommodations.

The existing minimum lease payments for office space and accommodations at December 31, 2020 are as follows:

(000s)		Total	2021	2022	2023	2024	Thereafter
Office and accommodations	$	7,512	2,750	1,613	1,629	1,520	—

25. Related Party Disclosures

a) Significant Subsidiaries

The consolidated financial statements include the financial statements of Parex Resources Inc. at December 31, 2020 and 2019. Transactions between subsidiaries are eliminated upon consolidation.

b) Compensation of Key Management Personnel

Key management personnel compensation, including directors, is as follows:

For theyear ended December 31,		2020		2019
Salaries, directors' fees and other benefits	$	4,515	$	4,241
Equity settled share-based compensation		1,613		3,714
Cash settled share-based compensation		1,451		4,934
	$	7,579	$	12,889

At December 31, 2020 key management personnel are comprised of the Company’s directors and eight executives. As at December 31, 2020, there is a Cdn$9.1 million commitment relating to change of control or termination of employment of the eight executives (December 31, 2019 - Cdn$8.9 million for the seven executives).

c) Other transactions

The Company did not have any related party transactions with entities outside the consolidated group for the years ended December 31, 2020 and 2019.

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December 31, 2020

DIRECTORS

Wayne Foo Chairman of the Board

Lisa Colnett

Sigmund Cornelius

Robert Engbloom

Bob MacDougall

Glenn McNamara

Imad Mohsen

Carmen Sylvain

Paul Wright

CORPORATE HEADQUARTERS

Parex Resources Inc.

2700, Eighth Avenue Place, West Tower 585 8 Avenue S.W., Calgary, Alberta, Canada T2P 1G1

Tel: 403-265-4800 Fax: 403-265-8216 E-mail: info@parexresources.com

OPERATING OFFICES

Parex Resources Colombia Ltd. Sucursal Calle 113 No. 7-21, Of. 611, Edificio Teleport, Torre A, Bogotá, Colombia

Tel: 571-629-1716 Fax: 571-629-1786

AUDITORS

PricewaterhouseCoopers LLP Calgary, Alberta

LEGAL COUNSEL

Burnet, Duckworth & Palmer LLP Calgary, Alberta

TRANSFER AGENT AND REGISTRAR

Computershare Trust Company of Canada Calgary, Alberta

RESERVES EVALUATORS

GLJ Ltd. Calgary, Alberta

OFFICERS & SENIOR EXECUTIVES

INVESTOR RELATIONS

Imad Mohsen President and Chief Executive Officer

Eric Furlan Chief Operating Officer

Kenneth Pinsky Chief Financial Officer & Corporate Secretary

Daniel Ferreiro President, Parex Colombia & Country Manager

Ryan Fowler

Michael Kruchten Sr. Vice President, Capital Markets & Corporate Planning

Tel: 403-517-1733 Fax: 403-265-8216

E-mail: Investor.Relations@parexresources.com Website: www.parexresources.com

Sr. Vice President, Exploration & Business Development

Michael Kruchten

Sr. Vice President, Capital Markets & Corporate Planning

Jeff Meunier

Vice President, New Ventures

Joshua Share Sr. Vice President, Corporate Services

ABBREVIATIONS

Oil and Natural Gas Liquids bbl(s) barrel(s) mbbls one thousand barrels bbl(s)/d barrels of oil per day BOE or boe barrel of oil equivalent, using the conversion factor of 6 Mcf: 1 bbl mmboe one million barrels of oil equivalent boe/d barrels of oil equivalent per day mcf thousand cubic feet mcf/d thousand cubic feet per day Other WTI West Texas Intermediate Brent Brent Ice Vasconia Vasconia Crude FFO Funds flow provided by operations

"BOEs" may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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December 31, 2020