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The Company has varying rights to multiple formations within its 788 (446 net) section Kaybob COU land position, including 391 (240 net) sections of Cretaceous rights and 229 (195 net) sections of Montney rights. Having rights to multiple formations allows the Company to evaluate shallower formations while drilling deeper wellbores targeting deeper rights. Prospective shallower zones can be completed in addition to the deeper reservoirs to increase total recoveries from individual locations. The Company has received approval to drill up to five Montney formation wells per section on six sections and is preparing to file applications on additional lands. It is anticipated that well densities of eight or more wells per section per formation will be required to fully recover the resources.

Paramount's experience over the past few years in the Deep Basin has allowed the Company to achieve cost reductions in drilling and completion operations through improved drilling and fracturing techniques and improved logistics with multi-well pad sites. The Company has been successful in reducing drilling time for Falher formation wells to approximately 30 days from 40 days in 2010. Drilling time for the deeper Montney formation wells has been reduced to approximately 45 days from over 80 days in the early part of 2011. With the cost of each drilling day averaging approximately $75,000, the reduction in drilling days alone has resulted in significant cost savings. The Company has also reduced completion costs by improving pumping techniques, optimizing frac sizing and spacing, recycling the frac oil, and negotiating lower rates for services, equipment and completion fluids.

During the fourth quarter of 2012, the Company finished equipping the wells on its first five-well pad at Musreau. Three (2.5 net) Montney formation wells and two (1.5 net) Falher formation wells were drilled, completed, equipped and tied-in for aggregate gross costs of approximately $45 million, including the cost of site sweetening packages for the Montney wells. Average gross raw gas test rates for the five wells totalled approximately 55 MMcf/d over the final 24 hours of their test periods, with flowing pressures averaging 2,500 PSI.

Multi-well pad sites will increasingly be used to develop Paramount's Deep Basin lands, where drilling and completion operations are performed on multiple wells thereby minimizing mobilization and de-mobilization costs and reducing equipping and tie-in costs by using common facilities. The Company plans to utilize its two new built-for-purpose walking rigs to drill on its multi-well pad sites beginning in the second quarter of 2013. These rigs have the ability to move across the lease with drill pipe standing in the derrick so that pad wells are drilled in sequence with minimal downtime between wells. Completion operations on pad sites allow the Company to produce back energized oil from a fracture stimulation, recycle the fluid and re-inject it into the next well, saving the cost of transporting and purchasing new frac oil.

Paramount currently has five drilling rigs working in the Deep Basin, which continue to add to the Company's inventory of wells that will feed the Musreau and Smoky deep cut facilities. The Company plans to drill up to an additional 40 wells during 2013, approximately 50 percent of which will target the Montney formation. The 2013 drilling program includes eight pad sites that are expected to account for 32 of the planned 40 wells.