Journey Energy Inc. Reports 2017 Reserves

February 26, 2018

CALGARY, Feb. 26, 2018 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") is pleased to report its year-end 2017 oil and gas reserves evaluation.  During 2017, the Company invested approximately $65 million in capital projects.  Capital was evenly distributed between acquisition and divestiture ("A&D") activities and exploration and development ("E&D") activities.  A&D initiatives throughout the year included the disposition of certain non-core assets; consolidation of working interests; acquiring infrastructure in Journey's core properties; and a significant acquisition in the Company's central Alberta core area.

The central Alberta core area was a key focus of corporate activities in 2017.  The assets acquired were concentrated in a multi-zone area and contained significant ownership in an extensive network of underutilized infrastructure at Gilby.  Subsequent to the year-end Journey acquired control of 102 sections of Duvernay shale exploration rights within the immediate area serviced by this strategic infrastructure.  The lands are contiguous, and prospective for drilling two mile horizontal wells within the oil window of the western shale basin.  Since these rights were acquired subsequent to year-end, there is no value ascribed to Journey's significant Duvernay acreage position in the net asset value calculations herein.

At the end of January, 2018 Journey acquired 12.7 million common shares from a major shareholder for a cost of $21.3 million.  The shares repurchased were subsequently cancelled, thereby reducing Journey's basic shares outstanding by approximately 25%.  Because of this, Journey's net asset value comparison was done on a pro-forma basis including the impact of the share buyback.

Both the share buyback and Duvernay land acquisition was the subject of a press release issued on January 22, 2018.

Highlights:

  • Proved and proved plus probable reserves increased by 24% and 26% respectively over 2016.

  • Proved plus probable net asset value (pro-forma after share buyback) of $10.81 per basic share outstanding representing a 4% increase from $10.44 per share in 2016.

  • Proved developed producing reserves accounted for 46% of total proved plus probable reserves while proved reserves accounting for 62%.

  • Journey's proved developed producing net asset value of $3.66 per basic share outstanding represents a significant increase from Journey's current trading price of $1.65/share.

  • Journey's proved plus probable producing net asset value per share of $5.60 per basic was largely unchanged year over year even though commodity prices decreased significantly.

  • Achieved finding, development, and acquisition ("FD&A") costs, including changes in future development capital of:
    • $7.90 per boe for proved reserves.
    • $6.68 per boe for proved plus probable reserves

  • Journey has achieved strong FD&A recycle ratios.  For the year ended December 31, 2017, we achieved a ratio of:
    • 1.6 times for FD&A costs with proved reserves.
    • 1.9 times for FD&A costs with proved plus probable reserves.

  • Achieved finding and development costs* ("F&D") costs, including changes in future development capital, of:
    • $29.22 per boe for proved reserves.
    • $23.73 per boe for proved plus probable reserves.

*Journey's 2017 F&D costs were negatively impacted by revisions due to declining commodity prices and by negative technical revisions, including the reduction of booked reserves in a single property in Journey's central core area after the drilling of an unsuccessful well. Journey management feels that the reduction of these reserves is a one- time event and is not representative of Journey's E&D program moving forward. Journey's 2018 program is focused on continued development of 3 key pools where the company has had previous success. Two wells were drilled in the first quarter and initial test results have   exceeded expectations.

  • Proved plus probable reserve life index of 15.1 years, with only $3.47/boe of future development capital booked in the reserve report.

  • Proved developed producing and proved plus probable developed producing reserve life index of 7.7 and 9.9 years respectively, are testaments to Journey's low decline asset base.

COMPANY GROSS WORKING INTEREST OIL AND GAS RESERVES AND NET PRESENT VALUES

The following table provides summary information presented in the GLJ Petroleum Consultants Limited ("GLJ") independent reserves assessment and evaluation effective December 31, 2017, (the "GLJ Report").  GLJ evaluated 100% of Journey's crude oil, natural gas liquids ("NGL") and natural gas reserves.  The evaluation of all of its oil and gas properties was done in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101").  Detailed reserve information will be presented in the Company's upcoming Statement of Reserves Data and Other Oil and Gas Information section of the Company's Annual Information Form scheduled to be filed on SEDAR on or before March 31, 2018.

Company Gross Reserves
Based on Forecast Price and Costs as at December 31, 2017


Light
Medium
Oil

Heavy Oil

Natural
Gas

NGLs

Total(2)

Reserves Category

(Mbbl)

(Mbbl)

(MMcf)

(Mbbl)

(Mboe)

Proved







Producing

5,729

2,896

97,825

2,962

27,891


Developed non-producing

110

5

4,183

136

947


Undeveloped                      

2,550

1,485

20,978

931

8,462

Total proved

8,388

4,386

122,986

4,028

37,300

Probable

7,808

3,176

60,345

1,838

22,879

Total proved plus probable

16,196

7,562

183,331

5,866

60,179







Included in Above






Proved plus probable producing

7,942

4,058

126,635

3,746

36,851


Notes:

(1)

Company Gross Reserves consists of Journey's working interest (operated and non-operated) share of reserves before deduction of royalties payable and without including royalties receivable by the Company.          

(2)

 In the case of natural gas volumes, boes are derived by converting natural gas to oil using the ratio of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf:1 bbl).

(3)

Total values may not add due to rounding.

 

Net Present Values of Future Net Revenue (Based on Forecast Prices and Costs)






Before Tax Net Present Value
($000's)

Reserves category


0%

5%

10%

15%

20%

Proved








Producing


398,189

309,837

251,747

212,151

183,843


Developed non-producing


16,249

10,697

7,966

6,334

5,235


Undeveloped


140,628

80,726

47,950

28,686

16,662

Total proved


555,066

401,259

307,662

247,171

205,739

Probable


567,334

334,481

219,504

154,817

114,766

Total proved plus probable


1,122,401

735,740

527,166

401,988

320,505








Included in Above







Proved plus probable producing


603,713

426,127

326,341

264,577

223,171

Notes:

(1)

Total values may not add due to rounding

(2)

Forecast pricing used is the average of the published price forecasts for GLJ Petroleum Consultants Ltd., Sproule Associates Ltd. and McDaniel & Associates Consultants Ltd. as at December 31, 2017.

(3)

It should not be assumed that the net present values of future net revenues estimated by GLJ represent fair market value of the reserves. There is no assurance that the forecast price and cost assumptions will be attained and variances could be material.           

 

The forecast prices and foreign exchange rates used in the GLJ Report are as follows:


WTI Cushing

Oklahoma

($US/bbl)

Edmonton

40 API
($CDN/bbl)

Alberta

AECO-spot

($CDN/Mmbtu)

Foreign

Exchange

($US/$CDN)

2018

57.50

68.60

2.43

0.7900

2019

60.90

72.02

2.77

0.8000

2020

64.13

74.48

3.19

0.8167

2021

68.33

78.60

3.48

0.8283

2022

71.19

80.84

3.67

0.8400

2023

73.15

82.83

3.76

0.8433

2024

75.16

85.17

3.85

0.8433

2025

77.17

87.53

3.93

0.8433

2026

79.01

89.66

4.02

0.8433

2027

80.60

91.49

4.10

0.8433

2028

82.20

93.31

4.19

0.8433

2029

83.83

95.15

4.28

0.8433

2030

85.52

97.09

4.37

0.8433

Thereafter

+2.0%/yr

+2.0%/yr

+2.0%/yr

0.8433

 

FINDING, DEVELOPMENT AND ACQUISITION COSTS

Journey's finding and development ("F&D") and finding, development and acquisition ("FD&A") costs for 2017, 2016 and the three-year average are presented in the tables below.  The capital costs used in the calculations are those costs related to: land acquisition and retention, seismic, drilling, completions, tangible well site, tie-ins, and facilities, plus the change in estimated future development costs ("FDC") as per the independent evaluator's reserve report.  Net acquisition costs are the cash outlays in respect of acquisitions; minus the proceeds from the disposition of properties during the year.  Due to the timing of capital costs and the subjectivity in the estimation of future costs, the aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated FDC's generally will not necessarily reflect total FDC's related to reserve additions for that year.  The reserves used in this calculation are working interest reserve additions, including technical revisions and changes due to economic factors.  The 2017 and the three-year average capital expenditures are unaudited as the 2017 financial results are in the process of being finalized.

Proved Finding, Development & Acquisition Costs

2017

2016

3 Year
Average

Capital expenditures (including A&D) ($000's)

65,543

6,944

120,537

Change in future capital ($000's)

20,073

12,677

15,839

Total capital for FD&A (000's)

85,616

19,621

136,376

Reserve additions, including A&D (Mboe)

10,834

4,203

17,691

Proved FD&A costs – including changes in future capital ($/boe)

7.90

4.67

7.71

Proved FD&A costs – excluding changes in future capital ($/boe)

6.05

1.65

6.81

Recycle ratio(1)









Including changes in future capital

1.6

2.6

1.7





Proved plus Probable Finding, Development

& Acquisition Costs

2017

2016

3 Year
Average

Capital expenditures (including A&D) ($000's)

65,543

6,944

120,537

Change in future capital ($000's)

41,710

(9,967)

3,911

Total capital for FD&A (000's)

107,253

(3,023)

124,448

Reserve additions, including A&D (Mboe)

16,058

1,093

21,093

Proved plus Probable FD&A costs – including changes in future
capital ($/boe)

6.68

(2.77)

5.90

Proved plus Probable FD&A costs – excluding changes in future
capital ($/boe)

4.08

6.35

5.71

Recycle ratio (1)










Including changes in future capital

1.9

(4.4)

2.2





Proved Finding & Development Costs

2017

2016

3 Year
Average

Capital expenditures (excluding A&D) ($000's)(2)

30,406

15,496

88,539

Change in future capital ($000's)(2)

(985)

18,623

(1,136)

Total capital for F&D ($000's)

29,421

34,119

85,403

Reserve additions, (excluding A&D) (Mboe)

1,007

4,136

7,461

Proved F&D costs – including changes in future capital ($/boe)

29.22

8.25

11.45

Proved F&D costs – excluding changes in future capital ($/boe)

30.19

3.75

11.60

Recycle ratio (1)









Including changes in future capital

0.4

1.5

1.1





Proved Plus Probable Finding & Development Costs

2017

2016

3 Year
Average

Capital expenditures (excluding A&D) ($000's)(2)

30,406

15,496

86,539

Change in future capital ($000's)(2)

(1,860)

15,804

(17,330)

Total capital for F&D ($000's)

28,546

31,300

69,209

Reserve additions (excluding A&D) (Mboe)

1,203

3,045

6,761

Proved  plus Probable F&D costs – including changes in future
capital ($/boe)

23.73

10.28

10.24

Proved plus Probable  F&D costs – excluding changes in
future capital ($/boe)

25.28

5.09

12.80

Recycle ratio (1)









Including changes in future capital

0.5

1.2

1.2

Notes:


(1)

Recycle ratio is calculated as the operating netback per boe divided by F&D or FD&A costs per boe as applicable. The operating netbacks used in the respective years are as follows: 2017 (unaudited) - $12.56/boe; 2016 - $12.21 and the three year average is $12.73. 

(2)

Development capital has been adjusted for the effects of reserves categorized as acquisitions and dispositions.

 

FUTURE DEVELOPMENT COSTS

The following table provides the breakdown of future development costs deducted in the estimation of the future net revenue attributable to the proved and proved plus probable reserve categories noted below:

Year


Proved Reserves
($000's)

Proved Plus Probable Reserves
($000's)

2018


19,130

23,055

2019


29,498

63,569

2020


20,710

60,041

2021


22,668

35,096

2022


7,079

12,746

Remaining


12,198

14,118

Total (Undiscounted)


111,283

208,625

 

RESERVE LIFE INDEX

The Company's reserve life index ("RLI") is calculated by taking the Company Gross Reserves from the GLJ Report and dividing them by the projected 2018 production as estimated in the GLJ report.


Company Gross
Reserves

2018 Company
Gross Production

RLI

Reserves Category

(Mboe)

(Mboe)

(Years)

Proved, developed, producing

27,891

3,611

7.7

Total proved

37,300

3,813

9.8

Proved plus probable producing

36,851

3,706

9.9

Proved plus probable

60,179

3,979

15.1

 

NET ASSET VALUE

The following table provides a calculation of Journey's estimated net asset value ("NAV") and net asset value per share ("NAVPS") as at December 31 based on the estimated future net revenues associated with Journey's reserves as presented in the GLJ Report.  The following numbers were used in the NAV calculation and are pending finalization of the year-end audit: 1) net debt of approximately $103,000 thousand; and 2) funds flow of approximately $9,800, based on production of approximately 10,500 (46% oil and NGL's) for the fourth quarter.

Net asset value ($000's)





 

Reserves category

 

2017(1)

2017

Pro-forma(2)

 

2016(1)

 

%

Proved, developed, producing

162,549

141,213

178,857

(21)

Total proved

218,464

197,128

249,365

(21)

Proved plus probable producing

237,143

215,807

244,158

(12)

Proved plus probable

437,968

416,632

456,481

(9)

 

Net asset value per share ($)





 

 

Reserves category

 

 

2017(4)

2017

Pro-

forma(3)

 

 

2016(4)

 

 

%

Proved, developed, producing

3.17

3.66

4.09

(11)

Total proved

4.26

5.11

5.71

(11)

Proved plus probable producing

4.63

5.60

5.59

-

Proved plus probable

8.55

10.81

10.44

4

 

Notes:

(1)

Aggregate NAV is calculated by taking the future net revenues per the GLJ report, on a before tax basis, discounted at 10% and adjusting for the following:



a)

Add undeveloped land value, as per management's estimate, of $13,823 thousand at December 31, 2017 (December 31, 2016 - $13,721 thousand).  



b)

Subtract net debt at December 31, 2017 of approximately $103,000 thousand (unaudited); (December 31, 2016 - $86,916 thousand).

(2)

Pro-forma NAV is the year end NAV, adjusted for $21,336 thousand of additional debt incurred by Journey in the 12,700 thousand share buyback which closed on February 2, 2018.

(3)

Pro-forma NAVPS is calculated by taking the pro-forma NAV and dividing it by the basic shares outstanding after the share buyback, or approximately 38,541 thousand shares.

(4)

Year-end NAVPS is calculated by taking the NAV and dividing it by the basic shares outstanding as at December 31, 2017 of 51,241 thousand shares (current outstanding of 38,541 thousand; December 31, 2016 – 43,703 thousand). All share counts have been rounded to the nearest 1,000 shares.     

 

About the Company

Journey is a Canadian exploration and production company focused on oil-weighted operations in western Canada.  Journey's strategy is to grow its production base by drilling on its existing core lands, implementing waterflood projects, and by executing on accretive acquisitions.  Journey seeks to optimize its legacy oil pools on existing lands through the application of best practices in horizontal drilling and, where feasible, with waterfloods. Journey is also in the early phases of advancing development of an unconventional shale resource play in the oil window of the Duvernay, in the western shale basin of our central core area.

ADVISORIES

Information in this press release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws, which involves substantial known and unknown risks and uncertainties, most of which are beyond the control of Journey, including, without limitation, those listed under "Risk Factors" and "Forward Looking Statements" in the Annual Information Form filed on www.SEDAR.com on March 26, 2017. Forward-looking information may relate to Journey's future outlook and anticipated events or results and may include statements regarding the business strategy and plans and objectives. Particularly, forward-looking information in this press release includes, but is not limited to, information concerning Journey's drilling and other operational plans, production rates, and long-term objectives. Journey cautions investors in Journey's securities about important factors that could cause Journey's actual results to differ materially from those projected in any forward-looking statements included in this press release. Information in this press release about Journey's prospective funds flows and financial position is based on assumptions about future events, including economic conditions and courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that information regarding Journey's financial outlook should not be used for purposes other than those disclosed herein. Forward-looking information contained in this press release is based on current estimates, expectations and projections, which Journey believes to be reasonable as of the current date. No assurance can be given that the expectations set out herein will prove to be correct and accordingly, you should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time except as required by applicable securities law.

Readers are cautioned that the above list of risks and factors are not intended to be exhaustive. Additional information on these and other factors that could affect operating and financial results are, or will be, included in reports filed with the applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

Non-IFRS Measures

The Company uses the following non-IFRS measures in evaluating corporate performance. These terms do not have a standardized meaning prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculation of similar measures by other companies.

1)

The Company considers funds flow from operations (also referred to as "funds flow") a key performance measure as it demonstrates the Company's ability to generate funds necessary to repay debt and to fund future growth through capital investment. Funds flow from operations is calculated as funds from operating activities before changes in non-funds working capital, transaction costs and decommissioning costs incurred. Funds flow from operations per share is calculated as funds flow from operations divided by the weighted-average number of shares outstanding in the period. Journey's determination of funds flow from operations may not be comparable to that reported by other companies. Journey also presents funds flow from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net earnings per share, which per share amount is calculated under IFRS and is more fully described in the notes to the financial statements.

2)

Net debt is a non-IFRS measure and represents current assets less current liabilities and bank debt (but excludes the future liability (or asset) related to the mark-to-market measurement of derivative contracts as well as decommissioning liabilities).

3)

Operating netback is a non-IFRS measure and equals total revenue less royalties, transportation and field operating costs calculated on a per boe basis. Funds flow netback equals the operating netback less funds finance costs, general and administrative costs, realized gains and losses on derivative contracts, plus any interest income.

 

Barrel of Oil Equivalents

Where amounts are expressed in a barrel of oil equivalent ("BOE"), or barrel of oil equivalent per day ("BOE/d"), natural gas volumes have been converted to barrels of oil equivalent at six (6) thousand cubic feet ("Mcf") to one (1) barrel. Use of the term BOE may be misleading particularly if used in isolation. The BOE conversion ratio of 6 Mcf to 1 barrel ("Bbl") of oil or natural gas liquids is based on an energy equivalency conversion methodology primarily applicable at the burner tip, and does not represent a value equivalency at the wellhead. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.

Oil and Gas Measures and Metrics

All reserve references in this press release are "Company Gross Reserves". Company gross reserves are the Company's total working interest share of reserves before deduction of any royalties and excluding any royalty interests of the Company.

All future net revenues are stated prior to provision of general and administrative expenses, interest, but after the deduction of royalties, operating costs, estimated abandonment and reclamation cost for wells with reserves attributed to them; and estimated future capital expenditures to book those reserves. Future net revenues have been presented on a before tax basis. Estimated values of future net revenue disclosed herein are not representative of fair market value.

The Company uses the following metrics in assessing its performance and comparing itself to other companies in the oil and gas industry. These terms do not have a standardized meaning and therefore may not be comparable with the calculation of similar measures.by other companies:

1)

Recycle ratio is calculated by taking the operating netback and dividing it by the finding and development or finding, development and acquisition costs (including changes in future development costs) per boe. The ratio gives an indication of how profitably the company is replacing its reserves. The higher the ratio the more profitably it is replacing reserves.

2)

The Company's reserve life index ("RLI") is calculated using the Company Gross Reserves and dividing them by the projected, next years' production from the independent reserve engineers' year end reserve report. The RLI is used by management to assess the longevity of the reserves being added which in turn gives information about the corporate decline rates of the Company.

3)

Corporate decline ("Decline") is the rate at which production from a grouping of assets falls from the beginning of a fiscal year to the end of that year.

 

Select Definitions

bbl

barrel

bbls

barrels

Mbbls

Thousand barrels

MMBtu

Million British thermal units

NGLs

Natural gas liquids

Mcf

thousand cubic feet

Mmcf

Million cubic feet

Mmcf/d

Million cubic feet per day

Boe

Barrel of oil equivalent

Mboe

Thousand boe

$M

Thousands of dollars

 

No securities regulatory authority has either approved or disapproved of the contents of this press release.

SOURCE Journey Energy Inc.

Alex G. Verge, President and Chief Executive Officer, 403.303.3232, alex.verge@journeyenergy.ca; or Gerry Gilewicz, Chief Financial Officer, 403.303.3238, gerry.gilewicz@journeyenergy.ca