Journey Energy Inc. Reports First Quarter 2018 Results, Announces a Significant Pool Extension in Matziwin, and Updates Activity on Its East Duvernay Resource Play

May 8, 2018

CALGARY, May 8, 2018 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") is pleased to announce its financial results for the first quarter of 2018.  The complete set of financial statements and management discussion and analysis for the periods ended March 31, 2018 and 2017 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

Highlights for the first quarter and to date are as follows:

  • Achieved a production level of 10,117 boe/d in the first quarter, a 12% increase from the first quarter of 2017. Liquids (oil and natural gas liquids) production accounted for 4,755 Boe/d or 47% of total production during the quarter.
  • Received a corporate average commodity price (before hedging) of $31.78/boe in the quarter with liquids production accounting for 81% of total sales revenues.
  • Drilled 2 (2.0 net) wells in Matziwin. Both wells were placed on production in the quarter and have exceeded Management's expectations. The 14-28-23-13W4 well, which was placed on production March 13 has already produced in excess of 25,000 boe (79% oil) and represents a significant undrained extension to Journey's Matziwin Glauconitic shore face pool. Management currently estimates this pool to contain up to 20 million barrels of OOIP; and will support up to 8 additional drilling locations.
  • Entered into definitive agreements for the sale of certain non-core assets totaling $5.0 million, with $2.0 million having closed in the first quarter and the remainder anticipated to close in May.
  • Entered into three land acquisition agreements in the East Duvernay Shale Basin. Two purchases closed in the first quarter while a third closed in early April resulting in Journey controlling over 102 sections of contiguous 100% owned PNG rights located in what Journey anticipates to be the oil window of the Duvernay fairway actively being drilled by offset owners. These lands will benefit from Journey's ownership in significant pipeline egress and underutilized processing facilities currently servicing the area.
  • Currently drilling a vertical, Duvernay test well at 103/6-28-42-3W5; The well will be configured to accommodate the drilling of a future horizontal test well.
  • Implemented a strategy to continue certain Duvernay Crown lands, which upon submission of the 6-28 vertical results, are expected to continue 25 of 29 key sections.
  • Repurchased 12.7 million common shares at a price of $1.68 per share.
  • Completed a new term debt financing for $22 million with Alberta Management Investment Company. The debt bears interest at 7.65% and matures on September 30, 2022.
  • Renewed the Company's credit facility at $100 million.


Three months ended

March 31,

Financial ($000's except per share amounts)

2018

2017

%

change

Production revenue

28,934

26,690

8

Funds flow

5,140

6,754

(24)


Per basic share                       

0.12

0.15

(20)


Per diluted share                                 

0.12

0.15

(20)

Net earnings (loss)

(9,144)

3,920

(333)


Per basic share

(0.21)

0.09

(335)


Per diluted share

(0.21)

0.09

(335)

Capital expenditures, net

8,373

10,415

(20)

Net debt

128,215

77,416

66





Share Capital (000's)




Basic, weighted average

43,199

45,298

(5)

Basic, end of period

38,546

48,653

(21)

Fully diluted

45,561

54,787

(17)





Daily Production




Natural gas volumes (mcf/d)

32,176

28,586

13

Crude oil (bbl/d)

3,983

3,937

1

Natural gas liquids (bbl/d)

771

326

137

Corporate (Boe/d)

10,117

9,027

12





Average Realized Prices (including hedging)




Natural gas ($/mcf)

2.36

2.52

(6)

Crude Oil ($/bbl)

47.88

51.06

(6)

Natural gas liquids ($/bbl)

40.82

32.01

28

Corporate ($/BOE)

29.47

31.40

(6)





Netbacks ($/BOE)




Realized prices

29.47

31.40

(6)

Royalty expense

(4.37)

(3.82)

14

Operating expense

(14.08)

(13.75)

2

Transportation expense

(0.40)

(0.44)

(9)

Operating netback

10.62

13.39

(21)





Wells drilled




Gross

2

4

(50)

Net

2.0

3.0

(33)

Success rate (%)

100

100


 

OPERATIONS

Journey achieved production of 10,117 Boe/d (47% liquids) in the first quarter of 2018, representing a 12% increase from the first quarter of 2017. First quarter 2017 production was negatively impacted by an extended period of extremely cold weather early in the quarter, which resulted in downtime due to freeze-offs at many locations, and persisted throughout the quarter. Management estimates that the impact of the freeze-offs on production volumes during the quarter was approximately 250 boe/d (75% natural gas).

The extreme weather experienced in the first quarter also had a non-recurring impact on operating expenses due to increased costs for methanol, propane, snow removal and repair and maintenance expenses.  Operating costs in the first quarter were also negatively impacted by $860 thousand of prior period adjustments relating to expenses incurred in the second half of 2017, many of which were associated with Journey's 2017 initiative to improve the reliability of our pipeline infrastructure. Journey currently forecasts operating expenses of between $12 and $13 per boe for the remainder of 2018.

During the first quarter, Journey drilled two horizontal wells in its Matziwin core area.  The 14-28-23-13W4 well which was placed on production on March 13 has already produced in excess of 25,000 boe (79% oil).  This well encountered near virgin reservoir pressure and flowed for approximately one month before being placed on pump.  The 14-28 well was a westerly step out of Journey's East Matziwin oil pool.  The IP30 of this well was approximately 470 bbl/d of oil and is the highest IP30 oil production rate achieved by Journey in Matziwin to date.  The Company's assessment of the results is that the 14-28 well has encountered an undrained extension to the east Matziwin pool.  Based upon Journey's mapping of the pool, this extension is currently estimated to contain up to 20 million barrels of OOIP.  This pool may support up to eight additional locations.  Based upon the results of this new well Journey has re-allocated funds within its 2018 capital plan and devoted them to the Matziwin area.  The Company is in the process of licensing three additional offsetting locations to the discovery well.  Weather permitting Journey intends to begin drilling in Matziwin in the third week of May, and looks forward to reporting the results of the additional wells in August.

Journey has also been extremely active in advancing the development of its emerging Duvernay resource play.  Journey has assembled a highly prospective, contiguous, 100% working interest land block in an area extensively served by Journey's underutilized infrastructure.  Journey's activity during the past few months has been focused on addressing land tenure and near term expiry issues along with the modeling and planning for the initial development phase.  Journey has licensed two horizontal wells and one vertical stratigraphic test well in addition to purchasing and reprocessing additional seismic data.  Journey has submitted continuation applications to Alberta Energy.  Based on the information originally provided, and the prospective results of the vertical stratigraphic test well, the Company anticipates continuing all but four of the twenty nine sections of land.  The four expiring sections are deemed by Journey to be non-strategic to the future development of the play.  The results of the vertical test well at 6-28-42-3W5 are anticipated to be available prior to the end of May 2018.  These results are expected to confirm Journey's current interpretation that its land block contains some of the thickest and most prospective shales in the East Duvernay play.  The 6-28 well will be configured and drilled with the intent that it will become a future horizontal well test.  Journey continues to look at strategic partnerships to help develop this significant resource and will report on its progress in due course.

FINANCIAL

Daily sales volumes grew by 12% in 2018 over the same quarter in 2017 to average 10,117 boe/d.  Average corporate realized commodity prices were 3% lower in the first quarter with oil increasing by 6%, natural gas decreasing by 25% and natural gas liquids increasing by 28%. Liquids (oil and NGL's) revenues comprise 81% of total revenues for Journey and while the Edmonton par benchmark price for oil increased 14% over last year, the realized price was only 6% higher.  The current issues plaguing the Alberta oil market with respect to crude oil pipeline takeaway capacity have caused Journey's Alberta oil price differentials to increase from the norm of approximately $9/bbl to the first quarter of 2018 average of approximately $16/bbl. Natural gas prices continued to be depressed as Journey averaged $1.90/mcf, which is 25% lower than the $2.52/mcf realized in 2017.

The net hedging losses for the first quarter had a significant impact on both funds flow and the aggregate net loss.  The realized loss on hedging was $2.1 million while the unrealized loss was $6.1 million.  As WTI oil prices started their rapid escalation late in 2017 and into 2018, Journey hedged a significant portion of its oil production, with the purpose of guaranteeing a certain amount of funds flow in light of the additional leverage taken on with the share buyback.  The impact on Journey's netbacks was significant as the realized loss amounted to $2.31 per boe and the unrealized portion of the loss was $6.68 per boe.

Funds flow for the first quarter was $5.1 million as compared to $6.7 million in the first quarter of 2017.  Funds flow in 2017 was negatively impacted by a series of non-recurring field operating expenditures totaling approximately $1.04 million, which included cost overages from 2017 relating to pipeline integrity and facility turnaround costs.  Operating costs (net of processing recoveries) averaged $14.08 during the first quarter.  After eliminating the impact of the non-recurring costs, the average per boe cost would be under $13/boe.

On a per share basis, funds flow was $0.12 per basic and diluted share, which was 20% lower than the $0.15 per basic and diluted share in the first quarter of 2017.  Journey recorded a net loss of $9.1 million or $0.21 per basic and diluted share in the first quarter. 

Journey's production mix was the same in both 2018 and 2017 with natural gas volumes accounting for 53% of total volumes while liquids volumes were 47%.  However, as a percentage of revenue, liquids revenues represented 81% of total revenues while in 2017 it was 76%. 

Journey spent $10.5 million on its exploration and development program during the first quarter.  This included the acquisition of undeveloped lands; drilling, completing and tieing-in 2.0 net wells in Matziwin, plus ongoing exploitation projects.  The Company also divested a non-core property in the Crystal area for $2.0 million, which included production of 6 boe/d (95% oil). 

Journey exited the first quarter with net debt of $128.2 million which was 24% higher than at December 31, 2017.  The increase was primarily attributable to the increase in leverage due to the share repurchase.  The Company's annual review of its bank line is now complete and the syndicate has given indications that the reserve values would have supported a borrowing base of $110 million; however Journey has opted for the lower amount of $100 million to save on standby fees.  Based on Journey's forecasted capital spending and expected funds flow, Management currently views the $100 million level to be more than sufficient to provide sufficient liquidity for the Company to execute its capital plan in 2018.  The Company is currently drawn approximately $73 million on the credit facility.

Outlook

Although Journey's production volume forecast remains unchanged for 2018, the Company has adjusted its oil and natural gas prices as well as its oil price differential outlook for 2018.  In addition, it has also adjusted funds flow for the effects of the new price forecasts on its existing hedges.  Journey's updated guidance is presented in the table below:

Annual average production

10,100 – 10,500 Boe/d (47% liquids)

Exit 2018 production

10,700 – 11,100 Boe/d (48% liquids)

Exploration and development capital

$33 million

Net acquisition (disposition) capital

$(5) million

Funds flow

$26 - $30 million

Year-end net debt

$121 - $125 million

Funds flow per basic weighted average share

$0.68 – $0.76 share

Corporate annual decline rate

16%

 

Journey's 2018 forecasted funds flow is based upon the following average prices: WTI of US$65/bbl; Company differentials of $12/bbl for oil; AECO gas of CDN$1.55/mcf; and a foreign exchange rate of $0.78 US$/CDN$. 

On behalf of Journey's management team and directors we would like to thank our shareholders for their continued support through this challenging time.  There are few companies within our peer group that share the same upside leverage to rising commodity prices that Journey does, and we remain steadfast in our goal to provide shareholders with superior returns over the longer term.  We look forward to seeing our shareholders at our Annual General Meeting on May 23, 2018 at 3:00 p.m. to be held at Journey's offices.

About the Company

Journey is a Canadian exploration and production company focused on conventional, oil-weighted operations in western Canada. Journey's strategy is to grow its production base by drilling on its existing core lands, implementing water flood projects, 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 water floods.

ADVISORIES

This press release contains forward-looking statements and forward-looking information (collectively "forward looking information") within the meaning of applicable securities laws relating to the Company's plans and other aspects of our anticipated future operations, management focus, strategies, financial, operating and production results, industry conditions, commodity prices and business opportunities. In addition, and without limiting the generality of the foregoing, this press release contains forward-looking information regarding decline rates, anticipated netbacks, drilling inventory, estimated average drill, complete and equip and tie-in costs, anticipated potential of the Assets including, but not limited to, EOR performance and opportunities, capacity of infrastructure, potential reduction in operating costs, production guidance, total payout ratio, capital program and allocation thereof, future production, decline rates, funds flow, net debt, net debt to funds flow, exchange rates, reserve life, development and drilling plans, well economics, future cost reductions, potential growth, and the source of funding our capital spending. Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future.

The forward-looking information is based on certain key expectations and assumptions made by our management, including expectations and assumptions concerning prevailing commodity prices and differentials, exchange rates, interest rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; the ability to efficiently integrate assets and employees acquired through acquisitions, including the Acquisition, the ability to market oil and natural gas successfully and our ability to access capital. Although we believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Journey can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. Our actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that we will derive therefrom. Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide securityholders with a more complete perspective on our future operations and such information may not be appropriate for other purposes.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect our operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).These forward looking statements are made as of the date of this press release and we disclaim any intent or obligation to update publicly any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Journeys prospective results of operations, funds flow, netbacks, debt, payout ratio well economics and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this press release was made as of the date of this press release and was provided for the purpose of providing further information about Journey's anticipated future business operations. Journey disclaims any intention or obligation to update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein. 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 23, 2018. Forward-looking information may relate to our 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 our current estimates, expectations and projections, which we believe are reasonable as of the current date.  No assurance can be given that the expectations set out in the Prospectus or 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.

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" as 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 is calculated by taking cash from operating activities as reported in the Company's financial statements and adding or deducting the following items: changes in non-cash working capital; transaction costs and decommissioning costs. Journey's determination of funds flow may not be comparable to that reported by other companies. Journey also presents Funds Flow per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net income 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, bank debt and the promissory notes outstanding. For purposes of Journey's net calculation, the impact of the potential future liability (or asset) related to the mark-to-market measurement of derivative contracts as well as the provision for decommissioning liabilities have been excluded from the calculation.

(3)

Operating netback is a non-IFRS measure, is calculated on a per boe basis and equals total revenue (excluding hedging gains and losses); minus the aggregate of: royalties, transportation and field operating costs. Journey considers operating netback as an important measure to evaluate its operational performance as it demonstrates its field level profitability relative to current commodity prices.

 

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

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)

Corporate 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.

2)

IP 365 is the average daily production rate of a well in its first 365 days of production expressed in boe's.

 

Abbreviations

bbl

barrel

bbls

barrels

bbl/d

barrels of oil or NGL per day

boe

barrels of oil equivalent

boe/d

barrels of oil equivalent per day

gj

gigajoules

Mbbls

Thousand barrels

MMBtu

Million British thermal units

NGL

Natural gas liquids

Mcf

thousand cubic feet

Mmcf

Million cubic feet

Mmcf/d

Million cubic feet per day

Mboe

Thousand boe

$M

Thousands of dollars

OOIP

Original oil in place

 

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; Journey Energy Inc., 700, 517 - 10th Avenue SW, Calgary, AB T2R 0A8, 403-294-1635, www.journeyenergy.ca