Journey Energy Inc. reports its second quarter financial and operating results

August 12, 2014

CALGARY, Aug. 12, 2014 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") is pleased to announce its second quarter 2014 results.  Journey achieved record production during the quarter, a direct result of our major acquisition from a senior producer, which closed in March. The highlights of our second quarter results are shown below. Copies of the complete financial statements and management's discussion and analysis in respect thereof for the three months and six months ended June 30, 2014 will be available, through www.sedar.com or by visiting Journey's website at www.journeyenergy.ca.

SECOND QUARTER HIGHLIGHTS


  • Journey completed its transition into a dividend paying Corporation through a successful Initial Public Offering, raising $166 million of proceeds, net to Journey. The proceeds reduced corporate net debt to approximately one times trailing cash flow.
  • Started trading on the Toronto Stock Exchange on June 19.
  • Increased cash flow from operations by 97% to $22.1 million in the second quarter of 2014 as compared to the same quarter in 2013.
  • Achieved record production of 11,151 boe/d for the second quarter, an increase of 120% from the same quarter in 2013.
  • Invested $17.0 million in exploration and development capital in the quarter representing 77% of cash flow.
  • Reduced general and administrative costs by 41% to $3.18 per boe in the second quarter from $5.38 per boe in the comparable period from 2013.
  • Initiated the most active drilling program in our history.
  • Established productivity in the glauconite formation in East Matziwin and Countess, two pools containing over 30 unbooked 100% working interest drilling locations.

Three Months ended

 June 30,

Six months ended

 June 30,

Financial ($000's except per share amounts)

2014

 

2013

%

change

2014

 

2013

%

change

Production revenue

63,448

24,425

160

106,139

46,192

130

Cash flow from operations

22,096

11,206

97

42,677

20,543

108

    Per basic share

0.78

0.43

81

1.57

0.78

101

    Per diluted share

0.74

0.39

90

1.49

0.71

110

Net income

3,480

3,660

(5)

2,360

3,792

(38)

    Per basic share

0.12

0.14

(14)

0.09

0.14

(36)

    Per diluted share

0.12

0.13

(8)

0.08

0.13

(38)

Capital expenditures, net cash

14,088

7,506

88

210,487

39,061

439

Net debt

86,888

84,118

3

86,888

84,118

3








Share Capital (000's)







Basic, weighted average

28,280

26,200

8

27,264

26,192

4

Basic, end of period

43,089

26,217

64

43,089

26,217

64

Fully diluted

46,812

32,381

45

46,812

32,381

45








Daily Production







Natural gas volumes (mcf/d)

31,484

14,304

120

25,991

13,673

90

Light oil (bbl/d)

5,087

2,268

124

4,225

2,208

91

Liquids (bbl/d)

817

411

99

729

422

73

Corporate (boe/d)

11,151

5,062

120

9,286

4,909

89








Average Prices







Natural gas ($/mcf)

5.16

3.78

37

5.43

3.61

50

Light Oil ($/bbl)

95.25

85.47

11

93.23

81.75

14

Liquids ($/bbl)

61.45

49.99

23

70.22

59.96

17

Corporate ($/boe)

62.52

53.02

18

63.15

51.98

21








Netbacks ($/boe)







Realized prices

62.52

53.02

18

63.15

51.98

21

Royalty expense

(12.06)

(7.09)

70

(10.80)

(7.18)

50

Operating expense

(15.94)

(13.26)

20

(14.89)

(13.31)

12

Transportation expense

(1.96)

(2.05)

(4)

(2.03)

(1.92)

6

Operating netback

32.56

30.62

6

35.43

29.57

20








Wells drilled







Gross

7

3

133

15

11

36

Net

6.0

2.3

161

10.4

6.6

58

Success rate

100%

100%

-

100%

100%

-

 

(1)

The Company considers cash flow from operations (also referred to as "cash 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. Cash flow from operations is calculated as cash from operating activities before changes in non-cash working capital, transaction costs and decommissioning costs incurred. Cash flow from operations per share is calculated as cash flow from operations divided by the weighted-average number of shares outstanding in the period.  Journey's determination of cash flow from operations may not be comparable to that reported by other companies. Journey also presents cash 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 represents current assets less current liabilities and bank debt (but excludes the potential future liability related to the mark-to-market measurement of derivative contracts). It does not have a standardized meaning prescribed by Generally Accepted Accounting Principles and it is therefore unlikely to be comparable to similar measures presented by other companies.

(3)

All barrels of oil equivalent conversions use 6 mcf to 1 barrel of oil.

(4)

Operating netback equals total revenue less royalties, transportation and operating costs calculated on a per boe basis. Cash flow netback equals the operating netback less cash finance costs, general and administrative costs, realized gains and losses on derivative contracts, plus any interest income. Operating netback and funds flow from operations netback do not have a standardized measure prescribed by Generally Accepted Accounting Principles and therefore may not be comparable with the calculations of similar measures for other companies.

SECOND QUARTER FINANCIAL RESULTS

The first full quarter of operation with the acquisition yielded record daily production of 11,151 boe/d.  This was 120% higher than the 5,062 boe/d in the second quarter of 2013.  The second quarter included approximately 2,000 boe/d (93% natural gas) that was deemed to be non-core and was divested on April 28.  The impact on second quarter production from these divested assets for the 28 days in the quarter that Journey owned them was approximately 600 boe/d.

During the second quarter Journey completed its initial public offering ("IPO") and commenced trading on the Toronto Stock Exchange on June 19.  The IPO financing raised $166 million in net proceeds to Journey.  These funds were used to repay the debt incurred in completing the acquisition in March.  After this repayment, the resulting net debt at June 30 of $86.9 million resulted in an annualized debt to cash flow of 1.0 times.  Journey is currently expecting to exit the year at approximately $95 million with a net debt to annualized cash flow ratio of 0.8 times.

Net income for the quarter was $3.5 million or $0.12 per basic and diluted share.  For the six months year to date the Company reported $2.4 million in net income which resulted in $0.09 per basic share and $0.08 per diluted share.  Cash flow from operations for the second quarter was $22.1 million or $0.78 per basic share and $0.74 per diluted share and for the year to date cash flow was $42.7 million or $1.57 per basic share and $1.49 per diluted share.

Journey invested $17.0 million on its exploration and development program in the second quarter.  The exploration and development capital spent for the year to date now sits at $39.8 million.  Journey plans on spending between $90 and $95 on its capital program in 2014 (excluding acquisitions and divestitures).

OPERATIONS UPDATE

In the second quarter, the Company continued to focus on its Southern Alberta core area with the drilling of 7 (6.0 net) net wells.  The second quarter capital program was heavily weighted to June.

During the second quarter Journey completed a three well program in Matziwin (100% WI) and participated in a three well program in the Countess/Brooks area (50% WI).  To this point 100% of these wells have been successful, and initial production rates for each of these programs are projected to meet or exceed budgeted levels.  Of significance during the quarter was a 100% working interest, glauconite well in the East Matziwin area, which encountered near-virgin pressure and has recently been brought on stream at a restricted rate of 400 boe/d.  Journey has identified over thirteen offsetting locations to this well and has no reserve bookings to date in East Matziwin.  Based upon this success Journey has added a second East Matziwin well to our fourth quarter drilling program.

Also of significance, a partner operated well was successfully completed in the glauconite zone in Countess, encountering near virgin pressures and testing at rates well in excess of our projected type curve.  This well is located in close proximity to Journey's 100% land block where Journey has identified twenty unbooked locations.  Journey plans to initiate a three well drilling program (100% WI) in Countess in September.

In our Herronton area, Journey added significantly to its land position during the second quarter with a combination of Crown purchases and freehold leases.  Our footprint has expanded in the area to over thirty one sections, which is more than three times the original foot print when the pool was first acquired in 2013.  Journey recently tested the first two wells of a three well drilling program.  Journey anticipates that both of these wells will be brought on-stream with thirty day initial production rates well in excess of our 400 boe/d per well forecasted rates.

Operationally, the Company was busy integrating the first quarter acquisition into its own operations.  Journey conducted extensive turnarounds on the newly acquired assets in June. During the second quarter, the Company experienced production downtime due to third parties outages in the Pine Creek Area.  These unplanned outages at Pine Creek will extend into the third quarter and result in further downtime of 200-300 boe/d (70% gas).  However, these outages have been more than offset by the success of our drilling program and the Company remains on track to meet or exceed the full year average production target of between 10,000 and 10,400 boe/d.  

OUTLOOK

In June of 2014, Journey began the most active drilling program in our history. Journey's capital program (excluding acquisitions and dispositions) for 2014 is currently set at between $90 and $95 million.  60% of the Company's exploration and development expenditures are planned to be spent in the June through October time frame.  During this period Journey will have up to four active drilling rigs (three operated).  Journey is currently in the midst of a four well program in our Keystone Cardium Unit (52% WI), and a three well program in Herronton (100% WI). 

Journey recently completed its transition to a dividend paying Corporation.  In July the Company declared its first monthly dividend, which has initially been set at $0.06 per share. The July dividend will be paid on August 15.  It is currently anticipated that the dividend will thereafter remain at $0.06 for each of the August and September production months.  The Company is targeting a simple payout ratio of 25% of cash flows and an all-in payout ratio of approximately 100%.

In addition to Journey's ongoing commitment to maintain a meaningful and sustainable dividend, Journey is poised to deliver above average growth within our peer group by executing on our internally generated capital program.  Our drilling inventory exceeds ten years at current activity levels. 

For the third quarter, Journey's third quarter production will be impacted by unplanned third party outages in Pine Creek, Gilby and Cherhill.  These outages are forecast to reduce third quarter production volumes by about 300 boe/d to an average of 10,600 boe/d.  With the return of Pine Creek in mid-August Journey's productive capability will exceed 11,000 boe/d.  Based on its excellent drilling results to date, Journey reaffirms its average production guidance of 10,000 to 10,400 boe/d for 2014.  The Company is well positioned to achieve or exceed its exit guidance of 11,200 boe/d for 2014.

Net debt will increase from now until October but by the end of the year net debt is expected to remain well below one times annualized fourth quarter cash flow.

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 become a growth plus sustainable yield company focused on drilling on its existing core lands, implementing water flood projects, executing on accretive acquisitions and growing its production base.  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

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 final long form prospectus of Journey dated June 12, 2014 (the "Prospectus"). 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, dividend policy, long-term objectives and the declaration and payment of dividends. 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 cash 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.

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

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.

SOURCE Journey Energy Inc.

Alex G. Verge, President and Chief Executive Officer, 403-294-1635, alex.verge@journeyenergy.ca; Gerry Gilewicz, Chief Financial Officer, 403-303-3238, gerry.gilewicz@journeyenergy.ca