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

November 13, 2014

CALGARY, Nov. 13, 2014 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") is pleased to announce its third quarter 2014 results. Journey achieved record cash flow from operations during the quarter, a direct result of production additions from an active drilling program. The highlights of our third 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 nine months ended September 30, 2014 will be available through www.sedar.com or by visiting Journey's website at www.journeyenergy.ca.

THIRD QUARTER HIGHLIGHTS


  • Increased cash flow from operations by 105% to $26.4 million in the third quarter of 2014 as compared to the same period in 2013.
  • Achieved production of 11,002 boe/d for the third quarter, an increase of 103% from the same period in 2013.
  • Achieved record liquids production of 6,039 boe/d, a 103% increase over the same period in 2013.
  • Reduced general and administrative costs by 44% to $2.84 per boe in the third quarter from $5.04 per boe in the comparable period from 2013.
  • Invested $32.6 million in the most active drilling program in our history.
  • Participated in 12.0 wells (9.6 net wells).
  • Followed up on our East Matziwin and Countess successes from the second quarter with additional 100% working interest wells in both areas. The results have exceeded Journey's type curve estimates.
  • Drilled a successful Ellerslie well in our Manola pool in a near virgin pressure part of the reservoir as well as a new pool discovery well in the Beaverhill Lake formation at Windfall.
  • As a result of a recent review of the bank credit facility, Journey's syndicate of bankers has increased the borrowing base from $190 million to $205 million effective November 4, 2014.










Three Months ended

September 30,

Nine months ended

September 30,

Financial ($000's except per share amounts)

2014

 

2013

%

change

2014

 

2013

%

change

Production revenue

59,776

28,204

112

165,915

74,376

123

Cash flow from operations

26,367

12,833

105

69,044

33,376

107


Per basic share

0.61

0.49

24

2.12

1.27

67


Per diluted share

0.59

0.44

34

2.03

1.15

77

Net income

12,734

2,564

396

15,094

6,357

137


Per basic share

0.30

0.10

200

0.46

0.24

92


Per diluted share

0.29

0.09

222

0.44

0.22

100

Capital expenditures, net cash

32,669

15,368

113

243,155

54,429

347

Net debt

100,635

79,128

27

100,635

79,128

27








Share Capital (000's)







Basic, weighted average

43,056

26,217

64

32,605

26,200

24

Basic, end of period

43,078

26,214

64

43,078

26,214

24

Fully diluted

46,826

32,344

45

46,826

32,344

45








Daily Production







Natural gas volumes (mcf/d)

29,775

14,722

102

27,266

14,026

94

Light oil (bbl/d)

5,344

2,349

128

4,602

2,256

104

Liquids (bbl/d)

695

623

12

718

490

47

Corporate (boe/d)

11,002

5,406

103

9,864

5,083

94








Average Prices







Natural gas ($/mcf)

4.37

2.72

61

5.04

3.30

53

Light Oil ($/bbl)

88.74

97.36

(9)

91.48

87.23

5

Liquids ($/bbl)

65.19

60.59

8

68.58

60.23

14

Corporate ($/boe)

59.06

56.50

5

61.61

53.61

15








Netbacks ($/boe)







Realized prices

59.06

56.50

5

61.61

53.61

15

Royalty expense

(10.23)

(7.60)

35

(10.59)

(7.33)

44

Operating expense

(14.08)

(13.12)

7

(14.59)

(13.24)

10

Transportation expense

(2.83)

(2.18)

30

(2.33)

(2.02)

15

Operating netback

31.92

33.60

(5)

34.10

31.02

10








Wells drilled







Gross

12

8

50

27

19

42

Net

9.6

6.1

57

20.0

12.7

57

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.

THIRD QUARTER FINANCIAL RESULTS

The first full quarter of operations post the Initial Public Offering ("IPO") was punctuated by the most active drilling program in our history, which resulted in record cash flow from operations. Journey also drilled successful concept wells that are a testament to the low risk nature of Journey's future capital growth prospects, which now exceed over ten years of drilling inventory at current activity levels.

During the quarter, Journey declared dividends of $0.18/share ($0.06 per share per month commencing in July), thereby completing our transformation into a sustainable dividend paying exploration and production corporation. As we entered this new phase in our corporate life, we did so with the strongest balance sheet in our history, with debt to annualized cash flow ratio of 1:1. Throughout 2015 we intend to remain steadfast in our resolve to pay a meaningful dividend, while preserving balance sheet flexibility.

Daily production of 11,002 boe/d for the third quarter resulted in record cash flow of $26.4 million or $0.61/basic and $0.59/diluted share. Production was 103% higher than the 5,426 boe/d in the third quarter of 2013. Although it has been less than six months since we closed our transformational acquisition, Journey has already begun to increase production and drive operating costs down on the acquired assets. We look forward to continued development of these properties for years to come.

Journey's net debt at September 30, 2014, of $100.6 million resulted in a debt to annualized cash flow ratio of 1.0 times. Journey is forecasting our net debt to fall throughout the fourth quarter resulting in year-end net debt of $95 to $99 million. We are pleased to report that, subsequent to the end of the quarter, Journey's banking syndicate has increased our borrowing base from $190 million to $205 million, as a result of their mid-year banking review. In addition, interest rates charged on the facility have been lowered.

Net income for the quarter was $12.7 million or $0.30 per basic and $0.29 per diluted share. For the nine months to date, the Company reported $15.1 million of net income, which resulted in $0.46 per basic share and $0.44 per diluted share. Cash flow from for the nine months ending September 30, 2014, was $69.0 million or $2.12 per basic share and $2.03 per diluted share.

Journey invested $32.6 million on its exploration and development program in the third quarter. The exploration and development capital spent for the year to date is $72.4 million. Journey plans on spending approximately $95 million on its capital program in 2014 (excluding acquisitions and divestitures).

OPERATIONS UPDATE

During the third quarter, Journey continued its successful second quarter drilling program at Countess/Brooks and East Matziwin in our Southern Alberta core area. Two 100% wells were drilled in Countess on our 100% working interest, seven section block. The first well was drilled and completed in the Sunburst formation for $820 thousand and achieved an IP30 of 140 boe/d (68% liquids). A second well was drilled and completed in the Glauconite formation for $1.9 million. This well achieved an IP30 of 335 boe/d (50% liquids). Both of these test wells have set up multiple drilling locations for 2015. These wells followed three partner operated wells (1.5 net) that achieved average IP30 rates of 280 boe/d (70% liquids).

In East Matziwin, a two well program was initiated to follow up on our second quarter achievements. Both wells have been successfully completed with average initial test rates of 700 boe/d (40% liquids). These wells will be brought on production in the fourth quarter at rates forecasted to exceed our 200 boe/d type curve rates.

In addition to our Southern Alberta core area success, Journey was also active in our Central Alberta core area. A successful 4.0 (2.1 net) well program in Pembina resulted in an average IP30 rate of 315 boe/d (79% liquids). Following that, Journey drilled a highly successful Ellerslie well in our Manola field that achieved an IP30 of 370 boe/d (77% liquids). This well has multiple follow up locations. As previously reported, Journey also drilled a new pool discovery well in the Beaverhill Lake formation at Windfall during the quarter.

OUTLOOK

As of today, Journey is in the final stages of completing our $95 million capital program for 2014. Due to a three week, unplanned outage of a third party sales gas line at the Cherhill and Glenevis facilities, Journey is forecasting a 200 boe/d impact for our fourth quarter production volumes. Even with this outage our quarterly volumes are still estimated to be in the 11,200 to 11,400 boe/d range. This is above the previous exit guidance of 11,200 boe/d.

Due to the recent volatility in commodity prices, Journey's capital program for 2015 has been initially set at $90 million, a capital spending level well below our capabilities. With this program, Journey is still able to maintain production, support our meaningful dividend at the current level, and preserve financial flexibility resulting in a debt to cash flow ratio remaining below 1:1. 

This 2015 capital program is forecast to yield annual production volumes in the 11,200 to 11,500 boe/d range. This represents 11% growth over our expected 2014 production level of 10,000 to 10,400 boe/d. It is currently forecast that cash flow from operations will be $105 to $110 million with debt maintained at current levels. The volatility in commodity prices can result in material variations to current assumptions. As a result, Journey is committing to a capital program of $32 million in the first quarter of 2015. As the Company enters the lower capital portion of the year from April to June, we will address our initial assumptions with respect to commodity prices, with a view to increasing or decreasing our spending program for the remainder of 2015.

For the six month period from October 1, 2014 to March 31, 2015, Journey has approximately 45% of our forecast production hedged at attractive commodity prices. The hedging, along with our strong balance sheet, provides Journey with the opportunity to maintain stability during this time of uncertainty. To further bolster Journey's financial position, the Company sold a non-core producing asset for proceeds of $4 million in October. Production from the divestiture was approximately 20 boe/d.

These volatile markets can present unique opportunities to companies that maintain financial flexibility, and with less than 40% drawn on our $205 million credit facility, Journey is well positioned to capitalize should an opportunity arise.

Journey has received confirmation from our largest shareholder, PSP Investments, that it plans to participate in the dividend re-investment program (DRIP) during the fourth quarter of 2014 with respect to its Restricted Voting Shares, representing approximately 24% of common equity of the Company. Journey management appreciates the continued and ongoing support from PSP Investments.

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 provide investors with growth plus a sustainable yield by focusing on drilling 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 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, 403.303.3232, alex.verge@journeyenergy.ca; Gerry Gilewicz, Chief Financial Officer, 403.303.3238, gerry.gilewicz@journeyenergy.ca