Journey Energy Inc. reports its 2014 financial results

March 16, 2015

CALGARY, March 16, 2015 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") is pleased to announce its 2014 financial results. The highlights of our fourth quarter and full year results are shown below.

HIGHLIGHTS

In 2014, Journey completed a significant acquisition, increasing production and capital project inventory while reducing our corporate decline rate, and transitioned to a public dividend paying exploration and production company through an initial public offering. Highlights include:

  • Increased cash flow from operations by 98% to $24.6 million in the quarter as compared to the same period in 2013. For the full year, achieved $93.6 million in cash flow from operations, which was 104% higher than 2013.
  • Achieved production of 11,773 BOE/d for the fourth quarter, an increase of 104% from the same period in 2013, and an increase of 11% over the pro forma post IPO production of 10,600 BOE/d.
  • Achieved record liquids production of 6,133 BOE/d for the quarter, a 102% increase over the same period in 2013.
  • Reduced general and administrative costs by 36% to $3.51 per BOE for the year in 2014, from $5.50 per BOE in 2013.
  • Invested $17.7 million in the fourth quarter, bringing the total net investment in 2014 to $260.9 million including $172 million on property acquisitions. Journey's 2014 capital program yielded FD&A costs (including changes in future capital) of $11.79/BOE and a 2P recycle ratio of 2.6:1.
  • Completed an active capital program with a total of 31 (22.8 net) wells for the year, achieving a 98% success rate.
  • Successfully completed our IPO issuing 14.75 million shares for gross proceeds of $178 million in June of 2014.
  • Declared dividends of $0.18 per share in the fourth quarter and $0.36 per share in 2014.

 


Three Months ended

December 31,

Twelve months ended

December 31,

Financial ($000's except per
share amounts)

2014

 

2013

%

change

2014

 

2013

%

change

Production revenue

48,264

26,086

85

209,509

98,814

112

Cash flow from operations

24,557

12,405

98

93,602

45,781

104


Per basic share

0.57

0.47

21

2.65

1.75

51


Per diluted share

0.56

0.42

33

2.56

1.53

67

Net income (loss)

(105,316)

(2,031)

5,085

(90,221)

4,326

(2,186)


Per basic share

(2.44)

(0.08)

2,950

(2.56)

0.17

(1,606)


Per diluted share

(2.44)

(0.08)

2,950

(2.56)

0.15

(1,807)

Capital expenditures, net cash

17,702

17,614

-

260,857

72,043

262

Net debt

100,575

84,119

20

100,575

84,119

20








Share Capital (000's)







Basic, weighted average

43,213

25,844

67

36,578

26,209

40

Basic, end of period

43,304

26,233

65

43,304

26,233

65

Fully diluted

48,130

33,264

45

48,130

33,264

45








Daily Production







Natural gas volumes (mcf/d)

33,846

16,342

107

28,925

14,610

98

Light oil (bbl/d)

5,334

2,494

114

4,787

2,316

107

Natural gas liquids (bbl/d)

799

547

46

738

504

46

Corporate (BOE/d)

11,773

5,765

104

10,346

5,255

97








Average Prices







Natural gas ($/mcf)

3.58

3.58

-

4.40

3.24

36

Light Oil ($/bbl)

67.50

74.66

(10)

83.42

82.73

1

Natural gas liquids ($/bbl)

54.41

70.81

(23)

64.18

63.12

2

Corporate ($/BOE)

44.56

49.18

(9)

55.48

51.52

8








Netbacks ($/BOE)







Realized prices

44.56

49.18

(9)

55.48

51.52

8

Royalty expense

(7.40)

(8.07)

(8)

(9.67)

(7.54)

28

Operating expense

(14.39)

(11.02)

31

(14.53)

(12.62)

15

Transportation expense

(0.86)

(0.74)

16

(0.67)

(0.80)

(16)

Operating netback

21.91

29.35

(25)

30.61

30.56

-








Wells drilled







Gross

4

7

(43)

31

27

15

Net

2.8

4.1

(32)

22.8

17.7

29

Success rate (%)

82

100

(18)

98

100

(2)

 

 

(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 (or assets) related to the mark-to-market measurement of derivative contracts). It does not have a standardized meaning prescribed by International Financial Reporting Standards 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 International Financial Reporting Standards and therefore may not be comparable with the calculations of similar measures for other companies.

 

2014 IN REVIEW

2014 was a transformational year for Journey.  On January 21, 2014, Journey entered into a Purchase and Sale Agreement to acquire a low decline (7%) oil weighted suite of pools in Central and Southern Alberta, from a senior producer.  Journey has already initiated a number of capital projects on the acquired lands, participating in 10 wells to date.  With that said, we have only begun to scratch the surface on an asset base containing over 120 net drilling locations in high working interest, underdeveloped pools.  

The $170 million net purchase price for the assets was funded through an Initial Public Offering ("IPO") on the Toronto Stock Exchange which closed on June 19, 2014 and raised gross proceeds of $178 million through the issuance of 14.75 million treasury shares.  Management and directors invested in excess of $13 million in the IPO creating significant alignment with our new shareholders.  The IPO left Journey with 10,600 BOE/d of pro forma production and the strongest balance sheet in our corporate history.  We exited 2014 with $100.6 million in net debt resulting in a net debt to annualized cash flow ratio of 1.0 times.  The syndicated credit facility is currently authorized at $205 million thereby leaving more than 50% of the total facility available in 2015.

Concurrent with the IPO, Journey completed its transformation to a dividend paying growth company by declaring $0.36/share in dividends for the last half of 2014.  In aggregate, Journey paid out $15.6 million of dividends during 2014 of which $14.1 million was either paid in cash during the year or became payable in January.  The $1.5 million remainder was paid out in the form of Journey shares through our dividend reinvestment and stock dividend plans.

In addition to a successful A&D program, Journey was also very active in the field, implementing the largest exploration and development program in our history wherein we participated in a total of 31 (22.8 net) wells for the year.  Seven of the wells drilled in the last half of the year were on lands acquired in the major acquisition in the first quarter.  In total our $260.9 million capital program profitably replaced our production by 7.5 times resulting in the addition of 28.3 million BOE's on a proved plus probable basis with an all in finding, development and acquisition cost per BOE of $11.79 (after including changes in future capital).  

Daily production was 11,773 BOE/d for the fourth quarter and was 104% higher than the same quarter in 2013.  Full year average daily production was 10,346 BOE/d or 97% higher than 2013.  Average realized commodity prices for 2014 were 8% higher than 2013 at $55.48 and along with production from the new acquisition and our successful drilling, resulted in cash flow of $93.6 million for the year. On a per share basis, cash flow was $2.65 per basic weighted average share and $2.56 per diluted share.

The net earnings in the first three quarters were reversed into a net loss of $105.3 million for the fourth quarter bringing the net loss for the year to $90.2 million.  The largest contributor to this loss was $158.4 million in impairments related to the decline in the value in oil and gas properties in the fourth quarter.  A lower, future, commodity price forecast used in the independent reserve evaluator report as at December 31, 2014 was the primary cause of this decline in value.

On December 21, 2014, and in response to the decline in commodity prices for both oil and natural gas, Journey adjusted its dividend level and capital program with the purpose of maintaining our financial strength in what is proving to be a challenging period for our industry.

DIVIDENDS

Journey confirms that the dividend for March will be $0.025 per common (and restricted voting) share and will be paid on April 15, 2015 to shareholders of record on March 31, 2015 with an ex-dividend date of March 27, 2015. The Board of Directors has declared the dividend payable in either cash or common shares at the election of the shareholder. This dividend has been designated as an "eligible dividend" for Canadian income tax purposes.  Shareholders are reminded that, at their election, they may participate in the dividend reinvestment plan ("DRIP") or the Stock Dividend Plan ("SDP") instead of receiving a cash dividend.

OUTLOOK

Our 2014 activities and results created a solid foundation for Journey's future. The recent decline in oil prices has reinforced our belief that we have built a sustainable corporation that can not only withstand the current commodity price shock, but also take advantage of the opportunities that tumultuous times present. As this period of low commodity prices persists into 2015, our low-risk economically robust prospect inventory; our favorable production decline profile; and our lower than peer group leverage, will allow Journey to continue providing a meaningful dividend, while maintaining our production and debt to cash flow levels.

Our $0.025 per share monthly dividend represents a meaningful 6% yield given our current share price.  The financial cost of this dividend is less than 25% of 2015 forecasted cash flow.  After incorporating our forecasted DRIP and SDP participation rates, the total cash burden is less than 12% of cash flow. 

Journey's updated guidance for 2015 is as follows:



Production

11,000 to 11,200 BOE/d (54% liquids)

Capital program (including acquisitions)

$61 to $63 million

Cash flow

$61 to $63 million

Year end net debt

$108 to $110 million

Cash flow per basic, weighted average share

$1.39 - $1.43

DRIP/SDA rate

46%

 

Journey's 2015 capital program is forecast to yield annual production volumes in the 11,000 to 11,200 BOE/d range.  This represents a 7% growth over our 2014 average production.  The Company has carefully paired back our capital program to $61-$63 million from $70 million.  We have already begun realizing cost savings in our field operations due to reduced activity levels, and we anticipate even greater savings if low commodity prices persist into the second half of 2015.  We have modeled some of these savings into our revised forecast.  This capital program will result in Journey participating in 16-17 net wells and achieving the forecasted production levels throughout 2015.  Journey has re-evaluated all of our capital prospects in the context of the current market and plans to allocate over 85% of 2015 capital to projects that generate rates of return in excess of 30% and have payout periods of less than 2.5 years at the current prices.

Journey is currently forecasting cash flow from operations of $61-$63 million with net debt ending the year at between $108 and $110 million.  Currently, Journey is using 2015 price forecasts of $56.60/bbl USD (WTI); $2.90/mmbtu CAD (AECO); and an FX rate on 0.80 US$/CDN$.  The volatility in commodity prices can result in material variations to the assumptions used in our forecast.  As the Company enters the lower capital portion of the year from April to June, we will re-evaluate our forecast assumptions, with the potential to adjusting our capital spending program for the remainder of 2015, depending on the commodity price outlook.

Journey continues to be focused on protecting its balance sheet in 2015.  If the downturn in commodity prices persists later into 2015, the volatility in the markets can present unique opportunities to companies that maintain financial flexibility.  With less than 50% drawn on our $205 million credit facility, and a supportive major shareholder that has assisted with transformational acquisitions in the past, Journey is well positioned to capitalize on opportunities created by the current environment.

Below is summary financial data from the 2014 financial statements.  Copies of the complete financial statements and management's discussion and analysis in respect thereof will be available through www.sedar.com or by visiting Journey's website at www.journeyenergy.ca.

Journey would like to thank all of our shareholders and employees for their continued support and dedication as we navigate through this industry downturn.

 



JOURNEY ENERGY INC.

Consolidated Statement of Financial Position

(in thousands of Canadian dollars)



December
31, 2014

December
31, 2013


ASSETS





CURRENT






Accounts receivable


24,343

21,293



Derivative contracts


10,837

254



Prepaid expenses and deposits


2,081

1,572




37,261

23,119








Property, plant and equipment


396,668

258,071



Exploration and evaluation assets


19,428

7,132



Deferred tax asset


110,231

82,613




563,588

370,935







LIABILITIES





CURRENT






Bank indebtedness


3,557

2,761



Accounts payable and accrued liabilities


40,352

34,223



Deferred lease obligation


65

-



Derivative contracts


-

1,285



Dividends payable


2,623

-



Decommissioning liabilities


3,515

-




50,112

38,269








Deferred lease obligation


527

-



Bank debt


79,875

70,000



Decommissioning liabilities


158,387

57,164




288,901

165,433







EQUITY






Share capital


374,538

661,878



Contributed surplus


7,225

5,692



Deficit


(107,076)

(462,068)




274,687

205,502




563,588

370,935


 

 



JOURNEY ENERGY INC.

Consolidated Statement of Comprehensive (Loss) Income

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars, except per share data)








2014

2013

REVENUE





Petroleum and natural gas sales


209,509

98,814


Royalties


(36,525)

(14,458)



172,984

84,356


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