Journey Energy Inc. reports its first quarter, 2015 financial and operating results

May 11, 2015

CALGARY, May 11, 2015 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") is pleased to announce its financial results for the first quarter of 2015.  The complete set of financial statements and management discussion and analysis for the three months ended March 31, 2015 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

HIGHLIGHTS

In the first quarter of 2015, Journey executed a reduced exploration and development capital program of $17.6 million participating in 6 (5.7 net) wells. In addition we consummated a number of acquisitions/divestments totaling $2.7 million.

Highlights for the first quarter include:


  • Achieved cash flow from operations of $17.4 million in the quarter with production of 11,273 BOE/d, an increase of 52% from the same period in 2014.
  • Achieved liquids (oil and natural gas liquids) production of 5,952 BOE/d for the quarter, a 49% increase over the same quarter in 2014.
  • Received a corporate average price of $30.51/BOE compared to $62.52/BOE during the same period in 2014.
  • Continued to reduce general and administrative costs to $2.96 per BOE from $4.41 per BOE in 2014.
  • Declared dividends of $0.075 per share.
  • Completed the annual borrowing base review resulting in the current bank line of $205MM being maintained.

 



Three months ended

March 31,

Financial ($000's except per
share amounts)




2015

 

2014

%

change

Production revenue




30,954

41,636

(26)

Cash flow from operations




17,363

20,581

(16)


Per basic share




0.40

0.74

(46)


Per diluted share




0.39

0.63

(38)

Net income (loss)




(3,372)

(1,120)

201


Per basic share




(0.08)

(0.04)

(100)


Per diluted share




(0.08)

(0.04)

(100)

Capital expenditures, net cash




20,282

196,401

(90)

Net debt




104,714

100,575

4








Share Capital (000's)







Basic, weighted average




43,522

26,233

66

Basic, end of period




43,648

26,250

66

Fully diluted




48,481

33,918

43








Daily Production







Natural gas volumes (mcf/d)




31,924

20,437

56

Light/medium oil (bbl/d)




4,828

2,854

69

Heavy oil (bbl/d)




458

500

(8)

Natural gas liquids (bbl/d)




666

640

4

Corporate (BOE/d)




11,273

7,400

52








Average Prices







Natural gas ($/mcf)




2.71

5.62

(52)

Light/Medium Oil ($/bbl)




45.51

89.58

(49)

Heavy Oil ($/bbl)




45.84

80.58

(43)

Natural gas liquids ($/bbl)




25.19

80.91

(69)

Corporate ($/BOE)




30.51

62.52

(51)








Netbacks ($/BOE)







Realized prices




30.51

62.52

(51)

Royalty expense




(4.06)

(8.89)

(54)

Operating expense




(14.59)

(13.30)

10

Transportation expense




(1.05)

(0.54)

94

Operating netback




10.81

39.79

(73)








Wells drilled







Gross




6

8


Net




5.7

4.4


Success rate (%)




100

100


 

FIRST QUARTER 2015 SUMMARY

The first quarter of 2015 was a challenging time for our industry.  The significant reduction in commodity prices forced all companies to carefully weigh expenditures and plans for 2015. Journey's inventory of high quality prospects allowed the Company to reduce the capital program for the year while expecting to keep production levels flat, pay a meaningful dividend, and maintain debt near the current level.  Journey reduced Q1 2015 capital spending to $20.1 million, including participating in 6 (5.7 net) wells and consummating a number of minor acquisitions and divestitures with a net investment of $2.7 million.

All of Journey's first quarter capital projects were concentrated in our Southern core region resulting in 5 (4.7 net) oil wells and 1 (1 net) well that requires further evaluation.  Drilling results met forecasted expectations and therefore no material variance to our guidance for the remainder of 2015 is anticipated.  During the second quarter, due mainly to the continued deterioration in commodity prices, for natural gas in particular, the Company chose to shut in approximately 150 BOE/d of low netback production, which had high variable costs.  Journey anticipates this production to remain shut-in until commodity prices improve or cost reductions are achieved at third party facilities.  Journey continues to review all production with high variable costs for potential curtailment.  Although these curtailments have an impact on production, they have minimal impact on liquids production or forecasted cash flow.

FINANCIAL

Journey achieved cash flow from operations of $17.4 million in the first quarter of 2015.  Included in cash flows was a $10.3 million gain in respect of favorable oil hedges.  The 51% decline in average commodity prices from the first quarter of 2014 (32% decline from the fourth quarter of 2014) were the primary drivers behind lower cash flows.  Daily production was 11,273 BOE/d for the first quarter, which was 52% higher than the same quarter in 2014.    On a per share basis, cash flow was $0.40 per basic weighted average share and $0.39 per diluted share.  Journey realized a net loss of $3.4 million ($0.08 per basic and diluted share) in the quarter.  Net debt at the end of the first quarter was $104.7 million which was up marginally from the December 31, 2014 level of $100.6.  Journey was drawn $85.0 million on its $205 million bank line at March 31, 2015 and expects to maintain ample room on its facility throughout the year.  Journey is pleased to confirm that it has completed the annual review of its bank line with its banking syndicate and the borrowing base has been maintained at the current level of $205

DIVIDENDS

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.  Journey declared dividends totaling $0.075/share in the first quarter.  Journey's DRIP participation rate was approximately 33% in the first quarter.  Based on April's actual DRIP participation, the cash outlay to maintain Journey's current dividend level from April to December 2015 is projected to be less than $5.0 million.

The Board of Directors of Journey has declared the dividend for May to be $0.025 per common (and restricted voting) share and will be paid on June 15, 2015 to shareholders of record on May 29, 2015 with an ex-dividend date of May 27, 2015.  The dividend is 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 business plan 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; favorable production decline profile; and our lower than peer group leverage, will allow Journey to continue to provide a meaningful dividend, while maintaining our production and debt to cash flow levels.

Our current $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 shares currently trade at or near our proved, developed producing net present value (@10%) from our year end reserve report.  On April 10, 2015, Journey registered a Normal Course Issuer Bid ("NCIB") with the TSX.  To this point no shares have been purchased for cancelation.  However, Journey continues to monitor the situation carefully and will update shareholders quarterly regarding any purchases made with the NCIB.

Journey's updated guidance for 2015 is as follows:

Production

10,700 to 11,000 BOE/d (54% liquids)

Exit production

11,000 to 11,200 BOE/d (>55% liquids)

Capital program (including net acquisitions)

$61 to $63 million

Cash flow

$57 to $59 million

Year end net debt

$108 to $110 million

Cash flow per basic, weighted average share

$1.35 - $1.40

DRIP/SDA rate

46%

 

Journey's 2015 capital program is forecast to yield annual production volumes in the 10,700 to 11,000 BOE/d range.  Our guidance range has been marginally reduced due to shut in of gas weighted volumes, phasing of capital projects, and unscheduled downtime due to third party turnarounds during the April-October period. Journey's forecasted production represents 6% growth over our 2014 average production.  

The Company has carefully pared back its capital program to $61-$63 million from the $70 million program set in January.  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 17 gross wells (16.4 net).  Nine of the remaining eleven wells will be drilled in our Central region with two wells remaining in our Southern region.

Approximately 10% of Journey's capital program has been allocated to exploitation projects consisting of waterflood injector conversions, well reactivations and well recompletions.

Journey has re-evaluated all of our drilling 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.  Journeys forecasts our IP 365 production additions from our drilling program to be in the $26,000-$28,000/BOE/D range (70% liquids).

The Company continues to evaluate tuck-in acquisitions, and anticipates consummating two minor tuck-in acquisitions in the second quarter of 2015.  If completed, Journey anticipates funding these acquisitions through minor reductions to our capital program.

Journey is currently forecasting cash flow from operations of $57-$59 million with net debt ending the year at between $108 and $110 million.  Currently, Journey is using 2015 price forecasts of US$58.50/bbl (WTI); C$2.70/GJ(AECO); and an FX rate on 0.82 US$/CDN$.  The volatility in commodity prices can result in material variations to the assumptions used in our forecast.  Although all of Journey's production is in Alberta, 40% of Journey's revenue originates from freehold lands and is not subject to crown royalty.

In response to a challenging commodity price environment Journey is in the process of implementing a number of changes in our Calgary office.  Effective June 1, all permanent employees will undergo salary and benefit reductions amounting to a reduction in compensation of approximately 10%.  All longer term consultants will be asked to take similar reductions in compensation.  Journey has also implemented minor reductions in our workforce commensurate with reduced activity levels.  These changes are expected to result in one time severance obligations which will be recorded in the second quarter of 2015.  For the remainder of 2015, we anticipate recurring G&A costs per BOE to be under $3.00/BOE. 

Journey is also reporting that Dr. Tony Cadrin has left his role as VP of Geosciences.  The Company would like to thank Tony for his contribution to our success over the past 8 years and wish him well in his future endeavors.  Journey is pleased to report that Brett Boklaschuk, Journey's Manager of Business Development, has been a promoted to the position of Vice President, Exploration.

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, Journey is well positioned to capitalize on opportunities created by the current environment.

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

Please note that the Journey will hold its Annual General Meeting of shareholders on Wednesday, May 20, 2015 at 3:00 p.m., at the Company's office in Calgary (Suite 700, 517 10th Ave. SW Calgary AB).

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 Annual Information Form filed on www.SEDAR.com on March 31, 2015. 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.

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 and estimated future capital expenditures. 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.

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 our 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-GAAP Measures

The company uses the following non-GAAP measures in evaluating corporate performance. These terms are not recognized under Generally Accepted Accounting Principles ("GAAP").

(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 is a non-GAAP measure and 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)

Operating netback is a non-GAAP measure and 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.

 

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.

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; Gerry Gilewicz, Chief Financial Officer, 403.303.3238, gerry.gilewicz@journeyenergy.ca