Journey Energy Inc. Reports its Second Quarter 2017 Financial Results

August 9, 2017

CALGARY, Aug. 9, 2017 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") announces its financial and operating results for the three and six month periods ended June 30, 2017.  The complete set of financial statements and management discussion and analysis are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

SECOND QUARTER 2017 HIGHLIGHTS

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

  • Achieved production of 10,194 boe/d in the second quarter, an 18% increase from the second quarter of 2016. Liquids (oil and natural gas liquids) production accounted for 4,669 boe/d or 46% of total production during the quarter.

  • Generated $9.7 million of funds flow, which was an 18% increase over the second quarter of 2016.

  • Realized net income of $8.0 million in the quarter, reversing the $9.7 million loss in the second quarter of 2016.

  • On April 28, Journey closed a 2,000 boe/d acquisition for $34.5 million and the disposition of 185 boe/d in Sylvan Lake for net proceeds of $5.1 million.

  • Received a corporate average commodity price of $31.92/boe in the quarter, a 23% increase over the second quarter of 2016. Liquids production accounted for 72% of total sales revenues.

  • Drilled 1 (1.0 net) successful well in Skiff and commenced drilling another 100% well in Brooks, while integrating the acquisition into Journey's operations.

  • Renewed the Company's credit facility at $125 million. Journey was drawn $72 million on this facility as at June 30, 2017.

Second Quarter Financial Highlights



Three Months ended
June 30,

Six months ended
June 30,

Financial ($000's except per share amounts)

 

2017

 

2016

%

change

 

2017

 

2016

%

change

Production revenue

29,613

20,450

45

56,303

38,505

46

Funds flow from operations

9,708

8,218

18

16,454

11,547

42


Per basic share

0.19

0.19

-

0.34

0.26

31


Per diluted share

0.19

0.19

-

0.34

0.26

31

Net income (loss)

7,959

(9,714)

(182)

11,879

(15,104)

(179)


Per basic share

0.16

(0.22)

(172)

0.25

(0.35)

(171)


Per diluted share

0.16

(0.22)

(172)

0.24

(0.35)

(169)

Capital expenditures, net

34,477

4,421

680

44,892

8,140

451

Net debt

96,554

103,477

(7)

96,554

103,477

(7)








Share Capital (000's)







Basic, weighted average

50,212

43,615

15

47,769

43,615

10

Basic, end of period

50,904

43,615

17

50,904

43,615

17

Fully diluted

57,371

49,805

15

57,371

49,805

15








Daily Production







Natural gas volumes (mcf/d)

33,146

23,775

39

30,878

24,752

25

Crude oil (bbl/d)

4,028

4,085

(1)

3,983

4,324

(8)

Natural gas liquids (bbl/d)

641

593

8

485

638

(24)

Barrels of Oil Equivalent (boe/d)

10,194

8,640

18

9,614

9,087

6








Average Realized Prices (Unhedged)







Natural gas ($/mcf)

2.70

1.27

113

2.62

1.51

74

Crude Oil ($/bbl)

53.28

44.19

21

53.77

37.18

45

Natural gas liquids ($/bbl)

33.50

23.53

42

33.00

21.16

56

Barrels of oil equivalent ($/boe)

31.92

26.01

23

32.36

23.28

39








Netbacks ($/boe)







Realized prices

31.92

26.01

23

32.36

23.28

39

Royalties

(3.85)

(1.72)

124

(3.84)

(2.16)

78

Operating expenses

(12.93)

(11.12)

16

(13.31)

(11.42)

17

Transportation expense

(0.54)

(0.42)

29

(0.50)

(0.41)

22

Operating netback

14.60

12.75

14

14.71

9.29

58

Realized hedging gains (losses)

(0.32)

2.11

(115)

(0.85)

2.71

(131)

Netback after risk management

14.27

14.86

(4)

13.86

12.00

16








Wells drilled







Gross

1

-


4

1


Net

1.0

-


4.0

1.0


Success rate

100

-


100

100%


 

OPERATIONS

Journey achieved production of 10,194 boe/d (46% liquids) in the second quarter, representing a 13% increase from the first quarter of 2017.  Production was positively impacted by the significant acquisition of 2,000 boe/d (72% gas) that closed on April 28.  The impact of the acquisition was partially offset by the disposition of Journey's Sylvan Lake asset, which occurred on the same day and had production of 185 boe/d (83% liquids).  Journey's field operating costs were 16% higher at $12.93 per boe in the second quarter.  Included in this amount was approximately $1.0 million of cleanup costs associated with two pipeline leaks in the Crystal area.  Excluding these costs, Journey would have realized operating costs of $12.77 per boe.  The impact of the net acquisitions in the quarter on the per boe operating expenses were only partially realized as they were concluded at the end of April.  Going forward, Journey forecasts operating expenses to track between $11.50 and $12 per boe for the remainder of 2017.

Journey finished drilling one well in Skiff during the second quarter.  Two wells in Skiff were placed on production during the quarter, which included the well drilled during the quarter as well as the one drilled in the first quarter.  Journey has also received approval to convert two horizontal producing wells in Skiff to water injectors.  Water injection is scheduled to commence during the third quarter.  In addition, Journey started drilling another well in Brooks during the second quarter and this well is now producing.

FINANCIAL

Production volumes grew by 18% in the second quarter as compared to the same quarter in 2016 and were 13% higher as compared to the first quarter of this year.  The acquisition and divestiture activity in the quarter was the main driver behind the increase in volumes, which was highlighted by the 2,000 boe/d (72% natural gas) acquisition on April 28.  On the same day Journey closed the sale of its Sylvan Lake assets for $5.1 million in net proceeds.  This property was producing approximately 185 boe/d (83% liquids) at the time of its disposition.  The average commodity price received in the second quarter of $31.92 per boe was relatively flat with the first quarter of 2017 as commodity prices stabilized.  Compared to the same quarter of 2016, average commodity prices were 23% higher in 2017.  The resulting funds flow was $9.7 million for the second quarter, which was 44% higher than the $6.7 million realized in the first quarter of 2017.  Funds flow in the second quarter was negatively impacted by two pipeline leaks and their associated remediation costs of approximately $1.0 million.  It is not currently anticipated that there will be any additional cost to Journey in remediating these spills as Journey's insurance will cover the excess over this amount.  Royalty expense was 164% higher in the second quarter of 2017 as compared to 2016 primarily the result of higher commodity prices.  Also, impacting funds flow during the quarter was a loss of $293 thousand realized from the hedging program.  On the administrative cost side, general and administrative costs in aggregate were flat with the same quarter of 2016 and on a per boe basis were 15% lower at $2.48 compared to $2.91 in 2016.  The impact of staff rationalizations and other cost cutting measures continues to have a positive impact on total G&A.  In addition, higher production volumes from the net A&D activity contributed to a lower per boe rate.  Journey did not add any staff with all of the A&D activity in the second quarter. 

Funds flow per share was $0.19 per basic and diluted share, bringing the year to date per share amounts to $0.34.  The year to date per share amount is a 31% improvement over the $0.26 per basic and diluted share realized in the comparable six month period in 2016.

Journey had $8.0 million of net income in the second quarter, which is 105% higher than the net income of $3.9 million from the first quarter.  This is markedly different from the $9.7 million loss realized in the second quarter of 2016.  The net income per share for the second quarter was $0.16 (basic and diluted) bringing the year to date income per share to $0.25 and $0.24, basic and diluted respectively.

Journey's production mix shifted more towards a natural gas weighting as a result of the 2,000 boe/d (72% gas) acquisition, and the 185 boe/d disposition (83% liquids) in April.  Natural gas volumes now comprise 54% of total volumes in the second quarter.  However, as a percentage of revenue, the mix still favors liquids (oil and NGL's) as they comprised 72% of Journey's total revenues in the second quarter.  Comparatively, liquids revenues were 86% in the second quarter of 2016.

With 23% higher average commodity prices and an element of stability in these prices during the first half of the 2017, Journey increased its exploration and development spending to $5.2 million for the second quarter from $1.0 million during the same quarter in 2016.  Total acquisitions amounted to $35.6 million in the quarter while dispositions were $6.3 million.  Journey's stated goal is to achieve a measured combination of organic spending as well as acquisitions; and given that we spent $29.3 million on net A&D activity in the quarter, Journey's intent is to bring the net debt to funds flow ratio under two times by the end of the year through minor adjustments to our capital program. 

Journey exited the quarter with net debt of $96.6 million which was 11% higher than at the end of 2016.  Net debt was comprised of $72 million of bank borrowings; $30 million of term debt; less $5.4 million of working capital surplus.  The increase in net debt during the quarter was primarily attributable to the Company utilizing a portion of its available bank line to close the acquisition in April.  Journey is desirous of reducing its net debt to funds flow ratio from the second quarter level.  It has adjusted its capital spending accordingly, and intends to utilize the additional funds flows from the acquisition to repay debt.  The Company has a $125 million credit facility and believes it has ample liquidity to execute its remaining drilling program while continuing to pursue acquisition opportunities as they arise.

Outlook

Journey remains focused on achieving its annual average production of between 10,100 and 10,400 boe/d.  Over the remainder of the year, Journey forecasts increasing its production levels culminating in an exit rate of between 11,000 and 11,300 boe/d.  In addition, the Company is projecting an increase to its liquids weighting from 45% to 48% as the drilling program for the remainder of the year replaces natural declines with new volumes from the Company's oil weighted prospects.  Journey forecasts spending an amount equivalent to its funds flow over the rest of 2017 and therefore the aggregate net debt is projected to be consistent with the June 30 level.  However, as production levels increase, the associated funds flow will result in the net debt to funds flow ratio decreasing below 2.0 times from the current level of 2.5 times.

Journey has reduced its realized oil and natural gas price outlook slightly for the remainder of 2017, resulting in a minor decrease to forecasted funds flow.  With over 50% of Journey's production hedged for the last half of the year, the Company is well positioned to attain this new guidance.  63% of Journey forecast gas volumes are hedged at $3.01/mcf and 59% of forecast oil volumes are hedged at an average price of CAD $64.41/bbl.

Journey's updated guidance is presented in the table below:

Annual average production

10,100 – 10,400 boe/d (46% liquids)

Exit 2017 production

11,000 – 11,300 boe/d (48% liquids)

Exploration and development capital

$35 million

Net acquisition capital

$33 million

Funds flow

$37 - $40 million

Year-end net debt

$95 - $98 million

Funds flow per basic share (weighted average shares)

$0.75 – $0.81 share

Corporate annual decline rate

17%

 

Journey's 2017 forecasted funds flow from operations is based upon the following average prices: WTI of US$49/bbl; AECO gas of CDN$2.57/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.  Journey's balanced approach to growth which uses a combination of acquisitions as well as drilling provides a sustainable growth platform while expanding its inventory of opportunities. 

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

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, 2017. 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 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.

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-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 from operations (also referred to as "funds 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. Funds flow from operations is calculated as funds from operating activities before changes in non-funds working capital, transaction costs and decommissioning costs incurred. Funds flow from operations per share is calculated as funds flow from operations divided by the weighted-average number of shares outstanding in the period. Journey's determination of funds flow from operations may not be comparable to that reported by other companies. Journey also presents funds 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-IFRS measure and represents current assets less current liabilities and bank debt (but excludes the future liability (or asset) related to the mark-to-market measurement of derivative contracts as well as decommissioning liabilities).

(3)

Operating netback is a non-IFRS measure and equals total revenue less royalties, transportation and field operating costs calculated on a per boe basis. Funds flow netback equals the operating netback less funds finance costs, general and administrative costs, realized gains and losses on derivative contracts, plus any interest income.

 

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 expressed in boe's.

 

Select Definitions

bbl

barrel

bbls

barrels

boe

Barrel of oil equivalent

boe/d

Barrel of oil equivalent per day

mbbls

Thousand barrels

mmbtu

Million British thermal units

mcf

thousand cubic feet

mmcf

Million cubic feet

mmcf/d

Million cubic feet per day

mboe

Thousand boe

NGLs

Natural gas liquids

$M

Thousands of dollars

 

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