Journey Energy Inc. Reports its 2019 Year-End Results
Mar 10, 2020
CALGARY, March 9, 2020 /CNW/ – Journey Energy Inc. (JOY – TSX; JRNGF – OTCQX) ("Journey" or the "Company") is pleased to announce its 2019 operating and financial results. The complete set of financial statements and management discussion and analysis for the year ended December 31, 2019 are posted on www.sedar.com and on the Company’s website www.journeyenergy.ca.
Highlights for 2019 were:
The Duvernay joint venture with Kiwetinohk Resources Corporation ("KRC") commenced operations with the drilling of 3 wells, all of which were subsequently placed on-production during the year. Performance of the wells continues to be in the top tier of wells drilled to date in the East Shale Basin. Journey shareholders will benefit from early development capital expenditures to be incurred by KRC, while Journey retains a 37.5% working interest in this commercial development.
The drilling program consisted of 7 (7.0 net) development wells all in the Matziwin core area with a 100% success rate.
Produced 9,463 boe/d (49% liquids) in the fourth quarter and 9,372 boe/d (48% liquids) for the year.
Issued $7.3 million in equity on a flow through basis at a premium price of $2.60 per share.
Realized funds flow of $26.8 million for 2019 yielding $0.67 per basic share.
Reduced net debt by 8% to $124.2 million from $134.3 million at the end of 2018.
Restructured Journey’s term debt such that the earliest expiry is late in 2022.
Commissioned the procurement of equipment for Journey’s electricity generation project in Countess.
Three Months ended
December 31,
Twelve months ended
December 31,
Financial ($000’s except per share
amounts)
2019
2018
%
change
2019
2018
%
change
Production revenue
27,134
20,390
33
109,190
115,041
(5)
Funds flow
5,905
(42)
14,160
26,805
18,293
47
Per basic share
0.14
–
–
0.67
0.46
46
Per diluted share
0.13
–
–
0.64
0.45
42
Net loss
(7,654)
(16,180)
(53)
(31,355)
(37,447)
(16)
Per basic share
(0.18)
(0.41)
(56)
(0.78)
(0.94)
(17)
Per diluted share
(0.18)
(0.41)
(56)
(0.78)
(0.94)
(17)
Net capital expenditures
9,331
1,125
729
20,531
26,644
(23)
Net debt
124,213
134,309
(8)
124,213
134,309
(8)
Share Capital (000’s)
Basic, weighted average
42,910
39,043
10
40,172
39,819
1
Basic, end of period
43,087
39,218
10
43,087
51,241
(16)
Fully diluted
47,038
46,007
2
47,037
58,371
(19)
Daily Production
Natural gas volumes (mcf/d)
29,202
31,996
(9)
29,079
32,083
(9)
Crude oil (bbl/d)
3,939
3,971
(1)
3,934
4,067
(3)
Natural gas liquids (bbl/d)
657
617
6
592
661
(10)
Barrels of oil equivalent (boe/d)
9,463
9,921
(5)
9,372
10,075
(7)
Average Prices (excluding hedging)
Natural gas ($/mcf)
1.74
2.39
(27)
1.55
1.75
(11)
Crude Oil ($/bbl)
57.70
31.53
83
60.80
57.09
6
Natural gas liquids ($/bbl)
25.86
32.44
(20)
25.29
40.49
(38)
Barrels of oil equivalent ($/boe)
31.17
22.34
40
31.92
31.28
2
Netbacks ($/boe)
Realized prices (excl. hedging)
31.17
22.34
40
31.92
31.28
2
Royalties
(4.33)
(2.95)
47
(4.03)
(4.18)
(4)
Operating expenses
(14.67)
(12.97)
13
(14.26)
(13.48)
6
Transportation expenses
(0.75)
(0.55)
36
(0.54)
(0.51)
6
Operating netback
11.42
5.87
95
13.09
13.11
–
Wells drilled
Gross
4
–
–
7
9
(22)
Net
4.0
–
–
7.0
9.0
(22)
Success rate (%)
100
–
–
100
100
–
OPERATIONS and OUTLOOK
Journey achieved average production of 9,372 Boe/d (48% liquids) during the 2019, representing a 7% decrease from 2018. Average daily volumes were down 8% from the previous year, however, the majority of this decrease was from natural gas volumes, with liquids volumes dropping only 4% year over year. Journey’s primary focus over the past year has been to maintain its oil production while improving financial flexibility, and allowing third party capital to de-risk our world class Duvernay acreage. Despite a challenging environment, Journey was successful in maintaining liquids production while reducing leverage. In addition, the Duvernay program has advanced to the point where Journey now has production history on the three wells drilled by the joint venture partner. These wells rank in the top tier of all wells drilled to date in the East shale Duvernay basin. The success to date in this play highlights the development potential of the Duvernay land block.
This strategy will continue to be our focus in 2020. Due to the significant uncertainty within the current commodity price environment Journey has deferred its first-half 2020 drilling plans and is currently re-evaluating all future expenditures in the context of the current market. Journey has a development ready drilling program in Skiff, Cherhill and Crystal. The horizontal development program in south Skiff follows up the three wells drilled there in 2018. During the third quarter of 2019, the central well of the three well pattern was converted to a water injection well, and the offsetting producers have now begun to respond favorably to the injection. Due to the recent volatility experienced with commodity prices, Journey will continue to monitor broader market forces and adjust its capital plans on an ongoing basis.
The four Matziwin wells drilled in the fourth quarter were follow-up wells to the three successful wells drilled in June. All four of these wells were placed on-production in mid-December. These wells have allowed Journey to maintain production capability at or near fourth quarter levels. The successful drilling in Matziwin has resulted in increased flow line pressures in East Matziwin and Journey plans on installing two multiphase pumps as part of a debottlenecking project during the second quarter. Production additions from this initiative will largely offset the production shortfall from delaying the Cherhill drilling program until after breakup. Therefore, Journey’s guidance for the first half of 2020, which was announced February 24, remains unchanged.
During the second quarter of 2020, Journey anticipates the start-up of its 4.5 megawatt power project in Countess. All approvals are in place and the generators are currently being skid mounted prior to being moved to the site. The total cost of the project, including all costs associated with approvals and design is approximately $4.0 million. The project has a low-risk rate of return and also improves the long term viability of our Countess natural gas pool.
As previously outlined in our February 24, 2020 release, Journey continues to advance the divestment of a number of non-core assets which would impact second half guidance. Journey has now entered into definitive agreements with multiple parties and, subject to regulatory approval, anticipates closing these transactions in the second quarter. Corporate guidance will be updated as the deals progress to their closing.
Journey continues to monitor the advancement and development of its emerging Duvernay resource play and continues to be encouraged by the industry activity from wells drilled on offsetting acreage, both in terms of initial production rates, and reduced drill, complete, equip and tie-in costs. Journey’s updated corporate presentation shows how favorably the three joint venture wells compare with leading competitor wells in the three sweet spots of the East Duvernay shale basin. Pursuant to the Duvernay joint venture agreement, KRC is currently in the option period to complete, prior to the end of August 2020, all potential earnings. Journey and KRC continue to discuss future operations for the joint venture, and further clarification of KRC’s intentions to complete full earning on the joint venture lands should be better understood in the next few months. Journey will report on the resumption of activity in due course. Following the option period, Journey and KRC will enter into the initial two year early development phase, where up to a maximum of ten joint wells can be drilled each year, with Journey having the option on a well-by-well basis, to either participate as to its working interest, or take a 5% non-convertible GORR on 100% of the production from the well(s).
FINANCIAL
Funds Flow for the fourth quarter of 2019 was $5.9 million as compared to a negative $42 thousand in the same quarter of 2018. A recovery in 2019 from the historically wide oil differentials in 2018 was the primary driver behind the change in Funds Flow. Realized oil prices for Journey during the fourth quarter were $57.70/bbl, which were 83% higher than the $31.53/bbl realized in the fourth quarter of 2018. Natural gas and NGL prices appreciated from the third quarter with Journey realizing $1.74/mcf for natural gas in the fourth quarter which was 27% lower than the fourth quarter of 2018. NGL prices were 20% lower in 2019 as compared to 2018 as Journey realized $25.86/bbl in the fourth quarter, versus $32.44/bbl in the same quarter of 2019. Liquids (oil and NGL) revenues comprised 83% of Journey’s revenues in the fourth quarter. Average corporate realized commodity prices of $31.17/boe were 33% higher in the fourth quarter than the $22.34/boe from the fourth quarter of 2018. Oil differentials were stable during the fourth quarter with light sweet differentials averaging $6.38/bbl USD, while WCS differentials averaged $15.84/bbl USD. Approximately 30% of Journey’s production is exposed to oil pricing similar to WCS. Journey realized a net loss of $7.7 million or $0.18 per basic and diluted share in the fourth quarter of 2019.
Production volumes averaged 9,463 boe/d in the fourth quarter of 2019 with Journey’s weighting to liquids increasing in 2019. Liquids volumes (oil and NGL’s) comprised 49% of total volumes produced for the fourth quarter of 2019 as compared to 46% for the same quarter of 2018. As a result of the increasing liquids weighting, the revenue contribution was 83% in 2019 as compared to 66% in the fourth quarter of 2018.
For the fiscal year 2019 Journey realized $26.8 million in Funds Flow or $0.67 per basic share and $0.64 per diluted share. While production levels were 7% lower for 2019 at 9,372 boe/d as compared to 10,075 boe/d in 2018, Journey realized 2% higher average commodity prices and also reduced its realized hedging losses from $11.7 million in 2018 to $0.3 million in 2019. These gains on the revenue side, coupled with improvements in operating expenses including: royalties (10% lower); field operating costs (2% lower); general and administrative costs (13% lower), all contributed to the 47% increase in Funds Flow from 2018. Journey dedicated itself to reducing its controllable costs during the year and this has paid with the significant increase in Funds Flow.
During 2019, Journey spent $23.2 million on its capital program as compared to $28.3 million in 2018. The majority of the capital was spent drilling 7 (7.0 net) wells. To assist in financing the fourth quarter capital program Journey concluded a flow-through share private placement in September for $7.3 million of gross proceeds. The Company issued 2.8 million shares a price of $2.60 per share. During 2019 Journey restructured its outstanding term debt by extending the maturity of the term debt issued in 2016 from 2020 to 2023. As part of the restructuring, Journey repaid $8.0 million of term debt. By the end of 2019, the net debt of Journey was $124.2 million, which was an 8% reduction from the $134.3 million at the end of 2018. The Company is committed to reducing its leverage and has made excellent progress in this volatile commodity price environment. Journey has a very strong income tax pool position with approximately $719 million in aggregate deductions available.
About the Company
Journey is a Canadian exploration and production company focused on oil-weighted operations in western Canada. Journey’s strategy is to grow its production base by drilling on its existing core lands, implementing waterflood projects, and by 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. Journey is also in the early phases of advancing development of an unconventional shale resource play in the oil window of the Duvernay, in the western shale basin of our central core area.
FORWARD LOOKING STATEMENTS AND OTHER 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 23, 2018. Forward-looking information may relate to Journey’s 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, and long-term objectives. 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 current estimates, expectations and projections, which Journey believes to be reasonable as of the current date. No assurance can be given that the expectations set out 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 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.
The Company considers "funds flow" as 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 is calculated by taking cash from operating activities as reported in the Company’s financial statements and adding or deducting the following items: changes in non-cash working capital; transaction costs and decommissioning costs. Journey’s determination of funds flow may not be comparable to that reported by other companies. Journey also presents Funds Flow per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net income per share, which per share amount is calculated under IFRS and is more fully described in the notes to the financial statements.
Net debt is a non-IFRS measure and represents current assets less: current liabilities, bank debt and the promissory notes outstanding. For purposes of Journey’s net calculation, the impact of the potential future liability (or asset) related to the mark-to-market measurement of derivative contracts as well as the provision for decommissioning liabilities have been excluded from the calculation.
Operating netback is a non-IFRS measure, is calculated on a per boe basis and equals total revenue (excluding hedging gains and losses); minus the aggregate of: royalties, transportation and field operating costs. Journey considers operating netback as an important measure to evaluate its operational performance as it demonstrates its field level profitability relative to current commodity prices.
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:
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.
IP 30 is the average daily production rate of a well in its first full calendar month of production expressed in boe’s.
Select Abbreviations and Definitions
bbl
barrel
bbls
barrels
Liquids
Combined oil and NGL volumes
m
meters
Mbbls
Thousand barrels
MMBtu
Million British thermal units
NGLs
Natural gas liquids
Mcf
thousand cubic feet
Mmcf
Million cubic feet
Mmcf/d
Million cubic feet per day
Boe
Barrel of oil equivalent
GORR
Gross over-riding royalty
Mboe
Thousand boe
$M
Thousands of dollars
WCS
Western Canada Select oil prices
WTI
West Texas Intermediate oil prices
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; or Gerry Gilewicz, Chief Financial Officer, 403-303-3238, gerry.gilewicz@journeyenergy.ca; Journey Energy Inc., 700, 517 – 10th Avenue SW, Calgary, AB T2R 0A8, 403-294-1635, www.journeyenergy.ca
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