JOY Journey Energy Inc

CALGARY, AB, July 28, 2022 /CNW/ - Journey Energy Inc. (TSX: JOY) (OTCQX: JRNGF) ("Journey" or the "Company") is pleased to announce its financial and operating results for the three and six month periods ending June 30, 2022. The complete set of financial statements and management discussion and analysis for the periods ended June 30, 2022 and 2021 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

Journey announced earlier today that it had entered into a definitive agreement with a senior producer for the purchase of petroleum and natural gas assets (the "Acquisition") currently producing approximately 4,400 boe/d (71% oil and NGL's). The assets are located in the Medicine Hat, Kaybob, Ferrier, and Ante Creek areas of Alberta. The purchase price for the acquisition is $140 million, prior to closing adjustments. The acquisition is highly accretive to both Adjusted Funds Flow and free cash flow per share while still allowing the Company to maintain a conservative corporate leverage ratio. For further information regarding the acquisition, readers are encouraged to refer to the July 28, 2022 acquisition press release.

Highlights for the year-to-date are as follows:

• Produced 9,590 boe/d in the second quarter. (52% natural gas production; 37% crude oil; 11% NGL's). Six months ended June 30 sales volumes increased 18% year over year.
  
  
• Realized Adjusted Funds Flow of $33.4 million or $0.63 per basic share and $0.56 per diluted share, the highest quarterly funds flow in its history.
  
  
• Reduced June 30, 2022 net debt by 61% to $29.7 million from $77.3 million at the end of the second quarter of 2021.
  
  
• Closed the acquisition of a private company in the Carrot Creek area effective April 1, 2022, adding approximately 770 boe/d of low decline production (49% crude oil and NGL's).
  
  
• Closed the previously announced acquisition of infrastructure and gathering facilities in the Gilby area on May 9, 2022 for $4.8 million. Journey has applied to install its second power generation facility, which will be located at Gilby. Journey has received preliminary approval to install a 15.5 MW facility at Gilby. Journey has budgeted all in costs including contingency of $20 million for the facility with a start-up date of late 2023. Up to 30% of this cost will be spent in 2022 to procure all of the longer delivery items and power generation equipment.
  
  
• Participated in drilling and completion operations in 5 gross (4.5 net) wells in Crystal, Westerose, and Countess. All of these wells are forecast to begin producing in August 2022.
  
  
• Subsequent to quarter end, began drilling a two mile Glauconite horizontal well at Westerose.

Second Quarter Financial & Operating Highlights

Journey was active during the fourth quarter of 2021 and to date in 2022, conducting accretive acquisitions, and also entering into two significant farm-ins. These farm-ins provide optionality on over 19,000 acres of undeveloped land.  These transactions, along with the equity financing, which closed in March are helping to shape the 2022 capital program. This program will see Journey participating in 17 (15 net) wells in seven different areas.

Journey has expanded the exploration and development ("E&D") portion of the 2022 capital program from $54 million to $58.8 million. The difference includes inflationary cost escalations; additional E&D projects; and an increase in power generation budget to $5.8 million with the purchase of an 8.6 megawatt power generation unit. Journey has received preliminary approval to install its second power generation facility, a 15.5 megawatt facility, which will be located at Gilby. The Company has proactively acquired 17 megawatts (three 2.8 megawatt units; and one 8.6 megawatt unit) of generation capacity and is currently in the process of transporting these generators to Gilby. Journey is in the process of procuring additional, longer delivery items and also beginning the detailed engineering for this project. The on-stream date for this project is currently expected to be in late 2023. Total costs for this project are estimated at $20 million including contingency costs with approximately 30% of the capital spent in 2022 and the remainder budgeted for 2023.

In the first quarter Journey participated in 3 (3.0 net) wells in Skiff. These wells are on primary production with waterflood implementation scheduled for later in the year. In addition, one (31% working interest) well was drilled and completed on the acquired assets in Carrot Creek. This well has been on-production since April and is performing above expectations. The impact of first quarter drilling and the acquisition activities resulted in sales volumes of 9,590 boe/d, a 13% increase in over the first quarter of 2022 and a 24% increase over the same quarter in 2021. The capital program is concentrated in the second half of the year with significant production additions beginning in August with 4.5 net wells expected to come on-production.

In addition to the two Crystal wells that were completed in the second quarter, Journey's drilling program continued in Westerose with two Belly River horizontal wells. We have now spudded a two-mile Glauconite horizontal well, and participated in a 50% working interest well in Brooks that will be completed in early August. Following this, Journey's development drilling program will continue with wells in Cherhill, Herronton, and Brooks.

Journey is currently planning to drill 17 (15.0 net) wells in 2022 with locations evenly distributed between the Northern and Southern core areas. Journey's production guidance reflects the fact that the capital program is weighted to the second half of 2022, with only 40% of capital expenditures occurring in the first half of 2022, and many of the first half projects not coming on-stream until the third quarter. Because of this phasing, the increased capital spending will have a muted impact on 2022 average production levels. The timing of remaining capital program will remain flexible based upon organizational requirements associated with closing of the Acquisition announced on July 28, 2022. Further guidance will be provided when additional certainty is known regarding the closing of the acquisition.

This was a strong quarter for Journey financially across all categories. All commodity prices increased during the second quarter of 2022 over 2021 levels. Average Journey realized prices were $77.84/boe for the second quarter.  This was 98% higher than the same quarter of 2021 and a 30% appreciation from the first quarter of 2022. Realized crude oil prices during the second quarter averaged of 2022 $126.98/bbl, which was 87% higher than the $68.07/bbl realized in the second quarter of 2021. The strong price appreciation in prices for the quarter was timely as the corporate acquisition Journey concluded effective April 1 realized the full impact of the higher prices. The combination of the production from the acquisition of 770 boe/d (49% oil and NGL's), plus the three successful Skiff wells placed on-production at the end of the first quarter, contributed to the 147% increase in sales revenues over the second quarter of 2021. Crude oil sales volumes for the second quarter of 2022 represented 37% of total boe volumes but contributed 61% of total petroleum and natural gas revenues. Similarly, natural gas prices were 141% higher in the second quarter to average $7.29/mcf as compared to $3.02 in the second quarter of 2021. Natural gas sales volumes contributed 52% of total boe sales volumes in 2022 while contributing 29% of total sales revenues. Journey remained unhedged throughout 2022 to date and took full advantage of the commodity price appreciation that took place during the quarter. Journey took advantage of the higher AECO pricing in the second quarter to lock in pricing of $7.28/GJ for 10,000 GJ/d for the period from July 1, 2022 to December 31, 2022 inclusive.

All of the field operating costs (royalties, operating and transportation expenses) experienced increases during the second quarter of 2022. Royalty expense was higher by 272% from the second quarter of 2021 as was expected with the strong appreciation in commodity prices. On a per boe basis royalty expense was $16.12/boe in 2022 as compared to $5.39 in the second quarter of 2021. Aggregate field operating expenses increased in 2022 as the acquisitions, reactivations, higher power prices, and general inflationary pressures contributed to the total increase. In addition, $1.3 million of workover and turnaround costs were incurred in the second quarter of 2022 and accounted for approximately $1.54/boe of the total operating expenses. As a result of inflationary cost pressures, Journey averaged $17.79/boe for the second quarter of 2022 as compared to $17.21/boe in the same quarter of 2021. The cost per boe increased 11% from $0.57 in the second quarter of 2021 to $0.63/boe in the second quarter of 2022.

Journey's general and administrative ("G&A") costs were higher in 2022 as compared to the same quarter in 2021.  G&A increased to $3.2 million in the second quarter of 2022 as compared to $1.0 million in the second quarter of 2021. 2022 G&A includes bonuses declared in respect of the 2021 performance year while 2021 G&A was inordinately lower as government COVID subsidies for rent and wages were still in existence during the second quarter of 2021. On a per boe basis, Journey's general and administrative costs were $3.63/boe for the second quarter of 2022 and $1.48/boe for the second quarter of 2021. 

Finance expenses related to borrowings, or interest costs, decreased by 15% to $1.6 million in the second quarter of 2022 from $1.9 million in the same quarter of 2021. Average, interest-bearing debt decreased by 14% in the second quarter of 2022 compared to the same quarter of 2021 mainly due to the repayment of $25.0 million of the AIMCo term debt throughout 2021.

Journey realized net income of $28.2 million in the second quarter of 2022 compared to a loss of $0.3 million in the same quarter of 2021. Net income per basic and diluted per share was $0.54 and $0.47 respectively for the second quarter. Adjusted Funds Flow in the second quarter was 270% higher in 2022, wherein the Company generated $33.4 million, or $0.63 and $0.56 per basic and diluted share as compared to $9.0 million, or $0.21 basic and $ 0.19 per diluted per share in the same quarter of 2021. Cash flow from operations was $26.0 million in the second quarter of 2022 ($0.49 per basic share and $$0.46 per diluted share) as compared to $9.4 million in the second quarter of 2021 or $0.21 and $0.19 per basic and diluted share respectively.

Journey continued to be prudent with its capital spending during the second quarter. The corporate acquisition that closed effective April 1 was done with a combination of $8.0 million of cash and 1.75 million common shares. The prudent use of equity in concluding this transaction allowed Journey to conserve cash and at the same time further diversify its shareholder base. The acquisition continued to strengthen the Company's sustainability. Total capital expenditures in the second quarter were $35.3 million. This included the acquisition for $19.1 million; $4.8 million spent on doubling the existing working interests in a gas plant and gathering system in Gilby; drilling and completing 1 (1.0 net) well in Crystal; and $2.3 million for the acquisition of two generators for future use in the Company's expanding power generation division.

Journey exited the second quarter of 2022 with net debt of $29.7 million, which was 61% lower than the $77.3 million at June 30, 2021 and 48% lower than the $57.0 million at the beginning of 2022. The $29.7 million of net debt at June 30, 2022 amounts to 0.2 times trailing annualized second quarter Adjusted Funds Flow.

On July 28, 2022 Journey announced that the Company has entered into definitive agreements for a transformational acquisition. As part of this announcement Journey's largest shareholder and sole term debt provider, AIMCo, has consented to the Acquisition and has agreed to extend the maturity of its $23.8 million tranche of term debt from September 30, 2022 to March 31, 2023. The extension to the term debt will provide additional liquidity while the assets are integrated into Journey's operations, and allows Journey to utilize the long life, free cash flow generation from the assets to the benefit of all stakeholders.

Effective today, Journey is pleased to announce the appointment of Ms. Jenna Kaye to its Board of Directors (the "Board"). Ms. Kaye is the Founder and CEO of Odyssey Trust Company, one of the largest trust and transfer agents in North America, with offices and co-agents across Canada and the US. She is also the Co-Founder and Chair of Tetra Trust, Canada's first regulated crypto custodian, Co-Founder of Axis Connects, a Calgary-based non-profit organization committed to increasing diversity on boards and in the c-suite, and a Principal of Icebook Investments, a family run office that's focused on early-stage businesses across a wide range of industries including renewable energy, real estate and fertility. Ms. Kaye has MBA and LLB degrees from Dalhousie University and practiced law at a national law firm. With extensive experience in governance and a deep knowledge of capital markets, as well as a history of founding successful companies, Journey believes Ms. Kaye will bring valuable insights and meaningful contributions to the Board.

Journey has updated its annual 2022 guidance to take into account the Acquisition. The underlying assumption is that the Acquisition will close on October 1, 2022, but this timing is dependent on regulatory approvals. Should this assumption change, Journey will revise its guidance accordingly. 

Journey has embarked on a careful and prudent expansion of its business plan. This expansion has been buoyed by commodity price tailwinds and would not be possible without the talented team at Journey, both in the office and the field. The transformational acquisition announced today positions Journey to continue its forward trajectory for years to come. The Company looks forward to updating you on Journey's progress as we continue on our development path.

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.

This press release contains forward-looking statements and forward-looking information (collectively "forward looking information") within the meaning of applicable securities laws relating to the Company's plans and other aspects of the anticipated future operations, management focus, strategies, financial, operating and production results, industry conditions, commodity prices and business opportunities. In addition, and without limiting the generality of the foregoing, this press release contains forward-looking information regarding decline rates, anticipated netbacks, drilling inventory, estimated average drill, complete and equip and tie-in costs, anticipated potential of the Assets including, but not limited to, EOR performance and opportunities, capacity of infrastructure, potential reduction in operating costs, production guidance, total payout ratio, capital program and allocation thereof, future production, decline rates, funds flow, net debt, net debt to funds flow, exchange rates, reserve life, development and drilling plans, well economics, future cost reductions, potential growth, and the source of funding Journey's capital spending. Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future.

The forward-looking information is based on certain key expectations and assumptions made by management, including expectations and assumptions concerning prevailing commodity prices and differentials, exchange rates, interest rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; the ability to efficiently integrate assets and employees acquired through acquisitions, including the Acquisition, the ability to market oil and natural gas successfully and the ability to access capital. Although we believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Journey can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. The actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that we will derive therefrom. Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide security holders with a more complete perspective on future operations and such information may not be appropriate for other purposes.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).These forward looking statements are made as of the date of this press release and we disclaim any intent or obligation to update publicly any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Journeys prospective results of operations, funds flow, netbacks, debt, payout ratio well economics and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this press release was made as of the date of this press release and was provided for providing further information about Journey's anticipated future business operations. Journey disclaims any intention or obligation to update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein. 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, 2022. Forward-looking information may relate to the 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 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.

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)  "Adjusted Funds Flow" is calculated by taking "cash flow provided by operating activities" from the financial statements and adding or deducting: changes in non-cash working capital; non-recurring "other" income; transaction costs; and decommissioning costs. Adjusted Funds Flow per share is calculated as Adjusted Funds Flow divided by the weighted-average number of shares outstanding in the period. Because Adjusted Funds Flow and Adjusted Funds Flow per share are not impacted by fluctuations in non-cash working capital balances, we believe these measures are more indicative of performance than the GAAP measured "cash flow generated from operating activities". In addition, Journey excludes transaction costs from the definition of Adjusted Funds Flow, as these expenses are generally in respect of capital acquisition transactions. The Company considers Adjusted 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. Journey's determination of Adjusted Funds Flow may not be comparable to that reported by other companies. Journey also presents "Adjusted Funds Flow per basic share" where per share amounts are calculated using the weighted average shares outstanding consistent with the calculation of net income (loss) per share, which per share amount is calculated under IFRS and is more fully described in the notes to the audited, year-end consolidated financial statements.

(2)  "Netback(s)". The Company uses netbacks to help evaluate its performance, leverage, and liquidity; comparisons with peers; as well as to assess potential acquisitions. Management considers netbacks as a key performance measure as it demonstrates the Company's profitability relative to current commodity prices.  Management also uses them in operational and capital allocation decisions. Journey uses netbacks to assess its own performance and performance in relation to its peers. These netbacks are operating, Funds Flow and net income (loss). "Operating netback" is calculated as the average sales price of the commodities sold (excluding financial hedging gains and losses), less royalties, transportation costs and operating expenses. There is no GAAP measure that is reasonably comparable to netbacks.

(3)  "Net debt" is calculated by taking current assets and then subtracting accounts payable and accrued liabilities; the principal amount of term debt; other loans; and the principal amount of the contingent bank liability. Net debt is used to assess the capital efficiency, liquidity and general financial strength of the Company. In addition, net debt is used as a comparison tool to assess financial strength in relation to Journey's peers.

(4)  Journey uses "Capital Expenditures" to measure its capital investment level compared to the Company's annual budgeted capital expenditures for its organic capital program, excluding acquisitions or dispositions. The directly comparable GAAP measure to capital expenditures is cash used in investing activities. Journey then adjusts its capital expenditures for A&D activity to give a more complete analysis for its capital spending used for FD&A purposes. The capital spending for A&D proposes has been adjusted to reflect the non-cash component of the consideration paid (i.e. shares issued). The following table details the composition of capital expenditures and its reconciliation to cash flow used in investing activities:

Measurements

All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.

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 nine (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.

Abbreviations

The following abbreviations are used throughout these MD&A and have the ascribed meanings:

All volumes in this press release refer to the sales volumes of crude oil, natural gas and associated by-products measured at the point of sale to third-party purchasers. For natural gas, this occurs after the removal of natural gas liquids.

No securities regulatory authority has either approved or disapproved of the contents of this press release.

SOURCE Journey Energy Inc.