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Journey Energy Inc. Reports its Second Quarter 2018 Financial and Operating Results

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Journey Energy Inc. Reports its Second Quarter 2018 Financial and Operating Results

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CALGARY, Aug. 7, 2018 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") announces its financial and operating results for the three and six month periods ending June 30, 2018.  The complete set of financial statements and management discussion and analysis for the periods ended June 30, 2018 and 2017 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

SECOND QUARTER 2018 HIGHLIGHTS

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

  • Achieved production of 10,036 boe/d in the second quarter, a 2% decrease from the second quarter of 2017. Liquids (oil and natural gas liquids) production accounted for 4,687 boe/d or 47% of total production during the quarter.

  • Generated $5.3 million of funds flow in the second quarter as compared to $9.3 million in the second quarter of 2017 or $9.3 million excluding realized financial derivatives losses.

  • Received a corporate average commodity price of $34.69/boe in the quarter, a 9% increase over the second quarter of 2017. Liquids production accounted for 90% of total sales revenues in the quarter.

  • Drilled 4 (4.0 net) successful wells with three in Matziwin and one Duvernay stratigraphic test in Gilby. The three Matziwin wells were all offsetting Journey's successful 14-28-23-13W4 well which was drilled in the first quarter. As expect all wells encountered virgin reservoir pressure. All three Matziwin wells were placed on-production in the third quarter.

  • Disposed of 147 boe/d (65% natural gas) of non-core production plus a minor amount of undeveloped lands for total proceeds of $2.9 million.

  • Closed the previously announced undeveloped land acquisition in the East Duvernay Shale Basin.

  • Constructed a permanent facility to produce oil from a Duvernay oil well drilled in 2014 in Windfall. The well is expected to be placed on production in early August.

Second Quarter Financial & Operating Highlights



Three months ended

 June 30,

Six months ended

 June 30,

Financial ($000's except per share amounts)

 

2018

 

2017

%

change

 

2018

 

2017

%

change

Production revenue

31,685

29,613

7

60,619

56,303

8

Funds flow from operations

5,305

9,708

(45)

10,445

16,454

(37)


Per basic share

0.14

0.19

(26)

0.26

0.34

(24)


Per diluted share

0.13

0.19

(32)

0.25

0.34

(26)

Net income (loss)

(12,324)

7,959

(255)

(21,468)

11,879

(281)


Per basic share

(0.32)

0.16

(300)

(0.53)

0.25

(310)


Per diluted share

(0.32)

0.16

(300)

(0.53)

0.24

(321)

Capital expenditures, net

7,499

34,477

(78)

15,872

44,892

(65)

Net debt




130,606

96,554

35








Share Capital (000's)







Basic, weighted average

38,546

50,212

(23)

40,860

47,769

(14)

Basic, end of period

38,546

50,904

(24)

38,546

50,904

(24)

Fully diluted

45,063

57,371

(21)

45,063

57,371

(21)








Daily Production







Natural gas volumes (mcf/d)

32,092

33,146

(3)

32,134

30,878

4

Crude oil (bbl/d)

3,953

4,028

(2)

3,968

3,983

-

Natural gas liquids (bbl/d)

734

641

14

752

485

55

Barrels of Oil Equivalent (boe/d)

10,036

10,194

(2)

10,076

9,614

5








Average Realized Prices (including hedging)







Natural gas ($/mcf)

1.26

2.79

(55)

1.81

2.67

(32)

Crude Oil ($/bbl)

57.95

51.66

12

52.92

51.37

3

Natural gas liquids ($/bbl)

47.76

33.50

43

44.22

33.00

34

Barrels of oil equivalent ($/boe)

30.34

31.61

(4)

29.90

31.51

(5)








Netbacks ($/boe)







Realized prices (incl. hedging)

30.34

31.61

(4)

29.90

31.51

(5)

Royalties

(4.52)

(3.85)

17

(4.45)

(3.84)

16

Operating expenses

(14.14)

(12.93)

9

(14.11)

(13.31)

6

Transportation expenses

(0.59)

(0.55)

7

(0.49)

(0.50)

(2)

Operating netback

11.09

14.28

(22)

9.15

13.86

(34)








Wells drilled







Gross

4

1

300

6

4

50

Net

4.0

1.0

300

6.0

4.0

50

Success rate

100

100


100

100


 

OPERATIONS

Journey achieved production of 10,036 Boe/d (47% liquids) in the second quarter of 2018, representing a 1% decrease from the first quarter of 2018.  Second quarter 2018 production was negatively impacted by turnarounds, an extended shut in of 14-28 while drilling and completing an offset well, and the installation of a liner in the main gathering line in our Brooks property. Liquids production in the third quarter is forecasted to increase from Q2 levels due to the impact of Matziwin and Windfall production additions.

Journey's second quarter operating costs were impacted by turnaround activity, increased power costs, and increased chemical costs. Journey has increased power and chemical costs in our guidance moving forward. Journey currently forecasts operating expenses of $13 per boe for the remainder of 2018.

During the first quarter, Journey drilled two horizontal wells in its Matziwin core area.  The 14-28-23-13W4 well which was placed on production on March 13 has already produced in excess of 44,000 boe (80% oil).  This well encountered near virgin reservoir pressure, establishing a new undrained lobe in the center of our Matziwin field. The IP30 of this well was approximately 470 bbl/d of oil and is the highest IP30 oil production rate achieved by Journey in Matziwin to date.    Based upon Journey's mapping of the pool, this extension is currently estimated to contain up to 20 million barrels of OOIP.  This pool may support up to eight additional locations. Journey drilled three additional development wells offsetting 14-28 in the third quarter. All wells are now on production with initial results suggesting they will meet or exceed our type curve forecast. As expected all wells encountered virgin pressure.  One well at 13-33-23-13W4 had test rates which were superior to 14-28. These results are encouraging and set up an additional three development wells for drilling early in 2019. Further updates on Matziwin drilling will be provided in November. 

Journey has also been extremely active in advancing the development of its emerging Duvernay resource play.  Journey has now closed all previously announced undeveloped land acquisitions and assembled a highly prospective, contiguous, 100% working interest land block. Journey's activity during the past few months has been focused on addressing near term expiry issues along with the modeling and planning for the initial development phase.  The results of the vertical test well at 6-28-42-3W5 confirm Journey's interpretation that its land block contains some of the thickest and most prospective shales in the East Duvernay play. The 6-28 well was set up to be re-entered and drilled horizontally, which it anticipates will become the first horizontal well test.  Throughout the quarter, Journey continued to evaluate strategic partnerships to advance the development of this significant resource.  Journey will provide a more fulsome update to its shareholders in due course.

FINANCIAL

Daily sales volumes decreased by 2% in the second quarter of 2018 to 10,036 boe/d from 10,194 in the same quarter of 2017.  As the four wells drilled in the quarter were not completed and put on production until the third quarter, the decrease in production is mainly attributable to natural declines and the sale of small producing asset.  Production levels for the second quarter were very similar to those of the first quarter of 2018 which were 10,117 boe/d. Journey's production mix in the second quarter had natural gas volumes accounting for 53% of total volumes while liquids (oil and natural gas liquids) volumes were 47%.

Average corporate realized commodity prices, before the impact of the hedging program, were 9% higher in the second quarter with oil increasing by 32%, natural gas decreasing by 59% and natural gas liquids increasing by 43%.  Liquids (oil and NGL) revenues comprised 90% of total second quarter revenues for Journey while for the same period in 2017 they were 73%.  Natural gas prices continued to be depressed as Journey averaged $1.11/mcf during the quarter, which is 59% lower than the $2.70/mcf realized in the second quarter of 2017 and 42% lower than the $1.90/mcf realized in the first quarter of 2018.

The net hedging losses for the second quarter had a significant impact on both funds flow and ultimately the net loss.  During the quarter, the realized loss on hedging was $4.0 million while the unrealized loss was $8.3 million.  WTI oil prices continued their escalation throughout the second quarter to the high $60 USD range, causing the hedges to go increasingly out-of-the-money. In late 2017 and early 2018 Journey hedged a significant portion of its 2018 oil production, with the purpose of guaranteeing a certain amount of funds flow in light of the additional leverage associated with the share buyback in early February.  The impact on Journey's netbacks in the second quarter was significant as the realized loss from hedging amounted to $4.35 per boe and the mark-to-market portion of the hedging loss was $9.09 per boe.  Although the impact of hedging is significant on our 2018 cash flow projections, Journey's low corporate decline, ability to maintain  production for less than the hedged 2018 cash flow, and the temporary nature of our hedges bode very well for the ability of our business to sustainably generate cash flow in 2019 and beyond.

Funds flow for the second quarter was $5.3 million as compared to $9.7 million in the second quarter of 2017.  The largest contributors to the lower funds flow was: the aforementioned realized hedging loss; a 16% increase in royalties; and an 8% increase in operating expenses.  On a per share basis, funds flow was $0.14 per basic share and $0.13 per diluted share. Excluding the $4.0 million in realized hedging losses, Journey would have realized $9.3 million in funds flow for the quarter or $0.24 per basic weighted average share. Journey recorded a net loss of $12.3 million in the second quarter.  The net loss per basic and weighted average share in the second quarter was $0.32 bringing the year to date loss per share to $0.53

Journey spent $7.5 million on its exploration and development program during the second quarter.  This included the acquisition of undeveloped lands; drilling, completing and tieing-in 4.0 net wells in Matziwin and Gilby; plus ongoing exploitation projects.  The Company also divested non-core properties in the Gull Lake and Gilby areas for total proceeds of $2.9 million, including production of approximately 147 boe/d (65% natural gas).  Due to the timing of the dispositions, the impact on the second quarter production volumes was minimal at approximately 86 boe/d.

Journey exited the second quarter with net debt of $130.6 million which was 27% higher than at December 31, 2017 and 2% higher than the $128.2 million at the end of the first quarter. The increase in net debt from December 31 was primarily attributable to the increase in leverage due to the share repurchase on February 2.  Journey is committed to reducing its leverage over the next two years with a combination of reduced capital spending and non-core asset dispositions.  Based on Journey's forecasted capital spending, dispositions already executed and expected funds flow, Management is currently projecting 2018 year-end net debt to be in the range of $126-$129 million. The Company is currently drawn approximately $66 million on its $100 million credit facility.

Outlook

Although Journey's production volume forecast remains unchanged for 2018, the Company has adjusted its oil and natural gas prices as well as its oil price differential outlook and operating costs for 2018.  In addition, it has also adjusted funds flow for the effects of the new price forecasts on its existing hedges.  Journey's annual guidance is presented in the table below:

Annual average production

10,100 – 10,300 Boe/d (48% liquids)

Exploration and development capital

$34 million

Net acquisition (disposition) capital

$(5) million

Funds flow

$26 - $29 million

Net hedging losses

$15-$17 million

Year-end net debt

$126 - $129 million

Funds flow per basic weighted average share

$0.66 – $0.73 share

Corporate annual decline rate

16%

 

Journey's 2018 forecasted funds flow is based upon the following annual, average prices: WTI of US$67/bbl; Company differentials of $12/bbl for oil from Edmonton light sweet prices; AECO gas of CDN$1.55/mcf; and a foreign exchange rate of $0.78 US$/CDN$.

Although capital expenditures reflect all of Journey's forecasted investments in the Duvernay play no additional volumes or upside from this play are reflected in Journey's guidance.

On behalf of Journey's management team and directors we would like to thank our shareholders for their continued support through this challenging time.  There are few companies within our peer group that share the same upside leverage to rising commodity prices that Journey does, and we remain steadfast in our goal to provide shareholders with superior returns over the longer term. 

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

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 our 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 our 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 our 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 our 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. Our 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 our 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 our 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 the purpose of 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 23, 2018. 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, 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 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.

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" 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.

(2)

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.

(3)

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:

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 in its first 365 days of production expressed in boe's.

Abbreviations

bbl

barrel

bbls

barrels

bbl/d

barrels of oil or NGL per day

boe

barrels of oil equivalent

boe/d

barrels of oil equivalent per day

gj

gigajoules

Mbbls

Thousand barrels

MMBtu

Million British thermal units

NGL

Natural gas liquids

Mcf

thousand cubic feet

Mmcf

Million cubic feet

Mmcf/d

Million cubic feet per day

Mboe

Thousand boe

$M

Thousands of dollars

OOIP

Original oil in place

 

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

SOURCE Journey Energy Inc.

View original content: http://www.newswire.ca/en/releases/archive/August2018/07/c1501.html

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