CALGARY, March 13, 2018 /CNW/ – Journey Energy Inc. (JOY – TSX) (“Journey” or the “Company“) is pleased to announce its financial results for 2017. The complete set of financial statements and management discussion and analysis for the year ended December 31, 2017 are posted on www.sedar.com and on the Company’s website www.journeyenergy.ca.
Highlights for the fourth quarter of 2017 were:
- Realized funds flow of $9.8 million in the fourth quarter, an 18% increase over the $8.4 million in 2016. Both quarters generated $0.19 per basic share. Funds flow for 2017 was $31.1 million, an increase of 13% over 2016.
- Achieved average production of 10,521 boe/d in the fourth quarter bringing the annual average for the year to 9,962 boe/d. These production levels were increases of 24% and 14% respectively from 2016 production.
- Received a corporate average commodity price of $31.94/boe (including hedging gains), an 8% decrease from the fourth quarter of 2016. Liquids production accounted for 83% of total sales revenues as compared to 73% in 2016.
- Drilled 2 (2.0 net) wells in the fourth quarter bringing the year to date drilling activity to 12 (11.5 net) wells.
- Repurchased 1.3 million outstanding shares under Journey’s normal course issuer bid at a price of $1.70 per share. Re-issued 1.05 million shares from treasury on a Canadian Development Expense flow through basis at a price of $2.20 per share.
Highlights subsequent to the 2017 year-end were:
- Repurchased for cancelation 12.7 million shares of Journey from a major shareholder, for $21.37 million, reducing the current share count to 38.5 million basic shares from 51.2 million basic shares at the end of 2017. Entered into a new term facility with AIMCo for $22 million to finance the share purchase.
- Entered into three strategic undeveloped land acquisition agreements increasing Journey’s Duvernay undeveloped land position in the Western Shale Basin to 103 sections (100% working interest). The lands are a large contiguous block, located in the oil window of the emerging Duvernay fairway, and sets up well for the drilling of 2 mile horizontal wells. Efforts to design and implement a comprehensive plan to evaluate the potential of this resource are currently ongoing.
- Entered into definitive agreements or closed $3.9MM in non-core asset dispositions with associated production of 150 boe/d (35% liquids).
- Initiated our 2018 capital program with two successful wells in our Matziwin core area. Both wells are forecast to exceed expectations based upon test data.
Three Months ended December 31, |
Twelve months ended December 31, |
||||||
Financial ($000’s except per share |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
|
Production revenue |
30,311 |
26,181 |
16 |
110,085 |
87,239 |
26 |
|
Funds flow |
9,829 |
8,354 |
18 |
31,126 |
27,472 |
13 |
|
Per basic share |
0.19 |
0.19 |
– |
0.63 |
0.63 |
– |
|
Per diluted share |
0.19 |
0.19 |
– |
0.62 |
0.63 |
(2) |
|
Net income (loss) |
(138,841) |
49,314 |
(382) |
(133,021) |
52,593 |
(348) |
|
Per basic share |
(2.72) |
1.13 |
(341) |
(2.69) |
1.21 |
(322) |
|
Per diluted share |
(2.72) |
1.13 |
(341) |
(2.69) |
1.21 |
(322) |
|
Net capital expenditures, cash |
11,328 |
9,708 |
17 |
65,628 |
6,962 |
843 |
|
Net debt |
103,021 |
86,916 |
19 |
103,021 |
86,916 |
19 |
|
Share Capital (000’s) |
|||||||
Basic, weighted average |
51,106 |
43,680 |
17 |
49,390 |
43,632 |
13 |
|
Basic, end of period |
51,241 |
43,703 |
17 |
51,241 |
43,703 |
17 |
|
Fully diluted |
58,371 |
50,085 |
17 |
58,371 |
50,085 |
17 |
|
Daily Production |
|||||||
Natural gas volumes (mcf/d) |
34,349 |
26,212 |
31 |
32,413 |
24,547 |
32 |
|
Crude oil (bbl/d) |
3,971 |
3,786 |
5 |
3,914 |
4,110 |
(5) |
|
Natural gas liquids (bbl/d) |
825 |
351 |
135 |
646 |
511 |
26 |
|
Barrels of oil equivalent (boe/d) |
10,521 |
8,505 |
24 |
9,962 |
8,712 |
14 |
|
Average Prices (including hedging) |
|||||||
Natural gas ($/mcf) |
2.32 |
2.95 |
(21) |
2.40 |
2.07 |
16 |
|
Crude Oil ($/bbl) |
55.85 |
49.32 |
13 |
52.49 |
45.64 |
15 |
|
Natural gas liquids ($/bbl) |
41.83 |
31.35 |
33 |
34.54 |
23.75 |
45 |
|
Corporate ($/boe) |
31.94 |
34.59 |
(8) |
30.67 |
25.75 |
18 |
|
Netbacks ($/boe) |
|||||||
Realized prices (including hedging) |
31.94 |
34.59 |
(8) |
30.67 |
25.75 |
18 |
|
Royalties |
(4.48) |
(4.16) |
8 |
(3.87) |
(3.11) |
24 |
|
Operating expenses |
(12.49) |
(12.25) |
2 |
(13.41) |
(11.64) |
15 |
|
Transportation expense |
(0.34) |
(0.45) |
(24) |
(0.43) |
(0.40) |
7 |
|
Operating netback |
14.63 |
17.73 |
(17) |
12.96 |
10.80 |
20 |
|
Wells drilled |
|||||||
Gross |
2 |
5 |
(60) |
12 |
7 |
71 |
|
Net |
2.0 |
4.1 |
(51) |
11.5 |
6.1 |
89 |
|
Success rate (%) |
100 |
100 |
– |
83 |
100 |
(17) |
OPERATIONS
Journey achieved production of 10,521 boe/d (46% liquids) in the fourth quarter, representing a 4% increase from third quarter levels and 24% from the fourth quarter of 2016. During 2017, Journey participated in 12 (11.5 net) wells as compared to 7 (6.1 net) wells in 2016. The increase in drilling activity was reflective of the better commodity prices received in 2017, and particularly the first half of the year. Approximately 30% of Journey’s 2017 exploration and development capital was spent in the fourth quarter including the drilling of 2 (2.0 net) wells and completing three wells drilled in the third quarter. Both wells drilled in the fourth quarter were placed on production in early December and had minimal impact on the quarterly production.
Approximately 50% of Journey’s total capital expenditures in 2017 were associated with an acquisition of 2,000 boe/d acquired of low decline, natural gas weighted (72%) production, primarily in the Gilby area in our Central Alberta Core Region. Although the acquisition was closed in April, Journey’s optimization efforts have maintained corporate production throughout the balance of 2017 while spending less than cash flow on its remaining capital program. The strategic infrastructure associated with the acquisition will service the recently acquired Duvernay lands and will therefore compliment Journey’s efforts to develop this significant resource.
Operating expenses were $13.41 per boe for the year. These expenses were impacted by one-time costs associated with two pipeline failures earlier in the year resulting in a non-recurring cost of approximately $1.2 million. In addition to the costs associated with the pipeline failures, and in an effort to satisfy all of our stakeholders in the integrity of our infrastructure, Journey proactively implemented a Company-wide enhanced pipeline integrity program at a cost of $2.6 million. This program included line inspections, line replacements, liner installations, construction of single well batteries, and a comprehensive review of both inhibition programs and procedures. These costs were an investment into our future, and now that expenses are limited to ongoing baseline maintenance and monitoring, Journey forecasts more representative operating costs of approximately $12.50 per boe in 2018.
FINANCIAL
Journey realized funds flow of $9.8 million in the fourth quarter of 2017 compared to $8.4 million in the same quarter last year. This brought the total 2017 funds flow to $31.1 million as compared to $27.5 million in 2016. Funds flow per share was $0.19 (basic and diluted) in the fourth quarter and for the year was $0.63 per basic share and $0.62 per diluted share. Average commodity prices were relatively flat quarter to quarter but for the year to date were 7% higher.
Journey realized a net loss of $138.8 million or $2.72 per basic and diluted share in the fourth quarter. For 2017 the entire years’ net loss was $133.0 million or $2.69 per basic and diluted share. The most significant items contributing to the net loss were net asset impairments of $39.6 million and also a $104.1 million de-recognition of Journey’s deferred tax asset. Both of these write-downs were directly attributable to the combination of the decline in forward looking natural gas prices used in the independent reserve evaluators report, as well as Journey’s shift in production and reserves to a more natural gas weighted mix.
Journey’s production mix moved to a natural gas weighting of 54% in 2017 as compared to 47% for 2016. The increase in natural gas weighting was the result of the 2,000 boe/d acquisition in April which was 72% natural gas, as well as the disposition of 185 boe/d (80% oil and NGL) Sylvan Lake, Alberta assets in April. Journey realized natural gas prices went from the mid-$2/mcf range in the first quarter to $2.70/mcf in the second quarter and then dropping to $1.32/mcf in the third quarter while advancing slightly to $1.49/mcf in the fourth quarter. Even though prices were persistently low over the last half of the year, natural gas revenues accounted for only 22% of corporate revenues for the entire year.
Commensurate with increasing oil and NGL prices in the fourth quarter of 2017, royalty costs were up 33% in the fourth quarter to average $4.48/boe as compared to $4.16/boe in the same quarter of 2016. The average royalty rate (as a percentage of revenue) was up 15% to 14.3% in the fourth quarter of 2017 compared to 12.4% in 2016. Given currently anticipated pricing levels for 2018 Journey is expecting a royalty rate of approximately 13%. Operating costs were higher in 2017 by 15% to average $13.41/boe. As mentioned, non-recurring operating expenses of approximately $1/boe are currently expected to bring the 2018 operating expenses down to the mid-$12 range. General and administrative costs were an improvement in 2017 at $10.3 million as compared to $11.0 million in 2016. The cost savings from a reduced staff count coming into 2017 was the prime driver behind the reduction. These lower aggregate costs, coupled with the increased production, resulted in a 15% improvement in the per boe rate to $2.84 in 2017 from $3.46 in 2016. Interest costs were 15% higher in 2017 at $5.7 million compared to $4.9 million in 2016. Even though average outstanding borrowings were consistent year over year, 2017 was the first full year of the higher cost term debt which carried an interest rate of 7.65% per annum. The interest cost on a per boe basis was flat at $1.55 as compared to $1.54 in 2016 as production levels had increased.
Commodity prices continued to have a significant impact on capital spending within our industry in 2017. AECO spot natural gas prices sunk to a low of $0.87/mcf in October before showing some recovery to $1.98 by year end. The average Journey realized natural gas price for all of 2017 was $2.32/mcf including the effects of the Company’s hedging program. WTI oil prices stayed around the low $50 USD range in the early part of the year until they sunk to $45.20 in June. They then started a march upward to a high for the year of $57.95 in December. The low prices realized throughout the first portion of the year created significant uncertainty, and adversely affected Journey’s early capital spending plans. However, the Company took these challenges in stride and capitalized on the opportunities that materialized, which included the significant acquisition in April.
Journey spent $65.6 million in its capital program for the year, which was split almost equally between organic capital projects and acquisitions/divestitures. The most significant single expenditure was the Gilby/Niton acquisition in April amounting to $34.9 million after final adjustments. On March 2, 2017 AIMCo exercised the warrants they received in the 2016 term debt placement with the resultant $13.6 million in proceeds going to partially finance the acquisition.
Attributable to the low trading prices experienced for Journey shares, Journey repurchased 1.3 million of its outstanding shares under its normal course issuer bid at a cost of $2.2 million or $1.70 per share during 2017. In October, Journey issued 1.02 million flow-through shares at a price of $2.20 per share.
In the spring of 2017 and taking into account the recently closed acquisition, Journey renewed its credit facility at $125 million, which was an increase from $90 million. The bank facility is currently undergoing its annual review and Journey expects this review will be completed by the end of April.
Subsequent to the year-end, Journey purchased 12.7 million shares from our major shareholder for cancelation. The transaction was financed through a term loan with AIMCo for $22 million thereby increasing net debt. The Company also re-allocated a portion of its 2018 capital budget to two strategic Duvernay land acquisitions. Although Journey improved its value on a per share basis, the increased leverage associated with the land and share purchases has resulted in Journey taking a measured approach to our 2018 capital program in an effort to reduce debt levels by the end of the year.
2018 GUIDANCE
Journey’s 2018 guidance, as previously announced, is as follows:
Current |
||
Annual average production |
10,100-10,500boe/d |
|
Exploration and development capital |
$31 million |
|
Wells drilled |
9 (9.0 net) |
|
Net disposition capital |
$4 million |
|
Funds flow |
$36 – $40 million |
|
Commodity prices: |
||
WTI (USD/bbl) |
$60.00 |
|
AECO (CDN/mcf) |
$1.55 |
|
F/X (US$/CDN$) |
$0.80 |
|
Year-end net debt |
$110 – $114 million |
|
Basic outstanding shares Funds flow (per basic share) |
38.5 million $0.93 – $1.04 |
|
Corporate annual decline rate |
16% |
In order to provide certainty of near term cash flow while leverage level are elevated, Journey has taken a more aggressive approach to hedging our near term oil production;
A summary of the outstanding hedges is as follows:
Oil Hedges |
||
Period |
Bbls/d |
Average Floor Price |
Q1 2018 |
3,500 |
$68.64 |
Q2 2018 |
3,000 |
$71.50 |
Q3 2018 |
3,000 |
$71.50 |
Q4 2018 |
3,000 |
$70.75 |
Q1 2019 |
1,500 |
$72.00 |
Q2 2019 |
1,000 |
$71.50 |
Natural Gas Hedges |
||
Period |
Mcf/d |
Average Floor Price |
Q1 2018 |
12,796 |
$3.07 |
Q2 2018 |
3,318 |
$2.62 |
Q3 2018 |
3,318 |
$2.61 |
Q4 2018 |
3,318 |
$2.77 |
For 2018 Journey has approximately 62% of its currently forecast liquid (oil and NGL’s) volumes hedged while 17% of its natural gas volumes are hedged.
About the Company
Journey is a Canadian exploration and production company focused on conventional oil and liquids-rich natural gas 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.