CALGARY, May 8, 2018 /CNW/ – Journey Energy Inc. (JOY – TSX) (“Journey” or the “Company“) is pleased to announce its financial results for the first quarter of 2018. The complete set of financial statements and management discussion and analysis for the periods ended March 31, 2018 and 2017 are posted on www.sedar.com and on the Company’s website www.journeyenergy.ca.
Highlights for the first quarter and to date are as follows:
- Achieved a production level of 10,117 boe/d in the first quarter, a 12% increase from the first quarter of 2017. Liquids (oil and natural gas liquids) production accounted for 4,755 Boe/d or 47% of total production during the quarter.
- Received a corporate average commodity price (before hedging) of $31.78/boe in the quarter with liquids production accounting for 81% of total sales revenues.
- Drilled 2 (2.0 net) wells in Matziwin. Both wells were placed on production in the quarter and have exceeded Management’s expectations. The 14-28-23-13W4 well, which was placed on production March 13 has already produced in excess of 25,000 boe (79% oil) and represents a significant undrained extension to Journey’s Matziwin Glauconitic shore face pool. Management currently estimates this pool to contain up to 20 million barrels of OOIP; and will support up to 8 additional drilling locations.
- Entered into definitive agreements for the sale of certain non-core assets totaling $5.0 million, with $2.0 million having closed in the first quarter and the remainder anticipated to close in May.
- Entered into three land acquisition agreements in the East Duvernay Shale Basin. Two purchases closed in the first quarter while a third closed in early April resulting in Journey controlling over 102 sections of contiguous 100% owned PNG rights located in what Journey anticipates to be the oil window of the Duvernay fairway actively being drilled by offset owners. These lands will benefit from Journey’s ownership in significant pipeline egress and underutilized processing facilities currently servicing the area.
- Currently drilling a vertical, Duvernay test well at 103/6-28-42-3W5; The well will be configured to accommodate the drilling of a future horizontal test well.
- Implemented a strategy to continue certain Duvernay Crown lands, which upon submission of the 6-28 vertical results, are expected to continue 25 of 29 key sections.
- Repurchased 12.7 million common shares at a price of $1.68 per share.
- Completed a new term debt financing for $22 million with Alberta Management Investment Company. The debt bears interest at 7.65% and matures on September 30, 2022.
- Renewed the Company’s credit facility at $100 million.
Three months ended March 31, |
||||
Financial ($000’s except per share amounts) |
2018 |
2017 |
% change |
|
Production revenue |
28,934 |
26,690 |
8 |
|
Funds flow |
5,140 |
6,754 |
(24) |
|
Per basic share |
0.12 |
0.15 |
(20) |
|
Per diluted share |
0.12 |
0.15 |
(20) |
|
Net earnings (loss) |
(9,144) |
3,920 |
(333) |
|
Per basic share |
(0.21) |
0.09 |
(335) |
|
Per diluted share |
(0.21) |
0.09 |
(335) |
|
Capital expenditures, net |
8,373 |
10,415 |
(20) |
|
Net debt |
128,215 |
77,416 |
66 |
|
Share Capital (000’s) |
||||
Basic, weighted average |
43,199 |
45,298 |
(5) |
|
Basic, end of period |
38,546 |
48,653 |
(21) |
|
Fully diluted |
45,561 |
54,787 |
(17) |
|
Daily Production |
||||
Natural gas volumes (mcf/d) |
32,176 |
28,586 |
13 |
|
Crude oil (bbl/d) |
3,983 |
3,937 |
1 |
|
Natural gas liquids (bbl/d) |
771 |
326 |
137 |
|
Corporate (Boe/d) |
10,117 |
9,027 |
12 |
|
Average Realized Prices (including hedging) |
||||
Natural gas ($/mcf) |
2.36 |
2.52 |
(6) |
|
Crude Oil ($/bbl) |
47.88 |
51.06 |
(6) |
|
Natural gas liquids ($/bbl) |
40.82 |
32.01 |
28 |
|
Corporate ($/BOE) |
29.47 |
31.40 |
(6) |
|
Netbacks ($/BOE) |
||||
Realized prices |
29.47 |
31.40 |
(6) |
|
Royalty expense |
(4.37) |
(3.82) |
14 |
|
Operating expense |
(14.08) |
(13.75) |
2 |
|
Transportation expense |
(0.40) |
(0.44) |
(9) |
|
Operating netback |
10.62 |
13.39 |
(21) |
|
Wells drilled |
||||
Gross |
2 |
4 |
(50) |
|
Net |
2.0 |
3.0 |
(33) |
|
Success rate (%) |
100 |
100 |
OPERATIONS
Journey achieved production of 10,117 Boe/d (47% liquids) in the first quarter of 2018, representing a 12% increase from the first quarter of 2017. First quarter 2017 production was negatively impacted by an extended period of extremely cold weather early in the quarter, which resulted in downtime due to freeze-offs at many locations, and persisted throughout the quarter. Management estimates that the impact of the freeze-offs on production volumes during the quarter was approximately 250 boe/d (75% natural gas).
The extreme weather experienced in the first quarter also had a non-recurring impact on operating expenses due to increased costs for methanol, propane, snow removal and repair and maintenance expenses. Operating costs in the first quarter were also negatively impacted by $860 thousand of prior period adjustments relating to expenses incurred in the second half of 2017, many of which were associated with Journey’s 2017 initiative to improve the reliability of our pipeline infrastructure. Journey currently forecasts operating expenses of between $12 and $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 25,000 boe (79% oil). This well encountered near virgin reservoir pressure and flowed for approximately one month before being placed on pump. The 14-28 well was a westerly step out of Journey’s East Matziwin oil pool. 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. The Company’s assessment of the results is that the 14-28 well has encountered an undrained extension to the east Matziwin pool. 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. Based upon the results of this new well Journey has re-allocated funds within its 2018 capital plan and devoted them to the Matziwin area. The Company is in the process of licensing three additional offsetting locations to the discovery well. Weather permitting Journey intends to begin drilling in Matziwin in the third week of May, and looks forward to reporting the results of the additional wells in August.
Journey has also been extremely active in advancing the development of its emerging Duvernay resource play. Journey has assembled a highly prospective, contiguous, 100% working interest land block in an area extensively served by Journey’s underutilized infrastructure. Journey’s activity during the past few months has been focused on addressing land tenure and near term expiry issues along with the modeling and planning for the initial development phase. Journey has licensed two horizontal wells and one vertical stratigraphic test well in addition to purchasing and reprocessing additional seismic data. Journey has submitted continuation applications to Alberta Energy. Based on the information originally provided, and the prospective results of the vertical stratigraphic test well, the Company anticipates continuing all but four of the twenty nine sections of land. The four expiring sections are deemed by Journey to be non-strategic to the future development of the play. The results of the vertical test well at 6-28-42-3W5 are anticipated to be available prior to the end of May 2018. These results are expected to confirm Journey’s current interpretation that its land block contains some of the thickest and most prospective shales in the East Duvernay play. The 6-28 well will be configured and drilled with the intent that it will become a future horizontal well test. Journey continues to look at strategic partnerships to help develop this significant resource and will report on its progress in due course.
FINANCIAL
Daily sales volumes grew by 12% in 2018 over the same quarter in 2017 to average 10,117 boe/d. Average corporate realized commodity prices were 3% lower in the first quarter with oil increasing by 6%, natural gas decreasing by 25% and natural gas liquids increasing by 28%. Liquids (oil and NGL’s) revenues comprise 81% of total revenues for Journey and while the Edmonton par benchmark price for oil increased 14% over last year, the realized price was only 6% higher. The current issues plaguing the Alberta oil market with respect to crude oil pipeline takeaway capacity have caused Journey’s Alberta oil price differentials to increase from the norm of approximately $9/bbl to the first quarter of 2018 average of approximately $16/bbl. Natural gas prices continued to be depressed as Journey averaged $1.90/mcf, which is 25% lower than the $2.52/mcf realized in 2017.
The net hedging losses for the first quarter had a significant impact on both funds flow and the aggregate net loss. The realized loss on hedging was $2.1 million while the unrealized loss was $6.1 million. As WTI oil prices started their rapid escalation late in 2017 and into 2018, Journey hedged a significant portion of its oil production, with the purpose of guaranteeing a certain amount of funds flow in light of the additional leverage taken on with the share buyback. The impact on Journey’s netbacks was significant as the realized loss amounted to $2.31 per boe and the unrealized portion of the loss was $6.68 per boe.
Funds flow for the first quarter was $5.1 million as compared to $6.7 million in the first quarter of 2017. Funds flow in 2017 was negatively impacted by a series of non-recurring field operating expenditures totaling approximately $1.04 million, which included cost overages from 2017 relating to pipeline integrity and facility turnaround costs. Operating costs (net of processing recoveries) averaged $14.08 during the first quarter. After eliminating the impact of the non-recurring costs, the average per boe cost would be under $13/boe.
On a per share basis, funds flow was $0.12 per basic and diluted share, which was 20% lower than the $0.15 per basic and diluted share in the first quarter of 2017. Journey recorded a net loss of $9.1 million or $0.21 per basic and diluted share in the first quarter.
Journey’s production mix was the same in both 2018 and 2017 with natural gas volumes accounting for 53% of total volumes while liquids volumes were 47%. However, as a percentage of revenue, liquids revenues represented 81% of total revenues while in 2017 it was 76%.
Journey spent $10.5 million on its exploration and development program during the first quarter. This included the acquisition of undeveloped lands; drilling, completing and tieing-in 2.0 net wells in Matziwin, plus ongoing exploitation projects. The Company also divested a non-core property in the Crystal area for $2.0 million, which included production of 6 boe/d (95% oil).
Journey exited the first quarter with net debt of $128.2 million which was 24% higher than at December 31, 2017. The increase was primarily attributable to the increase in leverage due to the share repurchase. The Company’s annual review of its bank line is now complete and the syndicate has given indications that the reserve values would have supported a borrowing base of $110 million; however Journey has opted for the lower amount of $100 million to save on standby fees. Based on Journey’s forecasted capital spending and expected funds flow, Management currently views the $100 million level to be more than sufficient to provide sufficient liquidity for the Company to execute its capital plan in 2018. The Company is currently drawn approximately $73 million on the 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 for 2018. In addition, it has also adjusted funds flow for the effects of the new price forecasts on its existing hedges. Journey’s updated guidance is presented in the table below:
Annual average production |
10,100 – 10,500 Boe/d (47% liquids) |
Exit 2018 production |
10,700 – 11,100 Boe/d (48% liquids) |
Exploration and development capital |
$33 million |
Net acquisition (disposition) capital |
$(5) million |
Funds flow |
$26 – $30 million |
Year-end net debt |
$121 – $125 million |
Funds flow per basic weighted average share |
$0.68 – $0.76 share |
Corporate annual decline rate |
16% |
Journey’s 2018 forecasted funds flow is based upon the following average prices: WTI of US$65/bbl; Company differentials of $12/bbl for oil; AECO gas of CDN$1.55/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 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. We look forward to seeing our shareholders at our Annual General Meeting on May 23, 2018 at 3:00 p.m. to be held at Journey’s offices.
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.