EXPANDED DUVERNAY LAND BASE TO APPROXIMATELY 140 GROSS SECTIONS
CALGARY, Aug. 29, 2018 /CNW/ – Journey Energy Inc. (JOY – TSX) (“Journey” or the “Company“) is pleased to announce that it has entered into a definitive agreement (the “Agreement“) to develop its East Duvernay shale oil resource prospect with a strategic joint venture partner, Kiwetinohk Resources Corp. (“Kiwetinohk“). In addition, through a series of transactions, Journey, and Kiwetinohk, have increased the amount of contiguous lands in the East Duvernay shale oil resource prospect from approximately 100 sections to approximately 140 sections.
About Journey’s East Duvernay Shale Oil Resource Prospect
The Company has assembled a large, contiguous, highly prospective, 100% working interest land block in the emerging East Duvernay shale oil resource prospect in the Gilby area of central Alberta. As a result, Journey now controls approximately 140 sections of land.
Highlights of Journey’s activity in the East Duvernay over the past nine months are as follows:
- Assembled an initial land position combining acquisitions of freehold and crown lands to create a contiguous 100 section block in the heart of the East Duvernay oil window (“Duvernay Lands”).
- Addressed near term land expiry issues with the drilling of a vertical Duvernay test well at 6-28-42-3-W5 in May. Analysis of the results of this well confirmed that this land block contains some of the thickest (approximately 30 meters) and most prospective shales in the East Duvernay oil play. At the time of drilling, the 6-28 well was configured to be re-entered and drilled horizontally into the Duvernay.
- Journey and Kiwetinohk have recently added approximately 40 sections of Duvernay lands, increasing our resource base to approximately 140 gross sections of contiguous lands. This land block is strategically located near existing gas gathering and transporting infrastructure including Journey’s 50-100% owned gas gathering systems and 43.3% Journey owned Gilby gas plant; and transportation infrastructure.
Summary of the Joint Venture Arrangement
Journey has entered into a joint venture arrangement with a strategic partner, Kiwetinohk, an Alberta based private oil and gas company. Kiwetinohk is led by Pat Carlson. Mr. Carlson, and a number of his team members have been instrumental in the development of large scale resource plays in the past. The team is highly regarded for their expertise and their ability to execute projects of this nature.
The Agreement contemplates both a two well “Commitment” phase followed by a five well “Option” phase. Although each location has not been finalized, both Kiwetinohk and Journey will work together in formulating the most effective drilling program to delineate the most prospective sections, mitigate land expiries and test potential development concepts. Highlights of each phase are as follows:
- For the two well Commitment phase, Kiwetinohk will pay 100% of the capital costs, and have 100% working interest, before payout of 58.33% of its costs to drill, complete, equip and tie in. Journey will be entitled to a 3.75% gross over-riding royalty on the production from the wells prior to payout. After payout, and conversion of the royalty, Kiwetinohk will have a 70.83% working interest in the commitment wellbores while Journey will have a 29.17% working interest. After earning, the working interests in the Commitment blocks, outside of the two commitment wells, will be Kiwetinohk 62.5% and Journey 37.5%. Kiwetinohk will be the operator of all of the lands earned.
- For the five well Option phase, Kiwetinohk will pay 100% of the capital costs, and have 100% working interest, before payout of 33.33% of its costs to drill, complete, equip and tie in. Journey will receive no royalty prior to payout. After payout, Kiwetinohk will have 70.83% working interest in the option wellbores while Journey will have a 29.17% working interest. After earning, the final working interests in the applicable earned Option block, outside of the five option wells, will be Kiwetinohk 62.5% and Journey 37.5%. Kiwetinohk will be the operator of all of the lands earned.
It is anticipated that operations will commence in the next 30 days with the first well being the re-entry and horizontal sidetrack of the previously drilled Journey 6-28-42-3-W5 vertical stratigraphic well. Journey currently anticipates the Commitment two well phase of this joint venture to be completed by the end of 2018.
Entering into this joint venture arrangement is a major development for Journey. The assembly of a significant land position in a new emerging play, coupled with securing an experienced and technically capable partner has happened over a relatively short period of time.
This new opportunity gives Journey a growth platform for its future. The reduction in overall working interest in the play allows Journey to “right size” its capital commitments to its available resources. In addition, this joint venture will allow for the effective and timely development of the Duvernay resource while insuring all lands are retained. The Commitment and Option drilling phases limit Journey’s capital expenditures in the near term, and most of these expenditures have already been incurred. At the same time Journey will participate in the upside at a level that is both meaningful and manageable with a 37.5% working interest. The reduction in working interest is partially offset by the increased land capture but more importantly, the reduction in working interest comes with the selection of a strategic joint venture partner that has a proven track record and significant experience in the development of large resource in place prospects.
President of Journey Alex Verge commented, “The signing of the definitive agreement for the Duvernay play is a significant milestone for Journey, in our transition from a conventional value Company to an emerging growth Company. Journey has worked diligently in assembling its significant land position, in technically advancing the play, and now in selecting a partner that has both the experience and access to capital to lever on our efforts and develop this resource into a significant commercial success. I look forward to reporting the results of our joint efforts on these lands in the coming months.”
About the Company
Journey is a Canadian exploration and production company focused on oil-weighted operations in western Canada. Journey has recently expanded its Alberta footprint by accumulating a significant position in the emerging East Duvernay shale oil prospect. Journey’s strategy is to grow its production base by drilling on its existing core lands, continuing to implement its water flood projects, and participating both financially and technically in the development of the Duvernay oil prospect it has assembled.