CALGARY, Feb. 27, 2019 /CNW/ – Journey Energy Inc. (JOY – TSX) (“Journey” or the “Company“) is pleased to report its year-end 2018 oil and gas reserves evaluation. During 2018, the Company invested approximately $27 million in capital projects net of acquisition and divestiture (“A&D“) activities. Exploration and development (“E&D“) activities accounted for approximately $32 million while A&D activities resulted in net proceeds of approximately $5 million. E&D activities included drilling and waterflood development at two of our core properties, spending on infrastructure and an investment for the future in our emerging Gilby Duvernay resource. A&D initiatives throughout the year included the disposition of certain non-core assets and consolidation of certain working interests in core areas.
After announcing the Duvernay joint venture on August 29, Journey and its partner have acquired additional Duvernay lands and now have an interest in over 165 gross sections of contiguous lands concentrated in the oil window. Journey selected an experienced joint venture partner Kiwetinohk Resources Corp. (“KRC“) to develop this resource and Journey will retain a 37.5% working interest in its commercial development. The initial two commitment wells have been drilled and Fraced. It is anticipated that these wells will be on test within the next few weeks. KRC has Fraced the Duvernay in a standing horizontal well as the first option well and is set to spud a second option well during the week of February 25th. All costs associated with the drilling, completion and equipping of the commitment and option wells are borne by KRC. There have been no land values or reserves assigned to the Duvernay in this report.
2018 Reserve Report Highlights:
Duvernay Highlights:
COMPANY GROSS WORKING INTEREST OIL AND GAS RESERVES AND NET PRESENT VALUES
The following table provides summary information presented in the GLJ Petroleum Consultants Limited (“GLJ“) independent reserves assessment and evaluation effective December 31, 2018, (the “GLJ Report“). GLJ evaluated 100% of Journey’s crude oil, natural gas liquids and natural gas reserves. The evaluation of all of its oil and gas properties was done in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Detailed reserve information will be presented in the Company’s upcoming Statement of Reserves Data and Other Oil and Gas Information section of the Company’s Annual Information Form scheduled to be filed on SEDAR on or before March 31, 2019.
Company Gross Reserves
Based on Forecast Price and Costs as at December 31, 2018
Light |
Heavy Oil |
Natural |
NGLs |
Total(2) |
|
Reserves Category |
(Mbbl) |
(Mbbl) |
(MMcf) |
(Mbbl) |
(Mboe) |
Proved |
|||||
Producing |
5,717 |
2,963 |
84,302 |
2,357 |
25,087 |
Developed non-producing |
118 |
5 |
6,170 |
245 |
1,396 |
Undeveloped |
3,000 |
1,300 |
22,409 |
893 |
8,928 |
Total proved |
8,835 |
4,268 |
112,881 |
3,495 |
35,412 |
Probable |
7,062 |
3,045 |
61,175 |
1,670 |
21,972 |
Total proved plus probable |
15,897 |
7,313 |
174,056 |
5,165 |
57,384 |
Included in Above |
|||||
Proved plus probable producing |
7,795 |
4,113 |
112,943 |
2,978 |
33,710 |
Notes: |
|
(1) |
Company Gross Reserves consists of Journey’s working interest (operated and non-operated) share of reserves before deduction of royalties payable and without including royalties receivable by the Company. |
(2) |
In the case of natural gas volumes, boes are derived by converting natural gas to oil using the ratio of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf:1 bbl). |
(3) |
Total values may not add due to rounding. |
Net Present Values of Future Net Revenue (Based on Forecast Prices and Costs)
Before Tax Net Present Value |
|||||
Reserves category |
0% |
5% |
10% |
15% |
20% |
Proved |
|||||
Producing |
322,420 |
257,867 |
212,664 |
180,749 |
157,424 |
Developed non-producing |
15,233 |
10,560 |
8,073 |
6,491 |
5,376 |
Undeveloped |
150,036 |
88,282 |
53,493 |
32,670 |
19,498 |
Total proved |
487,690 |
356,709 |
274,230 |
219,910 |
182,299 |
Probable |
541,035 |
326,489 |
217,642 |
155,407 |
116,446 |
Total proved plus probable |
1,028,724 |
683,198 |
491,872 |
375,317 |
298,744 |
Included in Above |
|||||
Proved plus probable producing |
508,279 |
368,132 |
285,352 |
232,704 |
196,854 |
Notes: |
|
(1) |
Total values may not add due to rounding |
(2) |
Forecast pricing used is the average of the published price forecasts for GLJ Petroleum Consultants Ltd., Sproule Associates Ltd. and McDaniel & Associates Consultants Ltd. as at December 31, 2018. |
(3) |
It should not be assumed that the net present values of future net revenues estimated by GLJ represent fair market value of the reserves. There is no assurance that the forecast price and cost assumptions will be attained and variances could be material. |
The forecast prices and foreign exchange rates used in the GLJ Report are as follows:
WTI Cushing Oklahoma ($US/bbl) |
Edmonton 40 API |
WCS Crude Oil Stream |
Alberta AECO-spot ($CDN/Mmbtu) |
NYMEX Henry Hub |
Foreign Exchange ($US/$CDN) |
|
2019 |
58.58 |
67.30 |
51.55 |
1.88 |
3.00 |
0.7567 |
2020 |
64.60 |
75.84 |
59.58 |
2.31 |
3.13 |
0.7817 |
2021 |
68.20 |
80.17 |
65.89 |
2.74 |
3.33 |
0.7967 |
2022 |
71.00 |
83.22 |
68.61 |
3.05 |
3.51 |
0.8033 |
2023 |
72.81 |
85.34 |
70.53 |
3.21 |
3.62 |
0.8067 |
2024 |
74.59 |
87.33 |
72.34 |
3.31 |
3.70 |
0.8083 |
2025 |
76.42 |
89.50 |
74.31 |
3.39 |
3.77 |
0.8083 |
2026 |
78.40 |
91.89 |
76.44 |
3.46 |
3.85 |
0.8083 |
2027 |
79.98 |
93.76 |
78.10 |
3.54 |
3.92 |
0.8083 |
2028 |
81.59 |
95.68 |
79.81 |
3.62 |
4.01 |
0.8083 |
2029 |
83.22 |
97.57 |
81.40 |
3.70 |
4.08 |
0.8083 |
2030 |
84.87 |
99.52 |
83.00 |
3.78 |
4.16 |
0.8083 |
2031 |
86.57 |
101.52 |
84.69 |
3.85 |
4.25 |
0.8083 |
2032 |
88.30 |
103.55 |
86.37 |
3.92 |
4.33 |
0.8083 |
2033 |
90.08 |
105.65 |
88.11 |
4.00 |
4.42 |
0.8083 |
Thereafter |
+2.0%/yr |
+2.0%/yr |
+2.0%/yr |
+2.0%/yr |
+2.0%/yr |
0.8083 |
FINDING, DEVELOPMENT AND ACQUISITION COSTS
Journey’s finding and development (“F&D“) and finding, development and acquisition (“FD&A“) costs for 2018, 2017 and the three-year average are presented in the tables below. The capital costs used in the calculations are those costs related to: land acquisition and retention, seismic, drilling, completions, tangible well site, tie-ins, and facilities, plus the change in estimated future development costs (“FDC“) as per the independent evaluator’s reserve report. Net acquisition costs are the cash outlays in respect of acquisitions; minus the proceeds from the disposition of properties during the year. Due to the timing of capital costs and the subjectivity in the estimation of future costs, the aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated FDC’s generally will not necessarily reflect total FDC’s related to reserve additions for that year. The reserves used in this calculation are working interest reserve additions, including technical revisions and changes due to economic factors. The 2018 and the three-year average capital expenditures are unaudited as the 2018 financial results are in the process of being finalized.
Proved Finding, Development & Acquisition Costs |
2018 |
2017 |
3 Year |
Capital expenditures (including A&D) ($000’s) |
26,608 |
65,543 |
99,095 |
Change in future capital ($000’s) |
11,507 |
20,073 |
44,257 |
Total capital for FD&A (000’s) |
38,115 |
85,616 |
143,352 |
Reserve additions, including A&D (Mboe) |
1,783 |
10,834 |
16,820 |
Proved FD&A costs – including changes in future capital ($/boe) |
21.38 |
7.90 |
8.52 |
Proved FD&A costs – excluding changes in future capital ($/boe) |
14.92 |
6.05 |
5.89 |
Recycle ratio(1) |
|||
Including changes in future capital |
0.6 |
1.6 |
1.5 |
Proved plus Probable Finding, Development & Acquisition Costs |
2018 |
2017 |
3 Year |
Capital expenditures (including A&D) ($000’s) |
26,608 |
65,543 |
99,095 |
Change in future capital ($000’s) |
(1,712) |
41,710 |
30,031 |
Total capital for FD&A (000’s) |
24,896 |
107,253 |
129,126 |
Reserve additions, including A&D (Mboe) |
877 |
16,058 |
18,028 |
Proved plus Probable FD&A costs – including changes in |
28.39 |
6.68 |
7.16 |
Proved plus Probable FD&A costs – excluding changes |
30.34 |
4.08 |
5.50 |
Recycle ratio (1) |
|||
Including changes in future capital |
0.5 |
1.9 |
1.8 |
Proved Finding & Development Costs |
2018 |
2017 |
3 Year |
Capital expenditures (excluding A&D) ($000’s)(2) |
31,738 |
30,406 |
77,640 |
Change in future capital ($000’s)(2) |
14,567 |
(985) |
32,205 |
Total capital for F&D ($000’s) |
46,305 |
29,421 |
109,845 |
Reserve additions, (excluding A&D) (Mboe) |
2,367 |
1,007 |
7,510 |
Proved F&D costs – including changes in future capital |
19.56 |
29.22 |
14.63 |
Proved F&D costs – excluding changes in future capital |
13.41 |
30.19 |
10.34 |
Recycle ratio (1) |
|||
Including changes in future capital |
0.7 |
0.4 |
0.9 |
Proved Plus Probable Finding & Development Costs |
2018 |
2017 |
3 Year |
Capital expenditures (excluding A&D) ($000’s)(2) |
31,738 |
30,406 |
77,640 |
Change in future capital ($000’s)(2) |
4,469 |
(1,860) |
18,413 |
Total capital for F&D ($000’s) |
36,207 |
28,546 |
96,053 |
Reserve additions (excluding A&D) (Mboe) |
1,850 |
1,203 |
6,098 |
Proved plus Probable F&D costs – including changes in |
19.58 |
23.73 |
15.75 |
Proved plus Probable F&D costs – excluding changes in |
17.16 |
25.28 |
12.73 |
Recycle ratio (1) |
|||
Including changes in future capital |
0.7 |
0.5 |
0.8 |
Notes: |
|
(1) |
Recycle ratio is calculated as the operating netback per boe divided by F&D or FD&A costs per boe as applicable. The operating netbacks used in the respective years are as follows: 2018 (unaudited) – $13.11/boe; 2017 – $12.56 and the three year average is $12.65. |
(2) |
Development capital has been adjusted for the effects of reserves categorized as acquisitions and dispositions. |
FUTURE DEVELOPMENT COSTS
The following table provides the breakdown of future development costs deducted in the estimation of the future net revenue attributable to the proved and proved plus probable reserve categories noted below:
Year |
Proved ($000’s) |
Proved Plus |
2019 |
22,673 |
24,753 |
2020 |
27,009 |
56,154 |
2021 |
33,762 |
71,953 |
2022 |
24,197 |
37,877 |
2023 |
8,551 |
8,551 |
Remaining |
6,598 |
7,625 |
Total (Undiscounted) |
122,790 |
206,913 |
RESERVE LIFE INDEX
The Company’s reserve life index (“RLI“) is calculated by taking the Company Gross Reserves from the GLJ Report and dividing them by the projected 2019 production as estimated in the GLJ report.
Company Gross |
2019 Company |
RLI |
|
Reserves Category |
(Mboe) |
(Mboe) |
(Years) |
Proved, developed, producing |
25,087 |
3,315 |
7.6 |
Total proved |
35,412 |
3,545 |
10.0 |
Proved plus probable producing |
33,710 |
3,432 |
9.8 |
Proved plus probable |
57,384 |
3,696 |
15.5 |
NET ASSET VALUE
The following table provides a calculation of Journey’s estimated net asset value (“NAV“) and net asset value per share (“NAVPS“) as at December 31 based on the estimated future net revenues associated with Journey’s reserves as presented in the GLJ Report. The following numbers were used in the NAV calculation and are pending finalization of the year-end audit: 1) net debt of approximately $135 million; and 2) funds flow of approximately $18 million, based on production of approximately 10,075 boe/d (47% oil and NGL’s) for the year.
Reserves Category |
Net Asset Value ($000’s) |
Net Asset Value Per share ($) |
||||||
2018(1) |
2017(1) |
% |
2018(2) |
2017(2) |
% |
|||
Proved, developed, producing |
77,886 |
148,726 |
(48) |
1.99 |
2.90 |
(31) |
||
Total proved |
139,452 |
204,641 |
(32) |
3.56 |
3.99 |
(11) |
||
Proved plus probable producing |
150,574 |
223,320 |
(33) |
3.84 |
4.36 |
(12) |
||
Total proved plus probable |
357,094 |
424,145 |
(16) |
9.11 |
8.28 |
10 |
||
Notes: |
|
(1) |
Aggregate NAV is calculated by taking the future net revenues per the GLJ report, on a before tax basis, discounted at 10% and subtracting net debt at December 31, 2018 of approximately $134,800 thousand (unaudited); (December 31, 2017 – $103,021 thousand). |
(2) |
Year-end NAVPS is calculated by taking the NAV and dividing it by the basic shares outstanding as at December 31, 2018 of 39,218 thousand shares (December 31, 2017 – 51,241 thousand). All share counts have been rounded to the nearest 1,000 shares. |
Duvernay Resource Play Update
Since entering into the joint venture arrangement on August 29th, 2018, KRC has been actively drilling and completing the initial two well commitment phase, as well as re-entering an existing standing cased well as part of the Five Option Well Phase under the terms of the joint venture.
As previously indicated, the joint venture arrangement contemplates a two well commitment phase followed by a five well option phase. KRC and Journey continue to work together in formulating the most effective drilling program to delineate the resource, mitigate land expiries and test potential development concepts. Details and an operations update of each phase are as follows:
Two Well Commitment Phase Update
Five Well Option Phase
During the fourth quarter of 2018, Journey and KRC were successful in adding approximately 20 gross sections of Duvernay lands, thereby increasing the joint ventures’ resource base to approximately 165 gross sections of contiguous lands.
Journey looks forward to updating our shareholders on future activities in the East Duvernay as further information becomes available.
Outlook
In future years, when Journey reflects upon 2018, it may turn out to be both the most challenging and the most transformational year in our corporate history. Early in 2018, Journey repurchased and canceled 25% of our outstanding shares from its then majority shareholder. It was challenging for the impact it had on our balance sheet, yet transformational for placing the control of our own destiny in the hands of all shareholders. Also, early in 2018, Journey through a series of transactions made a strategic investment in our future by assembling over 100 sections of land in the heart of the East Duvernay oil fairway. It was challenging for the impact this had on our F&D costs and balance sheet, yet transformational in terms of the potential the Company can realize over time from this investment.
Journey has decided to take a conservative approach to capital spending for 2019 in light of the historically wide differentials experienced in the fourth quarter of 2018. The Alberta Government announced a production curtailment initiative in December designed to improve the relative pricing for Canadian barrels. Clearly any initiative such as this will have its detractors’, however, the success of this initiative early in 2019 for a company like Journey is apparent, as the differentials have since contracted to the $5–7 USD/bbl level. Journey has prudently decided to delay the initiation of our 2019 capital program until June, reduce our forecasted capital program from $40 million to $30 million, and carefully monitor volatility in commodity pricing to insure our debt levels are reduced from 2018 exit debt levels by year end 2019.
Journey’s initial 2019 guidance is presented in the table below:
Annual average production |
9,200 – 9,600 Boe/d (49% liquids) |
Exploration and development capital |
$30 million |
Funds flow |
$33-37 million |
Year-end net debt |
$128 – $132 million |
Funds flow per basic weighted average share |
$0.84 – $0.94 share |
Corporate annual decline rate |
16% |
Journey’s 2019 forecasted funds flow is based upon the following assumed annual, average prices: WTI of $58.50/bbl USD; Company differentials of $5.50/bbl USD for oil from Edmonton light sweet prices; realized natural gas price of CDN$1.90/mcf CDN; and a foreign exchange rate of $0.76 US$/CDN$.
In August of 2018 Journey entered into a joint venture relationship with KRC for the early stage development of its Duvernay resource play. KRC’s focus is to take this play from proof of concept to commercial success. In the most likely scenario, by the end of 2019, KRC will have drilled six and completed and equipped seven horizontal Duvernay test wells on our joint venture block. This project is not something Journey could have funded internally for 2019 on its own. In 2019, Journey shareholders will have the opportunity to benefit from KRC’s expertise and their capital investment to realize significant value on our go forward 37.5% working interest in a significant resource.
Over the course of 2019, we look forward to reporting to you on all of the challenges and transformations this year will hold for us. We thank you for both your patience and your support as we navigate through these volatile times.
About the Company
Journey is a Canadian exploration and production company focused on oil-weighted operations in western Canada. Journey’s strategy is to grow its production base by drilling on its existing core lands, implementing waterflood projects, and by 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. Journey is also in the early phases of advancing development of an unconventional shale resource play in the oil window of the Duvernay, in the western shale basin of our central core area.