ACQUISITION OF PRIVATE COMPANY
Journey today entered into a definitive agreement to purchase a private company producing approximately 610 boe/d (76% natural gas) primarily in the Nordegg and Grande Cache areas of Alberta. The acquisition price will be paid for through the issuance of 3.5 million Journey shares plus $2.9 million of cash. The acquisition comes with significant development drilling upside over an extensive land base. In addition, the acquisition comes with a projected working capital surplus at closing of approximately $0.8 million. As part of the definitive agreement, the private company will provide lock-up agreements so that all officers and directors of the company will vote in favor of the transaction. A customary reciprocal break-fee has also been agreed to and will be payable if either party terminates the arrangement under specified circumstances. The acquisition will require the private company to obtain a two-thirds majority shareholder approval and is currently anticipated to close in mid-August. A summary of the relevant metrics for the acquisition are as follows:
Gross purchase price 1 |
$6.6 million |
Working capital surplus projected at closing |
$0.8 million |
Net purchase price |
$5.8 million |
June 2021 average daily sales volumes |
610 boe/d |
Annual decline rate |
15% |
Net wellbores |
33.2 |
Liability Management Rating (June 2021) |
~6.0 |
Undeveloped land |
285,211 gross (195,028 net) acres |
Forecast 2021 operating netback |
$10.00/boe |
Reserves 2 |
|
PDP |
1,781 mboe |
Proved |
2,252 mboe |
Proved plus Probable |
2,924 mboe |
Acquisition cost metrics |
|
Multiple of 12 months future operating income |
2.6x |
Flowing barrel |
$9,508/boe/d |
Cost per PDP reserves |
$3.26/boe |
Cost per Proved reserves |
$2.58/boe |
Notes:
- Excludes transaction costs. Journey share consideration is based on the 20 day, volume weighted average price per share preceding todays date or $1.06/share.
- Reserve volumes are based on the private company’s independent reserve evaluator’s report with an effective date of December 31, 2020 and adjusted by Journey to reflect estimated production and other adjustments to May 31, 2021.
AMENDMENTS AND REPAYMENT OF AIMCO TERM DEBT
Journey has executed an amendment to its credit agreement with Alberta Investment Management Corporation (“AIMCo“) to facilitate the acquisition. AIMCo has consented to the acquisition and has also agreed to extend the maturity date of the $15 million tranche of term debt from June 30, 2021 to December 31, 2021. In further support of the transaction, AIMCo has agreed to capitalize the interest that would normally be payable on June 30, 2021 for four of the six tranches of term debt.
Contemporaneously with the capitalization of interest on certain tranches of term debt, Journey will be making a principal repayment of $4 million with respect to the $15 million tranche on June 30, 2021. This payment, along with the $6.75 million in payments already made to date in 2021, will bring the amount owing on this tranche to $4.25 million as at June 30. Given the strong performance from Journey’s existing production base; its electricity generation assets running at or near their full capacity of 4 MW/H; cash flows from the acquired assets; and the stronger commodity prices so far to date in 2021, Journey forecasts sufficient funds from operations to repay all of the $25 million of AIMCo term debt that is due in 2021. This positions Journey to return to growth, through an active drilling program, beginning in January 2022.
2021 GUIDANCE
Journey has updated its 2021 guidance to take into account the corporate acquisition and projected term debt repayments. Journey’s updated 2021 guidance is presented in the table below:
Metric |
Previous |
Revised |
Annual average sales volumes |
7,300–7,600 boe/d (46% crude oil and NGL) |
7,600 – 7,900 boe/d (45% crude oil and NGL) |
Adjusted Funds Flow |
$27 – $30 million |
$32 – $34 million |
Adjusted Funds Flow per basic weighted average share |
$0.61 – $0.68 |
$0.71 – $0.74 |
Capital spending |
$4 – $5 million |
$5 – $6 million |
Year-end net debt |
$65 – $68 million |
$64 – $66 million |
Corporate annual decline rate |
14% |
14% |
Journey’s 2021 forecasted funds flow is based upon the following revised assumed annual, average prices: WTI of $63/bbl USD; Company differentials of $4.50/bbl USD for oil from Edmonton light sweet prices; realized natural gas price of CDN$2.95/mcf CDN; and a foreign exchange rate of $0.81 US$/CDN$. Previously, Journey’s annual, average prices were: WTI of $59/bbl USD; Company differentials of $5/bbl USD for oil from Edmonton light sweet prices; realized natural gas price of CDN$2.70/mcf CDN; and a foreign exchange rate of $0.80 US$/CDN$.
Over the course of 2021, we look forward to updating you on our progress.