CALGARY, AB, July 28, 2022 /CNW/ – Journey Energy Inc. (TSX: JOY); (OTCQX: JRNGF) (“Journey” or the “Company“) is pleased to announce that it has today entered into a definitive agreement for the strategic acquisition of producing petroleum and natural gas assets in Alberta.
Journey today entered into a definitive agreement with a senior producer for the purchase of petroleum and natural gas assets (the “Acquisition“) currently producing approximately 4,400 boe/d (71% oil and NGL’s) primarily in the Medicine Hat, Kaybob, Ferrier, and Ante Creek areas of Alberta for a total purchase price of $140 million prior to closing adjustments. Pro-forma, assuming an October 1 closing date, this transaction will increase Journey’s fourth quarter production to 14,200-14,600 boe/d and it will increase Journey’s liquid (oil and NGL’s) weighting to approximately 55%. The gross purchase price represents 2.0 times annualized operating income3 and is highly accretive to Journey on both cash flow and free cash flow per share metrics while maintaining conservative corporate leverage ratios.
A summary of the relevant metrics for the acquisition are as follows:
Gross purchase price1 |
$140 million |
Estimated net purchase price2 |
$116 million |
June 2022 average daily sales volumes |
4,400 boe/d (71% oil and NGL’s) |
Annual decline rate |
12 % |
Annual oil decline rate |
10 % |
Proved Developed Producing Reserve Life Index |
8.2 years |
Net wellbores |
420 |
Liability Management Rating (June 2022) |
~4.5 |
Undeveloped land |
45,672 gross (15,338 net) acres |
First-half 2022 operating netback3 |
$44.50/boe |
Reserves4 |
|
PDP |
12,680 mboe |
Proved |
13,827 mboe |
Proved plus Probable |
18,166 mboe |
Acquisition cost metrics3 |
|
Multiple of operating income |
2.0x |
Flowing barrel |
$31,800/boe/d |
Cost per PDP reserves |
$11.04/boe |
PDP Recycle Ratio |
4.0x |
Notes: |
|
1. |
Before interim period adjustments for net operating income and other adjustments. |
2. |
Journey currently estimates that the net operating income adjustments will be approximately $25 million based on projections of net operating income from the effective date to the currently anticipated closing date of October 1, 2022. |
3. |
The acquisition cost metrics are based on the currently gross purchase price of $140 million and the first half, 2022 operating netback of the acquired properties. |
4. |
Reserve volumes are based on the vendors independent reserve evaluator’s report with an effective date of December 31, 2021 and adjusted by Journey to reflect estimated production and other adjustments to the effective date of the transaction of May 1, 2022. |
This Acquisition strengthens Journey’s ability to drive shareholder returns through ongoing execution of the Company’s business plan while providing free cash flow to pursue further enhancements to Journey’s growth model. These low decline, high free cash flow assets lend themselves to the implementation of a return of capital business model over time.
The following attributes support the transformational nature of the Acquisition:
- Pro-forma, assuming an October 1 closing date, this transaction will increase Journey’s fourth quarter production to 14,200-14,600 boe/d and it will increase Journey’s liquid weighting to approximately 55%;
- Large original oil in-place (“OOIP“), high value oil pools under waterflood/EOR enhance netbacks and sustainability. The Acquisition increases corporate oil production by over 70% while reducing oil declines to approximately 12%;
- Compelling acquisition price at less than 2.0 times run-rate cash flow. The assets are being acquired for less than their PDP value under 2021 year-end pricing assumptions, which are well below current strip prices;
- The Acquisition is accretive to Journey’s 2022 adjusted funds flow per share and free funds flow per share;
- The low decline oil revenue stream supports free cash flow generation and creates the potential for a future yield model;
- The Acquisition is expected to close in October and is forecast to increase the Company’s cash flow from operating activities by $64 million annualized, based on fourth quarter 2022 at US$90/bbl WTI and $5.40/GJ AECO;
- The Company will maintain a strong leverage profile, with estimated 2022 exit net debt to annualized fourth quarter 2022 adjusted funds flow ratio of 0.6x at US$90/bbl WTI and $5.40/GJ AECO;
- The acquired assets have an attractive corporate Licensee Liability Rating in Alberta of 4.5x, with a total undiscounted and uninflated decommissioning liability of $65 million. The acquisition is modestly accretive to Journey’s asset retirement obligations relative to cash flow;
- The acquisition includes proprietary operated and non-operated seismic data totaling 18,666 km of 2D data and 1,847 square kilometers of 3D seismic data. This increases Journey’s 2D coverage by 6x and its 3D coverage by 3x.
The Acquisition is consistent with Journey’s business model of acquiring high quality, operated, high working interest, high netback, light and medium gravity crude oil reservoirs with large OOIP. With this transaction, Journey acquires extensive infrastructure to facilitate years of future development drilling and waterflood/enhanced oil recovery optimization.
The net acquisition cost at closing will be financed through the combination of Journey’s cash on hand, a vendor-take-back (“VTB“) loan of $45 million, and the issuance of 3.0 million Journey shares to the vendor with a deemed price of $4.72 per share, which represents the five day volume weighted average of Journey shares up to an including today. Alberta Investment Management Corporation (“AIMCo“), Journey’s largest shareholder and debt provider, has agreed to extend the due date of the Company’s September 30, 2022 term debt maturity by six months in order for Journey to access the full complement of its cash on hand. This and the VTB loan allow the cash flow from the Acquisition to help finance the asset over the near term, thereby increasing the value accretion for all stakeholders.
The VTB carries an interest rate of 10% per annum. Interest is paid monthly in arrears while the principal is repayable in monthly installments that are tied to the monthly average West Texas Intermediate oil price per barrel as follows:
-
- if the average WTI oil price per barrel in a calendar month is less than US$70/bbl, the monthly
repayment is $1.0 million; - if the WTI oil price per barrel is between US$70/bbl but less than US$85/bbl, the monthly
repayment is $2.0 million; - if the WTI oil price per barrel is between US$85/bbl but less than US $100/bbl, the monthly
repayment is $3.0 million; - if the WTI oil price per barrel is greater than or equal to US$100/bbl the monthly repayment is $4.0
million.
- if the average WTI oil price per barrel in a calendar month is less than US$70/bbl, the monthly
The VTB will be secured by one of the acquired assets until it is repaid in full.
Journey’s largest shareholder and sole term debt provider, AIMCo, has consented to the Acquisition and has agreed to extend the maturity of its $23.8 million tranche of term debt from September 30, 2022 to March 31, 2023. The extension to the term debt provides additional liquidity while the assets are integrated into Journey’s operations, and allows Journey to utilize the long life, free cash flow generation from the assets to the benefit of all stakeholders.
Given the strong performance from Journey’s existing production base, its electricity generation assets running at or near nameplate capacity of 4 MW, cash flows from the acquired assets, and the stronger commodity prices in year-to-date 2022, Journey forecasts sufficient funds from operations to meet the new AIMCo maturity in 2023 as well as make the required repayments under the VTB obligation
The transaction closing is subject to standard conditions precedent and, while the closing date is uncertain at this time, Journey has assumed a closing date of October 1, 2022. Should that date change Journey will revise its guidance accordingly.
Journey has updated its annual 2022 guidance to take into account the Acquisition as per the below table:
Revised |
Previous (May 9/22) |
|
Annual average daily sales volumes |
10,400-11,000 boe/d (50% crude oil & |
9,400 – 10,000 boe/d (47% crude oil & |
Adjusted Funds Flow |
$120 – $126 million |
$103 – $109 million |
Adjusted Funds Flow per basic share |
$2.25 – $2.40 |
$2.00 – $2.09 |
E&D plus ARO capital spending |
$58 million |
$51 million |
Power asset capital spending |
$6 million |
$3 million |
Capital spending (A&D): Cash portion Equity portion |
$115 million $25 million |
$13 million $11 million |
Year-end net debt |
$96 – $103 million |
$4 – $10 million |
Commodity prices1: WTI (USD $/bbl) MSW oil differentials (USD $/bbl) AECO natural gas (CAD $/mcf) CAD/USD foreign exchange |
$96.50 $3.50 $5.70 $0.78 |
$94.00 $4.00 $5.45 $0.78 |
Commodity prices (Q4, 2022): WTI (USD $/bbl) MSW oil differentials (USD $/bbl) AECO natural gas (CAD $/mcf) CAD/USD foreign exchange |
$90.00 $5.00 $6.00 $0.78 |
$94.00 $4.00 $5.45 $0.78 |
Notes: |
|
1. |
Commodity prices represent full year averages. |
Stifel FirstEnergy is acting as financial advisor to Journey with respect to the Acquisition. Peters & Co. Limited has been appointed strategic advisor to Journey for the Acquisition. McCarthy Tétrault LLP is acting as legal advisor to Journey.