CALGARY, AB, July 28, 2022 /CNW/ – Journey Energy Inc. (TSX: JOY) (OTCQX: JRNGF) (“Journey” or the “Company“) is pleased to announce its financial and operating results for the three and six month periods ending June 30, 2022. The complete set of financial statements and management discussion and analysis for the periods ended June 30, 2022 and 2021 are posted on www.sedar.com and on the Company’s website www.journeyenergy.ca.
Journey announced earlier today that it had 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). The assets are located in the Medicine Hat, Kaybob, Ferrier, and Ante Creek areas of Alberta. The purchase price for the acquisition is $140 million, prior to closing adjustments. The acquisition is highly accretive to both Adjusted Funds Flow and free cash flow per share while still allowing the Company to maintain a conservative corporate leverage ratio. For further information regarding the acquisition, readers are encouraged to refer to the July 28, 2022 acquisition press release.
Highlights for the year-to-date are as follows:
- Produced 9,590 boe/d in the second quarter. (52% natural gas production; 37% crude oil; 11% NGL’s). Six months ended June 30 sales volumes increased 18% year over year.
- Realized Adjusted Funds Flow of $33.4 million or $0.63 per basic share and $0.56 per diluted share, the highest quarterly funds flow in its history.
- Reduced June 30, 2022 net debt by 61% to $29.7 million from $77.3 million at the end of the second quarter of 2021.
- Closed the acquisition of a private company in the Carrot Creek area effective April 1, 2022, adding approximately 770 boe/d of low decline production (49% crude oil and NGL’s).
- Closed the previously announced acquisition of infrastructure and gathering facilities in the Gilby area on May 9, 2022 for $4.8 million. Journey has applied to install its second power generation facility, which will be located at Gilby. Journey has received preliminary approval to install a 15.5 MW facility at Gilby. Journey has budgeted all in costs including contingency of $20 million for the facility with a start-up date of late 2023. Up to 30% of this cost will be spent in 2022 to procure all of the longer delivery items and power generation equipment.
- Participated in drilling and completion operations in 5 gross (4.5 net) wells in Crystal, Westerose, and Countess. All of these wells are forecast to begin producing in August 2022.
- Subsequent to quarter end, began drilling a two mile Glauconite horizontal well at Westerose.
Second Quarter Financial & Operating Highlights
Three months ended June 30, |
Six months ended June 30, |
|||||
Financial ($000’s except per share amounts) |
2022 |
2021 |
% |
2022 |
2021 |
% |
Production revenue |
67,929 |
27,521 |
147 |
113,787 |
51,096 |
123 |
Net income (loss) |
28,197 |
(353) |
(8,088) |
41,966 |
1,346 |
3,018 |
Basic ($/share) |
0.54 |
(0.01) |
(5,500) |
0.83 |
0.03 |
2,667 |
Diluted ($/share) |
0.47 |
(0.01) |
(4,800) |
0.74 |
0.03 |
2,367 |
Adjusted Funds Flow |
33,381 |
9,030 |
270 |
53,782 |
17,742 |
203 |
Basic ($/share) |
0.63 |
0.21 |
200 |
1.06 |
0.40 |
165 |
Diluted ($/share) |
0.56 |
0.19 |
195 |
0.93 |
0.37 |
151 |
Cash flow provided by operating activities |
26,044 |
9,357 |
178 |
47,855 |
13,652 |
251 |
Basic ($/share) |
0.49 |
0.21 |
133 |
0.95 |
0.31 |
206 |
Diluted ($/share) |
0.43 |
0.19 |
126 |
0.83 |
0.28 |
196 |
Capital expenditures, net of A&D |
34,801 |
332 |
10,382 |
46,962 |
797 |
5,792 |
Net debt |
29,676 |
77,343 |
(61) |
29,676 |
77,343 |
(61) |
Share Capital (000’s) |
||||||
Basic, weighted average |
52,697 |
44,025 |
20 |
50,596 |
44,013 |
15 |
Basic, end of period |
52,722 |
44,025 |
20 |
52,722 |
44,025 |
20 |
Fully diluted |
61,046 |
53,716 |
14 |
61,046 |
53,716 |
14 |
Daily Sales Volumes |
||||||
Natural gas (Mcf/d) |
||||||
Conventional |
25,723 |
19,471 |
32 |
24,888 |
19,450 |
28 |
Coal bed methane |
4,434 |
5,014 |
(12) |
4,299 |
5,049 |
(15) |
Total natural gas volumes |
30,157 |
24,485 |
23 |
28,587 |
24,499 |
17 |
Crude oil (Bbl/d) |
||||||
Light/medium |
2,864 |
2,304 |
24 |
2,698 |
2,233 |
21 |
Heavy |
713 |
696 |
2 |
671 |
703 |
(5) |
Total crude oil volumes |
3,577 |
3,000 |
19 |
3,369 |
2,936 |
15 |
Natural gas liquids (Bbl/d) |
987 |
628 |
57 |
910 |
625 |
46 |
Barrels of oil equivalent (boe/d) |
9,590 |
7,709 |
24 |
9,044 |
7,644 |
18 |
Average Realized Prices (excluding hedging) |
||||||
Natural gas ($/mcf) |
7.29 |
3.02 |
141 |
6.09 |
3.01 |
102 |
Crude Oil ($/bbl) |
126.98 |
68.07 |
87 |
116.64 |
62.87 |
86 |
Natural gas liquids ($/bbl) |
73.38 |
38.55 |
90 |
67.57 |
38.36 |
76 |
Barrels of oil equivalent ($/boe) |
77.84 |
39.23 |
98 |
69.51 |
36.93 |
88 |
Operating Netback ($/boe) |
||||||
Realized prices (excl. hedging) |
77.84 |
39.23 |
98 |
69.51 |
36.93 |
88 |
Royalties |
(16.12) |
(5.39) |
199 |
(13.56) |
(4.56) |
197 |
Operating expenses |
(17.79) |
(17.21) |
3 |
(17.61) |
(15.85) |
11 |
Transportation expenses |
(0.63) |
(0.57) |
11 |
(0.57) |
(0.51) |
12 |
Operating netback |
43.30 |
16.06 |
170 |
37.77 |
16.01 |
136 |
Journey was active during the fourth quarter of 2021 and to date in 2022, conducting accretive acquisitions, and also entering into two significant farm-ins. These farm-ins provide optionality on over 19,000 acres of undeveloped land. These transactions, along with the equity financing, which closed in March are helping to shape the 2022 capital program. This program will see Journey participating in 17 (15 net) wells in seven different areas.
Journey has expanded the exploration and development (“E&D“) portion of the 2022 capital program from $54 million to $58.8 million. The difference includes inflationary cost escalations; additional E&D projects; and an increase in power generation budget to $5.8 million with the purchase of an 8.6 megawatt power generation unit. Journey has received preliminary approval to install its second power generation facility, a 15.5 megawatt facility, which will be located at Gilby. The Company has proactively acquired 17 megawatts (three 2.8 megawatt units; and one 8.6 megawatt unit) of generation capacity and is currently in the process of transporting these generators to Gilby. Journey is in the process of procuring additional, longer delivery items and also beginning the detailed engineering for this project. The on-stream date for this project is currently expected to be in late 2023. Total costs for this project are estimated at $20 million including contingency costs with approximately 30% of the capital spent in 2022 and the remainder budgeted for 2023.
In the first quarter Journey participated in 3 (3.0 net) wells in Skiff. These wells are on primary production with waterflood implementation scheduled for later in the year. In addition, one (31% working interest) well was drilled and completed on the acquired assets in Carrot Creek. This well has been on-production since April and is performing above expectations. The impact of first quarter drilling and the acquisition activities resulted in sales volumes of 9,590 boe/d, a 13% increase in over the first quarter of 2022 and a 24% increase over the same quarter in 2021. The capital program is concentrated in the second half of the year with significant production additions beginning in August with 4.5 net wells expected to come on-production.
In addition to the two Crystal wells that were completed in the second quarter, Journey’s drilling program continued in Westerose with two Belly River horizontal wells. We have now spudded a two-mile Glauconite horizontal well, and participated in a 50% working interest well in Brooks that will be completed in early August. Following this, Journey’s development drilling program will continue with wells in Cherhill, Herronton, and Brooks.
Journey is currently planning to drill 17 (15.0 net) wells in 2022 with locations evenly distributed between the Northern and Southern core areas. Journey’s production guidance reflects the fact that the capital program is weighted to the second half of 2022, with only 40% of capital expenditures occurring in the first half of 2022, and many of the first half projects not coming on-stream until the third quarter. Because of this phasing, the increased capital spending will have a muted impact on 2022 average production levels. The timing of remaining capital program will remain flexible based upon organizational requirements associated with closing of the Acquisition announced on July 28, 2022. Further guidance will be provided when additional certainty is known regarding the closing of the acquisition.
This was a strong quarter for Journey financially across all categories. All commodity prices increased during the second quarter of 2022 over 2021 levels. Average Journey realized prices were $77.84/boe for the second quarter. This was 98% higher than the same quarter of 2021 and a 30% appreciation from the first quarter of 2022. Realized crude oil prices during the second quarter averaged of 2022 $126.98/bbl, which was 87% higher than the $68.07/bbl realized in the second quarter of 2021. The strong price appreciation in prices for the quarter was timely as the corporate acquisition Journey concluded effective April 1 realized the full impact of the higher prices. The combination of the production from the acquisition of 770 boe/d (49% oil and NGL’s), plus the three successful Skiff wells placed on-production at the end of the first quarter, contributed to the 147% increase in sales revenues over the second quarter of 2021. Crude oil sales volumes for the second quarter of 2022 represented 37% of total boe volumes but contributed 61% of total petroleum and natural gas revenues. Similarly, natural gas prices were 141% higher in the second quarter to average $7.29/mcf as compared to $3.02 in the second quarter of 2021. Natural gas sales volumes contributed 52% of total boe sales volumes in 2022 while contributing 29% of total sales revenues. Journey remained unhedged throughout 2022 to date and took full advantage of the commodity price appreciation that took place during the quarter. Journey took advantage of the higher AECO pricing in the second quarter to lock in pricing of $7.28/GJ for 10,000 GJ/d for the period from July 1, 2022 to December 31, 2022 inclusive.
All of the field operating costs (royalties, operating and transportation expenses) experienced increases during the second quarter of 2022. Royalty expense was higher by 272% from the second quarter of 2021 as was expected with the strong appreciation in commodity prices. On a per boe basis royalty expense was $16.12/boe in 2022 as compared to $5.39 in the second quarter of 2021. Aggregate field operating expenses increased in 2022 as the acquisitions, reactivations, higher power prices, and general inflationary pressures contributed to the total increase. In addition, $1.3 million of workover and turnaround costs were incurred in the second quarter of 2022 and accounted for approximately $1.54/boe of the total operating expenses. As a result of inflationary cost pressures, Journey averaged $17.79/boe for the second quarter of 2022 as compared to $17.21/boe in the same quarter of 2021. The cost per boe increased 11% from $0.57 in the second quarter of 2021 to $0.63/boe in the second quarter of 2022.
Journey’s general and administrative (“G&A”) costs were higher in 2022 as compared to the same quarter in 2021. G&A increased to $3.2 million in the second quarter of 2022 as compared to $1.0 million in the second quarter of 2021. 2022 G&A includes bonuses declared in respect of the 2021 performance year while 2021 G&A was inordinately lower as government COVID subsidies for rent and wages were still in existence during the second quarter of 2021. On a per boe basis, Journey’s general and administrative costs were $3.63/boe for the second quarter of 2022 and $1.48/boe for the second quarter of 2021.
Finance expenses related to borrowings, or interest costs, decreased by 15% to $1.6 million in the second quarter of 2022 from $1.9 million in the same quarter of 2021. Average, interest-bearing debt decreased by 14% in the second quarter of 2022 compared to the same quarter of 2021 mainly due to the repayment of $25.0 million of the AIMCo term debt throughout 2021.
Journey realized net income of $28.2 million in the second quarter of 2022 compared to a loss of $0.3 million in the same quarter of 2021. Net income per basic and diluted per share was $0.54 and $0.47 respectively for the second quarter. Adjusted Funds Flow in the second quarter was 270% higher in 2022, wherein the Company generated $33.4 million, or $0.63 and $0.56 per basic and diluted share as compared to $9.0 million, or $0.21 basic and $ 0.19 per diluted per share in the same quarter of 2021. Cash flow from operations was $26.0 million in the second quarter of 2022 ($0.49 per basic share and $$0.46 per diluted share) as compared to $9.4 million in the second quarter of 2021 or $0.21 and $0.19 per basic and diluted share respectively.
Journey continued to be prudent with its capital spending during the second quarter. The corporate acquisition that closed effective April 1 was done with a combination of $8.0 million of cash and 1.75 million common shares. The prudent use of equity in concluding this transaction allowed Journey to conserve cash and at the same time further diversify its shareholder base. The acquisition continued to strengthen the Company’s sustainability. Total capital expenditures in the second quarter were $35.3 million. This included the acquisition for $19.1 million; $4.8 million spent on doubling the existing working interests in a gas plant and gathering system in Gilby; drilling and completing 1 (1.0 net) well in Crystal; and $2.3 million for the acquisition of two generators for future use in the Company’s expanding power generation division.
Journey exited the second quarter of 2022 with net debt of $29.7 million, which was 61% lower than the $77.3 million at June 30, 2021 and 48% lower than the $57.0 million at the beginning of 2022. The $29.7 million of net debt at June 30, 2022 amounts to 0.2 times trailing annualized second quarter Adjusted Funds Flow.
On July 28, 2022 Journey announced that the Company has entered into definitive agreements for a transformational acquisition. As part of this announcement 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 will provide 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.
Effective today, Journey is pleased to announce the appointment of Ms. Jenna Kaye to its Board of Directors (the “Board“). Ms. Kaye is the Founder and CEO of Odyssey Trust Company, one of the largest trust and transfer agents in North America, with offices and co-agents across Canada and the US. She is also the Co-Founder and Chair of Tetra Trust, Canada’s first regulated crypto custodian, Co-Founder of Axis Connects, a Calgary-based non-profit organization committed to increasing diversity on boards and in the c-suite, and a Principal of Icebook Investments, a family run office that’s focused on early-stage businesses across a wide range of industries including renewable energy, real estate and fertility. Ms. Kaye has MBA and LLB degrees from Dalhousie University and practiced law at a national law firm. With extensive experience in governance and a deep knowledge of capital markets, as well as a history of founding successful companies, Journey believes Ms. Kaye will bring valuable insights and meaningful contributions to the Board.
Journey has updated its annual 2022 guidance to take into account the Acquisition. The underlying assumption is that the Acquisition will close on October 1, 2022, but this timing is dependent on regulatory approvals. Should this assumption change, Journey will revise its guidance accordingly.
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): 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 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 |
$90.00 $5.00 $6.00 $0.78 |
$94.00 $4.00 $5.45 $0.78 |
Notes: |
|
1. |
Commodity prices represent full year averages. |
Journey has embarked on a careful and prudent expansion of its business plan. This expansion has been buoyed by commodity price tailwinds and would not be possible without the talented team at Journey, both in the office and the field. The transformational acquisition announced today positions Journey to continue its forward trajectory for years to come. The Company looks forward to updating you on Journey’s progress as we continue on our development path.
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.