JOY Journey Energy Inc

CALGARY, AB, Aug. 10, 2021 /CNW/ - Journey Energy Inc. (TSX: JOY) ("Journey" or the "Company") announces its financial and operating results for the three and six month periods ending June 30, 2021. The complete set of financial statements and management discussion and analysis for the periods ended June 30, 2021 and 2020 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

2021 YEAR TO DATE HIGHLIGHTS

Highlights for the second quarter and year to date are as follows:

• Achieved production of 7,709 boe/d in the second quarter. Liquids (crude oil and natural gas liquids) accounted for 3,628 Boe/d or 47% of total production during the quarter.
  
  
• Realized second quarter adjusted funds flow of $9.0 million or $0.21 per weighted average basic share.
  
  
• Reduced net debt by 40% to $75.7 million from $126.6 million at the end of the second quarter of 2020.
  
  
• Continued work on decommissioning non-producing sites. To date Journey has been allocated $3.4 million under the Site Rehabilitation Program.
  
  
• Generated 6,831 MW of electricity in the second quarter at an average price of $127.67/MW.
  
  
• Repaid AIMCo $7.0 million in the second quarter bringing the total repaid in 2021 to $10.75 million. Journey is on track to repay $25.0 of debt that matures in 2021.
  
  
• On June 24, 2021 Journey announced its intention to acquire 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, and is expected to close in late August 2021, subject to regulatory and shareholder approvals.

Second Quarter Financial & Operating Highlights

OPERATIONS

Journey achieved sales volumes of 7,709 boe/d (47% crude oil and NGL's) in the second quarter of 2021. This represents a 2% increase in volumes from the first quarter, despite a minor level of capital spending. This is a testament to Journey's low decline asset base with base declines estimated to be 14%. Year over year comparisons are less meaningful due to shut in volumes at the height of the COVID 19 pandemic in the second quarter of 2020. In mid-March of 2020, the COVID-19 pandemic was causing systematic shutdowns of global economies, and world oil prices experienced a severe decline. WTI oil prices declined below USD $20/bbl making several of Journey's oil properties uneconomic to operate. Consequently, Journey took the prudent and immediate action to shut-in approximately 1,500 boe/d (73% crude oil and NGL's) of its production effective the first week of April 2020. Journey restarted the majority of shut-in production early in the third quarter of 2020.

Journey did not drill or complete any wells in 2020, and has no drilling planned for the remainder of 2021. Capital expenditures are limited to maintenance capital where deemed necessary. After resolving some minor start up issues typical of a facility of this nature, the power plant in Countess has been running for the past three months with efficiency's peaking at 95%. Over the past six months, Journey has seen a dramatic increase in pricing for both natural gas and electricity, and therefore remains well positioned to take full advantage of these increases in 2021.

As Journey moves through the remainder of 2021, our focus will begin to shift from debt reduction to efficient capital deployment and increasing longer-term sustainability. Beginning in early 2021, Journey is looking to deploy capital toward exploration and development activities along with an expansion of its power plant. A key feature of the power project, as originally designed, is the ease in which the project can be expanded to over 6.0 megawatts from the current maximum capacity of 4.0 megawatts, with the addition of one power generation unit. Journey is currently in the planning stages of this expansion.

Journey plans on returning to the field in early 2022 and this should increase both production and the oil weighting to pre-pandemic levels over time. Journey is currently contemplating an exploration and development program of $30-35 million in 2022. This program is expected to be funded entirely from Company cash flows. Journey has a development drilling program ready for Skiff, Cherhill and Crystal. The horizontal development program in south Skiff follows up the three wells that were drilled there in 2018. During the third quarter of 2019, the central well of the three well pattern was converted to water injection, and the offsetting producers have now responded favorably to this injection. The vast majority of Journey's future capital projects are within existing pools and are not subject to near term expiries. New volumes can be brought on with very little incremental operating cost when drilling resumes.

Journey has been able to take advantage of the previously announced Site Rehabilitation Program whereby Government funds are provided to industry to complete abandonment work. Journey has been allocated approximately $3.37 million in programs 1-5. These funds will be utilized to abandon wells, facilities, and to conduct Phase 1 and Phase 2 environmental assessments. Approximately $1.1 million of these funds have been expended to date. Technical teams at Journey have reviewed and approved for abandonment, approximately 20 well sites in Westerose; 30 well sites in Matziwin; and 50 well sites in Crystal. This program will be ongoing throughout 2021 and into 2022.

The Duvernay drilling program has advanced to the point where Journey has significant production history for the three wells drilled by its joint venture partner, Kiwetinohk Resources Corp. ("KRC"). These wells rank in the top tier of all wells drilled to date in the East Shale Duvernay basin. The success to date in this play highlights the significant development potential of the Duvernay land block. The joint venture currently controls approximately 116 gross sections where Journey has an average working interest of 37.5% (43.5 net sections). Since KRC did not fully complete all possible earning during the option phase of the farm-out agreement, which ended in late August 2020, Journey retained its 100% interest in 31 unearned sections. This, plus an additional 6 gross sections Journey previously acquired, results in the Company controlling 80.5 net sections or approximately 53% of the total acreage within the total Duvernay land block. As Journey recovers from the 2020 oil price shock associated with the pandemic, the capital available for this project in 2021 is limited, despite this resource having attractive returns in the current pricing environment. As a result, Journey is actively seeking opportunities to monetize this opportunity or find a joint venture partner.

FINANCIAL

Crude oil and natural gas prices continued to strengthen in the second quarter of 2021. However, the COVID-19 pandemic is continuing to create an element of uncertainty about when the global economy can return to a normal state. Journey's realized crude oil prices during the second quarter of 2021 averaged $68.07/bbl, which was 180% higher than the $24.32/bbl realized in the second quarter of 2020 and 19% higher than the $57.37/bbl realized in the first quarter of 2021. Natural gas prices showed solid improvement as well as Journey realized $3.02/mcf in the second quarter of 2021 compared to $1.92/mcf in the second quarter of 2020. Natural gas and NGL prices were essentially flat with those realized in the first quarter of 2021. Overall, Journey's average realized commodity prices were 150% higher during the second quarter of 2021 at $39.23/boe compared to $15.71/boe in the same quarter of 2020. Since the debt restructuring in October of 2020 Journey has remained unhedged and as a result has taken full advantage of the commodity price appreciation that started around that time.

Aggregate sales volumes for Journey's commodities declined 1% from 7,808 boe/d in the second quarter of 2020 to 7,709 in the second quarter of 2021. Year over year comparisons are less meaningful due to shut in volumes at the height of the COVID 19 pandemic in Q2 2020. Natural gas volumes accounted for 53% (2020 – 58%) of total boe volumes sold in the second quarter while crude oil production increased to 39% in 2021 from 34% in 2020. On the revenue side, crude oil and NGL's comprised 76% of total revenues for the second quarter of 2021 while for the same quarter in 2020 they were 57%. The significant strengthening of oil prices during the first half of 2021, as the world begins its recovery from the COVID-19 pandemic, resulted in the shift towards more liquids revenues.

The Company continued its cost control initiatives initiated in 2020 in response to the pandemic and explored new ways to achieve cost control both in both the field and in the head office. Journey has ensured that all controllable costs were minimized, while continuing to operate in a very safe and responsible manner.

Field operating expenses increased in the second quarter as workovers, power prices, and plant turnarounds contributed to higher costs, both compared to last year as well as to the first quarter of this year. The increase in turnaround costs is a direct result of Journey's financial difficulties in 2020, resulting in minimal capital investment and a delay in normally scheduled maintenance work. Turnaround costs are forecasted to decrease substantially in the third quarter. Workover costs are associated with restoring production on wells, some of which had been left down in 2020 due to economics. These expenditures have allowed Journey to mitigate production declines at an average cost of less than $2,500/boed. Journey has a number of additional projects currently ongoing in the third quarter that will help mitigate declines. Journey averaged $17.21/boe for operating expenses in the second quarter. Journey forecasts operating expenses to decline to between $14 and $15/boe in the third quarter as spending on workovers and turnarounds subsides.

In the head office, the G&A cost reduction initiatives initiated in the second quarter of 2020 continued to benefit the 2021 results and will continue to do so into the future. During 2020, Journey reduced compensation levels to its staff by approximately 10% on top of the already reduced workweek implemented in 2019; the Company laid off approximately one-quarter of its workforce; obtained a new head office lease under very favourable terms; and continued to apply for benefits under the Canadian Emergency Wage Subsidy program. On a per boe basis, Journey's G&A costs were $1.48 for the second quarter of 2021.

Finance expenses related to borrowings decreased by 32% to $1.9 million in the second quarter of 2021 from $2.8 million in the same quarter of 2020. Average, interest-bearing debt decreased by 33% in the second quarter of 2021 compared to 2020 mainly due to the settlement of Journey's bank debt for less than its face value on October 30, 2020 as well as the repayment of $10.75 million of the AIMCo term debt in the first six months of this year. While the effective interest rate is higher due to term debt replacing the bank debt, the lower face value of Journey's borrowings created interest savings for the Company.

Journey realized a net loss of $0.4 million in the second quarter of 2021. The higher commodity prices were offset by higher royalty expense, operating expense and depletion charges. For the year to date, the Company had earnings of $1.3 million as the solid growth in commodity prices translated into a remarkable turnaround from the $80.9 million loss in the first six months of 2020. Adjusted Funds Flow was significantly higher in 2021 by 181% wherein the Company generated $9.0 million as compared to $3.2 million in the same quarter of 2020. For the six months year to date in 2021 Adjusted Funds Flow was $17.7 million as compared to $3.0 million in 2020. Cash flow from operations was $9.4 million in the second quarter of 2021 and $13.7 million for the year to date as compared to $2.6 million in the second quarter and $4.0 million for the year to date in 2020.

Journey continued to focus on debt repayment during the second quarter. While Journey expected net debt to be much lower by this time of 2021, that reduction was premised on the Countess asset sale, which did not proceed. Ultimately, the Company benefitted from retaining these assets and the resulting cash flows due to an increasing commodity price environment. Journey used this cash flow to aggressively reduce its term debt with AIMCo and may accelerate scheduled repayments as cash flows permit. Journey exited the second quarter of 2021 with net debt of $75.7 million, which was 40% lower than the $128.4 million at the end of the first quarter of 2020. Journey already maintains a healthy bank balance and is well positioned to make the $10 million loan repayment scheduled for October 31 of 2021. The Company remains on track to repay all of its 2021 AIMCo debt maturities, which total $25 million.

In addition, the present value associated with retaining the Countess Assets, the private Company acquisition, the increasing commodity prices, and lower net debt bodes well for Journey to record a significant year over year increase in net asset value, which will benefit all stakeholders.

OUTLOOK AND 2021 GUIDANCE

On June 24, 2021, Journey announced its intention 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 funded through the issuance of 3.5 million Journey shares plus $2.9 million of cash. The acquisition comes with a significant undeveloped Cardium land base. In addition, the acquisition is anticipated to have a working capital surplus at closing of approximately $0.8 million. This acquisition remains on track to close in mid-August 2021. A summary of the relevant metrics for the acquisition are as follows:

Subject to final shareholder and regulatory approvals, Journey expects to close this acquisition on August 18.

Journey continues to take a conservative approach to capital spending for 2021, with a focus on repaying the term debt that matures in 2021. The continued strength in commodity prices, coupled with favorable price differentials, and a lower operating cost structure are combining to make Journey very sustainable well into the future. Journey's updated 2021 guidance taking into account the impact of the acquisition above and updated forecast prices, is presented in the table below:

Journey's revised 2021 forecasted funds flow is based upon the following revised assumed annual, average prices: WTI of $66/bbl USD; Company differentials of $4.50/bbl USD for oil from Edmonton light sweet prices; Company realized natural gas price of CDN$3.20/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, and we look forward to providing further clarity for what promises to be an exciting capital program in 2022.

About the Company 

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.

Journey Energy Inc.
700, 517 – 10^th Avenue SW
Calgary, AB T2R 0A8
403-294-1635
www.journeyenergy.ca

ADVISORIES

This press release contains forward-looking statements and forward-looking information (collectively "forward looking information") within the meaning of applicable securities laws relating to the Company's plans and other aspects of our anticipated future operations, management focus, strategies, financial, operating and production results, industry conditions, commodity prices and business opportunities. In addition, and without limiting the generality of the foregoing, this press release contains forward-looking information regarding decline rates, anticipated netbacks, drilling inventory, estimated average drill, complete and equip and tie-in costs, anticipated potential of the Assets including, but not limited to, EOR performance and opportunities, capacity of infrastructure, potential reduction in operating costs, production guidance, total payout ratio, capital program and allocation thereof, future production, decline rates, funds flow, net debt, net debt to funds flow, exchange rates, reserve life, development and drilling plans, well economics, future cost reductions, potential growth, and the source of funding our capital spending. Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future.

The forward-looking information is based on certain key expectations and assumptions made by our management, including expectations and assumptions concerning prevailing commodity prices and differentials, exchange rates, interest rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; the ability to efficiently integrate assets and employees acquired through acquisitions, including the Acquisition, the ability to market oil and natural gas successfully and our ability to access capital. Although we believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Journey can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. Our actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that we will derive therefrom. Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide securityholders with a more complete perspective on our future operations and such information may not be appropriate for other purposes.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect our operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). These forward looking statements are made as of the date of this press release and we disclaim any intent or obligation to update publicly any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Journeys prospective results of operations, funds flow, netbacks, debt, payout ratio well economics and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this press release was made as of the date of this press release and was provided for the purpose of providing further information about Journey's anticipated future business operations. Journey disclaims any intention or obligation to update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein. Information in this press release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws, which involves substantial known and unknown risks and uncertainties, most of which are beyond the control of Journey, including, without limitation, those listed under "Risk Factors" and "Forward Looking Statements" in the Annual Information Form filed on www.SEDAR.com on March 23, 2021. Forward-looking information may relate to our future outlook and anticipated events or results and may include statements regarding the business strategy and plans and objectives. Particularly, forward-looking information in this press release includes, but is not limited to, information concerning Journey's drilling and other operational plans, production rates, and long-term objectives. Journey cautions investors in Journey's securities about important factors that could cause Journey's actual results to differ materially from those projected in any forward-looking statements included in this press release. Information in this press release about Journey's prospective funds flows and financial position is based on assumptions about future events, including economic conditions and courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that information regarding Journey's financial outlook should not be used for purposes other than those disclosed herein. Forward-looking information contained in this press release is based on our current estimates, expectations and projections, which we believe are reasonable as of the current date. No assurance can be given that the expectations set out in the Prospectus or herein will prove to be correct and accordingly, you should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time except as required by applicable securities law.

Non-IFRS Measures

The Company uses the following non-IFRS measures in evaluating corporate performance. These terms do not have a standardized meaning prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculation of similar measures by other companies.

1. "Adjusted Funds Flow" is calculated by taking "cash flow provided by operating activities" from the financial statements and adding or deducting: changes in non-cash working capital; transaction costs; and decommissioning costs. Adjusted Funds Flow per share is calculated as Adjusted Funds Flow divided by the weighted-average number of shares outstanding in the period. Because Adjusted Funds Flow and Adjusted Funds Flow per share are not impacted by fluctuations in non-cash working capital balances, we believe these measures are more indicative of performance than the GAAP measured "cash flow generated from operating activities". In addition, Journey excludes transaction costs from the definition of Adjusted Funds Flow, as these expenses are generally in respect of capital acquisition transactions. The Company considers Adjusted Funds Flow a key performance measure as it demonstrates the Company's ability to generate funds necessary to repay debt and to fund future growth through capital investment. Journey's determination of Adjusted Funds Flow may not be comparable to that reported by other companies. Journey also presents Adjusted Funds Flow per share where per share amounts are calculated using the weighted average shares outstanding consistent with the calculation of net income (loss) per share, which per share amount is calculated under IFRS and is more fully described in the notes to the audited, year-end consolidated financial statements. 
2. "Netback(s)". The Company uses netbacks to help evaluate its performance, leverage, and liquidity; comparisons with peers; as well as to assess potential acquisitions. Management considers netbacks as a key performance measure as it demonstrates the Company's profitability relative to current commodity prices. Management also uses them in operational and capital allocation decisions. Journey uses three netbacks to assess its own performance and also performance in relation to its peers. These netbacks are operating, Funds Flow and net income (loss). "Operating netback" is calculated as the average sales price of the commodities sold (excluding financial hedging gains and losses), less royalties, transportation costs and operating expenses. "Adjusted Funds Flow netback" begins with the operating netback and deducts general and administrative costs, interest costs and then adds or deducts any realized gains or losses on derivative contracts. To calculate the "net income (loss) netback", Journey takes the Adjusted Funds Flow netback and then adds or deducts: unrealized gains/losses on derivative contracts; share-based compensation expense; depletion; depreciation; accretion; loss and gains on dispositions; asset impairments; exploration and evaluation expenses; PP&E impairments and reversals; and deferred income taxes. There is no GAAP measure that is reasonably comparable to netbacks.
3. "Net debt" is calculated by taking current assets, and then subtracting accounts payable and accrued liabilities; the principal amount of term debt; and the carrying value of the other liability. Net debt is used to assess the capital efficiency, liquidity and general financial strength of the Company. In addition, it is used as a comparison tool to assess financial strength in relation to Journey's peers.

Barrel of Oil Equivalents

Where amounts are expressed in a barrel of oil equivalent ("boe"), or barrel of oil equivalent per day ("boe/d"), natural gas volumes have been converted to barrels of oil equivalent at six (6) thousand cubic feet ("Mcf") to one (1) barrel. Use of the term boe may be misleading particularly if used in isolation. The boe conversion ratio of 6 Mcf to 1 barrel ("Bbl") of oil or natural gas liquids is based on an energy equivalency conversion methodology primarily applicable at the burner tip, and does not represent a value equivalency at the wellhead. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.

Oil and Gas Measures and Metrics

The Company uses the following metrics in assessing its performance and comparing itself to other companies in the oil and gas industry. These terms do not have a standardized meaning and therefore may not be comparable with the calculation of similar measures.by other companies:

1. Corporate Decline is the rate at which production from a grouping of assets falls from the beginning of a fiscal year to the end of that year.
2. IP 365 is the average daily production rate of a well in its first 365 days of production expressed in boe's.

Abbreviations

The following abbreviations are used throughout these MD&A and have the ascribed meanings:

In this press release, where the Company uses the term "crude oil" it is referring to the aggregate of light, medium and heavy crude oil volumes or dollars as is required. Where the Company uses the term "natural gas" it is referring to the aggregate of conventional natural gas and coal-bed methane natural gas volumes or dollars as is required.

All volumes in these MD&A refer to the sales volumes of crude oil, natural gas and associated by-products measured at the point of sale to third-party purchasers. For natural gas, this occurs after the removal of natural gas liquids.

No securities regulatory authority has either approved or disapproved of the contents of this press release.

SOURCE Journey Energy Inc.