JOY Journey Energy Inc

CALGARY, AB, May 9, 2022 /CNW/ - Journey Energy Inc. (TSX: JOY) (OTCQX: JRNGF) ("Journey" or the "Company") announces its financial results for the first quarter of 2022.  The complete set of financial statements and management discussion and analysis for the periods ended March 31, 2022 and 2021 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

Highlights for the year-to-date are as follows:

• Produced 8,492 boe/d in the first quarter. (53% natural gas production; 37% crude oil; 10% NGL's). Almost all of Journey's production is currently unhedged. Year-over-year production volumes increased 12%.

• Realized adjusted funds flow of $20.4 million or $0.42 per basic share and $0.36 per diluted share.

• Reduced net debt by 55% from $85.6 million at the end of the first quarter of 2021 to $38.5 million at March 31, 2022.

• Closed a Canadian Development Expense flow-through-share financing of 2.5 million shares at $4.25/share for gross proceeds of $12.1 million.

• Closed the acquisition of a private company in the Carrot Creek area effective April 1, 2022, adding approximately 625 boe/d of low decline production (54% crude oil and NGL's).

• Initiated the 2022 capital program with the drilling of 3 (3.0 net) wells in Skiff. These wells are on primary production with waterflood implementation scheduled for later in the year. In addition to Skiff one new well (31% WI) was drilled and completed on the acquired assets. This well is now on production at a restricted rate of 115 boe/d net to Journey's working interest. The impact of first quarter activities has increased current production levels to 9,400 boe/d (46%) crude oil and NGL's, an 11% increase over first quarter average production. In March and April of 2022 Journey drilled two, 1.5 mile horizontal wells in the Crystal light oil pool. These wells will be completed in June and are expected to be brought on-production early in the third quarter.

• Closed the previously announced acquisition of infrastructure and gathering facilities in the Gilby area on May 9, 2022 for $5 million before closing adjustments. Journey has applied to install its second power generation facility, which will be located in Gilby. In anticipation of this, Journey has proactively acquired 8.4 megawatts (3 X 2.8 megawatt units) of generation capacity. These generators are currently in the process of being transported to the Gilby site. In order to account for the delivered purchase price of these units and for the preliminary design engineering for the project, Journey has added $3.3 million to the power generation component of the 2022 capital budget. Since the currently anticipated on-stream date for this project will be in 2023, the added capital will not impact production or cash flow guidance for 2022.

• Produced 7,550 megawatts of electricity at Journey's electricity generation facility in Countess, Alberta at an average price of $111/MWH. The run-rate during the first quarter was 88% of capacity.

OPERATIONS

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 recently closed equity financing are helping to shape the 2022 capital program. This program will see Journey participating in 17 gross (16 net) wells in eight different areas.

Journey has expanded the exploration and development ("E&D") portion of the 2022 capital program from $43 million to $54 million.  The difference includes $3.9 million due to cost escalations; $3.8 million in additional E&D projects; and $3.3 million allocated to future power generation projects.  The additional E&D projects include an additional Belly River oil well in Westerose along with waterflood expansion projects in Matziwin and Westerose.  Journey has made application to install its second power generation facility, which will be located in Gilby.  Journey has proactively acquired 8.4 megawatts (3 X 2.8 megawatt units) of generation capacity and is currently in the process of transporting these generators to Gilby.  In order to account for the delivered purchase price of these units and for the preliminary design engineering for the project, Journey has added $3.3 million to the power generation component of the 2022 capital budget.  Since the on- stream date for this project is currently expected to be in 2023, the added capital will not impact production or cash flow guidance for 2022.

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 well (31% WI) was drilled and completed on the acquired assets in Carrot Creek.  This well is now on-production at the restricted rate of 115 boe/d net to Journey's working interest. The impact of first quarter drilling activities has increased current production levels to 9,400 boe/d (46% crude oil and NGL's), representing an 11% increase over the first quarters' average production.  In March and April of 2022 Journey also drilled two, 1.5 mile long horizontal wells in the Crystal light oil pool.  These wells are expected to be completed in June and brought on-production early in in the third quarter.  In late June Journey's drilling program will continue in Westerose with two Belly River horizontal wells and one, two-mile Glauconite horizontal well.  Following this, Journey's development drilling program will continue with wells in Cherhill, Matziwin, Herronton, and Brooks.

Journey is currently planning to drill 17 (16 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 until the third quarter.  Because of this phasing, increasing capital has a muted impact on 2022 average production levels.  However, exit rates are expected to increase to 10,500 - 11,000 boe/d by the end of the year, an increase of about 1,000 boe/d from the March 23 guidance.  Journey's 2022 capital program is expected to be funded from the combination of Adjusted Funds Flow and the flow-through financing, which closed on March 18, 2022. 

Journey has been and continues to be active in evaluating opportunities to expand its business. The increase in commodity prices and the recent financing will provide Journey the opportunity to meet all of its debt obligations along with the potential to expand the business plan through acquisitions or additional exploration and development projects.

FINANCIAL

Strength in all commodity prices continued their upward trajectory into the first quarter of 2022. Commodity prices increased throughout the first quarter with the highest pricing achieved in March.  This resulted in first quarter Adjusted Funds Flow weighted to the latter part of the quarter.   Average Journey realized prices were $60.00/boe for the first quarter.  This was 74% higher than the same quarter of 2021 and a 19% appreciation from the fourth quarter of 2021.  Realized crude oil prices during the first quarter averaged $104.80/bbl, which was 83% higher than the $57.37/bbl realized in the first quarter of 2021.  Crude oil sales volumes for the first quarter of 2022 represented 37% of total boe volumes but contributed 65% of total petroleum and natural gas revenues.  Similarly, natural gas prices were 58% higher in the first quarter to average $4.74/mcf as compared to $3.00 in the first quarter of 2021.  Natural gas sales volumes contributed 53% of total boe sales volumes in 2022 while contributing 25% of total sales revenues.  Journey remained unhedged throughout 2022 to date and took full advantage of the commodity price appreciation that took place throughout 2021 and 2022.

All of the field operating costs (royalties, operating and transportation expenses) experienced increases during the first quarter of 2022.  Royalty expense was higher by 221% from the first quarter of 2021 as was expected with the strong appreciation in commodity prices.  On a per boe basis royalty expense was $10.63/boe in 2022 as compared to $3.71 in the first quarter of 2021.  Field operating expenses increased in 2022 as the acquisitions, workovers, reactivations, higher power prices, plant turnarounds and general inflationary pressures contributed to the total increase.  In addition, $0.9 million of workover and turnaround costs were incurred in the first quarter of 2022 and accounted for approximately $1.18/boe of the total operating expenses on a per boe basis.  As a result of these cost pressures, Journey averaged $17.40/boe for operating expenses in the first quarter of 2022 as compared to $14.46/boe in the same quarter of 2021. 

Journey's general and administrative ("G&A") costs were higher in 2022 as compared to the same quarter in 2021 as Journey returned its staff to a full work week in the fourth quarter of 2021.  G&A increased to $2.4 million in the first quarter of 2022 as compared to $466 thousand in the first quarter of 2021.  2022 G&A includes one-time severance obligations of $570 thousand while 2021 G&A was lower as government COVID subsidies for rent and wages were still in existence during the first quarter of 2021.  On a per boe basis, Journey's general and administrative costs were $3.15/boe for the first quarter of 2022 and $0.68/boe for the first quarter of 2021.  Journey is currently expecting that the G&A cost per boe for the entire year will be between $2.30 and $2.40.

Finance expenses related to borrowings, or interest costs, decreased by 20% to $1.6 million in the first quarter of 2022 from $2.0 million in the same quarter of 2021.  Average, interest-bearing debt decreased by 19% in the first 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 $13.7 million in the first quarter of 2022 and $1.7 million for the same quarter of 2021.  Commensurate with the higher commodity prices realized throughout 2022 the net income rose accordingly.  Net income per basic and diluted per share was $0.28 and $0.25 respectively for the first quarter.  Adjusted Funds Flow in the first quarter was 134% higher in 2022, wherein the Company generated $20.4 million, or $0.42 and $0.36 per basic and diluted share as compared to $8.7 million, or $0.20 basic and $ 0.18 per diluted per share in the same quarter of 2021.  Cash flow from operations was $21.8 million in the first quarter of 2022 ($0.45 per basic share and $$0.39 per diluted share) as compared to $4.3 million in the first quarter of 2021 or $0.10 and $0.09 per basic and diluted share respectively.

Prudence in capital spending meant that the Company underspent its cash flow as Journey continued to strengthen the balance sheet coming out of the most challenging year in its history in 2020.  The Company commenced a drilling program in the first quarter which included 4 (4.0 net) wells.  Total capital expenditures were $12.2 million which included the drilling and completion of 3 (3.0 net) wells in Skiff and the drilling of 1 (1.0 net) well in Crystal.  The three Skiff wells were placed on production late in March and therefore did not have a meaningful contribution to the production volumes nor the Adjusted Funds Flow for the first quarter.  Journey exited the first quarter of 2022 with net debt of $38.5 million, which was 55% lower than the $85.6 million at March 31, 2021 and 33% lower than at the end of 2021.  The $38.5 million of net debt at March 31, 2022 amounts to 0.5 times trailing annualized first quarter Adjusted Funds Flow.  Journey is currently expecting that its existing cash balance plus the projected cash flows from operations will be more than sufficient for the Company to meet its term debt maturity of $23.8 million on September 30 of this year. 

OUTLOOK & GUIDANCE

With the assistance of rising commodity prices and prudent capital spending, Journey made significant progress in reducing its net debt throughout 2021 and during the first quarter of 2022.  To date in 2022 Journey has drilled 4 (4.0 net) wells and the plans are to drill 17 (16.0 net) wells for the entire year.  The recently closed flow-through share financing will go towards funding this year's drilling program.  In addition, the previously announced corporate acquisition ($8 million cash plus $11 million equity) was closed effective April 1, 2022.  Current production from this acquisition is approximately 760 boe/d (54% light crude oil and NGL's). Furthermore, on May 9, 2022 the previously announced infrastructure acquisition was closed. The cash expended in closing the infrastructure deal was $4.8 million.

Pricing remained high in April with a minor decrease in crude oil and NGL prices being more than offset by increasing natural gas prices. Both pricing and sales volume growth are supportive of higher Adjusted Funds Flows in the second quarter versus the first quarter, leading to upward revisions to Journey's guidance.  The Board of Directors has approved an increase to Journey's 2022 capital budget to $78 million, which includes E&D activities, spending for future power generation projects and A&D activity. The updated 2022 guidance, which includes the production and Adjusted Funds Flow from the acquisitions is presented in the table below:

Over the course of 2022, we look forward to updating you on Journey's progress.

Annual General Meeting

Journey's annual general meeting ("AGM" or the "Meeting") is scheduled for 3:00 pm (Calgary time) on May 26, 2022.  In response to the COVID-19 pandemic, Journey is discouraging physical attendance at the Meeting and has decided to offer shareholders an opportunity to listen to the business to be conducted at the Meeting by teleconference. Shareholders not attending in person must vote on the matters not less than forty-eight (48) hours (excluding Saturdays, Sundays and statutory holidays in the Province of Alberta) before the time of the Meeting.  Further instructions on how to listen to the Meeting and how to vote in advance of the Meeting will be found in Journey's management information circular that will be posted on the Company's website and on SEDAR in due course.  In line with Journey's commitment to safety, in-person attendance by directors and senior management of Journey will be limited and will be subject to the orders, limitations, advice and guidance of the federal and provincial health ministries and other governmental authorities.  Accordingly, Journey expects to only have a minimum number of in-person attendees present to conduct the formal business of the Meeting and does not intend to provide a corporate presentation after the Meeting.

One of Journey's current directors, Mr. Dana Laustsen, will be retiring from the Board effective at the AGM.  Journey would like to thank Mr. Laustsen for his guidance, advice and experience throughout the eight years he spent with Journey and we wish him well in his future endeavors.  Journey has put forward one new director to stand for election at the AGM, Mr. Scott Treadwell.  Please see the information circular filed on SEDAR for Mr. Treadwell's full biography.

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.

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 the 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 Journey's 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 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 the 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. The 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 security holders with a more complete perspective on 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 the 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 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 31, 2022. Forward-looking information may relate to the 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 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.

Measurements

All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.

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 nine (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.

Abbreviations

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

All volumes in this press release 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.