JOY Journey Energy Inc

CALGARY, AB, April 3, 2023 /CNW/ - Journey Energy Inc. (TSX: JOY) (OTCQX: JRNGF) ("Journey" or the "Company") is providing preliminary guidance for 2023, following the closing of its flow through share issuance on March 23, 2023. This update is accompanied by an updated Corporate Presentation posted on the Company's website at www.journeyenergy.ca.  

On July 28, 2022 Journey announced its intention to enter into a significant transformative acquisition (the "Acquisition"). This acquisition closed on October 31, 2022.  One of the key attributes of the Acquisition was the ability to fund the purchase through corporate cash flows over a reasonable time frame. In order to accomplish this Journey entered into a Vendor Take Back ("VTB") financing arrangement with the vendor of the assets, and simultaneously moved a portion of its term debt repayments from the Fall of 2022 to the Spring of 2023. In addition, Journey agreed to pay-out the remaining $5 million of bank debt on January 31, 2023. As a result, Journey's debt obligations over the 2023-2024 time frame are primarily concentrated in 2023.

In the fall of 2022, prices for crude oil began to decline and this has continued into 2023. Natural gas prices have also fallen substantially during the first quarter of 2023. In light of the highly volatile commodity prices Journey has adopted the prudent approach of deferring some of its exploration and development capital expenditures. In order to strike a balance between leverage reduction and growth capital Journey has repaid the $23.8 million AIMCo term debt tranche on March 31, 2023, which was originally issued in 2016. Journey's near term obligations and commitments for the expansion of its power business has diverted funds from the Company's growth capital program for 2023. However, in conjunction with the recently closed 3.04 million flow-through common shares for gross proceeds of $20.1 million (see the March 23, 2023 press release) Journey will return to the drill-bit starting late in the second quarter. In addition, and to provide further liquidity throughout the year, Journey and AIMCo have agreed to extend its $24.7 million term debt repayment that was originally due on October 31, 2023 to April 30, 2024. These measures allow Journey to balance its debt repayment obligations in 2023 with that in 2024, and allow Journey to carry out a drilling program in the second half of 2023 with the goal of maintaining overall production levels while increasing the oil weighting.

Journey's fourth quarter, 2022 sales volumes were approximately 11,500 boe/d (54% liquids). Based on field estimates sales volumes for January and February 2023 were approximately 13,140 boe/d. Sales volumes moving forward are impacted by the following unplanned events:

• The sale of 80 boe/d of non-core low net back high ARO assets to a third party for minimal proceeds effective February 1, 2023.
• The unscheduled loss of 180 boe/d of production in its Kiskiu area due to reduced capacity at a third party processing facility. These capacity restraints are forecast to continue from mid-February to mid-August 2023. Journey is currently evaluating alternatives to circumvent this outage, however, these measures will involve additional pipeline infrastructure and take time to implement.
• Unscheduled 3^rd party outages in Westerose (March) and Ante Creek (June) along with a Journey unscheduled outage in Cherhill (February).

These factors along with natural declines and a second half, 2023 weighted drilling program were incorporated into Journey's 2023 full year guidance. Further to this, Journey's capital program has shifted to oil weighted opportunities by replacing natural gas weighted drilling in Westerose with oil weighted drilling in Matziwin. This will result in lower aggregate volumes in favour of higher oil weightings. Journey's 2023 drilling program now features 9 gross (7.6 net wells). This program will feature 4 wells in Medicine Hat; 3 wells in Cherhill; and 2 wells in Matziwin. It is important to note that only $20 million of Journey's $63 million capital program is directed toward growth capital. This will result in sales volume guidance of 12,500 to 13,000 boe/d (54% liquids) for 2023 with a forecast exit rate of 12,800 boe/d (56% liquids). In addition to the growth capital, Journey plans to expand its polymer flood in Medicine Hat and its waterflood in Matziwin. Journey has allocated $8 million in capital to polymer costs, injector conversions, and facilities in 2023. Journey has also allocated $5.4 million of capital toward end-of-life costs and an additional $8 million in miscellaneous costs for one-time costs associated with the final statement of adjustments from last years' transformational acquisition; land acquisitions; seismic data; and cost carry over from projects started in 2022.

Journey estimates its 2023 year-end Net Debt to be approximately $66 million, which represents a 33% reduction from the $99 million of Net Debt at the end of 2022. 

Even though Journey shifted its capital program toward oil weighted drilling, and well optimizations, Journey continues to advance its repeatable plays in 2023. Journey plans to enter into a farm-in agreement with a freehold mineral owner in the Gilby area of Alberta. This farm-in, combined with Journey's existing acreage will give the company access to approximately fifty gross contiguous sections for Duvernay development drilling. These rights are adjacent to our Gilby gas processing facility. These lands are already overlain by liquid rich glauconite production and contain two Duvernay test wells drilled as part of our previous joint venture with Kiwetinohk. The primary term of the option agreement is for four years with further options to extend the term to seven years.  Journey currently plans to drill a minimum of two Duvernay wells on this block during the four year primary term.

For 2023, Journey has continued to prioritize its emerging power generation business and has made significant strides in this regard.  Journey allocated $21 million in capital to its power generation business for 2023. The majority of this capital is associated with its Gilby power plant construction and the remainder to the power plant purchase described in the press release from January 18, 2023.  Although a portion of the Gilby capital may carry over into the first quarter of 2024, this is expected to be offset by increased capital allocation to re-energizing the purchased power plant. Therefore there is an upward bias to Journey's capital allocation to its power business in 2023.

Journey has demonstrated, through the operation of its existing Countess power plant, that it is far more profitable to convert its natural gas into electricity, than to merely sell the natural gas at spot prices. The 4 MW Countess facility, commissioned in the fourth quarter of 2020, is already close to paying out the original investment. Based on Journey's realized power prices in 2022, the average, effective, net realized price for natural gas used to generate power for the year was approximately $10.54/mcf. This price takes into account the cost of the natural gas and the incremental costs of operating the power plant. As a comparison, the average AECO benchmark price for 2022 was approximately $5.43/mcf. Average power prices have increased over 250% since this facility came on stream. Journey is planning to increase its power sales to the Alberta electricity grid by over 500% over the next year. The nature of Journey's asset base is such that it is a large power consumer, and power represents 25% of overall corporate operating costs. 

Previously, Journey announced that it had entered into an agreement to purchase a 16.5 MW power generation facility through an open auction process that started in November 2022.  This facility was originally commissioned by another operator in 2015, and ran for less than one year before being shut-in. It consists of five, 3.3 MW Jenbacher generators and includes switch gear, coolers, and an export transformer. The generators, ancillary equipment, and buildings are in excellent condition as they previously had minimal run time.  Journey estimates that the replacement value of this facility is in excess of five times the purchase price.

This power asset acquisition is forecast to close in April 2023 and its cost has been included in the capital guidance for 2023. Since agreeing to purchase this facility Journey has been actively pursuing the option of re-energizing this facility in its existing location. At this point Journey feels that there is a viable path for doing this and is continuing to advance this opportunity. Journey intends to provide further guidance on both the opportunity to re-energize this facility in place and the time line for doing so in the next quarter. Full costs for re-energizing this facility have not been included in the 2023 capital guidance.  

Journey has received preliminary approval to construct a 15.5 MW generation facility at its Gilby gas plant and has procured 17 MW of generating capacity in support of this project. The Company has continued to advance the design and approval of this project. The primary construction phase of this facility is scheduled to begin after breakup and the power project is scheduled to commence operations in the first quarter of 2024.  

With the Gilby power project on-stream Journey will be in a position offset its corporate power usages with power sales to the Alberta Power Grid. With both Gilby and Mazeppa on stream Journey will be supplying over 50% more power to the grid than it is currently utilizing. This helps to diversify its revenue stream and improves sustainability of the Company in a volatile commodity pricing environment. The record power prices of $311/MW realized in December of 2022 further re-inforce the validity of this longer term strategy.

Journey is currently conducting a number of high level studies to determine the best use for the procured equipment with an upward bias to installing more generation capacity in 2024. We look forward to updating stakeholders on this portion of its business in due course as we advance these initiatives. 

Commensurate with the closing of its flow through share issuance on March 23, 2023, Journey has updated its 2023 guidance. The new guidance reflects minor sales volume adjustments to its base production, reductions in forecasted commodity prices and additions in the second half from a relatively small oil weighted development program. Journey remains poised to significantly ramp up capital expenditures in the second half of 2023 should commodity prices increase. This guidance incorporates many material underlying assumptions including but not limited to:

• Forecasted commodity prices by month;
• Assumptions of VTB principal payments since they are based upon realized commodity prices;
• Forecasted operating costs, including forecasted prices for power;
• Forecasted costs for the capital program; and
• Forecasted results and phasing of production additions from the capital program;

Journey's goals for improving corporate sustainability in 2023 include:

• Reducing leverage created by the transformational acquisition in 2022;
• Adding inventory in repeatable plays;
• Advancing the power generation business;
• Managing its ARO; and
• Continuing to search for creative ways to expand the Company's business

Journey's low corporate decline, high working interest project inventory, operated infrastructure, and favourable expiry profile allow the Company to weather periods of lower than forecast commodity prices by proactively deferring portions of the capital program on a temporary basis. Journey is focused on adjusting its capital program to meet its near term obligations without sacrificing the longer term priorities of sustainability and enhancing shareholder value.

Journey continues to embark on a careful and prudent expansion of its business plan. Journey has achieved or exceeded all of its internal targets and created significant value for all stakeholders since the bottom of the market in 2020. 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.  Journey also recognizes the steady guidance supplied by its Board of Directors and the unyielding support of AIMCo, the Company's term debt provider and largest shareholder. Together, with the support of this combined team, your Company is extremely well positioned to continue its journey of value creation and maintain its growth trajectory for years to come. The Company looks forward to updating you on Journey's progress as it continues on this exciting 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.

Barrel of Oil Equivalents and Volumes

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.

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

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 Adjusted 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, 2023. 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.

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; non-recurring "other" income; 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, Management believes 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 basic 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.  "Net debt" is calculated by adding the principal amount of term debt, the principal amount of the vendor-take-back debt, accounts payable and accrued liabilities and the carrying value of the other liability and then subtracting the sum of: cash in the bank, accounts receivable and the prepaid expenses. 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.
   
   
3. Journey uses "Capital Expenditures (excluding A&D)" and "Capital Expenditures (including A&D)" to measure its capital investment level compared to the Company's annual budgeted capital expenditures for its organic capital program, excluding acquisitions or dispositions. The directly comparable GAAP measure to capital expenditures is cash used in investing activities. Journey then adjusts its capital expenditures for A&D activity to give a more complete analysis for its capital spending used for FD&A purposes.

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.

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.