Journey Energy Inc. Reports First Quarter 2019 Results

CALGARY, May 7, 2019 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") is pleased to announce its financial results for the first quarter of 2019.  The complete set of financial statements and management discussion and analysis for the periods ended March 31, 2019 and 2018 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

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

• Achieved a production level of 9,330 boe/d in the first quarter. Liquids (oil and natural gas liquids) production accounted for 4,440 Boe/d or 48% of total production during the quarter;
  
  
• Generated $7.7 million of funds flow in the quarter of $0.20 per basic and $0.19 per diluted share;
  
  
• Realized commodity prices (before hedging) of $33.94/boe in the quarter with liquids production accounting for 77% of total sales revenues;
  
  
• Commenced the 2019 drilling program with the spudding of the 16-32-23-13-W4 well in Matziwin on May 2.

Duvernay Joint Venture Update

• Journey's Duvernay joint venture partner Kiwetinohk Resources Corp. ("Kiwetinohk"), completed production test flow-back operations on the two Commitment Wells at 16-15-042-03W5 and 15-31-042-3W5 respectively, details of which were presented in our April 15, 2019 press release.  Kiwetinohk has tied in the first two Commitment wells to the Tidewater operated 1-4-42-3W5 Gilby Gas Plant, of which Journey owns a 43.3% working interest;
  
  
• Kiwetinohk is currently tie-ing in Option Well #1 11-9-44-3W5 well with production start-up anticipated in the second quarter;
  
  
• Kiwetinohk has completed the drilling of Option Well #2 at 13-02-042-04W5 with completion and testing operations expected to commence in the second quarter;
  
  
• Kiwetinohk has initiated drilling Option Well #3 at 16-12-044-04W5; and
  
  
• Kiwetinohk has licensed Option Well #4 at 12-07-042-03W5.

				Three months ended March 31,
Financial ($000's except per share amounts)				2019	2018	% change
Production revenue				28,498	28,934	(2)
Funds flow				7,722	5,140	50
Per basic share				0.20	0.12	67
Per diluted share				0.19	0.12	58
Net loss				(4,087)	(9,144)	(55)
Per basic share				(0.10)	(0.21)	(52)
Per diluted share				(0.10)	(0.21)	(52)
Capital expenditures, net				960	8,373	(89)
Net debt				127,769	128,215	-
Share Capital (000's)
Basic, weighted average				39,226	43,199	(9)
Basic, end of period				39,232	38,546	2
Fully diluted				43,590	45,561	(4)
Daily Production
Natural gas volumes (mcf/d)				29,339	32,176	(8)
Crude oil (bbl/d)				3,886	3,984	(2)
Natural gas liquids (bbl/d)				553	771	(28)
Corporate (Boe/d)				9,330	10,117	(8)
Realized Prices (including hedging)
Natural gas ($/mcf)				2.49	2.36	6
Crude Oil ($/bbl)				57.10	47.88	19
Natural gas liquids ($/bbl)				33.31	40.82	(18)
Corporate ($/BOE)				33.61	29.47	14
Netbacks ($/BOE)
Realized prices (incl. hedging)				33.61	29.47	14
Royalty expense				(3.89)	(4.37)	(11)
Operating expense				(14.09)	(14.08)	-
Transportation expense				(0.49)	(0.40)	23
Operating netback				15.14	10.62	43
Wells drilled
Gross				-	2	(100)
Net				-	2.0	(100)
Success rate (%)				-	100	-

OPERATIONS

Journey achieved production of 9,330 boe/d (48% liquids) in the first quarter of 2019, representing an eight percent decrease from the 10,117 Boe/d (47% liquids) recorded in the first quarter of 2018. The majority of the volume decrease is attributed to natural declines in natural gas production. Because of abnormally low realized crude oil prices in the fourth quarter, and the corresponding impact on our balance sheet, Journey delayed the initiation of our 2019 capital program until May of 2019.  For 2019, Journey's capital program is focused on opportunities with a higher oil weighting than our corporate average.

Journey was able to reduce net debt by approximately $6.5 million in the first quarter of 2019.  With this additional financial flexibility, Journey has initiated a three well program in Matziwin.  In 2018, Journey discovered an undrained lobe in East Matziwin, which will be further delineated in 2019.  The current three well program will be followed by another three wells in Matziwin and additional drilling in Skiff.  Capital throughout 2019 will be deployed in a careful and measured manner, and remain at or below funds flow.  All 2019 projects remain economically viable at today's strip prices based upon risked type curves, which are considerably lower than the actual well results achieved in 2018 for similar wells.

Even though Journey did not drill any wells in the first quarter, our Duvernay joint venture partner, Kiwetinohk, was actively deploying capital on Journey's land base to test the productivity of the Duvernay formation.   On April 15, 2019, Journey issued a press release highlighting encouraging results for the first two Commitment Wells.  Daily test rates for the final 48 hours of flow were:

Well	102/16-15-042-03W5/00	102/15-31-042-03W5/00
April 13-15 (48 hours)
Oil (bbls/d)	968	1,017
Natural gas (mcf/d)	1,507	2,270
GOR (cf/bbl)	1,556	2,232
Water cut (%)	55%	53%
API Gravity (º)	46-48º	45-48º
Choke Size (mm)	11.11	11.11
Flowing Pressure (kPag)	8,443	10,766

Both of these wells share the same surface lease and have now been connected to the same multi-well oil battery.  The natural gas has been tied into Journey's existing gas gathering system and will be processed at the Tidewater operated 1-4-42-3W5 Gilby Gas Plant, of which Journey owns a 43.3% working interest.  Journey anticipates these wells to be on-production within the next week.  Journey has a 3.75% convertible GORR on 100% of the production from these two Commitment Wells with an option to convert the GORR to a 29.17% working interest in each well after Kiwetinohk has recovered 58.33% payout of the capital from each well.

In addition to these Commitment wells, Kiwetinohk was also active in drilling, completing and testing the first two of five option wells. All Option Wells convert to a 29.17% working interest net to Journey after Kiwetinohk has recovered 33.33% of its capital spent in each Option Well.   Journey receives no GORR prior to conversion in the Options wells.

Kiwetinohk has re-entered, extended, completed and tested a short well at 11-9-44-3W5 drilled by a previous operator (Option Well #1).  Results from this well are typical for a well of this length.  We anticipate the well to be on production sometime in the second quarter of 2019. 

Kiwetinohk also drilled Option Well #2 at 13-02-042-04W5.  This well was spud on February 26^th with a rig release date of March 31^st.   Prior to drilling the horizontal portion of the well, the vertical portion of the well at 8-16-042-04W5 was logged through the Duvernay.  This well is 10 kilometers away from the 6-28-042-03W5 stratigraphic test well at the heel of the Commitment Wells.  The well logs confirmed the presence of a Duvernay zone in excess of 30 meters in thickness, and has significantly higher interpreted porosity than the 6-28 stratigraphic well.  The horizontal lateral length in the Duvernay is approximately 3,056 meters and Journey anticipates completion and flow-testing operations to commence in the second quarter.

Kiwetinohk spud Option Well #3 at 16-12-044-04W5 on April 26, 2019 which is adjacent to Option Well #1. Kiwetinohk has recently licensed Option Well #4 at 12-07-042-03W5.   Following the drilling and completion of Option Well #4, Kiwetinohk will have one remaining Option well to drill and complete to satisfy the earning obligations under the terms of our Joint Venture.  After the Option well phase, Journey and Kiwetinohk will hold working interests of 37.5% and 62.5%, respectively, in approximately 165 sections of contiguous joint venture lands.

Assuming Kiwetinohk completes the earning obligations under the Joint Venture prior to the end of 2019, Journey, and Kiwetinohk will then enter the early development phase of the lands over the next two years.  During this two year development phase, Journey anticipates receiving notices to drill on up to ten wells per year.  On an individual well basis Journey will have the option to elect to participate for its 37.5% working interest or automatically farm-out its working interest for a non-convertible, 5% GORR on 100% of production in the well.   This election is available on the twenty early development wells, and the election is specific to the wellbore with the balance of lands remaining at 37.5% Journey and 62.5% Kiwetinohk.

FINANCIAL

A significant element of stability returned to oil prices, which greatly assisted Journey in achieving funds flow of $7.7 million in the first quarter of 2019.  Realized oil prices went from $31.53/bbl in the fourth quarter to $57.90/bbl in the first quarter of 2019.  The extremely wide oil differentials in November and December came back into line in late December and continuing through the first quarter.  However, the challenging oil pricing environment took its toll on Journey's planned capital program for the fourth quarter.  Journey took the unprecedented step of reducing its capital spending to minimal levels and as a result no new wells were drilled in the fourth quarter of 2018 or first quarter of 2019.   With no new drilling, production levels declined from 9,921 boe/d in the fourth quarter to 9,330 boe/d in the first quarter of 2019.

Realized commodity prices were 52% higher in the first quarter with oil increasing by 84%.  Natural gas prices increased by 4% and natural gas liquids increased by 3%.   Journey's production mix was similar for both 2019 and 2018 with natural gas volumes accounting for 52% (53% in 2018) of total volumes while liquids volumes were 48% (47% in 2018).  Liquids (oil and NGL's) revenues comprise 77% of total revenues for Journey.  Crude oil differentials ranged from over $19 USD/bbl in September, to $32 USD/bbl in November and then returned to $4-$5 USD/bbl during the first quarter of 2019.   These wide ranging differentials over the last four months of 2018 created uncertainty around Journey's capital spending.  With the consistency in differentials that the industry has experienced in the first quarter of 2019, we resumed our capital spending in May.  

Cash operating expenses in the field (royalties, operating expenses, and transportation expenses) were $17.69/boe in the first quarter of 2019 as compared to $18.85/boe in the first quarter of 2018.  The average royalty rate improved from 13.8% in 2018 to 11.5% in 2019. 

Office related cash costs (general and administrative, and cash interest expense) were higher in 2019 at $5.0 million versus $4.5 million in 2018.  Almost all of this increase was attributable to higher interest expense due to the combination of 13% higher borrowings as well as an 11% increase in effective interest rates on Journey's term debt and bank borrowings.   Journey's term debt borrowings carry an interest rate of 7.65% per annum while the credit facility had an effective rate of 7.2%.

On a per share basis, funds flow was $0.20 per basic share and $0.19 per diluted share, which was 67% and 58% higher than the $0.12 per basic and diluted share, respectively, in the first quarter of 2018.  Journey recorded a net loss of $4.1 million or $0.10 per basic and diluted share in the first quarter of 2019 compared to a net loss of $9.1 million ($0.21 per basic and diluted share) in the same quarter of 2018.  Better commodity pricing, a lower cost structure and reduced hedging losses were the reasons for the reduction in the loss. 

The Company spent $960 thousand in total capital during the first quarter and used the excess funds flow over its capital spending to reduce debt.   Attributable to the limited spending, Journey exited the first quarter with net debt of $127.8 million which was 5% lower than at December 31, 2018.  The decrease was primarily driven the desire to repair the balance sheet.  The Company's annual review of its bank credit facility is currently in progress and is anticipated to be complete by May 31.  The Company is currently drawn approximately $73 million on the existing $100 million credit facility and anticipates sufficient liquidity from the facility to accommodate our capital program throughout 2019.

Outlook

On May 2, Journey initiated our 2019 capital program with a three well program in Matziwin. Journey's 2019 guidance is presented in the table below:

Annual average production	9,200 – 9,600 Boe/d (49% liquids)
Exploration and development capital	$30 million
Funds flow	$32-36 million
Year-end net debt	$129 - $133 million
Funds flow per basic weighted average share	$0.81 – $0.91 share
Corporate annual decline rate	16%

Journey's 2019 forecasted funds flow is based upon the following assumed annual, average prices: WTI of $60/bbl USD; Company oil differentials of $5.50/bbl USD for oil from Edmonton light sweet prices; realized natural gas price of CDN$1.90/mcf CDN; and a foreign exchange rate of $0.75 US$/CDN$.

Journey's President and CEO, Alex Verge, commented that "There are few companies within our peer group that share the same upside leverage to rising commodity prices that Journey has, and there are even fewer companies that have the optionality to tailor their investment in an emerging and exciting opportunity like the East Duvernay, to their capital availability while continuing to preserve significant upside in the long term commercial development. Over the course of 2019, we look forward to updating you on the results of the Duvernay wells as well as reporting on all other significant corporate developments."

On behalf of Journey's management team and directors we would like to thank our shareholders for their continued support through this challenging time.  We remain steadfast in our goal to provide shareholders with superior returns over the longer term.  We look forward to seeing our shareholders at our Annual General Meeting on June 13, 2019 at 3:00 p.m. to be held at Journey's offices.

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 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 27, 2019. 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)	The Company considers "funds flow" as 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. Funds flow is calculated by taking cash from operating activities as reported in the Company's financial statements and adding or deducting the following items: changes in non-cash working capital; transaction costs and decommissioning costs. Journey's determination of funds flow may not be comparable to that reported by other companies. Journey also presents funds flow per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net income per share, which per share amount is calculated under IFRS and is more fully described in the notes to the financial statements.
(2)	Net debt is a non-IFRS measure and represents current assets less: current liabilities, bank debt and the promissory notes outstanding. For purposes of Journey's net calculation, the impact of the potential future liability (or asset) related to the mark-to-market measurement of derivative contracts as well as the provision for decommissioning liabilities have been excluded from the calculation.
(3)	Operating netback is a non-IFRS measure, is calculated on a per boe basis and equals total revenue (excluding hedging gains and losses); minus the aggregate of: royalties, transportation and field operating costs. Journey considers operating netback as an important measure to evaluate its operational performance as it demonstrates its field level profitability relative to current commodity prices.

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

bbl	barrel
bbls	barrels
bbl/d	barrels of oil or NGL per day
boe	barrels of oil equivalent
boe/d	barrels of oil equivalent per day
cf	Cubic feet
gj	gigajoules
GORR	Gross over-riding royalty
kPaG	Kilopascal guage
Mbbls	Thousand barrels
MMBtu	Million British thermal units
NGL	Natural gas liquids
Mcf	thousand cubic feet
Mmcf	Million cubic feet
Mmcf/d	Million cubic feet per day
Mboe	Thousand boe
$M	Thousands of dollars
OOIP	Original oil in place

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

SOURCE Journey Energy Inc.

Alex G. Verge, President and Chief Executive Officer, 403-303-3232, [email protected]; or Gerry Gilewicz, Chief Financial Officer, 403-303-3238, [email protected]; Journey Energy Inc., 700, 517 - 10th Avenue SW, Calgary, AB T2R 0A8, 403-294-1635, www.journeyenergy.ca