Journey Energy Inc. Reports Its Second Quarter 2019 Financial and Operating Results

CALGARY, Aug. 6, 2019 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") announces its financial and operating results for the three and six month periods ending June 30, 2019.  The complete set of financial statements and management discussion and analysis for the periods ended June 30, 2019 and 2018 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

SECOND QUARTER 2019 HIGHLIGHTS

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

• Achieved production of 9,248 boe/d in the second quarter. Liquids (oil and natural gas liquids) production accounted for 4,387 boe/d or 47% of total production during the quarter.
  
  
• Generated $7.2 million of funds flow in the second quarter or $0.18 per share.
  
  
• Received a corporate average commodity price of $32.56/boe, a 7% increase over the second quarter of 2018. Liquids production accounted for 89% of PN&G sales revenues in the quarter.
  
  
• The first two wells drilled by Journey's Duvernay joint venture partner were placed on-production during the second quarter.
  
  
• A third joint venture well was tested and is currently being tied in.
  
  
• Drilled 3 (3.0 net) successful wells in Matziwin. The three Matziwin wells were offsetting Journey's successful 14-28-23-13W4 well which discovered an undrained lobe in our East Matziwin field in 2018. Two wells were placed on-production at the end of June and the third in early July.

Second Quarter Financial & Operating Highlights

	Three months ended  June 30,			Six months ended  June 30,
Financial ($000's except per share amounts)	2019	2018	% change	2019	2018	% change
Production revenue	27,400	31,685	(14)	55,898	60,619	(8)
Funds flow from operations	7,158	5,305	35	14,880	10,445	42
Per basic share	0.18	0.14	29	0.38	0.26	46
Per diluted share	0.17	0.13	31	0.36	0.25	44
Net loss	(12,559)	(12,324)	2	(16,646)	(21,468)	(22)
Per basic share	(0.32)	(0.32)	-	(0.42)	(0.53)	(21)
Per diluted share	(0.32)	(0.32)	-	(0.42)	(0.53)	(21)
Capital expenditures, net	7,813	7,499	4	8,773	15,872	(45)
Net debt	128,451	130,249	(1)	128,451	130,249	(1)
Share Capital (000's)
Basic, weighted average	39,247	38,546	2	39,236	40,860	(4)
Basic, end of period	39,262	38,546	2	39,262	38,546	2
Fully diluted	45,875	45,063	2	45,875	45,063	2
Daily Production
Natural gas volumes (mcf/d)	29,162	32,092	(9)	29,250	32,134	(9)
Crude oil (bbl/d)	3,815	3,953	(3)	3,850	3,968	(3)
Natural gas liquids (bbl/d)	573	734	(22)	563	752	(25)
Barrels of Oil Equivalent (boe/d)	9,248	10,036	(8)	9,288	10,076	(8)
Average Realized Prices (excluding hedging)
Natural gas ($/mcf)	1.12	1.11	(1)	1.81	1.50	21
Crude Oil ($/bbl)	66.85	70.21	(5)	62.36	63.86	(2)
Natural gas liquids ($/bbl)	23.20	47.76	(51)	28.14	44.22	(36)
Barrels of oil equivalent ($/boe)	32.56	34.69	(6)	33.25	33.24	-
Netbacks ($/boe)
Realized prices	32.56	34.69	(6)	33.25	33.24	-
Royalties	(3.82)	(4.52)	(15)	(3.86)	(4.45)	(13)
Operating expenses	(14.47)	(14.14)	2	(14.30)	(14.11)	1
Transportation expenses	(0.44)	(0.59)	(25)	(0.47)	(0.49)	(4)
Operating netback	13.83	15.44	10	14.62	14.19	3
Realized hedging loss	(0.05)	(4.35)	(99)	(0.19)	(3.33)	(94)
Adjusted netback	13.78	11.09	24	14.43	10.86	33
Wells drilled
Gross	3	4	(25)	3	6	(50)
Net	3.0	4.0	(25)	3.0	6.0	(50)
Success rate	100	100		100	100

OPERATIONS

Journey achieved average production of 9,248 Boe/d (47% liquids) during the second quarter of 2019, representing a 1% decrease from the first quarter of 2019.  Test volumes from three new Matziwin wells were offset by lost production of approximately 250 boe/d attributable to a heavy turnaround schedule at our facilities.  Average daily volumes were down 8% from the previous year, however, the majority of this decrease was from natural gas and lower valued NGL production.  Given the recent success in our drilling program Journey forecasts year over year oil volumes to remain flat while underspending cash flow.

Journey's second quarter operating costs were impacted by $1.2 million due to turnaround activity. During the quarter Journey added a pipeline connecting East Matziwin emulsion to our central facility and replaced an electric drive compressor with a surplus natural gas drive compressor.   The impact of these initiatives will be to reduce power and trucking costs in Matziwn by over $500,000/year.  Journey is currently reviewing a number of additional opportunities to reduce operating costs and increase other revenues, and has budgeted $3 million in capital costs for these projects in the second half of 2019.

Journey continues to be extremely active in advancing the development of its emerging Duvernay resource play.  Journey issued a press release on July 16 summarizing the latest well test and two months production data from the first two commitment wells.  Please refer to this release for further information. In addition to these three wells, a completed well at 11-9-44-3W5 came on-production July 30, 2019.  Journey is further encouraged by recent results from competitor Duvernay wells drilled on offsetting acreage, both in terms of initial production rates, and reduced drill, complete, equip and tie-in costs.

During the second quarter, Journey drilled three horizontal wells in its Matziwin core area.  All three wells were contained within an undrained lobe in our East Matziwin pool, which was discovered in 2018. Two of the three wells are currently flowing.  These wells have both downhole and surface chokes and the combined production for these wells was over 800 boe/d in July (70% oil).   The third well has a much lower GOR and therefore required an artificial lift.  The artificial lift has now been installed but is not yet fully optimized.  Based upon the initial production test Journey will be targeting 150 boe/d for this well (95% oil).

As part of the Matziwin development program, Journey conducted micro-seismic analysis during the fracturing operation.  This was possible due to the proximity of a vertical well to the horizontal well being stimulated. The test confirmed that the fracture half-lengths were shorter than previously anticipated, setting up the potential for multiple infill wells, many of which will be offsetting our best producers.  The 2019 program in Matziwin resulted in reduced drilling and service costs.   For the recent three wells, Journey spent $2.0 million to drill, complete, equip and tie-in each well versus $2.4 million last year.   The new, per-well costs included increasing the proppant intensity over the completed length to 0.63 tonnes/m versus 0.44 tonnes/m in 2018.  Journey may test reduced spacing by incorporating a down-spaced location as part of the currently anticipated three wells to be drilled in the second half of 2019.

In addition to the operating cost initiatives, Journey also ran a high pressure water injection line connecting East Matziwin to the central injection facility and will be looking at initiating water injection in East Matziwin in 2020.

Given the continued volatility in commodity prices, Journey is reducing its 2019 capital program from $30 million to $22-23 million.  This level of spending leaves room for three additional Matziwin wells and a number of facility initiatives.  Drilling in Skiff has been deferred until early 2020.  The second half, 2019 program is heavily weighted to the fourth quarter, resulting in lower annual averages but higher exit rates.   Underspending funds flow will allow Journey to preserve as much flexibility as possible for expenditures in the Duvernay into 2020.

FINANCIAL

Stability in oil prices was the theme for the second quarter wherein Journey achieved a realized price of $66.85/bbl, which was 15% higher than the $57.90/bbl realized in the first quarter of 2019.  However, natural gas and NGL prices were not able to hold their first quarter levels as they declined by 55% and 30% respectively during the current quarter to $1.12/mcf for natural gas and $23.20/bbl for NGL's.  Due to the significant contribution (85%) that oil revenues made to overall corporate revenues, funds flow during the second quarter was $7.2 million or 7% lower than the $7.7 million realized in the first quarter.  Journey did not drill any wells in the first quarter and most of the second quarter as all free cash flow was directed towards paying down debt.  The Company returned to its drilling program in June with the drilling of three wells in Matziwin.  All three wells were successful with two wells placed on-production late in June, and the third in early July.  Therefore, the new wells had a negligible impact on second quarter volumes.  With limited new production, and seven facility turnarounds in June impacting second quarter production by approximately 250 boe/d, Journey's low decline asset base resulted in only a modest reduction in second quarter average production to 9,248 boe/d from 9,330 boe/d in the first quarter. 

Average corporate realized commodity prices of $32.56/boe were 4% lower in the second quarter than the first quarter at $33.94.  While Journey's production mix did not change significantly quarter over quarter with natural gas at 53%, oil at 41% and NGL's at 6%, the revenue contributions shifted towards oil in the quarter as a result of increasing oil prices and decreasing natural gas and NGL prices.  Journey's revenue contributions in the second quarter were 85% from oil; 11% from natural gas; and 4% from NGL's.  Oil differentials were consistent during the second quarter with light sweet differentials averaging $5.61 USD/bbl while WCS differentials averaged $10.70 USD/bbl.  Approximately 40% of Journey's production is exposed to WCS pricing.

Field operating expenses per boe (royalties, operating expenses, and transportation expenses) were $18.73/boe in the second quarter of 2019 as compared to $19.25/boe in the second quarter of 2018.  Operating expenses in the second quarter of 2019 include approximately $953 thousand of expenses related to pipeline integrity work and spill cleanup costs.  Journey's average royalty rate improved from 13.0% in the second quarter of 2018 to 11.7% in the current quarter. 

Office related cash costs (general and administrative, and cash interest expense) were lower in 2019 at $4.4 million versus $4.8 million in 2018.  The impact of the cost cutting measures in the head office, which were implemented in the last half of 2018 and continuing into 2019, resulted in G&A costs that were 39% lower in the second quarter of 2019 as compared to the same quarter in 2018.  These savings were partially offset by the higher interest costs on Journey's borrowings, which carried an average interest rate of 7.7%. 

Funds Flow of $7,158 thousand in the second quarter translated into $0.18 per basic share and $0.17 per diluted share, which was 29% and 31% higher than the $0.14 per basic and $0.13 per diluted share, respectively, in the second quarter of 2018.  Journey recorded a net loss of $12.6 million or $0.32 per basic and diluted share in the second quarter of 2019 compared to a net loss of $12.3 million ($0.32 per basic and diluted share) in the same quarter of 2018.  The largest component of the loss in 2019 was a $9.6 million deferred income tax expense related to corporate income tax rate changes and a further valuation allowance on Journey's tax pools. 

The Company spent $7,813 thousand in total capital (net of dispositions) during the second quarter.  The largest component was for drilling, completing and tieing-in the three wells in Matziwin.   Journey exited the second quarter with net debt of $128.5 million which was 4% lower than at December 31, 2018.  The Company is currently drawn approximately $70 million on the existing $90 million credit facility.  This excess capacity on the credit facility along with projected funds flow are anticipated to provide sufficient liquidity to fund the capital program throughout 2019.

Outlook

Journey's updated 2019 guidance is presented in the table below:

Annual average production	9,000 – 9,400 Boe/d (49% liquids)
Exploration and development capital	$23 million
Funds flow	$27-30 million
Year-end net debt	$127 - $129 million
Funds flow per basic weighted average share	$0.68 – $0.75 share
Corporate annual decline rate	16%

Journey's 2019 forecasted funds flow is based upon the following assumed annual, average prices: WTI of $58.50/bbl USD; Company oil differentials of $6/bbl USD for oil from Edmonton light sweet prices; realized natural gas price of CDN$1.50/mcf CDN; and a foreign exchange rate of $0.75 US$/CDN$.

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. 

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
GOR	Gas to oil ratio
GORR	Gross over-riding royalty
Mbbls	Thousand barrels
NGL	Natural gas liquids
Mcf	thousand cubic feet
$M	Thousands of dollars

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