JOURNEY ENERGY PROVIDES UPDATE ON 2023 CAPITAL PROGRAM; PROVIDES 2024 PRELIMINARY GUIDANCE INCLUDING STAGGERED PAYMENT OF TERM DEBT
CALGARY, AB, Dec. 21, 2023 /CNW/ - Journey Energy Inc. (TSX: JOY) (OTCQX: JRNGF) ("Journey" or the "Company") is pleased to provide an update on a highly successful 2023 capital program. The program results exceeded expectations and have resulted in Journey exceeding its last guidance.
Journey is also pleased to provide preliminary guidance for 2024 with a focus on eliminating over 80% of remaining indebtedness, advancing its power business, and improving long term sustainability.
- Increased daily sales volumes for November to 12,700 boe/d (55% liquids) based on field estimates.
- Finished drilling the final well of a 12.0 well (10.3 net) program.
- 8.0 wells (6.8 net) were placed on-production with overall program results exceeding type curve expectations.
- 2.0 wells (1.8 net) drilled in Cherhill are expected to come on-production in January 2024 with 2.0 wells (1.7 net) in Poplar Creek being completed in January 2024.
- Total program costs of $11.4 million are 31% lower than originally budgeted, allowing Journey to drill an additional 1.0 well in Matziwin (fourth quarter 2023), 1.7 net wells in Poplar Creek (fourth quarter 2023/first quarter 2024), and 2.9 net wells in Medicine Hat (first quarter of 2024).
During the third quarter, Journey began its 2023 exploration and development program, starting with a drilling program in the Medicine Hat pool. The Medicine Hat pool was a cornerstone of the acquisition that closed on October 31, 2022. Journey drilled 4.0 (2.9 net) wells in Medicine Hat. These wells have markedly exceeded expectations with respect to both costs and results. Total capital costs for the program were $5.4 million (gross), with initial production from the four wells being approximately 550 (400 net to Journey) bbl/d of oil. The wells have increased overall Medicine Hat production by over 20% and are forecast to pay out in approximately six months. Based upon these results both Journey and its partner have begun planning a second program for the first quarter 2024. With thirty estimated future locations, along with future waterflood and polymer flood expansion potential, Journey expects this field to continue to provide increasing shareholder value for many years to come.
The lower costs associated with the Medicine Hat program encouraged Journey to expand and accelerate the drilling of the Matziwin program. Journey has now drilled 3.0 gross (3.0 net) wells in Matziwin. All three wells have now been completed and placed on production. Similar to Medicine Hat, the total program costs were significantly below forecast. Initial production from one of the wells remains restricted, but overall production is forecast to meet type curve expectations.
On November 7, 2023 Journey moved a drilling rig to the Cherhill field to drill 3.0 gross (2.7 net) wells. One well came on-production December 11, 2023 and two wells are currently being equipped and tied in. Following completion of the Cherhill drilling program Journey added two additional wells (1.7 net) in Poplar Creek that will be completed in January.
The 2023 program is being funded from the flow-through share issuance, which was closed in the spring of 2023. Journey has until the first quarter of 2024 to complete the expenditures under this program. To date, the program costs are well below forecast and therefore Journey is preparing 4 (2.9 net) additional wells in Medicine Hat in the first quarter of 2024.
In the third quarter of 2023, Journey had sales volumes of 11,756 boe/d. This volume was below what the Company had forecast due to several one-time items. Restoration of shut-in production along with new production from the capital program has resulted in production increasing to 12,700 boe/d (55% liquids) for November of 2023, based upon field estimates. The ability to maintain production rates above 12,000 boe/d with limited capex is a testament to Journey's very low corporate decline rate.
Throughout 2023, Journey has maintained a conservative posture with respect to capital expenditures. The Company continues to prioritize its balance sheet strength along with the expansion of the power business. Due to the extensive regulatory timelines associated with adding power to the grid, Journey forecasts power-related capital expenditures of $7.6 million (excluding the Mazeppa purchase) for 2023, and has budgeted $16.8 million for 2024. The current target on-stream dates for the Gilby and Mazeppa power projects are the second quarter and fourth quarters of 2024, respectively.
Journey is pleased to report that it has entered into an agreement with its largest shareholder and term debt provider, Alberta Investment Management Corporation ("AIMCo"), to extend the maturity of its term debt repayments. Previously, there was a balloon payment on April 30, 2024 for $24.7 million and a second one on October 31, 2024 for $19.1 million. These repayments will now be subject to a much smaller balloon payment with the balance being amortized over monthly amounts. For the first maturity in April, $12.7 million of principal will be paid on April 30, 2024 and then repayments of $1.0 million per month (plus accrued interest) will be paid from May 2024 to April of 2025. For the second maturity in October, $10.1 million will be repaid on October 31, 2024 and then six monthly payments of $1.5 million (plus accrued interest) will be made from November of 2024 to April of 2025.
Journey CEO Alex Verge commented, "We are pleased that AIMCo has once again demonstrated its ongoing commitment to Journey's longer term success and sustainability by remaining flexible in the current soft pricing environment. This repayment accommodation provides additional liquidity to enable Journey to complete its winter drilling program and advance the completion of the Gilby power generation project."
This new repayment schedule is aligned with Journey's current repayment commitment to Enerplus Corporation under the vendor-take-back ("VTB") obligation from the acquisition in October of 2022. The repayments under the VTB are sensitive to the price of WTI oil and Journey has reduced the principal amount from the initial $45.0 million to a currently outstanding amount of $17.0 million. Journey currently expects that the VTB will be fully repaid on September 4, 2024 based on forecast WTI prices. This repayment date aligns with the start of repayments for the second tranche of AIMCo debt of $1.5 million, which begins on October 31, 2024.
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 current spot prices. The currently operating 4 MW Countess facility, which was originally commissioned in the fourth quarter of 2020, has already paid 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 $9.41/mcf. For the first nine months of 2023 the average, effective, net realized price was $9.47/mcf. These prices take 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 the first nine months of 2023 was $2.83/mcf.
Journey has budgeted $10.7 million to complete the Gilby power project and $6.3 million for re-energizing the Mazeppa power project in 2024. The steel work on the building for the Gilby project is nearing completion and building construction is scheduled to begin in January. Journey currently forecasts completion of the Gilby project in the second quarter of 2024 pending regulatory approvals.
In the second quarter of 2023 Journey purchased the 16.5 MW power generation facility at Mazeppa 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. The Mazeppa facility is located near the community of High River, Alberta and consists of five, 3.3 MW 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. Journey has now purchased the land the facility currently resides on and has also purchased the pipeline, which transports sales gas from an ATCO buy-back meter station. Recently, the operator of the buy-back meter has verbally agreed to upgrade this meter station. Although Journey continues to await regulatory approvals, all of the efforts to date have resulted in Journey being confident that Mazeppa will be re-energized in its current location within the next year and looks forward to providing updates in due course.
Journey is planning to increase its power sales to the Alberta electricity grid by over 350% over the next year. The nature of Journey's asset base is such that it is a large power consumer with power costs representing 25% of overall corporate operating costs. When the Gilby and Mazeppa power projects are on-stream, Journey will be in a position to more than offset its corporate power usage with power sales to the Alberta power grid. This will help diversify the corporate revenue stream and effectively provide a hedge against a volatile commodity pricing environment. The record power prices of $311/MW realized in December of 2022, along with the expanding valuations demonstrated by recent market transactions continue to re-inforce the validity of this longer term strategy.
In 2024, Journey forecasts reducing leverage by $50 million while maintaining production and energizing two power facilities.
Of the $41 million in planned 2024 capital, $6.2 million is related to drilling and completions, all of which will be spent in the first quarter. Journey plans on drilling 4.0 wells (2.9 net) in Medicine Hat in the first quarter along with the completion of the Poplar Creek wells drilled in the fourth quarter of 2023. The ability to maintain production rates near 12,000 boe/d with limited capex is a testament to Journey's very low corporate decline rate. Approximately $17.7 million of capital will be devoted to land, seismic, facilities, polymer, and end-of-life costs. $16.8 million of capital in 2024 is associated with the expansion of Journey's power business.
The below guidance incorporates many material underlying assumptions including but not limited to:
- Forecasted commodity prices;
- Assumptions of vendor-take-back principal payments, as these repayments are based upon realized WTI oil prices;
- Forecast operating costs, including forecasted prices for power;
- Forecast costs for the capital program; and
- Forecast results and phasing in of production additions from the capital program.
2024 Initial Guidance |
|
Annual average daily sales volumes |
11,500–12,000 boe/d (55% |
Adjusted Funds Flow |
$70 – 73 million |
Adjusted Funds Flow per weighted average share |
$1.14 - $1.19 |
Capital spending |
$41 million |
Year end 2024 Net Debt Net Debt to Adjusted Funds Flow ratio |
$28 - $31 million 0.4x |
Reference commodity prices: WTI (USD $/bbl) MSW oil differentials (USD $/bbl) WCS oil differentials (USD $/bbl) AECO natural gas (CAD $/mcf) CAD/USD foreign exchange |
$75.00 $3.75 $16.50 $2.75 $0.74 |
Notes: |
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1. |
The weighting of the corporate sales volumes guidance is as follows: |
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a. |
Heavy oil: 19% |
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b. |
Light/medium gravity crude oil: 25% |
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c. |
NGL's: 11% |
|||
d. |
Coal-bed methane natural gas: 5% |
|||
e. |
Conventional natural gas: 40% |
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Journey has embarked on a careful and prudent expansion of its business plan to grow the Company profitably. This includes executing on acquisitions the timing of which can be unpredictable and when executed on, can defer drilling plans.
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.
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, 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.
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.
- "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, we believe these measures are more indicative of performance than the GAAP measured "cash flow generated from operating activities". In addition, Journey excludes transaction costs from the definition of Adjusted Funds Flow, as these expenses are generally in respect of capital acquisition transactions. The Company considers Adjusted Funds Flow a key performance measure as it demonstrates the Company's ability to generate funds necessary to repay debt and to fund future growth through capital investment. Journey's determination of Adjusted Funds Flow may not be comparable to that reported by other companies. Journey also presents "Adjusted Funds Flow per 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.
- "Netback(s)". The Company uses netbacks to help evaluate its performance, leverage, and liquidity; comparisons with peers; as well as to assess potential acquisitions. Management considers netbacks as a key performance measure as it demonstrates the Company's profitability relative to current commodity prices. Management also uses them in operational and capital allocation decisions. Journey uses netbacks to assess its own performance and performance in relation to its peers. These netbacks are operating, Funds Flow and net income (loss). "Operating netback" is calculated as the average sales price of the commodities sold (excluding financial hedging gains and losses), less royalties, transportation costs and operating expenses. There is no GAAP measure that is reasonably comparable to netbacks.
- "Net debt" is calculated by taking current assets and then subtracting accounts payable and accrued liabilities; the principal amount of term debt; other loans; and the principal amount of the contingent bank liability. Net debt is used to assess the capital efficiency, liquidity and general financial strength of the Company. In addition, net debt is used as a comparison tool to assess financial strength in relation to Journey's peers.
- Journey uses "Capital Expenditures" 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. The capital spending for A&D proposes has been adjusted to reflect the non-cash component of the consideration paid (i.e. shares issued).
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:
AIMCo |
Alberta Investment Management Corporation |
API |
American Petroleum Institute |
bbl |
Barrel |
bbls |
Barrels |
boe |
barrels of oil equivalent (see conversion statement below) |
boe/d |
barrels of oil equivalent per day |
gj |
Gigajoules |
GAAP |
Generally Accepted Accounting Principles |
IFRS |
International Financial Reporting Standards |
Mbbls |
thousand barrels |
Mboe |
thousand boe |
Mcf |
thousand cubic feet |
Mmcf |
million cubic feet |
Mmcf/d |
million cubic feet per day |
MSW |
Mixed sweet Alberta benchmark oil price at Edmonton Alberta |
MW |
One million watts of power |
NGL's |
natural gas liquids (ethane, propane, butane and condensate) |
VTB |
Vendor-take-back term debt issued by Journey to Enerplus Corporation as partial |
WCS |
Western Canada Select benchmark oil price. This crude oil is heavy/sour with API gravity |
WTI |
West Texas Intermediate benchmark Oil price. This crude oil is light/sweet with API |
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.
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
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