Journey posts $15.8 million of net income for 2023 and $66.1 million of adjusted funds flow – Canadian Energy News, Top Headlines, Commentaries, Features & Events – EnergyNow

Highlights for 2023 are as follows:

• Generated net income of $15.8 million for 2023. On a basic, weighted average per share basis, this amounted to $0.26 and $0.24 per diluted share.
• Realized Adjusted Funds Flow of $66.1 million for the year. On a basic, weighted average per share basis, this amounted to $1.10 and $1.00 per diluted share.
• Achieved sales volumes of 12,595 boe/d in the fourth quarter of 2023 and 12,415 boe/d for the entire year. Liquids volumes (crude oil and natural gas liquids) accounted for 6,912 boe/d or 55% of total volumes during the quarter and 6,765 boe/d or 54% for the entire year.
• On March 18, 2023 Journey closed a bought-deal flow-through share financing to issue 3.04 million flow-through shares at a price of $6.62/share resulting in gross proceeds of $20.1 million.
• Proved developed producing and proved plus probable developed producing reserve life index of 8.4 and 10.8 years respectively, are testaments to Journey’s low decline asset base, and the YoY increase in reserve life index demonstrates Journey’s ability to grow our base production base while simultaneously reducing our corporate decline rate.
• Achieved attractive F&D and FD&A recycle ratios of 2.4 and 2.5 respectively for proven reserves, and 8.9 and 8.5 respectively for proven plus probable reserves.
• The Company continued to advance the emerging power generation business:
  • Generated 24,723 MWH of electricity in 2023 at an average price of $155.69/MWH.
  • Started construction of the 15.1 MW power generation facility in Gilby Alberta, which is currently forecast to be on stream by the fourth quarter of 2024.
  • Purchased a 16.5 MW power generation facility, the land it sits upon and the gas supply pipeline.
• Continued work on decommissioning non-producing sites. Journey spent $1.2 million in the fourth quarter and $4.9 million for the entire year.

2024 Highlight:

On March 6, 2024, Journey announced a $38 million convertible debenture bought-deal financing. The debentures have a coupon rate of 10.25% interest and are convertible into Journey shares at the option of the holder at the exercise price of $5.00/share. The closing of this offering is anticipated to be on or about March 20, 2024. Journey has chosen to defer updating 2024 corporate guidance until that time. In addition to providing greater financial flexibility for the Company, proceeds from this debenture will be utilized to:

• Ramp up expenditures to complete our Gilby power facility in October 2024 (see power business update);
• Provide for a minor expansion to 2024 capital, including a second Medicine Hat drilling program;
• Provide funds to drill two Duvernay wells in 2025.

Financial & Operating Highlights

OPERATIONS

During the third quarter, Journey began its 2023 exploration and development program, starting with a drilling program in the Medicine Hat pool. This pool was a cornerstone of the assets acquired from Enerplus Corporation (the “Acquisition“) that closed on October 31, 2022. Journey drilled 4.0 gross (2.9 net) wells in Medicine Hat in the fourth quarter. These wells have markedly exceeded expectations with respect to both costs and results. Based upon these results, both Journey and its partner have executed a second program in this pool during the first quarter of 2024. Well costs and geological indicators are similar to or better than the first program. All of these wells will be on stream prior to mid-March. Journey is reviewing the potential for additional second half, 2024 Medicine Hat drilling and polymer flood expansion utilizing the proceeds from our recent financing. With over thirty future locations, along with future waterflood and polymer flood expansion potential, Journey expects this field to continue to provide increasing shareholder value for years to come.

In addition to the Medicine Hat drilling program, Journey drilled 3.0 gross (3.0 net) wells in Matziwin. Similar to Medicine Hat, the total program costs were significantly below forecast. On November 7, 2023 Journey moved a drilling rig to the Cherhill field where the Company drilled 3.0 gross (2.7 net) wells. The Cherhill program was followed up with 2.0 gross (1.7 net) wells drilled in Poplar Creek.

The 2023/2024 drilling program was funded with the proceeds of a flow through share issuance completed in the spring of 2023. Journey has now completed the required expenditures under this program.

In the fourth quarter of 2023, Journey had sales volumes of 12,595 boe/d. These volumes reflect preliminary additions from the drilling program as well as the return of previously disclosed shut-in volumes in Kiskiu.

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. In the first of half of 2023 Journey did not drill any wells. In its previous guidance, Journey reduced its 2023 capital budget to $46 million from $63 million. Actual 2023 capital expenditures, including end-of-life costs, totaled $45.7 million, which was consistent with forecasted guidance.

Of the $46 million in 2023 capital, $15.6 million was related to drilling and completions with a focus on maintaining production volumes. Journey’s capital program has shifted more towards oil-weighted opportunities by replacing natural gas weighted drilling in Westerose with oil weighted drilling in Cherhill, Matziwin and Medicine Hat. 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. Approximately $14.8 million of capital was devoted to land, seismic, facilities, polymer, and end-of-life costs and $14.5 million of capital in 2023 is associated with the expansion of Journey’s power business, including the purchase of the Mazeppa facility, building construction, and generating unit modifications for the Gilby project. In addition to all of these development projects, 2023 capital includes a final statement of adjustments from the Acquisition of $5.7 million, which was offset by $5.5 million in non-core divestments.

The Company continued to advance its repeatable plays in 2023. The Company has completed 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 contiguous, gross sections for Duvernay development drilling. These mineral rights are adjacent to Journey’s Gilby gas processing facility. These rights are overlain by liquid-rich, Glauconite natural gas production and contain two Duvernay test wells drilled as part of Journey’s previous joint venture. The primary term of the option agreement is for four years with a further option to extend the term to seven years. Journey currently plans to drill a minimum four Duvernay wells on this block during the four year primary term, with the first two wells now being planned for 2025.

EXPANDING JOURNEY’S POWER BUSINESS

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. During the fourth quarter of 2023, one of the Countess generation units had a mechanical failure reducing power output and resulting in a one-time cost to repair and overhaul the generation unit. With the repair completed, the facility returned to normal operation in late Q4, 2023.

Delays in the regulatory approval process, and a desire to prudently manage capital expenditures, led Journey to defer power expenditures scheduled for the fourth quarter. In 2023, Journey incurred costs of $14.5 million to advance its power generation business. $6.5 million of these costs were associated with the Mazeppa project, including the purchase of: the power plant; the land it resides on; the natural gas supply line; and preliminary engineering. The remaining $8 million was expended at Gilby.

Journey budgeted $11 million to complete the Gilby power project in 2024. In the past week, Journey received a potential on-stream start-up date for Gilby of October 1, 2023. Therefore Journey forecasts spending the majority of its budgeted capital for this project between March 15 and October 1 of 2024. The building for the Gilby project will be completed in early April. Journey currently forecasts completion of the Gilby project in time for the scheduled on-stream date.

Journey has budgeted $6.3 million for re-energizing the Mazeppa power project in 2024. 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. Although Journey continues to await regulatory approvals, all of the efforts to date have resulted in Journey being optimistic that Mazeppa will be re-energized in its current location 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% when the Gilby and Mazeppa projects come on-line. As previously disclosed in our February 22, 2024 press release, the combined value of Journey’s Gilby and Mazeppa projects is forecast to be $70.9 million as evaluated by GLJ Petroleum Consultants Ltd. and effective January 1, 2024. This value includes the full capital estimate to bring these projects on stream. The nature of Journey’s asset base is such that it is a large power consumer with power costs representing approximately 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 power grid. This will help diversify the corporate revenue stream and effectively provide a hedge against a volatile commodity pricing environment. The extreme volatility in recent in power prices continues to re-inforce the validity of this long-term strategy.

FINANCIAL

Journey achieved Adjusted Funds Flow of $18.4 million during the fourth quarter of 2023 and $66.1 million for the entire year. Commodity sales volumes were 10% higher than the comparable quarter of 2022. The higher volumes in the fourth quarter of 2023 were the result of the full integration of the asset acquisition in late 2022 as well as the placing of 8 (6.8 net) wells on-production from the fourth quarter drilling program. Journey’s overall liquids weighting continued to strengthen and was 55% for the fourth quarter and 54% for the entire year. Crude oil sales volumes for the fourth quarter of 2023 represented 45% of total boe volumes but contributed 78% of total petroleum and natural gas revenues. Natural gas sales volumes contributed 45% of total boe volumes in the fourth quarter of 2023 while contributing 13% of total sales revenues. While aggregate sales volumes increased quarter to quarter, the average realized commodity prices decreased by 25% over this time period, and as a result the aggregate commodity revenues decreased by 18%.

On the operating expense side, aggregate royalties were higher by 10% in the fourth quarter of 2023 compared to the fourth quarter of 2022, which was mainly due to higher average royalties from the 2022 acquisition. On a per boe basis, royalties were $10.45/boe in the fourth quarter of 2023 as compared to $12.77 in the fourth quarter of 2022. Aggregate field operating expenses decrease during the fourth quarter of 2023 as the significantly lower power prices resulted in operating expenses (net of recoveries) of $19.7 million or $17.02/boe as compared to $25.0 million or $23.64 per boe in the same quarter of 2022. Included in the fourth quarter, 2023 operating expenses were $3.2 million of workover and turnaround costs while for the fourth quarter of 2022 the amount was $1.4 million.

Journey’s general and administrative (“G&A”) costs were consistent for the fourth quarter of 2023 as compared to the same quarter in 2022 at $2.0 million and $2.2 million respectively. On a per boe basis, Journey’s G&A costs were $1.74/boe for the fourth quarter of 2023 and $2.05/boe for the fourth quarter of 2022.

Finance expenses related to borrowings, decreased by 35% to $1.8 million in the fourth quarter of 2023 from $2.5 million in the same quarter of 2022. This decrease was mainly attributable to debt decreasing by 35% in the fourth quarter of 2023 compared to the same quarter of 2022. Repayments of both the $23.8 million of AIMCo term debt and $26.0 million of the vendor-take-back debt during 2023 resulted in a lower interest burden during the year. Subsequent to December 31, 2023 and to today’s date, Journey has made an additional $6.0 million of principal repayments on this debt.

Journey realized net income of $3.4 million in the fourth quarter of 2023. Net income per basic share was $0.06 and $0.05 per diluted share for the fourth quarter. Adjusted Funds Flow of $18.4 million in the fourth quarter was 26% lower in 2023 as compared to the same quarter of 2022, and was mainly due to the 25% decrease in average commodity prices during the respective periods. This resulted in $0.30 and $0.27 per basic and diluted share respectively as compared to $24.9 million, or $0.44 basic and $0.40 per diluted per share respectively in the same quarter of 2022. Cash flow from operations was $31.3 million in the fourth quarter of 2023 ($0.51 per basic share and $0.47 per diluted share) as compared to $25.3 million in the fourth quarter of 2022 ($0.45 and $0.40 per basic and diluted share respectively).

Total capital expenditures in the fourth quarter were $18.2 million including $14.3 million for the drilling, completing and equipping of the wells drilled in the fourth quarter drilling program. In addition, the Company spent $9.3 million on the continuing work on its power generation projects. Journey exited the fourth quarter of 2023 with net debt of $61.7 million, which was 38% lower than the $98.8 million of net debt at the beginning of the year. On December 21, 2023 Journey entered into an amendment to the AIMCo term debt to reduce the two major balloon payments in April and October and to take the remaining amounts and amortize them on a monthly basis. To further improve liquidity, Journey entered into a bought-deal, convertible debenture financing for gross proceeds of $38.0 million. The proceeds of the offering will have multiple purposes, which include: supporting other debt repayments, finishing the Gilby power project and for general working capital purposes. In terms of interest costs, the coupon on this new debt is 10.25% while the effective rate on all of Journey’s current term debt (AIMCo and vendor-take-back) was 11.5% for the fourth quarter of 2023.

OUTLOOK & GUIDANCE

Journey forecasts reducing its net debt by approximately $26 million in 2024 while maintaining production and energizing a new power generation facility.

Of the $41 million in planned 2024 capital, $6.2 million was devoted to drilling and completions, which has already been spent to date. Journey has drilled and completed 4.0 (2.9 net) wells in Medicine Hat during the first quarter of 2024 along with the completion of the two 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 2024 guidance was initially issued on December 21, 2023 and incorporated 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.

Notes:

1. The weighting of the corporate sales volumes guidance is as follows:
   1. Heavy oil: 19%
   2. Light/medium gravity crude oil: 25%
   3. NGL’s: 11%
   4. Coal-bed methane natural gas: 5%
   5. Conventional natural gas: 40%

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. The Company plans to issue updated guidance after the closing of its bought-deal convertible debenture financing, which is currently anticipated to be on or about March 20, 2024.

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.

For further information contact:

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 – 10^th Avenue SW
Calgary, AB T2R 0A8
403-294-1635
www.journeyenergy.ca

ADVISORIES

This press release contains forward-looking statements and forward-looking information (collectively “forward looking information”) within the meaning of applicable securities laws relating to the Company’s plans and other aspects of the anticipated future operations, management focus, strategies, financial, operating and production results, industry conditions, commodity prices and business opportunities. In addition, and without limiting the generality of the foregoing, this press release contains forward-looking information regarding decline rates, anticipated netbacks, drilling inventory, estimated average drill, complete and equip and tie-in costs, anticipated potential of the Assets including, but not limited to, EOR performance and opportunities, capacity of infrastructure, potential reduction in operating costs, production guidance, total payout ratio, capital program and allocation thereof, future production, decline rates, funds flow, net debt, net debt to funds flow, exchange rates, reserve life, development and drilling plans, well economics, future cost reductions, potential growth, and the source of funding Journey’s capital spending. Forward-looking information typically uses words such as “anticipate”, “believe”, “project”, “expect”, “goal”, “plan”, “intend” or similar words suggesting future outcomes, statements that actions, events or conditions “may”, “would”, “could” or “will” be taken or occur in the future.

The forward-looking information is based on certain key expectations and assumptions made by management, including expectations and assumptions concerning prevailing commodity prices and differentials, exchange rates, interest rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; the ability to efficiently integrate assets and employees acquired through acquisitions, including the Acquisition, the ability to market oil and natural gas successfully and the ability to access capital. Although we believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Journey can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. The actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that we will derive therefrom. Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide security holders with a more complete perspective on future operations and such information may not be appropriate for other purposes.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedarplus.ca). 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.SEDARplus.ca 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.

(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 was 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. The reconciliation of GAAP measured cash flow from operations to the non-GAAP metric of Adjusted Funds Flow is as follows:

(2) “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. The reconciliation of Net Debt is as follows:

(3) 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). The following table details the composition of capital expenditures and its reconciliation to cash flow used in investing activities:

Measurements

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

Where amounts are expressed in a barrel of oil equivalent (“boe”), or barrel of oil equivalent per day (“boe/d”), natural gas volumes have been converted to barrels of oil equivalent at nine (6) thousand cubic feet (“Mcf”) to one (1) barrel. Use of the term boe may be misleading particularly if used in isolation. The boe conversion ratio of 6 Mcf to 1 barrel (“Bbl”) of oil or natural gas liquids is based on an energy equivalency conversion methodology primarily applicable at the burner tip, and does not represent a value equivalency at the wellhead. This conversion conforms to the Canadian Securities Regulators’ National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.

Abbreviations

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

All volumes in this press release refer to the sales volumes of crude oil, natural gas and associated by-products measured at the point of sale to third-party purchasers. For natural gas, this occurs after the removal of natural gas liquids.

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