Quarterly / Earnings Reports | Fourth Quarter (4Q) Update | Financial Results | Capital Markets

Journey Energy Details Fourth Quarter 2019 Results

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   |    Tuesday,March 10,2020

Journey Energy Inc. reported its Q4 and full year 2019 results.

Highlights for 2019 were:

• The Duvernay joint venture with Kiwetinohk Resources Corporation (“KRC”) commenced operations with the drilling of 3 wells, all of which were subsequently placed on-production during the year. Performance of the wells continues to be in the top tier of wells drilled to date in the East Shale Basin. Journey shareholders will benefit from early development capital expenditures to be incurred by KRC, while Journey retains a 37.5% working interest in this commercial development.
• The drilling program consisted of 7 (7.0 net) development wells all in the Matziwin core area with a 100% success rate.
• Produced 9,463 boe/d (49% liquids) in the fourth quarter and 9,372 boe/d (48% liquids) for the year.
• Issued $7.3 million in equity on a flow through basis at a premium price of $2.60 per share.
• Realized funds flow of $26.8 million for 2019 yielding $0.67 per basic share.
• Reduced net debt by 8% to $124.2 million from $134.3 million at the end of 2018.
• Restructured Journey’s term debt such that the earliest expiry is late in 2022.
• Commissioned the procurement of equipment for Journey’s electricity generation project in Countess

Ops & Outlook

Journey achieved average production of 9,372 Boe/d (48% liquids) during the 2019, representing a 7% decrease from 2018.  Average daily volumes were down 8% from the previous year, however, the majority of this decrease was from natural gas volumes, with liquids volumes dropping only 4% year over year.  Journey’s primary focus over the past year has been to maintain its oil production while improving financial flexibility, and allowing third party capital to de-risk our world class Duvernay acreage. Despite a challenging environment, Journey was successful in maintaining liquids production while reducing leverage.  In addition, the Duvernay program has advanced to the point where Journey now has production history on the three wells drilled by the joint venture partner.  These wells rank in the top tier of all wells drilled to date in the East shale Duvernay basin.  The success to date in this play highlights the development potential of the Duvernay land block.

This strategy will continue to be our focus in 2020.  Due to the significant uncertainty within the current commodity price environment Journey has deferred its first-half 2020 drilling plans and is currently re-evaluating all future expenditures in the context of the current market.  Journey has a development ready drilling program in Skiff, Cherhill and Crystal.  The horizontal development program in south Skiff follows up the three wells drilled there in 2018.  During the third quarter of 2019, the central well of the three well pattern was converted to a water injection well, and the offsetting producers have now begun to respond favorably to the injection.  Due to the recent volatility experienced with commodity prices, Journey will continue to monitor broader market forces and adjust its capital plans on an ongoing basis.

The four Matziwin wells drilled in the fourth quarter were follow-up wells to the three successful wells drilled in June.  All four of these wells were placed on-production in mid-December.  These wells have allowed Journey to maintain production capability at or near fourth quarter levels.  The successful drilling in Matziwin has resulted in increased flow line pressures in East Matziwin and Journey plans on installing two multiphase pumps as part of a debottlenecking project during the second quarter.  Production additions from this initiative will largely offset the production shortfall from delaying the Cherhill drilling program until after breakup.  Therefore, Journey’s guidance for the first half of 2020, which was announced February 24, remains unchanged.

During the second quarter of 2020, Journey anticipates the start-up of its 4.5 megawatt power project in Countess.  All approvals are in place and the generators are currently being skid mounted prior to being moved to the site.  The total cost of the project, including all costs associated with approvals and design is approximately $4.0 million. The project has a low-risk rate of return and also improves the long term viability of our Countess natural gas pool.

As previously outlined in our February 24, 2020 release, Journey continues to advance the divestment of a number of non-core assets which would impact second half guidance.  Journey has now entered into definitive agreements with multiple parties and, subject to regulatory approval, anticipates closing these transactions in the second quarter.  Corporate guidance will be updated as the deals progress to their closing.

Journey continues to monitor the advancement and  development of its emerging Duvernay resource play and continues to be encouraged by the industry activity from wells drilled on offsetting acreage, both in terms of initial production rates, and reduced drill, complete, equip and tie-in costs.  Journey’s updated corporate presentation shows how favorably the three joint venture wells compare with leading competitor wells in the three sweet spots of the East Duvernay shale basin.  Pursuant to the Duvernay joint venture agreement, KRC is currently in the option period to complete, prior to the end of August 2020, all potential earnings.  Journey and KRC continue to discuss future operations for the joint venture, and further clarification of KRC’s intentions to complete full earning on the joint venture lands should be better understood in the next few months.  Journey will report on the resumption of activity in due course.  Following the option period, Journey and KRC will enter into the initial two year early development phase, where up to a maximum of ten joint wells can be drilled each year, with Journey having the option on a well-by-well basis, to either participate as to its working interest, or take a 5% non-convertible GORR on 100% of the production from the well(s).

Financials

Funds Flow for the fourth quarter of 2019 was $5.9 million as compared to a negative $42 thousand in the same quarter of 2018.   A recovery in 2019 from the historically wide oil differentials in 2018 was the primary driver behind the change in Funds Flow.  Realized oil prices for Journey during the fourth quarter were $57.70/bbl, which were 83% higher than the $31.53/bbl realized in the fourth quarter of 2018.  Natural gas and NGL prices appreciated from the third quarter with Journey realizing $1.74/mcf for natural gas in the fourth quarter which was 27% lower than the fourth quarter of 2018. NGL prices were 20% lower in 2019 as compared to 2018 as Journey realized $25.86/bbl in the fourth quarter, versus $32.44/bbl in the same quarter of 2019. Liquids (oil and NGL) revenues comprised 83% of Journey’s revenues in the fourth quarter. Average corporate realized commodity prices of $31.17/boe were 33% higher in the fourth quarter than the $22.34/boe from the fourth quarter of 2018.  Oil differentials were stable during the fourth quarter with light sweet differentials averaging $6.38/bbl USD, while WCS differentials averaged $15.84/bbl USD. Approximately 30% of Journey’s production is exposed to oil pricing similar to WCS.  Journey realized a net loss of $7.7 million or $0.18 per basic and diluted share in the fourth quarter of 2019.

Production volumes averaged 9,463 boe/d in the fourth quarter of 2019 with Journey’s weighting to liquids increasing in 2019.   Liquids volumes (oil and NGL’s) comprised 49% of total volumes produced for the fourth quarter of 2019 as compared to 46% for the same quarter of 2018.  As a result of the increasing liquids weighting, the revenue contribution was 83% in 2019 as compared to 66% in the fourth quarter of 2018.

For the fiscal year 2019 Journey realized $26.8 million in Funds Flow or $0.67 per basic share and $0.64 per diluted share. While production levels were 7% lower for 2019 at 9,372 boe/d as compared to 10,075 boe/d in 2018, Journey realized 2% higher average commodity prices and also reduced its realized hedging losses from $11.7 million in 2018 to $0.3 million in 2019. These gains on the revenue side, coupled with improvements in operating expenses including: royalties (10% lower); field operating costs (2% lower); general and administrative costs (13% lower), all contributed to the 47% increase in Funds Flow from 2018.  Journey dedicated itself to reducing its controllable costs during the year and this has paid with the significant increase in Funds Flow.

During 2019, Journey spent $23.2 million on its capital program as compared to $28.3 million in 2018.  The majority of the capital was spent drilling 7 (7.0 net) wells.  To assist in financing the fourth quarter capital program Journey concluded a flow-through share private placement in September for $7.3 million of gross proceeds.  The Company issued 2.8 million shares a price of $2.60 per share.  During 2019 Journey restructured its outstanding term debt by extending the maturity of the term debt issued in 2016 from 2020 to 2023.  As part of the restructuring, Journey repaid $8.0 million of term debt.  By the end of 2019, the net debt of Journey was $124.2 million, which was an 8% reduction from the $134.3 million at the end of 2018.  The Company is committed to reducing its leverage and has made excellent progress in this volatile commodity price environment.  Journey has a very strong income tax pool position with approximately $719 million in aggregate deductions available.