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


 

Schachter Energy Conference 2019
Schachter Energy Conference 2019

 

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CALGARYAug. 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 milliondeferred 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.



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