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Journey Energy Inc. Reports 2019 Reserves and Provides Guidance for First Half of 2020


CALGARY – Journey Energy Inc. (JOY – TSX) (“Journey” or the “Company“) is pleased to report its year-end 2019 oil and gas reserves evaluation and guidance for the first half of 2020. During 2019, the Company invested approximately $21 million in capital projects net of acquisition and divestiture (“A&D“) activities, which were minimal in 2019. E&D activities were mainly focused at our Matziwin property where development included drilling of 7 (7.0 net) wells and investments in infrastructure.

2019 Reserve Report Highlights:

  • Proved plus probable reserves remained consistent with 2018; however, the oil and NGL weighting increased from 49% to 52% in the same period.
  • Proved developed producing reserves accounted for 41% of total proved plus probable reserves while proved reserves accounted for 58%.
  • Achieved finding and development costs (“F&D”) costs, including changes in future development capital, of:
    • $19.01 per boe for proved reserves.
    • $19.21 per boe for proved plus probable reserves.
  • Despite low FD&A recycle ratios for 2019, Journey has maintained attractive 3-year FD&A recycle ratios, which Journey management feels is more indicative of the longer term potential within our asset base. For the year ended December 31, 2019, we achieved a 3-year ratio of:
    • 1.2 times for FD&A costs with proved reserves.
    • 1.3 times for FD&A costs with proved plus probable reserves.
  • Proved plus probable reserve life index of 15.6 years.
  • Proved developed producing and proved plus probable developed producing reserve life index of 7.2 and 9.4 years respectively, are testaments to Journey’s low decline asset base.

COMPANY GROSS WORKING INTEREST OIL AND GAS RESERVES AND NET PRESENT VALUES

The following table provides summary information presented in the GLJ Petroleum Consultants Limited (“GLJ“) independent reserves assessment and evaluation effective December 31, 2019, (the “GLJ Report“). GLJ evaluated 100% of Journey’s crude oil, natural gas liquids and natural gas reserves. The evaluation of all of its oil and gas properties was done in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”).

The 2019 GLJ Report includes the abandonment and reclamation liability associated with wells and future development locations that have reserves but does not include inactive wells, facilities, pipelines and gathering systems.

Detailed reserve information will be presented in the Company’s upcoming Statement of Reserves Data and Other Oil and Gas Information section of the Company’s Annual Information Form scheduled to be filed on SEDAR on or before March 31, 2020.

Company Gross Reserves
Based on Forecast Price and Costs as at December 31, 2019

 

Light
Medium
Oil

Tight
Oil

Heavy
Oil

Natural
Gas

NGLs

Total(2)

Reserves Category

(Mbbl)

(Mbbl)

(Mbbl)

(MMcf)

(Mbbl)

(Mboe)

Proved

Producing

5,675

150

2,777

75,509

2,306

23,494

Developed non-producing

115

0

4

7,074

389

1,686

Undeveloped

2,544

956

1,299

16,617

673

8,242

Total proved

8,334

1,106

4,081

99,200

3,368

33,422

Probable

6,759

1,514

2,925

65,111

2,073

24,124

Total proved plus probable

15,093

2,620

7,006

164,311

5,442

57,546

Included in Above

Proved plus probable producing

7,508

229

3,814

103,982

2,837

31,717

Notes:

(1)

Company Gross Reserves consists of Journey’s working interest (operated and non-operated) share of reserves before deduction of royalties payable and without including royalties receivable by the Company.

(2)

In the case of natural gas volumes, boes are derived by converting natural gas to oil using the ratio of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf:1 bbl).

(3)

Total values may not add due to rounding.

Net Present Values of Future Net Revenue (Based on Forecast Prices and Costs)

Before Tax Net Present Value
($000’s)

Reserves category

0%

5%

10%

15%

20%

Proved

Producing

256,405

229,239

198,779

173,490

153,476

Developed non-producing

16,426

12,193

9,585

7,840

6,591

Undeveloped

138,138

81,968

48,891

28,829

16,090

Total proved

410,970

323,400

257,255

210,158

176,158

Probable

506,420

311,862

206,974

145,962

107,764

Total proved plus probable

917,390

635,261

464,229

356,121

283,922

Included in Above

Proved plus probable producing

399,082

319,708

259,724

217,315

186,786

Notes:

(1)

Total values may not add due to rounding

(2)

Forecast pricing used is the average of the published price forecasts for GLJ Petroleum Consultants Ltd., Sproule Associates Ltd. and McDaniel & Associates Consultants Ltd. as at December 31, 2019.

(3)

It should not be assumed that the net present values of future net revenues estimated by GLJ represent fair market value of the reserves. There is no assurance that the forecast price and cost assumptions will be attained and variances could be material.

The forecast prices and foreign exchange rates used in the GLJ Report are as follows:

WTI Cushing
Oklahoma
($US/bbl)

Edmonton
40 API
($CDN/bbl)

WCS Crude
Oil Stream
($CDN/bbl)

Alberta
AECO-spot
($CDN/Mmbtu)

NYMEX
Henry Hub
($US/bbl)

Foreign
Exchange
($US/$CDN)

2020

61.00

72.64

57.57

2.04

2.62

0.7600

2021

63.75

76.06

62.35

2.32

2.87

0.7700

2022

66.18

78.35

64.33

2.62

3.06

0.7850

2023

67.91

80.71

66.23

2.71

3.17

0.7850

2024

69.48

82.64

67.96

2.81

3.24

0.7850

2025

71.07

84.60

69.72

2.89

3.32

0.7850

2026

72.68

86.57

71.49

2.96

3.39

0.7850

2027

74.24

88.49

73.19

3.03

3.46

0.7850

2028

75.73

90.31

74.80

3.10

3.52

0.7850

2029

77.24

92.17

76.43

3.17

3.60

0.7850

2030

78.79

94.01

77.96

3.24

3.67

0.7850

2031

80.36

95.89

79.52

3.30

3.74

0.7850

2032

81.97

97.81

81.11

3.37

3.81

0.7850

2033

83.61

99.76

82.73

3.43

3.89

0.7850

2034

85.28

101.76

84.39

3.50

3.97

0.7850

Thereafter

+2.0%/yr

+2.0%/yr

+2.0%/yr

+2.0%/yr

+2.0%/yr

0.7850

FINDING, DEVELOPMENT AND ACQUISITION COSTS

Journey’s finding and development (“F&D“) and finding, development and acquisition (“FD&A“) costs for 2019, 2018 and the three-year average are presented in the tables below. The capital costs used in the calculations are those costs related to: land acquisition and retention, seismic, drilling, completions, tangible well site, tie-ins, and facilities, plus the change in estimated future development costs (“FDC“) as per the independent evaluator’s reserve report. Net acquisition costs are the cash outlays in respect of acquisitions; minus the proceeds from the disposition of properties during the year. Due to the timing of capital costs and the subjectivity in the estimation of future costs, the aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated FDC’s generally will not necessarily reflect total FDC’s related to reserve additions for that year. The reserves used in this calculation are working interest reserve additions, including technical revisions and changes due to economic factors. The 2019 and the three-year average capital expenditures are unaudited as the 2019 financial results are in the process of being finalized.

Proved Finding, Development & Acquisition Costs

2019

2018

3 Year

Capital expenditures (including A&D) ($000’s)

19,519

26,608

111,670

Change in future capital ($000’s)

7,163

11,507

38,743

Total capital for FD&A (000’s)

26,682

38,115

150,413

Reserve additions, including A&D (Mboe)

1,417

1,783

14,034

Proved FD&A costs – including changes in future capital
($/boe)

18.83

21.38

10.72

Proved FD&A costs – excluding changes in future capital
($/boe)

13.78

14.92

7.96

Recycle ratio(1)

Including changes in future capital

0.7

0.6

1.2

Proved plus Probable Finding, Development
& Acquisition Costs

2019

2018

3 Year

Capital expenditures (including A&D) ($000’s)

19,519

26,608

111,670

Change in future capital ($000’s)

48,795

(1,712)

88,793

Total capital for FD&A (000’s)

68,314

24,896

200,463

Reserve additions, including A&D (Mboe)

3,569

877

20,504

Proved plus Probable FD&A costs – including changes in
future capital ($/boe)

19.14

28.39

9.78

Proved plus Probable FD&A costs – excluding changes
in future capital ($/boe)

5.47

30.34

5.45

Recycle ratio (1)

Including changes in future capital

0.7

0.5

1.3

Proved Finding & Development Costs

2019

2018

3 Year

Capital expenditures (excluding A&D) ($000’s)(2)

19,777

31,738

81,921

Change in future capital ($000’s)(2)

7,163

14,567

20,745

Total capital for F&D ($000’s)

26,940

46,305

102,666

Reserve additions, (excluding A&D) (Mboe)

1,417

2,367

4,791

Proved F&D costs – including changes in future capital
($/boe)

19.01

19.56

21.43

Proved F&D costs – excluding changes in future capital
($/boe)

13.96

13.41

17.10

Recycle ratio (1)

Including changes in future capital

0.7

0.7

0.6

Proved Plus Probable Finding & Development Costs

2019

2018

3 Year

Capital expenditures (excluding A&D) ($000’s)(2)

19,777

31,738

81,921

Change in future capital ($000’s)(2)

48,795

4,469

51,404

Total capital for F&D ($000’s)

68,572

36,207

133,325

Reserve additions (excluding A&D) (Mboe)

3,569

1,850

6,621

Proved  plus Probable F&D costs – including changes in
future capital ($/boe)

19.21

19.58

20.14

Proved plus Probable  F&D costs – excluding changes in
future capital ($/boe)

5.54

17.16

12.37

Recycle ratio (1)

Including changes in future capital

0.7

0.7

0.6

Notes:

(1)

Recycle ratio is calculated as the operating netback per boe divided by F&D or FD&A costs per boe as applicable. The operating netbacks used in the respective years are as follows: 2019 (unaudited) – $13.12/boe; 2018 – $13.11/boe and the three year average is $12.93/boe.

(2)

Development capital has been adjusted for the effects of reserves categorized as acquisitions and dispositions.

FUTURE DEVELOPMENT COSTS

The following table provides the breakdown of future development costs deducted in the estimation of the future net revenue attributable to the proved and proved plus probable reserve categories noted below:

Year

Proved

($000’s)

Proved Plus
Probable
($000’s)

2020

13,831

15,264

2021

45,060

85,892

2022

48,765

102,090

2023

14,163

26,900

2024

3,353

19,671

Remaining

4,781

5,891

Total (Undiscounted)

129,953

255,708

RESERVE LIFE INDEX

The Company’s reserve life index (“RLI“) is calculated by taking the Company Gross Reserves from the GLJ Report and dividing them by the projected 2020 production as estimated in the GLJ report.

Company Gross
Reserves

2020 Company
Gross Production

RLI

Reserves Category

(Mboe)

(Mboe)

(Years)

Proved, developed, producing

23,494

3,275

7.2

Total proved

33,422

3,481

9.6

Proved plus probable producing

31,717

3,358

9.4

Proved plus probable

57,546

3,682

15.6

NET ASSET VALUE

The following table provides a calculation of Journey’s estimated net asset value (“NAV“) and net asset value per share (“NAVPS“) as at December 31 based on the estimated future net revenues associated with Journey’s reserves as presented in the GLJ Report. The following numbers were used in the NAV calculation and are pending finalization of the year-end audit: 1) net debt of approximately $124 million; and 2) funds flow of approximately $28 million, based on production of approximately 9,370 boe/d (48% oil and NGL’s) for the year.

Reserves Category

Net Asset Value ($000’s)(1)(3)(4)

Net Asset Value Per share ($)(2)

2019

2018

%

2019

2018(2)

%

Proved, developed, producing

74,566

78,029

(4)

1.73

1.99

(13)

Total proved

133,042

139,595

(5)

3.09

3.56

(13)

Proved plus probable
producing

135,511

150,717

(10)

3.15

3.84

(18)

Total proved plus probable

340,016

357,237

(5)

7.89

9.11

(13)

Notes:

(1)

Aggregate NAV is calculated by taking the future net revenues per the GLJ report, on a before tax basis, discounted at 10% and subtracting net debt at December 31, 2019 of approximately $124,200 thousand (unaudited);  (December 31, 2018 – $134,635 thousand).

(2)

Year-end NAVPS is calculated by taking the NAV and dividing it by the basic shares outstanding as at December 31, 2019 of 43,087 thousand shares (December 31, 2018 – 39,218 thousand). All share counts have been rounded to the nearest 1,000 shares.

(3)

Undeveloped land values have not been included.

(4)

The GLJ Report includes the abandonment and reclamation liability associated with wells and future development locations that have reserves, but does not include inactive wells, facilities, pipelines and gathering systems.

Outlook

Journey’s guidance for the first half of 2020 is presented in the table below:

1H 2020 average production

9,200 – 9,400 Boe/d (49% liquids)

Exploration and development capital

$10-11 million

Funds flow

$11-13 million

1H 2020 exit net debt

$121 – $124 million

Funds flow per basic weighted average share

$0.28 – $0.30 share

Corporate annual decline rate

17%

Journey’s first-half 2020 forecasted funds flow is based upon the following:

  • Assumed first-half, average prices: WTI of $53/bbl USD; MSW oil differentials of $5/bbl USD for Edmonton light sweet prices; WCS differentials of $14/bbl USD; realized natural gas prices of CDN$1.70/mcf CDN; and a US$/CDN$ exchange rate of $0.76.
  • Cash operating expenses: operating and transportation costs of $14.85/bbl; royalty costs of $4.20/bbl and general & administrative costs of $2.60/bbl

In the first and second quarters, Journey will be spending approximately $2 million of capital on its electricity generation project. It is currently anticipated that this project will be delivering electricity into the Alberta grid by July of this year. In addition, Journey is planning to drill 3 (2.7 net) wells in its Cherhill Banff pool, in the first half of 2020. Journey’s low corporate decline rate has contributed significantly to the ability to maintain production levels at 2019 rates with minimal capital spending.

Journey chose to provide only 1H 2020 for the following reasons.

  • The uncertainty and volatility in commodity prices, resulting from in the recent Coronavirus pandemic, has resulted in significant challenges for forecasting funds flow. It is Journey’s plan to gradually reduce leverage by ensuring capital expenditures remain below funds flow.
  • Journey has executed a definitive agreement for the disposition of a non-core asset that is currently in the regulatory approval stage; and is also in the process of entering into additional agreements to dispose of non-core assets. Collectively these agreements will result in a disposition of 700-800 boe/d of high operating cost production. These transactions are expected to have a moderate impact on production levels and an immaterial impact on fund flows and debt levels, but a significant impact on asset retirement obligation levels. Additional information will be provided upon closing of these transactions.
  • The three wells drilled and completed by Kiwetinohk Resources Corp. (“KRC”) as part of our East Duvernay Joint Venture (“JV”) continue to perform at or above expectations. Since putting these wells on production, KRC has equipped each with gas lift and is continuing to evaluate the overall production performance. Under the terms of the JV, KRC has until the end of August 2020 to complete the earning of approximately 31 additional sections of land. Journey considers this unearned land to be some of the best remaining in the heart of the oil window with over 30 m of contiguous pay thickness in the Duvernay. Further clarification of KRC’s intentions to complete its earning in the lands under the JV should be better understood in the next few months. Should KRC not complete full earning, Journey would own a 37.5% working interest in approximately 120 total gross sections of land governed by the JV and 100% interest in the remaining 31 gross sections of land in the heart of the play. Subject to KRC’s remaining earning operations on the unearned lands, Journey is currently seeking all options to advance the lands and development potential of this world class resource.

About the Company

Journey is a Canadian exploration and production company focused on oil-weighted operations in western Canada.  Journey’s strategy is to grow its production base by drilling on its existing core lands, implementing waterflood projects, and by 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. Journey is also in the early phases of advancing development of an unconventional shale resource play in the oil window of the Duvernay, in the western shale basin of our central core area.



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