CALGARY, March 20, 2017 /CNW/ - Journey Energy Inc. (JOY –
TSX) ("Journey" or the "Company") is pleased to
announce its financial results for 2016. The complete set of
financial statements and management discussion and analysis for the
year ended December 31, 2016 are
posted on www.sedar.com and on the Company's website
www.journeyenergy.ca.
HIGHLIGHTS
Strategic Acquisition
Journey is pleased to announce that it has entered into a
purchase and sale agreement with a private company to acquire
interests in our Central Alberta
core for an aggregate purchase price of approximately $35.6 million (the "Acquisition"), comprised of
$29.6 million of cash and 2.1 million
common shares of Journey. The Acquisition consists of approximately
2,000 boe/d (average for 2017; 28% oil & NGLs) of high value,
long reserve life, operated, high working interest (75% average WI)
liquids-rich gas production. This low-decline (16% decline)
production base provides a stable estimated funds flow stream of
$8-9 million for 2017, on an
annualized basis. Journey will acquire a high working
interest in two strategic gas plants and a network of greater than
250 kilometers of pipelines. Journey has identified a number of
low-risk, low-cost, near term development opportunities that will
allow Journey to maintain production on the assets over the
remainder of the year for approximately 30% of forecasted funds
flow.
The Acquisition is consistent with Journey's expansion strategy
within its central Alberta core
area by increasing Journey's extensive network of strategic
infrastructure and further expanding its portfolio of low-risk
multi-zone liquids focused horizontal drilling opportunities.
Further details on the Acquisition are contained herein.
Highlights for the fourth quarter and the year ended 2016 are
as follows:
- Realized funds flow of $8.4
million in the fourth quarter or $0.19 per basic share. For 2016 funds flow was
$27.5 million or $0.63 per basic share.
- Achieved average production of 8,505 boe/d in the fourth
quarter bringing the annual average for the year to 8,712
boe/d.
- Liquids (oil and natural gas liquids) production accounted for
4,137 boe/d or 49% of total production during the quarter.
- Received a corporate average commodity price of $33.46/boe in the fourth quarter. For 2016, the
corporate average commodity price was $27.36/boe.
- Drilled 5 (4.1 net) wells in the fourth quarter bringing the
year to date drilling activity to 7 (6.1 net) wells.
- Recompleted in excess of 300 net, existing wellbores in the
Countess area resulting in approximately 1,100 boe/d of initial,
incremental, CBM production at an aggregate cost of approximately
$2.0 million.
- Closed the purchase of 44 boe/d (100% natural gas) consisting
of complimentary working interests in Journey's Countess core
area.
- Closed two asset swaps with aggregate value of approximately
$350 thousand. The acquired assets
were in the Berrymoor and Westerose areas and are complimentary to
existing production and drilling opportunities.
|
Three Months
ended
December
31,
|
Twelve months
ended
December
31,
|
Financial
($000's except per share amounts)
|
2016
|
2015
|
%
change
|
2016
|
2015
|
%
change
|
Production
revenue
|
26,181
|
25,008
|
5
|
87,239
|
119,907
|
(27)
|
Funds flow
|
8,354
|
9,527
|
(12)
|
27,472
|
49,542
|
(45)
|
|
Per basic
share
|
0.19
|
0.22
|
(14)
|
0.63
|
1.13
|
(44)
|
|
Per diluted
share
|
0.19
|
0.21
|
(10)
|
0.63
|
1.10
|
(43)
|
Net income
(loss)
|
49,314
|
38,586
|
28
|
52,593
|
(111,337)
|
(147)
|
|
Per basic
share
|
1.13
|
0.89
|
27
|
1.21
|
(2.55)
|
(147)
|
|
Per diluted
share
|
1.13
|
0.86
|
31
|
1.21
|
(2.55)
|
(147)
|
Net capital
expenditures, cash
|
9,708
|
8,554
|
13
|
6,962
|
48,099
|
(86)
|
Net debt
|
86,916
|
106,534
|
(18)
|
86,916
|
106,534
|
(18)
|
|
|
|
|
|
|
|
Share Capital
(000's)
|
|
|
|
|
|
|
Basic, weighted
average
|
43,680
|
43,540
|
-
|
43,632
|
43,715
|
-
|
Basic, end of
period
|
43,703
|
43,615
|
-
|
43,703
|
43,615
|
-
|
Fully
diluted
|
50,085
|
49,681
|
1
|
50,085
|
49,681
|
-
|
|
|
|
|
|
|
|
Daily
Production
|
|
|
|
|
|
|
Natural gas volumes
(mcf/d)
|
26,212
|
25,972
|
1
|
24,547
|
28,677
|
(14)
|
Crude oil
(bbl/d)
|
3,786
|
4,598
|
(18)
|
4,110
|
4,888
|
(16)
|
Natural gas liquids
(bbl/d)
|
351
|
667
|
(47)
|
511
|
642
|
(20)
|
Barrels of oil
equivalent (boe/d)
|
8,505
|
9,593
|
(11)
|
8,712
|
10,309
|
(15)
|
|
|
|
|
|
|
|
Average
Prices
|
|
|
|
|
|
|
Natural gas
($/mcf)
|
3.00
|
2.37
|
27
|
2.08
|
2.64
|
(21)
|
Crude Oil
($/bbl)
|
51.87
|
42.84
|
23
|
42.65
|
48.60
|
(12)
|
Natural gas liquids
($/bbl)
|
31.35
|
24.06
|
30
|
23.75
|
25.73
|
(8)
|
Corporate
($/boe)
|
33.46
|
28.33
|
18
|
27.36
|
31.87
|
(14)
|
|
|
|
|
|
|
|
Netbacks
($/boe)
|
|
|
|
|
|
|
Realized
prices
|
33.46
|
28.33
|
18
|
27.36
|
31.87
|
(14)
|
Royalties
|
(4.16)
|
(1.61)
|
158
|
(3.11)
|
(3.72)
|
(17)
|
Operating
expenses
|
(12.25)
|
(12.46)
|
(2)
|
(11.64)
|
(14.00)
|
(17)
|
Transportation
expense
|
(0.45)
|
(0.56)
|
(20)
|
(0.40)
|
(0.83)
|
(52)
|
Operating
netback
|
16.60
|
13.70
|
21
|
12.21
|
13.32
|
(8)
|
|
|
|
|
|
|
|
Wells
drilled
|
|
|
|
|
|
|
Gross
|
5
|
5
|
-
|
7
|
16
|
(56)
|
Net
|
4.1
|
3.1
|
32
|
6.1
|
13.2
|
(54)
|
Success rate
(%)
|
100
|
100
|
|
100
|
100
|
|
OPERATIONS
Journey achieved production of 8,505 boe/d (49% liquids) in the
fourth quarter, representing a 4% decrease from third quarter
levels. During 2016 Journey sold approximately 1,290 boe/d of
production and purchased approximately 650 boe/d resulting in net
proceeds to the Company of $9.3
million. The impact of the net dispositions in the
year was offset by our very successful coal bed methane ("CBM")
project, which commenced in the third quarter. By the end of
the CBM program Journey had recompleted in excess of 300 net,
existing wellbores in the Countess area resulting in approximately
1,100 boe/d of initial, incremental, CBM production. These
wells were recompleted at an aggregate cost of approximately
$2.0 million to Journey. The
incremental operating costs for these wells is less than
$1.00/mcf as all the recompletions
were within existing wellbores which are already serviced by
existing Journey infrastructure and field operations staff.
Over the course of 2016, Journey participated in 7 (6.1 net)
wells as compared to 16 (13.2 net) wells in 2015. The
reduction in drilling activities was reflective of the low
commodity prices in 2016, and particularly the first half of the
year. The majority of the wells drilled were in the fourth
quarter (5 gross (4.1 net)) to capitalize on positive signs that
commodity prices were stabilizing at levels higher than those
experienced earlier in the year. As the majority of our
exploration and development capital was spent in the fourth quarter
Journey realized only a partial benefit in 2016 from these new
wells.
The low commodity prices in early 2016 forced our entire
industry to focus on controllable costs. Journey was successful in
reducing its field costs (operating and transportation) by 19% to
$12.04/boe in the year from
$14.83 in 2015. A portion of
this reduction was attributable to the Company's acquisition and
divestiture ("A&D") program. Certain higher operating
cost properties were disposed of and this was offset with the
acquisition of a strategic processing facility in the Brooks
area. The $3.3 million Brooks
acquisition in June also included 200 boe/d of predominantly light
oil production. In the third quarter, Journey constructed a
pipeline connecting two newly drilled oil wells in the area to the
acquired facility, thereby eliminating trucking and water disposal
costs for this production.
FINANCIAL
Journey realized funds flow of $8.4
million in the fourth quarter of 2016 compared to
$9.5 million in the same quarter last
year. Average commodity prices were 18% higher, and
production volumes were 11% lower in the fourth quarter compared to
2015. The combination of net dispositions of producing
assets, a significantly reduced drilling program and normal
declines during the year caused production to decrease compared to
2015. Conserving capital and protecting the balance sheet
were major initiatives throughout the year. Journey focused
its attention on items that were within its control and in
particular concentrated on reducing its operating costs. These
initiatives paid off, as operating costs of $14.00/boe in 2015 were reduced to $11.64/boe in 2016. Funds flow per share
was $0.19 (basic and diluted) in the
fourth quarter and for the year was $0.63 (basic and diluted). Journey forecasts that
these cost reductions will continue to yield benefits in future
years.
Journey realized net income of $49.3
million or $1.13 per basic and
diluted share in the fourth quarter. For 2016 the entire
years' net income was $52.6 million
or $1.21 per basic and diluted
share. The largest items affecting net income were net
impairment recoveries. While Journey recognized $24.0 million in additional asset impairments in
respect of two of its operating areas in the fourth quarter, the
Company also recorded reversals of previous impairments of
$103.4 million in five other
areas. The reversals were directly attributable to Journey's
successful efforts in enhancing petroleum and natural gas reserves
value even in the face of low commodity prices. The
initiatives we embarked on during the year and that created this
value included: operating cost reductions that are expected to
continue into the future; lower drilling costs; the successful CBM
recompletion program; asset acquisition and divestment activities;
and the results of Journey's organic drilling program. All of
these initiatives were factored into the December 31, 2016 reserve report and the
impairment reversals were reflective of these value creation
strategies.
Journey's production mix moved to a slightly higher natural gas
weighting at 51% in the fourth quarter and 47% for the year.
The increase in gas weighting was primarily the result of the
successful CBM recompletion program as well as the sale of a higher
operating cost oil weighted property in Manola at the end of the
second quarter. Even though the natural gas weighting
increased, liquids (oil and NGL's) were the largest contributor to
total revenues at 73%. The efforts taken by Journey to become
even more sustainable have paid off in the fourth quarter.
The lower cost structure was a direct contributor to an 18%
increase in field netbacks in the fourth quarter to $16.60/boe as compared to the third quarter while
average commodity prices increased by only 10% in this same
period.
Commensurate with increasing oil and natural gas prices in the
latter part of 2016, royalty costs were up 158% in the fourth
quarter to average $4.16/boe as
compared to $1.61/boe in the same
quarter of 2015. The average royalty rate (as a percentage of
revenue) was up significantly to 12.4% in the fourth quarter of
2016 compared to 5.7% in 2015. Journey considers a royalty rate of
12% to be more representative in the current commodity price
environment. Operating costs were down 13% in the fourth quarter of
2016 to $9.6 million compared to
$11.0 million in 2015. On a per
boe basis the rate was down 2% to $12.25/boe from $12.46 in the same quarter of 2015. General
and administrative costs continued to improve and were $3.13/boe in the fourth quarter compared to
$4.00 in the same quarter of
2015. Cash interest costs were higher at $1.66/boe compared to $1.07/boe in the fourth quarter of 2015.
Even though borrowings were down in the fourth quarter, higher
bank interest rates, and the new term debt interest rate, coupled
with lower production levels caused the per boe rate to
increase.
Commodity prices had a significant impact on capital spending
within our industry in 2016. AECO natural gas prices sunk to
a low of $1.10/mcf in April before
reversing course. It wasn't until the fourth quarter that gas
prices showed signs of a rebound, increasing to a high of
$3.46/mcf in December. WTI oil
prices hit a low of $30.62/bbl USD in
February and stayed in the low to mid-$40
USD range until they increased to $52.17/bbl in December after a new OPEC
production agreement was reached. The low prices realized
throughout the first nine months of the year created significant
uncertainty, adversely affecting Journey's capital spending
plans. However, the Company took these challenges in stride
and capitalized on the opportunities that materialized to make
accretive acquisitions that increased reserve value and, in turn,
borrowing value from our banking syndicate.
Journey reduced its bank borrowing throughout the year. At
the start of 2016 Journey had bank debt of $90 million and at the end of the year it was
$52.5 million. The company used
the combination of the term debt proceeds of $30 million in October and funds flow in excess
of net capital spending of $20.5
million to reduce its bank borrowings.
In the fall, Journey renewed its credit facility at $90 million. In addition, Journey welcomed
a new financing partner, Alberta Investment Management Company
("AIMCo") with a $30 million term
debt financing. The term debt provided Journey ample room on
its banking credit facility to pursue additional acquisitions to
expand our business plan, ultimately resulting in the acquisition
of complementary Crystal interests in the first quarter and the
Strategic Acquisition described herein. On March 2, 2017 AIMCo exercised the warrants they
received in the term debt placement well in advance of their
expiry. The resultant $13.6
million in proceeds went to reduce outstanding borrowings
with the banks. However, the proceeds will ultimately be used
to partially finance the Strategic Asset
Acquisition. The bank facility is currently undergoing
its annual review. We expect this review will be completed by
the end of April.
STRATEGIC ACQUISITION
Journey is pleased to announce that it has entered into a
purchase and sale agreement with a private company to acquire
interests in its Central Alberta
core area with a focus on upstream and midstream assets in the
greater Gilby area for an aggregate purchase price of approximately
$35.6 million (the "Acquisition"),
subject to certain closing adjustments. The assets are
largely contiguous with Journey's existing Central core
region. The consideration to be paid is comprised of
$29.6 million of cash and 2.1 million
common shares of Journey, representing additional consideration of
$6.0 million, based upon the Journey
share price of $2.89 being the 10-day
volume weighted average price preceding the execution of purchase
and sale agreement. The Acquisition is consistent with
Journey's expansion strategy within its central Alberta core area by increasing Journey's
extensive network of strategic infrastructure and further expanding
its portfolio of low-risk multi-zone liquids focused horizontal
opportunities.
The cash component of the Acquisition will be funded entirely
within Journey's existing credit facility. In addition to the
proceeds of $13.6 million from the
AIMCo exercise of 4.95 million share purchase warrants (see the
March 3, 2017 press release), Journey
is currently evaluating divestment opportunities for certain of its
assets deemed to be non-core.
The Effective Date of the Acquisition is March 1, 2017 (the "Effective Date"). The
transaction is anticipated to close in early May, and is subject to
the successful waiver of rights of first refusals.
Upon closing of the Acquisition, Journey anticipates to be drawn
approximately $70 million on its
existing $90 million syndicated
credit facility. Journey is anticipating an increase to its
credit facility due to the results from its highly successful 2016
operations and due to incremental lending value associated with the
Acquisition. With the implementation of its currently planned
$35 million exploration and
development capital program, Journey forecasts net debt levels to
be approximately $86 million by the
end of 2017, including bank debt of less than $50 million. This debt level is expected to
result in a net debt to annualized fourth quarter debt to funds
flow ratio of less than 1.5:1.
Asset Description
The Acquisition consists of approximately 2,000 boe/d (28% oil
& NGLs) of high value, long reserve life, liquids-rich gas
production with an annual decline estimated at 16%.
Consistent with Journey's strategy, the production will be
predominantly Journey operated with an average working interest of
75%. This low-decline production base is expected to provide
a stable funds flow stream of approximately $8-9 million for 2017, on an annualized
basis. Journey has identified a number of low-risk, low-cost,
near term development opportunities on the acquired assets
including, the installation of compression and a pipeline tie in
which will allow Journey to maintain production on the assets over
the remainder of the year for approximately 30% of forecasted funds
flow. In addition, Journey forecasts operating cost synergies
of over $300,000 per year due to the
integration of the acquired assets with our existing assets.
The Acquisition includes approximately 161,700 gross (83,700
net) acres of land focused primarily in the Gilby area of central
Alberta. The assets have established multi-zone production
and potential focused primarily on the liquids-rich Glauconite in
the Hoadley Barrier complex. The portfolio of projects
includes 19 gross (14.4 net) horizontal locations in the
Glauconite. Other established targets in the immediate region
are Cardium oil, Belly River oil, and an emerging play in the
liquid rich window of the Duvernay
shale zone. The Acquisition also includes a significant
proprietary seismic data set consisting of more than 200 square
kilometers of 3D seismic and over 400 kilometers of 2D seismic that
will allow for further prospective well delineation.
The strategic infrastructure to be acquired pursuant to the
Acquisition complements Journey's extensive network of
infrastructure within its central core area. Journey will
acquire a high working interest in two strategic gas plants and
associated gathering systems and sales lines. The key
infrastructure at Gilby includes a 43.3% non-operated working
interest in the 01-04-42-03W5 Tidewater gas plant having 75 mmcf/d
of gas processing capability (20% current utilization), superior
liquids recovery, and a strategic network of greater than 250
kilometers of pipelines. The existing ownership structure
provides Journey the ability to maintain its low-cost structure.
Additionally, this infrastructure generates annual revenues
of approximately $1.0 million from
third-party processing fees. Journey's focus is to continue
to grow both Company volumes and third party volumes in the
Crystal/Gilby area to effectively utilize its infrastructure and
lower the operating cost structure of the Company.
In conjunction with the transaction, Journey has acquired
natural gas hedges from the vendor, which represents approximately
50% of the acquired gas production in 2017 at an average price of
$3.00/gj; and 40% of production in
2018 at an average price of $2.73/gj. Journey is not currently
anticipating any additional general and administrative expenses
associated with the Acquisition.
Strategic Rationale
The Acquisition is consistent with Journey's previously
communicated portfolio strategy focused on high quality;
predictable, low-decline, oil and liquids focused assets with
associated infrastructure capable of delivering strong free funds
flow to maintain growth while preserving a healthy balance sheet.
This combination of characteristics provides management the
flexibility to deliver efficient growth to shareholders through
technical and operational expertise and by taking advantage of
synergies associated with having a significant presence in a
focused core area.
The key benefits to Journey shareholders, pro forma the
Acquisition, are:
- When viewed in combination with non-core asset sales and the
exercise of the AIMCo warrants this transaction is approximately
10% accretive to 2016 fourth quarter funds flow per share.
- The current production of 2,000 boe/d (28% liquids) for the
acquired assets has an annual decline rate of 16%, less than
Journey's existing decline rate.
- The transaction has a balanced revenue stream with 40-45% of
funds flow coming from oil and natural gas liquids; 40-45% of funds
flow from natural gas; and 10-20% of funds flow from custom
processing revenues.
- The transaction reduces corporate costs and operating costs on
a per boe basis.
- The asset purchase increases the quality of Journey's NGL's and
the heating value of Journey's natural gas production.
- Near term upside, already identified by Journey will allow
Journey to reduce operating costs on a per boe basis while
maintaining production over the remainder of the year for less than
30% of running funds flow.
- The strategic infrastructure associated with the asset
purchase, including but not limited to a 43.3% working interest in
the Tidewater Gilby 75 mmcf/d processing facility, will create
future acquisition and consolidation opportunities for Journey in
our central core region.
- The asset purchase results in an anticipated improvement to
Journey's corporate LMR ratio to 2.44, due to an LMR ratio of 3.24
for the acquired assets.
Summary of the Acquisition
The Acquisition and the assets to be acquired pursuant thereto
have the following characteristics and metrics:
Total purchase
price (1)
|
$35.6
million
|
Current production
(2017 average)
|
2,000 boe/d (28%
light oil and NGLs)
|
Forecasted annual
decline rate
|
16%
|
Proved developed
producing reserves(2)
|
5.7 million boe (25%
light oil and NGLs)
|
Proved
reserves (2)
|
8.3 million boe (24%
light oil and NGLs)
|
Proved plus probable
reserves (2)
|
13.0 million boe (23%
light oil and NGLs)
|
RLI (3)
|
Proved - 11.4
years;
Proved plus Probable
– 17.8 years
|
December 2016
operating netback (4) (5)
|
$11.80/boe
|
LMR (March
2017)
|
3.24
|
Current Production
metric
|
$17,800/boe/d
|
December 2016 funds
flow multiple (6)
|
4.1 x
|
Recycle ratio –
proved plus probable (7)
|
2.0 x
|
|
Notes to the table
above:
|
|
(1) The purchase price will be
adjusted for activity that occurred between the Effective Date and
the closing date of the Acquisition.
|
|
(2) Working interest reserves before
the calculation for royalties and before the consideration of
royalty interest reserves. Reserve estimates are based on the
Company's internal evaluation effective December 31, 2016, and were
prepared in accordance with the Canadian Oil and Gas Evaluation
Handbook by a staff member at Journey who is a qualified reserves
evaluator in accordance with National Instrument 51-101
- Standards of Disclosure for Oil and Gas
Activities.
|
|
(3) The reserve life index ("RLI") is
calculated by dividing internally estimated proved and proved plus
probable reserves respectively, by 2017 forecast
production.
|
|
(4) Operating netback does not have
any standard meaning prescribed by IFRS and therefore may not be
comparable with the calculation of similar measures for other
entities. Operating netback equals total petroleum and natural gas
sales less royalties, operating and transportation costs and
calculated on a boe basis.
|
|
(5) The operating netback is based on
the data and information the Vendor provided as actual results for
the period of December 2016.
|
|
(6) Funds flow multiple is calculated
by dividing the purchase price by the estimate of funds from
operations from the acquired asset for December 2016 on an
annualized basis.
|
|
(7) The recycle ratio was calculated
by taking the purchase price for the Acquisition, adding internally
estimated future development costs for proved plus probable
reserves and dividing this by the internally estimated proved plus
probable reserves. The result of $5.76/boe was then divided into
the December, 2016 operating netback of $11.80 to arrive at the
proved plus probable recycle ratio.
|
REVISED 2017 GUIDANCE
Journey's revised 2017 guidance, which reflects the
Acquisition, is as follows:
Annual average
production
|
10,100 – 10,500 boe/d
(49% liquids)
|
Exit 2017
production
|
10,700 – 11,100 boe/d
(49% liquids)
|
Exploration and
development capital
|
$35
million
|
Net acquisition and
divestiture capital
|
$35
million
|
Funds flow
|
$50 - 54
million
|
Year-end net
debt
|
$82 – 86
million
|
Funds flow per basic
share (weighted average shares)
|
$1.01 – 1.09
share
|
Corporate annual
decline rate
|
17%
|
Journey's revised 2017 forecasted funds flow from operations of
$50-54 million is based upon the
following average prices: WTI of US$54/bbl; AECO gas of CDN$2.65/mcf; and a foreign exchange rate of
$0.75 US$/CDN$. The Company
will operate substantially all of its 2017 capital program with an
average working interest in excess of 90%. Because of this,
Journey can remain flexible with its budget by increasing or
decreasing its spending levels should commodity prices change
materially. Although Journey has the ability to provide
additional growth within funds flow, Journey remains steadfast in
its commitment to preserve financial flexibility during volatile
times.
In the near term Journey will commence its semi-annual review of
its syndicated bank line, which is anticipated to conclude by the
end of April. Journey is anticipating increased credit
capacity due to its strong 2016 reserves additions and the lending
value of the Acquisition. Journey projects it has sufficient
liquidity for the continued execution of its growth oriented
capital program for 2017 and beyond. With the execution of
Journey's 2017 budget, and after giving effect to the funds flow
associated with the acquired assets, Journey forecasts the net debt
to annualized fourth quarter 2017 funds flow ratio to decrease to
less than 1.5 times. Journey's 2017 funds flow guidance range
represents an 85% improvement from 2016. This increase in
funds flow is after taking into account approximately $6.0 million in forecasted hedging losses based
on current strip prices. Further improvement in funds flow
for 2018 is anticipated if the current commodity strip prices
materialize.
Journey forecasts annual production of between 10,100 and 10,500
boe/d in 2017, with the drilling of 14 gross (13 net) wells.
Capital spending is currently allocated evenly between Journey's
Central and South core areas. Journey intends to prudently
expand long lead-time waterflood projects in addition to its
drilling program. Approximately 25% of Journey's 2017 growth
capital is directed toward waterflood expansion projects.
These exploitation projects do not provide immediate production
uplifts but generate high rates of return as they contribute to the
sustainability of Journey's long term business model, which is
focused on low cost, low decline, high quality conventional oil
pools and liquids projects.
On behalf of Journey's management team and its directors,
Journey would like to thank its shareholders for their continued
support through this challenging time. There are few
companies within Journey's peer group that share the same upside
leverage to rising commodity prices that Journey does. With
only 50.7 million pro forma basic outstanding shares after the
Acquisition is closed, a fourth quarter net debt to funds flow
ratio of less than 1.5:1, and a development inventory of over
twenty years, Journey is poised to provide significant growth in
shareholder value over the longer term.
Advisors
Eight Capital acted as exclusive financial advisor to Journey
with respect to the Acquisition.
About the Company
Journey is a Canadian exploration and production company focused
on conventional oil and liquids-rich natural gas 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.
FORWARD LOOKING STATEMENTS AND OTHER 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 our
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
our 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 our 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 our
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.
Our 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
securityholders with a more complete perspective on our 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 our 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 the purpose of
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,
2016. Forward-looking information may relate to
our 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 our 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)
|
The Company
considers "funds flow" as 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.
Funds flow is calculated by taking cash from operating activities
as reported in the Company's financial statements and adding or
deducting the following items: changes in non-cash working capital;
transaction costs and decommissioning costs. Journey's
determination of funds flow may not be comparable to that reported
by other companies. Journey also presents Funds Flow per share
whereby per share amounts are calculated using weighted average
shares outstanding consistent with the calculation of net income
per share, which per share amount is calculated under IFRS and is
more fully described in the notes to the financial
statements.
|
(2)
|
Net debt is a
non-IFRS measure and represents current assets less: current
liabilities, bank debt and the promissory notes outstanding. For
purposes of Journey's net calculation, the impact of the potential
future liability (or asset) related to the mark-to-market
measurement of derivative contracts as well as the provision for
decommissioning liabilities have been excluded from the
calculation.
|
(3)
|
Operating netback
is a non-IFRS measure, is calculated on a per boe basis and equals
total revenue (excluding hedging gains and losses); minus the
aggregate of: royalties, transportation and field operating
costs. Journey considers operating netback as an important
measure to evaluate its operational performance as it demonstrates
its field level profitability relative to current commodity
prices.
|
Barrel of Oil Equivalents
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 six (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.
Oil and Gas Measures and Metrics
All reserve references in this press release are "Company
Gross Reserves". Company gross reserves are the Company's total
working interest share of reserves before deduction of any
royalties and excluding any royalty interests of the
Company.
All future net revenues are stated prior to provision of
general and administrative expenses, interest, but after the
deduction of royalties, operating costs, estimated abandonment and
reclamation cost for wells with reserves attributed to them; and
estimated future capital expenditures. Future net revenues have
been presented on a before tax basis. Estimated values of future
net revenue disclosed herein are not representative of fair market
value.
The Company uses the following metrics in assessing its
performance and comparing itself to other companies in the oil and
gas industry. These terms do not have a standardized meaning
and therefore may not be comparable with the calculation of similar
measures.by other companies:
1)
|
Corporate Decline
is the rate at which production from a grouping of assets falls
from the beginning of a fiscal year to the end of that
year.
|
2)
|
IP 365 is the
average daily production rate of a well in its first 365 days of
production expressed in boe's.
|
Oil and Gas Advisories
The reserves information contained in this press release are
based on Journey's internal evaluation and were prepared by a
member of Journey's staff who is a qualified reserves evaluator in
accordance with National Instrument 51-101 effective December 31, 2016. Such estimates are based on
values that Journey's management believes to be reasonable and are
subject to the same limitations discussed above under
"Forward-Looking Statements and Other Advisories". Listed below are
cautionary statements applicable to the reserves information that
are specifically required by NI 51-101: (i) individual properties
may not reflect the same confidence level as estimates of reserves
for all properties due to the effects of aggregation; and (ii) this
press release contains estimates of the net present value of the
future net revenue from the reserves to be acquired - such amounts
do not represent the fair market value of such reserves. EOR is an
oil recovery method that reduces residual oil saturated within the
reservoir and improves the efficiency of a waterflood. This press
release discloses drilling inventory in three categories: (i)
proved locations; (ii) probable locations; and (iii) unbooked
locations. Proved locations and probable locations are derived from
an internal reserves evaluation effective December 31, 2016 and account for drilling
locations that have associated proved and/or probable reserves, as
applicable. Unbooked locations are internal estimates based on our
prospective acreage and an assumption as to the number of wells
that can be drilled per section based on industry practice and
internal review. Unbooked locations do not have attributed reserves
or resources. Of the 14.4 net total drilling locations identified
within the assets to be acquired, 8.5 net are proved locations, 5.9
net are probable locations and no locations are unbooked.
Abbreviations
bbl
|
barrel
|
bbls
|
barrels
|
boe
|
barrels of oil
equivalent
|
gj
|
gigajoules
|
Mbbls
|
Thousand
barrels
|
MMBtu
|
Million British
thermal units
|
NGL
|
Natural gas
liquids
|
Mcf
|
thousand cubic
feet
|
Mmcf
|
Million cubic
feet
|
Mmcf/d
|
Million cubic feet
per day
|
Mboe
|
Thousand
boe
|
$M
|
Thousands of
dollars
|
No securities regulatory authority has either approved or
disapproved of the contents of this press release.
SOURCE Journey Energy Inc.