Journey Energy Inc. reports its fourth quarter and year end 2015 financial results

CALGARY, March 14, 2016 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") is pleased to announce its financial results for 2015.  The complete set of financial statements and management discussion and analysis for the year ended December 31, 2015 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

HIGHLIGHTS

Highlights for the fourth quarter and year end 2015 are as follows:


  • Realized cash flow from operations of $9.5 million in the fourth quarter or $0.22 per basic share. For 2015 cash flow was $49.5 million or $1.13 per basic share.
  • Achieved a production level of 9,593 BOE/d in the fourth quarter and 10,309 BOE/d for the year.
  • Liquids (oil and natural gas liquids) production accounted for 5,265 BOE/d or 55% of total production during the quarter.
  • Received a corporate average commodity price of $28.33/BOE in the quarter. For 2015, the corporate average commodity price was $31.87/BOE.
  • Drilled 5 (3.1 net) wells in the fourth quarter bringing the year to date drilling activity to 16 (13.2 net) wells.
  • In October, Journey completed the acquisition of a key asset in the Skiff area of Alberta for $1.0 million. The asset consists of 30 BOE/d (100% oil) from two existing horizontal wells and is situated within our current waterflood area with additional horizontal drilling locations.
  • Under the Normal Course Issuer Bid, Journey purchased, and cancelled 68 thousand common shares at an average cost of $1.85 per share.

Three Months ended

 December 31,

Twelve months ended

 December 31,

Financial ($000's except per share amounts)

 

2015

 

2014

%

change

 

2015

 

2014

%

change

Production revenue

25,008

48,264

(48)

119,907

209,509

(43)

Cash flow from operations

9,527

24,557

(61)

49,542

93,601

(47)


Per basic share

0.22

0.57

(61)

1.13

2.65

(57)


Per diluted share

0.21

0.56

(62)

1.10

2.56

(57)

Net income (loss)

38,586

(105,316)

(137)

(111,337)

(90,221)

23


Per basic share

0.89

(2.44)

(136)

(2.55)

(2.56)

-


Per diluted share

0.86

(2.44)

(134)

(2.55)

(2.56)

-

Capital expenditures, net cash

8,554

17,702

(52)

48,099

260,857

(82)

Net debt

106,534

100,575

6

106,534

100,575

6








Share Capital – Common and Restricted Voting (000's)







Basic, weighted average

43,540

43,213

1

43,715

35,261

24

Basic, end of period

43,615

43,304

1

43,615

43,304

1

Fully diluted

49,681

48,131

3

49,681

48,130

3








Daily Production







Natural gas volumes (mcf/d)

25,972

33,846

(23)

28,677

28,925

(1)

Light/medium oil (bbl/d)

4,167

4,880

(15)

4,445

4,300

3

Heavy oil (bbl/d)

431

454

(5)

443

487

(9)

Natural gas liquids (bbl/d)

667

799

(17)

642

738

(13)

Barrels of oil equivalent (BOE/d)

9,593

11,773

(19)

10,309

10,346

-








Average Prices







Natural gas ($/mcf)

2.37

3.58

(34)

2.64

4.40

(40)

Light Oil ($/bbl)

42.84

67.74

(37)

48.60

83.86

(42)

Heavy oil (bbl/d)

36.58

64.88

(44)

45.52

79.80

(43)

Natural gas liquids ($/bbl)

24.06

54.41

(56)

25.73

64.18

(60)

Corporate ($/BOE)

28.33

44.56

(36)

31.87

55.48

(43)








Netbacks ($/BOE)







Realized prices

28.33

44.56

(36)

31.87

55.48

(43)

Royalties

(1.61)

(7.40)

(78)

(3.72)

(9.67)

(62)

Operating expenses

(12.46)

(14.39)

(13)

(14.00)

(14.53)

(4)

Transportation expense

(0.56)

(0.86)

(35)

(0.83)

(0.67)

24

Operating netback

13.70

21.91

(37)

13.32

30.61

(56)








Wells drilled







Gross

5

4


16

31


Net

3.1

2.8


13.2

22.8


Success rate (%)

100

82


100

98


 

OPERATIONS

Journey achieved production of 9,593 BOE/d (55% liquids) in the fourth quarter, representing a 2% reduction from third quarter levels. The lower pricing environment resulted in a reduction in capital expenditures to $8.6 million for the quarter.  Highlights from the fourth quarter included 3 (2.6 net) successful, operated, horizontal wells of which 1 (0.6 net) was drilled in Matziwin, and 2 (2 net) wells were drilled on our recent Brook's farm-in lands.  Journey intends to follow up our Brooks success with an additional well in the summer of 2016.

In October, Journey completed the purchase of a key asset in the Skiff area of Alberta for $1.0 million.  The asset contains two horizontal wells currently producing approximately 30 bbls/d (100% oil) and is located in the center of our waterflood project in the area.  Journey drilled a follow up well on this section in March 2016 and is in the process of expanding the current waterflood project to improve recovery within the pool.

Over the course of 2015, Journey participated in 16 (13.2 net) wells, and together with other development spending, added production at an expected IP 365 capital efficiency of approximately $25,000/BOE/d.  The majority of this capital was allocated earlier in 2015 and did not receive the full benefit of lower industry costs.  Journey also completed $6.6 million in tuck in acquisitions (net of dispositions) adding approximately 1.4 million barrels of Proved plus Probable reserves.  Journey's $48.1 million capital program also included $3.5 million in waterflood capital and $2.3 million in land and seismic, projects that are expected to contribute significantly to the future value of our Company.

FINANCIAL

Journey realized cash flow from operations of $9.5 million in the fourth quarter of 2015 compared to $24.6 million in the same quarter last year.  Average commodity prices impacted cash flows as they were 36% lower in the fourth quarter compared to 2014 and 11% lower than the third quarter of this year. Helping to mitigate lower realized commodity prices, was a $1.9 million realized gain in respect of oil hedges.  On a per share basis, cash flow was $0.22 per basic share ($0.21 per diluted share). 

Journey realized net income of $38.6 million ($0.89 per basic share and $0.86 per diluted share) in the fourth quarter.  The largest item contributing to the net income was a $91 million impairment reversal in the quarter.  The impairment reversal was the result of strong reserve additions in the fourth quarter and was directly attributable to better waterflood performance in Cherhill, Glenevis and Matziwin; as well as new drilling locations in Skiff, Matziwin, Brooks and Countess.  All of these positive results increased reserve bookings significantly in the fourth quarter and despite declining commodity prices increased the value in each of the areas mentioned. The result was a partial reversal of the impairment Journey incurred in the third quarter.

Journey's production mix moved to a stronger liquids weighting throughout the year, but the fourth quarter showed the most dramatic change.  The aggregate liquids (oil and natural gas liquids) weighting moved to 55% in the fourth quarter compared to 52% in the fourth quarter of 2014.  As a percentage of revenue, 77% of the corporate revenues were derived from liquids sales.  

Royalty costs were down 82% in the fourth quarter to average $1.61/BOE as compared to $7.40/BOE in the same quarter of 2014.  Commensurate with the decline in commodity prices, the average royalty rate (as a percentage of revenue) was down 66% to 5.7% from 16.6% in 2014.  Operating costs were down 29% in the fourth quarter to $11.0 million and on a per BOE basis the rate was down 13% to $12.46/BOE from $14.39 in the same quarter of 2014.

Journey continues to search for cost structure efficiencies.  During the fourth quarter, Journey implemented additional work force reductions in both the field and its head office.  As a result, the cumulative reductions in 2015 resulted in a 28% decrease in our full time equivalent count as compared to the end of 2014.

Attributable to the combination of the continued decline in commodity prices and some small, but accretive acquisition opportunities, Journey chose to defer certain of its drilling projects.  Commensurate with the decrease in capital spending, production and cash flow levels were lower.  However, Journey exited the year with net debt of $106.5 million, which was consistent with previous guidance.  Net debt was comprised of $90.7 million of bank debt and $15.8 million of working capital deficiency.  The current bank facility is $140 million and is currently undergoing its annual review.  We expect this review will be completed by the end of April.

2016 GUIDANCE

Journey's 2016 guidance remains unchanged from our February 23, 2016 press release as follows:

Annual average production

8,700 to 9,000 BOE/d (55% liquids)

Capital spending (excluding acquisitions)

$9 million

Cash flow

$15 - $16 million

Year end net debt

$100 - $101 million

Cash flow per basic, weighted average share

$0.34 - $0.37

WTI oil price

US $39/bbl

AECO natural gas price

CDN $2.40/mcf

F/X

$0.72 US$/CDN$

The recent strengthening of oil prices is a welcome change to the challenges and pressures facing our industry.  As commodity prices improve, we will continue to re-evaluate our near term business strategies and capital spending.  However, Journey remains in the fortunate position of owning and operating our own destiny where we can set the pace of development for our assets.  We continue to prioritize the maintenance or reduction of current debt levels over spending development capital.  We are focusing on opportunities to insulate our company from low future cash flows by reducing controllable costs and by taking advantage of opportunities to mitigate price exposure.  We have recently entered into a hedging contract for 1,000 bbls/d at a WTI price of price of $60/BBL Canadian for the calendar year 2017. 

As detailed in our February press release, our $9 million, 2016 capital program will be weighted towards the drill, complete, equip and tie-in of 2.5 net commitment wells and the expansion of our operated, waterflood projects.  The future development capital projects in Journey's reserve evaluation generate attractive rates of return in excess of 50% using year-end consensus price forecasts.

Journey continues to see favorable indications in our waterflood projects and plans to take advantage of low industry costs to prudently expand long lead time waterflood projects.  This allows us to add significant oil weighted reserves while slowing our corporate declines and also to remain poised to ramp up capital expenditures and return production to previous levels as commodity prices improve. 

With no expiry issues, legacy low decline pools, and attractive capital ready development projects, Journey remains steadfast in our desire to unlock significant value for shareholders through patient and prudent execution of our business plan over the longer term.  Journey would like to thank all of our shareholders and employees for their continued faith and support.

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.

ADVISORIES

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, 2015. 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, dividend policy, long-term objectives and the declaration and payment of dividends. 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 cash 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.

Readers are cautioned that the above list of risks and factors are not intended to be exhaustive. Additional information on these and other factors that could affect our operating and financial results are, or will be, included in reports filed with the applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

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 cash flow from operations (also referred to as "cash 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. Cash flow from operations is calculated as cash from operating activities before changes in non-cash working capital, transaction costs and decommissioning costs incurred. Cash flow from operations per share is calculated as cash flow from operations divided by the weighted-average number of shares outstanding in the period. Journey's determination of cash flow from operations may not be comparable to that reported by other companies. Journey also presents cash flow from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net earnings 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 and bank debt (but excludes the potential future liability (or assets) related to the mark-to-market measurement of derivative contracts and decommissioning liabilities).

(3)

Operating netback is a non-IFRS measure and equals total revenue less royalties, transportation and field operating costs calculated on a per BOE basis. Cash flow netback equals the operating netback less cash finance costs, general and administrative costs, realized gains and losses on derivative contracts, plus any interest income.

 

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 expressed in BOE's.

Select Definitions

bbl

barrel

bbls

barrels

Mbbls

Thousand barrels

MMBtu

Million British thermal units

NGLs

Natural gas liquids

Mcf

thousand cubic feet

Mmcf

Million cubic feet

Mmcf/d

Million cubic feet per day

Boe

Barrel of oil equivalent

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.

For further information: Alex G. Verge, President and Chief Executive Officer, 403-303-3232, alex.verge@journeyenergy.ca; or Gerry Gilewicz, Chief Financial Officer, 403-303-3238, gerry.gilewicz@journeyenergy.ca; Journey Energy Inc., 700, 517 - 10th Avenue SW, Calgary, AB T2R 0A8, 403-294-1635, www.journeyenergy.ca


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