Journey Energy Inc. Reports its Third Quarter, 2015 Financial and Operating Results

CALGARY, Nov. 9, 2015 /CNW/ - Journey Energy Inc. (JOY – TSX) ("Journey" or the "Company") is pleased to announce its financial results for the third quarter of 2015.  The complete set of financial statements and management discussion and analysis for the three and nine month periods ended September 30, 2015 are posted on www.sedar.com and on the Company's website www.journeyenergy.ca.

HIGHLIGHTS

Highlights for the third quarter and to date include:

  • Realized cash flow from operations of $8.6 million in the third quarter or $0.20 per basic share.
  • Achieved a production level of 9,786 BOE/d in the third quarter.
  • Liquids (oil and natural gas liquids) production accounted for 5,267 BOE/d or 54% of total production during the quarter.
  • Received a corporate average commodity price of $31.78/BOE in the quarter.
  • Reduced general and administrative costs to $2.80/BOE compared to $2.84/BOE in the same quarter of 2014.
  • Declared dividends of $0.065 per share in the quarter.
  • In July, Journey closed a property acquisition and a strategic farm-in deal in our Countess/Brooks focus area. These transactions included the acquisition of approximately 35 BOE/d (70% liquids) and access to 11.75 sections of prospective Mannville rights. This area is covered by 3D seismic and Journey has production on both these lands and immediately offsetting lands. The total cost for these two transactions was $2.2 million.
  • Journey has completed two wells on the farm in/acquired lands and will have flow test results from these wells in mid-November.
  • In August, Journey consolidated several unit interests in the Company's Central Alberta focus area for a cost of $1.85 million, adding approximately 35 BOE/d (70% liquids).
  • In October, Journey completed the purchase of a section of land in our Skiff property for $1.0 million.  The section acquired contains two horizontal wells and is currently producing approximately 30 BOE/d (100% light oil) and is located in the center of one of our waterflood projects.
  • Purchased and cancelled 1.3 million common shares under the Normal Course Issuer Bid at an average cost of $1.68 per share.



    Three Months ended

     September 30,

    Nine months ended

     September 30,

    Financial ($000's except per share amounts)

    2015

     

    2014

    %

    change

    2015

     

    2014

    %

    change

    Production revenue

    28,617

    58,593

    (51)

    94,899

    162,033

    (41)

    Cash flow from operations

    8,612

    26,367

    (67)

    40,015

    69,044

    (42)


    Per basic share

    0.20

    0.61

    (67)

    0.91

    2.12

    (57)


    Per diluted share

    0.19

    0.59

    (68)

    0.91

    2.03

    (55)

    Net income (loss)

    (153,397)

    12,734

    (1,305)

    (149,923)

    15,094

    (1,093)


    Per basic share

    (3.49)

    0.30

    (1,263)

    (3.42)

    0.46

    (843)


    Per diluted share

    (3.49)

    0.29

    (1,303)

    (3.42)

    0.44

    (877)

    Capital expenditures, net cash

    14,460

    32,668

    (56)

    39,545

    243,155

    (84)

    Net debt

    107,921

    100,635

    7

    107,921

    100,635

    7








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







    Basic, weighted average

    43,987

    43,056

    2

    43,776

    32,605

    34

    Basic, end of period

    43,127

    43,078

    -

    43,127

    43,078

    -

    Fully diluted

    48,439

    46,826

    3

    48,439

    46,826

    3








    Daily Production







    Natural gas volumes (mcf/d)

    27,118

    29,775

    (9)

    29,589

    27,266

    9

    Light oil (bbl/d)

    4,206

    4,836

    (13)

    4,538

    4,104

    11

    Heavy oil (bbl/d)

    434

    498

    (13)

    448

    498

    (10)

    Natural gas liquids (bbl/d)

    627

    695

    (10)

    634

    718

    (12)

    Barrels of oil equivalent (BOE/d)

    9,786

    11,002

    (11)

    10,551

    9,864

    7








    Average Prices







    Natural gas ($/mcf)

    2.88

    4.37

    (34)

    2.73

    5.04

    (46)

    Light Oil ($/bbl)

    47.36

    89.44

    (47)

    50.38

    92.34

    (45)

    Heavy oil (bbl/d)

    43.07

    81.96

    (47)

    48.42

    84.38

    (43)

    Natural gas liquids ($/bbl)

    24.12

    65.19

    (60)

    26.32

    68.58

    (62)

    Corporate ($/boe)

    31.78

    59.06

    (46)

    32.95

    61.61

    (47)








    Netbacks ($/boe)







    Realized prices

    31.78

    59.06

    (46)

    32.95

    61.61

    (47)

    Royalties

    (4.92)

    (10.23)

    (52)

    (4.37)

    (10.59)

    (59)

    Operating expenses

    (14.18)

    (14.08)

    1

    (14.48)

    (14.59)

    (1)

    Transportation expense

    (1.07)

    (2.83)

    (62)

    (0.91)

    (2.33)

    (61)

    Operating netback

    11.61

    31.92

    (64)

    13.19

    34.10

    (61)








    Wells drilled







    Gross

    5

    12

    (58)

    11

    27

    (59)

    Net

    4.4

    9.6

    (54)

    10.1

    20.0

    (49)

    Success rate

    100%

    100%

    -

    100%

    100

    -

    OPERATIONS

    Journey achieved production of 9,786 BOE/d (54% liquids) in the third quarter, which was 8% lower than the 10,609 BOE/d in the second quarter.  Third quarter production was negatively impacted by approximately 180 BOE/d attributable to TCPL pipeline outages in the Pine Creek and Crystal areas.  In addition, another 100 BOE/d was lost due to temporary facility downtime at Cherhill and Matziwin.  Due to the continued decline in oil and natural gas prices in the third quarter, Journey also chose to defer the drilling of two wells.  One well was in Matziwin and the other in Herronton. 

    Toward the end of the second quarter, Journey initiated its second half drilling program.  The eight well program is concentrated in the Company's recently acquired large oil-in-place pools in central Alberta.  During the third quarter, the Company drilled 5 (4.2 net) of these wells.

    In he Countess/Brooks area, Journey is pleased to have recently completed three transactions.  The first, in July, was a Lease Issuance and Option Agreement with Heritage Royalty Partnership. whereby Journey has been issued freehold leases covering 11.75 net sections directly adjacent to its core development area.  This agreement significantly expands our land position and Journey anticipates drilling a well on these lands in the second half of 2015.  In conjunction with the Heritage transaction, Journey closed a second transaction for the purchase of approximately 35 BOE/d (70% liquids) from a major producer.  The total cost for both transactions was $2.2 million.

    A third transaction was closed in August and encompassed the consolidation of unit interests in Central Alberta.  This consolidation transaction had a purchase price of $1.85 million and included approximately 35 BOE/d of production (70% liquids).

    FINANCIAL

    Journey realized cash flow from operations of $8.6 million in the third quarter of 2015 compared to $26.4 million in the same of quarter of last year.  With a reduced drilling program in the first half of 2015, the resulting production in the third quarter of 9,786 BOE/d was 11% lower compared to 11,002 BOE/d in the same quarter of 2014.  Average commodity prices were 46% lower than the third quarter compared to 2014 and 13% lower than the second quarter of this year.  Helping mitigate lower realized commodity prices, was a $1.5 million realized gain in respect of oil hedges.  On a per share basis, cash flow was $0.20 per basic share ($0.19 per diluted share). 

    Journey had a net loss of $153.4 million ($3.49 per basic share and diluted share) in the quarter.  The two largest items affecting this loss was a $208.2 million impairment loss on property, plant and equipment which was partially offset by a $56.5 million deferred tax recovery which was realized mainly as a result of the impairment charge.  The impairment was the result of lower forward looking commodity prices used by Journey's external reserve evaluators.  The impairment charges calculated by Journey for the third reflect the full impact of commodity price changes and therefore Journey does not forecast significant additional impairment charges as part of our year end evaluation.

    Journey's production mix was similar to the comparable quarter of last year, and was weighted 47% to oil; 47% to natural gas and 6% to natural gas liquids.  As a percentage of revenue, 75% was derived from oil sales; 20% from natural gas and 5% came from natural gas liquids.

    Royalty costs were down 67% in the third quarter to average $4.92/BOE as compared to $10.23/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 10% to 15.5% from 17.3% in 2014.  While operating costs were down $1.5 million in aggregate from the comparable quarter in 2014, on a per BOE basis they were up slightly by 1% to $14.18 per BOE compared to $14.08 per BOE in 2014. 

    Journey continues to search for efficiencies in both its field and head office cost structures.  During the second quarter, Journey implemented a cost reduction strategy which included: work force reductions in both the field and its head office; reducing contractor hours and rates, and reducing salary and benefits for all staff.  Aggregate field operating costs are being lowered.  The benefits of these second quarter reductions were taking hold in the third quarter wherein we spent $1.5 million less on operating costs than the same quarter in 2014.  In our Head Office, we continue to employ cost reduction strategies.  In late October, Journey completed another review of its operating structure and further reduced its personnel (employees and consultants) by another ten full time equivalents.

    During the third quarter, Journey invested $14.5 million in its capital program.  This included drilling and completing 5 (4.4 net) wells and closing $2.8 million of strategic, tuck-in acquisitions.  Capital spending is under constant scrutiny and maintaining a solid balance sheet is of paramount importance.  

    Journey's share price has declined along with the rest of the industry.  Given the share price realized over the third quarter relative to its underlying reserves value and low debt, Journey aggressively purchased shares under the Normal Course Issuer Bid ("NCIB").  During the third quarter, Journey purchased 1,267,100 shares at an average price of $1.68 per share, which was well below Management's estimated proved, developed producing net asset value using the September 30 reserve evaluator price forecast.  These buybacks had a marginal impact on net debt as certain non-critical capital projects were deferred in favour of these accretive purchases.

    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.  While production and cash flow levels were lower as a result, we exited the quarter with lower net debt than previously expected.  Net debt at the end of the third quarter was $107.9 million which was up slightly from the $97.8 million in net debt at June 30 of this year.  At September 30 we were drawn $90 million on our $205 million credit facility.  The mid-year banking review of our bank line is in progress and will be completed by November 30.  Commensurate with the decline in commodity prices throughout the year, it is expected that the borrowing base will decline as well.  We will update the new credit facility amount in our press release in early December.

    DIVIDENDS

    Journey declared dividends totaling $0.065/share in the third quarter and this brought the nine month, 2015 total dividends declared to $0.215 per share.  Journey's Dividend Reinvestment Plan ("DRIP") and Stock Dividend Plan ("SDP") combined participation rate was approximately 54% in the third quarter.

    Effective today, Journey has temporarily suspended the DRIP and SDP programs.  At the current share price, the decision to issue equity to satisfy these programs is below the replacement value of our reserves and therefore not in the best interests of our shareholders.  In addition, and as announced in August, the Board of Directors of Journey amended the dividend policy to quarterly payments.  Journey will communicate its dividend level for the fourth quarter to its shareholders in early December.

    OUTLOOK

    In October Journey closed a $1.0 million acquisition of a section of land in our Skiff area containing two horizontal wells producing approximately 30 BOE/d (100% light oil).  This strategic acquisition was in the center of one of our waterflood projects in the area.  Journey has also identified further drilling and waterflood potential on the acquired land.

    Journey has now completed its 2015 drilling program with 3 gross (2.6 net) wells drilled in the fourth quarter.  2 (2.0 net) wells were drilled on our lands in Brooks.  Testing of the fourth quarter wells is ongoing.  In addition to our fourth quarter drilling, Journey also expanded the injection pipeline network in Matziwin by adding a new horizontal injector and water source well in response to the successful waterflood results received during the year.

    As we approach the end of the year, Journey would like to take the opportunity to update its guidance for 2015 as follows:

    Annual average production

    10,200 to 10,400 BOE/d (54% liquids)

    Capital program (including net acquisitions)

    $48 to $50 million

    Cash flow from operations

    $47 to $49 million

    Year end net debt

    $107 to $109 million

    Cash flow per basic, weighted average share

    $1.07 - $1.12

    The challenges of current commodity prices not only affect our operating environment, but the market value of Journey securities as well.  Journey views the current share price is well below the replacement value of our reserves.  As such, the Company will continue to evaluate future purchases under the NCIB.

    Many companies are re-evaluating their near term business strategies, reducing their controllable costs and re-positioning their companies for the eventual and inevitable recovery in commodity prices.  Although 2016 may continue to be challenging, Journey remains fortunate due to our lower than average leverage compared to our peer group; low corporate decline; high degree of operatorship; and lack of land expiries or drilling commitments; flexible dividend structure; and supportive major shareholder.

    Our 2016 capital program will be weighted more towards waterflood expansion projects than in previous years.  This is partially due to the longer lead time for production response, which provides us with time to allow commodity prices to recover, and to develop projects which we believe have significant upside for the Company.  This will be coupled with a scaled back, but strategic, horizontal well drilling program.  We believe this combined program will strike the correct balance between reducing our corporate decline and maintaining production.  Our 2016 capital program will be designed to improve our oil weighting and reduce our 2017 corporate decline to approximately 18%, thereby positioning Journey's growth platform for a recovery in commodity prices in 2017.

    Over the past three months Journey has initiated a number of strategic initiatives.  These include the sale of non-core, non-strategic assets; finding equity partners who see the value in our assets, and targeted shifts in capital spending toward acquisitions and waterflood expansions versus development drilling.  Although no definitive actions have resulted from these initiatives to date, the evaluation process continues.  For this reason Journey plans to provide further guidance pertaining to fourth quarter dividend level and 2016 guidance in early December.

    Journey would like to thank all of our shareholders and employees for their continued 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 provide investors with growth plus a sustainable yield by focusing on drilling its existing core lands, implementing water flood projects, executing on accretive acquisitions and growing its production base. Journey seeks to optimize its legacy oil pools 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.

    No securities regulatory authority has either approved or disapproved of the contents of this press release.

    All future net revenues are stated prior to provision of general and administrative expenses, interest, but after the deduction of royalties, operating costs 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.

    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-GAAP Measures

    The company uses the following non-GAAP measures in evaluating corporate performance. These terms are not recognized under Generally Accepted Accounting Principles ("GAAP").

    (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 (loss) 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-GAAP measure and represents current assets less current liabilities (but excludes the potential future liability (or asset) related to the mark-to-market measurement of derivative contracts and decommissioning obligations) less bank indebtedness, bank debt and the long term portion of the deferred lease obligation. It does not have a standardized meaning prescribed by International Financial Reporting Standards and it is therefore unlikely to be comparable to similar measures presented by other companies.

    (3)  Operating netback is a non-GAAP measure and equals total revenue less royalties, transportation and 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. Operating netback and funds flow from operations netback do not have a standardized measure prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculations of similar measures for other companies.


    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.

    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; Gerry Gilewicz, Chief Financial Officer, 403.303.3238, gerry.gilewicz@journeyenergy.ca


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