Journey Energy Inc. is providing the following operational update. This update is accompanied by an updated Corporate Presentation posted on the Company's website at www.journeyenergy.ca.
On July 28, 2022 Journey announced its intention to enter into a significant transformative acquisition (the "Acquisition"). This acquisition closed on October 31, 2022. One of the key attributes of the Acquisition was the ability to fund the purchase through corporate cash flows over a reasonable time frame. In order to accomplish this Journey entered into a Vendor Take Back ("VTB") financing arrangement with the vendor, and simultaneously moved some term debt repayments from the Fall of 2022 to the Spring 2023. In addition, Journey agreed to pay-out the remaining $5 million of bank debt on January 31, 2023. As a result, Journey's debt obligations over the 2023-2024 time frame are primarily concentrated in 2023.
In the fall of 2022, prices for crude oil and natural gas began to slide and this has continued into 2023. Likewise natural gas prices have fallen by a third in January due to warmer weather. In light of the highly volatile commodity prices, coupled with the weighting of the remaining term debt payments to 2023, Journey has adopted a prudent approach of deferring its exploration and development capital expenditures over the near term. This began with the deferral of the Matziwin and Cherhill drilling programs originally forecast to begin in the fourth quarter of 2022. This was then followed by the deferral of our entire first half ("1H") 2023 drilling program to the second half of 2023, or later, depending upon commodity prices.
Although there have been changes to the E&D program, Journey continues to move forward and create shareholder value as highlighted today by the announcement of a significant new power generation opportunity. Management is very excited about this opportunity and it is described in more detail below.
OPERATIONAL UPDATE
Journey's fourth quarter sales volumes were 11,800 – 12,000 boe/d (54% liquids) based on field estimates. Volumes were impacted by downtime on the production from the Acquisition. This downtime was due to well servicing work that was deferred by the vendor during the interim period prior to closing; an extended third party turnaround at our recently acquired Carrot Creek facility; extreme cold weather in mid-December, which continued into early January; and the impact of the reduced capital program. Production levels have partially recovered from the cold weather and Journey forecasts averaging over 13,000 boe/d (55% liquids) for the month of January.
Journey estimates its 2022 year-end Net Debt to be approximately $100 million, which is consistent with previous guidance. The reduced Adjusted Funds Flow from lower commodity prices in the fourth quarter, was largely offset by deferrals of capital spending.
Journey continues to advance its repeatable Glauconite play in Westerose. The Company shut in approximately two-thirds of its recently drilled two mile horizontal well, leaving a portion at the heel and toe of the well open for production. The well is now producing sweet gas through a downhole choke at a restricted rate of 1.5 MMSCF/d. Two additional vertical wells were fracture stimulated in the Glauconite zone. All four Glauconite wells Journey completed at Westerose have encountered near virgin pressure, and production test rates confirm both the size and productivity of this significant resource. Journey is now mapping out plans for a multi-year drilling program as well as increasing egress through added infrastructure. The Company is also advancing similar repeatable plays in other areas and has allocated some 1H 2023 funds for this purpose. Further details will be presented in due course.
EXPANDING JOURNEY'S POWER BUSINESS
Journey has continued to prioritize its emerging power generation business and has made significant strides in this regard. Today, Journey announces that it has entered into an agreement to purchase a 16.5 MW power generation facility through an open auction process that started in November 2022. This facility was originally commissioned in 2015, and ran for less than one year before being shut-in. It consists of five, 3.3 MW Jenbacher generators and includes switch gear, coolers, and an export transformer. The generators, ancillary equipment, and buildings are in excellent condition as they previously had minimal run time. Journey estimates that the replacement value of this facility today is in excess of five times the purchase price.
This power asset acquisition is forecast to close in the second quarter of 2023 and its cost has been included in our capital guidance for 1H 2023. As previously press released, Journey has received preliminary approval to construct a 15.5 MW generation facility at our Gilby gas plant. Journey had proactively procured 8.4 MW of generating capacity and has options on another 8.6 MW of equipment in support of this project. Journey is currently conducting a number of high level studies to determine the best use for the procured equipment with an upward bias to installing more generation capacity in 2023 than originally anticipated. The record power prices of $311/MW realized in December of 2022 help to further re-inforce the validity of this longer term strategy.
Journey has demonstrated, through the operation of its existing Countess power plant, that it is far more profitable to convert its natural gas into electricity, than to merely sell the natural gas at spot prices. The 4 MW Countess facility, commissioned in the fourth quarter of 2020, is already close to paying out the original investment. Based on Journey's realized power prices in 2022, the average, effective, net realized price for natural gas used to generate power for the year was approximately $10.54/mcf. This price takes into account the cost of the natural gas and the incremental costs of operating the power plant. As a comparison, the average AECO benchmark price for 2022 was approximately $5.43/mcf. Average power prices have increased over 250% since this facility came on stream. Journey is planning to increase its power sales to the Alberta electricity grid by over 500% over the next year. The nature of Journey's asset base is such that it is a large power consumer, and power represents 25% of overall corporate operating costs. By early 2024, subject to regulatory approvals and timelines, Journey projects that it will be adding more power to the power grid than it is removing, thereby increasing the sustainability of the business over the longer term.
JOURNEY ENERGY RANKED FIRST IN 2023 OTCQX BEST 50
Journey Energy (OTCQX: JRNGF) is also pleased to announce, that earlier today, it has been named the top ranked Company on the 2023 OTCQX® Best 50. The OTCQX Best 50 is an annual ranking of the top 50 U.S. and international companies traded on the OTCQX market. The ranking is calculated based on an equal weighting of one-year total return and average daily dollar volume growth in the previous calendar year.
This is the second year in a row Journey has achieved an OTCQX milestone, having ranked fifth overall on the 2022 OTCQX® Best 50 listing. For the complete 2023 OTCQX Best 50 ranking, visit https://www.otcmarkets.com/files/2023_OTCQX_Best_50.pdf.
The OTCQX Best Market offers transparent and efficient trading of established, investor-focused U.S. and global companies. To qualify for the OTCQX market, companies must meet high financial standards, follow best practices for corporate governance, and also demonstrate compliance with applicable securities laws.
OUTLOOK & GUIDANCE
Given the deferral of a significant portion of its exploration and development capital program, Journey has updated its guidance. The new guidance has been limited to the first half of 2023. Journey remains poised to significantly ramp up capital expenditures in the second half of 2023 should commodity prices recover to previously forecast levels. The guidance incorporates many material underlying assumptions including but not limited to:
Forecasted commodity prices by month;
Assumptions of VTB principal payments based upon forecasted commodity prices;
Forecasted operating costs, including forecasted prices for power;
Forecasted costs for the capital program; and
Forecasted results and phasing of production additions from the capital program;
Note:
The weighting of the corporate sales volumes guidance is as follows:
Heavy oil: 5%
Light/medium crude oil: 40%
NGL's: 9%
Coal-bed methane natural gas: 6%
Conventional natural gas: 40%
Commodity prices represent 1H 2023 forecast averages.
Journey's goals for improving corporate sustainability in 2023 include:
Reducing leverage created by the transformational acquisition in 2022;
Adding inventory in repeatable plays;
Advancing the power generation business;
Managing ARO; and
Continuing to search for creative ways to expand the Company's business
Journey's low corporate decline, high working interest project inventory, operated infrastructure, and favourable expiry profile allow the Company to weather periods of lower than forecast commodity prices by proactively deferring portions of the capital program on a temporary basis. Journey is focused on adjusting its capital program to meet its near term obligations without sacrificing the longer term priorities of sustainability and enhancing shareholder value.
Journey continues to embark on a careful and prudent expansion of its business plan. Journey has achieved or exceeded all of its internal targets and created significant value for all stakeholders since the bottom of the market in 2020. This expansion has been buoyed by commodity price tailwinds and would not be possible without the talented team at Journey, both in the office and the field. Journey also recognizes the steady guidance supplied by its Board of Directors and the unyielding support of AIMCo, the Company's term debt provider and largest shareholder. Together, with the support of this combined team, your Company is extremely well positioned to continue its journey of value creation and maintain its growth trajectory for years to come. The Company looks forward to updating you on Journey's progress as it continues on this exciting development path.
