Journey Energy Provides Operational Update on 2023 Capital Program

Source: 12/21/2023, Location: North America

Journey Energy Inc. is pleased to provide an update on a highly successful 2023 capital program. The program results exceeded expectations and have resulted in Journey exceeding its last guidance.

Journey is also pleased to provide preliminary guidance for 2024 with a focus on eliminating over 80% of remaining indebtedness, advancing its power business, and improving long term sustainability.

Increased daily sales volumes for November to 12,700 boe/d (55% liquids) based on field estimates.
Finished drilling the final well of a 12.0 well (10.3 net) program.
8.0 wells (6.8 net) were placed on-production with overall program results exceeding type curve expectations.
2.0 wells (1.8 net) drilled in Cherhill are expected to come on-production in January 2024 with 2.0 wells (1.7 net) in Poplar Creek being completed in January 2024.
Total program costs of $11.4 million are 31% lower than originally budgeted, allowing Journey to drill an additional 1.0 well in Matziwin (fourth quarter 2023), 1.7 net wells in Poplar Creek (fourth quarter 2023/first quarter 2024), and 2.9 net wells in Medicine Hat (first quarter of 2024).

During the third quarter, Journey began its 2023 exploration and development program, starting with a drilling program in the Medicine Hat pool. The Medicine Hat pool was a cornerstone of the acquisition that closed on October 31, 2022. Journey drilled 4.0 (2.9 net) wells in Medicine Hat. These wells have markedly exceeded expectations with respect to both costs and results. Total capital costs for the program were $5.4 million (gross), with initial production from the four wells being approximately 550 (400 net to Journey) bbl/d of oil. The wells have increased overall Medicine Hat production by over 20% and are forecast to pay out in approximately six months. Based upon these results both Journey and its partner have begun planning a second program for the first quarter 2024. With thirty estimated future locations, along with future waterflood and polymer flood expansion potential, Journey expects this field to continue to provide increasing shareholder value for many years to come.

The lower costs associated with the Medicine Hat program encouraged Journey to expand and accelerate the drilling of the Matziwin program. Journey has now drilled 3.0 gross (3.0 net) wells in Matziwin. All three wells have now been completed and placed on production. Similar to Medicine Hat, the total program costs were significantly below forecast. Initial production from one of the wells remains restricted, but overall production is forecast to meet type curve expectations.

On November 7, 2023 Journey moved a drilling rig to the Cherhill field to drill 3.0 gross (2.7 net) wells. One well came on-production December 11, 2023 and two wells are currently being equipped and tied in. Following completion of the Cherhill drilling program Journey added two additional wells (1.7 net) in Poplar Creek that will be completed in January.

The 2023 program is being funded from the flow-through share issuance, which was closed in the spring of 2023. Journey has until the first quarter of 2024 to complete the expenditures under this program. To date, the program costs are well below forecast and therefore Journey is preparing 4 (2.9 net) additional wells in Medicine Hat in the first quarter of 2024.

In the third quarter of 2023, Journey had sales volumes of 11,756 boe/d. This volume was below what the Company had forecast due to several one-time items. Restoration of shut-in production along with new production from the capital program has resulted in production increasing to 12,700 boe/d (55% liquids) for November of 2023, based upon field estimates. The ability to maintain production rates above 12,000 boe/d with limited capex is a testament to Journey's very low corporate decline rate.

Throughout 2023, Journey has maintained a conservative posture with respect to capital expenditures. The Company continues to prioritize its balance sheet strength along with the expansion of the power business. Due to the extensive regulatory timelines associated with adding power to the grid, Journey forecasts power-related capital expenditures of $7.6 million (excluding the Mazeppa purchase) for 2023, and has budgeted $16.8 million for 2024. The current target on-stream dates for the Gilby and Mazeppa power projects are the second quarter and fourth quarters of 2024, respectively.

Journey is pleased to report that it has entered into an agreement with its largest shareholder and term debt provider, Alberta Investment Management Corporation ("AIMCo"), to extend the maturity of its term debt repayments. Previously, there was a balloon payment on April 30, 2024 for $24.7 million and a second one on October 31, 2024 for $19.1 million. These repayments will now be subject to a much smaller balloon payment with the balance being amortized over monthly amounts. For the first maturity in April, $12.7 million of principal will be paid on April 30, 2024 and then repayments of $1.0 million per month (plus accrued interest) will be paid from May 2024 to April of 2025. For the second maturity in October, $10.1 million will be repaid on October 31, 2024 and then six monthly payments of $1.5 million (plus accrued interest) will be made from November of 2024 to April of 2025.

Journey CEO Alex Verge commented, "We are pleased that AIMCo has once again demonstrated its ongoing commitment to Journey's longer term success and sustainability by remaining flexible in the current soft pricing environment. This repayment accommodation provides additional liquidity to enable Journey to complete its winter drilling program and advance the completion of the Gilby power generation project."

This new repayment schedule is aligned with Journey's current repayment commitment to Enerplus Corporation under the vendor-take-back ("VTB") obligation from the acquisition in October of 2022. The repayments under the VTB are sensitive to the price of WTI oil and Journey has reduced the principal amount from the initial $45.0 million to a currently outstanding amount of $17.0 million. Journey currently expects that the VTB will be fully repaid on September 4, 2024 based on forecast WTI prices. This repayment date aligns with the start of repayments for the second tranche of AIMCo debt of $1.5 million, which begins on October 31, 2024.

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 current spot prices. The currently operating 4 MW Countess facility, which was originally commissioned in the fourth quarter of 2020, has already paid 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 $9.41/mcf. For the first nine months of 2023 the average, effective, net realized price was $9.47/mcf. These prices take 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 the first nine months of 2023 was $2.83/mcf.

Journey has budgeted $10.7 million to complete the Gilby power project and $6.3 million for re-energizing the Mazeppa power project in 2024. The steel work on the building for the Gilby project is nearing completion and building construction is scheduled to begin in January. Journey currently forecasts completion of the Gilby project in the second quarter of 2024 pending regulatory approvals.

In the second quarter of 2023 Journey purchased the 16.5 MW power generation facility at Mazeppa through an open auction process that started in November 2022. This facility was originally commissioned by another operator in 2015, and ran for less than one year before being shut-in. The Mazeppa facility is located near the community of High River, Alberta and consists of five, 3.3 MW 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 is in excess of five times the purchase price. Journey has now purchased the land the facility currently resides on and has also purchased the pipeline, which transports sales gas from an ATCO buy-back meter station. Recently, the operator of the buy-back meter has verbally agreed to upgrade this meter station. Although Journey continues to await regulatory approvals, all of the efforts to date have resulted in Journey being confident that Mazeppa will be re-energized in its current location within the next year and looks forward to providing updates in due course.

Journey is planning to increase its power sales to the Alberta electricity grid by over 350% over the next year. The nature of Journey's asset base is such that it is a large power consumer with power costs representing 25% of overall corporate operating costs. When the Gilby and Mazeppa power projects are on-stream, Journey will be in a position to more than offset its corporate power usage with power sales to the Alberta power grid. This will help diversify the corporate revenue stream and effectively provide a hedge against a volatile commodity pricing environment. The record power prices of $311/MW realized in December of 2022, along with the expanding valuations demonstrated by recent market transactions continue to re-inforce the validity of this longer term strategy.

In 2024, Journey forecasts reducing leverage by $50 million while maintaining production and energizing two power facilities.

Of the $41 million in planned 2024 capital, $6.2 million is related to drilling and completions, all of which will be spent in the first quarter. Journey plans on drilling 4.0 wells (2.9 net) in Medicine Hat in the first quarter along with the completion of the Poplar Creek wells drilled in the fourth quarter of 2023. The ability to maintain production rates near 12,000 boe/d with limited capex is a testament to Journey's very low corporate decline rate. Approximately $17.7 million of capital will be devoted to land, seismic, facilities, polymer, and end-of-life costs. $16.8 million of capital in 2024 is associated with the expansion of Journey's power business.

The below guidance incorporates many material underlying assumptions including but not limited to:

Forecasted commodity prices;
Assumptions of vendor-take-back principal payments, as these repayments are based upon realized WTI oil prices;
Forecast operating costs, including forecasted prices for power;
Forecast costs for the capital program; and
Forecast results and phasing in of production additions from the capital program.

Journey has embarked on a careful and prudent expansion of its business plan to grow the Company profitably. This includes executing on acquisitions the timing of which can be unpredictable and when executed on, can defer drilling plans.

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