JOY.TO was trading at $3.33Cdn (up 7.05% on the day) when this was posted. First Call's price target is $5.45Cdn
You need to register on the EPG website if you want to attend tomorrow's webinar.
Based on Journey's 12/31/2023 reserve report and their 12/31/2023 balance sheet, the Company's PV10 Net Asset Value based only on their Proved Reserves (1P) was $6.44Cdn per share on 12/31/2023. This year's drilling program, their polymer flood at Medicine Hat and rising natural gas prices should increase 1P reserves this year. They are also paying off debt, so the PV10 NAV should increase YOY.
Journey Energy is a Canadian Junior that trades on the TSX exchange with the symbol JOY and on the US OTCQX with the symbol JRNGF.
Joining me on the webinar will be Alex Verge the Company’s President & CEO
Journey Energy Inc. was founded in 2007 and is headquartered in Calgary, Canada.
It is involved in the exploration, development, and production of crude oil and natural gas in Alberta. The Company was formerly known as Sword Energy and changed its name to Journey Energy in July 2012.
Today Journey Energy is a publicly-traded, oil-weighted exploration and production company focused on creating sustainable value through the responsible development, enhancement and continued growth of their low-decline asset base situated across Alberta. It also has a Power Business that should go free cash flow positive in 2025.
Journey’s operating expertise lies in pursuing growth through drilling on existing core lands in Alberta, implementing water flood projects, completing accretive acquisitions, and growing overall production and reserves base. The Company seeks to optimize production from its legacy oil pools by applying best practices for horizontal drilling & completions techniques and, where applicable, using waterfloods to enhance production volumes and its reserves recovery.
The Company recently announced a Duvernay Joint Venture that has significant size and potential. < This is why you need to attend the webinar. This JV has SIGNIFICANT UPSIDE for a company of this size.
Tomorrow’s speaker is Alex Verge, Journey Energy’s President and CEO
Alex has more than 40 years of experience in the oil and natural gas industry. He has served as Director, CEO and President of NuVista Energy Ltd., and is a Member of the Association of Professional Engineers, Geoscientists of Alberta. He received a Bachelor of Science degree in Chemical Engineering from the University of Toronto, and a Masters of Engineering degree in Chemical and Petroleum Engineering from the University of Calgary.
Journey Energy is hosting our webinar tommorrow (June 11)
Journey Energy is hosting our webinar tommorrow (June 11)
Last edited by dan_s on Mon Jun 10, 2024 1:54 pm, edited 2 times in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Journey Energy is hosting our webinar tommorrow (June 11)
Highlights for 2023 are as follows with all in Canadian Dollars:
• Generated net income of $15.8 million for 2023. On a basic, weighted average per share basis, this amounted to $0.26 and $0.24 per diluted share.
• Realized Adjusted Funds Flow of $66.1 million for the year. On a basic, weighted average per share basis, this amounted to $1.10 and $1.00 per diluted share.
• Achieved sales volumes of 12,595 boe/d in the fourth quarter of 2023 and 12,415 boe/d for the entire year. Liquids volumes (crude oil and natural gas liquids) accounted for 6,912 boe/d or 55% of total volumes during the quarter and 6,765 boe/d or 54% for the entire year.
• Proved developed producing and proved plus probable developed producing reserve life index of 8.4 and 10.8 years respectively, are testaments to Journey’s low decline asset base, and the YoY increase in reserve life index demonstrates Journey’s ability to grow our base production base while simultaneously reducing our corporate decline rate.
• Achieved attractive F&D and FD&A recycle ratios of 2.4 and 2.5 respectively for proven reserves, and 8.9 and 8.5 respectively for proven plus probable reserves.
• The Company continued to advance the emerging power generation business:
o Generated 24,723 MWH of electricity in 2023 at an average price of $155.69/MWH.
o Started construction of the 15.1 MW power generation facility in Gilby Alberta, which is currently forecast to be on stream by the fourth quarter of 2024.
o Purchased a 16.5 MW power generation facility, the land it sits upon and the gas supply pipeline.
2024 CAPITAL PROGRAM ANNOUNCED MARCH 30
Upon closing the previously announced convertible debenture financing on March 20, 2024, Journey used a portion of the net proceeds of $36.6 million to retire the remaining vendor-take-back debt of $11.0 million and has also repaid AIMCo $12.7 million of its term debt. This will create interest cost savings in 2024 as the new debt carries a lower average interest rate than the repaid debt.
With enhanced liquidity for 2024, Journey now forecasts reducing leverage by over $20 million while maintaining production and advancing the development of two new power facilities.
On March 30 Journey announced that it has expanded its capital program by $10 million to $51 million. Of the $51 million of total capital spending in 2024, $16 million is related to drilling and completions, half of which was already spent in the first quarter. Journey drilled 4.0 wells (2.9 net) in Medicine Hat in the first quarter, and also completed the two Poplar Creek wells drilled in the fourth quarter of 2023. Production from these wells is exceeding internal projections. Journey is planning to expand its exploration and development program with additional drilling in the second half of 2024, and will provide further detail on this expansion in due course.
In addition to the drilling program Journey is planning to increase capital spending for facilities, waterflood and polymer flood to $9 million. This increase in spending includes facility debottlenecking in Cherhill; expanding the polymer flood in Medicine Hat to new, unflooded areas; and will also include a waterflood expansion in Matziwin. These projects are designed to increase recovery from well-defined oil pools and also help flatten Journey’s already low decline rates.
Journey is maintaining its previously planned expenditures of $17 million, which include both the power facility currently under construction in Gilby, as well as the continued development of the Mazeppa project. Journey is preparing for an October 1 start up in Gilby but has not included any additional power revenue for 2024 into the current guidance. Journey is still awaiting results from the electricity cluster study, which is expected in late June. This will then provide more clarity around the Mazeppa start-up date. At full capacity, Journey’s Countess, Gilby and Mazeppa power projects are forecast to provide cash flow of over $17 million in 2025.
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 of 13%, and our proved, developed, producing, net asset value (NPV@10%) of $5.00/share (see the February 22,2024 reserves press release). In addition to $17 million of power-related capital in 2024, approximately $18 million of capital will be devoted to land, seismic, facilities, polymer, and end-of-life costs. Most of these expenditures will add to Journey’s future value and future cash flow but have only a minor impact on 2024 production volumes due to the expenditures being made later in the year. This leaves $16 million (approximately 31%) of budgeted expenditures to maintain current production volumes.
In addition, $9 million will be devoted to end-of-life costs, land, and seismic.
OUTLOOK & GUIDANCE FOR 2024
Average daily production of 11,500 to 12,000 Boepd (55% crude oil & NGLs)
Adjusted Funds Flow of $70 to $73 million ($1.14 to $1.19 per share)
Capital Expenditures of $51 million
Year-end Net Debt of $40 to $44 million ( 0.6 X Net Debt to Adjusted Funds Flow)
Journey is maintaining its current guidance pertaining to sales volumes and Adjusted Funds Flow ranges due to a series of offsetting factors. Increased downtime due to the extreme cold weather in January and increased downtime budgeted for turnarounds and routine maintenance has reduced initially forecasted volumes. Increased capital devoted to the polymer and waterflood expansions also reduces near term volumes (in favour of future volumes) due to injector conversions. Drilling capital will be phased-in for later in 2024 and therefore will have a minor impact on 2024 volumes. The impact of the incremental capital is to increase exit liquids (crude oil and NGL’s) volumes by 500-600 bbl/d. The combined impact of the increased liquids production and the future secondary/tertiary recovery volumes positions Journey very well for an expanded capital program in 2025.
The recent financing has provided Journey financial flexibility to exit 2024 without a significant working capital deficit. After the final payment for the AIMCo term debt on April 30, 2025, there will be no debt repayment obligations until 2029. This, along with the inclusion of new power generation revenue in 2025, will provide the Company the ability to significantly ramp up growth capital in 2025. This will include, but is not limited to, the drilling of two Duvernay wells. Journey has 35 net sections of largely contiguous land in the heart of the west shale basin. The land has been delineated by three basin leading wells. As an early indicator of the value of this play, on March 20 2024, two-year mineral licenses for approximately 30 sections of offsetting lands to Journey, and on trend in the oil window, were sold for over $1 million per section.
May 7: Journey Energy Inc. (TSX: JOY) (OTCQX: JRNGF) (the “Company” or “Journey“) is pleased to announce that it has entered into an agreement with Spartan Delta Corp. (“Spartan“) to jointly develop a block of land in the west shale basin of the Duvernay oil and liquids fairway.
The Joint Venture (the “JV“) block of land covers 128 sections in the oil window of the Duvernay where shale thickness is approximately 30-40 meters. The initial working interests for the JV are Spartan 62.5% and Journey 37.5%. The parties currently control 94 sections within the JV block. Spartan has the potential to increase their interest within the JV from 62.5% to 70% with the contribution of additional lands acquired at their cost. The vast majority of the lands controlled within the block have significant tenure exceeding six years, with applicable extensions. On March 20, 2024, Crown lands immediately south of the block were acquired by other industry players for up to $1 million per section.
Spartan will be the operator of the JV. Expenditures within the block will be capped at $30 million in 2024 and $100 million for 2025 on a gross basis. However, expenditures may be increased with the agreement of both parties. The potential within the JV block is defined by the extensive production history from three existing Duvernay wells (Journey 29.17% WI, Spartan 70.83% WI). Duvernay production within the JV block is overlain by liquid-rich glauconitic production, which is expected to be processed through Journey’s operated, gas processing facility and gathering system in the Gilby area.
This is a significant venture for Journey, both in terms of potential resource capture and capital expenditures. The Company has, and will continue to, position itself financially to meet the joint development plans throughout the term of the JV. To assist in this alignment, Journey recently closed a $38 million convertible debenture, which provides no principal repayments for five years. This combined with Journey’s low net debt; cash flows from Journey’s existing production; and the expected future revenues from the expanding power business, will provide sufficient resources to fund the JV commitments, while allowing the Company to execute on its other drilling and optimization projects throughout 2024 and 2025.
May 9: First Quarter Highlights
Generated sales volumes of 11,906 boe/d in the first quarter (46% crude oil; 10% NGL’s; 44% natural gas).
Realized Adjusted Funds Flow of $17.7 million or $0.29 per basic share and $0.27 per diluted share.
Closed a $38 million convertible debenture financing on March 20, 2024. The proceeds of the financing were partially utilized to retire the remaining $11 million of vendor-take-back financing and to accelerate a $12.1 million payment to AIMCo. The remainder will be used to expand Journey’s 2024 capital program from $41 million to $51 million, as discussed in the March 28, 2024 press release. Guidance for 2024 remains unchanged since incremental volumes are phased in a way that will impact the exit rate but not annual averages.
Produced 6,968 megawatt hours of electricity at Journey’s power generation facility in Countess, Alberta at an average price of $117.69/MWH.
Continued with the construction of the Gilby power generation asset. The generators have been moved into the newly constructed building.
OPERATIONS UPDATE
Journey began its 2023 exploration and development program late in 2023, starting with a drilling program in the Medicine Hat pool. This pool was a cornerstone of the assets acquired from Enerplus Corporation in 2022. Journey drilled 4.0 gross (2.9 net) wells in Medicine Hat in late 2023. These wells have markedly exceeded expectations with respect to both costs and results. Based upon these results Journey has completed a second 4.0 (2.9 net) well program in this pool during the first quarter of 2024. Well costs and geological indicators are similar to, or better than, the first program. All of these wells were on stream by mid-March. In the second half of 2024 Journey is planning to convert four existing water injectors to polymer injection. With over thirty future locations, along with future waterflood and polymer flood expansion potential, Journey expects this field to continue to provide increasing shareholder value for years to come.
In addition to the 2023 Medicine Hat drilling program, Journey also drilled 3.0 gross (3.0 net) wells in Matziwin in the fourth quarter. Similar to Medicine Hat, the total program costs were significantly below forecast. On November 7, 2023 Journey moved a drilling rig to the Cherhill field where the Company drilled 3.0 gross (2.7 net) wells. The Cherhill program was followed up with 2.0 gross (1.7 net) wells drilled in Poplar Creek.
The 2023/2024 drilling program was funded with the proceeds of a flow through share issuance completed in the spring of 2023. Journey has now completed the required expenditures under this program.
In the first quarter of 2024, Journey had sales volumes of 11,906 boe/d (56% oil and liquids). First quarter volumes were negatively impacted (approximately 250 boe/d) by extended cold weather in January. A portion of the proceeds of the Convertible Debenture financing in March are being devoted to increased capital spending for facilities, waterfloods and polymer floods to $9 million. This increase in spending includes facility debottlenecking in Cherhill; expanding the polymer flood in Medicine Hat to new, unflooded areas; and will also include a waterflood expansion in Matziwin. These projects are designed to increase recovery from well-defined oil pools and also help flatten Journey’s already low decline rates.
For the medium term, the primary purpose of the debenture was to extend the near-term debt repayment obligations to 2029, thereby allowing for an expansion in E&D capital in 2024 and 2025 for projects including preliminary development of the Duvernay resource.
Spartan Delta Corp. Joint Venture
On May 7, 2024 Journey announced its participation in a 128 section Joint Venture land block with Spartan Delta Corp. (“Spartan“) to mutually pursue the development of the Duvernay west shale basin. The initial working interest within the block is 37.5% Journey and 62.5% Spartan Delta Corporation. The partners currently control 94 sections within the block. Two wells are planned for later in 2024. Journey’s share of these expenditures will be primarily funded through the convertible debenture financing, which closed in March.
The announcement of the Spartan – JOY Joint Venture (the “Joint Venture“) on May 7, 2024 marks the beginning of the next chapter in Journey’s effort to capitalize on this vast resource. As an early mover in the play Journey assembled a significant land position and entered into a Joint Venture with Kiwetinohk to develop the Duvernay resource in 2018. Even though this effort stalled due to lack of investment and the subsequent disposition by Kiwetinohk of their interest to Spartan in 2023, those early efforts produced three basin leading Duvernay wells that now have an extensive production history and confirm the value of this resource.
In 2023, Journey’s continued belief in this play lead the Company to complete a farm-in agreement with a freehold mineral owner in the Gilby area of Alberta to re-acquire some of the expired lands. This farm-in, combined with Journey’s existing acreage gave the Company access to approximately fifty contiguous, gross sections (34 net). These lands are adjacent to Journey’s Gilby gas processing facility, are overlain by liquid-rich Glauconite natural gas production, and contain the three Duvernay discovery wells. The primary term of the option agreement is for four years with an option to extend the term to seven years. Previous to the Company entering into the Joint Venture, Journey planned on drilling a minimum of four Duvernay wells on this block during the four year primary term.
At the time of the Kiwetinohk joint venture in 2018, Journey was smaller and had little option but to sell down its working interest through the farm out to Kiwetinohk. In 2024, after the term out of the majority of its debt until 2029, Journey is larger and better capitalized. Further, 2025 will mark the first year that Journey realizes more revenue from power generation than it requires in capital for the power projects, creating significant free cash flow. Therefore, Journey set out to find a quality partner where it could take advantage of the economies of scale working with a larger operator while minimizing the risk of single events on the Company’s business plan. The Company’s desire was to accomplish this without diluting the existing land position while maximizing the net number on azimuth locations in the liquids window.
The new Joint Venture block with Spartan consists of 94 controlled sections within a 128 section block in the heart of the oil window. At a 37.5% initial working interest, Journey has preserved its initial acreage position and aligned its interests with a well-capitalized operator with a proven track record of creating exceptional value for stakeholders. Under certain circumstances over the next few months, Spartan has the potential to increase their working interest within the block from 62.5% to 70% through a contribution of additional lands to the Joint Venture at their cost.
Initial capital expenditures for the Joint Venture are capped at gross amounts of $30 million and $100 million for 2024 and 2025 respectively. The cap on expenditures can be increased upon mutual agreement of both parties. The 2024 capital program is sufficient to drill, complete, equip and tie-in two wells on azimuth from a single pad late in 2024.
The Duvernay resource is located within the sweet spot of the west shale basin and is contiguous, 30-40 meters thick, and covers an extensive area. In the Joint Venture block, production is forecast to be approximately 75% liquids, the vast majority of which is light oil. Approximately fifty wells have been drilled over the past five years in the liquids window southwest and northeast of the Joint Venture lands and three top quartile wells define the resource in the middle of the Joint Venture block. Given the extensive efforts and results to date, Journey feels that there is little geologic, reservoir, drilling, or completion risk associated with the play. Journey feels that the primary drivers for this play center around water resources, logistics and infrastructure and this is why working with a low cost operator to conduct operations on a larger scale is highly beneficial to both parties.
EXPANDING JOURNEY’S POWER BUSINESS
Journey budgeted $11 million to complete the Gilby power project in 2024. Journey forecasts spending the majority of its budgeted capital for this project between March 15 and October 1 of 2024. The building for the Gilby project was completed in early April and the generators have now been placed in the building. In the next few weeks Journey will begin work to update the electronic components within the generators. Journey currently forecasts completion of the Gilby project by October of 2024, however the time-line for start-up remains outside of its control due to final regulatory and transmissions approvals. For this reason, Journey’s current guidance contains no power revenue from Gilby in 2024.
Journey has budgeted $6.3 million for re-energizing the Mazeppa power project in 2024. 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 pipeline. Although Journey continues to await regulatory approvals, all of the efforts to date have resulted in Journey being optimistic that Mazeppa will be re-energized in its current location 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% when the Gilby and Mazeppa projects come on-line.
As previously disclosed in Journey’s February 22, 2024 press release the combined value of Journey’s Gilby and Mazeppa projects is forecast to be $70.9 million as evaluated by GLJ Petroleum Consultants Ltd. and effective January 1, 2024. This value includes the full capital estimate to bring these projects on stream. The nature of Journey’s asset base is such that it is a large power consumer with power costs representing approximately 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 power grid. This will help diversify the corporate revenue stream and effectively provide a hedge against a volatile commodity pricing environment. The extreme volatility in recent power prices continues to re-enforce the validity of this long-term strategy.
FINANCIAL
Sales volumes for the quarter were 11,906 boe/d of which 56% were liquids (crude oil and NGL’s).
Due to depressed natural gas prices resulting from a relatively warm winter liquids revenues accounted for 87% of commodity revenues.
Average commodity prices decreased by 4% from the first quarter of 2023 to the current quarter with natural gas making up most of this decline while oil prices were slightly higher by 2% and liquids prices were 5% lower.
Lower power costs within the quarter resulted in operating expenses that were lower by 6% at $18.50/boe/d in the first quarter of 2024 compared to $19.78/boe/d in the same quarter of 2023.
Despite the lower volumes and lower natural gas prices, Journey posted solid Adjusted Funds Flow for the first quarter of 2023 at $17.7 million, which was only 1% lower than the same quarter of 2023. Adjusted Funds Flow per share was $0.29 on a basic weighted average basis and $0.27 on a diluted basis.
Journey realized net income of $3.2 million in the first quarter of 2024 compared to $6.4 million in the same quarter of 2023. Net income per basic and diluted share was $0.05 for the first quarter. Cash flow from operations was $8.0 million in the first quarter of 2024 ($0.13 per basic share and $0.12 per diluted share).
Journey closed a bought deal convertible debenture financing on March 20, 2024 for gross proceeds of $38.0 million. The financing was subscribed for by three long-term institutional investors. The net proceeds of the financing were used to repay the remaining $11.0 million of vendor take back debt, which was originally issued in 2022 and $12.1 million was used to repay AIMCo. The remainder will be used to help fund an expansion of Journey’s drilling program later in the year and for working capital purposes. Journey ended the quarter with a strong cash position of $20.9 million.
Journey continued to be prudent with its capital spending during the first quarter as it underspent its Adjusted Funds Flows. Total capital expenditures in the first quarter were $14.3 million. As a result, Journey exited the first quarter of 2024 with net debt of $60.1 million as compared to $71.1 million at March 31, 2023 and $61.7 million at December 31, 2023. Journey’s net debt to annualized Adjusted Funds Flow ratio for the first quarter is a very respectable 0.8 times.
OUTLOOK & GUIDANCE
The new Duvernay Joint Venture has the potential to alter where Journey allocates its capital in the second half of 2024. The actual amount and timing of the capital spending for 2024 will be determined over the coming months as plans for the Joint Venture spending are finalized. Therefore, guidance for 2024 remains unchanged from the guidance issued on March 28, 2024. Journey intends to update its guidance at regular intervals throughout the year and as circumstances materially change.
• Generated net income of $15.8 million for 2023. On a basic, weighted average per share basis, this amounted to $0.26 and $0.24 per diluted share.
• Realized Adjusted Funds Flow of $66.1 million for the year. On a basic, weighted average per share basis, this amounted to $1.10 and $1.00 per diluted share.
• Achieved sales volumes of 12,595 boe/d in the fourth quarter of 2023 and 12,415 boe/d for the entire year. Liquids volumes (crude oil and natural gas liquids) accounted for 6,912 boe/d or 55% of total volumes during the quarter and 6,765 boe/d or 54% for the entire year.
• Proved developed producing and proved plus probable developed producing reserve life index of 8.4 and 10.8 years respectively, are testaments to Journey’s low decline asset base, and the YoY increase in reserve life index demonstrates Journey’s ability to grow our base production base while simultaneously reducing our corporate decline rate.
• Achieved attractive F&D and FD&A recycle ratios of 2.4 and 2.5 respectively for proven reserves, and 8.9 and 8.5 respectively for proven plus probable reserves.
• The Company continued to advance the emerging power generation business:
o Generated 24,723 MWH of electricity in 2023 at an average price of $155.69/MWH.
o Started construction of the 15.1 MW power generation facility in Gilby Alberta, which is currently forecast to be on stream by the fourth quarter of 2024.
o Purchased a 16.5 MW power generation facility, the land it sits upon and the gas supply pipeline.
2024 CAPITAL PROGRAM ANNOUNCED MARCH 30
Upon closing the previously announced convertible debenture financing on March 20, 2024, Journey used a portion of the net proceeds of $36.6 million to retire the remaining vendor-take-back debt of $11.0 million and has also repaid AIMCo $12.7 million of its term debt. This will create interest cost savings in 2024 as the new debt carries a lower average interest rate than the repaid debt.
With enhanced liquidity for 2024, Journey now forecasts reducing leverage by over $20 million while maintaining production and advancing the development of two new power facilities.
On March 30 Journey announced that it has expanded its capital program by $10 million to $51 million. Of the $51 million of total capital spending in 2024, $16 million is related to drilling and completions, half of which was already spent in the first quarter. Journey drilled 4.0 wells (2.9 net) in Medicine Hat in the first quarter, and also completed the two Poplar Creek wells drilled in the fourth quarter of 2023. Production from these wells is exceeding internal projections. Journey is planning to expand its exploration and development program with additional drilling in the second half of 2024, and will provide further detail on this expansion in due course.
In addition to the drilling program Journey is planning to increase capital spending for facilities, waterflood and polymer flood to $9 million. This increase in spending includes facility debottlenecking in Cherhill; expanding the polymer flood in Medicine Hat to new, unflooded areas; and will also include a waterflood expansion in Matziwin. These projects are designed to increase recovery from well-defined oil pools and also help flatten Journey’s already low decline rates.
Journey is maintaining its previously planned expenditures of $17 million, which include both the power facility currently under construction in Gilby, as well as the continued development of the Mazeppa project. Journey is preparing for an October 1 start up in Gilby but has not included any additional power revenue for 2024 into the current guidance. Journey is still awaiting results from the electricity cluster study, which is expected in late June. This will then provide more clarity around the Mazeppa start-up date. At full capacity, Journey’s Countess, Gilby and Mazeppa power projects are forecast to provide cash flow of over $17 million in 2025.
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 of 13%, and our proved, developed, producing, net asset value (NPV@10%) of $5.00/share (see the February 22,2024 reserves press release). In addition to $17 million of power-related capital in 2024, approximately $18 million of capital will be devoted to land, seismic, facilities, polymer, and end-of-life costs. Most of these expenditures will add to Journey’s future value and future cash flow but have only a minor impact on 2024 production volumes due to the expenditures being made later in the year. This leaves $16 million (approximately 31%) of budgeted expenditures to maintain current production volumes.
In addition, $9 million will be devoted to end-of-life costs, land, and seismic.
OUTLOOK & GUIDANCE FOR 2024
Average daily production of 11,500 to 12,000 Boepd (55% crude oil & NGLs)
Adjusted Funds Flow of $70 to $73 million ($1.14 to $1.19 per share)
Capital Expenditures of $51 million
Year-end Net Debt of $40 to $44 million ( 0.6 X Net Debt to Adjusted Funds Flow)
Journey is maintaining its current guidance pertaining to sales volumes and Adjusted Funds Flow ranges due to a series of offsetting factors. Increased downtime due to the extreme cold weather in January and increased downtime budgeted for turnarounds and routine maintenance has reduced initially forecasted volumes. Increased capital devoted to the polymer and waterflood expansions also reduces near term volumes (in favour of future volumes) due to injector conversions. Drilling capital will be phased-in for later in 2024 and therefore will have a minor impact on 2024 volumes. The impact of the incremental capital is to increase exit liquids (crude oil and NGL’s) volumes by 500-600 bbl/d. The combined impact of the increased liquids production and the future secondary/tertiary recovery volumes positions Journey very well for an expanded capital program in 2025.
The recent financing has provided Journey financial flexibility to exit 2024 without a significant working capital deficit. After the final payment for the AIMCo term debt on April 30, 2025, there will be no debt repayment obligations until 2029. This, along with the inclusion of new power generation revenue in 2025, will provide the Company the ability to significantly ramp up growth capital in 2025. This will include, but is not limited to, the drilling of two Duvernay wells. Journey has 35 net sections of largely contiguous land in the heart of the west shale basin. The land has been delineated by three basin leading wells. As an early indicator of the value of this play, on March 20 2024, two-year mineral licenses for approximately 30 sections of offsetting lands to Journey, and on trend in the oil window, were sold for over $1 million per section.
May 7: Journey Energy Inc. (TSX: JOY) (OTCQX: JRNGF) (the “Company” or “Journey“) is pleased to announce that it has entered into an agreement with Spartan Delta Corp. (“Spartan“) to jointly develop a block of land in the west shale basin of the Duvernay oil and liquids fairway.
The Joint Venture (the “JV“) block of land covers 128 sections in the oil window of the Duvernay where shale thickness is approximately 30-40 meters. The initial working interests for the JV are Spartan 62.5% and Journey 37.5%. The parties currently control 94 sections within the JV block. Spartan has the potential to increase their interest within the JV from 62.5% to 70% with the contribution of additional lands acquired at their cost. The vast majority of the lands controlled within the block have significant tenure exceeding six years, with applicable extensions. On March 20, 2024, Crown lands immediately south of the block were acquired by other industry players for up to $1 million per section.
Spartan will be the operator of the JV. Expenditures within the block will be capped at $30 million in 2024 and $100 million for 2025 on a gross basis. However, expenditures may be increased with the agreement of both parties. The potential within the JV block is defined by the extensive production history from three existing Duvernay wells (Journey 29.17% WI, Spartan 70.83% WI). Duvernay production within the JV block is overlain by liquid-rich glauconitic production, which is expected to be processed through Journey’s operated, gas processing facility and gathering system in the Gilby area.
This is a significant venture for Journey, both in terms of potential resource capture and capital expenditures. The Company has, and will continue to, position itself financially to meet the joint development plans throughout the term of the JV. To assist in this alignment, Journey recently closed a $38 million convertible debenture, which provides no principal repayments for five years. This combined with Journey’s low net debt; cash flows from Journey’s existing production; and the expected future revenues from the expanding power business, will provide sufficient resources to fund the JV commitments, while allowing the Company to execute on its other drilling and optimization projects throughout 2024 and 2025.
May 9: First Quarter Highlights
Generated sales volumes of 11,906 boe/d in the first quarter (46% crude oil; 10% NGL’s; 44% natural gas).
Realized Adjusted Funds Flow of $17.7 million or $0.29 per basic share and $0.27 per diluted share.
Closed a $38 million convertible debenture financing on March 20, 2024. The proceeds of the financing were partially utilized to retire the remaining $11 million of vendor-take-back financing and to accelerate a $12.1 million payment to AIMCo. The remainder will be used to expand Journey’s 2024 capital program from $41 million to $51 million, as discussed in the March 28, 2024 press release. Guidance for 2024 remains unchanged since incremental volumes are phased in a way that will impact the exit rate but not annual averages.
Produced 6,968 megawatt hours of electricity at Journey’s power generation facility in Countess, Alberta at an average price of $117.69/MWH.
Continued with the construction of the Gilby power generation asset. The generators have been moved into the newly constructed building.
OPERATIONS UPDATE
Journey began its 2023 exploration and development program late in 2023, starting with a drilling program in the Medicine Hat pool. This pool was a cornerstone of the assets acquired from Enerplus Corporation in 2022. Journey drilled 4.0 gross (2.9 net) wells in Medicine Hat in late 2023. These wells have markedly exceeded expectations with respect to both costs and results. Based upon these results Journey has completed a second 4.0 (2.9 net) well program in this pool during the first quarter of 2024. Well costs and geological indicators are similar to, or better than, the first program. All of these wells were on stream by mid-March. In the second half of 2024 Journey is planning to convert four existing water injectors to polymer injection. With over thirty future locations, along with future waterflood and polymer flood expansion potential, Journey expects this field to continue to provide increasing shareholder value for years to come.
In addition to the 2023 Medicine Hat drilling program, Journey also drilled 3.0 gross (3.0 net) wells in Matziwin in the fourth quarter. Similar to Medicine Hat, the total program costs were significantly below forecast. On November 7, 2023 Journey moved a drilling rig to the Cherhill field where the Company drilled 3.0 gross (2.7 net) wells. The Cherhill program was followed up with 2.0 gross (1.7 net) wells drilled in Poplar Creek.
The 2023/2024 drilling program was funded with the proceeds of a flow through share issuance completed in the spring of 2023. Journey has now completed the required expenditures under this program.
In the first quarter of 2024, Journey had sales volumes of 11,906 boe/d (56% oil and liquids). First quarter volumes were negatively impacted (approximately 250 boe/d) by extended cold weather in January. A portion of the proceeds of the Convertible Debenture financing in March are being devoted to increased capital spending for facilities, waterfloods and polymer floods to $9 million. This increase in spending includes facility debottlenecking in Cherhill; expanding the polymer flood in Medicine Hat to new, unflooded areas; and will also include a waterflood expansion in Matziwin. These projects are designed to increase recovery from well-defined oil pools and also help flatten Journey’s already low decline rates.
For the medium term, the primary purpose of the debenture was to extend the near-term debt repayment obligations to 2029, thereby allowing for an expansion in E&D capital in 2024 and 2025 for projects including preliminary development of the Duvernay resource.
Spartan Delta Corp. Joint Venture
On May 7, 2024 Journey announced its participation in a 128 section Joint Venture land block with Spartan Delta Corp. (“Spartan“) to mutually pursue the development of the Duvernay west shale basin. The initial working interest within the block is 37.5% Journey and 62.5% Spartan Delta Corporation. The partners currently control 94 sections within the block. Two wells are planned for later in 2024. Journey’s share of these expenditures will be primarily funded through the convertible debenture financing, which closed in March.
The announcement of the Spartan – JOY Joint Venture (the “Joint Venture“) on May 7, 2024 marks the beginning of the next chapter in Journey’s effort to capitalize on this vast resource. As an early mover in the play Journey assembled a significant land position and entered into a Joint Venture with Kiwetinohk to develop the Duvernay resource in 2018. Even though this effort stalled due to lack of investment and the subsequent disposition by Kiwetinohk of their interest to Spartan in 2023, those early efforts produced three basin leading Duvernay wells that now have an extensive production history and confirm the value of this resource.
In 2023, Journey’s continued belief in this play lead the Company to complete a farm-in agreement with a freehold mineral owner in the Gilby area of Alberta to re-acquire some of the expired lands. This farm-in, combined with Journey’s existing acreage gave the Company access to approximately fifty contiguous, gross sections (34 net). These lands are adjacent to Journey’s Gilby gas processing facility, are overlain by liquid-rich Glauconite natural gas production, and contain the three Duvernay discovery wells. The primary term of the option agreement is for four years with an option to extend the term to seven years. Previous to the Company entering into the Joint Venture, Journey planned on drilling a minimum of four Duvernay wells on this block during the four year primary term.
At the time of the Kiwetinohk joint venture in 2018, Journey was smaller and had little option but to sell down its working interest through the farm out to Kiwetinohk. In 2024, after the term out of the majority of its debt until 2029, Journey is larger and better capitalized. Further, 2025 will mark the first year that Journey realizes more revenue from power generation than it requires in capital for the power projects, creating significant free cash flow. Therefore, Journey set out to find a quality partner where it could take advantage of the economies of scale working with a larger operator while minimizing the risk of single events on the Company’s business plan. The Company’s desire was to accomplish this without diluting the existing land position while maximizing the net number on azimuth locations in the liquids window.
The new Joint Venture block with Spartan consists of 94 controlled sections within a 128 section block in the heart of the oil window. At a 37.5% initial working interest, Journey has preserved its initial acreage position and aligned its interests with a well-capitalized operator with a proven track record of creating exceptional value for stakeholders. Under certain circumstances over the next few months, Spartan has the potential to increase their working interest within the block from 62.5% to 70% through a contribution of additional lands to the Joint Venture at their cost.
Initial capital expenditures for the Joint Venture are capped at gross amounts of $30 million and $100 million for 2024 and 2025 respectively. The cap on expenditures can be increased upon mutual agreement of both parties. The 2024 capital program is sufficient to drill, complete, equip and tie-in two wells on azimuth from a single pad late in 2024.
The Duvernay resource is located within the sweet spot of the west shale basin and is contiguous, 30-40 meters thick, and covers an extensive area. In the Joint Venture block, production is forecast to be approximately 75% liquids, the vast majority of which is light oil. Approximately fifty wells have been drilled over the past five years in the liquids window southwest and northeast of the Joint Venture lands and three top quartile wells define the resource in the middle of the Joint Venture block. Given the extensive efforts and results to date, Journey feels that there is little geologic, reservoir, drilling, or completion risk associated with the play. Journey feels that the primary drivers for this play center around water resources, logistics and infrastructure and this is why working with a low cost operator to conduct operations on a larger scale is highly beneficial to both parties.
EXPANDING JOURNEY’S POWER BUSINESS
Journey budgeted $11 million to complete the Gilby power project in 2024. Journey forecasts spending the majority of its budgeted capital for this project between March 15 and October 1 of 2024. The building for the Gilby project was completed in early April and the generators have now been placed in the building. In the next few weeks Journey will begin work to update the electronic components within the generators. Journey currently forecasts completion of the Gilby project by October of 2024, however the time-line for start-up remains outside of its control due to final regulatory and transmissions approvals. For this reason, Journey’s current guidance contains no power revenue from Gilby in 2024.
Journey has budgeted $6.3 million for re-energizing the Mazeppa power project in 2024. 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 pipeline. Although Journey continues to await regulatory approvals, all of the efforts to date have resulted in Journey being optimistic that Mazeppa will be re-energized in its current location 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% when the Gilby and Mazeppa projects come on-line.
As previously disclosed in Journey’s February 22, 2024 press release the combined value of Journey’s Gilby and Mazeppa projects is forecast to be $70.9 million as evaluated by GLJ Petroleum Consultants Ltd. and effective January 1, 2024. This value includes the full capital estimate to bring these projects on stream. The nature of Journey’s asset base is such that it is a large power consumer with power costs representing approximately 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 power grid. This will help diversify the corporate revenue stream and effectively provide a hedge against a volatile commodity pricing environment. The extreme volatility in recent power prices continues to re-enforce the validity of this long-term strategy.
FINANCIAL
Sales volumes for the quarter were 11,906 boe/d of which 56% were liquids (crude oil and NGL’s).
Due to depressed natural gas prices resulting from a relatively warm winter liquids revenues accounted for 87% of commodity revenues.
Average commodity prices decreased by 4% from the first quarter of 2023 to the current quarter with natural gas making up most of this decline while oil prices were slightly higher by 2% and liquids prices were 5% lower.
Lower power costs within the quarter resulted in operating expenses that were lower by 6% at $18.50/boe/d in the first quarter of 2024 compared to $19.78/boe/d in the same quarter of 2023.
Despite the lower volumes and lower natural gas prices, Journey posted solid Adjusted Funds Flow for the first quarter of 2023 at $17.7 million, which was only 1% lower than the same quarter of 2023. Adjusted Funds Flow per share was $0.29 on a basic weighted average basis and $0.27 on a diluted basis.
Journey realized net income of $3.2 million in the first quarter of 2024 compared to $6.4 million in the same quarter of 2023. Net income per basic and diluted share was $0.05 for the first quarter. Cash flow from operations was $8.0 million in the first quarter of 2024 ($0.13 per basic share and $0.12 per diluted share).
Journey closed a bought deal convertible debenture financing on March 20, 2024 for gross proceeds of $38.0 million. The financing was subscribed for by three long-term institutional investors. The net proceeds of the financing were used to repay the remaining $11.0 million of vendor take back debt, which was originally issued in 2022 and $12.1 million was used to repay AIMCo. The remainder will be used to help fund an expansion of Journey’s drilling program later in the year and for working capital purposes. Journey ended the quarter with a strong cash position of $20.9 million.
Journey continued to be prudent with its capital spending during the first quarter as it underspent its Adjusted Funds Flows. Total capital expenditures in the first quarter were $14.3 million. As a result, Journey exited the first quarter of 2024 with net debt of $60.1 million as compared to $71.1 million at March 31, 2023 and $61.7 million at December 31, 2023. Journey’s net debt to annualized Adjusted Funds Flow ratio for the first quarter is a very respectable 0.8 times.
OUTLOOK & GUIDANCE
The new Duvernay Joint Venture has the potential to alter where Journey allocates its capital in the second half of 2024. The actual amount and timing of the capital spending for 2024 will be determined over the coming months as plans for the Joint Venture spending are finalized. Therefore, guidance for 2024 remains unchanged from the guidance issued on March 28, 2024. Journey intends to update its guidance at regular intervals throughout the year and as circumstances materially change.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group