Journey Energy (JOY.CA and JRNGF) Update - June 28

[dan_s]

I will be reviewing five recent energy sector analysts' reports on Journey Energy today. We will be publishing an initial profile on the Company next week. My initial valuation of JRNGF is $4.50US. First Call's price target is $5.75Cdn for JOY.

At the time of this post JOY was trading at $3.05Cdn

Comments below are from Garett Ursu, CFA, at Cormark Securities (based in Canada)

With Duvernay oil & liquids activity to boost volumes, liquids cuts and profitability, Journey
has immediately become an attractive resource growth name. We reiterate our Buy rating on
the company and have increased our target from $6.00 to $6.50 Cdn (3.9x 2025E EV/EBITDA)
with a new Duvernay growth wedge in our forecasts.

Event: On May 7th, Journey announced a Duvernay Joint Venture with Spartan Delta.
Impact: Very Positive

Commentary:
Coincident with Spartan Delta (SDE-T, Buy, $7.50 target, Garett Ursu) unveiling that
company’s Duvernay acreage (see our Morning Note from yesterday), late Tuesday Journey
announced an agreement with Spartan Delta to jointly develop a block of land in the
west Duvernay shale basin. The announced joint venture (“JV”) covers a total of 128
sections (the dotted blue acreage shown in Figure 2), in which Spartan Delta and Journey
currently hold 94 sections with the remainder either open Crown, Crown lands held by other
parties or freehold acreage. Initial company working interests will be 62.5% Spartan and
37.5% Journey, though Spartan has the potential to increase its interest to 70.0% with the
contribution of additional lands at its cost. The JV will be operated by Spartan Delta and
while capital spending is currently capped at $30 MM this year and $100 MM next year,
spending can be increased on the agreement of both Management teams. While most of the
JV lands carry tenure beyond six years, given three historical wells drilled and tested in the
oil and liquids fairway (Journey 29.17% WI and Spartan 70.83% WI), we expect the JV to be
very active in 2H/24 and likely hit the spending cap relatively quickly. In this, Spartan Delta
announced plans to drill one Duvernay horizontal, complete one DUC and drill a stratigraphic
well this year with the potential to add two horizontal wells to the program before year-end.
We expect the two wells to be drilled, with both wells on JV lands.

Absent Journey guidance, and utilizing Spartan well assumptions including IP-30 rates of
600-1,200 BOE/d (70% liquids or 50-350 B/MMcf CGRs) and EURs of 500-1,000 MBOE on
well costs of $11.5-13.5 MM (D,C,E,T), we have adjusted our 2024 forecasts for Journey to
incorporate a reinvigorated Duvernay business within the company (Figure 1). While very
preliminary, we currently expect Journey to participate in two gross Duvernay wells this year,
seven wells in 2025 and potentially 7-9 wells in 2026, at which time the Duvernay should be
“self-funding”. Recall that Journey recently raised a $38 MM convertible debenture to retire
AIMCO and Enerplus debt and provide financial flexibility to pursue just this type of growth
spending while still developing its power gen business and maintaining core volumes.

[dan_s]

From Cormark Securitie May 13th

Q1/24 Results; Powergen Revenues And Crude Oil
Weighting Drive Beat
Unless otherwise denoted, all figures shown in C$

Event: Late last week, Journey reported Q1/24 results.
Impact: Positive

Commentary:

Soon after announcing a joint venture with Spartan Delta (SDE-T, Buy, $7.50 target, Garett
Ursu) on 128 sections of Duvernay in the west shale basin (see Figure 2 and our Morning
Note from May 9), late last week, Journey reported Q1/24 results.

Production of 11,906 BOE/d was in line with our 11,975 BOE/d estimate (Figure 1) and
consensus at 12,125 BOE/d despite 250 BOE/d being negatively affected by cold weather in
January. Cash flow of $17.7 MM or $0.27/share was ahead of our $16.1 MM ($0.24/share)
forecast and consensus at $0.23/share on lower royalties and transportation expenses,
higher power generation revenues and a higher-than-expected weighting to crude oil over
NGLs and natural gas. During Q1/24, Journey’s power business produced 6,968 MW of
power at an average price of $117.69/MW, ahead of our expectations for 6,098 MW at
$100.00/MW. Spending $14.3 MM in the quarter (Cormark was at $12.7 MM), net debt exited
March at $60.1 MM, in line with the $60.0 MM we had expected.

Drilling in the quarter included a 4.0 gross (2.9 net) well Medicine Hat program with all wells
onstream late in Q1/24 (mid-March).

Despite the Duvernay JV announcement, 2024 guidance remains unchanged at
11,500-12,000 BOE/d on $51.0 MM of spending. We (Cormark) currently expect two
Duvernay horizontals to be drilled late in 2024 based on SDE intentions and have therefore
included ~$9.0 MM of Duvernay capital in Q4/24 in our current 2024 estimates for the
company. Actual Duvernay spending and timing remain subject to formal guidance once
plans for the JV are finalized. < The potential impact of the Duvernay JV
is why I've added JRNGF to our Small-Cap Growth Portfolio. - Dan Steffens

Also, the company has budgeted $11.0 MM this year to complete the Gilby power project with
most spending expected between March and October. While Management expects Gilby to
be completed by October, since the timeline for start-up remains dependent on regulatory
and transmissions approvals, Gilby revenues have not been included in guidance. We have
included Gilby revenues beginning in early November with Mazeppa revenues beginning
in January 2025. < As discussed on our June 11th webinar, Journey is expected to get
significant free cash flow from the sale of electricity after 2024. - Dan Steffens

Investment Conclusion:
We reiterate our Buy rating and $6.50 target (3.7x 2025E EV/EBITDA) on JOY
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If you'd like me to send you recent updates from five analysts that cover JOY send a email directly to me at dmsteffens@comcast.net

[dan_s]

Stifel Update May 10
"Journey's Q1 AFFO beat expectations on stronger margins. 2024 capex guidance is unchanged
for now, but may need a few million additional dollars if the maximum $30 mm spend limit agreed
upon for the Duvernay JV with Spartan Delta is fully deployed. We are very positive on what this
JV does for Journey, enabling it to benefit from scale and better contiguity of its land base, and
less exposure to high-cost single well events, while maintaining virtually the same net exposure
to this Duvernay sweet spot. We reiterate our Buy rating on Journey. Although a rocky road at
times, we continue to look to a bright 2025 for Journey after its two power projects are online,
its near-term debt payments are behind it, and Duvernay development ramps up. Our $5.00/
sh target price reflects a 7.5x 2025E EV/unhedged FCFF* multiple at the recent strip (4.3x
EV/2025e unhedged DACF)."

[dan_s]

Note from Adam Gill at Echlon Capital (highly respected energy sector analyst) on May 10:

Duvernay JV & Potential Value:

As noted in our May 8 report, Journey has entered into an agreement with Spartan Delta
regarding the development of joint Duvernay lands. The JV covers 128 sections of area in the oil window with 94 sections
of Duvernay lands currently held within the JV block. SDE will have a 62.5% WI while JOY will have a 37.5% WI and capital
spending on the JV lands has been capped at $30M for 2024 and $100M in 2025 (gross) with two wells expected to be
drilled in the later part of this year.

With regards to the potential value of the Duvernay opportunity, we have taken a look at value both from a development
potential and on land value. For development, Journey sees 55-75 net locations under the JV. Based on a $12M well cost
and 570 MBoe EUR (420 MBbl of oil), we see an NPV per well of ~$8.5M at US$75/Bbl WTI. With that, at 55-75 net locations
for Journey, we see a potential NPV of ~$275-335M ($4.48-5.46/shr basic, $3.72-4.53/shr f.d.) for full development
potential. < This is what I call "High Value Running Room"; especially for a company of this size.

On land value potential, Journey’s 37.5% WI in the 94 sections of land equates to 35.25 net sections for Journey. On March
20, there was a substantial land sale that highlights the industry’s reinvigorated interest in the play and in total there were
four packages covering 57.5 sections of offsetting Duvernay rights that were sold for a total of $46.8M (all to brokers). The
average price was ~$0.8M/section and two of the packages were going for ~$1.0M/section. These lands in this robust land
sale directly offset Jouney’s acreage and on the average price per section, we see $28.7M/$0.47/shr ($0.39/shr f.d.), and
at the higher end of the land value range, it would be $38.7M/$0.60/shr ($0.50/shr f.d.) of value.

Adam's price target for JOY is $6.00Cdn per share.

[dan_s]

My forecast/valuation model for Journey Energy has been posted to the EPG website. My valuation is ~double the current share price.

The current share price is less than 2.5 X my 2024 Adjusted Operating Cash Flow Per Share forecast.