CALGARY, AB, Aug. 8, 2023 /CNW/ – Journey Energy Inc. (TSX: JOY) (OTCQX: JRNGF) ("Journey" or the "Company") is pleased to announce its financial and operating results for the three and six month periods ending June 30, 2023. The complete set of financial statements and management discussion and analysis for the periods ended June 30, 2023 and 2022 are posted on www.sedar.com and on the Company’s website www.journeyenergy.ca.

SECOND QUARTER 2023 HIGHLIGHTS

  • Increased daily sales volumes by 29% to 12,400 boe/d in the second quarter of 2023 from 9,590 boe/d in the second quarter of 2022. Six months ended June 30 sales volumes increased 40% year over year.
  • Generated Adjusted Funds Flow of $11.3 million or $0.18 per basic share and $0.17 per diluted share.
  • Produced 6,830 megawatts of electricity at Journey’s power generation facility in Countess, Alberta at an average price of $181.67/MWh.
  • Completed the purchase of the 16.5 MW power plant in Mazeppa Alberta on April 28. Following the purchase of Mazeppa Journey also completed the purchase of the land the facility resides on and has entered into an agreement to purchase the sales pipeline delivering supply gas to the power plant from a nearby ATCO meter station.
  • Completed a farm-in agreement with a freehold mineral owner in the Gilby area of Alberta. This farm-in, combined with Journey’s existing acreage will give the company access to approximately fifty contiguous, gross sections for Duvernay development drilling. The lands are held on a four year primary term with an option to enter into a secondary term for an additional three years.

SUBSEQUENT HIGHLIGHTS

  • Began breaking ground on the construction of our power facility in Gilby Alberta in pursuit of an early 2024 start-up date.
  • Entered into agreements for two non-core divestments for aggregate proceeds of $3 million. These divestments closed in July.

Financial & Operating Highlights

Three months ended

 June 30,

Six months ended

 June 30,

 

Financial ($000’s except per share amounts)

 

2023

 

2022

%

change

 

2023

 

2022

%

change

Sales revenue

53,513

67,929

(21)

111,956

113,787

(2)

Net income (loss)

(1,773)

28,197

(106)

4,667

41,966

(89)

    Basic ($/share)

(0.03)

0.54

(106)

0.08

0.83

(90)

    Diluted ($/share)

(0.03)

0.47

(106)

0.07

0.73

(90)

Adjusted Funds Flow

11,292

33,381

(66)

29,251

53,782

(46)

    Basic ($/share)

0.18

0.63

(71)

0.49

1.06

(54)

    Diluted ($/share)

0.17

0.56

(70)

0.45

0.93

(52)

Cash flow provided by operating activities

12,335

26,044

(53)

23,796

47,855

(50)

    Basic ($/share)

0.20

0.49

(59)

0.40

0.95

(58)

    Diluted ($/share)

0.19

0.43

(56)

0.37

0.83

(56)

Capital expenditures, including A&D

14,006

34,801

60

20,824

46,962

(56)

Net debt

74,662

29,676

152

74,662

29,676

152

Share Capital (000’s)

Basic, weighted average

60,923

52,697

16

59,545

50,596

18

Basic, end of period

60,923

52,722

16

60,923

52,722

16

Fully diluted

67,869

61,046

11

67,869

61,046

11

Daily Sales Volumes

Natural gas (Mcf/d)

Conventional

29,946

25,723

16

30,276

24,888

25

Coal bed methane

4,170

4,434

(6)

4,224

4,299

(2)

Total natural gas volumes

34,116

30,157

13

34,500

28,587

21

Crude oil (Bbl/d)

Light/medium

3,306

2,864

15

3,497

2,698

30

Heavy

2,133

713

199

2,091

671

212

Total crude oil volumes

5,439

3,577

52

5,588

3,369

66

Natural gas liquids (Bbl/d)

1,275

987

29

1,321

910

45

Barrels of oil equivalent (boe/d)

12,400

9,590

29

12,659

9,044

40

Average Realized Prices (excluding hedging)

Natural gas ($/mcf)

2.43

7.29

(67)

2.75

6.09

(55)

Crude Oil ($/bbl)

82.92

126.98

(35)

80.73

116.64

(31)

Natural gas liquids ($/bbl)

41.20

73.38

(44)

45.38

67.57

(33)

Barrels of oil equivalent ($/boe)

47.28

77.84

(39)

48.68

69.51

(30)

Operating Netback ($/boe)

Realized prices (excl. hedging)

47.28

77.84

(39)

48.68

69.51

(30)

Royalties

(9.77)

(16.12)

(39)

(10.08)

(13.56)

(26)

Operating expenses

(23.41)

(17.79)

32

(21.57)

(17.61)

22

Transportation expenses

(0.63)

(0.63)

(0.85)

(0.57)

49

Operating netback

13.47

43.30

(69)

16.18

37.77

(57)

 

OPERATIONS

During the second quarter of 2023, Journey continued integrating the Enerplus Corporation acquisition (the "Acquisition") that closed on October 31, 2023. This transaction was the primary contributor to the increase in sales volumes from 9,590 boe/d in the second quarter of 2022 to 12,400 boe/d in the second quarter of 2023. The acquisition had a positive impact on Journey’s liquids (crude oil and NGL’s) sales as it increased from 48% in the second quarter of 2022 to 54% in the current quarter. This change will benefit Journey’s netback going forward due to the significant shift towards the more valuable liquids weighting.

The second quarter of 2023 was a challenging period for many central Alberta producers and Journey was not immune to these challenges. Second quarter sales volumes were impacted by the early onset of the wildfire season in central Alberta (185 boe/d); an extensive turnaround at the third party Keyera Rimby facility (85 boe/d); a Westerose pipeline outage (100 boe/d); and the shut-in of the CNRL Kiskiu production, which resulted in a loss of 185 boe/d over the quarter. All production has been restored with the exception of the Kiskiu field, which is scheduled to be rerouted to another third party facility in August 2023.

Throughout 2023, Journey has maintained a conservative posture with respect to capital expenditures. The Company continues to prioritize balance sheet strength along with the expansion of the power business, due to the extensive regulatory timelines associated with adding power to the grid. In the first of half of 2023 Journey did not drill any wells. Journey reduced its 2023 capital budget to $46 million from $63 million and now anticipates drilling 7 (5.6 net) wells in the Medicine Hat and Cherhill pools. These programs are back end loaded with the majority of expenditures occurring in the fourth quarter. The reduced activity levels, project phasing, and unbudgeted downtime has led Journey to reduce its annual production guidance by 500 boe/d from 12,500 – 13,000 boe/d to 12,000 -12,500 boe/d.

Of the $46 million in capital $13 million is related to drilling and completions with a focus on maintaining production volumes. Journey’s capital program has shifted more towards oil-weighted opportunities by replacing natural gas weighted drilling in Westerose with oil weighted drilling in Cherhill and Medicine Hat in 2023 followed by oil drilling in Matziwin in the first quarter of 2024. 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. Approximately $10 million of capital will be devoted to land, seismic, facilities, polymer, and end-of-life costs. $18 million of capital in 2023 is associated with the expansion of Journey’s power business, including the purchase of the Mazeppa facility, building construction, and generating unit modifications for the Gilby project. In addition to all of these development projects, 2023 capital includes a final statement of adjustments from the Acquisition of $5.7 million, which will be offset by $3 million in divestments that have already closed in the third quarter.

Even though Journey shifted its capital program towards oil weighted drilling, the Company continues to advance its repeatable plays in 2023. The Company has completed a farm-in agreement with a freehold mineral owner in the Gilby area of Alberta. This farm-in, combined with Journey’s existing acreage will give the company access to approximately fifty contiguous, gross sections for Duvernay development drilling. These mineral rights are adjacent to Journey’s Gilby gas processing facility. These rights are already overlain by liquid-rich, Glauconite production and contain two Duvernay test wells drilled as part of Journey’s previous joint venture with Kiwetinohk Resources Corp. The primary term of the option agreement is for four years with a further option to extend the term to seven years. Journey currently plans to drill a minimum of three Duvernay wells on this block during the four year primary term.

In addition to unbudgeted downtime, Journey’s second quarter Adjusted Funds Flow was significantly impacted by a number of non-routine costs resulting in higher than forecasted operating expenditures. In aggregate these non-routine expenditures increased the Company’s corporate operating expenditures by approximately $2.7 million for the second quarter over the expected level. Approximately two thirds of these costs were associated with a variety of prior period adjustments, including some adjustments relating to the integration of the transformational acquisition that was closed in late October 2022. The remaining third of these non-routine costs are associated with pipeline integrity issues including line replacements in Ante Creek and Westerose. These issues have now been fully resolved and no additional costs are forecasted. In addition to the non-routine costs, power costs for the quarter were approximately $0.5 million higher than forecast mainly due to rising spot rates. Power cost rates for July and August are trending lower to date. Journey has budgeted corporate operating costs returning to a lower and more stabilized level for the second half of 2023, and is currently budgeting approximately $45 million for this period or $21/boe. The volatility and the uncertainty surrounding power costs is a vindication of Journey’s ongoing strategy to prioritize adding power to the Alberta Power grid as a corporate strategy to enhance the long-term sustainability of our asset base. 

EXPANDING JOURNEY’S POWER BUSINESS

For 2023, Journey has continued to prioritize its emerging power generation business and has made significant strides in this regard. Journey is now budgeting $18 million in capital for its power generation business for 2023. The majority of this capital is associated with its Gilby power plant construction and the remainder will be allocated to the Mazeppa power plant purchase. A portion of the total capital for the Gilby project will carry over into the first quarter of 2024. This is expected to be offset by an increase in capital allocation devoted to re-energizing the purchased Mazeppa power plant. In the second quarter of 2023 Journey completed the purchase of Mazeppa, entered into an agreement to purchase the land the plant currently resides on, and purchase the pipeline to transport sales gas from a nearby ATCO meter station to the plant.

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 currently operating, 4 MW Countess facility, which was originally 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. For the first six months of 2023 the average, effective, net realized price was $7.50/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 the first six months of 2023 was $2.83/mcf. 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. 

Journey previously announced that it had 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 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 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 is in excess of five times the purchase price.

The Mazeppa power facility acquisition closed in April 2023 and its cost has been included in the capital guidance for 2023. Since agreeing to purchase this facility, Journey has been actively pursuing the option of re-energizing this facility in its existing location. This option was further advanced in early May when Journey entered into a definitive agreement to purchase the land on which the power project is located. Journey also entered into an agreement to purchase a pipeline that delivers supply gas from a nearby ATCO meter station to the plant and is beginning negotiations with ATCO to reactivate the meter station.

As each of these milestones are achieved, Journey is more certain that there is a viable path for re-energizing this facility in place at Mazeppa. That said, the regulatory process to add energy to the Alberta power grid has proven to be more rigid and inflexible than first anticipated and therefore Journey has moved the forecasted restart of Mazeppa from April 2024 to August 2024 in our budget plans. This has shifted some capital for Mazeppa into 2024 from 2023. Journey intends to provide further guidance on the time-line to an on-stream date in due course. 

Journey has received preliminary approval to construct a 15.5 MW generation facility at its Gilby gas plant and has procured 17 MW of generating capacity in support of this project. The Company has continued to advance the design and approval of this project. The primary construction phase of this facility was kicked off in August 2023. In addition Journey has signed a contract with an electrical engineering company to provide electronic upgrades for each of the generators. This work is anticipated to be completed in the first quarter of 2024. 

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 provides 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 continues to re-inforce the validity of this longer term strategy.

FINANCIAL

While the second quarter of 2023 had operational challenges due to the early start of the wildfire season and its resulting shut-ins, Journey was spared a significant impact on sales volume levels. Sales volumes were down only 4% from the first quarter, but compared to the same quarter of 2022 Journey showed 29% growth in sales volumes. This growth was primarily the result of the 4,000 boe/d acquisition that was consummated in October of 2022. The 71% crude oil and NGL weighting from the Acquisition helped increase Journey’s overall liquids weighting from 48% in the second quarter of 2022 to 54% in the second quarter of 2023. Crude oil sales volumes for the second quarter of 2023 represented 44% of total boe volumes but contributed 77% of total petroleum and natural gas revenues. Natural gas sales volumes contributed 46% of total boe sales volumes in 2023 while contributing 14% of total sales revenues. While aggregate sales volumes increased quarter to quarter, the average commodity prices decreased by 39% from the over this time period with oil down by 35%, natural gas down by 67% and NGL’s down by 44%. Journey posted Adjusted Funds Flow for the second quarter of 2023 of $11.2 million.

On the expense side, and commensurate with the decrease in commodity prices, royalties were lower by 22% in the second quarter of 2023 compared to the second quarter of 2022. On a per boe basis the decline in royalty expense was similar to the commodity price decline at 39%. On a per boe basis, royalties were $9.77/boe in the second quarter of 2023 as compared to $16.12 in the second quarter of 2022. Field operating expenses increased during the second quarter of 2023 as the acquisitions from 2022, workovers, reactivations, plant turnarounds and general inflationary pressures contributed to the total increase. Operating expenses in the second quarter increased to $26.4 million or $23.41/boe as compared to $15.5 million or $17.79 per boe in the same quarter of 2022. Included in the second quarter, 2023 operating expenses were $2.6 million of workover and turnaround while for the second quarter of 2022 the amount was $1.3 million. Some of these costs were non-routine expenses on the acquired assets to bring them up to their full capabilities.

Journey’s general and administrative ("G&A") costs were lower in 2023 as compared to the same quarter in 2022 as field-related cost recoveries mitigated additional staff costs related to the acquisitions in 2022. G&A was $2.6 million in the second quarter of 2023 as compared to $3.2 million in the second quarter of 2022. On a per boe basis, Journey’s general and administrative costs were $2.38/boe for the first quarter of 2023 and $3.63/boe for the second quarter of 2022. 

Finance expenses related to borrowings, or interest costs, increased by 29% to $2.1 million in the second quarter of 2023 from $1.6 million in the same quarter of 2022. Interest-bearing debt increased by 18% in the second quarter of 2023 compared to the same quarter of 2022 mainly due to the vendor-take-back financing associated with the significant 2022 acquisition. The original debt was $45.0 million when Journey closed the acquisition on October 31, 2023 and this has been reduced to $31.0 million at June 30, 2023 with Journey making monthly principal payments of $2.0 million.

Journey realized a net loss of $1.8 million in the second quarter of 2023 compared to income of $28.2 million in the same quarter of 2022. Net loss per basic and diluted share was $0.03 for the second quarter. Adjusted Funds Flow in the second quarter was 66% lower in 2023, wherein the Company generated $11.3 million, or $0.18 and $0.17 per basic and diluted share respectively as compared to $33.4 million, or $0.63 basic and $0.56 per diluted per share respectively in the same quarter of 2022. Cash flow from operations was $10.4 million in the second quarter of 2023 ($0.17 per basic share and $0.16 per diluted share) as compared to $26.0 million in the second quarter of 2022 ($0.49 and $0.43 per basic and diluted share respectively).

Total capital expenditures in the second quarter were $14.8 million including $5.9 million for the purchase of the Mazeppa power generating assets and related land, $5.7 million for final adjustments on the October, 2022 acquisition, and $0.8 million spent on abandonment and reclamation work. Journey exited the second quarter of 2023 with net debt of $74.7 million compared to $29.7 million at June 30, 2022 and $98.8 million at the end of 2022. When comparing quarter to quarter, the higher net debt was mainly attributable to the vendor-take-back debt from the October, 2022 acquisition.

OUTLOOK & GUIDANCE

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

  • Forecasted commodity prices by month;
  • Assumptions of VTB principal payments as principal repayments are based upon realized 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;

Revised August 8, 2023

Previous May 9, 2023

Annual average daily sales volumes

12,000–12,500 boe/d (54%
crude oil & NGL’s)

12,500–13,000 boe/d (54%
crude oil & NGL’s)

Adjusted Funds Flow

$64 – 67 million

$75 – 78 million

Adjusted Funds Flow per weighted average share

$1.07 – $1.10

$1.24 – $1.29

Capital spending

$46 million

$63 million

2023 ending Net Debt

$60 – $62 million

$65 – $68 million

Reference commodity prices:

WTI (USD $/bbl)

MSW oil differentials (USD $/bbl)

WCS oil differentials (USD $/bbl)

AECO natural gas (CAD $/mcf)

CAD/USD foreign exchange

 

$78.00

$3.25

$15.50

$2.88

$0.75

 

$75.00

$3.00

$15.00

$3.25

$0.74

Notes:

1.

The weighting of the corporate sales volumes guidance is as follows:

a.

Heavy oil: 18%

b.

MSW crude oil: 25%

c.

NGL’s: 11%

d.

Coal-bed methane natural gas: 6%

e. 

Conventional natural gas: 40%

 

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. The October, 2022 acquisition is performing as expected and has been buoyed by commodity price tailwinds. The Company’s success would not be possible without the talented team at Journey, both in the office and the field. Management looks forward to updating you on Journey’s progress on its development path.

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 grow its production base by drilling on its existing core lands, implementing water flood projects, executing on accretive acquisitions. Journey seeks to optimize its legacy oil pools on existing lands through the application of best practices in horizontal drilling and, where feasible, with water floods.

ADVISORIES

This press release contains forward-looking statements and forward-looking information (collectively "forward looking information") within the meaning of applicable securities laws relating to the Company’s plans and other aspects of the anticipated future operations, management focus, strategies, financial, operating and production results, industry conditions, commodity prices and business opportunities. In addition, and without limiting the generality of the foregoing, this press release contains forward-looking information regarding decline rates, anticipated netbacks, drilling inventory, estimated average drill, complete and equip and tie-in costs, anticipated potential of the Assets including, but not limited to, EOR performance and opportunities, capacity of infrastructure, potential reduction in operating costs, production guidance, total payout ratio, capital program and allocation thereof, future production, decline rates, funds flow, net debt, net debt to funds flow, exchange rates, reserve life, development and drilling plans, well economics, future cost reductions, potential growth, and the source of funding Journey’s capital spending. Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future.

The forward-looking information is based on certain key expectations and assumptions made by management, including expectations and assumptions concerning prevailing commodity prices and differentials, exchange rates, interest rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; the ability to efficiently integrate assets and employees acquired through acquisitions, including the Acquisition, the ability to market oil and natural gas successfully and the ability to access capital. Although we believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Journey can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. The actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that we will derive therefrom. Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide security holders with a more complete perspective on future operations and such information may not be appropriate for other purposes.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).These forward looking statements are made as of the date of this press release and we disclaim any intent or obligation to update publicly any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Journeys prospective results of operations, funds flow, netbacks, debt, payout ratio well economics and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this press release was made as of the date of this press release and was provided for providing further information about Journey’s anticipated future business operations. Journey disclaims any intention or obligation to update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein. 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, 2023. Forward-looking information may relate to the 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, and long-term objectives. 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 funds 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 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.

Non-IFRS Measures

The Company uses the following non-IFRS measures in evaluating corporate performance. These terms do not have a standardized meaning prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculation of similar measures by other companies.

(1)

"Adjusted Funds Flow" is calculated by taking "cash flow provided by operating activities" from the financial statements and adding or deducting: changes in non-cash working capital; non-recurring "other" income; transaction costs; and decommissioning costs. Adjusted Funds Flow per share is calculated as Adjusted Funds Flow divided by the weighted-average number of shares outstanding in the period. Because Adjusted Funds Flow and Adjusted Funds Flow per share are not impacted by fluctuations in non-cash working capital balances, we believe these measures are more indicative of performance than the GAAP measured "cash flow generated from operating activities". In addition, Journey excludes transaction costs from the definition of Adjusted Funds Flow, as these expenses are generally in respect of capital acquisition transactions. The Company considers Adjusted Funds 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. Journey’s determination of Adjusted Funds Flow may not be comparable to that reported by other companies. Journey also presents "Adjusted Funds Flow per basic share" where per share amounts are calculated using the weighted average shares outstanding consistent with the calculation of net income (loss) per share, which per share amount is calculated under IFRS and is more fully described in the notes to the audited, year-end consolidated financial statements. The reconciliation of GAAP measured cash flow from operations to the non-GAAP metric of Adjusted Funds Flow is as follows:

 

Three months ended June 30,

  Six months ended June 30,

 

2023

 

2022

%
Change

 

2023

 

2022

%
Change

Cash flow provided by operating activities

12,335

26,044

(53)

23,796

47,855

(50)

Add (deduct):

    Changes in non-cash working capital

(1,845)

7,014

(126)

2,435

4,694

(48)

    Transaction costs

136

(100)

2

144

(99)

    Decommissioning costs

802

187

329

3,018

1,089

177

Adjusted Funds Flow

11,292

33,381

(66)

29,251

53,782

(46)

 

(2)

"Netback(s)". The Company uses netbacks to help evaluate its performance, leverage, and liquidity; comparisons with peers; as well as to assess potential acquisitions. Management considers netbacks as a key performance measure as it demonstrates the Company’s profitability relative to current commodity prices. Management also uses them in operational and capital allocation decisions. Journey uses netbacks to assess its own performance and performance in relation to its peers. These netbacks are operating, Funds Flow and net income (loss). "Operating netback" is calculated as the average sales price of the commodities sold (excluding financial hedging gains and losses), less royalties, transportation costs and operating expenses. There is no GAAP measure that is reasonably comparable to netbacks.

(3)

"Net debt" is calculated by taking current assets and then subtracting accounts payable and accrued liabilities; the principal amount of term debt; other loans; and the principal amount of the contingent bank liability. Net debt is used to assess the capital efficiency, liquidity and general financial strength of the Company. In addition, net debt is used as a comparison tool to assess financial strength in relation to Journey’s peers. The reconciliation of Net Debt is as follows:

 

June 30,
2022

June 30,
2021

%
Change

June 30,

2022

Dec. 31,

2021

%

Change

Term debt

43,763

67,580

(35)

43,763

67,580

(35)

Vendor-take-back debt

31,000

31,000

43,000

(28)

Accounts payable and accrued liabilities

42,670

31,057

37

42,670

45,496

(6)

Other liability – contingent bank debt1

5,000

(100)

5,000

(100)

Other loans

419

410

2

419

419

Deduct:

Cash in bank

(9,789)

(43,610)

(78)

(9,789)

(31,400)

(69)

Accounts receivable

(28,512)

(27,199)

5

(28,512)

(29,677)

(4)

Prepaid expenses

(4,889)

(3,562)

37

(4,889)

(1,650)

196

Net debt

74,662

29,676

152

74,662

98,768

(24)

 

(4)

Journey uses "Capital Expenditures" to measure its capital investment level compared to the Company’s annual budgeted capital expenditures for its organic capital program, excluding acquisitions or dispositions. The directly comparable GAAP measure to capital expenditures is cash used in investing activities. Journey then adjusts its capital expenditures for A&D activity to give a more complete analysis for its capital spending used for FD&A purposes. The capital spending for A&D proposes has been adjusted to reflect the non-cash component of the consideration paid (i.e. shares issued). The following table details the composition of capital expenditures and its reconciliation to cash flow used in investing activities:

 

Three months ended June 30,

Six months ended June 30,

 

2023

 

2022

%

Change

 

2023

 

2022

%

Change

Cash expenditures:

    Land and lease rentals

1,232

121

918

1,459

566

158

    Geological and geophysical

53

47

13

278

47

491

    Drilling and completions

29

7,276

(100)

2,185

16,423

(87)

    Well equipment and facilities

867

1,565

(45)

3,183

4,085

(22)

Power generation

292

2,328

(87)

3,221

2,328

38

Total capital expenditures

2,472

11,337

(78)

10,326

23,449

(56)

    Corporate acquisition (cash plus equity)

18,920

(100)

18,920

(100)

    PP&E acquisitions

11,539

4,879

136

11,539

4,952

133

    PP&E dispositions

(5)

(335)

(1,041)

(359)

184

Net capital expenditures

14,006

34,801

60

20,824

46,962

(56)

Other expenditures:

    ARO costs incurred (internal plus grants)

802

282

184

3,185

1,298

145

Total capital expenditures

14,808

35,083

(58)

24,009

48,260

(50)

 

Measurements

All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.

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 nine (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.

Abbreviations

The following abbreviations are used throughout these MD&A and have the ascribed meanings:

AIMCo

Alberta Investment Management Corporation

API

American Petroleum Institute

bbl

Barrel

bbls

Barrels

boe

barrels of oil equivalent (see conversion statement below)

boe/d

barrels of oil equivalent per day

gj

Gigajoules

GAAP

Generally Accepted Accounting Principles

IFRS

International Financial Reporting Standards

Mbbls

thousand barrels

Mboe

thousand boe

Mcf

thousand cubic feet

Mmcf

million cubic feet

Mmcf/d

million cubic feet per day

MSW

Mixed sweet Alberta benchmark oil price at Edmonton Alberta

MW

One million watts of power

NGL’s

natural gas liquids (ethane, propane, butane and condensate)

VTB

Vendor-take-back term debt issued by Journey to Enerplus Corporation as partial
payment of the purchase price for the asset acquisition on October 31, 2022

WCS

Western Canada Select benchmark oil price. This crude oil is heavy/sour with API gravity
of 19-22 degrees and sulphur content of 1.8-3.2%.

WTI

West Texas Intermediate benchmark Oil price. This crude oil is light/sweet with API
gravity of 39.6 degrees and sulfur content of 0.24%.

 

All volumes in this press release refer to the sales volumes of crude oil, natural gas and associated by-products measured at the point of sale to third-party purchasers. For natural gas, this occurs after the removal of natural gas liquids.

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

SOURCE Journey Energy Inc.


Alex G. Verge, President and Chief Executive Officer, 403-303-3232, alex.verge@journeyenergy.ca or Gerry Gilewicz, Chief Financial Officer, 403-303-3238, gerry.gilewicz@journeyenergy.ca; Journey Energy Inc. 700, 517 – 10th Avenue SW, Calgary, AB T2R 0A8, 403-294-1635, www.journeyenergy.ca