JOY Journey Energy Inc

CALGARY, AB, March 23, 2022 /CNW/ - Journey Energy Inc. (TSX: JOY) (OTCQX: JRNGF) ("Journey" or the "Company") reports that it has today entered into two definitive agreements, one for the acquisition of a private company, and the other for the acquisition of plant and gathering infrastructure. Both acquisitions are located in Journey's Central Core Region.

PRIVATE COMPANY ACQUISITION

Journey today entered into a definitive agreement to purchase a private company ("Privateco") producing approximately 625 boe/d (52% oil and NGL's) from a large contiguous land base geographically focused in the Carrot Creek area, which is within Journey's Central Core area.  The acquisition price will be paid for through the issuance of 1.75 million Journey shares plus $8.0 million of cash.  The acquisition comes with significant development drilling upside.  In the first quarter of 2022, Privateco participated in a 1.5 mile Ellerslie horizontal well (31% working interest).  This well was tested in March and will be connected to Privateco's 79% working interest, operated, natural gas processing plant in April.  This well is forecast to add approximately 75-100 boe/d net to Privateco in May.

In addition to the extensive operated and non-operated infrastructure, the acquired assets feature an extremely low corporate decline rate below 10%.  The Carrot Creek area is characterized by multi zone targets for light oil and liquid rich natural gas.  The LMR for the asset is similar to that of Journey.

Privateco is currently controlled by a small group of major shareholders, who are supportive of this business combination.  The acquisition is currently expected to close on April 1, 2022.  Annualized April 2022 Adjusted Funds Flow from this low decline asset base is approximately $7.5 million.

ACQUISITION OF PLANT AND GATHERING INFRASTRUCTURE

Journey has entered into a definitive agreement to purchase certain assets (the "Assets") from a midstream company, thereby doubling Journey's working interests in those assets.  The Assets are comprised of a 43.75% working interest in a natural gas processing facility, and a 50% working interest in the main gathering system serving the facility.  With the acquisition, Journey will become operator of the Assets.  The purchase price is $5 million prior to closing adjustments and will be funded with Journey's existing cash on hand.  The Assets are located in the Gilby area, which is contained within Journey's central core area.  Journey views this as a strategic acquisition for the following reasons:

• Journey has over 25 BCF of undeveloped liquid rich natural gas reserves booked to future locations in its December 31, 2021 reserve report, which will be serviced by this infrastructure.
• Journey has identified significant cost savings synergies and potential production optimization synergies associated with the operation and control of this facility.
• Journey sees additional consolidation opportunities in the area. These opportunities along with Journey's existing production and development wedge will all benefit from the lower cost structure.
• Preliminary studies indicate Journey's existing production, future inventory, and asset location are supportive for the installation of Journey's second power project (the first one is at Countess).
• In addition to providing additional revenue, the power project, if constructed, would provide Journey with a competitive advantage for both consolidation and asset development.
• There is significant unutilized infrastructure associated with this purchase.

A minor portion of the plants' working interest purchase is subject to a right of first refusal.  The infrastructure purchase is expected to close early in the second quarter after regulatory approvals are received, and is expected to improve operating expenses and processing revenue of the Company by approximately $1.25 million per year.  This payout is exclusive of any of the benefits listed above.  Acquisitions of strategic infrastructure confer benefits on the Company that are independent of commodity price fluctuations contributing to the longer term sustainability of the business.

SUMMARY

A summary of the relevant metrics for the combined acquisitions are as follows:

REVISED OUTLOOK & GUIDANCE

The continued strength in commodity prices, coupled with favorable price differentials, and a lower cost structure are combining to make Journey more sustainable well into the future.  While Journey made great progress in 2021 in reducing its net debt, the Company will remain steadfast in its desire to reduce leverage and improve sustainability.  In order to enhance financial flexibility, on March 18, 2022, Journey closed an equity offering of 2.85 million Canadian Development Expense flow through shares at a price of $4.25/share. Proceeds of this offering will be utilized for Journey's active 2022 exploration and development program freeing up cash on hand to pursue these acquisitions.

After incorporating the impact of the above acquisitions Journey's 2022 guidance is revised to the following:

Journey's 2022 forecasted Adjusted Funds Flow is based upon the following assumed average prices: WTI of $87.50/bbl USD; Company differentials of $4/bbl USD for oil from Edmonton mixed sweet prices; Company realized natural gas price of CDN$4.00/mcf CDN; and a foreign exchange rate of $0.79 US$/CDN$.  Readers are encouraged to view the sensitivity table in Journey's Corporate Presentation to assess the impacts of recent price fluctuations on our business plan.

To date in 2022 Journey has drilled 3 (3.0 net) wells in Skiff and the plans are to drill 16 (15.0 net) wells for the entire year.  This includes the 31% WI well in the acquired Privateco described herein.  Journey is currently drilling the first of two, 1.5 mile horizontal wells in its Viking light oil pool in Crystal.

Recent Events

Journey's practice is to continuously review our capital program throughout the year.  Recent world events have resulted in a significant upward bias for commodity prices and cash flows. The duration of this impact remains uncertain. Journey's current guidance is not reflective of the full magnitude of these events and includes no component for acquisitions other than those included in this press release.  Journey will continue to review our capital program throughout the year and we will communicate these revisions in due course.

About the Company

Journey is a Canadian exploration and production company focused on oil-weighted operations in western Canada.  Journey's strategy is to grow its production base by drilling on its existing core lands, implementing waterflood projects, and by 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 our 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 our 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 our 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 our 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. Our 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 our 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 our 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, adjusted funds flow, net debt, well economics and components, 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 23, 2021. Forward-looking information may relate to our 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 our 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. 
   
   
2. "Net debt" is calculated by taking current assets and then subtracting accounts payable and accrued liabilities; the principal amount of term debt; and the carrying value of the other liability. Net debt is used to assess the capital efficiency, liquidity and general financial strength of the Company. In addition, it is used as a comparison tool to assess financial strength in relation to Journey's peers.

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.

Reserves Disclosure

Journey's Statement of Reserves Data and Other Oil and Gas Information on Form 51-101F1 dated effective as at December 31, 2021, which will include further disclosure of Journey's oil and gas reserves and other oil and gas information in accordance with NI 51-101 and COGEH forming the basis of this press release, will be included in the AIF, which will be available on SEDAR at www.sedar.com on or near March 31, 2022.

All reserves values, future net revenue and ancillary information contained in this press release are derived from the GLJ Report unless otherwise noted. All reserve references in this press release are "Company gross reserves". Company gross reserves are the Company's total working interest reserves before the deduction of any royalties payable by the Company. Estimates of reserves and future net revenue for individual properties may not reflect the same level of confidence as estimates of reserves and future net revenue for all properties, due to the effect of aggregation. There is no assurance that the forecast price and cost assumptions applied by GLJ in evaluating Journey's reserves will be attained and variances could be material. All reserves assigned in the GLJ Report are located in the Province of Alberta and presented on a consolidated basis.

All evaluations and summaries of future net revenue are stated prior to the provision for interest, debt service charges or general and administrative expenses and after deduction of royalties, operating costs, estimated well abandonment and reclamation costs and estimated future capital expenditures. It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. The recovery and reserve estimates of Journey's oil, NGLs and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual oil, natural gas and NGL reserves may be greater than or less than the estimates provided herein. There are numerous uncertainties inherent in estimating quantities of crude oil, reserves and the future cash flows attributed to such reserves. The reserve and associated cash flow information set forth herein are estimates only.

Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves. Proved developed producing reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty. Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (e.g., when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves category (proved or probable) to which they are assigned. Certain terms used in this press release but not defined are defined in NI 51-101, CSA Staff Notice 51-324 – Revised Glossary to NI 51-101, Revised Glossary to NI 51-101, Standards of Disclosure for Oil and Gas Activities ("CSA Staff Notice 51-324") and/or the COGEH and, unless the context otherwise requires, shall have the same meanings herein as in NI 51-101, CSA Staff Notice 51-324 and the COGEH, as the case may be.

"Development capital" means the aggregate exploration and development costs incurred in the financial year on reserves that are categorized as development. Development capital excludes capitalized administration costs.

"FDC" Future development costs are the future capital cost estimated for each respective category in year- end reserves attributed with realizing those reserves and associated future net revenue.

SOURCE Journey Energy Inc.