- Published: 09 May 2017
- Written by Editor
Journey earns $3.92-million in Q1
Drilled 4 (3.0 net) wells, two in Skiff and two in Brooks.
Three months ended March 31, Financial ($000's except per share amounts) 2017 2016 % change Production revenue 26,690 18,055 48 Funds flow from operations 6,754 3,329 103 Per basic share 0.15 0.08 88 Per diluted share 0.15 0.08 88 Net earnings (loss) 3,920 (5,390) (173) Per basic share 0.09 (0.12) (175) Per diluted share 0.09 (0.12) (175) Capital expenditures, net funds 10,415 3,719 180 Net debt 77,416 104,714 (26) Share Capital (000's) Basic, weighted average 45,298 43,615 4 Basic, end of period 48,653 43,615 12 Fully diluted 54,787 49,492 11 Daily Production Natural gas volumes (mcf/d) 28,586 25,729 11 Crude oil (bbl/d) 3,937 4,563 (14) Natural gas liquids (bbl/d) 326 682 (52) Corporate (BOE/d) 9,027 9,533 (5) Average Prices (excl. hedging) Natural gas ($/mcf) 2.52 1.72 47 Crude Oil ($/bbl) 54.27 30.91 76 Natural gas liquids ($/bbl) 32.01 19.09 68 Corporate ($/BOE) 32.85 20.81 58 Netbacks ($/BOE) Realized prices 32.85 20.81 58 Royalty expense (3.82) (2.57) 49 Operating expense (13.75) (11.69) 18 Transportation expense (0.44) (0.40) 10 Operating netback 14.84 6.15 141 Wells drilled Gross 4 1 300 Net 3.0 1.0 200 Success rate (%) 100 100
Journey achieved production of 9,027 BOE/d (47% liquids) in the first quarter, representing a 6% increase from the fourth quarter of 2016. First quarter 2017 production was positively impacted by workovers and re-activations of previously shut in wells. This impact was partially offset by delays for well services resulting in longer turnaround times for well completions. As a result, production was close to forecast with a slightly lower than forecast oil weighting. During the quarter Journey spent approximately $1.1 million in workovers resulting in higher than budgeted operating expenses. Over $250 thousand of this amount was spent on the Sylvan Lake property, which was sold on April 28 th. A portion of these operating expenses became part of the closing adjustments to the selling price. Journey forecasts operating expenses to track between $12 and $13 per BOE for the remainder of 2017.
Subsequent to the end of the quarter Journey closed a strategic acquisition in its central Alberta core area, along with the divestment of our Sylvan assets. On April 28, 2017 Journey issued a press release revising its 2017 guidance to take into account its recent acquisition and divestiture activities. After giving effect to the net acquisition volumes, and with the new production additions from the 2017 organic capital program, Journey's current production of over 11,000 BOE/d is toward the high end of our 2017 exit guidance of between 10,700 and 11,100 BOE/d. Over the remainder of the year Journey forecasts maintaining current production levels and is forecasting an increase in our liquids weighting from 45% to 48% as the drilling program replaces natural declines with new volumes from oil weighted capital projects. Journey forecasts underspending its funds flow over the rest of 2017 and reducing current net debt levels by approximately $5 million by the end of the year.
In order to ensure Journey has ample financial flexibility to continue pursuing opportunities to expand our business, we have changed the phasing of our exploration and development capital, shifting approximately $5 million in capital projects from the second and third quarters to the fourth quarter.
Commodity prices were 58% higher in the first quarter of 2017 compared to the same quarter of 2016. The average price received of $32.85 per BOE was relatively flat with the fourth quarter of 2016 as commodity prices stabilized. Production volumes were 6% higher from the fourth quarter as Journey initiated its 2017 capital program. Journey also acquired 100 BOE/d of production in the middle of January. The resulting funds flow was $6.8 million for the first quarter compared to $8.4 million in the fourth quarter of 2016 and $3.3 million in the first quarter of 2016. Funds flow in 2017 was negatively impacted by a series of one-time field operating expenditures totaling approximately $1.1 million. Several workover and optimization projects were deferred in 2016 due to the very low commodity prices experienced throughout the first three quarters of the year. These projects were re-evaluated in light of price stability and completed in early 2017. The costs incurred will benefit the production and funds flow levels throughout the remainder of 2017.
The Company realized a loss on its hedging program of $1.2 million during the quarter and this contributed to the lower funds flow as well. On the administrative side of the business, general and administrative costs were lower than 2016 levels at $3.61 per BOE, which was a 19% decrease from $4.45 per BOE in 2016. The Company continued rationalizing its workforce into 2017 and incurred $310 thousand in one-time severance costs during the quarter.
On a per share basis, funds flow was $0.15 per basic and diluted share, which was an 88% improvement over the $0.08 per basic and diluted share in the first quarter of 2016. Journey recorded net earnings in the first quarter of $3.9 million or $0.09 per basic and diluted share. This was a significant improvement over the $5.4 million loss ($0.12 per share) realized in the first quarter of 2016.
Journey's production mix shifted somewhat with natural gas volumes increasing 17% to become 53% of total volumes. However, as a percentage of revenue, the mix did not change significantly as 76% of the revenues came from liquids production (oil and NGL's). Comparatively liquids revenues were 78% in the first quarter of 2016.
Because realized prices showed stability over the last two quarters, Journey increased its capital spending to $10.4 million, spending $7.6 million in exploration and development activities and $2.8 million on net acquisition and divestitures. Journey's long term strategy is to pursue a measured combination of organic spending as well as acquisitions. Subsequent to the quarter end the Company closed the acquisition of a 2,000 BOE/d purchase in the Gilby/Niton areas. The acquisition provides long-life, stable production as well as the opportunity to control strategic infrastructure in both areas.
Journey exited the quarter with net debt of $77.4 million which was 11% lower than what it exited 2016 with. Despite spending more capital than the funds flow, the Company was able to reduce net debt as a result of the exercise of warrants that were issued in 2016. The $13.6 million in proceeds from the exercise went to reduce bank borrowings. In addition, Journey's liquidity was enhanced with an increase to its credit facilities as part of its annual review by the lending syndicate. As a result of a successful increase in year-end reserve values; as well as the acquisition of high quality producing assets, the Company's credit facilities were increased from $90 million to $125 million. The Company estimates it is currently drawn approximately $72 million on the credit facility including the impact of the acquisition on April 28. Journey believes it has ample liquidity to execute its own drilling program as well as continue to pursue acquisition opportunities as they arise.
Journey updated its guidance in its recent press release on April 28 th 2017. Although Journey's production volume forecast remains unchanged, Journey has reduced its realized oil price outlook for 2017, resulting in a minor decrease to forecasted funds flow. Journey's updated guidance is presented in the table below:
Annual average production 10,100 - 10,500 BOE/d (46% liquids) Exit 2017 production 10,700 - 11,100 BOE/d (48% liquids) Exploration and development capital $35 million Net acquisition capital $33 million Funds flow $43 - $46 million Year-end net debt $92 - $97 million Funds flow per basic share (weighted average shares)$0.87 - $0.93 share Corporate annual decline rate 17%
Journey's 2017 forecasted funds flow from operations is based upon the following average prices: WTI of US$50/bbl; AECO gas of CDN$2.90/mcf; and a foreign exchange rate of $0.75 US$/CDN$.
On behalf of Journey's management team and directors we would like to thank our shareholders for their continued support through this challenging time. There are few companies within our peer group that share the same upside leverage to rising commodity prices that Journey does, and we remain steadfast in our goal to provide shareholders with superior returns over the longer term. We look forward to seeing our shareholders at our Annual General Meeting on May 24, 2017 at 3:00 p.m. to be held at Journey's offices.
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.
(1)The Company considers funds flow from operations (also referred to as "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. Funds flow from operations is calculated as funds from operating activities before changes in non-funds working capital, transaction costs and decommissioning costs incurred. Funds flow from operations per share is calculated as funds flow from operations divided by the weighted-average number of shares outstanding in the period. Journey's determination of funds flow from operations may not be comparable to that reported by other companies. Journey also presents funds flow from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net earnings per share, which per share amount is calculated under IFRS and is more fully described in the notes to the financial statements.
(2)Net debt is a non-IFRS measure and represents current assets less current liabilities and bank debt (but excludes the future liability (or asset) related to the mark-to-market measurement of derivative contracts as well as decommissioning liabilities). (3)Operating netback is a non-IFRS measure and equals total revenue less royalties, transportation and field operating costs calculated on a per BOE basis. Funds flow netback equals the operating netback less funds finance costs, general and administrative costs, realized gains and losses on derivative contracts, plus any interest income.