CALGARY, Jan. 22, 2018 /CNW/ - Journey Energy Inc. (JOY –
TSX) ("Journey" or the "Company") announces that it
will purchase 12.7 million of its outstanding shares from its
largest shareholder, MIE Maple Investments Limited ("MIE")
for cancellation. Journey is also providing an update on 2018
activities, including new guidance, and announcing the accumulation
of a material land position in an emerging Duvernay resource play.
12.7 Million Share Repurchase for Cancellation
After a review of its corporate obligations, MIE has decided to
reduce its investment in Journey, providing the Company with a
unique opportunity to purchase 12.7 million of its shares for
cancellation (the "Share Repurchase"). The purchase price
will be $1.68 per share, for an
aggregate cost of $21.3
million. The price per share represents a 5% discount
to the 20 day volume weighted average price of Journey's shares
immediately preceding today's date. After closing of the
Share Repurchase, which is currently anticipated to be on
February 2, MIE will continue to hold
3.7 million of Journey's 38.5 million pro-forma shares
outstanding. Concurrently with the Share Repurchase, MIE will
reduce its Board representation from two members to one. Mr.
Andrew Harper will resign from the
Board, while Mr. Ruilin Zhang will
continue as a Board member. Journey would like to thank Mr.
Harper for his support over the past year and wish him well in his
future endeavors.
The Board of Directors of Journey has unanimously approved the
Share Repurchase and related financing from Alberta Investment
Management Corporation ("AIMCo"), on behalf of certain of
its clients, which is discussed in more detail below (the "AIMCo
Financing"). As the Share Repurchase will result in MIE,
an insider of Journey, receiving aggregate consideration that is
greater than 10% of the market capitalization of the Company, the
Toronto Stock Exchange (the "TSX") rules require that
Journey obtain approval from more than 50% of the disinterested
shareholders to proceed with the Share Repurchase. The
approval from disinterested shareholders will be obtained by
written consent pursuant to the exemption under Rule 604 of the
TSX, which will allow the Share Repurchase and AIMCo Financing to
proceed without the need for a shareholder meeting and further
facilitate a timely closing of the transactions. The two
major shareholders, whose votes are not counted because they are
not considered as disinterested shareholders for the purposes of
such approval, are MIE and AIMCo, who collectively own
approximately 41.5% of the outstanding stock prior to the Share
Repurchase.
The Share Repurchase is not considered an issuer bid under
National Instrument 62-104 ("NI 62-104") as the Company is
repurchasing shares from a shareholder that is not resident in a
local jurisdiction of Canada.
Additionally, neither the Share Repurchase nor the AIMCo
Financing are "related party transactions" under Multilateral
Instrument 61-101 ("MI 61-101"). As such, neither a
formal valuation nor a shareholder meeting is required under MI
61-101. Although NI 62-104 and MI 61-101 are not applicable
in regards to the Share Repurchase and the AIMCo Financing, as
noted above, the Company will obtain disinterested shareholder
approval in accordance with the rules of the TSX and, in fairness
to its disinterested shareholders, is conducting the Share
Repurchase at a discount to the trading price of its shares on the
TSX. Concurrently with the closing of the Share Repurchase,
the TSX will require the Company to terminate its normal course
issuer bid, which is currently set to expire on June 18, 2018.
After the closing of the Share Repurchase, Journey will have
approximately 38.5 million common shares outstanding and no
individual shareholder will control more than 15% of Journey's
outstanding common shares.
Share Repurchase Rationale
Since Journey's initial public offering in June of 2014, the
Company has been responding to the rapidly changing environment for
oil and gas pricing in the Western Canadian Sedimentary
basin. Although the Company has had considerable success in
rationalizing non-core properties; reducing our cost structure; and
realigning our shareholder base, the market for junior oil and gas
companies like ours remains challenged. Journey's management
and Directors feel that Journey's current share price fails to
represent the replacement value of our producing assets and our
opportunity inventory. Journey president Alex Verge remarks, "There are many different
ways to create shareholder value. The repurchase of shares from MIE
at levels below their proved, producing, net asset value represents
a unique, one-time opportunity to realize meaningful value for the
shareholders." The Share Repurchase is significantly
accretive to both net asset value and funds flow per share, but
will temporarily increase leverage requiring some minor adjustments
to Journey's near term business plan. Over the longer term
the reduced share count will allow the Company to achieve higher
levels of per share growth, resulting in incremental value accruing
to the holders of existing shares.
Financing
The aggregate purchase price of $21.3
million for the Share Repurchase will be financed with a
concurrent financing from AIMCo for term debt of $22.0 million.
AIMCo's investment into Journey will be made through the
completion of a private placement of 22,000 units (the
"Units") at a price of $1,000
per Unit for aggregate proceeds of $22
million. Each Unit is comprised of: (i) one promissory
note (a "Note") with a par value of $1,000 per Note which will bear interest at 7.65%
per annum, payable semi-annually; and (ii) 105 common share
purchase warrants (the "Warrants").
The Notes mature on September 30,
2022 and all or a portion of the principal amount
outstanding thereunder can be repaid without penalty after two
years. Journey will issue 2,310,000 Warrants in connection with the
private placement, with each Warrant entitling the holder to
purchase one common share of Journey at an exercise price
reflecting a 35% premium to the ten-day weighted average trading
price of the common shares of the Company leading up to and
including the closing day of the private placement. In
addition, if the volume weighted average price of the common shares
of the Company is greater than the exercise price for 60
consecutive calendar days, Journey has the option of requiring
AIMCo to exercise all or any portion of the warrants at any time
thereafter. The 60 consecutive calendar days will exclude any
and all calendar days during which a change of control transaction
has been publicly announced, proposed or made and remains
outstanding. The warrants will be exercisable for 28 months
after closing of the financing.
Immediately following the completion of the AIMCo Financing and
the Share Repurchase, AIMCo will hold 4,950,000 common shares of
Journey, representing approximately 12.8% of the pro-forma issued
and outstanding common shares, on a non-diluted basis.
Assuming the conversion of all of the 2,310,000 Warrants,
AIMCo would hold 7,260,000 common shares of Journey, representing
approximately 17.7% of the post-Warrant conversion, pro-forma
issued and outstanding common shares of the Company.
Chief Financial Officer of Journey, Gerry Gilewicz says, "We are extremely happy
that AIMCo has chosen to make this additional investment in us.
This second investment into Journey in less than 18 months signals
to us a strong endorsement of Journey's ability to create
shareholder value while effectively managing the additional
leverage."
2018 Guidance
The Share Repurchase will result in changes to Journey's 2018
guidance. Over the near term, Journey plans to underspend
funds flow in order to reduce leverage to levels consistent with
our peer average. The current plan for 2018 is as
follows:
a) Asset rationalization
Journey plans a program of minor asset sales to assist in
reducing total debt in the near term. Currently Journey has letters
of intent in place to sell approximately 200 boe/d (59% gas, 37%
NGL's, 4% oil) of production to multiple parties for realized
proceeds of approximately $4 million.
Journey anticipates closing these transactions in the first
quarter of 2018. Journey is continuing to pursue additional
non-core asset sales and will provide further updates in the near
term.
b) Comprehensive hedging
program
Given the increased leverage associated with the share
repurchase, securing forecasted funds flow levels by fixing pricing
levels for its commodities is a key piece of managing Journey's
2018 business. Journey has entered into new hedges to accommodate
the execution of our 2018 plan and provide a high degree of
certainty that our company will have sufficient funding to reduce
pro forma leverage. A summary of the outstanding hedges is as
follows:
Oil
Hedges
|
|
Period
|
Bbls/d
|
Average Floor
Price
CDN $ per
bbl
|
Q1 2018
|
3,500
|
$68.64
|
Q2 2018
|
3,000
|
$71.50
|
Q3 2018
|
3,000
|
$71.50
|
Q4 2018
|
3,000
|
$70.75
|
Q1 2019
|
1,500
|
$72.00
|
Q2 2019
|
1,000
|
$71.50
|
Natural Gas
Hedges
|
|
Period
|
Mcf/d
|
Average Floor
Price
CDN $ per
MCF
|
Q1 2018
|
12,796
|
$3.07
|
Q2 2018
|
3,318
|
$2.62
|
Q3 2018
|
3,318
|
$2.61
|
Q4 2018
|
3,318
|
$2.77
|
For 2018 Journey has approximately 62% of its currently forecast
liquid (oil and NGL's) volumes hedged while 17% of its natural gas
volumes are hedged.
c) Reduction to capital
spending
To accommodate the capital spent on the Share Repurchase,
Journey will be adjusting its 2018 capital spending from a
$40 million program (previous
guidance) to a $27 million program,
net of currently planned divestments. This reduced program
incorporates the drilling of 9 (9.0 net) wells from the previous 14
(13.9 net) wells.
The revised 2018 guidance is as follows:
|
|
|
|
Revised
|
Previous
|
Annual average
production
|
10,100-10,500boe/d
(47% liquids)
|
10,500–10,900boe/d
(47% liquids)
|
Exploration and
development capital
|
$31
million
|
$40
million
|
Wells
drilled
|
9 (9.0
net)
|
14 (13.9
net)
|
Net disposition
capital
|
$4 million
|
-
|
Funds flow
|
$36 - $40
million
|
$45-50
million
|
Commodity
prices:
|
$60.00
|
$54.00
|
|
WTI
(USD/bbl)
|
|
AECO
(CDN/mcf)
|
$1.55
|
$2.25
|
|
F/X
(US$/CDN$)
|
$0.80
|
$0.78
|
Year-end net
debt
|
$110 - $114
million
|
$92-98
million
|
Funds flow (per basic
share)
|
$0.93 –
$1.04
|
$0.88 -
$0.98
|
Corporate annual
decline rate
|
16%
|
16%
|
Although Journey has increased its 2018 oil price forecast, this
has been more than offset by minor increases in foreign exchange, a
minor increase in forecasted oil differentials, and a significant
reduction in the forecasted pricing for natural gas. These
prices reflect current strip prices which are extremely volatile.
This forecast does not include any additional acquisition and
divestment activity, other than that contained within this release,
and the 2018 plan assumes no new equity issuances. Journey
will continue to pursue any and all means of reducing total
leverage and expanding our business plan should market conditions
improve.
Duvernay Land Acquisition
Journey is also pleased to announce that it has, through a
series of transactions over the past year, assembled a significant
land position in the emerging Duvernay resource play in the heart of our
existing Gilby core area in West Central Alberta. Journey has
entered into definitive agreements which will result in Journey
having control over approximately 102 sections of 100% owned
Duvernay P&NG rights. It is Journey's belief that these
lands are prospective for the emerging Duvernay oil resource play, which is supported
by existing well data, recent discoveries, and source rock
analysis. The lands are located within the area serviced by
the 75 mmcf/d and currently under-utilized Tidewater 1-4-42-3-W5
processing facility (Journey 43.75% ownership) and an extensive
network of Journey-owned and operated pipelines and field
compression (Journey 50-100%% ownership). This contiguous
land base is a combination of Crown and Freehold with favorable
royalties that sets up for development utilizing two mile lateral
horizontal wells. Industry is actively licensing wells along
this Duvernay fairway trend
proximal to Journey's significant land position.
The cost of acquiring these lands is included in the above
capital spending guidance. No additional capital spending on
these lands has been included as part of Journey's revised guidance
for 2018. Journey is now in the process of developing a
comprehensive plan to assess the potential of this resource.
Journey management feels that the opportunity this represents for
shareholders makes Journey's value proposition even more compelling
and looks forward to updating shareholders on the progress of its
development in future press releases.
ABOUT AIMCo
AIMCo is one of Canada's
largest and most diversified institutional investment managers with
more than $100 billion of assets
under management. AIMCo was established on January 1, 2008 with a mandate to provide
superior long-term investment results for its clients. AIMCo
operates at arms-length from the Government of Alberta and invests globally on behalf of 32
pension, endowment and government funds in the Province of
Alberta. For more information on
AIMCo please visit www.AIMCo.alberta.ca.
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 provide
investors with growth plus a sustainable yield by focusing on
drilling its existing core lands, implementing water flood
projects, executing on accretive acquisitions and growing its
production base. Journey seeks to optimize its legacy oil pools
through the application of best practices in horizontal drilling
and, where feasible, with water floods.
ADVISORIES
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 26, 2017.
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 the completion of the Share
Repurchase and the AIMCo Financing, 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 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.
Readers are cautioned that the above list of risks and
factors are not intended to be exhaustive. Additional information
on these and other factors that could affect our operating and
financial results are, or will be, included in reports filed with
the applicable securities regulatory authorities and may be
accessed through the SEDAR website (www.sedar.com).
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)
|
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.
|
Barrel of Oil Equivalents
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 six (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.
Oil and Gas Measures and Metrics
The Company uses the following metrics in assessing its
performance and comparing itself to other companies in the oil and
gas industry. These terms do not have a standardized meaning
and therefore may not be comparable with the calculation of similar
measures by other companies:
1)
|
Corporate Decline
is the rate at which production from a grouping of assets falls
from the beginning of a fiscal year to the end of that
year.
|
2)
|
IP 365 is the
average daily production rate of a well expressed in
boe's.
|
Abbreviations
bbl
|
barrel
|
bbls
|
barrels
|
boe
|
Barrel of oil
equivalent
|
boe/d
|
Barrel of oil
equivalent per day
|
mbbls
|
Thousand
barrels
|
mmbtu
|
Million British
thermal units
|
mcf
|
thousand cubic
feet
|
mmcf
|
Million cubic
feet
|
mmcf/d
|
Million cubic feet
per day
|
mboe
|
Thousand
boe
|
NGLs
|
Natural gas
liquids
|
$M
|
Thousands of
dollars
|
No securities regulatory authority has either approved or
disapproved of the contents of this press release.
SOURCE Journey Energy Inc.