Mr. Alex Verge reports

JOURNEY ENERGY INC. GENERATES $18 MILLION IN ADJUSTED FUNDS FLOW FOR THE FIRST QUARTER OF 2023, REDUCES NET DEBT, TAKES FURTHER STEPS TO EXPAND ITS POWER BUSINESS

Journey Energy Inc. has released its financial results for the first quarter of 2023. The complete set of financial statements and management discussion and analysis for the periods ended March 31, 2023, and 2022 are posted on SEDAR on the company's website.

Highlights for the first quarter, and to date are as follows:

• Generated sales volumes of 12,920 boe/d (barrels of oil equivalent per day) in the first quarter (45 per cent crude oil; 11 per cent NGLs (natural gas liquids); 44 per cent natural gas). All of Journey's production is currently unhedged. Year-over-year sales volumes increased 52 per cent.
• Generated adjusted funds flow of $18.0-million or 31 cents per basic share and 28 cents per diluted share. Quarter over quarter, adjusted funds flow was impacted by a 16-per-cent decrease in average, corporate, realized pricing per boe. The corresponding 39-per-cent reduction in operating netback was largely offset by the by the quarter over quarter increase in sales volumes.
• Closed a Canadian development expense flow-through-share financing of 3.0 million shares at $6.62/share for gross proceeds of $20.1-million. The proceeds of the flow-through-share financing will be utilized to finance an eight-well drilling program in the second half of 2023.
• Produced 5,603 megawatts of electricity at Journey's power generation facility in Countess, Alta., at an average price of $159.65/megawatt-hour. The run rate during the first quarter was 64 per cent of capacity.
• Completed the purchase of the 16.5 MW (megawatt) power plant in Mazeppa, Alta., on April 28. Journey continues to make progress with plans to reactivate this facility in its current location, most recently entering into an agreement to purchase the land the power facility resides on. In addition, the company continues to advance the approval process for reconnecting and reactivating the facility to the power grid.

Operations

In the first quarter of 2023, Journey was busy continuing with the integration of its acquisition from Enerplus Corp. This transaction was the primary contributor to the increase in sales volumes from 8,492 boe/d in the first quarter of 2022 to 12,920 boe/d in the first quarter of 2023. The acquisition had a positive impact on the liquids (crude oil and NGLs) sales mix as it increased from 47 per cent in the first quarter of 2022 to 55 per cent in the current quarter. This change will benefit Journey's netback going forward due to the significant shift toward the more valuable liquids weighting. Current production capability from the combined asset base is approximately 13,000 boe/d. Journey's productive capability continues to be affected by minor unplanned outages that are expected to be resolved by early summer. However, Journey is still projecting to achieve its full year guidance, even with a capital program that is weighted to the back half of the year.

Along with the continued integration of the acquisition, Journey's activity levels in the first quarter of 2023 also included advancing the power business, and preparing for an active second half of the year. Journey's capital program has shifted more toward oil-weighted opportunities by replacing natural gas weighted drilling in Westerose with oil-weighted drilling in Matziwin. This is expected to result in lower aggregate boe volumes in favour of higher netback oil volumes. Journey's 2023 drilling program now features nine gross (7.6 net wells) including four wells in Medicine Hat; three wells in Cherhill; and two wells in Matziwin. It is important to note that $20-million of Journey's $63-million capital program is directed toward sales volume growth. In addition, Journey plans to expand its polymer flood in Medicine Hat and its waterflood in Matziwin, which will result in a less immediate, but longer-lasting positive impact on the sales volumes at these locations. Journey has allocated $8-million of its 2023 capital budget to polymer costs, injector conversions and facilities. Journey has also allocated $5.4-million of capital toward end-of-life costs and an additional $8-million in minor acquisition costs; land acquisitions; seismic data; and cost carry overs from projects started in 2022.

Even though Journey shifted its capital program toward oil-weighted drilling, Journey continues to advance its repeatable plays in 2023. The company is in final negotiations to enter into 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 50 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. 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 two Duvernay wells on this block during the four-year primary term.

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 allocated $21-million in capital to its power generation business for 2023. The majority of this capital is associated with its Gilby power plant construction and the remainder to the Mazeppa power plant purchase. Although a portion of the Gilby capital may carry over into the first quarter of 2024, this is expected to be offset by an increased capital allocation devoted to re-energizing the purchased Mazeppa power plant. Therefore there is a potential upward bias to Journey's capital allocation to its power business in 2023.

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, four 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 (thousand cubic feet). For the first three months of 2023 the average, effective, net realized price was $8.60. 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 2022 was approximately $5.43/mcf and $3.23/mcf for the first three months of 2023. Average power prices have increased over 250 per cent since this facility came on stream. Journey is planning to increase its power sales to the Alberta electricity grid by over 500 per cent over the next year. The nature of Journey's asset base is such that it is a large power consumer, and power represents 25 per cent 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, Alta., 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 the power project is currently occupying. The land purchase is forecast to close in mid-May. 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 by early 2024. Journey intends to provide further guidance on the time-line to an on-stream date in August. Full costs for re-energizing this facility have not been included in the 2023 capital guidance, but are not forecast to materially affect the 2023 capital program.

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 is scheduled to begin after breakup and this power project is currently anticipated to commence operations 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 improves the sustainability of the company even when there is 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 reinforce the validity of this longer-term strategy.

Financial

The first quarter of 2023 was the first full quarter operating the significant acquisition that closed on Oct. 31, 2022. The 72 per cent liquids (crude oil and NGLs) weighting from the acquisition helped increase Journey's overall liquids weighting from 47 per cent in the first quarter of 2022 to 55 per cent in the first quarter of 2023. The acquisition was well timed as commodity prices started to soften in early 2023 and the increased emphasis on the higher netback liquids volumes contributed significantly to Journey's first quarter results. Average commodity prices decreased by 17 per cent from the first quarter of 2022 to the current quarter with oil down by 25 per cent, natural gas down by 35 per cent and NGLs down by 19 per cent. Journey still posted solid results with adjusted funds flow for the first quarter of 2023 of $18.0-million. Crude oil sales volumes for the first quarter of 2023 represented 44 per cent of total boe volumes but contributed 70 per cent of total petroleum and natural gas revenues. Natural gas sales volumes contributed 45 per cent of total boe sales volumes in 2023 while contributing 20 per cent of total sales revenues.

As previously discussed, first quarter volumes and revenues were impacted by unplanned outages that are forecast to be resolved in the near term and full year guidance is still confirmed. First quarter revenues were also impacted by an unplanned maintenance outage at one of the power generation units at the Countess power plant. This resulted in an uncharacteristically low utilization rate of 64 per cent for the quarter. This issue was resolved and utilization has returned to normal levels in March.

All of the field operating costs (royalties, operating and transportation expenses) experienced increases during the first quarter of 2023. Royalty expense was higher by 49 per cent in the first quarter of 2023 compared with the first quarter of 2022. This was expected with the higher weighting to crude oil and the higher aggregate volumes sold. On a per boe basis royalty expense was $10.38/boe in 2023 as compared with $10.63 in the first quarter of 2022. Field operating expenses increased in 2023 as the acquisitions from 2022, workovers, reactivations, plant turnarounds and general inflationary pressures contributed to the total increase. In addition, $2.4-million of workover and turnaround costs were incurred in the first quarter of 2023 and accounted for approximately $2.05/boe of the total operating expenses on a per boe basis. As a result of these cost pressures, Journey averaged $19.78/boe for operating expenses in the first quarter of 2023 as compared with $17.40/boe in the same quarter of 2022.

Journey's general and administrative (G&A) costs were lower in 2023 as compared with the same quarter in 2022 as field-related cost recoveries mitigated additional staff costs related to the acquisitions in 2022. G&A was $1.8-million in the first quarter of 2023 as compared with $2.4-million in the first quarter of 2022. On a per boe basis, Journey's general and administrative costs were $1.57/boe for the first quarter of 2023 and $3.15/boe for the first quarter of 2022.

Finance expenses related to borrowings, or interest costs, increased by 66 per cent to $2.7-million in the first quarter of 2023 from $1.6-million in the same quarter of 2022. Average, interest-bearing debt increased by 60 per cent in the first quarter of 2023 compared with the same quarter of 2022 mainly due to the vendor-takeback financing associated with the acquisition.

Journey realized net income of $6.4-million in the first quarter of 2023 compared with $13.8-million in the same quarter of 2022. Net income per basic and diluted share was 11 cents and 10 cents respectively for the first quarter. Adjusted funds flow in the first quarter was 12 per cent lower in 2023, wherein the company generated $18.0-million, or 31 cents and 28 cents per basic and diluted share respectively as compared with $20.4-million, or 42 cents basic and 36 cents per diluted per share respectively in the same quarter of 2022. Cash flow from operations was $11.5-million in the first quarter of 2023 (20 cents per basic share and 18 cents per diluted share) as compared with $21.8-million in the first quarter of 2022 (45 cents and 39 cents per basic and diluted share respectively).

In March, Journey closed a bought deal flow-through share financing. The full 15-per-cent overallotment was exercised bringing the total equity issuance to 3,040,031 flow-through common shares at a price of $6.62 per share for total gross proceeds of $20.1-million. The strong market pricing of the deal and the solid tax pool position of Journey made this transaction possible. The proceeds of the financing help finance Journey's drilling program which is currently expected to be begin in the summer.

Journey continued to be prudent with its capital spending during the first quarter as it underspent its adjusted funds flows to allow for the maximum flexibility in its cash position while integrating the acquisition. Total capital expenditures in the first quarter were $9.2-million including $2.4-million spent on abandonment and reclamation work. Journey exited the first quarter of 2023 with net debt of $71.1-million as compared with $38.5-million at March 31, 2022, and $98.8-million at the end of 2022. The higher net debt was mainly attributable to vendor-takeback debt, which assisted Journey in completing the acquisition in October. The initial amount of this debt was $45-million and at March 31, 2023, the balance outstanding is $37-million. During the quarter Journey also fulfilled its obligation to repay AIMCo a balloon payment of $23.8-million leaving approximately $43.8-million of principal term debt owing to them. During January Journey also repaid the remaining $5-million of contingent bank debt owing from 2020. Even with the lower adjusted funds flow from declining commodity prices in the quarter and the extra debt taken on to close the acquisition, Journey's net debt to annualized adjusted funds flow is a very respectable 1.0 times.

Outlook and guidance

Commensurate with the closing of its flow through share issuance on March 23, 2023, Journey has updated its 2023 guidance. The new guidance reflects minor sales volume adjustments to its base production, reductions in forecasted commodity prices and additions in the second half from a relatively small oil-weighted development program. Journey remains poised to significantly ramp-up capital expenditures in the second half of 2023 should commodity prices increase.

The early start of the forest fire season in Alberta is effecting many producers, including Journey. Journey's producing areas of Carrot Creek, Berrymoor, Ante Creek, Niton, Pine Creek, Kaybob and Stolberg have all been affected to varying degrees. Field production has been directly impacted by evacuations and indirectly impacted by damage to the power grid and third party facility outages. Current production is impacted by approximately 1,200 to 1,300 boe/d (50 per cent liquids), but has been as high as 2,000 boe/d. As always, Journey's first priority is the safety of both the nearby residents and its personnel. Journey personnel have worked with emergency services in its producing areas and will take all prudent and proactive measures to accomplish this objective. With recent rain and the diligent efforts of emergency services, the impact on Journey's production is gradually being resolved. However, it is difficult to quantify the length of time or the full extent of these outages and their impact on Journey's second quarter production.

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

• Forecasted commodity prices by month;
• Assumptions of VTB principal payments since they are based upon realized commodity prices;
• Forecasted operating costs, including forecasted prices for power;
• Forecasted costs for the capital program;
• Forecasted results and phasing of production additions from the capital program.

Journey's goals for improving corporate sustainability in 2023 include:

• Reducing leverage created by the transformational acquisition in 2022;
• Adding inventory in repeatable plays;
• Advancing the power generation business;
• Managing its ARO;
• Continuing to search for creative ways to expand the company's business.

Journey's low corporate decline, high working interest project inventory, operated infrastructure and favourable expiry profile allow the company to weather periods of lower-than-forecast commodity prices by pro-actively deferring portions of the capital program on a temporary basis. Journey is focused on adjusting its capital program to meet its near-term obligations without sacrificing the longer-term priorities of sustainability and enhancing shareholder value.

Journey continues to embark on a careful and prudent expansion of its business plan. Journey has achieved or exceeded all of its internal targets and created significant value for all stakeholders since the bottom of the market in 2020. This expansion has been buoyed by commodity price tailwinds and would not be possible without the talented team at Journey, both in the office and the field. Journey also recognizes the steady guidance supplied by its board of directors and the unyielding support of AIMCo, the company's term debt provider and largest shareholder. Together, with the support of this combined team, your company is extremely well positioned to continue its journey of value creation and maintain its growth trajectory for years to come. The company looks forward to updating you on Journey's progress as it continues on this exciting development path.

Annual general meeting

Journey's annual general meeting (AGM or the meeting) is scheduled for 3 p.m. (Calgary time) on May 24, 2023. Journey is offering shareholders an opportunity to listen to the business to be conducted at the meeting by teleconference. Shareholders not attending in person must vote on the matters not less than 48 hours (excluding Saturdays, Sundays and statutory holidays in the province of Alberta) before the time of the meeting. Further instructions on how to listen to the meeting and how to vote in advance of the meeting can be found in Journey's management information circular that is posted on the company's website and on SEDAR. Journey expects to only have a minimum number of in-person attendees present to conduct the formal business of the meeting and does not intend to provide a corporate presentation after the meeting.

About Journey Energy Inc.

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 and 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. In addition, Journey is seeking to grow its power generation business. Journey currently produces approximately four MW of electricity and with the recently announced facility acquisitions is anticipating to expand its productive capacity to approximately 36 MW within the next year.

We seek Safe Harbor.