Mr. Alex Verge reports

JOURNEY POSTS $15.8 MILLION OF NET INCOME FOR 2023 AND $66.1 MILLION OF ADJUSTED FUNDS FLOW

Journey Energy Inc. has released its financial and operating results for the three- and 12-month periods ending Dec. 31, 2023. The complete set of financial statements and management discussion and analysis for the periods ended Dec. 31, 2023, and 2022 are posted on SEDAR+ and on the company's website.

Highlights for 2023 are as follows:

• Generated net income of $15.8-million for 2023. On a basic, weighted average per-share basis, this amounted to 26 cents and 24 cents per diluted share.
• Realized adjusted funds flow of $66.1-million for the year. On a basic, weighted average per-share basis, this amounted to $1.10 and $1.00 per diluted share.
• Achieved sales volumes of 12,595 boe/d (barrels of oil equivalent per day) in the fourth quarter of 2023 and 12,415 boe/d for the entire year. Liquids volumes (crude oil and natural gas liquids) accounted for 6,912 boe/d or 55 per cent of total volumes during the quarter and 6,765 boe/d or 54 per cent for the entire year.
• On March 18, 2023, Journey closed a bought deal flow-through share financing to issue 3.04 million flow-through shares at a price of $6.62/share resulting in gross proceeds of $20.1-million.
• Proved developed producing and proved plus probable developed producing reserve life index of 8.4 and 10.8 years, respectively, are testaments to Journey's low decline asset base, and the YoY (year-over-year) increase in reserve life index demonstrates Journey's ability to grow the company's base production base while simultaneously reducing its corporate decline rate.
• Achieved attractive F&D (finding and development) and FD&A (finding, development and acquisition) recycle ratios of 2.4 and 2.5 respectively for proven reserves, and 8.9 and 8.5 respectively for proven plus probable reserves.
• The company continued to advance the emerging power generation business:
  • Generated 24,723 MWH (megawatt-hours) of electricity in 2023 at an average price of $155.69/MWH;
  • Started construction of the 15.1 MW power generation facility in Gilby, Alta., which is currently forecast to be on stream by the fourth quarter of 2024;
  • Purchased a 16.5 MW power generation facility, the land it sits upon and the gas supply pipeline.
• Continued work on decommissioning non-producing sites. Journey spent $1.2-million in the fourth quarter and $4.9-million for the entire year.

2024 highlights

On March 6, 2024, Journey announced a $38-million convertible debenture bought deal financing. The debentures have a coupon rate of 10.25-per-cent interest and are convertible into Journey shares at the option of the holder at the exercise price of $5.00/share. The closing of this offering is anticipated to be on or about March 20, 2024. Journey has chosen to defer updating 2024 corporate guidance until that time. In addition to providing greater financial flexibility for the company, proceeds from this debenture will be utilized to:

• Ramp up expenditures to complete our Gilby power facility in October, 2024 (see power business update);
• Provide for a minor expansion to 2024 capital, including a second Medicine Hat drilling program;
• Provide funds to drill two Duvernay wells in 2025.

Operations

During the third quarter, Journey began its 2023 exploration and development program, starting with a drilling program in the Medicine Hat pool. This pool was a cornerstone of the assets acquired from Enerplus Corp. that closed on Oct. 31, 2022. Journey drilled 4.0 gross (2.9 net) wells in Medicine Hat in the fourth quarter. These wells have markedly exceeded expectations with respect to both costs and results. Based upon these results, both Journey and its partner have executed a second program in this pool during the first quarter of 2024. Well costs and geological indicators are similar to or better than the first program. All of these wells will be on stream prior to mid-March. Journey is reviewing the potential for additional second half, 2024 Medicine Hat drilling and polymer flood expansion utilizing the proceeds from the company's recent financing. With over 30 future locations, along with future water flood and polymer flood expansion potential, Journey expects this field to continue to provide increasing shareholder value for years to come.

In addition to the Medicine Hat drilling program, Journey drilled 3.0 gross (3.0 net) wells in Matziwin. Similar to Medicine Hat, the total program costs were significantly below forecast. On Nov. 7, 2023, Journey moved a drilling rig to the Cherhill field where the company drilled 3.0 gross (2.7 net) wells. The Cherhill program was followed up with 2.0 gross (1.7 net) wells drilled in Poplar Creek.

The 2023/2024 drilling program was funded with the proceeds of a flow-through share issuance completed in the spring of 2023. Journey has now completed the required expenditures under this program.

In the fourth quarter of 2023, Journey had sales volumes of 12,595 boe/d. These volumes reflect preliminary additions from the drilling program as well as the return of previously disclosed shut-in volumes in Kiskiu.

Throughout 2023, Journey has maintained a conservative posture with respect to capital expenditures. The company continues to prioritize its 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. In its previous guidance, Journey reduced its 2023 capital budget to $46-million from $63-million. Actual 2023 capital expenditures, including end-of-life costs, totalled $45.7-million, which was consistent with forecasted guidance.

Of the $46-million in 2023 capital, $15.6-million was related to drilling and completions with a focus on maintaining production volumes. Journey's capital program has shifted more toward oil-weighted opportunities by replacing natural gas weighted drilling in Westerose with oil-weighted drilling in Cherhill, Matziwin and Medicine Hat. 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 $14.8-million of capital was devoted to land, seismic, facilities, polymer, and end-of-life costs and $14.5-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 was offset by $5.5-million in non-core divestments.

The company continued 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 50 contiguous, gross sections for Duvernay development drilling. These mineral rights are adjacent to Journey's Gilby gas processing facility. These rights are overlain by liquid-rich, Glauconite natural gas production and contain two Duvernay test wells drilled as part of Journey's previous joint venture. 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 four Duvernay wells on this block during the four-year primary term, with the first two wells now being planned for 2025.

Expanding Journey's power business

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 current spot prices. The currently operating four MW Countess facility, which was originally commissioned in the fourth quarter of 2020, has already paid 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 $9.41/mcf (thousand cubic feet). For the first nine months of 2023, the average, effective, net realized price was $9.47/mcf. During the fourth quarter of 2023, one of the Countess generation units had a mechanical failure reducing power output and resulting in a one-time cost to repair and overhaul the generation unit. With the repair completed, the facility returned to normal operation in late Q4 2023.

Delays in the regulatory approval process, and a desire to prudently manage capital expenditures, led Journey to defer power expenditures scheduled for the fourth quarter. In 2023, Journey incurred costs of $14.5-million to advance its power generation business. A total of $6.5-million of these costs were associated with the Mazeppa project, including the purchase of: the power plant; the land it resides on; the natural gas supply line; and preliminary engineering. The remaining $8-million was expended at Gilby.

Journey budgeted $11-million to complete the Gilby power project in 2024. In the past week, Journey received a potential on-stream start-up date for Gilby of Oct. 1, 2023. Therefore Journey forecasts spending the majority of its budgeted capital for this project between March 15 and Oct. 1 of 2024. The building for the Gilby project will be completed in early April. Journey currently forecasts completion of the Gilby project in time for the scheduled on-stream date.

Journey has budgeted $6.3-million for re-energizing the Mazeppa power project in 2024. In the second quarter of 2023, Journey purchased the 16.5 MW power generation facility at Mazeppa 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 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. Journey has now purchased the land the facility currently resides on and has also purchased the pipeline, which transports sales gas from an ATCO buyback meter station. Although Journey continues to await regulatory approvals, all of the efforts to date have resulted in Journey being optimistic that Mazeppa will be re-energized in its current location and looks forward to providing updates in due course.

Journey is planning to increase its power sales to the Alberta electricity grid by over 350 per cent when the Gilby and Mazeppa projects come on line. As previously disclosed in the company's Feb. 22, 2024, press release, the combined value of Journey's Gilby and Mazeppa projects is forecast to be $70.9-million as evaluated by GLJ Petroleum Consultants Ltd. and effective Jan. 1, 2024. This value includes the full capital estimate to bring these projects on stream. The nature of Journey's asset base is such that it is a large power consumer with power costs representing approximately 25 per cent of overall corporate operating costs. 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 power grid. This will help diversify the corporate revenue stream and effectively provide a hedge against a volatile commodity pricing environment. The extreme volatility in recent in power prices continues to reinforce the validity of this long-term strategy.

Financial

Journey achieved adjusted funds flow of $18.4-million during the fourth quarter of 2023 and $66.1-million for the entire year. Commodity sales volumes were 10 per cent higher than the comparable quarter of 2022. The higher volumes in the fourth quarter of 2023 were the result of the full integration of the asset acquisition in late 2022 as well as the placing of eight (6.8 net) wells on-production from the fourth quarter drilling program. Journey's overall liquids weighting continued to strengthen and was 55 per cent for the fourth quarter and 54 per cent for the entire year. Crude oil sales volumes for the fourth quarter of 2023 represented 45 per cent of total boe volumes but contributed 78 per cent of total petroleum and natural gas revenues. Natural gas sales volumes contributed 45 per cent of total boe volumes in the fourth quarter of 2023 while contributing 13 per cent of total sales revenues. While aggregate sales volumes increased quarter to quarter, the average realized commodity prices decreased by 25 per cent over this time period, and as a result the aggregate commodity revenues decreased by 18 per cent.

On the operating expense side, aggregate royalties were higher by 10 per cent in the fourth quarter of 2023 compared with the fourth quarter of 2022, which was mainly due to higher average royalties from the 2022 acquisition. On a per boe basis, royalties were $10.45/boe in the fourth quarter of 2023 as compared with $12.77 in the fourth quarter of 2022. Aggregate field operating expenses decrease during the fourth quarter of 2023 as the significantly lower power prices resulted in operating expenses (net of recoveries) of $19.7-million or $17.02/boe as compared with $25.0-million or $23.64 per boe in the same quarter of 2022. Included in the fourth quarter, 2023 operating expenses were $3.2-million of workover and turnaround costs while for the fourth quarter of 2022 the amount was $1.4-million.

Journey's general and administrative (G&A) costs were consistent for the fourth quarter of 2023 as compared with the same quarter in 2022 at $2.0-million and $2.2-million respectively. On a per boe basis, Journey's G&A costs were $1.74/boe for the fourth quarter of 2023 and $2.05/boe for the fourth quarter of 2022.

Finance expenses related to borrowings, decreased by 35 per cent to $1.8-million in the fourth quarter of 2023 from $2.5-million in the same quarter of 2022. This decrease was mainly attributable to debt decreasing by 35 per cent in the fourth quarter of 2023 compared with the same quarter of 2022. Repayments of both the $23.8-million of AIMCo term debt and $26.0-million of the vendor-takeback debt during 2023 resulted in a lower interest burden during the year. Subsequent to Dec. 31, 2023, and to today's date, Journey has made an additional $6.0-million of principal repayments on this debt.

Journey realized net income of $3.4-million in the fourth quarter of 2023. Net income per basic share was six cents and five cents per diluted share for the fourth quarter. Adjusted funds flow of $18.4-million in the fourth quarter was 26 per cent lower in 2023 as compared with the same quarter of 2022, and was mainly due to the 25-per-cent decrease in average commodity prices during the respective periods. This resulted in 30 cents and 27 cents per basic and diluted share respectively as compared with $24.9-million, or 44 cents basic and 40 cents per diluted per share respectively in the same quarter of 2022. Cash flow from operations was $31.3-million in the fourth quarter of 2023 (51 cents per basic share and 47 cents per diluted share) as compared with $25.3-million in the fourth quarter of 2022 (45 cents and 40 cents per basic and diluted share respectively).

Total capital expenditures in the fourth quarter were $18.2-million including $14.3-million for the drilling, completing and equipping of the wells drilled in the fourth quarter drilling program. In addition, the company spent $9.3-million on the continuing work on its power generation projects. Journey exited the fourth quarter of 2023 with net debt of $61.7-million, which was 38 per cent lower than the $98.8-million of net debt at the beginning of the year. On Dec. 21, 2023, Journey entered into an amendment to the AIMCo term debt to reduce the two major balloon payments in April and October and to take the remaining amounts and amortize them on a monthly basis. To further improve liquidity, Journey entered into a bought deal, convertible debenture financing for gross proceeds of $38.0-million. The proceeds of the offering will have multiple purposes, which include: supporting other debt repayments, finishing the Gilby power project and for general working capital purposes. In terms of interest costs, the coupon on this new debt is 10.25 per cent while the effective rate on all of Journey's current term debt (AIMCo and vendor takeback) was 11.5 per cent for the fourth quarter of 2023.

Outlook and guidance

Journey forecasts reducing its net debt by approximately $26-million in 2024 while maintaining production and energizing a new power generation facility.

Of the $41-million in planned 2024 capital, $6.2-million was devoted to drilling and completions, which has already been spent to date. Journey has drilled and completed 4.0 (2.9 net) wells in Medicine Hat during the first quarter of 2024 along with the completion of the two Poplar Creek wells drilled in the fourth quarter of 2023. The ability to maintain production rates near 12,000 boe/d with limited capex is a testament to Journey's very low corporate decline rate. Approximately $17.7-million of capital will be devoted to land, seismic, facilities, polymer and end-of-life costs. A total of $16.8-million of capital in 2024 is associated with the expansion of Journey's power business.

The below 2024 guidance was initially issued on Dec. 21, 2023, and incorporated many material underlying assumptions including but not limited to:

• Forecasted commodity prices;
• Assumptions of vendor-takeback principal payments, as these repayments are based upon realized WTI (West Texas Intermediate) oil prices;
• Forecast operating costs, including forecasted prices for power;
• Forecast costs for the capital program;
• Forecast results and phasing in of production additions from the capital program.

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 company plans to issue updated guidance after the closing of its bought deal convertible debenture financing, which is currently anticipated to be on or about March 20, 2024.

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, 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.

We seek Safe Harbor.