Journey Energy Stock: 45% Accretive Acquisition, Raises Guidance (JRNGF)

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Journey Energy (OTCQX:JRNGF) delivered, again. Journey’s Q2 was the best quarter since they went public in 2014, and they executed on a highly accretive acquisition, their third so far this year. No surprise, Journey has been a high performing stock as it continues to deliver on its acquire and exploit business plan. And yet Journey’s stock still trades at a compelling valuation, offering potential for further outperformance as the market eventually prices in more accretive acquisitions and economic development.

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JOY data by YCharts

Journey’s guidance increased meaningfully with the acquisition of low-decline assets from Enerplus (ERF). Key items include an increase from 50% oil and liquids to 55%, a decrease in the corporate decline rate from a low 14% to an even lower 12%, and Q4 production of 14,100-14,600 boe/d – up from 8,004 boe/d in 2021.

journey energy updated production and financial guidance

Journey Updated Guidance (Journey Energy Q2 Presentation)

A higher oil % means higher margins for Journey. Lower corporate decline rate means even less drilling necessary to sustain production. And higher production means more cash flow and more relevance as Journey moves into a larger size range. It is noteworthy that Journey’s forecast Q4 2022 daily production is 79% higher than its full year 2021 daily production, while the share count is only up 27% and its debt is forecast to only be up $43 million. Adjusted funds flow per share for Q4 2022 is almost as high as for full year 2021, reflecting the benefits of the increase in production per share and higher commodity prices.

The reserve statistics on the recent acquisition from Enerplus illustrate why per share metrics improved so much. Journey paid $116 million net of adjustments for the asset, versus a proved developed producing reserve value of $170.7 million, using the low commodity price assumptions from the start of 2022 – much lower than current prices.

journey reserve statistics from enerplus acquisition pdp proved pv-10

Journey Energy

Other transaction statistics are compelling as well. Less than 2x cash flow is below recent upstream oil and gas transaction multiples, particularly for assets with 10% decline rates – this sort of decline rate is hard to find and typically would be rewarded with a premium valuation.

journey enerplus transaction highlights

Journey Energy Q2 Presentation

Looking forward to Q4 2022, Journey is guiding to $40-42 million in quarterly adjusted funds flow at US $90 WTI oil and $6 AECO – $160-168 million annualized. This compares favorably to the pro-forma market cap of $300 million and projected net debt of $100 million, especially considering limited re-investment necessary due to Journey’s low production decline rate and 15 years of drilling inventory. And it doesn’t consider the potential value step-up from the continued additions to power generation capacity and potential future accretive acquisitions. At just over 2x cash flow, Journey offers compelling value here.

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