(Idea) Journey Energy - Perceived Risks Are Overblown
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(Idea) Journey Energy - Improving Fundamentals Will Propel Shares Higher
By: Jon Costello
Note: Dollar values are in Canadian dollars unless otherwise specified.
We’ve covered Journey’s Energy’s (JOY:CA) positives and negatives in previous articles. Among the negatives, the company’s existing asset base is generally of lower quality. It also has a high cost structure and a management team that has routinely missed its own guidance.
At the moment, we can add the additional negative that Journey is operating at a loss with WTI in the low-US$60s per barrel.
These factors increase the risk that the company is forced to issue dilutive equity to meet its spending commitments. No doubt some of the stock’s recent price weakness is at least somewhat related to this perceived risk.
We don’t share these concerns. Our confidence is bolstered by management’s recent capital allocation moves, which take the risk of dilution off the table.
Recall that Journey is currently funding the development of high-quality Duvernay acreage. The oil-weighted asset was assembled by Spartan Delta (SDE:CA), which operates the acreage while Journey participates by funding development. Journey’s 30% interest in the asset has become its crown jewel.
As a result, the prospects for Journey shares depend to a great degree on its Duvernay development. Management estimates that the company has a net 283 drilling locations, only one-third of which have been booked in its reserve report.
Source: Journey Energy March 2025 Investor Presentation.
Successful drilling will therefore increase Journey’s oil-weighted reserve value dramatically.
In addition to the vast scale of the company’s potential Duvernay resource, recent well results have significantly exceeded management’s expectations. We expect the results to cause Journey’s cash flow to inflect higher over the coming quarters. Management stated as much in Journey’s most recent press release, issued on March 19, where it stated that the Duvernay well results will provide “a significant increase in cash flow starting in mid-2025.”