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Montage Resources Corporation Announces Exceptional First Quarter 2019 Results Driven by Superior Operational Execution, Updates Full Year 2019 Guidance for Increased Production and Enhanced Cash Margins, and Obtains Borrowing Base Increase of 7%


IRVING, Texas–(BUSINESS WIRE)–Montage Resources Corporation (NYSE:MR) (the “Company” or “Montage Resources”) today announced its first quarter 2019 financial and operational results along with second quarter 2019 and revised full year 2019 guidance. Financial and operational results for the first quarter 2019 include the impact of the merger with Blue Ridge Mountain Resources, Inc. (“Blue Ridge”) since the closing of the transaction on February 28, 2019. In addition, the Company will be posting an updated investor presentation to its corporate website.

First Quarter 2019 Highlights:

  • Average net daily production was 407.5 MMcfe per day, above the high end of the Company’s previously issued guidance range and above analyst consensus expectations.
  • Realized an average natural gas price, before the impact of cash settled derivatives and firm transportation expenses, of $3.01 per Mcf, a $0.14 per Mcf discount to the average monthly NYMEX settled natural gas price during the quarter, with the price differential better than the Company’s previously issued guidance and analyst consensus expectations.
  • Per unit cash production costs (including lease operating, transportation, gathering and compression, production and ad valorem taxes) were $1.41 per Mcfe1, including $0.41 per Mcfe in firm transportation expenses, with the per unit cash production costs better than the Company’s previously issued guidance and analyst consensus expectations.
  • Net loss for the first quarter of 2019 was ($14.1) million; Adjusted net income2 for the first quarter of 2019 was $18.0 million; and Adjusted EBITDAX2 for the first quarter of 2019 was $68.9 million, better than analyst consensus expectations.
  • Subsequent to the end of the first quarter 2019, completed its spring borrowing base redetermination, resulting in a $25 million borrowing base increase, or approximately 7%, from $375 million to $400 million.

Positive Revisions to Full Year 2019 Guidance:

  • Full year 2019 production guidance of 520 to 540 MMcfe per day, an increase of approximately 3% based upon the midpoint of the Company’s previously issued guidance range.
  • Realized natural gas price differential guidance of ($0.15) to ($0.25) per Mcf, better by $0.05 per Mcf based upon the midpoint of the Company’s previously issued guidance range.
  • Per unit cash production costs of $1.35 to $1.45 per Mcfe1, lower by approximately 12.5% based upon the midpoint of the Company’s previously issued guidance range.

1

Revenues include transportation expense for NGLs related to Mariner East II; previous cash production cost guidance included approximately $0.10 per Mcfe for NGLs related to Mariner East II recorded as a reduction to revenue

2

Non-GAAP measure. See reconciliation for details

John Reinhart, President and CEO, commented on the Company’s first quarter 2019 results, “Our first quarter financials, which include only one full month of consolidated results, highlight the power of the combined entity and the harnessing of operational synergies to drive improved cycle times, translating into higher reported volumes. This production beat, coupled with better per unit cash production costs, delivers cash operating margins that we believe are among the best in the Appalachian Basin. The Company’s focus on cost and operational improvements delivered on first quarter cycle time improvements of approximately two weeks, on average, relative to a very aggressive schedule. The Company is on track to drive well costs down below the published 2019 total well average of approximately $870 per foot. We believe that this level of execution outperformance regarding cost and cycle times will help to potentially accelerate our goals related to cash flow generation while maintaining the balance sheet strength that the Company possesses.

“For the first quarter of 2019, the Company generated revenue of $141.5 million, a 28% increase over the first quarter of 2018, while also realizing a 10% increase in adjusted EBITDAX1 over the first quarter of 2018. From an operations perspective, the team has been able to steadily achieve a completion cadence of approximately 9 stages per day on the last three pads, allowing us to place wells to sales more quickly than originally budgeted. With the spud to turn-to-sales timeline compressed and the continued outperformance of our wells, we have raised our production guidance for the full year 2019. As we look out at our capital program for the full year, we remain highly confident in our ability to deliver on our production targets while remaining at or below our guidance range for capital expenditures.

“I believe this is a very exciting time for Montage Resources and our shareholders, as the building blocks of our “Focus Five” strategy takes hold. The natural gas macro environment we are currently experiencing reinforces the importance of our belief in being a low cost producer with high quality assets. With a sound business model, clean balance sheet, operational excellence, low leverage, disciplined growth and superior well performance, the opportunity for significant valuation uplift from the current levels remains extremely high.”

1

Non-GAAP measure. See reconciliation for details

Operational Discussion

The Company’s production for the three months ended March 31, 2019 and 2018 is set forth in the following table:

Three Months Ended
March 31,
2019 2018
Production:
Natural gas (MMcf) 27,205.0 20,343.3
NGLs (Mbbls) 980.5 772.7
Oil (Mbbls) 598.0 565.4
Total (MMcfe) 36,676.0 28,371.9
Average daily production volume:
Natural gas (Mcf/d) 302,278 226,037
NGLs (Bbls/d) 10,894 8,586
Oil (Bbls/d) 6,644 6,282
Total (MMcfe/d) 407.5 315.2

Financial Discussion

Revenue for the three months ended March 31, 2019 totaled $141.5 million, compared to $110.2 million for the three months ended March 31, 2018. Adjusted Revenue2, which includes the impact of cash settled derivatives and excludes brokered natural gas and marketing revenue, totaled $128.6 million for the three months ended March 31, 2019 compared to $110.3 million for the three months ended March 31, 2018. Net Income (Loss) for the three months ended March 31, 2019 was ($14.1) million, or $(0.55) per share, compared to ($2.6) million, or $(0.13) per share3, for the three months ended March 31, 2018. Adjusted Net Income2 for the three months ended March 31, 2019 was $18.0 million, or $0.70 per share, compared to $10.2 million, or $0.52 per share3, for the three months ended March 31, 2018. Adjusted EBITDAX2 was $68.9 million for the three months ended March 31, 2019 compared to $63.0 million for the three months ended March 31, 2018.

2

Adjusted Revenue, Adjusted Net Income (Loss) and Adjusted EBITDAX are non-GAAP financial measures. Tables reconciling Adjusted Revenue, Adjusted Net Income (Loss) and Adjusted EBITDAX to the most directly comparable GAAP measures can be found at the end of the financial statements included in this press release.

3

Retroactively reflects the 15-to-1 reverse stock split that took place at the close of the merger with Blue Ridge on February 28, 2019.

Average realized price calculations for the three months ended March 31, 2019 and 2018 are set forth in the table below. Realized price calculations for NGLs include costs related to Mariner East II that are recorded as a reduction to revenue:

Three Months Ended
March 31,
2019 2018

Average realized price (excluding cash settled derivatives and firm transportation)

Natural gas ($/Mcf) $ 3.01 $ 2.87
NGLs ($/Bbl) 21.67 25.55
Oil ($/Bbl) 48.09 56.52
Total average prices ($/Mcfe) 3.59 3.88

Average realized price (including cash settled derivatives, excluding firm transportation)

Natural gas ($/Mcf) $ 2.85 $ 3.05
NGLs ($/Bbl) 21.89 24.33
Oil ($/Bbl) 49.66 52.30
Total average prices ($/Mcfe) 3.52 3.89

Average realized price (including firm transportation, excluding cash settled derivatives)

Natural gas ($/Mcf) $ 2.45 $ 2.49
NGLs ($/Bbl) 21.67 25.55
Oil ($/Bbl) 48.09 56.52
Total average prices ($/Mcfe) 3.18 3.61

Average realized price (including cash settled derivatives

and firm transportation)

Natural gas ($/Mcf) $ 2.30 $ 2.67
NGLs ($/Bbl) 21.89 24.33
Oil ($/Bbl) 49.66 52.30
Total average prices ($/Mcfe) 3.10 3.62

Per unit cash production costs, which include $0.41 per Mcfe of firm transportation expense, were $1.41 per Mcfe for the first quarter of 2019, an increase of approximately 1% compared to the first quarter of 2018. The Company’s cash production costs (which include lease operating, transportation, gathering and compression, production and ad valorem taxes) are shown in the table below.

General and administrative expense (including one-time merger-related expenses) was $28.9 million and $9.8 million for the three months ended March 31, 2019 and 2018, respectively, and is shown in the table below. Cash general and administrative expense4, excluding merger-related expenses and stock-based compensation expense, were $8.3 million and $7.8 million for the three months ended March 31, 2019 and 2018 respectively. General and administrative expense per Mcfe (including one-time merger-related expenses) was $0.79 in the three months ended March 31, 2019 compared to $0.34 in the three months ended March 31, 2018. Cash general and administrative expense4 per Mcfe, excluding merger-related expenses and stock-based compensation, was $0.23 in the three months ended March 31, 2019 compared to $0.27 in the three months ended March 31, 2018.

4

Cash general and administrative expense is a non-GAAP financial measure. A table reconciling cash general and administrative expense to the most directly comparable GAAP measure can be found under “Cash General and Administrative Expense” in this press release.

Three Months Ended
March 31,
2019 2018
Operating expenses (in thousands):
Lease operating $ 7,525 $ 9,390
Transportation, gathering and compression 41,168 27,689
Production and ad valorem taxes 2,848 2,445
Depreciation, depletion and amortization 29,897 31,311
General and administrative1 28,930 9,757
Operating expenses per Mcfe:
Lease operating $ 0.21 $ 0.33
Transportation, gathering and compression 1.12 0.97
Production and ad valorem taxes 0.08 0.09
Depreciation, depletion and amortization 0.82 1.10
General and administrative2 0.79 0.34

1

Includes stock-based compensation and merger-related expenses of $ 20.6 million in 2019 and $ 2.0 million in 2018

2

Includes stock-based compensation and merger-related expenses of $ 0.56 per Mcfe in 2019 and $ 0.07 per Mcfe in 2018

Capital Expenditures

First quarter 2019 capital expenditures were $103.9 million, including $99.0 million for drilling and completions, $4.6 million for land-related expenditures, and $0.3 million for corporate-related expenditures.

During the first quarter of 2019, the Company commenced drilling 10 gross (8.0 net) operated wells, commenced completions of 9 gross (6.3 net) operated wells and turned to sales 3 gross (2.1 net) operated wells.

Financial Position and Liquidity

As of March 31, 2019, the Company’s liquidity was $271.6 million, consisting of $7.6 million in cash and cash equivalents and $264.0 million in available borrowing capacity under the Company’s revolving credit facility (after giving effect to outstanding letters of credit issued by the Company of $13.5 million and $97.5 million in outstanding borrowings).

Subsequent to March 31, 2019, the Company borrowed an incremental $25 million under the revolving credit facility and issued an additional $15.7 million in outstanding letters of credit. On May 6, 2019, the Company completed the spring redetermination of its revolving credit facility which resulted in an increase in the borrowing base from $375 million to $400 million. Pro forma for the increase to the borrowing base, the available borrowing capacity under the facility is $248.3 million.

Michael Hodges, Executive Vice President and Chief Financial Officer, commented, “The Company is pleased to announce the 7% increase in our borrowing base that will provide incremental liquidity to Montage Resources as we execute our business plan and reflects the strong production and reserve growth of the Company. The recent increase in our borrowing base, along with the upgrade in the credit rating of our high yield notes, helps to demonstrate the long-term strength of our balance sheet. Our midstream and downstream initiatives continue to deliver exceptional value for the Company, as further evidenced by our Mariner East II sales volumes that began this quarter. We believe we remain well balanced in our firm transportation portfolio which we anticipate will allow us the benefit of optimizing our equity gas at prices that are at a premium to in-basin pricing. We believe our low leverage, ample liquidity and operational flexibility will allow us to generate significant value for our shareholders going forward.”

Commodity Derivatives

The Company engages in a number of different commodity trading program strategies as a risk management tool to attempt to mitigate the potential negative impact on cash flows caused by price fluctuations in natural gas, NGL and oil prices. Below is a table that illustrates the Company’s hedging activities as of March 31, 2019:

Natural Gas Derivatives:

Volume Weighted Average
Description (MMBtu/d) Production Period Price ($/MMBtu)
Natural Gas Swaps:
90,000 April 2019 – December 2019 $ 2.84
15,000 April 2019 – September 2019 $ 2.79
Natural Gas Collars:
Floor purchase price (put) 55,000 April 2019 – June 2019 $ 2.51
Ceiling sold price (call) 55,000 April 2019 – June 2019 $ 2.81
Floor purchase price (put) 75,000 July 2019 – September 2019 $ 2.50
Ceiling sold price (call) 75,000 July 2019 – September 2019 $ 2.87
Floor purchase price (put) 65,000 October 2019 – December 2019 $ 2.65
Ceiling sold price (call) 65,000 October 2019 – December 2019 $ 2.96
Floor purchase price (put) 30,000 January 2020 – March 2020 $ 2.72
Ceiling sold price (call) 30,000 January 2020 – March 2020 $ 3.15
Floor purchase price (put) 15,000 April 2020 – June 2020 $ 2.50
Ceiling sold price (call) 15,000 April 2020 – June 2020 $ 2.80
Natural Gas Three-way Collars:
Floor purchase price (put) 77,500 April 2019 – December 2019 $ 2.72
Ceiling sold price (call) 77,500 April 2019 – December 2019 $ 3.04
Floor sold price (put) 77,500 April 2019 – December 2019 $ 2.30
Floor purchase price (put) 40,000 April 2019 – June 2019 $ 2.65
Ceiling sold price (call) 40,000 April 2019 – June 2019 $ 2.84
Floor sold price (put) 40,000 April 2019 – June 2019 $ 2.30
Floor purchase price (put) 70,000 January 2020 – June 2020 $ 2.70
Ceiling sold price (call) 70,000 January 2020 – June 2020 $ 2.98
Floor sold price (put) 70,000 January 2020 – June 2020 $ 2.25
Floor purchase price (put) 30,000 October 2019 – June 2020 $ 2.90
Ceiling sold price (call) 30,000 October 2019 – June 2020 $ 3.15
Floor sold price (put) 30,000 October 2019 – June 2020 $ 2.50
Natural Gas Call/Put Options:
Call sold 40,000 April 2019 – December 2019 $ 3.44
Basis Swaps:
Appalachia – Dominion 12,500 April 2019 – October 2019 $ (0.52 )
Appalachia – Dominion 12,500 April 2020 – October 2020 $ (0.52 )
Appalachia – Dominion 20,000 January 2020 – December 2020 $ (0.59 )
Appalachia – Dominion 17,500 April 2019 – December 2019 $ (0.50 )
Appalachia – Dominion 20,000 April 2019 – March 2020 $ (0.39 )

Oil Derivatives:

Volume Weighted Average
Description (Bbls/d) Production Period Price ($/Bbl)
Oil Swaps:
1,500 July 2019 – December 2019 $ 59.18
1,000 January 2020 – December 2020 $ 58.60
Oil Collars:
Floor purchase price (put) 1,500 July 2019 – December 2019 $ 51.67
Ceiling sold price (call) 1,500 July 2019 – December 2019 $ 65.92
Floor purchase price (put) 500 January 2020 – December 2020 $ 50.00
Ceiling sold price (call) 500 January 2020 – December 2020 $ 64.00
Oil Three-way Collars:
Floor purchase price (put) 2,000 April 2019 – December 2019 $ 50.00
Ceiling sold price (call) 2,000 April 2019 – December 2019 $ 60.56
Floor sold price (put) 2,000 April 2019 – December 2019 $ 40.00
Floor purchase price (put) 2,000 January 2020 – June 2020 $ 62.50
Ceiling sold price (call) 2,000 January 2020 – June 2020 $ 74.00
Floor sold price (put) 2,000 January 2020 – June 2020 $ 55.00

NGL Derivatives:

Volume Weighted Average
Description (Bbls/d) Production Period Price ($/Bbl)
Propane Swaps:
350 April 2019 – December 2019 $ 39.90

Subsequent to the End of the First Quarter:

The below table illustrates the Company’s hedging activities subsequent to the end of the first quarter 2019:

Natural Gas Derivatives:

Volume Weighted Average
Description

(MMBtu/d)

Production Period

Price ($/MMBtu)

Natural Gas Collars:
Floor purchase price (put) 30,000 January 2020 – December 2020 $ 2.55
Ceiling sold price (call) 30,000 January 2020 – December 2020 $ 3.00
Natural Gas Three-way Collars:
Floor purchase price (put) 30,000 January 2020 – December 2020 $ 2.70
Ceiling sold price (call) 30,000 January 2020 – December 2020 $ 3.05
Floor sold price (put) 30,000 January 2020 – December 2020 $ 2.40

Oil Derivatives:

Volume Weighted Average
Description (Bbls/d) Production Period Price ($/Bbl)
Oil Collars:
Floor purchase price (put) 500 January 2020 – December 2020 $ 53.00
Ceiling sold price (call) 500 January 2020 – December 2020 $ 64.50
Floor purchase price (put) 500 July 2019 – March 2020 $ 60.00
Ceiling sold price (call) 500 July 2019 – March 2020 $ 67.00

Guidance

The Company is announcing second quarter and updated full year 2019 guidance (changes in italics) as set forth in the table below:

Q2 2019 FY 2019
Production MMcfe/d 500 – 515 520 – 540
% Gas 80% – 82% 74% – 78%
% NGL 12% – 14% 12% – 15%
% Oil 5% – 7% 9% – 11%
Gas Price Differential ($/Mcf)1,2 $(0.10) – $(0.20) $(0.15) – $(0.25)
Oil Differential ($/Bbl)1 $(6.75) – $(7.75) $(6.50) – $(7.50)
NGL Prices (% of WTI)1,3 30% – 35% 30% – 40%
Cash Production Costs ($/Mcfe)4,5 $1.40 – $1.50 $1.35 – $1.45
Cash G&A ($mm)6 $9 – $11 $34 – $38
CAPEX ($mm) $375 – $400

1

Excludes impact of hedges

2

Excludes the cost of firm transportation

3

Previous guidance excluded an impact of approximately 5%-10% related to expenses for NGLs related to Mariner East II

4

Includes lease operating, transportation, gathering and compression, production and ad valorem taxes

5

Revenues include transportation expense for NGLs related to Mariner East II; previous cash production cost guidance included approximately $0.10 per Mcfe for NGLs related to Mariner East II that will be recorded as a reduction to revenue

6

Non-GAAP financial measure which excludes non-cash compensation and merger related expenses, see reconciliation to the most comparable GAAP measure under “Cash General and Administrative Expense” in this press release

Conference Call

A conference call to review the Company’s first quarter financial and operational results is scheduled for Wednesday, May 8, 2019 at 10:00 a.m. Eastern Time. To participate in the call, please dial 877-709-8150 or 201-689-8354 for international callers and reference Montage Resources First Quarter 2019 Earnings Call. A replay of the call will be available through June 12, 2019. To access the phone replay, dial 877-660-6853 or 201-612-7415 for international callers. The conference ID is 13690365. A live webcast of the call may be accessed through the Investor Center on the Company’s website at www.montageresources.com. The webcast will be archived for replay on the Company’s website for six months.

MONTAGE RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

March 31, December 31,
2019 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,592 $ 5,959
Accounts receivable 120,802 119,332
Assets held for sale 2,294
Other current assets 6,347 8,639
Total current assets 137,035 133,930
PROPERTY AND EQUIPMENT
Oil and natural gas properties, successful efforts method:
Unproved properties 557,583 482,475
Proved oil and gas properties, net 1,101,772 807,583
Other property and equipment, net 13,146 6,300
Total property and equipment, net 1,672,501 1,296,358
OTHER NONCURRENT ASSETS
Other assets 8,182 3,481
Operating lease right-of-use asset 44,222
Assets held for sale 8,514
TOTAL ASSETS $ 1,870,454 $ 1,433,769
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable $ 141,410 $ 116,735
Accrued capital expenditures 25,116 12,979
Accrued liabilities 61,960 56,909
Accrued interest payable 10,876 21,661
Liabilities associated with assets held for sale 8,212
Operating lease liability 19,787
Total current liabilities 267,361 208,284
NONCURRENT LIABILITIES
Debt, net of unamortized discount and debt issuance costs 498,469 497,778
Revolving credit facility 97,500 32,500
Asset retirement obligations 24,148 7,110
Other liabilities 1,021 611
Operating lease liability 25,592
Liabilities associated with assets held for sale 6,639
Total liabilities 920,730 746,283
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY

Preferred stock, 50,000,000 authorized, no shares issued and outstanding

Common stock, $0.01 par value, 1,000,000,000 authorized, 35,682,480 and 20,169,063 shares issued and outstanding, respectively

382 3,043
Additional paid in capital 2,349,527 2,065,119

Treasury stock, shares at cost; 2,478,798 and 1,747,624 shares, respectively

(8,768 ) (3,357 )
Accumulated deficit (1,391,417 )

(1,377,319

)
Total stockholders’ equity 949,724

687,486

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,870,454 $

1,433,769

MONTAGE RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

For the Three Months Ended
March 31,
2019 2018
REVENUES
Natural gas, oil and natural gas liquids sales $ 131,828 $ 110,184
Brokered natural gas and marketing revenue 9,530 8
Other revenue 139
Total revenues 141,497 110,192
OPERATING EXPENSES
Lease operating 7,525 9,390
Transportation, gathering and compression 41,168 27,689
Production and ad valorem taxes 2,848 2,445
Brokered natural gas and marketing expense 9,459 48
Depreciation, depletion, amortization and accretion 29,897 31,311
Exploration 16,789 15,278
General and administrative 28,930 9,757
(Gain) loss on sale of assets 2 (267 )
Other expense 24
Total operating expenses 136,642 95,651
OPERATING INCOME 4,855 14,541
OTHER INCOME (EXPENSE)
Loss on derivative instruments (4,931 ) (4,215 )
Interest expense, net (13,840 ) (12,952 )
Total other income (expense), net (18,771 ) (17,167 )
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME

TAXES

(13,916 ) (2,626 )
Income tax benefit (expense)
LOSS FROM CONTINUING OPERATIONS (13,916 ) (2,626 )
Loss from discontinued operations, net of income tax (182 )
NET LOSS $ (14,098 ) $ (2,626 )
NET LOSS PER COMMON SHARE
Basic $ (0.55 ) $ (0.13 )
Diluted $ (0.55 ) $ (0.13 )
WEIGHTED AVERAGE COMMON SHARES

OUTSTANDING

Basic 25,564 19,563
Diluted 25,564 19,563

Adjusted Revenue

Adjusted revenue is a non-GAAP financial measure. The Company defines adjusted revenue as follows: total revenues plus net cash receipts or payments on settled derivative instruments less brokered natural gas and marketing revenue. The Company believes adjusted revenue provides investors with helpful information with respect to the performance of the Company’s operations and management uses adjusted revenue to evaluate its ongoing operations and for internal planning and forecasting purposes. See the table below, which reconciles adjusted revenue and total revenues.

Three Months Ended
March 31,
$ thousands 2019 2018
Total revenues $ 141,497 $ 110,192
Net cash receipts (payments) on derivative instruments (3,186 ) 141
Brokered natural gas and marketing revenue (9,530 ) (8 )
Other revenue (139 )
Adjusted revenue $ 128,642 $ 110,325

Contacts

Montage Resources Corporation
Douglas Kris, Investor Relations
814-325-2059
[email protected]

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