Montage Resources Corporation Announces First Quarter 2020 Operational and Financial Results and Updates Full Year 2020 Guidance Including Additional 10% Reduction to Expected Capital Expenditures

IRVING, Texas–(BUSINESS WIRE)–Montage Resources Corporation (NYSE:MR) (the “Company” or “Montage Resources”) today announced its first quarter 2020 operational and financial results and updated full year 2020 guidance. In addition, the Company will be posting an updated investor presentation to its corporate website.

First Quarter 2020 Highlights:

• Average net daily production was 610.7 MMcfe per day, 3% above the midpoint of the Company’s previously issued guidance range and above analyst consensus expectations

• Average natural gas equivalent realized price was $2.56 per Mcfe, including cash settled derivatives and excluding firm transportation expenses

• Per unit cash production costs (including lease operating, transportation, gathering and compression, and production and ad valorem taxes)were $1.28 per Mcfe, outperforming the midpoint of the Company’s previously issued guidance range and better than analyst consensus expectations

• Net income was $2.8 million; Income from continuing operations before income taxes was $10.6 million; Adjusted net income¹ was $1.2 million; and Adjusted EBITDAX¹ was $62.7 million, above of analyst consensus expectations

Updated Guidance:

• The Company has lowered its full year 2020 capital spending guidance to $130 – $150 million, a reduction of approximately 10% reflecting the further optimization of its development activity and additional savings primarily due to service cost reductions, as well as operational efficiencies that have continued to reduce cycle times

• Due to the downward movement in oil prices movement and demand destruction from the COVID-19 pandemic, in April the Company shut-in low margin production in its liquids-rich producing areas. These shut-ins primarily impacted the Company’s Utica condensate production. In early May, the Company increased its condensate production with the improvement of oil prices and cash-margins, and the Company expects some level of marginal shut-ins to continue until industry conditions and cash-margins dictate resuming production from the remaining affected wells. Based upon current oil prices, the Company expects the curtailed production to have a negligible, if any, negative impact on its second quarter 2020 cash flows.

• The Company is adjusting its full year 2020 production guidance to 555 – 575 MMcfe per day (which is 3% above the reported 2019 production of approximately 548 MMcfe per day) from 570 – 590 MMcfe per day, approximately 3% lower based upon the midpoint of the Company’s previously issued guidance ranges, to account for the prudent second quarter production deferments which will retain flush volumes from these shut-in wells for better pricing

1. Non-GAAP measure. See reconciliation for details

John Reinhart, President and CEO, commented on the Company’s operational and financial results, “In much the same fashion as our actions in the first quarter of 2020 as an early mover in reducing capital expenditures and refocusing on natural gas given the lower commodity price environment and improving gas macro-economic outlook, the Company continues to dynamically optimize the development of our high quality asset base in order to maximize the fundamental value of our company while preserving our balance sheet health and maximizing full-year 2020 cash flow generation. We currently anticipate the limited production deferments announced today will result in a reduction of our sequential quarter over quarter production and will have a minor impact of approximately 3% on our full year 2020 production guidance. Furthermore, we believe the actions taken will have negligible impacts on second quarter 2020 cash flows and will ensure that we are in a strong position, both financially and structurally, to take advantage of the oil market’s recovery. As oil demand returns and economic conditions improve, we expect to return the remaining production that is currently shut-in and deliver value in excess of what would be realized in the current price environment. In addition to the prudent steps to preserve 2020 cash flows from our production base, the company is very pleased to announce a further 10% reduction to our 2020 capital spending plans that are associated with per-unit development cost reductions which we believe demonstrates our execution prowess and reinforces our ability to quickly adjust and deliver economic returns under a wide-range of market conditions.

In the first quarter of 2020, Montage Resources continued to extend its impressive track record with our Company again achieving strong execution that delivered performance ahead of the midpoint of our guidance ranges and better than analyst consensus estimates. In just over one year, we have made significant progress on our strategic plan that has resulted in an approximate 50% increase in production since the end of 2018 while providing many meaningful operational, commercial, and financial achievements. We will continue to leverage our experience while executing upon a plan that targets our goals of free cash flow generation and debt reduction.”

Operational Discussion

The Company’s net production for the three months ended March 31, 2020 and 2019 is set forth in the following table:

		Three Months Ended March 31,
		2020				2019
Production:
Natural gas (MMcf)			44,298.6				27,205.0
NGLs (Mbbls)			1,218.1				980.5
Oil (Mbbls)			661.7				598.0
Total (MMcfe)			55,577.4				36,676.0
Average daily production volume:
Natural gas (Mcf/d)			486,798				302,278
NGLs (Bbls/d)			13,386				10,894
Oil (Bbls/d)			7,271				6,644
Total (MMcfe/d)			610.7				407.5

Financial Discussion

Revenue for the three months ended March 31, 2020 totaled $133.4 million, compared to $141.5 million for the three months ended March 31, 2019. Adjusted Revenue², which includes the impact of cash settled derivatives and excludes brokered natural gas and marketing revenue and other revenue, totaled $142.1 million for the three months ended March 31, 2020 compared to $128.6 million for the three months ended March 31, 2019. Net Income for the three months ended March 31, 2020 was $2.8 million, or $0.08 per share, compared to Net Loss of ($14.1) million, or $(0.55) per share, for the three months ended March 31, 2019. Adjusted Net Income² for the three months ended March 31, 2020 was $1.2 million, or $0.03 per share, compared to $18.0 million, or $0.70 per share for the three months ended March 31, 2019. Adjusted EBITDAX² was $62.7 million for the three months ended March 31, 2020 compared to $68.9 million for the three months ended March 31, 2019.

² Adjusted Revenue, Adjusted Net Income and Adjusted EBITDAX are non-GAAP financial measures. Tables reconciling Adjusted Revenue, Adjusted Net Income 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.

Average realized price calculations for the three months ended March 31, 2020 and 2019 are set forth in the table below:

		Three Months Ended March 31,
		2020				2019
Average realized price (excluding cash settled derivatives and firm transportation)
Natural gas ($/Mcf)		$	1.79			$	3.01
NGLs ($/Bbl)			15.23				21.67
Oil ($/Bbl)			39.64				48.09
Total average prices ($/Mcfe)			2.23				3.59
Average realized price (including cash settled derivatives, excluding firm transportation)
Natural gas ($/Mcf)		$	2.16			$	2.85
NGLs ($/Bbl)			15.56				21.89
Oil ($/Bbl)			41.26				49.66
Total average prices ($/Mcfe)			2.56				3.52
Average realized price (including firm transportation, excluding cash settled derivatives)
Natural gas ($/Mcf)		$	1.36			$	2.45
NGLs ($/Bbl)			15.23				21.67
Oil ($/Bbl)			39.64				48.09
Total average prices ($/Mcfe)			1.89				3.18
Average realized price (including cash settled derivatives and firm transportation)
Natural gas ($/Mcf)		$	1.74			$	2.30
NGLs ($/Bbl)			15.56				21.89
Oil ($/Bbl)			41.26				49.66
Total average prices ($/Mcfe)			2.22				3.10
*rounded to the nearest penny

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. Per unit cash production costs, which include $0.34 per Mcfe of firm transportation expense, were $1.28 per Mcfe for the first quarter of 2020, a decrease of approximately 9% compared to the first quarter of 2019.

General and administrative expense (including one-time merger-related expenses) was $9.9 million and $28.9 million for the three months ended March 31, 2020 and 2019, respectively, and is shown in the table below. Cash general and administrative expense³ (excluding merger-related expenses, severance and stock-based compensation expense) was $8.6 million and $8.3 million for the three months ended March 31, 2020 and 2019, respectively. General and administrative expense per Mcfe (including one-time merger-related expenses) was $0.18 in the three months ended March 31, 2020 compared to $0.79 in the three months ended March 31, 2019. Cash general and administrative expense³ per Mcfe (excluding merger-related expenses, severance and stock-based compensation expense) declined approximately 35% to $0.15 in the three months ended March 31, 2020 compared to $0.23 in the three months ended March 31, 2019.

³ 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,
		2020				2019
Operating expenses (in thousands):
Lease operating		$	12,043			$	7,525
Transportation, gathering and compression			54,124				41,168
Production and ad valorem taxes			4,868				2,848
Total cash production costs		$	71,035			$	51,541
Depreciation, depletion, amortization and accretion			44,135				29,897
General and administrative1			9,880				28,930
Operating expenses per Mcfe:
Lease operating		$	0.22			$	0.21
Transportation, gathering and compression			0.97				1.12
Production and ad valorem taxes			0.09				0.08
Total cash production costs		$	1.28			$	1.41
Depreciation, depletion, amortization and accretion			0.79				0.82
General and administrative2			0.18				0.79

1. Includes stock-based compensation, merger-related expenses and severance of $ 1.3 million and $ 20.6 million for the three months ended March 31, 2020 and 2019, respectively
2. Includes stock-based compensation, merger-related expenses and severance of $ 0.03 per Mcfe and $ 0.56 per Mcfe for the three months ended March 31, 2020 and 2019, respectively

Cash Margins

The Company’s cash margins are detailed in the table below:

		Three Months Ended								Three Months Ended
		March 31, 2020				March 31, 2019				December 31, 2019
(per Mcfe)
Average realized price (including cash settled derivatives, excluding firm transportation)		$	2.56			$	3.52			$	3.01
Total cash production costs1			1.28				1.41				1.33
Cash production margin		$	1.28			$	2.11			$	1.68
Cash production margin %			50	%			60	%			56	%
Cash production margin		$	1.28			$	2.11			$	1.68
Cash general and administrative expenses2			0.15				0.23				0.16
Cash operating margin		$	1.13			$	1.88			$	1.52
Cash operating margin %			44	%			53	%			50	%
Cash operating margin		$	1.13			$	1.88			$	1.52
Interest expense			0.27				0.38				0.26
Corporate cash operating margin3		$	0.86			$	1.50			$	1.26
Corporate cash operating margin %			34	%			43	%			42	%

1. Includes lease operating, transportation, gathering and compression, and production and ad valorem taxes
2. Cash general and administrative expense is a non-GAAP financial measure which excludes stock-based compensation expense, merger related expenses and severance. See reconciliation to the most comparable GAAP measure under “Cash General and Administrative Expense” in this press release
3. Includes lease operating, transportation, gathering and compression, production and ad valorem taxes, cash general & administrative expense and interest expense. Cash general and administrative expense is a non-GAAP financial measure which excludes stock-based compensation expense, merger related expenses and severance See reconciliation to the most comparable GAAP measure under “Cash General and Administrative Expense” in this press release

Capital Expenditures

First quarter 2020 capital expenditures were $52.4 million, including $50.3 million for drilling and completions, $1.9 million for land-related expenditures and $0.2 million for other expenditures.

During the first quarter of 2020, the Company commenced drilling 4 gross (3.6 net) operated wells, commenced completions of 4 gross (3.1 net) operated wells and turned to sales 3 gross (2.8 net) operated wells.

Financial Position and Liquidity

As of March 31, 2020, the Company’s liquidity was $328.1 million, consisting of $7.3 million in cash and cash equivalents and $320.8 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 $29.2 million and $150.0 million in outstanding borrowings).

Subsequent to the end of the first quarter 2020, the Company completed the semi-annual redetermination of the borrowing base under its revolving credit facility, which resulted in a fully committed borrowing base of $475 million. The next redetermination of the borrowing base under the Company’s revolving credit facility is scheduled for the fall of 2020.

Michael Hodges, Executive Vice President and Chief Financial Officer, commented, “We are very proud of the results in the first quarter of 2020 that have allowed the Company to solidify its financial strength despite a weakening commodity price environment. As the team continues to mitigate the effects of the lower oil price and demand destruction, we expect that the benefits of the flexibility of our portfolio, our continued improvement in operating costs and our ability to optimize our uncommitted volumes that allow the Company to achieve an uplift relative to in-basin Appalachian natural gas pricing will permit us to maintain a significant strategic advantage.

We are extremely pleased with the continued commitment from our bank group and the strong results of our spring borrowing base redetermination, despite the significantly lower bank price decks utilized by the lenders this spring. While our Appalachian peers have experienced an approximately 12% average reduction in their borrowing base this spring, the outcome of Montage’s spring borrowing base redetermination reinforces the strength of our asset base and underlying value of the expected future cash flows. The Company’s pro forma liquidity (reflecting the $475 million borrowing base) remains in excess of $300 million as we execute on our 2020 development plan that targets free cash flow generation. Finally, we believe our strong hedge book remains a key element of our strategy, with approximately 66% of our natural gas hedged and approximately 61% of our oil hedged (based on our revised production profile) for 2020, providing us with a high level of cash flow certainty and confidence in the long-term health of our balance sheet.”

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, 2020:

Natural Gas Derivatives:

Description		Volume (MMBtu/d)				Production Period		Weighted Average Price ($/MMBtu)
Natural Gas Swaps:
			50,000			April 2020 – December 2020		$	2.67
			100,000			April 2020 – June 2020		$	2.69
			30,000			July 2020 – December 2020		$	2.60
			25,000			April 2020 – March 2021		$	2.60
			70,000			July 2020 – March 2021		$	2.52
			50,000			October 2020 – March 2021		$	2.65
			50,000			January 2021 – March 2022		$	2.51
Natural Gas Collars:
Floor purchase price (put)			50,000			April 2020 – December 2020		$	2.49
Ceiling sold price (call)			50,000			April 2020 – December 2020		$	2.88
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)			30,000			April 2020 – December 2020		$	2.70
Floor sold price (put)			30,000			April 2020 – December 2020		$	2.40
Ceiling sold price (call)			30,000			April 2020 – December 2020		$	3.05
Floor purchase price (put)			50,000			April 2020 – June 2020		$	2.82
Floor sold price (put)			50,000			April 2020 – June 2020		$	2.40
Ceiling sold price (call)			50,000			April 2020 – June 2020		$	3.11
Floor purchase price (put)			45,000			January 2021 – December 2021		$	2.55
Floor sold price (put)			45,000			January 2021 – December 2021		$	2.25
Ceiling sold price (call)			45,000			January 2021 – December 2021		$	2.81
Natural Gas Call/Put Options:
Floor sold price (put)			50,000			April 2020 – December 2020		$	2.30
Floor sold price (put)			50,000			April 2020 – June 2020		$	2.25
Swaption sold price (call)			50,000			January 2021 – December 2021		$	2.75
Swaption sold price (call)			50,000			January 2022 – December 2022		$	3.00
Floor sold price (put)			50,000			January 2021 – March 2022		$	2.00
Ceiling sold price (call)			50,000			January 2022 – December 2022		$	3.00
Ceiling sold price (call)			50,000			January 2023 – December 2023		$	3.00
Basis Swaps:
Appalachia – Dominion			12,500			April 2020 – October 2020		$	(0.52	)
Appalachia – Dominion			20,000			April 2020 – December 2020		$	(0.59	)

Oil Derivatives:

Description		Volume (Bbls/d)				Production Period		Weighted Average Price ($/Bbl)
Oil Swaps:
			1,500			April 2020 – December 2020		$	57.07
			1,000			July 2020 – December 2020		$	56.53
			250			July 2020 – March 2021		$	53.20
			250			January 2021 – March 2021		$	53.00
Oil Collars:
Floor purchase price (put)			500			April 2020 – December 2020		$	50.00
Ceiling sold price (call)			500			April 2020 – December 2020		$	64.00
Floor purchase price (put)			500			July 2020 – December 2020		$	52.00
Ceiling sold price (call)			500			July 2020 – December 2020		$	60.00
Oil Three-way Collars:
Floor purchase price (put)			2,000			April 2020 – June 2020		$	62.50
Floor sold price (put)			2,000			April 2020 – June 2020		$	55.00
Ceiling sold price (call)			2,000			April 2020 – June 2020		$	74.00
Oil Call/Put Options:
Swaption sold price (call)			500			January 2021 – December 2021		$	56.80
Floor sold price (put)			500			July 2020 – December 2020		$	45.00

NGL Derivatives:

Description		Volume (Bbls/d)				Production Period		Weighted Average Price ($/Bbl)
Propane Swaps:
			750			April 2020 – December 2020		$	21.46

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 2020:

Natural Gas Derivatives:

Description		Volume (MMBtu/d)				Production Period		Weighted Average Price ($/MMBtu)
Natural Gas Swaps:
			30,000			July 2020 – September 2020		$	2.12
			25,000			April 2021 – March 2022		$	2.47
Natural Gas Collars:
Floor purchase price (put)			25,000			January 2021 – December 2021		$	2.15
Ceiling sold price (call)			25,000			January 2021 – December 2021		$	3.03
Natural Gas Call/Put Options:
Floor sold price (put)			15,000			July 2020 – September 2020		$	1.60

Guidance

The Company is providing updated full year 2020 guidance as set forth in the table below (updated guidance in italics). The Company currently believes that its second quarter 2020 production will average between 480 – 500 MMcfe per day.

		FY 2020
Production MMcfe/d		555 – 575
% Gas		81% – 83%
% NGL		10% – 12%
% Oil		6% – 8%
Gas Price Differential ($/Mcf)1,2		$(0.20) – $(0.30)
Oil Differential ($/Bbl)1,3		$(5.00) – $(6.00)
NGL Prices (% of WTI)1		35% – 45%
Cash Production Costs ($/Mcfe)4		$1.25 – $1.35
Cash G&A ($mm)5		$31 – $35
CAPEX ($mm)		$130 – $150

¹ Excludes impact of hedges

² Excludes the cost of firm transportation

³ Includes the impact of declining WTI price on reported oil differential in first quarter of 2020; expected oil differential for remaining nine months of 2020 is approximately $7.50 – $8.50 ($/Bbl)

⁴ Includes lease operating, transportation, gathering and compression, production and ad valorem taxes

⁵ Non-GAAP financial measure which excludes stock-based compensation expense, merger related expenses and severance. 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 2020 financial and operational results is scheduled for Friday, May 8, 2020, 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 2020 Earnings Call. A replay of the call will be available through July 8, 2020. To access the phone replay, dial 877-660-6853 or 201-612-7415 for international callers. The conference ID is 13702797. 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, 2020				December 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	7,308			$	12,056
Accounts receivable			60,621				77,402
Assets held for sale			843				1,047
Other current assets			60,739				35,509
Total current assets			129,511				126,014
PROPERTY AND EQUIPMENT
Oil and natural gas properties, successful efforts method:
Unproved properties			496,817				508,576
Proved oil and gas properties, net			1,259,704				1,251,105
Other property and equipment, net			11,007				11,226
Total property and equipment, net			1,767,528				1,770,907
OTHER NONCURRENT ASSETS
Other assets			6,305				7,616
Operating lease right-of-use assets			34,500				36,975
Assets held for sale			2,907				9,665
TOTAL ASSETS		$	1,940,751			$	1,951,177
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	136,491			$	119,907
Accrued capital expenditures			26,534				43,500
Accrued liabilities			26,455				53,866
Accrued interest payable			11,347				21,308
Liabilities associated with assets held for sale			2,505				2,815
Operating lease liability			12,969				12,666
Total current liabilities			216,301				254,062
NONCURRENT LIABILITIES
Debt, net of unamortized discount and debt issuance costs			501,234				500,541
Revolving credit facility			150,000				130,000
Asset retirement obligations			30,381				29,877
Other liabilities			13,114				8,029
Operating lease liability			21,873				24,569
Liabilities associated with assets held for sale			7,169				7,013
Total liabilities			940,072				954,091
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, 35,804,544 and 35,770,934 shares issued and outstanding, respectively			383				383
Additional paid in capital			2,353,169				2,352,309
Treasury stock, shares at cost; 2,528,440 and 2,508,485 shares, respectively			(10,144	)			(10,049	)
Accumulated deficit			(1,342,729	)			(1,345,557	)
Total stockholders’ equity			1,000,679				997,086
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,940,751			$	1,951,177

Contacts

Montage Resources Corporation

Douglas Kris, Investor Relations

469-444-1736

[email protected]

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