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Montage Resources Corporation Announces Third Quarter 2020 Financial Results

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Montage Resources Corporation (NYSE:MR) (the "Company" or "Montage" or "Montage Resources") today announced its third quarter 2020 operational and financial results.

Third Quarter 2020 Highlights:

  • Merger with Southwestern Energy Company expected to close following Montage Resources shareholder vote on November 12, 2020
  • Average net daily production was 602.6 MMcfe per day, above the high end of the Company's previously issued guidance range of 580 to 600 MMcfe per day, consisting of 82% natural gas and 18% liquids
  • Average natural gas equivalent realized price was $2.30 per Mcfe, including cash settled commodity derivatives and excluding firm transportation expenses
  • Per unit cash production costs (including lease operating, transportation, gathering and compression, production, and ad valorem taxes) were $1.21 per Mcfe, below the Company's previously issued guidance range of $1.25 to $1.35 per Mcfe
  • Cash operating margin of $0.93 per Mcfe, or 40%, which was a $0.17 per Mcfe improvement from the second quarter 2020 of $0.76 per Mcfe
  • Capital spending for the quarter was $22.3 million, with cumulative spending for the nine months ended September 30, 2020 of $103.8 million

Operational Discussion

The Company's net production for the three and nine months ended September 30, 2020 and 2019 is set forth in the following table:

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Production:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas (MMcf)

 

 

45,333.6

 

 

 

43,289.9

 

 

 

131,353.1

 

 

 

109,613.9

 

NGLs (Mbbls)

 

 

1,150.6

 

 

 

1,401.1

 

 

 

3,342.7

 

 

 

3,414.9

 

Oil (Mbbls)

 

 

533.3

 

 

 

916.2

 

 

 

1,635.1

 

 

 

2,083.3

 

Total (MMcfe)

 

 

55,437.0

 

 

 

57,193.7

 

 

 

161,219.9

 

 

 

142,603.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average daily production volume:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas (Mcf/d)

 

 

492,757

 

 

 

470,542

 

 

 

479,391

 

 

 

401,516

 

NGLs (Bbls/d)

 

 

12,507

 

 

 

15,229

 

 

 

12,200

 

 

 

12,509

 

Oil (Bbls/d)

 

 

5,797

 

 

 

9,959

 

 

 

5,968

 

 

 

7,631

 

Total (MMcfe/d)

 

 

602.6

 

 

 

621.7

 

 

 

588.4

 

 

 

522.4

 

Financial Discussion

Revenue for the three months ended September 30, 2020 totaled $115.4 million, compared to $163.3 million for the three months ended September 30, 2019. Adjusted Revenue1, which includes the impact of cash settled commodity derivatives and excludes brokered natural gas and marketing revenue and other revenue, totaled $127.3 million for the three months ended September 30, 2020 compared to $164.8 million for the three months ended September 30, 2019. Net Loss for the three months ended September 30, 2020 was ($92.2) million, or $(2.56) per share, compared to Net Income of $4.3 million, or $0.12 per share, for the three months ended September 30, 2019. Adjusted Net Income (Loss)1 for the three months ended September 30, 2020 was $(17.3) million, or $(0.48) per share, compared to $20.5 million, or $0.57 per share for the three months ended September 30, 2019. Adjusted EBITDAX1 was $51.0 million for the three months ended September 30, 2020 compared to $83.6 million for the three months ended September 30, 2019.

1 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 and nine months ended September 30, 2020 and 2019 are set forth in the table below:

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Average realized price (excluding cash settled

commodity derivatives and firm transportation)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas ($/Mcf)

 

$

1.61

 

 

$

2.03

 

 

$

1.66

 

 

$

2.41

 

NGLs ($/Bbl)

 

 

16.03

 

 

 

14.42

 

 

 

13.45

 

 

 

17.82

 

Oil ($/Bbl)

 

 

32.16

 

 

 

49.09

 

 

 

32.36

 

 

 

49.64

 

Total average prices ($/Mcfe)

 

 

1.96

 

 

 

2.68

 

 

 

1.96

 

 

 

3.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average realized price (including cash settled

commodity derivatives, excluding firm transportation)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas ($/Mcf)

 

$

1.92

 

 

$

2.28

 

 

$

2.02

 

 

$

2.49

 

NGLs ($/Bbl)

 

 

16.00

 

 

 

14.92

 

 

 

13.70

 

 

 

18.19

 

Oil ($/Bbl)

 

 

40.76

 

 

 

49.53

 

 

 

40.32

 

 

 

50.15

 

Total average prices ($/Mcfe)

 

 

2.30

 

 

 

2.88

 

 

 

2.34

 

 

 

3.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average realized price (including firm transportation,

excluding cash settled commodity derivatives)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas ($/Mcf)

 

$

1.18

 

 

$

1.60

 

 

$

1.20

 

 

$

1.94

 

NGLs ($/Bbl)

 

 

16.03

 

 

 

14.42

 

 

 

13.45

 

 

 

17.82

 

Oil ($/Bbl)

 

 

32.16

 

 

 

49.09

 

 

 

32.36

 

 

 

49.64

 

Total average prices ($/Mcfe)

 

 

1.61

 

 

 

2.35

 

 

 

1.59

 

 

 

2.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average realized price (including cash settled

commodity derivatives and firm transportation)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas ($/Mcf)

 

$

1.50

 

 

$

1.85

 

 

$

1.57

 

 

$

2.02

 

NGLs ($/Bbl)

 

 

16.00

 

 

 

14.92

 

 

 

13.70

 

 

 

18.19

 

Oil ($/Bbl)

 

 

40.76

 

 

 

49.53

 

 

 

40.32

 

 

 

50.15

 

Total average prices ($/Mcfe)

 

 

1.95

 

 

 

2.56

 

 

 

1.97

 

 

 

2.72

 

*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 $0.35 per Mcfe of firm transportation expense, were $1.21 per Mcfe for the third quarter of 2020, a decrease of approximately 2% compared to the third quarter of 2019.

General and administrative expense (including one-time merger-related expenses and severance) was $12.1 million and $14.6 million for the three months ended September 30, 2020 and 2019, respectively, and is shown in the table below. Cash general and administrative expense2 (excluding merger-related expenses, severance and stock-based compensation expense) was $8.7 million and $10.2 million for the three months ended September 30, 2020 and 2019, respectively. General and administrative expense per Mcfe (including one-time merger-related expenses and severance) was $0.22 in the three months ended September 30, 2020 compared to $0.25 in the three months ended September 30, 2019. Cash general and administrative expense2 per Mcfe (excluding merger-related expenses, severance and stock-based compensation expense) decreased approximately 11% to $0.16 in the three months ended September 30, 2020 compared to $0.18 in the three months ended September 30, 2019.

2 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

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

$

11,494

 

 

$

11,986

 

 

$

33,436

 

 

$

29,651

 

Transportation, gathering and compression

 

 

51,961

 

 

 

57,027

 

 

 

157,472

 

 

 

150,065

 

Production and ad valorem taxes

 

 

3,677

 

 

 

1,660

 

 

 

10,146

 

 

 

8,519

 

Total cash production costs

 

$

67,132

 

 

$

70,673

 

 

$

201,054

 

 

$

188,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion, amortization and accretion

 

 

53,153

 

 

 

45,456

 

 

 

140,058

 

 

 

113,950

 

General and administrative1

 

 

12,144

 

 

 

14,580

 

 

 

33,594

 

 

 

57,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses per Mcfe:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

$

0.21

 

 

$

0.21

 

 

$

0.21

 

 

$

0.21

 

Transportation, gathering and compression

 

 

0.93

 

 

 

0.99

 

 

 

0.98

 

 

 

1.04

 

Production and ad valorem taxes

 

 

0.07

 

 

 

0.03

 

 

 

0.06

 

 

 

0.06

 

Total cash production costs

 

$

1.21

 

 

$

1.23

 

 

$

1.25

 

 

$

1.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion, amortization and accretion

 

 

0.96

 

 

 

0.79

 

 

 

0.87

 

 

 

0.80

 

General and administrative2

 

 

0.22

 

 

 

0.25

 

 

 

0.21

 

 

 

0.40

 

  1. Includes stock-based compensation, merger-related expenses and severance of $ 3.5 million and $ 4.4 million for the three months ended September 30, 2020 and 2019, respectively, and $ 9.0 million and $ 29.4 million for the nine months ended September 30, 2020 and 2019, respectively
  2. Includes stock-based compensation, merger-related expenses and severance of $ 0.06 per Mcfe and $ 0.07 per Mcfe for the three months ended September 30, 2020 and 2019, respectively, and $ 0.06 per Mcfe and $ 0.20 per Mcfe for the nine months ended September 30, 2020 and 2019, respectively

Cash Margins

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

 

 

Three Months Ended

 

 

Three Months

Ended

 

 

 

September 30,

2020

 

 

September 30,

2019

 

 

June 30, 2020

 

(per Mcfe)

 

 

 

 

 

 

 

 

 

 

 

 

Average realized price (including cash settled commodity

derivatives, excluding firm transportation)

 

$

2.30

 

 

$

2.88

 

 

$

2.15

 

Total cash production costs1

 

 

1.21

 

 

 

1.23

 

 

 

1.25

 

Cash production margin

 

$

1.09

 

 

$

1.65

 

 

$

0.90

 

Cash production margin %

 

 

47

%

 

 

57

%

 

 

42

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash production margin

 

$

1.09

 

 

$

1.65

 

 

$

0.90

 

Cash general and administrative expenses2

 

 

0.16

 

 

 

0.18

 

 

 

0.14

 

Cash operating margin

 

$

0.93

 

 

$

1.47

 

 

$

0.76

 

Cash operating margin %

 

 

40

%

 

 

51

%

 

 

35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash operating margin

 

$

0.93

 

 

$

1.47

 

 

$

0.76

 

Interest expense

 

 

0.26

 

 

 

0.27

 

 

 

0.30

 

Corporate cash operating margin3

 

$

0.67

 

 

$

1.20

 

 

$

0.46

 

Corporate cash operating margin %

 

 

29

%

 

 

42

%

 

 

22

%

  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

Third quarter 2020 capital expenditures were $22.3 million, including $20.2 million for drilling and completions and $2.1 million for land-related expenditures.

During the third quarter of 2020, the Company commenced drilling 2 gross (1.7 net) operated wells and turned to sales 4 gross (2.4 net) operated wells.

Financial Position and Liquidity

As of September 30, 2020, the Company's liquidity was $279.8 million, consisting of $4.0 million in cash and cash equivalents and $275.8 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 $170.0 million in outstanding borrowings).

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 September 30, 2020:

Natural Gas Derivatives:

Description

 

Volume

(MMBtu/d)

 

 

Production Period

 

Weighted Average

Price ($/MMBtu)

 

Natural Gas Swaps:

 

 

 

 

 

 

 

 

 

 

 

 

 

130,000

 

 

October 2020 – December 2020

 

$

2.42

 

 

 

 

145,000

 

 

October 2020 – March 2021

 

$

2.58

 

 

 

 

50,000

 

 

January 2021 – March 2022

 

$

2.51

 

 

 

 

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

 

Floor purchase price (put)

 

 

30,000

 

 

April 2021 – March 2022

 

$

2.40

 

Ceiling sold price (call)

 

 

30,000

 

 

April 2021 – March 2022

 

$

3.05

 

Floor purchase price (put)

 

 

15,000

 

 

August 2021 – December 2021

 

$

2.55

 

Ceiling sold price (call)

 

 

15,000

 

 

August 2021 – December 2021

 

$

3.13

 

Floor purchase price (put)

 

 

15,000

 

 

September 2021 – November 2021

 

$

2.52

 

Ceiling sold price (call)

 

 

15,000

 

 

September 2021 – November 2021

 

$

3.12

 

Floor purchase price (put)

 

 

5,000

 

 

August 2021

 

$

2.50

 

Ceiling sold price (call)

 

 

5,000

 

 

August 2021

 

$

3.05

 

Floor purchase price (put)

 

 

10,000

 

 

September 2021

 

$

2.50

 

Ceiling sold price (call)

 

 

10,000

 

 

September 2021

 

$

3.03

 

Natural Gas Three-way Collars:

 

 

 

 

 

 

 

 

 

 

Floor purchase price (put)

 

 

80,000

 

 

October 2020 – December 2020

 

$

2.60

 

Floor sold price (put)

 

 

80,000

 

 

October 2020 – December 2020

 

$

1.90

 

Ceiling sold price (call)

 

 

80,000

 

 

October 2020 – December 2020

 

$

2.94

 

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

 

Floor purchase price (put)

 

 

20,000

 

 

April 2021 – March 2022

 

$

2.62

 

Floor sold price (put)

 

 

20,000

 

 

April 2021 – March 2022

 

$

2.20

 

Ceiling sold price (call)

 

 

20,000

 

 

April 2021 – March 2022

 

$

3.10

 

Natural Gas Call/Put Options:

 

 

 

 

 

 

 

 

 

 

Floor sold price (put)

 

 

50,000

 

 

October 2020 – December 2020

 

$

2.30

 

Swaption sold price (call)

 

 

50,000

 

 

January 2021 – December 2021

 

$

2.75

 

Swaption sold price (call)

 

 

50,000

 

 

January 2022 – December 2022

 

$

3.00

 

Ceiling 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)

 

 

80,000

 

 

January 2023 – December 2023

 

$

3.00

 

Basis Swaps:

 

 

 

 

 

 

 

 

 

 

Appalachia - Dominion

 

 

42,500

 

 

October 2020

 

$

(0.51

)

Appalachia - Dominion

 

 

20,000

 

 

October 2020 – December 2020

 

$

(0.59

)

Oil Derivatives:

Description

 

Volume

(Bbls/d)

 

 

Production Period

 

Weighted Average

Price ($/Bbl)

 

Oil Swaps:

 

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

 

October 2020 – December 2020

 

$

57.41

 

 

 

 

250

 

 

October 2020 – March 2021

 

$

53.20

 

 

 

 

250

 

 

January 2021 – March 2021

 

$

53.00

 

 

 

 

100

 

 

January 2021

 

$

43.60

 

Oil Collars:

 

 

 

 

 

 

 

 

 

 

Floor purchase price (put)

 

 

1,000

 

 

October 2020 – December 2020

 

$

51.00

 

Ceiling sold price (call)

 

 

1,000

 

 

October 2020 – December 2020

 

$

62.00

 

Floor purchase price (put)

 

 

500

 

 

January 2021 – December 2021

 

$

37.50

 

Ceiling sold price (call)

 

 

500

 

 

January 2021 – December 2021

 

$

45.50

 

Floor purchase price (put)

 

 

300

 

 

April 2021

 

$

40.00

 

Ceiling sold price (call)

 

 

300

 

 

April 2021

 

$

47.25

 

Floor purchase price (put)

 

 

200

 

 

May 2021

 

$

40.00

 

Ceiling sold price (call)

 

 

200

 

 

May 2021

 

$

47.55

 

Floor purchase price (put)

 

 

100

 

 

June 2021

 

$

40.00

 

Ceiling sold price (call)

 

 

100

 

 

June 2021

 

$

47.75

 

Oil Three-way Collars:

 

 

 

 

 

 

 

 

 

 

Floor purchase price (put)

 

 

500

 

 

January 2021 – December 2021

 

$

31.25

 

Floor sold price (put)

 

 

500

 

 

January 2021 – December 2021

 

$

22.50

 

Ceiling sold price (call)

 

 

500

 

 

January 2021 – December 2021

 

$

45.00

 

Oil Call/Put Options:

 

 

 

 

 

 

 

 

 

 

Floor sold price (put)

 

 

500

 

 

October 2020 – December 2020

 

$

45.00

 

Swaption sold price (call)

 

 

500

 

 

January 2021 – December 2021

 

$

42.50

 

NGL Derivatives:

Description

 

Volume

(Bbls/d)

 

 

Production Period

 

Weighted Average

Price ($/Bbl)

 

Propane Swaps:

 

 

 

 

 

 

 

 

 

 

 

 

 

2,000

 

 

October 2020 – December 2020

 

$

20.94

 

 

 

 

1,000

 

 

January 2021 – December 2021

 

$

18.87

 

MONTAGE RESOURCES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

September 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,013

 

 

$

12,056

 

Accounts receivable

 

 

63,483

 

 

 

77,402

 

Assets held for sale

 

 

1,544

 

 

 

1,047

 

Other current assets

 

 

8,984

 

 

 

35,509

 

Total current assets

 

 

78,024

 

 

 

126,014

 

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT

 

 

 

 

 

 

 

 

Oil and natural gas properties, successful efforts method:

 

 

 

 

 

 

 

 

Unproved properties

 

 

478,644

 

 

 

508,576

 

Proved oil and gas properties, net

 

 

1,216,836

 

 

 

1,251,105

 

Other property and equipment, net

 

 

10,311

 

 

 

11,226

 

Total property and equipment, net

 

 

1,705,791

 

 

 

1,770,907

 

 

 

 

 

 

 

 

 

 

OTHER NONCURRENT ASSETS

 

 

 

 

 

 

 

 

Other assets

 

 

5,353

 

 

 

7,616

 

Operating lease right-of-use assets

 

 

30,830

 

 

 

36,975

 

Assets held for sale

 

 

3,403

 

 

 

9,665

 

TOTAL ASSETS

 

$

1,823,401

 

 

$

1,951,177

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

120,785

 

 

$

119,907

 

Accrued capital expenditures

 

 

11,933

 

 

 

43,500

 

Accrued liabilities

 

 

61,963

 

 

 

53,866

 

Accrued interest payable

 

 

9,921

 

 

 

21,308

 

Liabilities associated with assets held for sale

 

 

3,711

 

 

 

2,815

 

Operating lease liability

 

 

12,773

 

 

 

12,666

 

Total current liabilities

 

 

221,086

 

 

 

254,062

 

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

 

 

Debt, net of unamortized discount and debt issuance costs

 

 

502,622

 

 

 

500,541

 

Revolving credit facility

 

 

170,000

 

 

 

130,000

 

Asset retirement obligations

 

 

30,336

 

 

 

29,877

 

Other liabilities

 

 

31,421

 

 

 

8,029

 

Operating lease liability

 

 

18,805

 

 

 

24,569

 

Liabilities associated with assets held for sale

 

 

7,150

 

 

 

7,013

 

Total liabilities

 

 

981,420

 

 

 

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, 36,034,837

and 35,770,934 shares issued and outstanding, respectively

 

 

386

 

 

 

383

 

Additional paid in capital

 

 

2,355,890

 

 

 

2,352,309

 

Treasury stock, shares at cost; 2,600,672 and 2,508,485 shares, respectively

 

 

(10,511

)

 

 

(10,049

)

Accumulated deficit

 

 

(1,503,784

)

 

 

(1,345,557

)

Total stockholders' equity

 

 

841,981

 

 

 

997,086

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

1,823,401

 

 

$

1,951,177

 

MONTAGE RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

(Unaudited)

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas, oil and natural gas liquids sales

 

$

108,518

 

 

$

153,021

 

 

$

315,471

 

 

$

428,278

 

Brokered natural gas and marketing revenue

 

 

6,831

 

 

 

10,228

 

 

 

23,859

 

 

 

31,747

 

Other revenue

 

 

56

 

 

 

46

 

 

 

183

 

 

 

307

 

Total revenues

 

 

115,405

 

 

 

163,295

 

 

 

339,513

 

 

 

460,332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

 

11,494

 

 

 

11,986

 

 

 

33,436

 

 

 

29,651

 

Transportation, gathering and compression

 

 

51,961

 

 

 

57,027

 

 

 

157,472

 

 

 

150,065

 

Production and ad valorem taxes

 

 

3,677

 

 

 

1,660

 

 

 

10,146

 

 

 

8,519

 

Brokered natural gas and marketing expense

 

 

7,345

 

 

 

10,574

 

 

 

24,349

 

 

 

32,017

 

Depreciation, depletion, amortization and accretion

 

 

53,153

 

 

 

45,456

 

 

 

140,058

 

 

 

113,950

 

Exploration

 

 

11,767

 

 

 

16,621

 

 

 

34,112

 

 

 

48,602

 

General and administrative

 

 

12,144

 

 

 

14,580

 

 

 

33,594

 

 

 

57,074

 

Rig termination and standby

 

 

303

 

 

 

1,221

 

 

 

303

 

 

 

1,221

 

Gain on sale of assets

 

 

(62

)

 

 

(733

)

 

 

(1,419

)

 

 

(731

)

Other expense

 

 

87

 

 

 

2

 

 

 

121

 

 

 

40

 

Total operating expenses

 

 

151,869

 

 

 

158,394

 

 

 

432,172

 

 

 

440,408

 

OPERATING INCOME (LOSS)

 

 

(36,464

)

 

 

4,901

 

 

 

(92,659

)

 

 

19,924

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on derivative instruments

 

 

(40,535

)

 

 

15,812

 

 

 

(11,329

)

 

 

40,620

 

Interest expense, net

 

 

(14,402

)

 

 

(15,192

)

 

 

(44,166

)

 

 

(44,140

)

Other income

 

 

2

 

 

 

 

 

 

19

 

 

 

8

 

Total other income (expense), net

 

 

(54,935

)

 

 

620

 

 

 

(55,476

)

 

 

(3,512

)

INCOME (LOSS) FROM CONTINUING OPERATIONS

BEFORE INCOME TAXES

 

 

(91,399

)

 

 

5,521

 

 

 

(148,135

)

 

 

16,412

 

Income tax benefit (expense)

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM CONTINUING OPERATIONS

 

 

(91,399

)

 

 

5,521

 

 

 

(148,135

)

 

 

16,412

 

Income (loss) from discontinued operations, net of income tax

 

 

(801

)

 

 

(1,237

)

 

 

(10,092

)

 

 

1,286

 

NET INCOME (LOSS)

 

$

(92,200

)

 

$

4,284

 

 

$

(158,227

)

 

$

17,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER SHARE OF COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common stock outstanding

 

 

36,035

 

 

 

35,684

 

 

 

35,889

 

 

 

32,343

 

Income (loss) from continuing operations

 

$

(2.54

)

 

$

0.15

 

 

$

(4.13

)

 

$

0.51

 

Income (loss) from discontinued operations

 

 

(0.02

)

 

 

(0.03

)

 

 

(0.28

)

 

 

0.04

 

Net income (loss)

 

$

(2.56

)

 

$

0.12

 

 

$

(4.41

)

 

$

0.55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common stock outstanding

 

 

36,035

 

 

 

35,697

 

 

 

35,889

 

 

 

32,471

 

Income (loss) from continuing operations

 

$

(2.54

)

 

$

0.15

 

 

$

(4.13

)

 

$

0.51

 

Income (loss) from discontinued operations

 

 

(0.02

)

 

 

(0.03

)

 

 

(0.28

)

 

 

0.04

 

Net income (loss)

 

$

(2.56

)

 

$

0.12

 

 

$

(4.41

)

 

$

0.55

 

Adjusted Revenue

Adjusted revenue is a non-GAAP financial measure. The Company defines adjusted revenue as follows: total revenues plus or minus net cash receipts or payments on settled commodity derivative instruments less brokered natural gas and marketing revenue and other 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 for the three and nine months ended September 30, 2020 and 2019.

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

$ thousands

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Total revenues

 

$

115,405

 

 

$

163,295

 

 

$

339,513

 

 

$

460,332

 

Net cash receipts (payments) on settled commodity derivatives

 

 

18,806

 

 

 

11,818

 

 

 

61,829

 

 

 

11,072

 

Brokered natural gas and marketing revenue

 

 

(6,831

)

 

 

(10,228

)

 

 

(23,859

)

 

 

(31,747

)

Other revenue

 

 

(56

)

 

 

(46

)

 

 

(183

)

 

 

(307

)

Adjusted revenue

 

$

127,324

 

 

$

164,839

 

 

$

377,300

 

 

$

439,350

 

Adjusted Net Income (Loss)

Adjusted net income (loss) represents income (loss) from continuing operations before income taxes adjusted for certain non-cash items as set forth in the table below. We believe adjusted net income (loss) is used by many investors and published research in making investment decisions and evaluating operational trends of the Company and its performance relative to other oil and gas producing companies. Adjusted net income (loss) is not a measure of net income (loss) from continuing operations as determined by GAAP. See the table below for a reconciliation of adjusted net income (loss) and net income (loss) from continuing operations before income taxes for the three and nine months ended September 30, 2020 and 2019.

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

$ thousands

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Income (loss) from continuing operations before income taxes,

as reported

 

$

(91,399

)

 

$

5,521

 

 

$

(148,135

)

 

$

16,412

 

(Gain) loss on derivative instruments

 

 

40,535

 

 

 

(15,812

)

 

 

11,329

 

 

 

(40,620

)

Net cash receipts (payments) on settled derivatives

 

 

18,785

 

 

 

11,818

 

 

 

61,877

 

 

 

11,072

 

Rig termination and standby

 

 

303

 

 

 

1,221

 

 

 

303

 

 

 

1,221

 

Dry hole and other

 

 

135

 

 

 

 

 

 

143

 

 

 

163

 

Stock-based compensation

 

 

961

 

 

 

1,061

 

 

 

3,585

 

 

 

7,614

 

Impairment of unproved properties

 

 

10,952

 

 

 

14,114

 

 

 

30,311

 

 

 

36,157

 

Gain on sale of assets

 

 

(62

)

 

 

(733

)

 

 

(1,419

)

 

 

(731

)

Merger-related expenses

 

 

2,520

 

 

 

3,291

 

 

 

2,696

 

 

 

21,812

 

Severance

 

 

 

 

 

 

 

 

2,681

 

 

 

 

Income (loss) before income taxes, as adjusted

 

 

(17,270

)

 

 

20,481

 

 

 

(36,629

)

 

 

53,100

 

Adjusted net income (loss)

 

$

(17,270

)

 

$

20,481

 

 

$

(36,629

)

 

$

53,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(2.56

)

 

$

0.12

 

 

$

(4.41

)

 

$

0.55

 

Diluted

 

$

(2.56

)

 

$

0.12

 

 

$

(4.41

)

 

$

0.55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.48

)

 

$

0.57

 

 

$

(1.02

)

 

$

1.64

 

Diluted

 

$

(0.48

)

 

$

0.57

 

 

$

(1.02

)

 

$

1.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

36,035

 

 

 

35,684

 

 

 

35,889

 

 

 

32,343

 

Diluted

 

 

36,035

 

 

 

35,697

 

 

 

35,889

 

 

 

32,471

 

Adjusted EBITDAX

Adjusted EBITDAX is a supplemental non-GAAP measure that is used by the Company to evaluate its financial results. The Company defines Adjusted EBITDAX as net income or loss before interest expense or interest income; income taxes; write down of abandoned leases; impairments; depreciation, depletion, amortization and accretion; gain or loss on derivative instruments; net cash receipts or payments on settled commodity derivative instruments, and premiums paid or received on options that settled during the period; non-cash compensation expense; gain or loss from sale of interest in gas properties; exploration expenses; and other unusual or infrequent items set forth in the table below. Adjusted EBITDAX is not a measure of net income or loss as determined by GAAP. See the table below for a reconciliation of Adjusted EBITDAX to net income or net loss.

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

$ thousands

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

Net income (loss)

 

$

(92,200

)

 

$

4,284

 

 

$

(158,227

)

 

$

17,698

 

Depreciation, depletion, amortization and accretion

 

 

53,153

 

 

 

45,456

 

 

 

140,058

 

 

 

113,950

 

Exploration expense

 

 

11,767

 

 

 

16,621

 

 

 

34,112

 

 

 

48,602

 

Rig termination and standby

 

 

303

 

 

 

1,221

 

 

 

303

 

 

 

1,221

 

Stock-based compensation

 

 

961

 

 

 

1,061

 

 

 

3,585

 

 

 

7,614

 

Gain on sale of assets

 

 

(62

)

 

 

(733

)

 

 

(1,419

)

 

 

(731

)

(Gain) loss on derivative instruments

 

 

40,535

 

 

 

(15,812

)

 

 

11,329

 

 

 

(40,620

)

Net cash receipts on settled commodity derivatives

 

 

18,806

 

 

 

11,818

 

 

 

61,829

 

 

 

11,072

 

Interest expense, net

 

 

14,402

 

 

 

15,192

 

 

 

44,166

 

 

 

44,140

 

Other income

 

 

(2

)

 

 

 

 

 

(19

)

 

 

(8

)

Merger-related expenses

 

 

2,520

 

 

 

3,291

 

 

 

2,696

 

 

 

21,812

 

(Income) loss from discontinued operations(1)

 

 

801

 

 

 

1,237

 

 

 

10,092

 

 

 

(1,286

)

Severance

 

 

 

 

 

 

 

 

2,681

 

 

 

 

Adjusted EBITDAX

 

$

50,984

 

 

$

83,636

 

 

$

151,186

 

 

$

223,464

 

1 Includes a $6.8 million non-cash impairment of proved properties held for sale for the nine months ended September 30, 2020

Cash General and Administrative Expenses

Cash general and administrative expenses is a non-GAAP financial measure used by the Company to provide a measure of administrative expenses used by many investors and in published research in making investment decisions and evaluating operational trends of the Company. See the table below for a reconciliation of Cash General and Administrative Expenses and General and Administrative Expenses.

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

$ thousands

 

2020

 

 

2019

 

 

2020

 

 

2019

 

General and administrative expenses,

estimated to be reported

 

$

12,144

 

 

$

14,580

 

 

$

33,594

 

 

$

57,074

 

Stock-based compensation

 

 

(961

)

 

 

(1,061

)

 

 

(3,585

)

 

 

(7,614

)

Cash general and administrative expenses

 

$

11,183

 

 

$

13,519

 

 

$

30,009

 

 

$

49,460

 

Merger-related expenses

 

 

(2,520

)

 

 

(3,291

)

 

 

(2,696

)

 

 

(21,812

)

Severance

 

 

 

 

 

 

 

 

(2,681

)

 

 

 

Cash general and administrative expenses, excluding

merger-related expenses and severance

 

$

8,663

 

 

$

10,228

 

 

$

24,632

 

 

$

27,648

 

About Montage Resources

Montage Resources is an exploration and production company with approximately 195,000 net effective core undeveloped acres currently focused on the Utica and Marcellus Shales of Southeast Ohio, West Virginia, and North Central Pennsylvania. For more information, please visit the Company's website at www.montageresources.com.

Important Information for Investors and Stockholders

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. In connection with the potential transaction (the "Transaction"), Southwestern filed a registration statement on Form S-4 with the Securities and Exchange Commission (the "SEC"), containing a preliminary prospectus of Southwestern that also constitutes a preliminary proxy statement of Montage. Montage mailed a definitive proxy statement/prospectus to stockholders of Montage on or about October 8, 2020. This communication is not a substitute for the proxy statement/prospectus or registration statement or for any other document that Southwestern or Montage may file with the SEC and send to Montage's stockholders in connection with the potential transaction. INVESTORS AND SECURITY HOLDERS OF SOUTHWESTERN AND MONTAGE ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders are able to obtain free copies of the proxy statement/prospectus and other documents filed with the SEC by Southwestern or Montage through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Southwestern are available free of charge on Southwestern's website at www.swn.com and copies of the documents filed with the SEC by Montage are available free of charge on Montage's website at www.montageresources.com.

Southwestern and Montage and certain of their respective directors, executive officers and certain other members of management and employees may be deemed to be "participants" in the solicitation of proxies from the stockholders of Montage in connection with the proposed merger. Stockholders can find information about Montage and its directors and executive officers and their ownership of Montage's common stock in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 10, 2020, and the proxy statement for its 2020 Annual Meeting of Stockholders filed with the SEC on April 28, 2020, and additional information about the ownership of Montage's common stock by its directors and executive officers is included in their Forms 3, 4 and 5 filed with the SEC. Information about the Southwestern's directors and executive officers is available in Southwestern's Annual Report on Form 10-K for the fiscal year ended 2019 filed with the SEC on February 27, 2020 and its definitive proxy statement for the 2020 annual meeting of shareholders filed with the SEC on April 9, 2020. These documents can be obtained free of charge from the sources indicated above. Additional information regarding the interests of such participants in the solicitation of proxies in respect of the potential transaction are included in the registration statement and proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this press release, including statements regarding Montage Resources' strategy, future operations, financial position, estimated revenues and income/losses, projected costs and capital expenditures, prospects, and plans and objectives of management are forward-looking statements. When used in this press release, the words "plan," "endeavor," "goal," "will," "would," "should," "could," "believe," "anticipate," "intend," "estimate," "expect," "efforts," "continue," "position," "potential," "committed," "target, "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on Montage Resources' current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading "Risk Factors" in Montage Resources' Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission on March 10, 2020 (the "2019 Annual Report") and in Montage Resources' other filings and reports with the SEC.

Forward-looking statements may include, but are not limited to, statements about the Transaction, business strategy; reserves; general economic conditions; financial strategy, liquidity and capital required for developing properties and timing related thereto; realized natural gas, NGLs and oil prices and the volatility of those prices; write-downs of natural gas and oil asset values due to declines in commodity prices; timing and amount of future production of natural gas, NGLs and oil; hedging strategy and results; future drilling plans; competition and government regulations, including those related to hydraulic fracturing; the anticipated benefits under commercial agreements; marketing of natural gas, NGLs and oil; leasehold and business acquisitions and joint ventures; leasehold terms expiring before production can be established and costs to extend such terms the costs, terms and availability of gathering, processing, fractionation and other midstream services; the costs, terms and availability of downstream transportation services; credit markets; uncertainty regarding future operating results, including initial production rates and liquid yields in type curve areas; and plans, objectives, expectations and intentions contained in this press release that are not historical, including, without limitation, the guidance set forth herein and consummation of the proposed asset disposition anticipated in the letter of intent.

Montage Resources cautions you that all these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company's control, incident to the exploration for and development, production, gathering and sale of natural gas, NGLs and oil. These risks include, but are not limited to, the severity and continued duration of the COVID-19 pandemic, related economic effects and the resulting negative impact on the demand for natural gas, NGLs and oil; operational challenges relating to the COVID-19 pandemic, including logistical challenges, protecting the health and well-being of the Company's employees, remote work arrangements, performance of counterparty contracts and supply chain disruptions; legal and environmental risks; drilling and other operating risks; regulatory changes, including U.S. federal, state and local tax regulatory changes; commodity price volatility and declines in the price of natural gas, NGLs, and oil; inflation; lack of availability of drilling, production and processing equipment and services; counterparty credit risk; the uncertainty inherent in estimating natural gas, NGLs and oil reserves and in projecting future rates of production, cash flow and access to capital; risks associated with the Company's level of indebtedness; the timing of development expenditures; the consummation of or failure to consummate the Transaction and the timing thereof; costs in connection with the Transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the possibility that stockholders of Montage may not approve the merger agreement; and the other risks described under the heading "Risk Factors" in the 2019 Annual Report and in Montage Resources' other filings and reports with the SEC.

All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement and are based on assumptions that Montage Resources believes to be reasonable but that may not prove to be accurate. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Montage Resources or persons acting on its behalf may issue. Except as otherwise required by applicable law, Montage Resources disclaims any duty to update any forward-looking statements to reflect new information or events or circumstances after the date of this press release. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

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