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Montage Resources Details Fourth Quarter 2019 Results

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   |    Thursday,March 05,2020

Montage Resources Corp. announced its fourth quarter and full year 2019 operational and financial results. In addition, the Company will be posting an updated investor presentation to its corporate website.

Fourth Quarter 2019 Highlights:

• Average net daily production was 623.4 MMcfe per day
• Average natural gas equivalent realized price was $3.01 per Mcfe, including cash settled derivatives and excluding firm transportation expenses
• Per unit cash production costs (including lease operating, transportation, gathering and compression, production and ad valorem taxes) were $1.33 per Mcfe
• Net income was $14.1 million; Income from continuing operations before income taxes was $14.0 million; Adjusted net income¹ was $31.8 million; and Adjusted EBITDAX¹ was $87.6 million, above of analyst consensus expectations

Full Year 2019 Highlights:

• Average net daily production was 547.8 MMcfe per day
• Average natural gas equivalent realized price was $3.06 per Mcfe, including cash settled derivatives and excluding firm transportation expense
• Per unit cash production costs (including lease operating, transportation, gathering and compression, production and ad valorem taxes) were $1.32 per Mcfe
• Net income was $31.8 million; Income from continuing operations before income taxes was $30.4 million; Adjusted net income¹ was $84.9 million; and Adjusted EBITDAX¹ was $311.1 million, above analyst consensus expectations.

John Reinhart, President and CEO, commented on the Company's operational and financial results, "In 2019 the Company delivered higher production, lower operating costs, lower overhead costs, increased net income, improved adjusted EBITDAX¹, and lower capital spending than initially guided, all while adding over $275 million in borrowing base capacity and keeping financial leverage² below 2 times. I am extremely proud of the team and the numerous successes realized, all while managing through the integration since the transformational Blue Ridge merger one year ago, as well as a challenging commodity price environment. The current operating environment reinforces the importance of being a low-cost producer with high quality assets, maintaining a top performing execution team and having limited commitments.

In 2020, Montage Resources will continue its focus on the execution of a business plan that positions the company favorably with moderate scale, a low-cost structure and solid balance sheet. We remain advantaged from an operational flexibility standpoint and maintain the optionality to adjust capital expenditures during 2020 as commodity prices dictate in order to target a cash flow positive position. The Company has established a track record of realizing fundamental corporate value enhancements and will continue to evaluate a full range of strategic, tactical and operational opportunities aimed at maximizing long-term shareholder value."

Ops Discussion

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

Financial Discussion

Revenue for the three months ended December 31, 2019 totaled $174.1 million, compared to $171.2 million for the three months ended December 31, 2018. Adjusted Revenue³, which includes the impact of cash settled derivatives and excludes brokered natural gas and marketing revenue and other revenue, totaled $172.7 million for the three months ended December 31, 2019 compared to $138.7 million for the three months ended December 31, 2018. Net Income for the three months ended December 31, 2019 was $14.1 million, or $0.39 per share, compared to $36.5 million, or $1.81 per share⁴, for the three months ended December 31, 2018. Adjusted Net Income³ for the three months ended December 31, 2019 was $31.8 million, or $0.89 per share, compared to $24.6 million, or $1.22 per share⁴ for the three months ended December 31, 2018. Adjusted EBITDAX³ was $87.6 million for the three months ended December 31, 2019 compared to $80.7 million for the three months ended December 31, 2018.

Revenue for the year ended December 31, 2019 totaled $634.4 million, compared to $515.1 million for the year ended December 31, 2018. Adjusted Revenue³, which includes the impact of cash settled derivatives and excludes brokered natural gas and marketing revenue and other revenue, totaled $612.0 million for the year ended December 31, 2019 compared to $471.6 million for the year ended December 31, 2018. Net Income for the year ended December 31, 2019 was $31.8 million, or $0.96 per share, compared to $18.8 million, or $0.94 per share⁴ for the year ended December 31, 2018. Adjusted Net Income³ for the year ended December 31, 2019 was $84.9 million, or $2.56 per share, compared to $51.4 million, or $2.57 per share⁴ for the year ended December 31, 2018. Adjusted EBITDAX³ was $311.1 million for the year ended December 31, 2019 compared to $261.6 million for the year ended December 31, 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. Per unit cash production costs, which include $0.35 per Mcfe of firm transportation expense, were $1.33 per Mcfe for the fourth quarter of 2019, a decrease of approximately 1% compared to the fourth quarter of 2018. For the year ended December 31, 2019 per unit cash production costs, which include $0.36 per Mcfe of firm transportation expense, were $1.32 per Mcfe, a decrease of approximately 6% compared to the year ended December 31, 2018.

General and administrative expense (including one-time merger-related expenses) was $13.9 million and $11.0 million for the three months ended December 31, 2019 and 2018, respectively, and is shown in the table below. Cash general and administrative expense⁵ (excluding merger-related expenses and stock-based compensation expense) was $9.0 million and $8.2 million for the three months ended December 31, 2019 and 2018, respectively. General and administrative expense per Mcfe (including one-time merger-related expenses) was $0.24 in the three months ended December 31, 2019 compared to $0.30 in the three months ended December 31, 2018. Cash general and administrative expense⁵ per Mcfe (excluding merger-related expenses and stock-based compensation expense) declined approximately 27% to $0.16 in the three months ended December 31, 2019 compared to $0.22 in the three months ended December 31, 2018.

General and administrative expense (including one-time merger-related expense) was $70.9 million and $44.4 million for the years ended December 31, 2019 and 2018, respectively, and is shown in the table below. Cash general and administrative expense⁵ (excluding merger-related expenses and stock-based compensation expense) was $36.6 million and $32.5 million for the years ended December 31, 2019 and 2018, respectively. General and administrative expense per Mcfe (including one-time merger-related expenses) was $0.35 in the year ended December 31, 2019 compared to $0.35 in the year ended December 31, 2018. Cash general and administrative expense⁵ per Mcfe (excluding merger-related expenses and stock-based compensation expense) declined approximately 31% to $0.18 in the year ended December 31, 2019 compared to $0.26 in the year ended December 31, 2018.

Capital Expenditures

Fourth quarter 2019 capital expenditures were $81.6 million, including $65.1 million for drilling and completions and $16.5 million for land-related expenditures.

For the year ended December 31, 2019 capital expenditures were $366.2 million, including $339.7 million for drilling and completions, $25.9 million for land-related expenditures, and $0.6 million for corporate-related expenditures.

During the fourth quarter of 2019, the Company commenced drilling 6 gross (5.1 net) operated wells, commenced completions of 5 gross (4.5 net) operated wells and turned to sales 4 gross (3.4 net) operated wells.

During the year ended December 31, 2019, the Company commenced drilling 32 gross (28.2 net) operated wells, commenced completions of 36 gross (30.0 net) operated wells and turned to sales 39 gross (30.8 net) operated wells.

Financial Position and Liquidity

As of December 31, 2019, the Company's liquidity was $352.9 million, consisting of $12.1 million in cash and cash equivalents and $340.8 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 $130.0 million in outstanding borrowings).

Michael Hodges, Executive Vice President and Chief Financial Officer, commented, "We are very proud of the financial results in 2019 that have allowed Montage to increase its financial strength despite a weakening commodity price environment throughout the year. In 2019, we increased our net income by approximately 69%, increased our adjusted EBITDAX by approximately 19%, lowered our financial leverage by about 10% and more than doubled our year-end available liquidity as compared to 2018. We believe the votes of confidence we have received in 2019 from our lending group (an increase in our borrowing base of $275 million) and from the credit ratings agencies (our credit ratings have been reaffirmed or upgraded while many Appalachian peers have been downgraded) provide objective third-party evidence of the financial strength of Montage. Given our ample liquidity, low leverage and no debt maturities for more than three years, we believe we are uniquely positioned to navigate the current commodity price landscape.

Our gas marketing team's ability to optimize our production stream continues to allow the Company to achieve an uplift relative to in-basin Appalachian pricing and, when coupled with our highly advantaged Marcellus processing contract, allows the Company to realize one of the best all-in product prices in Appalachia. Moving forward, we believe that Montage's conservative 2020 operating plan, which incorporates significantly less near-term activity and a capital budget of approximately $200 million (based upon the midpoint of guidance) continues to protect our balance sheet with over 56% of our produced natural gas and 52% of our produced oil hedged at an average of price $2.64 per MMbtu and $57.13 per Bbl, respectively, for 2020."