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Riviera Resources First Quarter 2020 Results

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   |    Thursday,May 07,2020

Riviera Resources, Inc. reported its Q1 2020 results as well as a strategic update.

Highlights:

• Returned an aggregate of approximately $310 million to shareholders in the last five months:
  Cash distribution of $4.25 per share paid to shareholders on December 12, 2019
  Cash distribution of $1.00 per share paid to shareholders on April 24, 2020
• Announced an additional cash distribution of $0.75 per share, a return of over $45 million, payable on May 12, 2020
• Closed the following sales in the first quarter 2020:
  Interests in properties located in the Overton and Personville fields of East Texas for proceeds of approximately $44 million
  The Drunkards Wash field located in Utah for proceeds of approximately $4 million
  Oklahoma City office building for proceeds of approximately $21 million
• Ended the first quarter with a consolidated cash balance of ~$165 million and ~$73 million drawn on the Blue Mountain Midstream LLC ("Blue Mountain") senior secured revolving loan facility (the "Blue Mountain Credit Facility")
• Reduced operating and general and administrative costs to optimally manage the business
• Consolidated management of Blue Mountain within the Company's existing executive management team, while continuing to maintain separate capital structures for each entity
• Continued to work with Tudor, Pickering, Holt & Co., in addition to on-going work with other advisors, to explore a potential sale or merger for Riviera or Blue Mountain

Blue Mountain highlights:

• Performed in line with first quarter guidance targets with respect to natural gas throughput of 118 MMcf/d, and water managed of approximately 40,600 Bbl/d
• Exceeded first quarter guidance target with 57% of gathered water on pipe
• Turned 14 wells to sales on natural gas system in first quarter of 2020
• Continued expansion of the water gathering system, connecting to a total of 15 pads in the first quarter of 2020
• Reduced 2020 capital estimate to $25 million, 11% lower than prior guidance estimate

Riviera Upstream highlights:

• Outperformed first quarter upstream guidance with respect to Adjusted EBITDAX, driven primarily by lower operating expenses
• Reduced 2020 capital by $21 million with decision to suspend North Louisiana operated drilling program, maintaining the option to re-initiate the program if gas prices improve

David Rottino, Riviera's President and Chief Executive Officer, commented, "In the first quarter, the Company outperformed upstream Adjusted EBITDAX guidance, closed four transactions for proceeds of approximately $69 million, and announced a $1.00 cash distribution, returning approximately $60 million to shareholders in April 2020. In addition, we paid a $4.25 cash distribution to shareholders in December 2019, returning approximately $250 million, and recently announced another cash distribution $0.75 per share payable on May 12,2020, that will return over $45 million to shareholders. We also remain committed to reducing operating and general and administrative costs to optimally manage the business during this market downturn, and recently announced the consolidation of management of Blue Mountain within the Company's existing executive management team. With our continued focus on reducing costs, strong asset base, and a midstream business that is optimally positioned in the Anadarko basin, the Company is well positioned to sustain its business during this downturn."

Key Financial Results

(1) Includes severance costs of approximately $1.5 million and $0.1 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

Cost Reduction Initiatives

General and Administrative Costs
The Company remains focused on finding ways to continue to reduce general and administrative costs, and recently announced the consolidation of management of Blue Mountain with the Company's existing executive management team, while continuing to maintain separate capital structures for each entity. In the first quarter of 2020, Riviera Upstream's general and administrative expenses, excluding share-based compensation expenses and severance expenses, were approximately $8.5 million. The Company expects by fourth quarter 2020, Upstream's general and administrative expenses, excluding share-based compensation expenses and severance expenses, will be approximately $4.4 million. This represents a 48% decrease from the first quarter 2020.

Operating Expenses
The Company has taken several proactive steps to significantly reduce lease operating expenses, including a reduction in workforce, optimizing compression and well workover programs, and negotiating lower overall service costs. With respect to operating costs, the Company has lowered costs by reducing workover activity, reducing workforce, releasing equipment, and negotiating lower rates for saltwater disposal and chemicals. As result, the Company estimates the Upstream's lease operating costs to be $14 million to $16 million in 2020, a 25% decrease from the mid-point of previously estimated lease operating expenses of $19 million to $21 million.

Capital Expenses
As previously announced, the Company has decided to defer initiating its operated drilling program in the Ruston Field of North Louisiana, reducing its 2020 budgeted capital by approximately $21 million. As the planned program was not scheduled to begin until late in the year, the impact to previously estimated 2020 production and EBITDA is minimal. Because the acreage is held by production, the Company has the flexibility to drill at a later date without the risk of losing its current leases. The reliability and results of development locations in the Ruston field are still encouraging, with expected IRR over 100% at $2.75/MMbtu gas prices. If prices do improve throughout the year, Riviera will maintain the option to re-initiate the program.

Opportunistic Asset Monetizations

In the first quarter of 2020 the Company closed four transactions generating aggregate proceeds of approximately $69 million. The four transactions include the sale of properties located in the Uinta Basin (closed January 2020), the sale of properties located in East Texas (Overton field closed January 2020 and Personville field closed February 2020), and the Oklahoma City Office building (closed February 2020).

Return of Capital to Shareholders

Thus far in 2020, the Company has returned or announced approximately $107 million of capital to shareholders through a $1.00 per share cash distribution paid to shareholders on April 24, 2020, a $0.75 per share cash distribution payable on May 12, 2020, and share repurchases.

On July 18, 2019, the Company's Board of Directors increased the share repurchase authorization to $150 million of the Company's outstanding shares of common stock. As of April 30, 2020, approximately $22 million was available for share repurchase under the program.

First Quarter 2020 Activity Upstream Assets

The Company performed in line with expectations in the first quarter with respect to its upstream assets. Production for the first quarter averaged approximately 72 MMcfe/d, in line with our guidance range. Upstream capital expenditures were approximately $0.7 million, operating expenses were approximately $7.7 million and adjusted general and administrative expenses were approximately $8.5 million, all in line with our guidance for the quarter.

Blue Mountain Business Update

First Quarter 2020 Activity
In the first quarter of 2020, natural gas throughput on Blue Mountain's system averaged 118 MMcf/d, relatively flat compared to the fourth quarter of 2019. Blue Mountain continued tying in new wells and turned 14 wells to sales throughout the quarter.

With respect to its water business, Blue Mountain continues to make considerable progress on the buildout of its water gathering system. During the first quarter, Blue Mountain managed 3.7 million barrels of water in total, or approximately 40,600 barrels per day. Of that total, the Company moved over 23,300 barrels per day on pipe (up 102% from fourth quarter 2019). With 57% of managed water on Blue Mountain pipe, Blue Mountain exceeded its guidance range. Furthermore, Blue Mountain completed construction of its third wholly owned and operated salt water disposal well ("SWD")

Blue Mountain began construction of its crude oil gathering system in October 2019. The initial segments on its South system were placed in service on February 1, 2020 and the initial segments on its North system were placed in service on March 2, 2020.

Capital expenditures were $13 million for the first quarter of 2020, with the majority of capital being spent on water and crude oil gathering pipelines. First quarter capital expenditures exceeded guidance due to the acceleration of certain projects. Full year 2020 Blue Mountain capital is expected to be approximately $25 million, which is 11% lower than prior guidance estimate.

Cost Reduction Initiatives
In the first quarter of 2020, Blue Mountain Midstream's general and administrative expenses, excluding share-based compensation expenses and severance expenses, were approximately $2.9 million. The Company recently consolidated the management of Blue Mountain within its existing executive management team, while continuing to maintain a separate capital structure for Blue Mountain. With consolidation of Blue Mountain's management team with the existing Riviera management team, and other cost reduction initiatives, the Company expects by fourth quarter 2020, Blue Mountain's general and administrative expenses, excluding share-based compensation and severance expenses, will be approximately $2.1 million. This represents a 28% decrease from the first quarter 2020.

Recent Throughput
Starting in April, due to consistently low commodity prices, certain producers have elected to shut-in portions of their production. As a result, Blue Mountain expects to see lower second quarter throughput at its processing plant versus prior quarter, with throughput of approximately 80 MMcf/d at the end of April, approximately 32% lower than average throughput in the first quarter of 2020. Given the dynamic environment, the Company has chosen not to provide second quarter guidance for Blue Mountain.

Balance Sheet and Liquidity

Riviera and Blue Mountain have established separate credit facilities. As of March 31, 2020, Riviera held approximately $155 million of cash, and there were no borrowings outstanding on Riviera's revolving credit facility (the "Riviera Credit Facility"). Riviera had borrowing commitments of up to $90 million with available borrowing capacity of approximately $89 million, inclusive of outstanding letters of credit. Redetermination of the borrowing base under the Riviera Credit Facility occurs semi-annually, in April and October. The Riviera Credit Facility borrowing base is expected to be reduced as a result of the spring redetermination.

As of March 31, 2020, Blue Mountain held approximately $10 million of cash, and had approximately $73 million drawn on its revolving credit facility. Blue Mountain had borrowing commitments of up to $200 million with available borrowing capacity of approximately $115 million, including outstanding letters of credit, subject to covenant restrictions in the Blue Mountain Credit Facility.

As of April 30, 2020, there were no borrowings on the Riviera Credit Facility, and $75 million drawn on the Blue Mountain Credit Facility.