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Riviera Resources Second Quarter 2020 Results

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   |    Thursday,August 06,2020

Riviera Resources, Inc. reported its Q2 2020 results.

Highlights:

• Returned approximately $355 million to shareholders in the last eight 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
  • Cash distribution of $0.75 per share paid to shareholders on May 12, 2020
• Signed definitive agreements to sell the remaining North Louisiana assets for a contract price of $26.5 million, and interests in certain properties located in the Anadarko Basin in Oklahoma for a contract price of approximately $16 million
  • Proceeds will be added to the Company's existing cash on the balance sheet, and allow the option to return more capital in the future
• Engaged EnergyNet to help sell the remaining upstream assets
• Ended the second quarter with a consolidated cash balance of ~$56 million and ~$75 million drawn on the Blue Mountain Midstream LLC ("Blue Mountain") senior secured revolving loan facility (the "Blue Mountain Credit Facility")
• Reduced general and administrative expenses, excluding share-based compensation expenses and severance expenses, by $3.6 million, a decrease of 31% from the first quarter 2020, through cost reduction initiatives, including combining upstream and Blue Mountain management teams
• Continued ongoing engagement with Tudor, Pickering, Holt & Co. to explore a potential sale or merger for Blue Mountain

Blue Mountain highlights:

• Continued expansion of the water gathering system, connecting 6 pads in the second quarter of 2020
• Averaged 81% of gathered water on pipe in the second quarter of 2020, with approximately 92% disposed in company owned or working interest salt water disposal ("SWD") wells
• Invested majority of capital through July 31, 2020, with approximately $3 million left to spend in 2020

Riviera Upstream highlights:

• Outperformed second quarter upstream guidance with respect to Adjusted EBITDAX, with higher oil and gas production, lower capital, and operating expenses in line with guidance ranges

David Rottino, Riviera's President and Chief Executive Officer, commented, "In the second quarter, the Company outperformed upstream Adjusted EBITDAX guidance and returned approximately $105 million to shareholders through two separate distributions. Furthermore, we significantly reduced operating and general and administrative costs during the second quarter by consolidating management of Blue Mountain within the Company's existing executive management team. So far in 2020, we have closed four transactions for approximately $69 million, recently announced the sale of our interest in properties located in North Louisiana and the Anadarko Basin in Oklahoma for a combined contract price of $42.3 million and have engaged EnergyNet to market our remaining upstream assets. Once we close these remaining transactions, it will result in a complete exit from the upstream business. In addition, we continue to work closely with Tudor, Pickering, Holt & Co to explore a potential sale or merger for Blue Mountain."

Return of Capital to Shareholders

In 2020, the Company has returned 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 paid to shareholders on May 12, 2020, and share repurchases.

The Board and management will consider using the proceeds from announced asset sales to make additional cash distributions to shareholders.

G&A Cost Reduction Initiatives

The Company remains focused on finding ways to continue to reduce general and administrative costs. During the second quarter of 2020, we consolidated management of Blue Mountain with the Company's existing executive management team, while continuing to maintain separate capital structures for each entity.

In the second quarter of 2020, Riviera Upstream's general and administrative expenses, excluding share-based compensation expenses and severance expenses, were approximately $6.0 million, a decrease of 29% from the first quarter 2020.

In the second quarter of 2020, Blue Mountain's general and administrative expenses, excluding share-based compensation expenses and severance expenses, were approximately $1.8 million, a decrease of 38% from the first quarter 2020.

Upstream Business Update

Second Quarter 2020 Activity

Riviera's production for the second quarter averaged approximately 52 MMcfe/d, exceeding the high end of our guidance range. The Company performed in line with expectations in the second quarter with respect to its upstream capital and operating expenses. Upstream capital expenditures were approximately $0.7 million, operating expenses were approximately $5.2 million and adjusted general and administrative expenses were approximately $6.0 million.

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. As a result, lease operating costs in the second quarter of 2020 were approximately $2.9 million.

Blue Mountain Business Update

Second Quarter 2020 Activity

In the second quarter of 2020, natural gas throughput on Blue Mountain's system averaged 97 MMcf/d, an 18% decline compared to the first quarter of 2020. Starting in April, due to consistently low commodity prices, certain producers elected to shut-in portions of their production resulting in the lower throughput.

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 3.5 million barrels of water, or approximately 38,075 barrels per day. Of that total, the Company moved over 31,000 barrels per day on pipe (up 33% from first quarter 2020), representing 81% of managed water on Blue Mountain pipe.

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. In the second quarter, Blue Mountain averaged 3,600 barrels per day on its crude gathering system.

In the second quarter of 2020, approximately $6 million of capital was reclassed as inventory, primarily related to compression purchased for the gas gathering system. Blue Mountain's capital was approximately $13 million in the first half of 2020, with the majority of capital invested in water and crude oil gathering pipelines. Blue Mountain expects full year 2020 capital of approximately $19 million.

Given the dynamic environment, drilling uncertainty in the Mid-Continent region, and on-going strategic process, the Company has chosen not to provide third quarter guidance for Blue Mountain.

Balance Sheet and Liquidity

Riviera and Blue Mountain have established separate credit facilities. As of June 30, 2020, Riviera held approximately $55 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 $30 million with available borrowing capacity of approximately $29 million, inclusive of outstanding letters of credit.

As of June 30, 2020, Blue Mountain held approximately $1 million of cash, and had approximately $75 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 July 31, 2020, there were no borrowings on the Riviera Credit Facility, and $76 million drawn on the Blue Mountain Credit Facility.