Montage Resources — Investor Day (March 2019)
68 slides from Montage Resources's investor day presentation, Mar 19, 2019
Slide 1: Montage Resources Analyst Day March 20, 2019
Montage resources analyst day march 20, 2019 nyse: mr
Slide 2: Disclaimer: Forward-Looking Statements
Disclaimer Forward-Looking Statements This presentation 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 incl
Slide 3: Introduction & Focus Five Strategy
INTRODUCTION & FOCUS FIVE STRATEGY John Reinhart President and Chief Executive Officer montage resources
Slide 4: Experienced Appalachian basin leadership team
Experienced Appalachian basin leadership team montage resources’ management team possesses significant Appalachia specific experience with an excellent track record execution prior companies experience (yrs) john reinhart president & ceo blue ridge ascent resources Chesapeake energy schlumberger 25
Slide 5: Focus Five
Focus five small cap appalachia utica and marcellus operator rebranded and focused on maximizing shareholder value cash flows & returns arrest corporate outspend while facilitating disciplined growth optimize development plan for efficiency, delivering cost reductions, lower cycle times and improved
Slide 6: Cycle time improvement
Cycle time improvement Focused on accelerating cash flows by shifting to a low risk, repeatable program and optimizing capital allocation towards the wellbore with returns-based spending that possesses well mix optionality CASH FLOW & RETURNS COST STRUCTURE IMPROVEMENT & INTEGRATION FINANCIAL & OPER
Slide 7: Corporate integration
corporate integration contiguous acreage allows montage resources to leverage operational synergies; post-merger consolidation of headquarters and integration expected to achieve ~$15 million in g&a savings cash flow & returns cost structure improvement & integration financial & operational flexibil
Slide 8: Drilling & completions capital synergies
DRILLING & COMPLETIONS CAPITAL SYNERGIES Development plan integration was accelerated for Day 1 execution which allows Montage Resources to take advantage of synergies and incorporate cost reductions immediately CASH FLOW & RETURNS COST STRUCTURE IMPROVEMENT & INTEGRATION FINANCIAL & OPERATIONAL FLE
Slide 9: Financial positioning & flexibility
FINANCIAL POSITIONING & FLEXIBILITY Strong balance sheet and capital discipline positions the company to opportunistically accelerate development and take advantage of strategic initiatives CASH FLOW & RETURNS COST STRUCTURE IMPROVEMENT & INTEGRATION FINANCIAL & OPERATIONAL FLEXIBILITY PORTFOLIO OPT
Slide 10: Operational flexibility
OPERATIONAL FLEXIBILITY Balanced firm transportation portfolio along with limited operational commitments allow the company to focus on strategy and capital execution CASH FLOW & RETURNS COST STRUCTURE IMPROVEMENT & INTEGRATION FINANCIAL & OPERATIONAL FLEXIBILITY PORTFOLIO OPTIMIZATION ENHANCING SCA
Slide 11: Efficient capital deployment
EFFICIENT CAPITAL DEPLOYMENT Over 90% of 2019 capital is allocated to drilling and completions spend in revenue accretive inventory with highest investment returns, maintaining flexibility in well mix depending on commodity environment CASH FLOW & RETURNS COST STRUCTURE IMPROVEMENT & INTEGRATION FIN
Slide 12: Portfolio optimization
PORTFOLIO OPTIMIZATION Montage Resources controls an economic core footprint that allows for development mix flexibility and scalability CASH FLOW & RETURNS COST STRUCTURE IMPROVEMENT & INTEGRATION FINANCIAL & OPERATIONAL FLEXIBILITY PORTFOLIO OPTIMIZATION ENHANCING SCALE W/ DISCIPLINED GROWTH UNLOC
Slide 13: Achieving scale through disciplined growth
ACHIEVING SCALE THROUGH DISCIPLINED GROWTH Significant reserve growth provides valuation uplift and increased liquidity CASH FLOW & RETURNS PORTFOLIO OPTIMIZATION FINANCIAL & OPERATIONAL FLEXIBILITY COST STRUCTURE IMPROVEMENT & INTEGRATION ENHANCING SCALE W/ DISCIPLINED GROWTH PROVED RESERVES1 PDP R
Slide 14: Appalachia differentiators
APPALACHIA DIFFERENTIATORS Appalachia is the low cost operating gas basin with ~13 Bcf/d of downstream transportation capacity added over the past two years which possesses outlets to diverse markets with premium differentials DOMINION SOUTH BASIS TO NYMEX1 NORTHEAST TAKE AWAY ~40 Bcf/d2 of capacity
Slide 15: Why Montage?
WHY MONTAGE? Montage Resources is a pure play Appalachia operator located in the core Marcellus and Utica fairway, adopting a low risk development plan executed by an experienced Appalachia team positioned for disciplined growth and substantially undervalued vs peers LOW LEVERAGE, GROWING, UNDERVALU
Slide 16: Resource Development and Planning
RESOURCE DEVELOPMENT AND PLANNING Matthew Rucker EVP, Resource Development & Planning
Slide 17: 2019 development plan overview
2019 DEVELOPMENT PLAN OVERVIEW Greater than 90% of 2019 capital is allocated to low-risk D&C activity leading to pro forma 12 month year-over-year production growth of ~16% to ~545 – 570 Mmcfe per day (1) Metrics based on midpoint of guidance and based on timing of merger closing; revenue assumes $3
Slide 18: 2019 plan focuses on high returning areas
2019 PLAN FOCUSES ON HIGH RETURNING AREAS Key development areas with balance of wet and dry well mix deliver attractive single well IRR’s and flexibility for liquids pricing upside Spuds TILs Gross 4 – 6 11 – 13 Net (WI) 3.9 – 5.9 10.5 – 12.4 Avg LL ~14,300’ ~13,200’ Spuds TILs Gross 18 – 20 17 – 19
Slide 19: Optimized development planning
OPTIMIZED DEVELOPMENT PLANNING Development plan integration accelerated for Day 1 allowing Montage to begin execution of optimization immediately IMPROVED CYCLE TIMES OPTIMIZED PLANNING STACKED PAY FOCUS Optimizing initial wells per pad drilled Reducing lateral lengths and operational risk Shortenin
Slide 20: 2019 operating expenditures
2019 OPERATING EXPENDITURES Highly competitive operating cost structure provides for significant margin expansion through scale 2019 OPERATING EXPENSES1 OPEX VS APPALACHIAN PEERS1,2 Operating Cost ($/Mcfe) vs Daily Production (Mmcfe/d) Competitive operating costs compared to in-basin peers despite s
Slide 21: Reserves and Resource Portfolio
RESERVES AND RESOURCE PORTFOLIO
Slide 22: Substantial proved reserve growth
SUBSTANTIAL PROVED RESERVE GROWTH Montage Resources has had significant proved reserves growth on a pro forma basis with ~265% increase in reserves and ~600% increase in PV10 over the last two years 2018 YE Pro Forma SEC Pricing Net Oil (Mbbls) Net NGL (Mbbls) Net Gas (Mmcf) Net Total (Mmcfe) Net PV
Slide 23: Diverse resource portfolio
. DIVERSE RESOURCE PORTFOLIO Attractive portfolio of diverse assets with an even split of wet and dry well inventory, providing optionality to a constantly evolving commodity price environment Utica and Marcellus Type Curve Areas Flat Castle Marcellus North Marcellus South Utica Condensate Utica Ric
Slide 24: De-risked Ohio Marcellus opportunity
DE-RISKED OHIO MARCELLUS OPPORTUNITY Successful subsurface evaluation with proven well results allows the company to transition from delineation mode to full scale development mode, leading to value enhancement on stacked pay asset MARCELLUS UTICA CONDENSATE UTICA DRY GAS FLAT CASTLE Recent well res
Slide 25: Marcellus value attracts capital allocation
MARCELLUS VALUE ATTRACTS CAPITAL ALLOCATION Initial delineation wells are outperforming type curve expectations, de-risking Ohio Marcellus acreage position for full scale development mode MARCELLUS UTICA CONDENSATE UTICA DRY GAS UTICA DRY GAS FLAT CASTLE David Stalder 16HM and Herrick 1HM in Monroe
Slide 26: Utica condensate delivers low-risk repeatable development
UTICA CONDENSATE DELIVERS LOW-RISK REPEATABLE DEVELOPMENT Recent condensate wells are meeting or exceeding type curve expectation, providing low-risk development opportunities with increased liquids exposure MARCELLUS UTICA CONDENSATE UTICA DRY GAS FLAT CASTLE 5 Utica condensate pads turned to sales
Slide 27: Utica condensate type curve expansion
UTICA CONDENSATE TYPE CURVE EXPANSION MARCELLUS UTICA CONDENSATE UTICA DRY GAS FLAT CASTLE SUMMARY Core and petrophysical data indicate similar reservoir quality of the Point Pleasant south from Guernsey to Washington County, OH — Consistent net pay, porosity, pressure gradient, and reservoir fluid
Slide 28: Successful well results in Washington Co.
SUCCESSFUL WELL RESULTS IN WASHINGTON CO. Step-out test into the southern portion of Utica Condensate area generates results similar to the proven northern portion of Utica Condensate area MARCELLUS UTICA CONDENSATE UTICA DRY GAS U FLAT CASTLE 3 Farley wells turned to sales in January 2018 — Utica w
Slide 29: Exceptional well performance in Dry Gas North
EXCEPTIONAL WELL PERFORMANCE IN DRY GAS NORTH Highly deliverable and repeatable Dry Gas North well results provide long term corporate production growth ability with attractive economics to allocate capital MARCELLUS UTICA CONDENSATE UTICA DRY GAS FLAT CASTLE 5 Dry Gas North pads turned to sales in
Slide 30: Utica dry gas expansion into West Virginia
UTICA DRY GAS EXPANSION INTO WEST VIRGINIA Successful delineation in West Virginia provides upside value potential with expansion of the Dry Gas North type curve area MARCELLUS UTICA CONDENSATE UTICA DRY GAS FLAT CASTLE SUMMARY Core and petrophysical data indicate similar reservoir quality of the Po
Slide 31: Successful West Virginia Utica well results
SUCCESSFUL WEST VIRGINIA UTICA WELL RESULTS Second successful well test in West Virginia confirms performance expectations and creates opportunities for accretive value solutions MARCELLUS UTICA CONDENSATE UTICA dry gas flat castle company recently turned to sales the Spencer 1UH in Tyler County, WV
Slide 32: Industry well results further delineate Flat Castle
INDUSTRY WELL RESULTS FURTHER DELINEATE FLAT CASTLE Montage’s Flat Castle acreage sits at the center of the highest gas-in-place in the sub-basin and has been substantially delineated by strong surrounding well results drilled in lower gas-in-place areas 32 Note: Pad averages shown with the exceptio
Slide 33: Montage Flat Castle type curves
MONTAGE FLAT CASTLE TYPE CURVES Two type curves for the Flat Castle Project Area have been developed: a base case and an upside case that was increased ~10% to reflect higher gas-in-place on Montage acreage as well as strong production results from offsetting wells MARCELLUS UTICA CONDENSATE UTICA D
Slide 34: Unlocking Flat Castle
UNLOCKING FLAT CASTLE Painter 2H is exceeding the base Flat Castle Type Curve of 2.0 BCF/1,000’ driven by engineered completion designs coupled with choke management techniques to enhance productivity 34 (1) GOPHER hydraulic fracture simulator. (2) Production normalized to 13,000 ft. UNLOCKING FLAT
Slide 35: Operations Overview
OPERATIONS OVERVIEW Oleg Tolmachev EVP & Chief Operations Office
Slide 36: Montage operational execution
MONTAGE OPERATIONAL EXECUTION Top performing Appalachia execution team delivering on cost reductions, lower cycle times and optimized well designs Continue to prioritize EH&S and regulatory performance • Utilization of operational practices to enhance vendor quality and heighten overall EH&S awarene
Slide 37: EH&S focused
EH&S DRILLING & CONSTRUCTION COMPLETIONS FACILITIES EH&S FOCUSED Safety driven execution team with a proven record of delivering operational results while maintaining best-in-basin environmental and safety record EH&S COMPLETION FACILITIES DRILLING & CONSTRUCTION 2018 EH&S TRACK RECORD EH&S STRATEGY
Slide 38: Drilling & construction efficiency gains
DRILLING & CONSTRUCTION EFFICIENCY GAINS Operational experience drilling complex laterals applied to a low-risk development program drives down cost and cycle time EH&S COMPLETION FACILITIES DRILLING & CONSTRUCTION COST REDUCTIONS OPERATIONAL Drilling practices geared towards optimized lateral lengt
Slide 39: Engineering focused completions design
ENGINEERING FOCUSED COMPLETIONS DESIGN Enhanced completions designs through engineering and machine learning allows for more efficient capital deployment and reserve recovery EH&S COMPLETION FACILITIES DRILLING & CONSTRUCTION OPTIMUM COMPLETION DESIGN MECHANICAL SPECIFIC ENERGY MODEL MECHANICAL SPEC
Slide 40: Completion cost & cycle time improvements
COMPLETION COST & CYCLE TIME IMPROVEMENTS Through focus on service performance, enhanced logistics and the benefits of scale, Montage is substantially reducing completion costs EH&S COMPLETION FACILITIES DRILLING & CONSTRUCTION COST REDUCTIONS OPERATIONAL EXECUTION OPERATIONAL • Reduce SWD costs as
Slide 41: Managed pressure production
MANAGED PRESSURE PRODUCTION Managed Pressure flowback and production incorporates tools such as the Critical Flow Velocity Model (CVFM) driving enhanced well performance and cost reductions EH&S COMPLETION FACILITIES DRILLING & CONSTRUCTION MANAGED PRESSURE PRODUCTION PAINTER 2H EXAMPLE Producing we
Slide 42: Facilities enhancements
FACILITIES ENHANCEMENTS Accelerate turn-to-sales timing by utilizing pre-fabricated equipment and standardized engineering design approachEH&S COMPLETION FACILITIES DRILLING & CONSTRUCTION FACILITY COST SAVINGS FACILITY BUILD CYCLE TIME (DAYS) REDUCE COST AND CYCLE TIME BY EMPLOYING PRE-FABRICATED F
Slide 43: D&C capital savings
D&C CAPITAL SAVINGS Montage Resources expects to achieve ~10% reduction in drilling and completion costs across the asset base in 2019 EH&S COMPLETION FACILITIES DRILLING & CONSTRUCTION EH&S COMPLETION FACILITIES DRILLING & CONSTRUCTION (1) Weighted average of type curve costs based on 2019 estimate
Slide 44: Midstream and Marketing
MIDSTREAM AND MARKETING Michael Hodges EVP and Chief Financial Officer
Slide 45: Midstream and marketing strategy
MIDSTREAM AND MARKETING STRATEGY Diversified marketing strategy provides flexibility and enhanced pricing dynamics — Ensure continuous sale of all products via exceptional FLOW ASSURANCE relationships with service providers — Transport current and future production to diverse portfolio of regions an
Slide 46: Midstream and marketing overview
MIDSTREAM AND MARKETING OVERVIEW Leveraging scale, diversified markets and low commitments to increase net back prices SCALE FACILITATES FLEXIBILITY & OPTIONALITY Synergies allow opportunity to negotiate lower costs and improved services • Volume profile provides operational flexibility and mitigate
Slide 47: Demand drivers – Northeast takeaway
DEMAND DRIVERS – NORTHEAST TAKEAWAY Appalachian basis differentials have narrowed as projects have come online and capacity exceeds production DEMAND DRIVERS – NORTHEAST TAKEAWAY NORTHEAST PRODUCTION VS PIPELINE TAKEAWAY1 2019 EXIT NE PRODUCTION2 ~20% LESS THAN BASIN TAKEAWAY CAPACITY APPALACHIAN BA
Slide 48: Firm transportation
FIRM TRANSPORTATION Evaluate daily market economics and utilize asset management optimization Continue to review expansion projects, power plant and LNG supply deals, and short-term capacity release markets Currently selling excess production above firm capacity in basin 48 2019 FIRM TRANSPORTATION
Slide 49: Realizations and market access
REALIZATIONS AND MARKET ACCESS 2019 STRATEGY 2019 MARKET DIVERSITY & DIFFERENTIALS1 AIM TO ACHIEVE PREMIUMS TO IN-BASIN PRICING Optimizing third-party’s unutilized capacity by selling into supply zones for Rockies Express, Leach Xpress, Rover and NEXUS • Explore opportunities to address production i
Slide 50: Ohio & West Virginia midstream summary
OHIO & WEST VIRGINIA MIDSTREAM SUMMARY UTICA DRY GAS (EUREKA MIDSTREAM) Existing gas gathering agreements with Eureka offering attractive terms and complementary acreage positions — Firm gathering capacity with pipeline connections directly to the well pad — Access to premium markets with delivery p
Slide 51: Pennsylvania midstream summary
PENNSYLVANIA MIDSTREAM SUMMARY Existing marketing options for Flat Castle area provide initial sales outlets FAVORABLE MARKET ACCESS FLAT CASTLE PROJECT AREA Currently selling into Dominion North Point market and achieving price levels similar to Dominion South Point — Assessing options to utilize c
Slide 52: Liquids marketing
LIQUIDS MARKETING Diversification of liquids marketing portfolio allows for avoidance of potential economic hardship involved with single market outlet MARKWEST MOBLEY MARINER EAST II – PROPANE / BUTANE — Renegotiated legacy contract to eliminate volume commitment and corresponding shortfall — Dedic
Slide 53: Liquids marketing: Mariner East II
LIQUIDS MARKETING MARINER EAST II PROPANE / BUTANE MARKETING Mariner East II provides access to premium markets for propane and butane, and offers Montage the added benefit of diversifying its pricing portfolio — Montage has contracted 50% of propane and butane originating from Natrium to MEII ETHAN
Slide 54: Midstream and marketing summary
MIDSTREAM AND MARKETING SUMMARY Strategic midstream portfolio provides diverse market optionality across all products FIRM TRANSPORT PORTFOLIO NATURAL GAS PRICE REALIZATIONS Production growth allows for continued fulfillment of firm transportation commitments FIRM TRANSPORT PORTFOLIO NATURAL GAS PRI
Slide 55: Finance
FINANCE
Slide 56: Strong balance sheet
STRONG BALANCE SHEET Strong balance sheet provides financial flexibility and allows for organic growth Restated Borrowing Base Letters of Credit Revolver Balance Cash Balance Liquidity 1.0x 1.4x 1.5x 2.0x 2.2x 2.2x 2.3x 3.1x Peer 1 Peer 2 MR Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Strong balance sheet pr
Slide 57: Revolving credit facility update
REVOLVING CREDIT FACILITY UPDATE 57 KEY TERMS AND CONDITIONS TRANSACTION OVERVIEW — Extended maturity by 4 years (was Feb 2020) — Strong interest (deal significantly oversubscribed) — Credit feedback regarding transaction was overwhelmingly positive — Removed certain historical restrictions within c
Slide 58: Premier financial positioning
PREMIER FINANCIAL POSITIONING BALANCE SHEET AND LIQUIDITY PRO FORMA CAPITALIZATION (12/31/18) Blue Ridge $25 million term loan retired at transaction close — Pro forma borrowing base of $375 million at transaction close — No near term debt maturities — Reduction of letters of credit of $13.5 million
Slide 59: Hedging update
HEDGING UPDATE Montage currently has a significant portion of its 2019 production hedged and plans to continue adding to its hedge positions at attractive prices to provide cash flow certainty and reduce commodity price risk Natural Gas Hedges — ~69% of natural gas production hedged in 2019 — Averag
Slide 60: 2019 full year guidance
2019 FULL YEAR GUIDANCE 60 (1) Excludes impact of hedges. (2) Excludes the cost of firm transportation. (3) Includes lease operating, transportation, gathering, and compression, production and ad valorem taxes. (4) Cash G&A is a non-GAAP financial measure, see appendix for details. 74%- 78% 12%- 15%
Slide 61: Peer comps comparison
PEER COMPS COMPARISON Montage Resources screens better than peer averages on operating, leverage and reserve metrics vs Appalachian Peers NET DEBT TO LQA Q4 EBITDAX1 2018 EBTIDAX MARGIN ($/MCFE) 1 RESERVE GROWTH 2018 VS 20171 2019 G&A PER MCFE GUIDANCE2 Montage expects G&A $/Mcfe inline with peers d
Slide 62: Stock well positioned for multiple expansion
STOCK WELL POSITIONED FOR MULTIPLE EXPANSION Montage Resources is currently trading at depressed levels relative to its peer groups and should be immediately positioned for multiple expansion given its larger scale and strong balance sheet TRADING MULTIPLE PEER COMPARISON TEV / 2019 EBITDAX1 TEV / 2
Slide 63: Concluding remarks and Q&A
CONCLUDING REMARKS AND Q&A John Reinhart President and Chief Executive Officer
Slide 64: Montage strategy shift
MONTAGE STRATEGY SHIFT Small cap Appalachia Utica and Marcellus operator rebranded and focused on maximizing shareholder value CASH FLOWS & RETURNS COST STRUCTURE IMPROVEMENT & INTEGRATION FINANCIAL & OPERATIONAL FLEXIBILITY PORTFOLIO OPTIMIZATION ENHANCING SCALE WITH DISCIPLINED GROWTH Arrest corpo
Slide 65: Appendix
APPENDIX
Slide 66: Type curve details
TYPE CURVE DETAILS As of 3/2019 2019 Marcellus North 2019 Marcellus South 2019 Utica Condensate 2019 Utica Rich Gas 2019 Utica Dry Gas North 2019 Utica Dry Gas South 2019 Flat Castle Type Curve Assumptions Inter-Lateral Spacing (ft.) 750 750 750 1,000 1,000 1,000 1,200 Lateral Length (ft) 13,000 13,
Slide 67: Non-GAAP reconciliations: EBITDAX
NON-GAAP RECONCILIATIONS EBITDAX Year Ended December 31, 2018 $ thousands ECR BRMR Pro Forma Net income (loss) from continuing operations $ 18,826 $ 27,561 $ 46,387 Depreciation, depletion and amortization 134,277 39,472 173,749 Exploration expense 49,563 11,454 61,017 Rig termination and standby —
Slide 68: Non-GAAP reconciliations: Cash G&A and PV10
NON-GAAP RECONCILIATIONS CASH G&A Year Ending December 31, 2018 Three Months Ending March 31, 2019 Year Ending December 31, 2019 $ thousands Year Ending December 31, 2018 Three Months Ending March 31, 2019 Year Ending December 31, 2019 General and administrative expenses, estimated to be reported $2