Montage Resources Corporation Announces Second Quarter 2019 Outperformance, Raises Production Guidance, Lowers Cash Operating Costs Guidance and Lowers Capital Expenditure Guidance for the Full Year 2019

Montage Resources Corporation (NYSE:MR) (the “Company” or “Montage Resources”) today announced its second quarter 2019 financial and operational results along with initial third quarter 2019 and revised full year 2019 guidance. In addition, the Company will be posting an updated investor presentation to its corporate website.

Second Quarter 2019 Highlights:

• Average net daily production was 535.5 MMcfe per day, 4% above the high end of the Company’s previously issued guidance range and above analyst consensus expectations
• Average natural gas equivalent realized price was $2.94 per Mcfe, excluding cash settled derivatives and firm transportation expenses
• Per unit cash production costs (including lease operating, transportation, gathering and compression, production and ad valorem taxes) were $1.35 per Mcfe, including $0.37 per Mcfe in firm transportation expenses, with the per unit cash production costs outperforming the Company’s previously issued guidance and analyst consensus expectations
• Net income for the second quarter of 2019 was $27.5 million; Adjusted net income¹ for the second quarter of 2019 was $14.6 million; and Adjusted EBITDAX¹ for the second quarter of 2019 was $70.9 million, above analyst consensus expectations

Positive Revisions to Full Year 2019 Guidance:

• Full year 2019 production guidance of 535 to 555 MMcfe per day, an increase of approximately 3% based upon the midpoint of the Company’s previously issued guidance range
• Full year 2019 per unit cash production costs of $1.30 to $1.40 per Mcfe, lower by approximately 4% based upon the midpoint of the Company’s previously issued guidance range
• Full year 2019 capital expenditures of $345 to $370 million, lower by approximately 8% based upon the midpoint of the Company’s previously issued guidance range

John Reinhart, President and CEO, commented on the Company’s second quarter 2019 results, “During the second quarter, we continued to execute upon our `Focus Five' strategy with an emphasis on capital efficiency, cash-margin optimization, disciplined growth and balance sheet protection. Throughout all stages of our drilling and completions program, the Montage technical team continues to exceed expectations, leading to a 30% reduction in cycle times over 2018 and well costs reaching the target of $870 per lateral foot in the 2019 plan. These top-tier operating efficiencies, in addition to outstanding well results, contributed to the second quarter production outperformance with capital expenditures below expectations. One of the most important components of delivering upon our strategy and continuing to gain the confidence of investors is our ability to demonstrate superior operational execution as we exhibit a strong track record of repeatable results.

“During the second quarter, the Company re-negotiated an advantageous processing contract with one of our existing midstream providers for our Marcellus acreage in Ohio. The contact allows for a significant improvement in gas processing costs, possesses no additional minimum volume commitments and provides full ethane rejection, which will further improve the overall rates of return and value of our liquids-rich Marcellus acreage. Given the Company’s focus on increasing liquids-rich production, we believe this will provide a significant benefit during the second half of 2019 as liquids production volumes are expected to grow by approximately 40% - 45% over the first half of 2019. The quarterly production beat and enhanced pricing across our products, when coupled with cash production costs per unit outperforming expectations, delivers cash operating margins that we believe are among the best in the Appalachian Basin. The company continues to focus on merger related synergies that may be achieved through commercial agreements that enhance cash margins.

“For the second quarter of 2019, the Company generated revenue of $155.5 million, a 50% increase over the second quarter of 2018, while also recognizing a 39% increase in Adjusted EBITDAX¹ over the second quarter of 2018, despite the weaker commodity price environment. From an operations perspective, the efficiency gains and well productivity results achieved from the development strategy shift are allowing us to place high-quality wells to sales more quickly than originally expected. Given the recent production outperformance, the Company has realized an approximately 30% increase in the mid-year PV-10 value² of its proved developed producing reserves to approximately $1 billion, based upon strip pricing as of June 30, 2019 from the pro forma year end 2018 value, based upon strip pricing as of December 31, 2018.

“The Company is pleased to announce we have raised our production guidance for the full year 2019 by approximately 15 Mmcfe per day and decreased our cash production costs by approximately $0.05 per Mmcfe. As we have previously highlighted, we are committed to maintaining operational flexibility in a cyclical business environment. The Company has reduced second half 2019 activity levels which results in lowered capital spending for the full year by approximately $30 million. The capital plan in 2019 has been further optimized to focus on the drill-bit, with less than 5% of that capital expected to be dedicated to land spending due to the significant amount of our acreage that is already held by production.

“Our focus remains on balancing disciplined growth and cash flow generation while maintaining low leverage and ample liquidity to facilitate strategic optionality. The natural gas macro environment we are currently experiencing reinforces the importance of being a low-cost producer with high quality assets, maintaining a top performing execution team, and having a Company that possesses limited commitments. We believe the second quarter results demonstrate the effectiveness of our development strategy, the strength of our business, the focus of our team and the fundamental belief in the long term prospects for our Company.”

Operational Discussion

The Company’s production for the three and six months ended June 30, 2019 and 2018 is set forth in the following table:

Financial Discussion

Revenue for the three months ended June 30, 2019 totaled $155.5 million, compared to $103.6 million for the three months ended June 30, 2018. Adjusted Revenue³, which includes the impact of cash settled derivatives and excludes brokered natural gas and marketing revenue, totaled $145.9 million for the three months ended June 30, 2019 compared to $100.8 million for the three months ended June 30, 2018. Net Income (Loss) for the three months ended June 30, 2019 was $27.5 million, or $0.77 per share, compared to ($19.0) million, or $(0.95) per share⁴, for the three months ended June 30, 2018. Adjusted Net Income³ for the three months ended June 30, 2019 was $14.6 million, or $0.41 per share, compared to $2.5 million, or $0.12 per share⁴, for the three months ended June 30, 2018. Adjusted EBITDAX³ was $70.9 million for the three months ended June 30, 2019 compared to $51.1 million for the three months ended June 30, 2018.

Average realized price calculations for the three and six months ended June 30, 2019 and 2018 are set forth in the table below:

Per unit cash production costs, which include $0.37 per Mcfe of firm transportation expense, were $1.35 per Mcfe for the second quarter of 2019, a decrease of approximately 8% compared to the second quarter of 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.

General and administrative expense (including one-time merger-related expenses) was $13.6 million and $10.7 million for the three months ended June 30, 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 $9.1 million and $8.7 million for the three months ended June 30, 2019 and 2018, respectively. General and administrative expense per Mcfe (including one-time merger-related expenses) was $0.28 in the three months ended June 30, 2019 compared to $0.38 in the three months ended June 30, 2018. Cash general and administrative expense⁵ per Mcfe, excluding merger-related expenses and stock-based compensation expense, declined 39% to $0.19 in the three months ended June 30, 2019 compared to $0.31 in the three months ended June 30, 2018.

Capital Expenditures

Second quarter 2019 capital expenditures were $115.3 million, including $111.9 million for drilling and completions, and $3.4 million for land-related expenditures.

During the second quarter of 2019, the Company commenced drilling 12 gross (10.2 net) operated wells, commenced completions of 15 gross (13.0 net) operated wells and turned to sales 16 gross (11.4 net) operated wells.

Financial Position and Liquidity

As of June 30, 2019, the Company’s liquidity was $252.7 million, consisting of $9.4 million in cash and cash equivalents and $243.3 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 $127.5 million in outstanding borrowings).

Michael Hodges, Executive Vice President and Chief Financial Officer, commented, “We remain highly focused on maintaining the strength of our balance sheet. With no near term debt maturities and a current leverage ratio of approximately 1.7 times⁶, we believe our superior financial condition positions us to dynamically respond to changes in the commodity price environment as demonstrated by the operational flexibility in our previously announced reduction in development activity for 2019. As we look to the future, our resolve to deliver free cash flow to our stakeholders has not changed. From a top-line revenue perspective, we believe Montage is differentiated amongst other Appalachian peers as crude oil provided over 20% of our Adjusted Revenue⁷ for the second quarter and we expect our leverage to crude oil to further increase for the balance of 2019 and into 2020 as we focus on the development of our liquids-rich locations. Our second quarter results highlight the strength of our cash margins, with cash production costs continuing to decline as a result of our operational success and increasing scale. Finally, we believe our strong hedge book for the remainder of 2019 and into 2020 provides cash flow assurance for the foreseeable future as we execute our development plans. We believe the benefits of the merger consummated earlier this year have positioned Montage for success, and we believe the unique combination of ample liquidity, low leverage, limited operational commitments and the peer-leading EBITDAX margins leave the Company well positioned to deliver value to its stakeholders in 2019 and beyond.”

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 June 30, 2019:

Natural Gas Derivatives:

Oil Derivatives:

NGL Derivatives:

Subsequent to the End of the Second Quarter:

The below table illustrates the Company’s hedging activities subsequent to the end of the second quarter 2019:

Natural Gas Derivatives:

Oil Derivatives:

Guidance

The Company is announcing third quarter and updated full year 2019 guidance (changes in italics) as set forth in the table below:

Conference Call

A conference call to review the Company’s second quarter financial and operational results is scheduled for Wednesday, August 7, 2019 at 10:00 a.m. Eastern Time. To participate in the call, please dial 877-709-8150 or 201-689-8354 for international callers and reference Montage Resources Second Quarter 2019 Earnings Call. A replay of the call will be available through October 8, 2019. To access the phone replay, dial 877-660-6853 or 201-612-7415 for international callers. The conference ID is 13692325. A live webcast of the call may be accessed through the Investor Center on the Company’s website at www.montageresources.com. The webcast will be archived for replay on the Company’s website for six months.

Adjusted Revenue

Adjusted revenue is a non-GAAP financial measure. The Company defines adjusted revenue as follows: total revenues plus net cash receipts or payments on settled 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 six months ended June 30, 2019 and 2018.

Adjusted Net Income (Loss)

Adjusted net income (loss) represents income (loss) 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) as determined by GAAP. See the table below for a reconciliation of adjusted net income (loss) and net income (loss), which retroactively reflects the 15-to-1 reverse stock split that took place at the close of the merger with Blue Ridge on February 28, 2019 for the three and six months ended June 30, 2019 and 2018.

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; income taxes; impairments; depreciation, depletion and amortization (“DD&A”); gain (loss) on derivative instruments; net cash receipts (payments on settled derivative instruments, and premiums (paid) 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.