Sticking to its commitment to a disciplined growth strategy, newly formed Appalachia-focused Montage Resources Corp. plans to scale back its drilling program amid expected lower commodity prices for the second half of 2019.
Montage, created following the merger of Eclipse Resources and Blue Ridge Mountain Resources, indicated it is reducing activity to one gross operated rig from two. In addition to lower expected commodity prices, the company cited increased operational efficiencies for its decision to scale back activity.
“Our disciplined growth strategy and focus on maintaining a strong balance sheet while delivering positive cash flows has not changed,” CEO John Reinhart said. “However, continued weakness in commodity prices has made us especially vigilant in protecting our highly advantaged position with a significant amount of liquidity and our resolve to maintain financial and operational flexibility remains unchanged.”
The company plans to continue running one rig through the remainder of 2019 and then evaluate 2020 activity “in order to deliver continued disciplined growth while maintaining an attractive balance sheet.” The trimmed down planned activity for the second half of this year is expected to result in a $30 million reduction in capital spending compared to initial plans to spend $375-400 million.
Montage had already begun doubling down on operational efficiencies, delivering first quarter cycle time improvements of about two weeks and putting it on track to drive down well costs.
Despite the reduction in activity, Montage, which will target “significantly more” liquids production for the remainder of 2019, reaffirmed full-year 2019 production guidance of 520-540 MMcfe/d and cash production costs of $1.35-1.45/Mcfe. About 65% of its gas production is hedged for 2019.
Looking ahead, Montage’s projected maintenance level of development capital spending for 2020 was set at roughly $215 million, which takes into consideration a strategic shift toward more liquids production, improved cycle times, lower well costs and reduced cash production costs. In addition, Montage expects its base production decline from 2019 to 2020 to improve from historical levels to about 35-40% as a result of the revised production profiles of newly completed wells in 2019, as well as a maturing base of production.
“We believe our performance-driven culture, attractive acreage position, and balanced commitment profile has provided us with enormous flexibility to manage the fundamentals of the business with a focus on delivering value to our stakeholders,” Reinhart said.
Montage also continues to assess opportunities that include monetizing the Flat Castle acreage in Pennsylvania, as well as other noncore sales to improve the balance sheet.
The scaled back activity aligns with other Appalachia operators’ efforts to manage their businesses within operating cash flow. The resulting cuts are seen tempering the rapid production growth the region has experienced over the last decade.
Montage is scheduled to release its 2Q2019 results on Aug. 6.