Montage Resources : Form10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

• ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the fiscal year ended December 31, 2018

  or

• ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36511

Montage Resources Corporation

(Exact name of registrant as specified in its charter)

Delaware	46-4812998
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
122 West John Carpenter Freeway, Suite 300
75039
(Address of principal executive offices)	(Zip code)
Name of Each Exchange on which Registered
New York Stock Exchange

Irving, TX

[phone]

(Registrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Common Stock, Par Value $0.01 Per Share

Securities Registered Pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐

No ☒

Yes ☐

No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

☐ Yes

☒ NoThe aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2018, the last business day of the most recently completed second fiscal quarter, was approximately $140 million.

Number of shares of the registrant's common stock outstanding at March 13, 2019: 35,193,719 shares.

Documents incorporated by reference: Portions of the registrant's proxy statement for its 2019 annual meeting of stockholders to be filed pursuant to Regulation 14A within 120 days after the registrant's fiscal year end are incorporated by reference into Part III of this Annual Report on Form 10-K.

Table of Contents

Page

Cautionary Statement Regarding Forward-Looking Statements ii

Glossary of Oil and Natural Gas Terms iii

PART I

Items 1 and 2	Business and Properties	1
Item 1A	Risk Factors	23
Item 1B	Unresolved Staff Comments	50
Item 3	Legal Proceedings	50
Item 4	Mine Safety Disclosures	50
PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	51
Item 6	Selected Financial Data	51
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	54
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	80
Item 8	Financial Statements and Supplementary Data	82
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	82
Item 9A	Controls and Procedures	82
Item 9B	Other Information	83
PART III
Item 10	Directors, Executive Officers and Corporate Governance	84
Item 11	Executive Compensation	84
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	84
Item 13	Certain Relationships and Related Transactions, and Director Independence	84
Item 14	Principal Accounting Fees and Services	84
PART IV
Item 15	Exhibits, Financial Statement Schedules	85
Item 16	Form 10-K Summary	89
SIGNATURES	90

i

Cautionary Statement Regarding Forward-Looking Statements

This Annual Report on Form 10-K (the "Annual Report") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical fact included in this Annual Report, regarding our strategy, future operations, financial position, estimated revenues and income or losses, projected costs and capital expenditures, prospects, plans and objectives of management are forward-looking statements. When used in this Annual Report, the words "will," "plan," "would," "could," "endeavor," "believe," "anticipate," "intend," "estimate," "expect," "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are or were, when made, based on current expectations and assumptions about future events and are or were, when made based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described in "Item 1A. Risk Factors" of this Annual Report.

Forward-looking statements may include statements about, among other things:

•

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realized prices for natural gas, natural gas liquids ("NGLs") and oil and the volatility of those prices; write-downs of our natural gas and oil asset values due to declines in commodity prices;

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our business strategy;

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our reserves;

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general economic conditions;

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our financial strategy, liquidity and capital required for developing our properties and the timing related thereto; the timing and amount of our future production of natural gas, NGLs and oil;

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our hedging strategy and results;

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future drilling plans;

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competition and government regulations, including those related to hydraulic fracturing; the anticipated benefits under our commercial agreements;

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marketing of natural gas, NGLs and oil;

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leasehold and business acquisitions and joint ventures;

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leasehold terms expiring before production can be established and our costs to extend such terms; the costs, terms and availability of gathering, processing, fractionation and other midstream services; credit markets;

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uncertainty regarding our future operating results, including initial production rates and liquids yields in our type curve areas; and plans, objectives, expectations and intentions contained in this Annual Report that are not historical.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the exploration for and development, production, gathering and sale of natural gas, NGLs and oil. These risks include, but are not limited to, legal and environmental risks, drilling and other operating risks, regulatory changes, commodity price volatility and the significant decline of the price of natural gas, NGLs and oil from historical highs, inflation, lack of availability of drilling, production and processing equipment and services, counterparty credit risk, the uncertainty inherent in estimating natural gas, NGLs and oil reserves and in projecting future rates of production, cash flows and access to capital, risks associated with our level of indebtedness, the timing of development expenditures, and the other risks described in "Item 1A. Risk Factors" of this Annual Report.

ii

Reserve engineering is a process of estimating underground accumulations of natural gas, NGLs and oil that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions could change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of natural gas, NGLs and oil that are ultimately recovered.

Should one or more of the risks or uncertainties described in this Annual Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Annual Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect new information obtained or events or circumstances that occur after the date of this Annual Report.

Glossary of Oil and Natural Gas Terms

As used in this Annual Report, unless the context indicates or otherwise requires, the following terms have the following meanings:

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"Bbl" refers to a standard barrel containing 42 U.S. gallons;

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"Bbls/d" refers to Bbls per day;

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"Bcfe" refers to one billion cubic feet of natural gas equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs;

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"Boe" refers to one barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil;

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"Btu" refers to one British thermal unit, which is the quantity of heat required to raise the temperature of a one-pound mass of water by one degree Fahrenheit;

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"Completion" refers to the process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas or, in the case of a dry hole, the reporting of abandonment to the appropriate agency;

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"Condensate" or "Condensate Window" refers to the area in which we generally expect Utica Shale wells to produce natural gas having a heat content greater than 1,210 Btu, with an initial condensate yield of approximately 60 to 300 barrels per MMcf of natural gas produced;

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"Developed acreage" refers to the number of acres that are allocated or assignable to productive wells or wells capable of production;

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"Differential" refers to an adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas;

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"Dry Gas" refers to the area in which we generally expect Utica Shale wells to produce natural gas having a heat content between 1,010 Btu and 1,150 Btu with no initial condensate yield;

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"Dth" refers to a thermal unit, and is equal to one million Btus;

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"Dth/d" refers to Dths per day;

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"Dry hole" or "dry well" refers to a well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes;

iii

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"Exploration" refers to a development or other project that may target proven or unproven reserves (such as probable or possible reserves), but which generally has a lower risk than that associated with exploration projects;

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"Field" refers to an area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations;

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"Formation" refers to a layer of rock that has distinct characteristics that differs from nearby rock;

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"Gal" refers to gallons;

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"Gal/d" refers to gallons per day;

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"Gross acres" or "gross wells" refers to the total acres or wells, as the case may be, in which a working interest is owned;

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"Horizontal drilling" refers to a drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval;

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"Identified drilling locations" refers to total gross (net) resource play locations that we may be able to drill on our existing acreage. Actual drilling activities may change depending on the availability of capital, regulatory approvals, seasonal restrictions, natural gas and oil prices, costs, drilling results and other factors;

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"Marcellus Condensate" or "Marcellus Area" refers to the area in which we generally expect Marcellus Shale wells to produce a natural gas having a heat content of approximately 1,300 Btu, with an initial condensate yield of approximately 60-140 barrels per MMcf of natural gas produced;

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"MBbl" refers to one thousand barrels;

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"Mcf" refers to one thousand cubic feet;

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"Mcfe" refers to one thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs;

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"Mcf/d" refers to Mcfs per day;

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"MMBbls" refers to one million barrels;

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"MMBoe" refers to one million Boe;

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"MMBtu" refers to one million British thermal units;

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"MMcf" refers to one million cubic feet;

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"MMcfe" refers to one million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs;

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"Net acres" refers to the amount of leased real estate that a petroleum and/or natural gas company has a true working interest in. Net acres express actual percentage interest when a company shares its working interest with another company; the total acreage under lease by a company is referred to as gross acres. Net acres account for the Company's percentage interest, multiplied by the gross acreage. If a company holds the entire working interest, its net acreage and gross acreage will be the same;

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"Net production" refers to production that is owned by us less royalties and production due others;

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"NGLs" refers to natural gas liquids, which are hydrocarbons found in natural gas that may be extracted as liquefied petroleum gas and natural gasoline;

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"NYMEX" refers to the New York Mercantile Exchange;

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"Operator" refers to the individual or company responsible for the exploration and/or production of an oil or natural gas well or lease;

iv