SPRING, Texas–(BUSINESS WIRE)–Southwestern Energy Company (NYSE: SWN) and Montage Resources Corporation (NYSE: MR) today announced that they have entered into a definitive merger agreement under which Southwestern Energy will acquire Montage Resources in an all-stock transaction. Based on the 3-day average closing share prices of the companies as of August 11, 2020 and under the terms of the agreement, Montage Resources shareholders will receive 1.8656 shares of Southwestern for each Montage Resources share. The transaction is expected to close in the fourth quarter of 2020, subject to customary closing conditions, including the approval of the Montage Resources shareholders.
Highlights include:
- Represents a step change in free cash flow; approximately $100 million annual free cash flow beginning in 2021 based on current strip pricing;
- Accretive to per share financial metrics as well as leverage, margin and returns;
- Anticipated synergies of approximately $30 million in annual G&A savings captured following the transaction close, in addition to operational efficiencies;
- Maintains peer leading maturity runway and strong balance sheet;
- Combined company will be the third largest producer in Appalachia, expected total equivalent production of approximately 3 Bcfe per day; and
- Enhances economic inventory, with investment opportunities in proven, high-return Marcellus super rich and core Utica dry gas windows.
“This is an exciting step for Southwestern as we expand our Appalachia footprint with the high-quality assets of Montage. As we have consistently stated, we are firm believers in the benefits of value-creating consolidation. This transaction further solidifies the Company’s position as a premier Appalachia operator and provides additional scale and synergies strengthened by our leading operational execution. Consistent with our strategy, this transaction is expected to deliver increased free cash flow, improved returns and long-term value to shareholders,” said Bill Way, Southwestern Energy President and Chief Executive Officer.
Way continued, “This acquisition is expected to deliver on all criteria of an accretive, value-adding transaction for the shareholders of both Southwestern Energy and Montage Resources. Southwestern Energy has consistently and methodically taken steps to enhance its resilience over the last few years, and this transaction solidifies that path and delivers on the commitment to responsibly manage the balance sheet and return to free cash flow.”
John Reinhart, President and CEO of Montage Resources, commented, “This transaction creates a compelling opportunity for both Southwestern Energy and Montage Resources shareholders to benefit from the strength of the consolidated company. The combination creates a Company of substantial scale with capabilities to enhance cash flow generation and a strong balance sheet that provides opportunities for enhanced shareholder value creation. We appreciate all of the great work by Montage employees in forming a very attractive business that will continue to build upon the success of Southwestern Energy.”
Concurrently, Southwestern also commenced a registered underwritten public offering of 55,000,000 shares of its common stock, with the proceeds expected to be used to retire a portion of Montage Resources’ 8.875% Senior Notes due 2023. The remaining portion of the Montage notes outstanding have the potential to be refinanced opportunistically.
This transaction delivers on the key strategic objectives that Southwestern Energy has been targeting:
- No premium transaction
- Enhances free cash flow
- Improves leverage ratio
- Capture of tangible synergies
- In-basin assets where technical and operating expertise can be leveraged
- High-quality inventory included in go forward development plans
- Retains peer leading maturity runway
Certain key metrics of the new combined enterprise are shown below.
| SWN | MR | SWN + MR | |
| Production (for the quarter ended June 30, 2020) | |||
| Natural Gas (Bcf) | 158 | 42 | 200 |
| Oil/Condensate (MBbls) | 1,083 | 440 | 1,523 |
| NGLs (MBbls) | 6,111 | 974 | 7,085 |
| Total Production (Bcfe) | 201 | 50 | 251 |
| Net Acres(1) | |||
| Northeast Appalachia | 173,994 | 34,900 | 208,894 |
| Southwest Appalachia | 287,693 | 289,600 | 577,293 |
| Total Net Acres | 461,687 | 324,500 | 786,187 |
| Proved Reserves (as of December 31, 2019) | |||
| Natural Gas (Bcf) | 8,630 | 2,138 | 10,768 |
| Oil/Condensate (MMBbls) | 72.9 | 30.3 | 103.2 |
| NGLs (MMBbls) | 608.8 | 68.4 | 677.2 |
| Total Proved Reserves (Bcfe) | 12,721 | 2,730 | 15,451 |
| Net Debt / Adjusted EBITDA (as of June 30, 2020)(2) | |||
| Total Debt ($MM) | $2,457 | $670 | $3,127 |
| Less: Cash ($MM) | (10) | (9) | (19) |
| Net Debt ($MM) (non-GAAP) | $2,447 | $661 | $3,108 |
| Adjusted EBITDA ($MM)(3) (non-GAAP) | 780 | 271 | 1,051 |
| Net Debt / Adjusted EBITDA (non-GAAP) | 3.1x | 2.4x | 3.0x |
| (1) | Net acres for Southwestern Energy and Montage Resources as of December 31, 2019 and June 30, 2020, respectively. |
| (2) | The balances of the combined companies are based solely on historical information, and may not be indicative of the pro forma financial information relating to the combined company once available. |
| (3) | For the twelve months ended June 30, 2020. Montage’s comparative financial non-GAAP metric as defined in its public filings is EBITDAX |
Advisors
Citi and Goldman Sachs & Co. LLC are acting as financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to Southwestern. Barclays is acting as financial advisor and Norton Rose Fulbright LLP is acting as legal advisor to Montage Resources. Vinson & Elkins LLP is acting as legal advisor to EnCap Investments, L.P.
About Southwestern Energy
Southwestern Energy Company is an independent energy company engaged in natural gas, natural gas liquids and oil exploration, development, production and marketing.
About Montage Resources
Montage Resources is an exploration and production company with approximately 195,000 net effective core undeveloped acres currently focused on the Utica and Marcellus Shales of Southeast Ohio, West Virginia and North Central Pennsylvania.
