Montage Resources Corp. has entered into a new consolidated gas gathering agreement and has added downside protection to natural gas prices in 2020 and 2021 through incremental hedges recently executed.
The company has recently completed the renegotiation of significant existing gas gathering contracts with a midstream partner into a single new consolidated gas gathering agreement in order to enhance its already peer-leading cash operating margins.
The new consolidated gas gathering agreement ensures a dedicated gatherer for the company’s Marcellus Ohio development with a significantly improved fee structure relative to the prior agreements for all existing and future development.
It delivers gas gathering and compression fee reductions relative to the prior agreements, with an estimated undiscounted gross cost savings over the life of the new contact (assuming the company continues its current one-rig development program) of approximately $200 million.
The agreement provides incremental flexibility to Montage by reducing the near-term minimum volume obligations below their prior levels while providing its midstream partner additional certainty on a per-unit basis for any unutilized throughput capacity.
Furthermore, the agreement also eliminates Montage’s potential obligation for incremental capital costs for future pipeline or related facilities construction on its Marcellus Ohio and Utica Dry development.
“We are happy to continue our partnership with one of the premier midstream providers in the region and believe this agreement contributes value to both parties. In addition, we are continuing to act opportunistically in the current commodity price environment and tactically add additional downside protection to our cash flows by actively managing our hedge book,” John Reinhart, president and CEO, said.
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