Montage assets to be acquired and the liabilities to be assumed and the related allocations of the consideration paid nor have we identified all adjustments necessary to conform Montages
accounting policies to our accounting policies. While we are still assessing the final accounting implications of the Merger, currently we expect any difference between the consideration paid (i.e., the market value of the stock issued and the
liabilities assumed) and the fair value of the assets acquired at closing would be booked as a gain in the case of a bargain purchase or as goodwill. A final determination of the fair value of Montages assets and liabilities will be based on
the actual net tangible and intangible assets and liabilities of Montage that exist as of the closing date of the Merger and, therefore, cannot be made prior to the completion of the Merger.
The Montage Assets
Montage is engaged in
the acquisition and development of oil and natural gas properties in the Appalachian Basin. As of June 30, 2020, Montage owned approximately 183,700 net core acres in the Utica Shale fairway, with approximately 56,500 net acres of stacked pay
opportunity in the Marcellus super rich area. Montages net core acres in the Utica Shale fairway consist of approximately 88,400 net acres in the dry gas window located primarily in Ohio, approximately 7,700 net acres in the rich gas window in
Ohio, approximately 52,700 net acres located in the condensate window in Ohio, and approximately 34,900 net acres located in the dry gas window in Northeast Appalachia.
Montage operated 242 gross producing unconventional wells as of June 30, 2020 with an average working interest of approximately 86%.
Montages average net daily production from its properties for the six months ended June 30, 2020 was approximately 581.2 MMcf/d, 81% of which was natural gas, 13% NGLs and 6% oil, and approximately 96% of which was operated by Montage.
Based on information provided by Montage, which has previously been filed with the SEC, as of December 31, 2019, Montage had estimated total proved reserves of 2,729.8 Bcfe, 78% of which was natural gas, 15% NGLs and 7% oil. In addition,
Montages 1,235.6 Bcfe of proved undeveloped reserves as of December 31, 2019 were based on Montages development plans and may not necessarily reflect our development plans for these properties. Therefore, upon closing of the Merger,
the proved undeveloped reserves we book may differ. Based on analysis by our management, we estimate that Montage owned approximately 520 remaining locations as of December 31, 2019. We expect that the Montage inventory will compete for
investment within our existing portfolio, with current plans to maintain activity on the acquired acreage. We believe the Montage assets will further strengthen our inventory in the Appalachian Basin, which will consist of approximately 5,150
laterals after giving effect to the Merger.
Credit Agreement Amendment
Prior to the consummation of the Merger, we expect to enter into Amendment No. 7 (the Credit Agreement Amendment) to the
Credit Agreement dated as of April 26, 2018 among Southwestern, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the Credit Agreement), pursuant to which we expect the Credit Agreement will be
amended to:
(i) modify the maturity date under the Credit Agreement to add a springing maturity trigger 91 days prior to
the maturity date of the Montage Notes, unless by which time at least $450 million of the Montage Notes have been redeemed, refinanced or amended such that their maturity date is extended to a date at least 91 days after the Credit Agreement
maturity date of April 26, 2024;
(ii) permit the assumption of the Montage Notes (and any refinancing indebtedness
thereof); and
(iii) permit the redemption of certain indebtedness, including the Montage Notes, with proceeds (a) of
the issuance of certain types of equity securities, (b) with permitted refinancing debt under certain conditions and timeframes or (c) with loans made under the Credit Agreement.