EQT to acquire Rice Energy for $8.2 billion 🔓

Pennsylvania-based independent oil and gas producers EQT and Rice Energy announced Monday they have entered into an estimated $8.2 billion merger agreement, in which EQT will acquire all of Rice’s upstream assets and a 92% share in its midstream operations.

EQT will acquire all of the outstanding shares of Rice common stock for roughly $6.7 billion – consisting of 0.37 shares of EQT common stock and $5.30 in cash per share of Rice common stock — as well as assume or refinance $1.5 billion of net debt and preferred equity.

The cash and stock deal was unanimously approved by both company’s boards, and is now subject to regulatory scrutiny. The firms expect the transaction to close in the fourth quarter of 2017. EQT will become the largest natural gas producer in the U.S., overtaking ExxonMobil and Chesapeake Energy, with more than 3 billion cubic feet per day of production — responsible for about 5% of America’s gas supply. Analyst Tim Rezvan at Mizuho called the deal “empire building” for EQT.

“This transaction brings together two of the top Marcellus and Utica producers to form a natural gas operating position that will be unmatched in the industry,” said EQT’s CEO Steve Schlotterbeck, adding the company will now shift its focus from acquisition to integration.

The deal is the first under Schlotterbeck, who took over the corner office from former EQT CEO David Porges on March 1.

The founding Rice family made out well. According to the lastest proxy filings, the family holds about 24 million shares, more than 15% of the company. Given the deal metrics of $5.30 in cash and .37 EQT shares per Rice share, their take comes to $127 million in cash plus 8.9 million shares worth $480 million.

The deal also brings a nice return on investment to private equity groups Riverstone, Quantum and Vantage, each of which holds a big share of preferred stock in Rice.

Among its new goals, EQT plans to drive higher capital efficiency through longer laterals; reduce per unit operating costs through operations and G&A synergies; improve sales portfolio by expanding access to premium markets; and deliver increased value to our shareholders, Schlotterbeck said.

As the vast majority of the acquired acreage is contiguous with EQT’s existing acreage position, EQT anticipates a 50% increase in average lateral lengths for future wells located in Greene and Washington counties in Pennsylvania. It expects to increase lateral lengths from 8,000 feet to 12,000 feet, while raising wells returns from 52% to 70% at $3 per thousand cubic feet NYMEX gas, Kallanish Energy learns from its investor presentation.

Synergies total some $2.5 billion, alongside a new combined natural gas production capacity of 3.04 billion cubic feet per day (Bcf/d), overtaking XOM at 3.00 Bcf/d, EQT said. The Rice acquisition will also triple the company’s capacity to Gulf markets.

“Natural gas is the key to a cleaner energy world; and the combination of Rice and EQT – two of the U.S.’s largest, lowest-cost, and most responsible natural gas producers – creates an unparalleled leader in shale gas development that will benefit the environment and our shareholders for many decades to come,” said Daniel J. Rice IV, CEO of Rice Energy.

Senior equity analyst at Williams Capital Group, Gabriele Sorbara, said “the transaction makes sense for EQT, expanding its Marcellus/Utica position significantly with contiguous core acreage which adds synergies, in our view.”

Sorbara estimated the transaction to consist of 65% equity and 35% cash with the equity premium at roughly 37%.

Be the first to comment

Leave a Reply

Your email address will not be published.


*