WAR OF THE WORDS
When Lola said ‘we drill,’ Rice answered ‘we drill more’ and bought it
Frank Metheny had a good chuckle the first time he saw the warring billboards at the entrance to Waynesburg. Just off the exit from Interstate 79 was a sign for Lola Energy, the oil and gas startup that signed its first lease with Mr. Metheny in 2016.
“We lease, We drill ... We Care!” it read.
Sounds about right, he thought. Mr. Metheny chose Wexfordbased Lola, turning down advances from Downtown-based EQT Corp. and others battling for precious acreage in Greene County, because he figured that a startup would be quicker to drill and better to deal with than larger firms.
About 100 yards down the road from Lola’s sign, Rice Energy Inc. had a message, in all capital letters, for landowners like Mr. Metheny.
“We lease more, We drill more, We care more.”
Less than a year after Canonsburg-based Rice began taunting Lola with the billboard, it bought the Wexford-based firm for $180 million, according to Rice’s earnings release on Tuesday. The deal closed last month, and with Rice’s pending sale to EQT, Mr. Metheny is likely to end up exactly where he didn’t want to be. Again.
This is Mr. Metheny’s second round of almost seeing the drill bit hit his ground.
About a decade ago, he signed a lease with Chief Oil and Gas, which had drawn up plans to put a well pad on his land.
“It was supposedly a Go! Go! well,” he said. “Two weeks later, it
was Sold! Sold! Sold!”
Chief sold Mr. Metheny’s lease to Chevron Corp., which let the contract expire last year without drilling.
When the gas landmen came calling again, Mr. Metheny took more than six months to negotiate a deal.
“I chose Lola because I figured EQT would do just what Chevron did and just sit on it,” he said.
Lola did everything it said it would, Mr. Metheny noted, “except they just sold out.”
“When it comes down to it, it’s all about the money,” he said, not at all begrudgingly.
By financial metrics, the sale was a success, said Jim Crockard, Lola’s founder and CEO. who defected from EQT in 2014 to start his own firm.
That is, everybody who put in money made money. But it wasn’t his decision to sell at this early stage, before even a drop of gas was produced. He suspects the company would have been worth more had it been allowed to actually drill for a few years.
“The notion that a CEO controls every decision that a venture makes just is not true,” he said.
A CEO is beholden to his funders, he said, and most of Lola’s funding came from a $250 million commitment from Denham Capital, a private equity firm.
That was back in 2015, when Lola was competing with Rice and EQT for the natural gas assets of bankrupt Alpha Natural Resources. All three groups lost to Vantage Energy in the bankruptcy auction, but Rice ended up acquiring Vantage for $2.7 billion the following year.
In Greene County, especially during this period of industry consolidation, well pad signs can change as often as billboards.
The Lola sale was being negotiated at the same time as Rice’s two-year courtship with EQT was reaching its climax. According to a registration statement filed with the Securities and Exchange Commission last week, EQT “began a detailed due diligence review of Rice based on both public and nonpublic information” in midApril.
By the end of May, executives at the two firms were in touch nearly everyday, hashing out the details of the $6.7 billion deal.
EQT had previously shown interest in Lola’s assets, Mr. Crockard said, but it’s not clear if the company was involved in Rice’s acquisition of Lola’s 16,500 net acres, mostly in Greene County and Monongalia County, W.Va.
“We don’t have a comment on that,” said EQT’s CEO Steve Schlotterbeck when asked about the Rice/ Lola deal on his company’s earnings call last week. But he didn’t stop there. “I guess my only comment would be we're very familiar with Lola and the assets that they have and they fit very nicely in the core backyard of Greene and Washington counties,” he added.
EQT’s spokeswoman Linda Robertson stressed on Wednesday that until the deal closes later this year, EQT and Rice will continue to operate as separate companies.
Rice did not immediately respond to a request for comment, but is likely to be asked about the Lola deal during a call with analysts Thursday.
Less than a month since the deal closed, Mr. Crockard is working on a sequel to Lola, and he doesn’t intend to venture far from the original model, except for the funding scheme. This time, he’s looking forward to calling the shots.
His LinkedIn bio now reads “Founder and Chief Executive Officer at Coming Soon.”
Recently, Lola’s billboard has been replaced with one welcoming visitors to Waynesburg.
As for Mr. Metheny, he’s onto round three of the waiting game.
“We’re sitting in one of the supposedly hot spots,” he said. “Somebody’s gonna drill. At some point in time.”