Everything is better with Rice, says EQT
Pretty much everything at EQT Corp. will be better with Rice, officials at the Downtownbased oil and gas company said on their third quarter earnings call, most of which was spent hyping the proposed $6.7 billion acquisition of Canonsburg-based Rice Energy Inc.
Since EQT announced plans to acquire Rice in June, the company has had “hundreds of conversations” with shareholders, EQT’s CEO Steve Schlotterbeck said on Thursday.
“We’ve listened to our shareholders, and we’ve acted,” he said, ticking off a menu of items to appease some of the concerns voiced most vocally by a New York-based hedgefund Jana Partners.
To review, EQT promised to establish a committee to look into how to extract the most value from the two sides of the business — the gas development part and the pipeline and processing part. It said it would announce a decision on that by the end of the first quarter of 2018. And on Monday,
the company said it will add two independent directors to the board who have midstream experience.
Also, to prove the acquisition isn’t driven by an incentive built into the executive compensation structure that values growth in oil and gas production, EQT did away with that incentive.
Jana has been trying to scuttle the deal because in its view the acquisition interferes with what EQT should be doing first: specifically, splitting off its oil and gas production arm and its midstream business into two separate companies.
In messages to shareholders over the past few months, Jana has tried to pick apart EQT’s rationale.
To counter EQT’s claim that its leases fit like a jigsaw puzzle with Rice’s, Jana recreated maps of southwestern Pennsylvania showing the holes that would still need to be filled in to connect the two companies’ holdings.
“That is part and parcel of what we do everyday,” Mr. Schlotterbeck said on Thursday. “And that won’t change with Rice.”
He said EQT has been spending, on average, about $140 million a year to fill in holes so that it could drill 8,000 foot-long horizontal wells.
With Rice, he said it would take between $100 million and $200 million a year to add acreage that would give EQT the ability to drill 12,000 feet laterals.
He also pushed back on the “noise” with the case of Greene County, where EQT and Rice are the dominant operators and where only 20 percent of the acreage already has gas flowing under it. After their marriage is consummated, EQT will control 57 percent of Greene County, Mr. Schlotterbeck said.
Jana has attacked EQT’s history of acquisitions, specifically in Texas, where EQT is currently trying to unload the acquired assets, and in West Virginia, where the company is slowing drilling to shift capital to its most promising region in southwestern Pennsylvania.
In letter after letter to EQT shareholders, Jana escalated the rhetoric, underlining statements like “blatantly deceptive.”
“Only YOU — the Owners of EQT — Can Stop this Massive Waste of YOUR Money by EQT,” Jana wrote.
EQT officials didn’t name Jana on the call on Thursday, but they used every topic to emphasize how a combination would make the company stronger.
Besides being able to drill longer laterals, Mr. Schlotterbeck said the merger will give EQT better purchasing power and more data on various experiments to improve drilling and completions.
“The deal makes a ton of sense even if we don’t get any of that,” he said.
The shareholders of EQT and Rice are scheduled to vote on the deal on Nov. 9. If successful, EQT expects the deal toclose shortly thereafter.
The other looming event in EQT’s future is the construction of the Mountain Valley Pipeline project, a 303mile natural gas transmission line that will run from WestVirginia to Virginia.
The project cleared a hurdle earlier this month when the Federal Energy Regulatory Commission issued a certificate of convenience — essentially declaring the pipeline to be necessary and in the public interest.
But before the federal agency issues its notice to proceed with construction, EQT must get certain state approvals.
In West Virginia, for example, the state’s department of environmental protection issued a key water quality approval to the pipeline in March but, after several environmental groups filed a petition against it, the agency rescinded the approval and decided to start the process anew last month.
Jerry Ashcroft, EQT’s president of midstream operations, told analysts that he hopes to have the West Virginia matter ironed out next month, and the Virginia approvals in December. That way, he predicted, construction on the pipeline can start in the beginning of next year.
Already, 80 percent of the pipe is in hand, he said. The pipeline is still scheduled to start transporting gas by the end of 2018.
“We don’t see any major obstacles,” Mr. Ashcroft said.