SEE HOW THEY RUN
After building Rice Energy into a shale and gas power, then selling it to rival EQT Corp., brothers Toby, Derek and Danny are back in charge.
The three Rice brothers who built Rice Energy into a shale gas power and sold it to their bigger Pittsburgh rival EQT Corp. could have rested on their laurels as young billionaires.
Instead, unsatisfied with the direction of the expanded EQT, they leveraged their 3 percent ownership of the combined company to stage an internal coup, successfully taking control of the board via a proxy war and installing one of the brothers as the new chief executive on Wednesday.
The now-ousted EQT management essentially made the brothers out to be three blind mice, proposing unrealistic business plans that didn’t mesh with the real world. Now, we’ll get to see how they run.
Sorry for the corny nursery rhyme quip. It’s about as eye roll-inducing as the brothers describing themselves as innovative “shalennials.” That is, they’re 30-something millennials taking over a major shale energy firm.
What happens next is a mystery. While the Rice brothers are somewhat unique, it’s still a shot across the bow for energy companies that dare go against the wishes of their major investors and risk a shareholder revolt.
After all, the Rice brothers only succeeded because they had the backing of major EQT shareholders such as T. Rowe Price and activist investor Paul Singer of Elliott Management. Some of them were still frustrated by EQT’s decision in 2017 to extend itself and buy Rice for $6.7 billion in the first place.
Since then, EQT’s stock has under performed. The company struggled to make a profit and exceeded its spending estimates. The brothers pitched an investor-friendly model of cost efficiency, greater cash flow and stronger returns for investors at a time when Wall Street is demanding discipline and conservatism from shale oil and gas firms. Rightly or wrongly, the shale sector has developed a reputation of overspending and under-delivering — even while churning out increasingly larger volumes of oil and gas.
At least in the short term, risk isn’t being rewarded. The Rice brothers on the other hand took a risk by preaching playing it safe, although the now-ousted EQT leadership had argued the company was righting the ship after going through a difficult merger integration phase.
There are numerous other examples, but let’s just look at the latest big deal.
Houston’s Occidental Petroleum outbid Chevron to buy The Woodlands-based Anadarko Petroleum for $38 billion in a seemingly David-versus-Goliath victory.
Oxy’s reward? Its stock has plunged 25 percent since the bidding war went public and famed corporate activist Carl Icahn has launched a proxy contest to replace nearly half of the Oxy board, arguing the pending acquisition is foolhardy and far too risky. While Oxy may prove itself correct in the long run with the big Anadarko win, it’s certainly created a lot of near-term turmoil, even if Icahn is unlikely to prevent the sale from closing.
But it’s hard to criticize the Rice brothers for now. Toby, Derek and Danny Rice started their company more than a decade ago with seed money from their wealthy investment banking father. After growing the company, in 2014, the family became billionaires when they took Rice Energy public. And just three years after that, they sold to EQT to create arguably the largest independent natural gas producer in the country.
Now, they’ve managed to take over the bigger company. But EQT’s Wall Street value has fallen to almost $4 billion, which is well less than the Rice deal. So let’s see how they run it. Umm, sorry again for that.