Rice wins control of EQT
Proxy battle puts new leadership in charge of the nation’s largest oil and gas company
Toby Rice has taken control of EQT Corp., nine months after launching a fast- moving campaign to replace the oil and gas company’s leadership and less than two years after selling his company, Rice Energy Corp., to EQT.
In a vote tallied at EQT’s annual meeting Wednesday, the Downtown company’s shareholders overwhelmingly voted to turn over control of the company to seven candidates nominated by brothers Toby and Derek Rice and five others nominated by EQT, including a third brother, former Rice Energy CEO Danny Rice.
The action gave an edge to directors who had vowed to replace current EQT CEO Rob McNally with Toby Rice — a move that came later Wednesday. They also replaced EQT’s general counsel, Jonathan Lushko, with William Jordan, a former Rice executive.
Mr. Rice has said he has 15 former Rice Energy executives on standby to take over the top functions of the company. But on Wednesday, he suggested the executives may not be replacing as much as augmenting the current management structure.
His first two weeks will be about “gathering feedback” from EQT’s employees, Mr. Rice said. Eventually, there will be a town hall meeting and with “only 800 employees,” Mr. Rice said, “it’s perfectly reasonable for us to expect” to connect with each one. At Rice Energy, the brothers were known to remember at least one fact about each employee. EQT’s current employment count is about 850.
Mr. Rice and his brothers started Rice Energy Inc. in 2008 and grew it into a public company with nearly 600 employees by the time they sold it to EQT in 2017 for $ 6.7 billion. Rice shareholders received a combination of cash and EQT shares proportional to their holdings. Some of those shareholders — a majority if the vote tally is a reflection — were unhappy with how EQT performed after the acquisition.
EQT faced some shareholder opposition to that acquisition, including from hedge fund D. E. Shaw, which was the first to come out in favor of Team Rice in the current proxy battle.
The dissident campaign went public after EQT announced disastrous results for the third quarter of 2018, telling investors it blew its capital budget by $ 300 million in a rush to drill long horizontal wells enabled by combining EQT’s land holdings with Rice’s.
The public challenge followed a brief behind- thescenes period during which Mr. Rice reached out to EQT’s board of directors and offered himself as a turnaround agent. Within weeks, however, Team Rice told shareholders that it would nominate its own candidates for the board of directors and, if successful, those candidates would install Mr. Rice as CEO.
His voice breaking at times as he announced news of the Rice win, Mr. McNally praised his management team, the previous board, and the company’s employees, who “pulled together and accomplished a great deal over the last seven months.”
“EQT’s management team came in at a difficult time,” Mr. McNally said in brief, prepared remarks. “While this is not the outcome we had hoped for, I’m confident that the steps we have taken and the progress achieved in the past seven months has put EQT in a position of strength.”
The CEO had been under constant pressure to prove himself since November. Even as the company highlighted improved results during the first quarter this year, the Rice effort appeared to gain momentum with three of the top shareholders publicly pledging their support for the Rice team and influential proxy advisory firm Institutional Shareholder Services coming out in its favor.
EQT’s management won approval from the other major proxy consultant, Glass Lewis, but no shareholders announced their support before the meeting.
In a joint statement, EQT and the Rice team said about 80% of the company’s shares were cast in favor of the Rice slate.
Even before Wednesday’s vote, the dissident effort succeeded in nudging the retirement of EQT’s three longest- serving directors, including its chairman, Jim Rohr.
The newly elected board includes Lydia Beebe, Philip Behrman, Lee Canaan, Janet Carrig, Kathryn Jackson, John McCartney, James McManus II, Anita Powers, Daniel Rice IV, Toby Rice, Stephen Thorington and Hallie Vanderhider. Mr. McCartney has been designated chairman of the board.
EQT’s management has warned that the kind of leadership change promised by the Rice team would be disastrously disruptive for the company. After all, EQT has been through three CEOs in as many years and had recently corrected course, the company told investors during the proxy campaign.
In an interview with the Pittsburgh Post- Gazette last month, Mr. McCartney said too much has been made of the potential disruption.
“There will be transformation at EQT, which I believe will be extremely positive,” he said. “Fifteen people is not an awful lot. And a number of these people will help build and fulfill roles that aren’t present at EQT, especially at IT and operations planning.”
Mr. McCartney said the key will be to bring to EQT the culture of Rice Energy, where he sat on the board of directors from 2015.
“The Rice team is not proposing to do anything more than what they’ve achieved at Rice,” Mr. McCartney said. “That’s what this campaign is basically all about: a proven set of operators against a team that has not been able to do anything with the best assets in the basin.”
Mr. Rice has promised to bring a “shalennial” mindset to EQT. He came up with the term while at Rice Energy and though the definition has varied — in fact, each floor at Rice’s headquarters had a white board where employees were encouraged to write their own definitions — it connotes a young, tech- minded approach to oil and gas.
His first- day speech has already been ready for weeks, Mr. Rice said earlier this month.
The Rice family owns more than 3% of EQT stock, which closed Wednesday at $ 15.94 a share. Mr. Rice said last week that Danny Rice, who has been on EQT’s board since the 2017 acquisition, will remain in that role.
“I think Danny’s content as a board member,” Mr. Rice said.
Danny Rice agreed on Wednesday. “This is Toby’s show,” he said.
Derek Rice, a petroleum geologist, will be part of the team helping to “stand up” the new development plan. Once that’s completed, Mr. Rice said, he envisions his brother assuming the role of an ideas man — surveying the oil and gas horizon, pulling out best practices and coming up with new ones for EQT.
Team Rice previously announced it would have an “evolution committee” comprised of the three Rice brothers and two other former Rice Energy employees shepherding the transition. On Wednesday evening, the team released a statement saying that “members of EQT’s leadership team” will also be part of the group.
“The evolution committee is dedicated to executing a smooth but expeditious transition to reconstruct the company’s organization, technology, and operations,” the statement said.
The change in control will put the Rice brothers back in charge of hundreds of their former employees, their old wells and the landowners they signed leases with.
“Now is the time to put this proxy contest behind us and come together as one team to transform EQT into a technology- enabled, sustainable energy producer,” Mr. Rice said in a statement handed out at EQT’s meeting.
Toby Rice, left, arrives at EQT’s annual meeting Wednesday morning. Mr. Rice took charge of the nation’s largest oil and gas company after a nine- month campaign to replace the firm’s leadership.
Activists from Pittsburgh and participants in West Virginia’s Yellow Finch Tree Sit, a group that opposes EQT Corp.’ s Mountain Valley pipeline, protest Wednesday outside EQT’s annual shareholder meeting in Downtown.