Rice wins con­trol of EQT

Proxy bat­tle puts new lead­er­ship in charge of the na­tion’s largest oil and gas com­pany

Pittsburgh Post-Gazette - - Front Page - By Anya Lit­vak

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.

An­drew Rush/ Post- Gazette

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.

An­drew Rush/ Post- Gazette

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.

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