Rice brothers backed again, but deals still up in the air
The Rice brothers have had little trouble finding investors to believe in them.
They did it when they launched their Canonsburgbased oil and gas company Rice Energy Inc. in 2009, and when they sold it to EQT Corp. in 2017 for $6.7 billion. They did it again when Toby Rice spearheaded a shareholder revolt to take the helm of Downtown-based EQT, now the national’s largest natural gas producer, in the summer of 2019.
A year before that, they started the $200 million Rice Investment Group to invest in the kinds of tech they’d want to use as oil and gas operators. Investors went for that, too.
Their latest move may be the biggest trust fall yet — the Rice group just raised more than $200 million by taking public a company that doesn’t yet know what it will do.
It’s called a special purpose acquisition company, or SPAC, and essentially reverses the regular course of going public: First the entity raises public money and then it acquires a business that automatically becomes a publiclylisted company.
This summer, Danny Rice, a partner at Rice Investment Group, and Kyle Derham, another partner and Rice Energy alum, were watching as a record number of SPACs flooded the market.
More than 200 of these blank-check companies have gone public so far this year, raising almost $70 billion, accordingto SPACinsider.com.
The Rice team decided its version would be focused on cleanenergy.
They were already dabbling in that world with some of their portfolio companies. One, Archaea Energy LLC, is a Canonsburg-based firm that produces gas from landfills, which are some of the heaviest emitters of methane in the country. Methane, the main product for oil and gas drillers, is a potent greenhousegas.
Another firm, Arizonabased Persefoni, is a software platform for companies to organize and report their carbon footprints.
Mr. Rice and Mr. Derham thought they understood enough about the energy space to go beyond oil and gas and to shepherd more traditional investors through the energy transition.
In August, they held a kickoff meeting for an “Energy Transition SPAC.” Two months later, the newly formed Rice Acquisition Corp. raised $237 million in its initial public offering.
Now it has two years to acquire a business that will focus on “deep decarbonization.”
‘Clean energy future’
In simple terms, Mr. Rice said, the goal is to go after the stuff that’s not easy to convert to run on electricity. That could mean investing in hydrogen as a transportation fuel or using biological materials instead of fossil fuels as the basis for chemicals. It might be something that helps to outfit heavy industrial emitters with carbon capture.
“We believe the widespread adoption of renewable fuels by major sectors of the economy such as freight, air and marine transportation, residential and industrial heating and power generation and energy storage will create a profound disruption resulting in a very large addressable market,” the company wrote in its prospectus.
With its investment fund — as with Rice Acquisition Corp and the EQT shareholder campaign — the cachet (and the cash) of the Rice family is a selling point. The family holds a large interest in each.
“People really like to see that alignment,” Mr. Rice said.
If the Rices are pumping their own reserves into an energy transition — “we’re still big believers in hydrocarbons,” Mr. Rice interjected — that sends a signal to other investors that it’s time to acknowledge a carbon-constrained world.
“We’re kind of like a cool case study — not that we’re cool — but an interesting case study in folks that cut their teeth on the traditional E&P (exploration and production) side and we’re starting to create our own transition to this clean energy future,” Mr. Rice said.
‘I know because I was one of them’
One of Rice Investment Group’s portfolio companies, LandGate, began as its funders did — rooted in oil andgas but looking beyond it.
LandGate is a digital marketplace for landowners to list their minerals and for potential buyers to browse and offer deals. One of its founders, Yoann Hispa, calls it a Zillow for resources.
Mr. Hispa has pulled together a ton of public data — including where companies have already drilled oil and gas wells and how much those wells are producing — and arranged it in a sleek platform.
Most of the information on the website is free, including how much landowners can expect their minerals to be worth either with current production or if more wells are drilled there. This gives landowners — who are often the least knowledgeable about the value of what lies beneath them — a way to put into perspective what they’re being offered by landmen.
Mr. Hispa used to work for oil and gas companies and for investors interested in mineral sales. “I can see how it’s like real estate two centuries ago. You don’t have access to any data. You don’t know who’s doing what next to you. It’s very opaque.
“It’s a flipper game,” he said. “I know it because I was oneof them.”
In early 2019, LandGate got a call from the Rice Investment Group, which wanted to build an online mineral marketplace and then discovered that LandGate had already done so.
“The RIG guys came in and said, ‘ We love it. Here’s some cash and let’s partner up,’ ”Mr. Hispa said.
Like RIG, LandGate is expanding into areas outside of fossil fuels. By the end of the year, it plans to roll out valuations for solar resources. Then wind rights. Then will come water.
“We think of LandGate as more of a land rights company,” Mr. Derham said. “Oil and gas isn’t there for everybody. It’s really just monetizing the land you have.”
LandGate has 15 employees. To the extent that it’s based anywhere, it’s in Denver, where Mr. Hispa lives with his wife, the company’s marketingmanager.
RIG, too, is now more of a virtual affair. After the EQT shareholder campaign, Danny Rice moved his family to Dallas for “a change of scenery.” Mr. Derham recently moved from Brooklyn to Austin, Texas. Other partners are scattered throug hout the U.S.
The “dojo” — the decked out office in Carnegie where Rice Investment Group came to life among cool gadgets and graffitied art — is still there forin-person meetings.
All in the family
Toby Rice still lives in southwestern Pennsylvania. Since he took the reins at EQT, he’s more of a silent partner at RIG, not involved in its operations and no longer on the boards of portfolio companies.
But he’s now in a position to help them in a different capacity. One RIG-funded company, the Canadian software firm Cold Bore Technologies, is getting a big stage at EQT.
Cold Bore offers a digital platform to monitor and respond to real-time fracking data.
Mr. Rice previously served on the company’s board. He said it’s natural that as CEO of EQT, he would want the hottest takes on oilfield technology. It’s the same thing he pursued at RIG, where, he said last month, “We ended up with some investments that are pretty interesting. And we’re incorporating some of those technologies at our operations at EQT.”
EQT’s old management team, during last year’s proxy battle, sounded alarms about the potential conflicts of interest that might surface when the CEO of a public company has investments in firms that might seek to do businesswith EQT.
The Rice fund didn’t always list its investments on its website, although some of the companies publicized them separately.
Danny Rice, who remains on EQT’s board, said the company’s governance committee evaluates any business relationship with a venture linked into his investment fund.
“I’m not involved in anything with EQT considering or using any of our technologies,” he said.
Mr. Derham, who is also an adviser at EQT, said he believes the fund’s portfolio companies have a harder time getting play at EQT because of the conflict-of-interest controls.
“When we started RIG back in the beginning of 2018, the whole thesis was if we can go back and do it again, there’s a whole lot of new technologies and businesses that didn’t exist,” Danny Rice said.
“Let’s go find those companies. Let’s go build those companies and help everybody else,” he said.
“We’d be doing anybody a disservice if we said [you can’t have this].”