Rice Brothers Want To Run EQT

You can’t beat a proxy fight. Listening to the bombastic charges leveled by both sides against the other, rhetoric spewed at the highest level — nothing beats a company’s management team and board facing off against outsiders. Monday morning, the wraps were pulled off a potential proxy fight in the oil and gas industry. Toby Z. and Derek A. Rice told independent producer EQT Corp. they aren’t satisfied with the direction of the Pittsburgh-based E&P player. It’s early in the potential proxy fight process; the Rices are suggesting improvements they believe will make EQT more efficient, return more on investment, and generally tighten the producer’s modus operandi. But the letter makes it clear: Should EQT pooh-pooh the Rice proposals, including installing Toby Z. as head of operations, and placing more experienced O&G people with plenty of planning expertise, are placed on the board and in the executive offices, fireworks are possible. EQT, for its part, is being polite: “EQT is a refreshed company with a new management team, new operating plan and substantially reconstituted board,” according to a requested comment from the company on the Rice boy’s moves. “The company is focused on achieving profitable growth by driving operational efficiency, solid free cash flow, balance sheet strength, disciplined capital allocation and the realization of synergies. We are confident that EQT is taking the right steps to deliver superior value.” Remember, it’s early. While the $8.2 billion cash, stock and assumed debt deal EQT put together to acquire the smaller but highly successful Rice Energy made EQT the largest natural gas producer by volume in the U.S., the Rices as EQT investors aren’t satisfied with size. Yes, they want returns on the market value of their 7-plus million shares of EQT stock, but they also need the company that carried their surname to carry on – not under that name, but in success in the field, on the pad, in the individual well drilled. “EQT must add proven operational experience to the board and senior management team – in particular, individuals with experience in large-scale operational planning,” the Rices recommend. Rice Energy before its acquisition was one of the most successful independent producers of its size in the industry. And much of that success dealt with planning – Rice executives were fanatical when it came to pre-planning of every move involved in D&C – much more than most of its peers. Its executives were often conference speakers, telling the Rice story on how efficiency leads to prosperity. “EQT should improve planning through a coordinated operations schedule to reduce costs of drilling and subsequent derivative operations (e.g., completions, production, marketing, etc.),” states the PowerPoint presentation the Rices have put together in their quest to improve EQT (found online at eqtpathforward.com). Analysts contacted by Kallanish Energy on the EQT-Rice situation said they weren‘t surprised by the Toby and Derek letter and PowerPoint, and that there was little doubt the production wasn’t spur of the moment. “The timing of the release comes before EQT’s conference call this Thursday to discuss the company’s 2019 capital program and updated analyst presentation,” Sameer Panjwani, director, Equity Research with Tudor Pickering Holt, tells Kallanish Energy. “I would be very surprised if this situation is not brought up during that call.” Panjwani told Kallanish Energy the Monday release of the letter to the board and accompanying PowerPoint will be additional pressure on EQT to reveal more details on the direction the company intends to move – and how it intends to get there. “We have a proven, detailed business plan to generate an incremental $400-$600 million of pre-tax free cash flow per year above EQT’s current plans, equaling greater than $1.0 billion of free cash flow per year,” the Rice’s presentation states.“ This plan would match EQT’s current five-year production goals but generate twice the cash flow for shareholders.” The Rice letter states that over the past few weeks, in response to repeated outreach by a number of EQT investors asking for their assistance, the Rices engaged in private discussions with EQT chairman Jim Rohr and CEO Rob McNally “to express our concerns and propose solutions, which included, among other things, inserting Toby Rice into the organization with proper authority and support to oversee operations. “Unfortunately, given the lack of reciprocal engagement – and EQT pushing forward with establishing its 2019 operational plan and budget – it has become apparent that they are unwilling to make the changes needed.” The Rices quietly state that should the EQT board and company executives refuse to act upon the Rice recommendations, “we are prepared to nominate identified director candidates for election to the EQT board, if necessary.” “We have been talking to a number of EQT investors, and there appears to be a great deal of support for the Rice team: Tudor Pickering Holt’s Panjwani told Kallanish Energy. “Their proposal is not going away anytime soon.” There is one more unique twist to the potential EQT-Rice boys’ proxy fight. Of EQT’s 12 board members — certainly one not likely to lose his seat to someone with more E&P and planning experience — is Daniel J. Rice IV, former Rice Energy CEO. Joe Barone President Shale Directories, LLC

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