EQT Rubbishes JANA Claims On Rice Energy Buyout Synergies
Zacks Investment Research | Oct 16, 2017 09:46PM ET
Upstream energy player, EQT Corp (NYSE:EQT) has falsified investment banker JANA Partners LLC’s claims that the presentation of the combined acreage post EQT and Rice Energy Inc. (NYSE:RICE) merger is deceptive and that the existence of non-contiguous acreage (enclosed within the pro-forma footprint of the combined company) cannot lead to the declared operational synergies.
EQT has stated that the anticipated acquisition of Rice Energy signifies a critical planned opportunity. The company will receive an unparalleled asset position and superlative inventory, in one of the most prolific natural gas basins in the United States. EQT's Board and management strongly believe that the acquisition will add and enhance value shareholders value.
EQT’s presence in the Appalachian Basin dates back to nearly 13 decades. The company has drilled over 2,500 horizontal wells. Markedly, the longest lateral in the Marcellus at 17,400 feet was also drilled by it. In fact, it is an industry practice to handle any non-contiguous acreage requirements through well path adjustments, smaller bolt-on acquisitions and tactical fill-ins. All these are part of the company’s current development plan at a projected cost of about $200 million, annually.
Moreover, there are small-scale acreage trades between operators that are used to fill in gaps. These methods are regularly used by EQT and other Appalachian operators to assemble their respective development programs. Given the multitude of legacy natural gas leases across Appalachia and the historical ownership of land in the region, it is common for small acreage plots to hold multiple of legacy natural gas leases.
The combined Rice Energy-EQT acreage profile was appraised comprehensively. Based on its development plan, which consists of the cost of tactical fill-ins, the company is certain it will attain identified synergies amounting to $2.5 billion. EQT has stated that JANA’s claims of deception regarding the anticipated benefits of the merger are inaccurate. The acreage acquisition strategy is a standard initiative among Appalachian operators.
JANA believes that shareholders are torn between these two claims. However, EQT counteracted the notion by stating that the approval of the Rice Energy transaction will boost the company’s ability to unlock value by improving the competitive positioning of its key businesses and increasing optionality. As announced earlier, on the completion of the acquisition, EQT will set up a committee of the Board of directors to assess options for addressing the company’s sum-of-the-parts discount. A decision by the board is expected by the end of the first quarter of 2018.
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