EQT to acquire Rice Energy for $6.7 billion

PITTSBURGH — Two of southwestern Pennsylvania's biggest oil and gas drillers are becoming one in a $6.7 billion acquisition.

EQT Corp., a Pittsburgh-based firm, is buying Canonsburg-based Rice Energy Inc. in a deal that EQT says will make it the largest natural gas producer in the country. The acquisition will draw EQT's focus even more to Washington and Greene Counties outside Pittsburgh, where much of Rice's acreage zigzags EQT's.

The deal includes all of Rice's exploration and production assets as well as its interest in several midstream master limited partnerships that operate natural gas gathering and compression assets and water pipelines.

It's not clear yet what will happen to Rice's 500 full-time employees, although layoffs are expected.

"As with any merger or acquisition, workforce reductions are often necessary in order to capture synergies," said Linda Robertson, a spokeswoman for EQT.

For EQT, the deal is emblematic of a more mature phase of shale gas development.

"I'm a strong believer that the 'grow as fast as you can at any cost' model, while probably necessary at early stage in shale revolution, doesn't work anymore," EQT CEO Steve Schlotterbeck said during a conference call with analysts Monday morning.

Instead, EQT will settle into a slower growth rate and will start to think more about other aspects of the natural gas business, including gas processing.

And, in the next few years, it will look for ways to get more money back to shareholders, whether through buying back some of the company's stock or reestablishing a "meaningful dividend" program.

A more concrete plan will trickle out over the coming months, during company presentations and earnings calls, Schlotterbeck said.

Rice's footprint includes dry-gas areas of Greene and Washington Counties in Pennsylvania and in Belmont County, Ohio, where Rice drills in the Utica Shale formation. Much of its southwestern Pennsylvania acreage is next to where EQT already drills or owns land, which the company says will mean it can drill much longer horizontal wells after the deal closes.

With the combined companies, EQT will control 231,000 acres in Greene County and 122,000 acres in Washington County.

With this much land so close together, EQT will be able to extend the length of its horizontal wells from an average of 8,000 feet to 12,000 feet, which will bring a greater return for each well, the company said. It will also mean fewer, but larger, well pads and more wells per pad.

EQT will likely sell off Rice's holdings in the Barnett Shale formation in Texas, Robertson said.

As part of the deal, Rice shareholders will receive $5.30 and a third of a share of EQT stock for each share of Rice they own. EQT will also take on $1.5 billion in debt.

While analysts continued to hound EQT about a deal of this magnitude, the company hadn't let any such intentions slip.

Schlotterbeck's predecessor, Dave Porges, who retired earlier this year, was fond of saying that cash isn't burning a hole in EQT's pocket. Company leaders consistently said in earnings calls that EQT was far less likely to buy a whole company and would probably continue looking for chunks of land to fill out holes in its territory — smaller deals that could be financed with cash on hand.

But as EQT was looking to fill in its acreage, Rice's holdings were "as good a fit as any," Schlotterbeck said.

Analysts from Stifel Nicolaus issued a note saying that "EQT buying Rice makes the most sense of any merger in-basin due to adjacent acreage, technical and midstream synergies."

The Rice acquisition might require EQT to issue bond debt, its officials said Monday.

The companies expect the deal to close in the fourth quarter. Shareholders must still approve the deal.

Over the last decade, EQT Corp. has transformed itself from a utility-focused company to a major shale gas driller and pipeline company.

Rice Energy, since its founding in 2007 by three young brothers, always had the feel of a young player; its wells are named after superheroes.

EQT shares closed down 8.95 percent ($5.26) at $53.51. Rice closed up 24.78 percent ($4.88) to $24.57.