June 22, 2017
On June 19, EQT Corporation (NYSE:EQT) entered into an agreement to acquire Rice Energy (NYSE:RICE) for 8.2 billion USD. In summary, EQT financing includes 5.4 billion USD in equity, 1.3 billion USD in cash and 1.5 billion USD assuming or refinancing of Rice net debt and preferred equity. According to Rystad Energy data, the deal creates the leading US and Appalachian natural gas producer with the estimated 2017 FY combined production of 3.17 BCF/d (Figure 1). After the merger, EQT will own 670 thousand core net Marcellus acres, 149 thousand core net Upper Devonian and 681 thousand core net Utica acres. The aggregation of acreage positions in Marcellus PA will allow for longer laterals and reduce per unit operational costs.
“Significant improvement is expected in the Green and Washington counties where Rice Energy has recently been able to achieve higher well productivity. Looking at both factors combined, we expect a higher return per well post acquisition. However, high investments from the EQT side may push back planned activity on its own acreage in 2017-2019. We expect a slowdown to kick off at the end of 2017 prior to the synergies realization in 2019,“ says Alisa Lukash, shale analyst at Rystad Energy.
Rystad Energy’s base case valuation shows Rice Energy valued at 8.48 BUSD, which is in line with the deal value. The base case scenario applies a 3.2 USD/kcf gas price, while in the low case, mid case and high case the gas price is 3 USD/kcf, 4 USD/kcf and 5 USD/kcf, for 2017 respectively (Figure 2). Even though the market considers the deal to be overpriced, which is shown by the jump of Rice stock and plummet of EQT, Rystad Energy believe that upstream valuation reflects underlying acreage and technology value of Rice’s assets. In the scenario of favorable post-merger conditions, EQT is expecting 2.5 billion USD in capital efficiencies and G&A synergies.