Rice Energy (RICE) Acquires Vantage Energy in $2.7B Deal; FY16 Outlook Updated

September 26, 2016 4:03 PM EDT
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Rice Energy Inc. (NYSE: RICE) announced it has entered into a purchase and sale agreement ("PSA") to acquire Vantage Energy, LLC and Vantage Energy II, LLC (collectively, "Vantage Energy") for approximately $2.7 billion, including the assumption of debt. In connection with the acquisition, Rice Midstream Partners LP (NYSE: RMP) ("RMP") will purchase the acquired midstream assets from Rice Energy for $600 million. The transaction is expected to close in the fourth quarter of 2016, subject to customary closing conditions.

The E&P assets to be acquired by Rice Energy include approximately 85,000 net core Marcellus acres(1) in Greene County, Pennsylvania, with rights to the deeper Utica Shale on approximately 52,000 net acres and 37,000 net acres in the Barnett Shale. Second quarter 2016 net production of the acquired assets was 399 MMcfe/d (approximately 65% Appalachia, 35% Barnett). The core midstream assets to be acquired by RMP include 30 miles of dry gas gathering and compression assets. As part of the transaction, Rice Energy will dedicate the acquired Pennsylvania acreage to RMP to provide gas gathering, compression and water services.

Transaction Highlights

  • Core acquisition with organic upside potential
  • Expands high return inventory of drilling locations by 66%
  • Leasehold is approximately 50% held or owned in fee
  • Extends RMP's 20% distribution growth target through 2023
  • Immediately accretive and credit enhancing to both E&P and RMP
  • Positions Rice Energy as the premier dry gas Appalachia company with 231,000 net acres, approximately 70% 2017 estimated production growth and 2017 estimated leverage of less than 2.5x

Following this transaction, Rice Energy will control approximately 231,000 net acres in the Marcellus and Ohio Utica cores with an inventory of 1,164 drilling locations that generate average single well returns of approximately 95% at strip pricing. Similarly, Rice Midstream Partners will control one of the largest and most concentrated core dry gas acreage dedications in the Marcellus Shale, covering approximately 199,000 acres in Washington and Greene Counties.

Daniel J. Rice IV, Chief Executive Officer, commented, "This deal represents the largest core dry gas Marcellus acquisition to date, one that is truly transformational for Rice Energy, Rice Midstream Partners and our respective shareholders. This acquisition adheres to our proven strategy of pursuing core shale gas acreage, leveraging our industry-leading technical shale team to deliver best-in-class well results and capturing a greater share of the value chain through our premier midstream services business. Our transaction financings are meant to strengthen Rice Energy's balance sheet even further, including positioning us to capture an additional 20,000 – 40,000 acres of leasehold adjacent to our existing position. Our proven success developing the Marcellus Shale in Greene County gives us tremendous confidence in our ability to generate meaningful growth and create substantial value on the acquired assets for both Rice Energy and Rice Midstream Partners, and we look forward to seamlessly integrating the acquired assets into our leading-edge shale development in Appalachia."

Roger Biemans, CEO of Vantage Energy, said "Vantage, together with its three sponsors – Quantum, Riverstone, and Lime Rock – has assembled one of the largest and most attractive core dry gas positions in the Marcellus Shale. We believe the combination of Rice and Vantage creates the premier natural gas company in the country. Rice will have a multi-decade inventory of the most economic dry gas in North America, a tremendous growth story for its midstream business, and a management team that has proven its ability to execute on its strategy."

1. Includes approximately 5,000 net royalty acres, the majority of which are leased to Rice Energy.

Transaction Terms and Financing

Pursuant to the PSA, Rice Energy Appalachia LLC ("REA"), a wholly-owned subsidiary of Rice Energy, will acquire from Vantage Energy Investment LLC and Vantage Energy Investment II LLC (collectively, the "Vantage Sellers") their ownership interests in Vantage Energy for aggregate consideration at closing of approximately $2.7 billion. Total consideration consists of approximately $1.02 billion in cash, the assumption and retirement of assumed net debt of approximately $700 million and the issuance of membership interests in REA that are immediately exchangeable into approximately 39.1 million shares of common stock of Rice Energy, valued at approximately $980 million. The issuance of membership interests in REA will allow for tax deferral of the equity portion of the consideration paid to the Vantage Sellers.

Concurrent with Rice Energy's acquisition of Vantage Energy, Rice Energy entered into a purchase and sale agreement with RMP, pursuant to which RMP will purchase the midstream assets associated with the Vantage acquisition from Rice Energy for aggregate consideration of $600 million. RMP intends to fund the midstream asset acquisition through borrowings under its revolving credit facility and potential equity and debt financings prior to closing, or the issuance to Rice Energy of up to $250 million of RMP common units representing limited partner interests.

These acquisitions are expected to close concurrently in the fourth quarter of 2016, subject to customary closing conditions.

Evercore acted as financial advisor to Rice Energy's Board of Directors. Wells Fargo Securities, LLC and Barclays Capital Inc. provided committed financing to Rice Energy and RMP's upsized revolving credit facilities. Latham & Watkins LLP served as legal counsel to Rice Energy. Simmons & Company International | Energy Specialists of Piper Jaffray served as exclusive financial advisor to the conflicts committee of RMP and provided a fairness opinion for the midstream asset acquisition by RMP. Akin Gump Strauss Hauer & Feld LLP served as legal counsel to the conflicts committee of RMP. Goldman Sachs acted as financial advisor to the Vantage Sellers. Vinson & Elkins LLP served as legal counsel to the Vantage Sellers.

Guidance

Rice Energy has updated its 2016 capital budget and guidance pro forma for the anticipated fourth quarter 2016 transaction closing. Our Marcellus drilling and completion capital investments increased by $40 million to reflect ongoing activity on the acquired acreage. Our land capital budget increased by $35 million, as a result of anticipated successful organic leasing and leasehold costs associated with the acquired acreage

2016 Capital Budget ($ in millions)

2016 Production Guidance

E&P

Net Production (MMcfe/d)

755 – 775

Operated Marcellus

$

270

% Natural Gas

100

%

Operated Ohio Utica

$

240

% Core Marcellus

65

%

Non-Operated Ohio Utica

$

90

% Core Utica

35

%

Total Drilling & Completion

$

600

% Operated

85

%

Land(1)

$

135

Total E&P

$

735

Rice Midstream Holdings LLC

$

155

1. Excluding acquisitions.

2017 Preliminary Outlook

In addition, Rice is providing a preliminary 2017 outlook pro forma for the Vantage Energy acquisition. We expect our drilling and completion budget to be within a range of $950 – $1,125 million. Furthermore, we expect 2017 net production to be within a range of 1,280 – 1,355 MMcfe/d, which is approximately 70% above our increased 2016 estimated net production, based on the mid-point of guidance.

Conference Call

Rice Energy and Rice Midstream Partners will host a joint conference call on September 27, 2016 at 10:00 a.m. Eastern time (9:00 a.m. Central time) to discuss this strategic transaction. To participate in the live audio call, please dial 1-888-317-6003 and enter passcode 0936767. A replay of the conference call will be available for two weeks and can be accessed from www.riceenergy.com and www.ricemidstream.com. A simultaneous webcast of the call and slides summarizing the transaction may be accessed at www.riceenergy.com and www.ricemidstream.com.



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