Rice Energy Inc. said Monday that it would sell a $500 million interest in its midstream holdings to an unnamed energy infrastructure fund, stopping short of disclosing terms of the deal before it's completed early next year.
The investment would give Rice a cash injection as it battles the commodities downturn. It said it would use about $375 million of the proceeds to pay down debt under Rice Midstream Holdings LLC's (RMH) $300 million revolving credit facility, of which $152 million was drawn at the end of the third quarter. A portion would also be used to help fund the producer's development program in the Marcellus and Utica shales next year.
Non-binding terms call for the infrastructure fund to invest up to $500 million in preferred equity into RMH and common equity into a new subsidiary, GP Holdings, which would hold ownership in Rice Midstream Partners LP (RMP). RMP went public late last year (see Shale Daily, Dec. 8, 2014). The deal is expected to close in 1Q2016.
"This planned transaction strongly positions Rice to fully fund its 2016 [exploration and production] budget with cash on hand and operating cash flow," said Rice CFO Grayson Lisenby. "The undrawn commitment will provide flexibility to continue to grow our midstream business in the core of the Utica."
An Appalachian pure-play exposed to the region's squeezed natural gas prices, with all of its primary assets located in just three counties of Southwest Pennsylvania and Southeast Ohio, Rice has underperformed its peers in recent weeks. It's stock price has fallen 37.5% since the beginning of the month, compared to an average drop of nearly 22% in the share price of its Appalachian peers. Financial analysts said the sale would help to relieve the funding concerns of investors as Rice prepares to unveil its budget and plans for next year.
The deal is the latest liquidity enhancing event for Rice, which also announced in October a $640 million midstream joint venture (JV) in Ohio with Gulfport Energy Corp. (see Shale Daily, Oct. 8). That JV is expected to fund much of Rice’s midstream spending next year and give it a stronger position in the market by increasing growth potential and creating more dropdown opportunities for RMP.