Rice Energy Inc. disclosed late Tuesday the terms of a previously announced $500 million equity investment, revealing that the institutional investment firm EIG Global Energy Partners (EIG) would provide $375 million up front for a stake in the company's midstream assets in Ohio and Pennsylvania (see Shale Daily, Dec. 21, 2015).
Now that the deal is complete, the funds would help provide the company with more flexibility during the downturn to grow its midstream business in Ohio's Utica Shale. A larger portion of the investment would go toward funding the producer's 2016 budget, helping it to pay for operations without incurring any debt.
EIG provided the $375 million in exchange for preferred equity in Rice Midstream Holdings LLC (RMH), which is comprised of the company's natural gas gathering assets in Belmont County, OH. EIG also received common units representing an 8.25% limited partner interest in Rice Midstream GP Holdings LP, a newly-formed subsidiary that holds ownership in the company's midstream master limited partnership, Rice Midstream Partners LP (RMP), which operates assets in Southwest Pennsylvania.
Rice said RMH would use $75 million of the proceeds to repay all outstanding borrowings under its revolving credit facility. The remaining $300 million of the initial investment would be distributed to Rice to fund a portion of its 2016 budget in the Marcellus and Utica shales.
In three years, RMH can redeem the preferred equity at a price equal to EIG's invested amount plus any accrued but unpaid distributions. RMH would have another $125 million available from EIG for 18 months. The subsidiary would exchange $25 million of preferred equity for each $25 million it draws from those funds.
Given the commodities downturn and the reservations it has created in the broader market for the oil and gas industry, financial analysts said the deal is a good one for Rice. The company will not have to give up a substantial interest in RMP, while the investment also helps Rice preserve cash flow as it moves forward with its 2016 development program, analysts said.