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Rice Energy to Acquire Vantage Energy in $2.7B 'Transformational' Deal

Rice Energy Inc. said late Monday that it has agreed to acquire Vantage Energy Inc. subsidiaries in a $2.7 billion deal that would give it entry into the Barnett Shale of North Texas and significantly expand its Marcellus and Utica shale position in Greene County, PA, where Vantage had been the largest leaseholder.

The assets being acquired from Vantage Energy LLC and Vantage Energy II LLC include 85,000 net Marcellus acres in Greene County, which also include 52,000 net acres that are prospective for the Utica. Rice, which went public in 2014, will no longer be an Appalachian pure-play with the acquisition of Vantage's 37,000 net acres in the Barnett.

The company's midstream master limited partnership, Rice Midstream Partners LP (RMP), would pay Rice Energy $600 million for Vantage's midstream assets acquired in the deal, which include 30 miles of dry gas gathering and compression assets in Greene County.

The deal would boost Rice's position in the Appalachian Basin to 231,000 net acres and 1,164 drilling locations. It also holds land in Washington County, PA, and Belmont County, OH. The deal would also give RMP one of the largest and most concentrated core dry gas acreage dedications in the Marcellus, covering 199,000 acres in Washington and Greene counties.

"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," CEO Daniel J. Rice said.

Rice said the deal is expected to close in the fourth quarter. The company would pay $1.02 billion in cash, assume debt of $700 million and issue membership interests in subsidiary Rice Energy Appalachia LLC to Vantage, which is backed by the private equity firms Quantum Energy Partners, Riverstone Holdings and Lime Rock Partners. Those interests could then be exchanged for common stock in Rice Energy valued at $980 million.

Rice said RMP would fund the midstream acquisition through borrowings under its revolving credit facility and possible equity or debt financing. Rice announced that it would issue 40 million shares of common stock to help fund its part of the acquisition.

Vantage had recently filed a prospectus with federal regulators to raise $100 million in an initial public offering (see Shale DailySept. 15). Two years ago, it withdrew a $400 million offering as the commodities downturn escalated and the markets grew cold to the upstream sector. At that time, the company said it would explore its options. It didn't rule out a sale.

Interestingly, Vantage outbid Rice in May for bankrupt coal producer Alpha Natural Resources Inc.'s  27,400 Marcellus acres in Greene County, offering to pay $339.5 million for the assets in bankruptcy, or $140 million more than Rice had offered up in a stalking horse bid (see Shale DailyMay 17).

Rice said the assets it's acquiring produced 399 MMcfe/d in the second quarter, with about 65% of that coming from Appalachia. The company said Monday that it would increase this year's drilling and completion budget by $40 million to reflect ongoing activity on the acquired acreage before year's end and increase its land capital budget by $35 million. About 50% of the leasehold being acquired is held or owned in fee.

Rice also said that it expects next year's drilling and completion budget to be within the range of $950 million to $1.1 billion, adding that the deal could push 2017 year-over-year production up by 70% to 1.280-1.355 Bcfe/d.

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