Rice Energy co-founders Toby Rice and Derek Rice on Monday called for a “course correction” at EQT Corp., which they said is severely undervalued and in need of more executives with “proven operational experience” like themselves.
The brothers shared their opinions in a letter to the board of directors barely a year after their family sold Rice Energy Inc. to EQT in an $8 billion deal that helped transform the latter into the nation’s largest natural gas producer. Former Rice Energy CEO Daniel J. Rice IV, who took a seat on EQT’s board when the sale closed last year, did not sign the letter.
The Rice family owns more than seven million shares of EQT. The brothers said they have a plan to generate more free cash flow than EQT is currently guiding for and submitted a presentation to the board highlighting it.
Discussions with management and board Chairman Jim Rohr, have yielded a “lack of reciprocal engagement,” the brothers said. Those conversations, according to the letter, even included a proposal to appoint Toby, Rice Energy’s former COO, to oversee operations.
While they’re prepared to continue discussions, the brothers added that “if we do not arrive at a mutually agreeable outcome that materially benefits all long-term shareholders, we have identified director candidates and will nominate them for election to the EQT board” at next year’s annual meeting.
EQT last month completed an elaborate plan to separate its midstream and upstream businesses that was prompted by the Rice Energy acquisition and the complexities it created. The move also came partly in response to investors who pushed for more value.
A series of management shake-ups also has radically changed the face of the company. EQT’s general counsel, CEO, chief investor relations officer and president of exploration and production, among others, all left the company this year. Former CFO Robert J. McNally was named the company’s CEO in August.
“EQT is a refreshed company with a new management team, new operating plan and substantially reconstituted board,” spokeswoman Linda Robertson said in response to the letter. “The company is focused on achieving profitable growth by driving operational efficiency, solid free cash flow, balance sheet strength, disciplined capital allocation and the realization of synergies. We are confident that EQT is taking the right steps to deliver superior value.”
The letter comes as EQT prepares to roll out 2019 guidance on Thursday. The company was forced to cut its 2018 production guidance and increase spending after a frenzied stretch of drilling in the wake of the Rice acquisition put stress on its supply chain, logistics, pad operations and sent costs soaring.