Toby and Derek Rice continued their quest for control of EQT Corp. on Tuesday, telling shareholders during a conference call that they could easily extract more value from the company’s massive Appalachian position because they’ve done it before. EQT again disagreed.
“While our plan is very straightforward, executing it requires experience and a track record of operating at scale in true manufacturing mode,” said Toby, who served as COO of Rice Energy Inc. before EQT acquired the company in 2017 to become the nation’s largest natural gas producer. “This is not a personal attack on the current management team, but they simply do not possess the necessary experience or track record to navigate this path forward.”
During the wide-ranging call, the brothers offered a point-by-point rebuttal of EQT’s 2019 plans and the company’s dismissal of their strategy. The Rice team talked as if it were running the company, fielding questions from leading investment banks and research firms.
Under their plan, EQT CEO Robert McNally, who took over in November after orchestrating the spin-off of Equitrans Midstream Corp. as CFO, would be ousted. Toby would take over as chief and be joined by about 15 former Rice Energy “leaders.” The board must also be reconstituted, the brothers said, adding that they’ve identified “highly-qualified candidates” for election at EQT’s annual meeting, which has yet to be scheduled.
“EQT has a rich history, which I respect,” Toby said. “However, with history comes some baggage, bureaucratic processes, silos and old systems and dated technology. These are the self-described issues that the company has been trying to address for years to no avail. And these are the issues the company must address in order to reach its full potential.”
The brothers think they can cut 25% of the current costs and deliver $500 million of cash flow over EQT’s current plan, which calls for $350 million this year and at least $2.7 billion through 2023. The goal, Toby said, is to make the company the lowest-cost operator in the country. The company’s current plans, he claimed, would make it one of the highest-cost operators.
To do this, EQT must reduce its well costs from the $1,250/foot it spent in 2018 to the $735/foot that a Rice management team would target. A new vision is also needed for the 130 year-old company. New people and a technological transformation driven by applications developed at Rice Energy would drive that part of the change, Toby said.
Finally, the company must be more effective at planning and gaining efficiencies, improving rig mobilizations, scheduling and drilling performance to help ease the midstream constraints that have dogged EQT and cost it cash flow. The current management team has a plan to resolve those issues by year-end 2020, which the Rice brothers said is too long.
The brothers gained control of about 3% of EQT after the $8 billion sale of their family business and launched a proxy fight in December. The war of words started shortly after EQT missed its targets in 3Q2018, forcing management to cut guidance and increase spending. It was then, Toby said, that “major EQT shareholders” approached him to find a better path forward.
“We disagree with the analysis put forward by the Rices and look forward to continuing our discussions directly with shareholders,” EQT spokesperson Linda Robertson said. “EQT remains focused on reducing costs and generating substantial free cash flow to create further value for EQT shareholders.”
Over the last 18 months, EQT has gone through a radical change to become a gas powerhouse that now produces more than 1 Tcf annually. Its management has completely changed, with a number of top positions vacated and filled last year.
McNally, who refers to EQT as a “new company,” has downplayed the Rice plan, saying along with the board that the brothers’ ideas are better suited for a smaller company and fail to take into consideration the scale of the operations. Leadership has also questioned the experience of the brothers themselves, both of whom are in their 30s.