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Activists Seizing Control of EQT Need to Soothe Wary Shale Investors


By Scott Deveau and Naureen S. Mal

July 10, 2019

The activist shareholders who have seized control of EQT Corp., the largest U.S. natural gas producer, have a lot to prove to shale investors burned by lousy earnings and busted budgets.

Brothers Toby and Derek Rice, who sold their company to EQT about two years ago and together own 3% of the explorer’s shares, won seven seats on the 12-member board. At its first meeting Wednesday, the new board named Toby Rice president and chief executive officer. John McCartney was elected chairman, and William Jordan was appointed general counsel, replacing Jonathan Lushko. All the elected directors won more than 80% of the votes cast.

“The shareholders provided overwhelming support to us,” Toby Rice, 37, told reporters after the meeting. “One of the key focuses of our campaign was changing out leadership, and that starts with the CEO.”

The dissidents’ victory in the nine-month battle for EQT highlights the urgency for shale producers to demonstrate that they can translate drilling success into shareholder returns. While gas explorers have been remarkably adept at ramping up output and turning the U.S. into a net exporter, their track record of doing so profitably has been spotty at best. Gas prices haven’t helped: They’ve languished near 1990s-era lows amid record production.

The Rices are touting the more intensive use of technology at EQT to improve the efficiency of its drilling. If they end up implementing that approach successfully, it may point to a brighter future for the exploration and production sector, in which operational rigor leads to improved financial performance. But failure is likely to confirm the view of many investors who have soured on fracking in recent years.

EQT rose 1.8% to $15.94 a share in New York on Wednesday after earlier climbing as much as 5%. Bloomberg News first reported the preliminary results on Tuesday.

The company’s annual general meeting, which included one shareholder casting a ballot in person, lasted four minutes.

The activists’ victory “is big, and that may allow others to go after other companies” that are perceived to be trailing competitors, said Josh Silverstein, an analyst at Wolfe Research LLC. Gulfport Energy Corp. and Southwestern Energy Co. could be the next targets for dissidents, he said. Representatives for the companies didn’t immediately respond to requests for comment.

Though EQT shares had plunged as the company cut production targets after the acquisition of Rice Energy Inc., management under CEO Robert McNally was implementing a plan to turn things around. Investors apparently weren’t convinced.

“While this was not the outcome we had hoped for, I’m confident that the steps we have taken and the progress achieved in the past seven months has put EQT in a position of strength,” McNally said in a statement at the shareholder meeting. The company estimated in May the proxy fight could cost it about $14 million.

Management Changes

The Rices don’t plan to swap out all of EQT’s top executives, but will add a chief information officer and chief human resources officer, Toby Rice said after the shareholder meeting. He said the company will remain focused on Appalachia’s Marcellus Shale, the biggest U.S. gas basin.

The “board only valued financial expertise and that led to the dramatically poor operational performance of EQT,” said Steve Schlotterbeck, who oversaw the Rice Energy takeover as EQT’s CEO and remains a shareholder. “Toby can fix that.”

Schlotterbeck resigned in March of last year because of disagreements with the board over his pay.

Hedge fund D.E. Shaw & Co., which backed the Rices, “is encouraged by the company’s expected decision to name Toby Rice as president and CEO,” according to a statement. “We strongly believe that with the right board and management team in place the company is better positioned to create significant value for all of its shareholders.”

The brothers garnered the support of the company’s largest shareholder, T. Rowe Price Group Inc. in their battle to revamp the board. They also won backing from several other investors, including Kensico Capital Management Corp. and Elliott Management Corp.

The Rice brothers’ push for change was supported by prominent shareholder advisory firm Institutional Shareholder Services Inc., while another advisory firm, Glass Lewis & Co., threw its support behind management.



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