Rice Team Delivers Comprehensive Investor Presentation to EQT Shareholders, Outlining Detailed Plan to Realize EQT’s Potential
Says EQT’s Preliminary 2Q 2019 Results Show EQT is Failing to
Generate Free Cash Flow
Urges Shareholders to Vote the WHITE
Universal Proxy Card for Proven Transformational Change by Supporting
All Seven Rice Team Director Nominees and the Five EQT Nominees
Supported by Rice Team
The Rice Team (Toby Z. Rice, Derek A. Rice, J. Kyle Derham and William
E. Jordan), shareholders of EQT Corporation (NYSE: EQT), today announced
that it has delivered a presentation to EQT investors in connection with
EQT’s upcoming Annual Meeting of Shareholders on July 10.
In addition, John F. McCartney, commenting on behalf of the Rice Team
nominees in response to EQT’s announcement of its preliminary second
quarter results, stated, “EQT’s most recent press release demonstrates
why we are in this contest. Last year, Mr. McNally was touting
significant operational improvement and merger synergies as he eyed the
vacant CEO position. After being appointed CEO, he was forced to
acknowledge the operational chaos that led to a $300 million cost
overrun and a 35% stock price decline. Now, as he is being challenged by
the Rice Team, he is touting, before quarter end, a $25 million cost
reduction on a $2 billion capital expenditure budget. We believe the
full quarter's results, which will not be disclosed until after the
election contest is resolved, will show that EQT's self-described ‘free
cash flow machine’ actually consumed cash in the quarter and that EQT
remains the highest cost producer in the Appalachian Basin.”
McCartney continued, “EQT has claimed its plan will generate billions of
free cash flow by 2023. What it has hidden from investors, however, is
that nearly half of that free cash flow is based on an unrealistic
assumption that future natural gas prices will be significantly higher
than the market currently expects. Not only is this deceptive, it is
‘planning by hope’ instead of recognizing the urgent need to transform
the business to survive and thrive in the expected future natural gas
environment. The Rice Team plan does exactly that by moving EQT to a
substantially lower cost base that results in a sustainable EQT that can
preserve its investment grade rating and free cash flow if natural gas
prices match the current market’s expectations.”
The Rice Team’s published presentation outlines the reasons why change
is warranted at EQT, why the Rice Team and its nominees are best suited
to oversee this change, and its detailed plan to transform EQT to enable
it to reach its full potential.
VIEW
PDF OF THE INVESTOR PRESENTATION
The presentation, along with additional information regarding the proxy
contest and the Rice team’s nominees, can be found at www.eqtpathforward.com.
Among other things, the presentation provides support for the following
key points in the upcoming election:
EQT is a perennial underperformer and has failed to realize the
synergies from the Rice Energy merger
-
Negative 48% TSR since the Rice Energy merger (1) and
10-year low stock price
-
Highest costs of any producer in the Appalachian Basin (as determined
by industry analysts and EQT’s own banker)
-
EQT has abandoned virtually all of its claimed $10 billion of
potential Rice merger synergies
EQT’s response to its dramatic underperformance in 2018 was
ill-conceived and inadequate
-
Consistent with a broad-based culture of promoting solely from within,
promoted its CFO to CEO, despite having no operating experience, when
the Company had serious ongoing operational issues
-
Bought back $500 million of stock in the midst of operational chaos
just two months before its serious performance issues were disclosed;
when disclosed, the operational missteps led to a 35% stock price
decline
-
“Refreshed” its Board in November 2018 by adding three directors who
do not have energy experience but do have extensive connections to
incumbent board members
-
Rejected the assistance of the Rice Team, who are widely acknowledged
to have been strong operators when they ran Rice Energy
-
Developed a generic top-down 10% cost cutting initiative under which
EQT would remain the highest cost producer in the Appalachian Basin,
instead of a detailed efficiency program
EQT is attempting to mislead shareholders to demonstrate that it is
improving operations
-
Points to free cash flow generation in 4Q 2018 and 1Q 2019 to support
its progress, even though that cash flow was temporary because EQT was
forced to drastically cut growth capex as a result of its operational
inadequacies, as evidenced by its expected negative 2Q 2019 free cash
flow
-
Measures improvement solely against itself in 2018, arguably the worst
operational performance in the Appalachian Basin, as opposed to
against peers, against whom it remains in last place
-
Claims to be a “low cost operator” despite having highest costs in the
Appalachian Basin (as cited by its own investment banker) by ignoring
approximately $300 million of capitalized costs
-
Uses substantially inflated gas price assumptions to claim its “plan”
will generate billions in future free cash flow while putting its
business and investment grade status at risk
Rice Team nominees have the right skills and experience to implement
Rice Plan and transform EQT
-
The Rice Team nominees were chosen with the best interests of
shareholders in mind and with the assistance of a nationally
recognized board recruiting firm, unlike EQT’s 2018 Board “Refreshment”
-
Rice Team nominees have complementary skills and share a commitment to
value creation, not status quo
-
Resulting board including all Rice Team nominees will be one of the
most experienced, diverse and capable boards in the upstream industry
and will be committed to enhancing EQT’s corporate governance,
transparency and executive compensation practices for the benefit of
all shareholders
Rice Team has a plan to transform EQT into modern,
technology-enabled, sustainable energy producer
-
Includes detailed 100-day plan focused on organization, technology and
operations
-
The Rice Team’s plan will create a sustainable EQT for the long term
and generate an incremental $500 million of free cash flow per year
over EQT’s January 2019 guidance by lowering well costs to levels
achieved by Rice Energy and peers
-
Plan proposed by the Rice Team is similar to the transformation plan
led and successfully executed by Toby Rice at Rice Energy that
resulted in well costs and well productivity improvements similar to
those projected by the Rice Team for EQT
-
Rice Team has key players ready, willing and able to assist as needed
in executing EQT turnaround
-
Transition guided by new “Evolution Committee” to oversee
implementation of Rice Plan and ensure smooth transition
Majority board change is urgently needed to maximize shareholder value
-
Supporting fewer than all seven Rice nominees will not ensure
necessary change in leadership or strategic direction
-
Even with minority Rice Energy representation, EQT’s board has
resisted real change, and its current independent directors have
continued such resistance
-
Shareholders need a Board with the expertise and sense of urgency to
turn EQT into a modern, technology-driven energy producer capable of
surviving and thriving in the current low natural gas price environment
-
The election of all seven Rice Team nominees is the minimally invasive
solution to implementing the change needed for EQT
-
We expect the reconstituted Board will install and oversee Toby Rice
as CEO and implement the Rice Plan to drive EQT’s transformation
1. From November 10, 2017 (close of Rice Energy deal) through
December 9, 2018 (day before Rice Team engagement with EQT).
The presentation concludes by noting that EQT shareholders have a unique
opportunity to choose a proven business plan and CEO, along with Board
members, in this election. The Rice Team believes voting for its
nominees offers EQT shareholders the benefit of a highly qualified and
experienced leadership team — one that substantially outperformed its
peers while running Rice Energy — a proven plan the team has executed
before, and the prospect of driving costs down significantly to create
value and ensure sustainability. By contrast, the EQT nominees are
supporting an unproven leadership team promoted through questionable
processes that is proposing a plan that lacks even the ambition to match
the cost structure of peers.
WE URGE YOU TO VOTE THE WHITE UNIVERSAL
PROXY CARD FOR PROVEN TRANSFORMATIONAL CHANGE:
VOTE FOR ALL SEVEN OF THE RICE TEAM’S NOMINEES
AND THE FIVE EQT NOMINEES SUPPORTED BY THE RICE TEAM.
For questions about how to vote your shares, please contact our proxy
solicitor, D.F. King & Co., Inc., at (800) 207-3159.
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