Two local oil and gas firms think Alpha Natural Resources was playing favorites when it picked Rice Energy Inc. to set the floor bid at an auction of Alpha’s natural gas assets next month.
Virginia-based Alpha, which filed for bankruptcy protection last August, arranged for Canonsburg-based Rice to serve as a stalking horse bidder in the auction of about 27,000 acres in Greene County. The arrangement says, barring higher bids, that Rice would get the assets for $200 million.
The deal also includes a $2 million break-up fee to be skimmed from the successful bid if it doesn’t belong to Rice, and $1.5 million for expenses associated with being the stalking horse bidder.
EQT Corp. and American Petroleum Partners, a Canonsburg-based startup founded in 2014 by a former Rice engineer, said those protections are unfair and unnecessary because there is more than one entity interested Alpha’s natural gas assets.
Both companies said they are willing to pay $200 million for the assets.
“Given this dynamic, it does not seem necessary to name a stalking horse bidder and to provide bid protections to ensure a dynamic auction,” EQT wrote in an objection filed with the bankruptcy court on Friday. “To the contrary, granting the motion, which includes a $4.5 million overbid, will only serve to advance the bid of Rice over other competitive bidders.”
Alpha, which is primarily a coal producer, said in its response that in today’s uncertain commodity climate it was most valuable to get a commitment from a company, then proceed to auction.
The stalking horse agreement also stipulates that shale gas development on that acreage will give deference to operations at Alpha’s Cumberland Mine nearby.
The company has “been concerned that adverse market conditions could result in initial bids for the [assets] being reduced or withdrawn,” Alpha wrote. “Absent an agreement now to lock in this value, there is no assurance that a bid of the amount offered by the PLR Stalking Horse would continue to be available in the future.”
A bankruptcy judge on Tuesday agreed and allowed the protections built into Rice’s bid to stay.
Alpha, a large coal miner, got its feet wet in shale development during a 2010 joint venture with Rice. It then sold its interest to Rice in 2013 and that same year inked another joint venture with EDF Energy to explore some 20,000 acres in Greene County.
In July 2015, Alpha paid EDF $126 million to become the sole owner of that program. Those are the assets now up for grabs.
The auction is scheduled to take place May 16.
Anya Litvak: alitvak@post-gazette.com or 412-263-1455.
First Published: April 27, 2016, 4:00 a.m.
