In the two weeks that Toby Rice has been at the helm of EQT Corp., after a contentious proxy battle that flipped the board of directors and ousted the previous CEO, he is “extremely pleased to report that the Rice team had accurately diagnosed the issues that have long prevented the company from realizing its full potential.”
Actually, that was obvious by the third day, the new CEO of EQT said during a call with analysts Thursday morning.
Help has arrived, he assured them.
So far, Mr. Rice has appointed a new general counsel, William Jordan; a chief information officer, Tony Duran; and installed Lesley Evancho as chief human resources officer. All are former executives at Rice Energy Inc., the Canonsburg-based oil and gas driller that Toby Rice started with two of his brothers in 2007 and sold to EQT for $6.7 billion in late 2017.
The investor relations contact on the earnings release is now Kyle Derham, who held the same post at Rice.
In addition to those positions, there is also a new vice president of operations planning, a new vice president of asset performance, a new vice president of drilling, a new vice president of completions and a new vice president of digital technology. EQT also hired a director of evolution.
“We have high graded leadership where needed,” Mr. Rice said.
The Downtown company declined to name the other executives, all of whom are part of the “evolution committee” and are considered “evolution leaders.” All are former Rice Energy executives.
EQT has said there are also legacy EQT leaders on the evolution committee but would not name them.
The evolution leaders’ job is to shepherd the oil and gas company through the Rice-prescribed transformation and to enact the 100-day plan proposed in Mr. Rice’s proxy materials before the shareholder vote July 10.
Mr. Rice’s brothers, Derek and Danny Rice, are on the committee. Danny Rice is also a member of the board of directors.
During his first EQT analyst call on Thursday, the new chairman of the board John McCartney thanked shareholders to their overwhelming support — more than 80 percent of EQT shares were cast in favor off the Rice team.
The proxy battle and the reorganization of the Downtown-based company prompted by the fight cost EQT $22 million during the past quarter, the company disclosed Thursday.
Net income for the past quarter was $125.6 million, or 49 cents per share, up from $17.8 million, or 7 cents per share, during the second quarter of 2018. The improvement was mainly due to a gain on certain financial instruments.
Mr. Rice will draw a salary of $1 for his first year as EQT’s CEO.
“I’m humbled to have this opportunity,” Mr. Rice began Thursday morning, thanking employees for their dedication and openness to change.
Poor planning
Most of the company’s troubles stemmed from poor planning, Mr. Rice confirmed. The employees are great. The assets — the rock, that is — are great. But instead of having an intelligent plan that was set at least a year before the drill hits the ground, EQT was running under a more haphazard approach, he said.
Mr. Rice pointed to a slide in the company’s latest investor presentation that pits an EQT well design against what Rice had planned in 2017. The EQT side had horizontal wells that look like crushed spider legs, some shorter and some longer, weaving through tight tunnels between already producing wells.
The Rice-designed well pad had long laterals lined up like soldiers, giving each other enough space to get the most out of the rock without interfering with nearby wells.
The new team is now going through EQT’s planned development schedule and separating the projects that look like the former example, which the team believes comprise more than 50 percent of the current plan, from the ones that look efficient.
Some planned wells found lacking will be pulled from development, Derek Rice told analysts, while others might be reconfigured and enhanced, Toby Rice said.
Much more will become obvious over the next two to three months, Toby Rice said, when EQT plans to come back to investors will a capital plan.
The ultimate goal, which Mr. Rice debuted under a new slogan — “the end state” — is to have all well development projects look like the picture on the right: all wells hit a certain length, all are developed in conjunction with nearby pads, all use the same fracking design, as opposed to the 30 different options the Rice team discovered during its first days at EQT.
They put a stop to that, Derek Rice, a petroleum geologist and one of the evolution leaders, said.
‘Happiness campaign’
Mr. Rice, the CEO, also talked about EQT’s new “happiness campaign” and making EQT the best place to work in all of Pittsburgh.
Employees want to be productive, challenged, recognized, and have fun, he said.
The productivity and challenge will come from giving them a clearer focus and better plans. The recognition will come from everyone in the company being able to see what everyone is doing, as part of the Rice-touted digital work environment. And the fun, Mr. Rice said, will come from “winning.”
“Winning is setting goals and hitting goals. That’s gonna be the fun that we have,” he said.
Drilling less
Mr. Rice said the company would likely be working less in West Virginia and concentrating more on wells in Greene and Washington counties for the next few years, as those present the best land position and therefore most economic prospects at current and expected gas prices.
In general, investors and landowners should be prepared for less activity in the near future.
Of the 75 rigs currently drilling in Appalachia today, Mr. Derham said, “We believe the vast majority of these rigs are uneconomic” at the currently projected price of gas.
The markets have been clear, he said, that companies need to drill less.
“While we have started to see a pullback in activity, more is needed to balance market,” Mr. Derham said.
The new team will be positioning EQT to “weather what could be a challenging 2020,” he warned.
As he has promised during the proxy campaign, Mr. RIce said EQT will get costs down to $735 per foot of well by the middle of next year.
It will take that long to organize land holdings and environmental permits for the kind of development the Rice team envisions.
The company also indicated that investors are likely to see an uplift from share buybacks, since EQT’s stock price is at a decade-long low. The stock plunged more than 7% during morning trading.
As several analysts tried to give EQT a way out of the Mountain Valley Pipeline project — a troubled and much delayed $4.6 billion pipeline that’s intended to run 303 miles through West Virginia and Virginia — the company said there is no way to get out of its commitment to the project without incurring an exhorbitant penalty.
When asked how much that could be, Chief Commercial Officer Blue Jenkins said: “We’re not going to walk away from the project. That’s probably the short answer.”
Anya Litvak: alitvak@post-gazette.com or 412-263-1455.
Updated at 2:10 p.m. July 25, 2019
First Published: July 25, 2019, 1:12 p.m.
