Eqt Corporation · NYSE:EQT
Eqt — Proxy Contest (February 2019)
35 slides from Eqt's proxy contest presentation, Feb 5, 2019
Slide 1: Realizing EQT's Potential
Realizing EQT’s Potential February 2019
Slide 2: We Want To Deliver EQT's Potential to Shareholders
We Want To Deliver EQT’s Potential to Shareholders What Is Our Goal? Transform EQT into the lowest cost gas operator in the U.S. Reduce well costs to levels this asset base merits and realize the synergies EQT promised from the RICE merger Having reviewed EQT’s 2019 development plan, we are even mor
Slide 3: The Rice Plan
The Rice Plan
Slide 4: Our Plan is to Transform EQT into the Lowest Cost Gas Operator
Our Plan is to Transform EQT into the Lowest Cost Gas Operator Transform EQT into the lowest cost gas operator in the U.S. Decrease well costs to improve EQT’s free cash flow profile by $500mm/yr (10% of EQT’s market cap/yr) We see substantial additional opportunities for further free cash flow beyo
Slide 5: Lower Well Costs Drive FCF Generation in any Price Environment
Lower Well Costs Drive FCF Generation in any Price Environment The key to unlocking shareholder value is decreasing well costs These well costs were achieved by Rice Energy on the same asset base 12,000’ PA-Marcellus Well Cost Bridge $1,400 $1,200 $1,250 $1,000 $125 $1,095 $80 $800 $890 $ /ft $600 $
Slide 6: RICE Operated at Lower Well Costs Than Our Targeted Goal
RICE Operated at Lower Well Costs Than Our Targeted Goal RICE’s historical well costs demonstrate the cost savings of developing longer laterals Thesis underpinning the RICE/EQT merger in 2017 Longer laterals = lower well costs per foot From 2Q16 to 3Q17 (RICE’s final quarter before the merger), RIC
Slide 7: How to Lower EQT's Well Costs: Proven Leadership with Technology to Enable Effective Planning
How Proven To Leadership Lower EQT’s Combined Well Costs: with Technology to Enable Effective Planning 12,000’ PA-Marcellus Well Costs ($/ft) EQT All-In (1) 2019 Goal Reduce (2) Capitalized Costs D&C Efficiencies Rice All-In Goal Upside Rice Long Lateral (3) Track Record $1,095 $115 $265 $735 $35 $7
Slide 8: Effective Planning Increases Efficiency & Lowers Well Costs
Effective Planning Increases Efficiency & Lowers Well Costs Rig Mobilizations â–ª EQT’s chaotic rig mobilizations are the output of a highly disorganized operations schedule – Increases drilling costs but also creates challenges for subsequent derivative operations (e.g. completions, production) dri
Slide 9: RICE Track Record of Well Results that Consistently Outperformed EQT
RICE Track Record of Well Results that Consistently Outperformed EQT Across the same geological footprint, RICE’s wells consistently outperformed EQT by 10% (50%+ for wells TIL in 2017) â–ª Well design and operational execution lead to consistently better well performance – We do not include a produ
Slide 10: We See Incremental FCF Opportunities Beyond Our $500mm/yr Goal
We See Incremental FCF Opportunities Beyond Our $500mm/yr Goal Our primary focus is lowering well costs but there are multiple, additional optimization opportunities at EQT FCF Opportunities Well Productivity West Virginia Land Capex Operating Expenses/LOE Midstream Curtailments Marketing Optimizati
Slide 11: Response to EQT's Attempt to Discredit Rice
Attempt Response To Discredit to EQT’s Rice
Slide 12: The Facts Refute EQT's Claims
The Facts Refute EQT’s Claims EQT Claim EQT is a new team with a new focus RICE was a small-scale, early stage enterprise. EQT is big and complex Rice did not provide a detailed plan Not all development activity is in PA-Marcellus. Not practical to drill 150 wells at 12,000’ average lateral length g
Slide 13: An Example of EQT's Claims Hiding the Real Story
An Example of EQT’s Claims Hiding the Real Story What EQT Presents Costs for 1H 2017 Wells â–ª EQT: $695/ft â–ª RICE: $755/ft Rice Response â–ª We believe EQT’s well costs have been erroneously adjusted downwards in an attempt to normalize costs (1) â–ª EQT costs could be $125-$250/ft higher when in
Slide 14: Conclusion
Conclusion
Slide 15: The Option in Front of Shareholders
The Option in Front of Shareholders Team Rice ✓Team: Highly qualified and experienced team – Successful, experienced senior leadership – #1 Appalachia stock performer: 95% outperformance vs peers (1) ✓Plan: Proven and executed before – Operational model formulated through years of developing this ex
Slide 16: We Want To Deliver EQT's Potential to Shareholders
We Want To Deliver EQT’s Potential to Shareholders â–ª We plan to deliver $500mm/year (10% of EQT’s market cap/year) of additional FCF versus EQT’s plan – We see further upside through a number of specifically-identified optimization opportunities – We own 7.5mm shares and are fully aligned with sha
Slide 17: Appendix: Specific Response to EQT's False Claims
Specific Response Appendix: to EQT’s False Claims
Slide 18: The Facts Refute EQT's Claims
The Facts Refute EQT’s Claims EQT Claim EQT is a new team with a new focus RICE was a small-scale, early stage enterprise. EQT is big and complex Rice did not provide a detailed plan Not all development activity is in PA-Marcellus. Not practical to drill 150 wells at 12,000’ average lateral length g
Slide 19: The "New" EQT is the Old EQT
1 The “New” EQT is the Old EQT EQT Claim: EQT is a new team with a new focus EQT’s “New” Executive Team Position Years at EQT Hiring ManagerSource CEO3* Selected by Board *Internal Promotion EVP, Production15Selected by CEOInternal Promotion CFO12Selected by CEOInternal Promotion EVP, IT/BD/Safety6S
Slide 20: Rice Energy: Same Scale as EQT Today
2 Rice Energy: Same Scale as EQT Today EQT Claim: RICE was a small-scale, early stage enterprise. EQT is big and complex. Geographic Footprint Rigs Gross D&C Budget (2017/2019) Employees Manufacturing Mode Market Value (at sale/current) Stock Price Performance Greene & Washington, PA and Belmont, OH
Slide 21: EQT Repeatedly Ignores Rice's Plan to Generate Shareholder Value
3 EQT Repeatedly Ignores Rice’s Plan to Generate Shareholder Value EQT Claim: Rice did not provide a detailed plan 2017 2018 2019 2017 RICE/EQT Integration â–ª 5 Months â–ª Provided the blueprint for RICE’s success â–ª Technology, systems, culture EQT Response: Fire RICE leaders. Continue with Statu
Slide 22: Rice's Plan Incorporates EQT's 2019 Development Plans
4 Rice’s Plan Incorporates EQT’s 2019 Development Plans EQT Claim: Not all development activity is in PA-Marcellus. Not practical to drill 150 wells at 12,000’ average lateral length given capacity and acreage portfolio Now that EQT has provided more details on its 2019 development plans, we now hav
Slide 23: RICE has a Track Record of Delivering Lower Well Costs Per Foot
5 RICE has a Track Record of Delivering Lower Well Costs Per Foot EQT Claim: Rice’s estimated well costs ignore historical results and today’s oilfield service market Lateral lengths drive down well costs on a per foot basis RICE’s last 6 quarters averaged $790/ft for ~8,800’ laterals RICE executed
Slide 24: Peers Have Reduced Well Costs Every Year Since 2015
5 Peers Have Reduced Well Costs Every Year Since 2015 EQT Claim: Rice’s estimated well costs ignore historical results and today’s oilfield service market Despite marginal service cost fluctuations, peers have consistently lowered well costs every year – Peer Well Costs – EQT Well Costs • Down 36% v
Slide 25: EQT is the Only Operator Citing Service Costs as an Excuse
5 EQT is the Only Operator Citing Service Costs as an Excuse EQT is more susceptible to service cost increases due to ineffective planning and a higher reliance on the spot market 4Q17 Reports (February 2018) 1Q18 Reports (April 2018) 2Q18 Reports (July 2018) 3Q18 Reports (October 2018) Service Cost
Slide 26: 90% of EQT Activity is Focused in RICE's Geographic Footprint
6 90% of EQT Activity is Focused in RICE’s Geographic Footprint EQT Claim: Rice fails to account for EQT’s footprint… RICE + EQT 2016-2017 Development RICE Activity + Footprint EQT Spuds 2016-2017 RICE operated at scale in its final two years, with a similar operational footprint as EQT. RICE achiev
Slide 27: RICE Well Costs Included Produced Water Delivery
6 RICE Well Costs Included Produced Water Delivery EQT Claim: RICE piped 100% of its water needs EQT Claim: Rice fails to account for EQT’s…infrastructure and produced water dynamics â–ª Rice well cost guidance incorporates EQT’s produced water dynamics – Assumes Rice will recycle 90% of EQT’s water
Slide 28: EQT's Well Cost Bridge is Misleading
5 EQT’s Well Cost Bridge is Misleading 6 â–ª1 RICE 3Q17 results: $860/ft â–ª2 RICE 3Q17 average lateral length: 6,600’ (1) – Lateral lengths matter – $860/ft for 6,600’ is in-line with our cost model â–ª3 RICE did not pipe 100% of its water needs – costs Utilized are 20% all included produced in wat
Slide 29: RICE's Well Results Demonstrate Better Understanding of the Reservoir
7 RICE’s Well Results Demonstrate Better Understanding of the Reservoir EQT Claim: Rice’s wider spaced wells will have lower EURs than EQT’s because Rice isn’t upsizing their frac. Rice Response 1. EQT erroneously equates sand amounts with frac effectiveness 2. Sand loading is not the primary driver
Slide 30: RICE LOE was Lower than EQT's
8 RICE LOE was Lower than EQT’s EQT Claim: Rice expensed many well cost components that are capitalized by EQT, artificially deflating $ EQT points to RICE’s 2017 LOE guidance to prove their point and claims a $150mm cash flow difference We can meet or beat EQT’s LOE guidance 1. 3Q17 Results: RICE L
Slide 31: No Matter How You Allocate Costs, EQT's Cost Structure is Too High
No Matter How You Allocate Costs, EQT’s Cost Structure is Too High RICE control was of a an more E&P efficient operator: operator (1) D&C, than (2) EQT LOE and and that (3) G&A translated into lower cash costs across the 3 primary cost categories that are in In way our to base compare analysis, cost
Slide 32: Combo-Development: Only Possible with a Coordinated Ops Team
Combo-Development: Only Possible with a Coordinated Ops Team â–ª Efficient development in the form of “Combo Development” is dependent on setting up highly coordinated projects at scale which RICE successfully executed in 2017 â–ª Combo Development represents multiple wells and pads developed simult
Slide 33: Disclaimer
Disclaimer The materials contained herein (“Materials”) are for informational purposes only and may not be relied on by any person for any purpose and are not, and should not be construed as investment, financial, legal, tax or other advice. The Materials represent the opinions of Toby Rice, Derek R
Slide 34: Disclaimer (Cont'd)
Disclaimer (Cont’d) IMPORTANT INFORMATION Toby Z. Rice and Derek A. Rice, as well as certain of their affiliates, may file a proxy statement with the U.S. Securities and Exchange Commission (“SEC”) to solicit proxies from stockholders of EQT for use at EQT’s 2019 annual meeting of stockholders. TOBY
Slide 35: Contact information
Contact information For Investor Inquiries: Kyle Derham kyle@teamrice.com For Media Inquiries: Sard Verbinnen & Co Jim Barron: 212-687-8080 Frances Jeter: 832-680-5120 35