Attached files
file | filename |
---|---|
EX-99.6 - EX-99.6 - EQT Corp | a17-22068_2ex99d6.htm |
EX-99.5 - EX-99.5 - EQT Corp | a17-22068_2ex99d5.htm |
EX-99.4 - EX-99.4 - EQT Corp | a17-22068_2ex99d4.htm |
EX-99.3 - EX-99.3 - EQT Corp | a17-22068_2ex99d3.htm |
EX-99.1 - EX-99.1 - EQT Corp | a17-22068_2ex99d1.htm |
EX-23.3 - EX-23.3 - EQT Corp | a17-22068_2ex23d3.htm |
EX-23.2 - EX-23.2 - EQT Corp | a17-22068_2ex23d2.htm |
EX-23.1 - EX-23.1 - EQT Corp | a17-22068_2ex23d1.htm |
8-K - 8-K - EQT Corp | a17-22068_28k.htm |
Item 1. Financial Statements
Rice Energy Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands) |
|
June 30, 2017 |
|
December 31, 2016 |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash |
|
$ |
161,540 |
|
$ |
470,043 |
|
Accounts receivable |
|
339,419 |
|
218,625 |
| ||
Prepaid expenses and other |
|
11,347 |
|
5,059 |
| ||
Derivative assets |
|
10,624 |
|
689 |
| ||
Total current assets |
|
522,930 |
|
694,416 |
| ||
|
|
|
|
|
| ||
Long-term assets: |
|
|
|
|
| ||
Gas collateral account |
|
5,332 |
|
5,332 |
| ||
Property, plant and equipment, net |
|
6,446,251 |
|
6,117,912 |
| ||
Acquisition deposit |
|
18,033 |
|
|
| ||
Deferred financing costs, net |
|
33,274 |
|
36,384 |
| ||
Goodwill |
|
879,011 |
|
879,011 |
| ||
Intangible assets, net |
|
43,717 |
|
44,525 |
| ||
Derivative assets |
|
45,713 |
|
39,328 |
| ||
Other non-current assets |
|
789 |
|
614 |
| ||
Total assets |
|
$ |
7,995,050 |
|
$ |
7,817,522 |
|
|
|
|
|
|
| ||
Liabilities, mezzanine equity and stockholders equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
24,131 |
|
$ |
18,244 |
|
Royalties payable |
|
104,091 |
|
87,098 |
| ||
Accrued capital expenditures |
|
176,594 |
|
124,700 |
| ||
Accrued interest |
|
14,540 |
|
14,440 |
| ||
Leasehold payable |
|
19,538 |
|
22,869 |
| ||
Embedded derivative liability |
|
15,417 |
|
|
| ||
Derivative liabilities |
|
39,061 |
|
139,388 |
| ||
Other accrued liabilities |
|
90,194 |
|
126,007 |
| ||
Total current liabilities |
|
483,566 |
|
532,746 |
| ||
|
|
|
|
|
| ||
Long-term liabilities: |
|
|
|
|
| ||
Long-term debt |
|
1,599,779 |
|
1,522,481 |
| ||
Leasehold payable |
|
12,279 |
|
9,237 |
| ||
Deferred tax liabilities |
|
362,767 |
|
358,626 |
| ||
Derivative liabilities |
|
24,591 |
|
26,477 |
| ||
Other long-term liabilities |
|
90,204 |
|
81,348 |
| ||
Total liabilities |
|
2,573,186 |
|
2,530,915 |
| ||
|
|
|
|
|
| ||
Mezzanine equity: |
|
|
|
|
| ||
Redeemable noncontrolling interest, net (Note 10) |
|
396,711 |
|
382,525 |
| ||
|
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Common stock, $0.01 par value; authorized - 650,000,000 shares; issued and outstanding - 211,644,987 shares and 202,606,908 shares, respectively |
|
2,117 |
|
2,026 |
| ||
Preferred stock, $0.01 par value; authorized - 50,000,000 shares; issued and outstanding - 31,521 and 40,000 shares, respectively |
|
|
|
|
| ||
Additional paid in capital |
|
3,473,266 |
|
3,313,917 |
| ||
Accumulated deficit |
|
(350,514 |
) |
(407,741 |
) | ||
Stockholders equity before noncontrolling interest |
|
3,124,869 |
|
2,908,202 |
| ||
Noncontrolling interests in consolidated subsidiaries |
|
1,900,284 |
|
1,995,880 |
| ||
Total liabilities, mezzanine equity and stockholders equity |
|
$ |
7,995,050 |
|
$ |
7,817,522 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Rice Energy Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
(in thousands, except share data) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
| ||||
Natural gas, oil and natural gas liquids sales |
|
$ |
348,892 |
|
$ |
122,312 |
|
$ |
705,726 |
|
$ |
234,754 |
|
Gathering, compression and water services |
|
38,065 |
|
23,728 |
|
68,408 |
|
48,280 |
| ||||
Other revenue |
|
11,350 |
|
9,958 |
|
17,979 |
|
12,906 |
| ||||
Total operating revenues |
|
398,307 |
|
155,998 |
|
792,113 |
|
295,940 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
Lease operating (1) |
|
17,645 |
|
9,038 |
|
40,294 |
|
20,109 |
| ||||
Gathering, compression and transportation |
|
39,131 |
|
27,169 |
|
78,557 |
|
55,301 |
| ||||
Production taxes and impact fees |
|
6,679 |
|
2,659 |
|
12,832 |
|
4,310 |
| ||||
Exploration |
|
7,106 |
|
5,548 |
|
11,118 |
|
6,538 |
| ||||
Midstream operation and maintenance |
|
8,348 |
|
4,555 |
|
14,998 |
|
14,177 |
| ||||
Incentive unit expense |
|
4,800 |
|
14,840 |
|
7,683 |
|
38,982 |
| ||||
Acquisition expense |
|
2,408 |
|
84 |
|
2,615 |
|
556 |
| ||||
Impairment of gas properties |
|
|
|
|
|
92,355 |
|
|
| ||||
Impairment of fixed assets |
|
|
|
|
|
|
|
2,595 |
| ||||
General and administrative (1) |
|
39,226 |
|
29,272 |
|
73,050 |
|
54,145 |
| ||||
Depreciation, depletion and amortization |
|
145,904 |
|
84,752 |
|
282,782 |
|
163,937 |
| ||||
Amortization of intangible assets |
|
406 |
|
403 |
|
808 |
|
811 |
| ||||
Other expense |
|
13,207 |
|
11,457 |
|
19,365 |
|
15,648 |
| ||||
Total operating expenses |
|
284,860 |
|
189,777 |
|
636,457 |
|
377,109 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income (loss) |
|
113,447 |
|
(33,779 |
) |
155,656 |
|
(81,169 |
) | ||||
Interest expense |
|
(27,269 |
) |
(24,802 |
) |
(54,292 |
) |
(49,323 |
) | ||||
Other income |
|
273 |
|
2,549 |
|
453 |
|
2,762 |
| ||||
Gain (loss) on derivative instruments |
|
103,558 |
|
(201,555 |
) |
88,779 |
|
(131,376 |
) | ||||
Loss on embedded derivatives |
|
(15,417 |
) |
|
|
(15,417 |
) |
|
| ||||
Amortization of deferred financing costs |
|
(3,426 |
) |
(1,618 |
) |
(6,078 |
) |
(3,169 |
) | ||||
Income (loss) before income taxes |
|
171,166 |
|
(259,205 |
) |
169,101 |
|
(262,275 |
) | ||||
Income tax (expense) benefit |
|
(33,917 |
) |
120,496 |
|
(33,341 |
) |
126,871 |
| ||||
Net income (loss) |
|
137,249 |
|
(138,709 |
) |
135,760 |
|
(135,404 |
) | ||||
Less: Net income attributable to noncontrolling interests |
|
(53,724 |
) |
(17,977 |
) |
(78,533 |
) |
(38,870 |
) | ||||
Net income (loss) attributable to Rice Energy Inc. |
|
83,525 |
|
(156,686 |
) |
57,227 |
|
(174,274 |
) | ||||
Less: Preferred dividends and accretion of redeemable noncontrolling interests |
|
(20,656 |
) |
(7,944 |
) |
(28,988 |
) |
(11,402 |
) | ||||
Net income (loss) attributable to Rice Energy Inc. common stockholders |
|
$ |
62,869 |
|
$ |
(164,630 |
) |
$ |
28,239 |
|
$ |
(185,676 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Earnings (loss) per share-basic |
|
$ |
0.31 |
|
$ |
(1.07 |
) |
$ |
0.14 |
|
$ |
(1.28 |
) |
Earnings (loss) per share-diluted |
|
$ |
0.30 |
|
$ |
(1.07 |
) |
$ |
0.14 |
|
$ |
(1.28 |
) |
(1) Stock-based compensation expense of $0.2 million and $6.2 million is included in lease operating and general and administrative expense, respectively, for the three months ended June 30, 2017, and $0.1 million and $6.1 million is included in lease operating and general and administrative expense, respectively, for the three months ended June 30, 2016. Stock-based compensation expense of $0.4 million and $11.3 million was included in lease operating and general and administrative expense, respectively, for the six months ended June 30, 2017, and $0.2 million and $10.8 million was included in lease operating and general and administrative expense, respectively, for the six months ended June 30, 2016. See Note 14 for additional information.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Rice Energy Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended June 30, |
| ||||
(in thousands) |
|
2017 |
|
2016 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income (loss) |
|
$ |
135,760 |
|
$ |
(135,404 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation, depletion and amortization |
|
282,782 |
|
163,937 |
| ||
Amortization of deferred financing costs |
|
6,078 |
|
3,169 |
| ||
Amortization of intangibles |
|
808 |
|
811 |
| ||
Exploration |
|
11,118 |
|
6,538 |
| ||
Incentive unit expense |
|
7,683 |
|
38,982 |
| ||
Stock compensation expense |
|
11,701 |
|
10,789 |
| ||
Impairment of fixed assets |
|
|
|
2,595 |
| ||
Impairment of gas properties |
|
92,355 |
|
|
| ||
Derivative instruments fair value (gain) loss |
|
(88,779 |
) |
131,376 |
| ||
Cash (payments) receipts for settled derivatives |
|
(31,502 |
) |
133,205 |
| ||
Deferred income tax benefit (expense) |
|
24,541 |
|
(126,871 |
) | ||
Loss on embedded derivatives |
|
15,417 |
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
|
(116,958 |
) |
(21,995 |
) | ||
Prepaid expenses and other assets |
|
(7,342 |
) |
(530 |
) | ||
Accounts payable |
|
1,345 |
|
(4,894 |
) | ||
Accrued liabilities and other |
|
(35,549 |
) |
572 |
| ||
Royalties payable |
|
16,993 |
|
614 |
| ||
Net cash provided by operating activities |
|
326,451 |
|
202,894 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Capital expenditures for property and equipment |
|
(644,326 |
) |
(484,529 |
) | ||
Acquisitions |
|
(3,671 |
) |
(7,744 |
) | ||
Acquisition deposit |
|
(18,033 |
) |
|
| ||
Net cash used in investing activities |
|
(666,030 |
) |
(492,273 |
) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Proceeds from borrowings |
|
75,500 |
|
120,000 |
| ||
Repayments of debt obligations |
|
(768 |
) |
(255,690 |
) | ||
Shares of common stock issued in April 2016 offering, net of offering costs |
|
|
|
311,764 |
| ||
RMP common units issued in the Partnerships June 2016 offering, net of offering costs |
|
|
|
164,150 |
| ||
RMP common units issued in the Partnerships ATM program, net of offering costs |
|
|
|
15,782 |
| ||
Net cash contributions to Strike Force Midstream by Gulfport Midstream |
|
21,815 |
|
|
| ||
Debt issuance costs |
|
(1,399 |
) |
(669 |
) | ||
Distributions to the Partnerships public unitholders |
|
(40,202 |
) |
(17,636 |
) | ||
Proceeds from issuance of redeemable noncontrolling interests, net of offering costs |
|
|
|
368,767 |
| ||
Preferred dividends on Series B Units |
|
(15,270 |
) |
(3,576 |
) | ||
Employee tax withholding for settlement of stock compensation award vestings |
|
(8,600 |
) |
|
| ||
Proceeds from conversion of warrants |
|
|
|
100 |
| ||
Net cash provided by financing activities |
|
31,076 |
|
702,992 |
| ||
|
|
|
|
|
| ||
Net (decrease) increase in cash |
|
(308,503 |
) |
413,613 |
| ||
|
|
|
|
|
| ||
Cash at the beginning of the year |
|
470,043 |
|
151,901 |
| ||
Cash at the end of the period |
|
$ |
161,540 |
|
$ |
565,514 |
|
|
|
|
|
|
| ||
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
| ||
Asset contribution to Strike Force Midstream by Gulfport Midstream |
|
$ |
|
|
$ |
22,500 |
|
Capital expenditures financed by accounts payable |
|
$ |
18,899 |
|
$ |
18,658 |
|
Capital expenditures financed by accrued capital expenditures |
|
$ |
176,594 |
|
$ |
79,362 |
|
Natural gas properties financed through deferred payment obligations |
|
$ |
31,817 |
|
$ |
11,097 |
|
Conversion of REO Common Units into Rice Energy common stock |
|
$ |
176,402 |
|
$ |
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Rice Energy Inc.
Condensed Consolidated Statements of Equity
(Unaudited)
(in thousands) |
|
Common |
|
Additional |
|
Accumulated |
|
Stockholders |
|
Non- |
|
Total |
| ||||||
Balance, January 1, 2016 |
|
$ |
1,364 |
|
$ |
1,416,523 |
|
$ |
(137,990 |
) |
$ |
1,279,897 |
|
$ |
624,571 |
|
$ |
1,904,468 |
|
Incentive unit compensation |
|
|
|
38,982 |
|
|
|
38,982 |
|
|
|
38,982 |
| ||||||
Stock compensation |
|
|
|
9,151 |
|
|
|
9,151 |
|
2,070 |
|
11,221 |
| ||||||
Issuance of common stock upon vesting of stock compensation awards, net of tax withholdings |
|
2 |
|
(1,459 |
) |
|
|
(1,457 |
) |
|
|
(1,457 |
) | ||||||
Issuance of phantom units upon vesting of equity-based compensation, net of tax withholdings |
|
|
|
(3,182 |
) |
|
|
(3,182 |
) |
2,063 |
|
(1,119 |
) | ||||||
Shares of common stock issued in April 2016 offering, net of offering costs |
|
200 |
|
311,564 |
|
|
|
311,764 |
|
|
|
311,764 |
| ||||||
Conversion of warrants into shares of common stock |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
| ||||||
Preferred dividends on redeemable noncontrolling interest |
|
|
|
(10,719 |
) |
|
|
(10,719 |
) |
|
|
(10,719 |
) | ||||||
Accretion of redeemable noncontrolling interest |
|
|
|
(683 |
) |
|
|
(683 |
) |
|
|
(683 |
) | ||||||
RMP common units issued in the Partnerships June 2016 offering, net of offering costs |
|
|
|
|
|
|
|
|
|
164,150 |
|
164,150 |
| ||||||
RMP common units issued pursuant to the Partnerships ATM program, net of offering costs |
|
|
|
|
|
|
|
|
|
15,782 |
|
15,782 |
| ||||||
Distributions to the Partnerships public unitholders |
|
|
|
|
|
|
|
|
|
(17,636 |
) |
(17,636 |
) | ||||||
Contribution from noncontrolling interest |
|
|
|
|
|
|
|
|
|
25,530 |
|
25,530 |
| ||||||
Consolidated net (loss) income |
|
|
|
|
|
(174,274 |
) |
(174,274 |
) |
38,870 |
|
(135,404 |
) | ||||||
Balance, June 30, 2016 |
|
$ |
1,566 |
|
$ |
1,760,277 |
|
$ |
(312,264 |
) |
$ |
1,449,579 |
|
$ |
855,400 |
|
$ |
2,304,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2017 |
|
$ |
2,026 |
|
$ |
3,313,917 |
|
$ |
(407,741 |
) |
$ |
2,908,202 |
|
$ |
1,995,880 |
|
$ |
4,904,082 |
|
Incentive unit compensation |
|
|
|
7,683 |
|
|
|
7,683 |
|
|
|
7,683 |
| ||||||
Stock compensation |
|
|
|
13,474 |
|
|
|
13,474 |
|
259 |
|
13,733 |
| ||||||
Issuance of common stock upon vesting of stock compensation awards, net of tax withholdings |
|
6 |
|
(8,606 |
) |
|
|
(8,600 |
) |
|
|
(8,600 |
) | ||||||
Preferred dividends on redeemable noncontrolling interest |
|
|
|
(15,333 |
) |
|
|
(15,333 |
) |
|
|
(15,333 |
) | ||||||
Accretion of redeemable noncontrolling interest |
|
|
|
(14,186 |
) |
|
|
(14,186 |
) |
|
|
(14,186 |
) | ||||||
Contribution from noncontrolling interest |
|
|
|
|
|
|
|
|
|
21,815 |
|
21,815 |
| ||||||
REO Common Unit conversion into Rice Energy common stock, net of tax |
|
85 |
|
176,317 |
|
|
|
176,402 |
|
(156,001 |
) |
20,401 |
| ||||||
Distributions to the Partnerships public unitholders |
|
|
|
|
|
|
|
|
|
(40,202 |
) |
(40,202 |
) | ||||||
Consolidated net income |
|
|
|
|
|
57,227 |
|
57,227 |
|
78,533 |
|
135,760 |
| ||||||
Balance, June 30, 2017 |
|
$ |
2,117 |
|
$ |
3,473,266 |
|
$ |
(350,514 |
) |
$ |
3,124,869 |
|
$ |
1,900,284 |
|
$ |
5,025,153 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Rice Energy Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements of Rice Energy Inc. (the Company) have been prepared by the Companys management in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. The unaudited condensed consolidated financial statements included herein contain all adjustments which are, in the opinion of management, necessary to present fairly the Companys financial position as of June 30, 2017 and December 31, 2016, its condensed consolidated statements of operations for the three and six months ended June 30, 2017 and 2016, and its statements of cash flows and equity for the six months ended June 30, 2017 and 2016.
The accompanying condensed consolidated financial statements include the financial results of the Company, its consolidated subsidiaries and certain variable interest entities in which the Company is the primary beneficiary. See Note 13 for additional discussion of variable interest entities.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes therein for the year ended December 31, 2016, as filed with the Securities and Exchange Commission (SEC) by the Company in its Annual Report on Form 10-K (the 2016 Annual Report). Certain prior period financial statement amounts have been reclassified to conform to current period presentation. All intercompany transactions have been eliminated in consolidation.
Proposed Merger with EQT Corporation
On June 19, 2017, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with EQT Corporation (EQT), pursuant to which, subject to the satisfaction or waiver of certain conditions, an indirect, wholly-owned subsidiary of EQT will merge with and into the Company (the Merger), and immediately thereafter the Company will merge with and into another indirect, wholly-owned subsidiary of EQT (LLC Sub), with LLC Sub continuing as the surviving entity in such merger as an indirect, wholly-owned subsidiary of EQT.
On the terms and subject to the conditions set forth in the Merger Agreement, which has been unanimously approved by the respective boards of directors of EQT and the Company, at the effective time of the Merger, each share of the Companys common stock issued and outstanding immediately before that time (other than shares of the Companys common stock held by EQT or certain of its direct and indirect subsidiaries, shares held by the Company in treasury or shares with respect to which appraisal has been properly demanded pursuant to Delaware law) will automatically be converted into the right to receive 0.37 shares of EQT common stock and $5.30 in cash. The consummation of the Merger is subject to approval by the shareholders of both the Company and EQT and certain customary regulatory and other closing conditions and is expected to occur in the fourth quarter of 2017.
The Merger Agreement provides for certain termination rights for both the Company and EQT, including the right of either party to terminate the Merger Agreement if the Merger is not consummated by February 19, 2018 (which may be extended by either party to May 19, 2018 under certain circumstances). Upon termination of the Merger Agreement under certain specified circumstances, the Company may be required to pay EQT, or EQT may be required to pay the Company, a termination fee of $255.0 million. In addition, if the Merger Agreement is terminated because of a failure of a partys shareholders to approve the proposals required to complete the Merger, that party may be required to reimburse the other party for its transaction expenses in an amount equal to $67.0 million.
2. Acquisitions
Vantage Acquisition
On October 19, 2016, the Company completed the acquisition of Vantage Energy, LLC and Vantage Energy II, LLC (collectively, Vantage) and their subsidiaries (the Vantage Acquisition) pursuant to the terms of the Purchase and Sale Agreement (the Vantage Purchase Agreement) dated September 26, 2016 between and among the Company, Vantage Energy Investment LLC, Vantage Energy Investment II LLC and Vantage. Pursuant to the terms of the Vantage Purchase Agreement, Rice Energy Operating LLC (Rice Energy Operating) acquired Vantage from certain affiliates of Quantum Energy Partners, Riverstone Holdings LLC and Lime Rock Partners (such affiliates, the Vantage Sellers) for approximately $2.7 billion, which consisted of approximately $1.0 billion in cash, the assumption of net debt of approximately $707.0 million and the issuance of 40.0 million common units in Rice Energy Operating that were immediately exchangeable into 40.0 million shares of common stock of the Company, valued at approximately $1.0 billion.
On September 26, 2016, the Company entered into a Purchase and Sale Agreement (the Midstream Purchase Agreement) by and between the Company and Rice Midstream Partners LP (the Partnership). Pursuant to the terms of the Midstream Purchase Agreement, as amended, immediately following the close of the Vantage Acquisition on October 19, 2016, the Partnership acquired from the Company all of the outstanding membership interests of Vantage Energy II Access, LLC and Vista Gathering, LLC (collectively, the Vantage Midstream Entities, and such acquisition, the Vantage Midstream Acquisition). The Partnerships acquisition of the Vantage Midstream Entities from the Company is accounted for as a combination of entities under common control at historical cost. The Vantage Midstream Entities, which became wholly-owned subsidiaries of the Partnership upon the completion of the acquisition of the Vantage Midstream Entities, own midstream assets, including approximately 30 miles of dry gas gathering and compression assets. In consideration for the acquisition of the Vantage Midstream Entities, the Partnership paid the Company $600.0 million in aggregate cash consideration, which the Partnership funded through the net proceeds of a private placement of Partnership common units and borrowings under its revolving credit facility.
Allocation of Purchase Price
The following table summarizes the preliminary purchase price and the preliminary estimated values of assets and liabilities assumed based on the fair value as of October 19, 2016, with any excess of the purchase price over the estimated fair value of the identified net assets acquired recorded as goodwill. Approximately $369.0 million and $470.8 million of goodwill has been allocated to the Exploration and Production segment and Rice Midstream Partners segment, respectively. Included within the Rice Midstream Partners segment is goodwill of $15.4 million, attributable to the enhanced cash flow distributions to Rice Midstream GP Holdings LP (GP Holdings) expected to result from the Vantage Midstream Acquisition. The amount of goodwill allocated to the Rice Midstream Partners segment includes an acquired 67.5% interest in the Wind Ridge system previously owned by Access Midstream Partners. The Partnership acquired the Wind Ridge system in connection with the Vantage Midstream Acquisition for approximately $14.3 million, of which $10.9 million was ascribed to property and equipment and $3.4 million to goodwill. Goodwill primarily relates to the Companys ability to control the Vantage acquired assets and recognize synergies related to administrative and capital efficiencies, extended laterals, the creation of additional contiguous leasing opportunities not previously available and additional dedicated acreage.
Certain data necessary to complete the purchase price allocation is not yet available, including, but not limited to, title defect analysis. The Company expects to complete the purchase price allocation once it has received all of the necessary information, but no later than one year from the date of completion of the Vantage Acquisition. Prior to the completion of the Companys purchase price allocation, the value of the assets and liabilities may be revised as appropriate. Goodwill associated with the Vantage Acquisition is fully deductible for tax purposes.
Consideration Given: |
|
|
| |
Fair value of issued Rice Energy Operating units |
|
$ |
1,001,200 |
|
Cash consideration, net of cash acquired |
|
981,080 |
| |
Total consideration |
|
$ |
1,982,280 |
|
|
|
|
| |
Estimated Fair Value of Assets Acquired and Liabilities Assumed: |
|
|
| |
Current assets, net of cash acquired |
|
$ |
49,532 |
|
Natural gas and oil properties |
|
2,178,076 |
| |
Midstream property, plant and equipment |
|
144,562 |
| |
Other non-current assets |
|
27,437 |
| |
Current liabilities |
|
(103,322 |
) | |
Fair value of debt assumed |
|
(706,912 |
) | |
Other non-current liabilities |
|
(51,052 |
) | |
Noncontrolling interest in Rice Energy Operating |
|
(395,910 |
) | |
Total estimated fair value of assets acquired and liabilities assumed |
|
$ |
1,142,411 |
|
Goodwill |
|
$ |
839,869 |
|
The fair value of natural gas and oil properties are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of natural gas and oil properties were measured using valuation techniques that convert future cash flows into a single discounted amount. Significant inputs to the valuation of natural gas and oil properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management at the time of the valuation and are the most sensitive and may be subject to change. The fair value of undeveloped property was determined based upon a market approach of comparable transactions using Level 3 inputs.
The fair value measurements of the debt assumed were determined using Level 1 inputs. The debt balance includes amounts related to Vantages second lien note and amounts outstanding under Vantages credit facility, which were assumed by the Company and repaid concurrent to the Vantage Acquisition.
The valuation of Rice Energy Operating common units issued as consideration was primarily calculated based upon Level 1 inputs. The common unit value was included as an input in determining the fair value of the noncontrolling interests, which were further adjusted using level 3 inputs to reflect the value of ownership retained by the Vantage Sellers.
Post-Acquisition Operating Results
The Vantage Acquisition contributed the following to the Companys consolidated operating results for the three and six months ended June 30, 2017.
(in thousands) |
|
Three Months Ended |
|
Six Months Ended |
| ||
Revenue attributable to Rice Energy Inc. |
|
$ |
106,042 |
|
$ |
201,878 |
|
Net income (loss) attributable to noncontrolling interests |
|
$ |
3,000 |
|
$ |
(2,827 |
) |
Net income (loss) attributable to Rice Energy Inc. |
|
$ |
15,816 |
|
$ |
(15,615 |
) |
Unaudited Pro Forma Information
The following table presents unaudited pro forma combined financial information for the three and six months ended June 30, 2016, which presents the Companys results as though the Vantage Acquisition had been completed at January 1, 2016. The pro forma combined financial information is not necessarily indicative of the
results that might have actually occurred had the Vantage Acquisition been completed at January 1, 2016; furthermore, the financial information is not intended to be a projection of future results.
|
|
Pro Forma |
| ||||
(in thousands, except per share data) |
|
Three Months Ended |
|
Six Months Ended |
| ||
Operating revenues |
|
$ |
211,649 |
|
$ |
401,735 |
|
Net loss |
|
$ |
(232,925 |
) |
$ |
(198,647 |
) |
Less: Net loss (income) attributable to noncontrolling interests |
|
$ |
17,895 |
|
$ |
(9,574 |
) |
Net loss attributable to Rice Energy |
|
$ |
(215,030 |
) |
$ |
(208,221 |
) |
Loss per share (basic) |
|
$ |
(1.21 |
) |
$ |
(1.10 |
) |
Loss per share (diluted) |
|
$ |
(1.21 |
) |
$ |
(1.10 |
) |
3. Impairment
The carrying values of the Companys proved properties are reviewed periodically when events or circumstances indicate that the remaining carrying amount may not be recoverable. This evaluation is performed at the lowest levels for which there are identifiable cash flows that are largely independent of other groups of assets by comparing estimated undiscounted cash flows to the carrying value and including risk-adjusted probable and possible reserves, if deemed reasonable. Key assumptions utilized in determining the estimated undiscounted future cash flows are generally consistent with assumptions used in the Companys budgeting and forecasting processes. If the carrying value of proved properties exceeds the estimated undiscounted future cash flows, they are written down to fair value. Fair value of proved properties is estimated by discounting the estimated future cash flows using discount rates and consideration of expected assumptions that would be used by a market participant.
During the first quarter of 2017, the Company identified significant declines in forward Waha basis differentials, which is the primary sales point for its Fort Worth Basin production. Such expected prolonged declines indicated a potential impairment trigger, and, as a result, the Company performed an asset recoverability test of its Fort Worth Basin properties. Based upon the results of the recoverability assessment, the Company concluded that the carrying value of its Fort Worth Basin properties exceeded its undiscounted cash flows. The fair value of the Fort Worth Basin proved properties was determined using a combination of the market and income approach to determine fair value. Significant inputs to the valuation of the discounted cash flows of natural gas and oil properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management which included Level 3 unobservable inputs to the fair value measurement. The difference between the carrying value and fair value resulted in an asset impairment of $92.4 million within the Exploration and Production segment during the first quarter of 2017.
4. Accounts Receivable
Accounts receivable are primarily from the Companys joint interest partners and natural gas marketers. The Company extends credit to parties in the normal course of business based upon managements assessment of their creditworthiness. An allowance is provided for those accounts for which collection is estimated as doubtful; uncollectible accounts are written off and charged against the allowance. In estimating the allowance, management considers, among other things, how recently and how frequently payments have been received and the financial position of the party. Allowances for uncollectible accounts were not material for the periods presented. Accounts receivable as of June 30, 2017 and December 31, 2016 are detailed below.
(in thousands) |
|
June 30, 2017 |
|
December 31, 2016 |
| ||
Joint interest |
|
$ |
141,910 |
|
$ |
53,577 |
|
Natural gas sales |
|
173,745 |
|
145,887 |
| ||
Other |
|
23,764 |
|
19,161 |
| ||
Total accounts receivable |
|
$ |
339,419 |
|
$ |
218,625 |
|
5. Long-Term Debt
Long-term debt consists of the following as of June 30, 2017 and December 31, 2016:
(in thousands) |
|
June 30, 2017 |
|
December 31, 2016 |
| ||
Long-term Debt |
|
|
|
|
| ||
Senior Notes Due 2022, net of unamortized deferred financing costs and original discount issuances of $10,896 and $12,023, respectively (a) |
|
$ |
889,104 |
|
$ |
887,977 |
|
Senior Notes Due 2023, net of unamortized deferred financing costs and original discount issuances of $7,825 and $8,496, respectively (b) |
|
392,175 |
|
391,504 |
| ||
Senior Secured Revolving Credit Facility (c) |
|
|
|
|
| ||
Midstream Holdings Revolving Credit Facility (d) |
|
112,500 |
|
53,000 |
| ||
RMP Revolving Credit Facility (e) |
|
206,000 |
|
190,000 |
| ||
Total long-term debt |
|
$ |
1,599,779 |
|
$ |
1,522,481 |
|
Senior Notes
6.25% Senior Notes Due 2022 (a)
The Company has $900.0 million in aggregate principal amount of 6.25% senior notes due 2022 outstanding (the 2022 Notes). The 2022 Notes will mature on May 1, 2022, and interest is payable on the 2022 Notes on each May 1 and November 1. Upon the occurrence of a change of control, unless the Company has given notice to redeem the 2022 Notes, the holders of the 2022 Notes will have the right to require the Company to repurchase all or a portion of the 2022 Notes at a price equal to 101% of the aggregate principal amount of the 2022 Notes, plus any accrued and unpaid interest. The Company may redeem some or all of the 2022 Notes at redemption prices (expressed as percentages of principal amount) equal to 104.688% prior to May 1, 2018, 103.125% for the twelve-month period beginning May 1, 2018, 101.563% for the twelve-month period beginning on May 1, 2019 and 100.000% beginning on May 1, 2020, plus accrued and unpaid interest.
7.25% Senior Notes Due 2023 (b)
The Company has $400.0 million in aggregate principal amount of 7.25% senior notes due 2023 outstanding (the 2023 Notes). The 2023 Notes will mature on May 1, 2023, and interest is payable on the 2023 Notes on each May 1 and November 1. At any time prior to May 1, 2018, the Company may redeem up to 35% of the 2023 Notes at a redemption price of 107.250% of the principal amount, plus accrued and unpaid interest, with the proceeds of certain equity offerings so long as the redemption occurs within 180 days of completing such equity offering and at least 65% of the aggregate principal amount of the 2023 Notes remains outstanding after such redemption. Prior to May 1, 2018, the Company may redeem some or all of the notes for cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest. Upon the occurrence of a change of control, unless the Company has given notice to redeem the 2023 Notes, the holders of the 2023 Notes will have the right to require the Company to repurchase all or a portion of the 2023 Notes at a price equal to 101% of the aggregate principal amount of the 2023 Notes, plus any accrued and unpaid interest. On or after May 1, 2018, the Company may redeem some or all of the 2023 Notes at redemption prices (expressed as percentages of principal amount) equal to 105.438% for the twelve-month period beginning on May 1, 2018, 103.625% for the twelve-month period beginning May 1, 2019, 101.813% for the twelve-month period beginning on May 1, 2020 and 100.000% beginning on May 1, 2021, plus accrued and unpaid interest.
The 2022 Notes and the 2023 Notes (collectively, the Notes) are the Companys senior unsecured obligations, rank equally in right of payment with all of the Companys existing and future senior debt, and will rank senior in right of payment to all of the Companys future subordinated debt. The Notes will be effectively subordinated to all of the Companys existing and future secured debt to the extent of the value of the collateral
securing such indebtedness. The Notes are jointly and severally, fully and unconditionally, guaranteed by the Companys Guarantors.
Senior Secured Revolving Credit Facility (c)
In April 2013, the Company entered into a Senior Secured Revolving Credit Facility (the Senior Secured Revolving Credit Facility) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders. In April 2014, the Company, as borrower, and Rice Drilling B LLC (Rice Drilling B), as predecessor borrower, amended and restated the credit agreement governing the Senior Secured Revolving Credit Facility to, among other things, assign all of the rights and obligations of Rice Drilling B as borrower under the Senior Secured Revolving Credit Facility to the Company.
In connection with the closing of the Vantage Acquisition, in October 2016, the Company entered into a Fourth Amended and Restated Credit Agreement (the A&R Credit Agreement), among the Company, Rice Energy Operating, Wells Fargo Bank, N.A., as administrative agent, and the lenders and other parties thereto. The A&R Credit Agreement provides, among other things, for the assignment of the Companys rights and obligations as borrower under the Senior Secured Revolving Credit Facility to Rice Energy Operating and the addition of the Company as a guarantor of those obligations.
On June 15, 2017, Rice Energy Operating, as borrower, and the Company, as parent guarantor, entered into the Third Amendment to the A&R Credit Agreement, pursuant to which the lenders under the A&R Credit Agreement completed their semi-annual redetermination of the borrowing base. Following the redetermination, the Companys borrowing base and aggregate elected commitment amounts each increased from $1.45 billion to $1.6 billion.
As of June 30, 2017, the borrowing base was $1.6 billion and the sublimit for letters of credit was $400.0 million. The Company had zero borrowings outstanding and $211.0 million in letters of credit outstanding under the A&R Credit Agreement as of June 30, 2017, resulting in availability of $1.4 billion. The maturity date of the Senior Secured Revolving Credit Facility is October 19, 2021. The next redetermination of the borrowing base is expected to occur in October 2017.
Eurodollar loans under the Senior Secured Revolving Credit Facility bear interest at a rate per annum equal to LIBOR plus an applicable margin ranging from 225 to 325 basis points, depending on the percentage of borrowing base utilized, and base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent banks reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 225 basis points, depending on the percentage of borrowing base utilized.
The A&R Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Senior Secured Revolving Credit Facility to be immediately due and payable.
The Company was in compliance with such covenants and ratios effective as of June 30, 2017.
Midstream Holdings Revolving Credit Facility (d)
On December 22, 2014, Rice Midstream Holdings LLC (Midstream Holdings) entered into a credit agreement (the Midstream Holdings Credit Agreement) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders establishing a revolving credit facility (the Midstream Holdings Revolving Credit Facility) with a maximum credit amount of $300.0 million and a sublimit for letters of credit of $25.0 million.
As of June 30, 2017, Midstream Holdings had $112.5 million of borrowings outstanding and no letters of credit under this facility, resulting in availability of $187.5 million. The year-to-date average daily outstanding balance of the Midstream Holdings Revolving Credit Facility was approximately $74.6 million, and interest was incurred on the Midstream Holdings Revolving Credit Facility at a weighted average interest rate of 3.2% through
June 30, 2017. The Midstream Holdings Revolving Credit Facility is available to fund working capital requirements and capital expenditures and to purchase assets. The maturity date of the Midstream Holdings Revolving Credit Facility is December 22, 2019.
Principal amounts borrowed are payable on the maturity date, and interest is payable quarterly for base rate loans and at the end of the applicable interest period for Eurodollar loans. Midstream Holdings may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 225 to 300 basis points, depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent banks reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 200 basis points, depending on the leverage ratio then in effect. Midstream Holdings also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The Midstream Holdings Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Midstream Holdings Revolving Credit Facility to be immediately due and payable. Midstream Holdings was in compliance with such covenants and ratios effective as of June 30, 2017.
RMP Revolving Credit Facility (e)
On December 22, 2014, Rice Midstream OpCo LLC (Rice Midstream OpCo), a wholly-owned subsidiary of the Partnership, entered into a credit agreement (the RMP Credit Agreement) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders establishing a revolving credit facility (the RMP Revolving Credit Facility).
As of June 30, 2017, the RMP Revolving Credit Facility provided for lender commitments of $850.0 million, with an additional $200.0 million of commitments available under an accordion feature subject to lender approval. Rice Midstream OpCo had $206.0 million of borrowings outstanding and no letters of credit outstanding under the RMP Revolving Credit Facility as of June 30, 2017, resulting in availability of $644.0 million. The year-to-date average daily outstanding balance of the RMP Revolving Credit Facility was approximately $194.0 million, and interest was incurred at a weighted average annual interest rate of 2.9% through June 30, 2017. The RMP Revolving Credit Facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions and repurchase units and for general partnership purposes and matures on December 22, 2019. The Partnership and its restricted subsidiaries are the guarantors of the obligations under the RMP Revolving Credit Facility.
Principal amounts borrowed are payable on the maturity date, and interest is payable quarterly for base rate loans and at the end of the applicable interest period for Eurodollar loans. Rice Midstream OpCo may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 200 to 300 basis points, depending on the leverage ratio then in effect, and base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent banks reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 100 to 200 basis points, depending on the leverage ratio then in effect. Rice Midstream OpCo also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The RMP Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the RMP Revolving Credit Facility to be immediately due and payable. The Partnership was in compliance with such covenants and ratios effective as of June 30, 2017.
Expected Aggregate Maturities
Expected aggregate maturities of long-term debt as of June 30, 2017 are as follows (in thousands):
Remainder of Year Ending December 31, 2017 |
|
$ |
|
|
Year Ending December 31, 2018 |
|
|
| |
Year Ending December 31, 2019 |
|
318,500 |
| |
Year Ending December 31, 2020 |
|
|
| |
Year Ending December 31, 2021 and Beyond |
|
1,281,279 |
| |
Total |
|
$ |
1,599,779 |
|
Interest paid in cash was approximately $49.1 million and $55.1 million for the three and six months ended June 30, 2017, respectively, and $46.6 million and $49.1 million for the three and six months ended June 30, 2016, respectively.
6. Derivative Instruments
The Company uses derivative commodity instruments that are placed with major financial institutions whose creditworthiness is regularly monitored. Substantially all of the Companys derivative counterparties share in the Senior Secured Revolving Credit Facility collateral. The Company has entered into various derivative contracts to manage price risk and to achieve more predictable cash flows. As a result of the Companys hedging activities, the Company may realize prices that are greater or less than the market prices that it would have received otherwise.
As of June 30, 2017, the Company has entered into derivative instruments with various financial institutions, fixing the price it receives for a portion of its future sales of produced natural gas. The Companys fixed price derivatives primarily include swap and collar contracts that are tied to the commodity prices on NYMEX. As of June 30, 2017, the Company has entered into NYMEX hedging contracts through December 31, 2021, hedging a total of approximately 1,234 Bcfe of its projected natural gas production at a weighted average price of $2.99 per MMBtu. Additionally, the Company has entered into basis swap contracts to hedge the difference between the NYMEX index price and various local index prices. The fixed price and basis hedging contracts the Company has entered into through December 31, 2021 at other various sales points cover a total of approximately 1,165 Bcfe.
As a result of the entry into the Merger Agreement (as discussed in Note 1), the Company reassessed the probability of a Change in Control under the LLC Agreement and the GP Holdings A&R LPA and determined that the Change in Control was probable (all terms as defined in Note 10). As such, we assessed certain embedded derivatives requiring bifurcation in the LLC Agreement and GP Holdings A&R LPA and determined that the value of the Investor Put Right (as defined in Note 10) has increased as a result of the increased probability of the Change in Control. As of June 30, 2017, the fair value of the Investor Put Right embedded derivative was approximately $15.4 million and is included as an embedded derivative liability in the accompanying condensed consolidated balance sheet. Refer to Note 10 for further information.
The Company recognizes all derivative instruments as either assets or liabilities at fair value per Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) Derivatives and Hedging (Topic 815). The Companys derivative commodity instruments have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized currently in earnings. The following tables present the gross amounts of the Companys recognized derivative assets and liabilities, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the consolidated balance sheets for the periods presented, all at fair value:
|
|
As of June 30, 2017 |
| |||||||
(in thousands) |
|
Derivative instruments, |
|
Derivative instruments |
|
Derivative Instruments, |
| |||
Derivative assets |
|
$ |
131,000 |
|
$ |
(74,663 |
) |
$ |
56,337 |
|
Derivative liabilities |
|
$ |
157,612 |
|
$ |
(93,960 |
) |
$ |
63,652 |
|
Embedded derivative liability |
|
$ |
15,417 |
|
$ |
|
|
$ |
15,417 |
|
|
|
As of December 31, 2016 |
| |||||||
(in thousands) |
|
Derivative instruments, |
|
Derivative instruments |
|
Derivative Instruments, |
| |||
Derivative assets |
|
$ |
103,507 |
|
$ |
(63,490 |
) |
$ |
40,017 |
|
Derivative liabilities |
|
$ |
286,019 |
|
$ |
(120,154 |
) |
$ |
165,865 |
|
7. Fair Value of Financial Instruments
The Company determines the fair value of its financial instruments, which are comprised primarily of derivative instruments, on a recurring basis as these instruments are required to be recorded at fair value for each reporting amount. Certain amounts in the Companys financial statements were measured at fair value on a nonrecurring basis, including discounts associated with long-term debt. Fair value is based on quoted market prices, where available. If quoted market prices are not available, fair value is based upon models that use as inputs market-based parameters, including but not limited to forward curves, discount rates, broker quotes, volatilities and nonperformance risk.
The Company has categorized its fair value measurements into a three-level fair value hierarchy, based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Companys fair value measurements relating to derivative instruments are included in Level 2. Since the adoption of fair value accounting, the Company has not made any changes to its classification of financial instruments in each category.
Items included in Level 3 are valued using internal models that use significant unobservable inputs. Items included in Level 2 are valued using managements best estimate of fair value corroborated by third-party quotes.
The following assets and liabilities were measured at fair value on a recurring basis during the period (refer to Note 6 for details relating to derivative instruments):
|
|
As of June 30, 2017 |
| |||||||||||||
|
|
|
|
Fair Value Measurements at Reporting Date Using |
| |||||||||||
(in thousands) |
|
Carrying Value |
|
Total Fair Value |
|
Quoted Prices |
|
Significant Other |
|
Significant |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Derivative instruments, at fair value |
|
$ |
56,337 |
|
$ |
56,337 |
|
$ |
|
|
$ |
56,337 |
|
$ |
|
|
Total assets |
|
$ |
56,337 |
|
$ |
56,337 |
|
$ |
|
|
$ |
56,337 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Derivative instruments, at fair value |
|
$ |
63,652 |
|
$ |
63,652 |
|
$ |
|
|
$ |
63,652 |
|
$ |
|
|
Embedded derivatives, at fair value |
|
15,417 |
|
15,417 |
|
|
|
|
|
15,417 |
| |||||
Total liabilities |
|
$ |
79,069 |
|
$ |
79,069 |
|
$ |
|
|
$ |
63,652 |
|
$ |
15,417 |
|
|
|
As of December 31, 2016 |
| |||||||||||||
|
|
|
|
Fair Value Measurements at Reporting Date Using |
| |||||||||||
(in thousands) |
|
Carrying Value |
|
Total Fair Value |
|
Quoted Prices |
|
Significant Other |
|
Significant |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Derivative instruments, at fair value |
|
$ |
40,017 |
|
$ |
40,017 |
|
$ |
|
|
$ |
40,017 |
|
$ |
|
|
Total assets |
|
$ |
40,017 |
|
$ |
40,017 |
|
$ |
|
|
$ |
40,017 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Derivative instruments, at fair value |
|
$ |
165,865 |
|
$ |
165,865 |
|
$ |
|
|
$ |
165,865 |
|
$ |
|
|
Total liabilities |
|
$ |
165,865 |
|
$ |
165,865 |
|
$ |
|
|
$ |
165,865 |
|
$ |
|
|
The carrying value of cash and cash equivalents approximates fair value due to the short maturity of the instruments. The Companys non-financial assets, such as property, plant and equipment, goodwill and intangible assets are recorded at fair value upon business combination and are remeasured at fair value only if an impairment charge is recognized. To the extent necessary, the Company applies unobservable inputs and management judgment due to the absence of quoted market prices (Level 3) to the valuation methodologies for these non-financial assets.
The estimated fair value and gross carrying amount of long-term debt as reported on the condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016 is shown in the table below (refer to Note 5 for details relating to the debt instruments). The fair value was estimated using Level 2 inputs based on rates reflective of the remaining maturity as well as the Companys financial position. The gross carrying value of the revolving credit facilities approximates fair value for the periods presented below.
|
|
As of June 30, 2017 |
|
As of December 31, 2016 |
| ||||||||
Long-Term Debt (in thousands) |
|
Carrying |
|
Fair Value |
|
Carrying |
|
Fair Value |
| ||||
Senior Notes Due 2022 |
|
$ |
900,000 |
|
$ |
942,750 |
|
$ |
900,000 |
|
$ |
929,250 |
|
Senior Notes Due 2023 |
|
397,791 |
|
433,000 |
|
397,601 |
|
428,000 |
| ||||
Midstream Holdings Revolving Credit Facility |
|
112,500 |
|
112,500 |
|
53,000 |
|
53,000 |
| ||||
RMP Revolving Credit Facility |
|
206,000 |
|
206,000 |
|
190,000 |
|
190,000 |
| ||||
Total |
|
$ |
1,616,291 |
|
$ |
1,694,250 |
|
$ |
1,540,601 |
|
$ |
1,600,250 |
|
8. Financial Information by Business Segment
The Company is organized and operates in three different operating segments: the Exploration and Production segment, the Rice Midstream Holdings segment and the Rice Midstream Partners segment. The segments represent components of the Company that engage in activities (a) from which revenue is generated and expenses are incurred; (b) whose operating results are regularly reviewed by the Chief Operating Decision Maker, who makes decisions about resources to be allocated to the segment and (c) for which discrete financial information is available. Operating segments are evaluated on their contribution to the Companys consolidated results based on operating income. Other income and expenses, interest and income taxes are managed on a consolidated basis. The
segment accounting policies are the same as those described in Note 1 to the Companys Consolidated Financial Statements for the year ended December 31, 2016 contained in its 2016 Annual Report.
The operating results of the Companys reportable segments were as follows for the three months ended June 30, 2017:
(in thousands) |
|
Exploration |
|
Rice |
|
Rice |
|
Elimination of |
|
Consolidated |
| |||||
Total operating revenues |
|
$ |
360,242 |
|
$ |
31,947 |
|
$ |
72,377 |
|
$ |
(66,259 |
) |
$ |
398,307 |
|
Total operating expenses |
|
301,801 |
|
11,847 |
|
25,364 |
|
(54,152 |
) |
284,860 |
| |||||
Operating income (loss) |
|
$ |
58,441 |
|
$ |
20,100 |
|
$ |
47,013 |
|
$ |
(12,107 |
) |
$ |
113,447 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures for segment assets |
|
$ |
268,254 |
|
$ |
61,351 |
|
$ |
29,530 |
|
$ |
(12,772 |
) |
$ |
346,363 |
|
Depreciation, depletion and amortization |
|
$ |
141,478 |
|
$ |
1,790 |
|
$ |
7,543 |
|
$ |
(4,907 |
) |
$ |
145,904 |
|
The operating results of the Companys reportable segments were as follows for the three months ended June 30, 2016:
(in thousands) |
|
Exploration |
|
Rice |
|
Rice |
|
Elimination of |
|
Consolidated |
| |||||
Total operating revenues |
|
$ |
132,270 |
|
$ |
11,873 |
|
$ |
46,547 |
|
$ |
(34,692 |
) |
$ |
155,998 |
|
Total operating expenses |
|
191,718 |
|
7,872 |
|
17,547 |
|
(27,360 |
) |
189,777 |
| |||||
Operating (loss) income |
|
$ |
(59,448 |
) |
$ |
4,001 |
|
$ |
29,000 |
|
$ |
(7,332 |
) |
$ |
(33,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures for segment assets |
|
$ |
150,646 |
|
$ |
15,894 |
|
$ |
38,776 |
|
$ |
(10,506 |
) |
$ |
194,810 |
|
Depreciation, depletion and amortization |
|
$ |
79,515 |
|
$ |
1,556 |
|
$ |
6,855 |
|
$ |
(3,174 |
) |
$ |
84,752 |
|
The operating results and assets of the Companys reportable segments were as follows for the six months ended June 30, 2017:
(in thousands) |
|
Exploration |
|
Rice |
|
Rice |
|
Elimination of |
|
Consolidated |
| |||||
Total operating revenues |
|
$ |
723,705 |
|
$ |
58,791 |
|
$ |
135,127 |
|
$ |
(125,510 |
) |
$ |
792,113 |
|
Total operating expenses |
|
672,971 |
|
18,858 |
|
47,518 |
|
(102,890 |
) |
636,457 |
| |||||
Operating income (loss) |
|
$ |
50,734 |
|
$ |
39,933 |
|
$ |
87,609 |
|
$ |
(22,620 |
) |
$ |
155,656 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures for segment assets |
|
$ |
494,014 |
|
$ |
123,782 |
|
$ |
58,036 |
|
$ |
(31,506 |
) |
$ |
644,326 |
|
Depreciation, depletion and amortization |
|
$ |
273,317 |
|
$ |
3,187 |
|
$ |
15,164 |
|
$ |
(8,886 |
) |
$ |
282,782 |
|
Segment assets |
|
$ |
6,019,255 |
|
$ |
589,584 |
|
$ |
1,471,348 |
|
$ |
(85,137 |
) |
$ |
7,995,050 |
|
Goodwill |
|
$ |
368,992 |
|
$ |
|
|
$ |
510,019 |
|
$ |
|
|
$ |
879,011 |
|
The operating results of the Companys reportable segments were as follows for the six months ended June 30, 2016:
(in thousands) |
|
Exploration |
|
Rice |
|
Rice |
|
Elimination of |
|
Consolidated |
| |||||
Total operating revenues |
|
$ |
247,660 |
|
$ |
22,524 |
|
$ |
101,090 |
|
$ |
(75,334 |
) |
$ |
295,940 |
|
Total operating expenses |
|
374,898 |
|
15,397 |
|
36,473 |
|
(49,659 |
) |
377,109 |
| |||||
Operating (loss) income |
|
$ |
(127,238 |
) |
$ |
7,127 |
|
$ |
64,617 |
|
$ |
(25,675 |
) |
$ |
(81,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures for segment assets |
|
$ |
386,320 |
|
$ |
54,267 |
|
$ |
75,019 |
|
$ |
(31,077 |
) |
$ |
484,529 |
|
Depreciation, depletion and amortization |
|
$ |
154,471 |
|
$ |
2,645 |
|
$ |
12,225 |
|
$ |
(5,404 |
) |
$ |
163,937 |
|
The assets of the Companys reportable segments were as follows as of December 31, 2016:
(in thousands) |
|
Exploration |
|
Rice |
|
Rice |
|
Elimination of |
|
Consolidated |
| |||||
Segment assets |
|
$ |
6,120,530 |
|
$ |
360,292 |
|
$ |
1,399,217 |
|
$ |
(62,517 |
) |
$ |
7,817,522 |
|
Goodwill |
|
$ |
384,431 |
|
$ |
|
|
$ |
494,580 |
|
$ |
|
|
$ |
879,011 |
|
9. Commitments and Contingencies
On October 14, 2013, the Company entered into a Development Agreement and Area of Mutual Interest Agreement (collectively, the Utica Development Agreements) with Gulfport Energy Corporation (Gulfport) covering approximately 50,000 aggregate net acres in the Utica Shale in Belmont County, Ohio. Pursuant to the Utica Development Agreements, the Company had approximately 68.7% participating interest in acreage currently owned or to be acquired by the Company or Gulfport located within Goshen and Smith Townships (the Northern Contract Area) and an approximately 48.2% participating interest in acreage currently owned or to be acquired by the Company or Gulfport located within Wayne and Washington Townships (the Southern Contract Area), each within Belmont County, Ohio. The majority of the remaining participating interests are held by Gulfport. The participating interests of the Company and Gulfport in each of the Northern and Southern Contract Areas approximated the Companys then-current relative acreage positions in each area.
The Utica Development Agreements have terms of ten years and are terminable upon 90 days notice by either party; provided that, with respect to interests included within a drilling unit, such interests shall remain subject
to the applicable joint operating agreement and the Company and Gulfport shall remain operators of drilling units located in the Northern and Southern Contract Areas, respectively, following such termination.
Firm Transportation
The Company has commitments for gathering and firm transportation under existing contracts with third parties. Future payments under these contracts as of June 30, 2017 totaled $4.9 billion (remainder of 2017 - $95.1 million, 2018 - $242.2 million, 2019 - $235.5 million, 2020 - $235.2 million, 2021 - $234.8 million, 2022 - $234.4 million and thereafter - $3.6 billion).
Drilling Rig Service Commitments
As of June 30, 2017, the Company had five horizontal rigs under contract, of which three expire in 2017, one expires in 2018 and one expires in 2019. The Company also had four tophole drilling rigs under contract, of which one expires in 2017, one expires in 2018 and two expire in 2019. Future payments under these contracts as of June 30, 2017 totaled $62.7 million (remainder of 2017 - $23.3 million, 2018 - $31.3 million and 2019 - $8.1 million). Any other rig performing work for the Company is performed on a well-by-well basis and therefore can be released without penalty at the conclusion of drilling on the current well, the costs of which have not been included in the amounts above. The values above represent the gross amounts that the Company is committed to pay without regard to its proportionate share based on its working interest.
Frac Sand Commitments
Commencing in January 2017, the Company has commitments for frac sand to be used as a proppant in its hydraulic fracturing operations. Future commitments under these contracts as of June 30, 2017 totaled $38.2 million (remainder of 2017 - $7.6 million, 2018 - $15.2 million and 2019 - $15.4 million).
Litigation
From time to time the Company is party to various legal and/or regulatory proceedings arising in the ordinary course of business. While the ultimate outcome and impact to the Company cannot be predicted with certainty, the Company believes that all such matters are without merit and involve amounts which, if resolved unfavorably, either individually or in the aggregate, will not have a material adverse effect on its financial condition, results of operations or cash flows. When it is determined that a loss is probable of occurring and is reasonably estimable, the Company accrues an undiscounted liability for such contingencies based on its best estimate using information available at the time. The Company discloses contingencies where an adverse outcome may be material, or in the judgment of management, the matter should otherwise be disclosed.
10. Mezzanine Equity
On February 17, 2016, Midstream Holdings and GP Holdings, entered into a securities purchase agreement (the Securities Purchase Agreement) with EIG Energy Fund XVI, L.P., EIG Energy Fund XVI-E, L.P., and EIG Holdings (RICE) Partners, LP (collectively, the Investors) pursuant to which (i) Midstream Holdings agreed to issue and sell 375,000 Series B Units (Series B Units) with an aggregate liquidation preference of $375.0 million and (ii) GP Holdings agreed to issue and sell common units representing an 8.25% limited partner interest in GP Holdings (GP Holdings Common Units) for aggregate consideration of $375.0 million in a private placement (the Midstream Holdings Investment) exempt from the registration requirements under the Securities Act. In conjunction with the Securities Purchase Agreement, Midstream Holdings issued 1,000 Series A Units to Rice Energy Operating. The Midstream Holdings Investment closed on February 22, 2016 (the Closing Date).
In connection with the Closing Date, (i) Rice Energy Operating and the Investors entered into the Amended and Restated Limited Liability Company Agreement of Midstream Holdings (the LLC Agreement), which defines the preferences, rights, powers and duties of holders of the Series B Units and (ii) Rice Midstream GP Management LLC (GP Management), as general partner of GP Holdings, and Midstream Holdings and the Investors, as limited partners, entered into the Amended and Restated Agreement of Limited Partnership of GP Holdings, which defines
the preferences, rights, powers and duties of holders of the GP Holdings Common Units (the GP Holdings A&R LPA).
In connection with the Midstream Holdings Investment, Midstream Holdings received gross proceeds of $375.0 million less transaction fees and expenses of approximately $6.2 million. Midstream Holdings used approximately $69.0 million of the proceeds to reduce outstanding borrowings under the Midstream Holdings Revolving Credit Facility and $300.0 million was distributed to the Company.
Series B Units
Pursuant to the LLC Agreement, the Series B Units rank senior to all other equity interests in Midstream Holdings with respect to the payment of distributions and distribution of assets upon liquidation, dissolution and winding up. The Series B Units will pay quarterly distributions at a rate of 8% per annum, payable in cash or in-kind through the issuance of additional Series B Units, subject to certain exceptions, at Midstream Holdings option for the first two years, and in cash thereafter.
Distributions are payable on January 1, April 1, July 1 and October 1 of each year that the Series B Units remain outstanding. For purposes of the second quarter 2017 distribution, the Company paid $7.7 million in cash in July 2017.
The Investors holding Series B Units have the option to require Midstream Holdings to redeem the Series B Units on or after the tenth anniversary of the Closing Date at an amount equal to $1,000 per Series B Unit plus any accrued and unpaid distributions (the Liquidation Preference). The Series B Units are subject to an optional cash redemption by Midstream Holdings after the third anniversary of the Closing Date, at an amount equal to the Liquidation Preference. If any of the Company, the Partnership or Midstream Holdings undergoes a Change in Control (as defined in the LLC Agreement), the Investors have the right to require Midstream Holdings to repurchase any or all of the Series B Units for cash (the Investor Put Right), and Midstream Holdings has the right to repurchase any or all of the Series B Units for cash. The redemption price pursuant to the Investor Put Right for a Change of Control prior to February 2019 is equal to the sum of (a) $1,000 per Series B Unit plus (b) any distributions that have accrued but have not been paid on such Series B Units as of the date of determination of a Change in Control plus (c) all distributions that would accrue following the date of determination of a Change in Control through the third anniversary of the Closing Date (Accelerated Distributions, and together with (a) and (b), the Early Redemption Price). The holders of the Series B units do not have the power to vote or dispose of the equity interest in the Partnership held by GP Holdings.
In relation to the Series B Units, the occurrence of certain events or violations of certain financial and non-financial restrictions will constitute Triggering Events (as defined in the Securities Purchase Agreement) that may result in various consequences, including additional restrictions on the activities of Midstream Holdings, including the termination of the Investors additional commitment, increases in the distribution rate, additional governance rights for the Investors and other measures depending on the applicable Triggering Event. As of June 30, 2017, none of the Triggering Events had occurred.
In the event that Midstream Holdings or GP Holdings pursues an initial public offering, Midstream Holdings may redeem the Series B Units at a redemption price equal to the Liquidation Preference on the date of the closing of the applicable initial public offering plus all additional distributions that would have otherwise been paid through the third anniversary of the Closing Date. Midstream Holdings may satisfy this redemption price in cash or common equity interests of the entity that completes an initial public offering. In the event of any liquidation and winding up of Midstream Holdings, profits and losses will be allocated to the holders of the Series B Units so that, to the maximum extent possible, the capital accounts of the Series B unitholders will equal the aggregate Liquidation Preference.
GP Holdings Common Units
Pursuant to the GP Holdings A&R LPA, the holders of the GP Holdings Common Units are entitled to distributions of GP Holdings in proportion to their pro rata share of the outstanding GP Holdings Common Units.
Distributions will occur upon GP Holdings receipt of any distributions of cash in respect of the equity interests in the Partnership held by GP Holdings.
The Investors holding GP Holdings Common Units have tag-along rights in connection with a sale of the common equity interests in GP Holdings to a third-party. The holders of GP Holdings Common Units will have drag-along rights in connection with a sale of the majority of the common equity interests in GP Holdings to a third-party, subject to the achievement of an agreed-upon minimum return. If a qualifying initial public offering of GP Holdings is not consummated prior to the fifth anniversary of the Closing Date, the holders of the GP Holdings Common Units shall have the right to require GP Holdings to repurchase all of their GP Holdings Common Units for cash in an aggregate purchase price of $125.0 million. In the event of a Change in Control or a GP Change in Control (as each term is defined in the GP Holdings A&R LPA) of the Company, Midstream Holdings or GP Holdings, the Purchasers shall have the right to require GP Holdings to repurchase all of their GP Holdings Common Units for an aggregate purchase price of $125.0 million (Minimum Investor Return). The holders of the GP Holdings Common Units do not have the power to vote or dispose of the Partnerships units held by GP Holdings.
In the event GP Holdings sells any of its assets, subject to certain exceptions, GP Holdings may only make distributions of such proceeds to the extent that GP Holdings meets certain requirements, including the requirement to retain a certain amount of cash or cash equivalents following the sale of such assets. In the event of any liquidation and winding up of GP Holdings, GP Management, in its capacity as general partner, will appoint a liquidator to wind up the affairs and make final distributions as provided for in the GP Holdings A&R LPA.
After September 30, 2016 and prior to the eighteen-month anniversary of the closing of the Midstream Holdings Investment, upon the satisfaction of certain financial and operational metrics, Midstream Holdings has the right to require the Investors to purchase additional Series B Units and GP Holdings Common Units. Midstream Holdings may require the Investors to purchase at least $25.0 million of additional units on up to three occasions, up to a total aggregate amount of $125.0 million. Pursuant to the Securities Purchase Agreement, Midstream Holdings is required to pay the Investors a quarterly cash commitment fee of 2% per annum on any undrawn amounts of the additional $125.0 million commitment. The commitment fee paid in cash was approximately $0.6 million and $1.2 million for the three and six months ended June 30, 2017. No additional units have been purchased by the Investors since the closing of the Midstream Holdings Investment.
As the Investors have an option to redeem the Series B Units and GP Holdings Common Units for cash at a future date, the proceeds from such securities (net of accretion and issuances costs and fees) are not considered to be a component of stockholders equity on the condensed consolidated balance sheet, and such Series B Units and GP Holdings Common Units are reported as mezzanine equity on the condensed consolidated balance sheet. The following table represents the value allocated to the Series B Units and GP Holdings Common Units at inception.
(in thousands) |
|
|
| |
At Inception |
|
|
| |
Series B Units |
|
$ |
341,661 |
|
GP Holdings Common Units |
|
33,339 |
| |
Less: issuance costs and fees |
|
(6,242 |
) | |
Carrying amount of redeemable noncontrolling interest at inception |
|
$ |
368,758 |
|
Effects of the Proposed Merger
As a result of the entry into the Merger Agreement (as discussed in Note 1), the Company reassessed the probability of a Change in Control under the LLC Agreement and the GP Holdings A&R LPA and determined that a Change in Control was probable. As such, we assessed certain embedded derivatives requiring bifurcation in the LLC Agreement and GP Holdings A&R LPA and determined that the value of the Investor Put Right has increased as a result of the increased probability of the Change in Control. The fair value of the Investor Put Right, a Level 3 financial instrument (refer to Notes 6 and 7), was calculated under a Black-Derman-Toy model and the with-and-without method as a form of the income approach. This method compared the value of the Series B Units with and without the Investor Put Right in determining the fair value of the Investor Put Right as of June 30, 2017.
Significant assumptions in the Black-Derman-Toy model included the treasury yield curve, interest rate volatility curve, market yield spread, probability of the closing of the Merger and the estimated closing date of the Merger. As of June 30, 2017, the fair value of the Investor Put Right embedded derivative was approximately $15.4 million and is included as an embedded derivative liability in the accompanying condensed consolidated balance sheet.
Additionally, as a result of the entry into the Merger Agreement, the Company concluded that while the Series B Units and GP Holdings Common Units were not currently redeemable as of June 30, 2017, it was probable that they would become redeemable by the Investors prior to the respective earliest redemption dates as stipulated in the LLC Agreement and the GP Holdings A&R LPA, respectively. As the Series B Units would become redeemable at the Early Redemption Price, the Company accelerated accretion of the un-accreted discount to the face amount of the Series B Units and began accreting Accelerated Distributions under the assumption that the Merger would close in the fourth quarter of 2017. Similarly, as the GP Holdings Common Units would become redeemable to the effect of the Minimum Investor Return, the Company began accreting the GP Holdings Common Units from their fair value at inception to the Minimum Investor Return under the assumption that the Merger would close in the fourth quarter of 2017. Lastly, the Company accelerated amortization of unamortized issuance costs and fees under the assumption that the Merger would close in the fourth quarter of 2017.
The following table represents detail of the balance of redeemable noncontrolling interest, net on the condensed consolidated balance sheet as of June 30, 2017 after the effects of the Merger as discussed above.
(in thousands) |
|
|
| |
As of June 30, 2017 |
|
|
| |
Face amount of Series B Units |
|
$ |
375,000 |
|
Plus: Accelerated Distributions |
|
50,997 |
| |
Plus: distributions paid in kind |
|
11,504 |
| |
Less: un-accreted discount of face amount of Series B Units |
|
(28,349 |
) | |
Less: un-accreted Accelerated Distributions |
|
(47,331 |
) | |
Carrying amount of Series B Units |
|
361,821 |
| |
GP Holdings Common Units |
|
33,339 |
| |
Plus: additional value to Minimum Investor Return |
|
91,661 |
| |
Less: un-accreted additional value to Minimum Investor Return |
|
(85,071 |
) | |
Carrying amount of GP Holdings Common Units |
|
39,929 |
| |
Less: unamortized issuance costs and fees |
|
(5,039 |
) | |
Redeemable noncontrolling interest, net |
|
$ |
396,711 |
|
The Investors holding GP Common Units are subject to an allocation of income and losses associated with their respective ownership percentages in GP Holdings. Income attributable to the Investors was $1.1 million and $0.9 million for the three months ended June 30, 2017 and 2016, respectively. Income attributable to the Investors for the six months ended June 30, 2017 and for the period from February 22, 2016 through June 30, 2016 was $2.1 million and $1.4 million, respectively.
11. Stockholders Equity
The Companys Board of Directors did not declare or pay a dividend for the six months ended June 30, 2017. On May 18, 2017, a cash distribution of $0.2608 per common and subordinated unit was paid by the Partnership to the Partnerships unitholders related to the first quarter of 2017. On July 20, 2017, the Board of Directors of the Partnerships general partner declared a cash distribution to the Partnerships unitholders for the second quarter of 2017 of $0.2711 per common and subordinated unit. The cash distribution will be paid on August 17, 2017 to unitholders of record at the close of business on August 8, 2017. Also on August 17, 2017, a cash distribution of $1.6 million will be made to GP Holdings related to its incentive distribution rights in the Partnership in accordance with the partnership agreement.
The Companys authorized common stock includes 650,000,000 shares of common stock, $0.01 par value per share. The following table presents a summary of changes to the Companys common shares from January 1, 2016 through June 30, 2017:
Balance, January 1, 2016 |
|
136,387,194 |
|
April 2016 Equity Offering |
|
20,000,000 |
|
September 2016 Equity Offering |
|
46,000,000 |
|
Conversion of warrants into shares of common stock |
|
30,242 |
|
Common stock awards vested, net |
|
189,472 |
|
Balance as of December 31, 2016 |
|
202,606,908 |
|
Conversion of REO Common Units (as defined in Note 15) into shares of common stock |
|
8,479,336 |
|
Common stock awards vested, net |
|
558,743 |
|
Balance, June 30, 2017 |
|
211,644,987 |
|
12. Incentive Units
In connection with the Companys initial public offering (IPO) and the related corporate reorganization, the Rice Energy Operating incentive unit holders contributed their Rice Energy Operating incentive units to NGP Holdings and Rice Energy Holdings LLC (Rice Holdings) in return for (i) incentive units in such entities that, in the aggregate, were substantially similar to the Rice Energy Operating incentive units they previously held and (ii) shares of common stock in the amount of $3.4 million related to the extinguishment of the incentive burden attributable to Mr. Daniel J. Rice III. No payments were made in respect of incentive units prior to the completion of the Companys IPO. As a result of the IPO, the payment likelihood related to the NGP Holdings and Rice Holdings incentive units was deemed probable, requiring the Company to recognize compensation expense. The compensation expense related to these interests is treated as additional paid in capital from NGP Holdings and Rice Holdings in the Companys financial statements and is not deductible for federal or state income tax purposes. The compensation expense recognized is a non-cash charge, with the settlement obligation resting on NGP Holdings and Rice Holdings, and as such, the incentive units are not dilutive to Rice Energy Inc.
NGP Holdings
The NGP Holdings incentive units were considered a liability-based award and were adjusted to fair market value on a quarterly basis until all payments were made. During 2016, NGP Holdings sold its remaining shares of the Companys common stock in connection with the Companys public offering on April 15, 2016. No future expense will be recognized related to the NGP Holdings incentive units as a result of the April 2016 settlement of the remaining NGP Holdings incentive unit obligation. The Company recognized $9.0 million and $27.3 million of non-cash compensation expense for the three and six months ended June 30, 2016, respectively.
Rice Holdings
The Rice Holdings incentive units are considered an equity-based award with the fair value of the award determined at the grant date and amortized over the service period of the award using the straight-line method. Compensation expense relative to the Rice Holdings incentive units was $4.8 million and $7.7 million for the three and six months ended June 30, 2017, respectively, and $5.8 million and $11.7 million for the three and six months ended June 30, 2016, respectively. The Company will recognize approximately $3.3 million of additional compensation expense over the remaining expected service period related to the Rice Holdings incentive units.
In August 2014, the triggering event for the Rice Holdings incentive units was achieved. As a result, in September 2014, 2015 and 2016, Rice Holdings distributed one quarter, one third and one half, respectively, of its then-remaining assets (consisting solely of shares of the Companys common stock) to its members pursuant to the terms of its limited liability company agreement. In addition, in September 2017, Rice Holdings will distribute all of its then-remaining assets (consisting solely of shares of the Companys common stock) to its members pursuant to the terms of its limited liability company agreement. As a result, over time, the shares of the Companys common stock held by Rice Holdings will be transferred in their entirety to the members of Rice Holdings.
Combined
Total combined compensation expense attributable to the incentive units was $4.8 million and $7.7 million for the three and six months ended June 30, 2017, respectively, and $14.8 million and $39.0 million for the three and six months ended June 30, 2016, respectively.
The three tranches of the incentive units having a time vesting feature and were fully vested as of December 31, 2016.
Two tranches of the incentive units do not have a time vesting feature, and their payouts are triggered upon a future payment condition. As such, none of these awards have vested as of June 30, 2017.
13. Variable Interest Entities
Pursuant to an evaluation performed upon adoption of ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, the Company concluded that the Partnership, GP Holdings, Strike Force Midstream LLC (Strike Force Midstream), a subsidiary of Midstream Holdings and Gulfport Midstream Holdings LLC (Gulfport Midstream), a wholly owned subsidiary of Gulfport, and Rice Energy Operating each meet the criteria for variable interest entity (VIE) classification, as described in further detail below.
Rice Midstream Partners LP
The Company evaluated the Partnership for consolidation and determined the Partnership to be a VIE. The Company determined that the primary beneficiary of the Partnership is GP Holdings. As of June 30, 2017, Midstream Holdings held a significant indirect interest in the Partnership through (i) its ownership of a 91.75% limited liability partnership interest in GP Holdings, which owned an approximate 28% limited partner interest in the Partnership, and (ii) through ownership of its wholly-owned subsidiary Rice Midstream Management LLC, which holds all of the substantive voting and participating rights in the Partnership. As a result, through this ownership, the Company holds the power to direct the activities of the Partnership that most significantly impact the Partnerships economic performance and the obligation to absorb losses or the right to receive benefits from the Partnership that could potentially be significant to the Partnership.
As of June 30, 2017, the Company consolidated the Partnership, recording noncontrolling interest related to the net income of the Partnership attributable to its public unitholders. The following table presents summary information of assets and liabilities of the Partnership that is included in the Companys condensed consolidated balance sheets that are for the use or obligation of the Partnership.
(in thousands) |
|
June 30, 2017 |
|
December 31, 2016 |
| ||
Assets (liabilities): |
|
|
|
|
| ||
Cash |
|
$ |
12,196 |
|
$ |
21,834 |
|
Accounts receivable |
|
9,058 |
|
8,758 |
| ||
Other current assets |
|
129 |
|
64 |
| ||
Property and equipment, net |
|
860,011 |
|
805,027 |
| ||
Goodwill and intangible assets, net |
|
538,297 |
|
539,105 |
| ||
Deferred financing costs, net |
|
10,493 |
|
12,591 |
| ||
Accounts payable |
|
(9,376 |
) |
(4,172 |
) | ||
Accrued capital expenditures |
|
(16,288 |
) |
(9,074 |
) | ||
Other current liabilities |
|
(7,313 |
) |
(8,376 |
) | ||
Long-term debt |
|
(206,000 |
) |
(190,000 |
) | ||
Other long-term liabilities |
|
(6,283 |
) |
(5,189 |
) | ||
The following table presents summary information of the Partnerships financial performance included in the condensed consolidated statements of operations for the three and six months ended June 30, 2017 and 2016 and cash flows for the six months ended June 30, 2017 and 2016, inclusive of affiliate amounts.
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
(in thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Operating revenues |
|
$ |
72,377 |
|
$ |
46,547 |
|
$ |
135,127 |
|
$ |
101,090 |
|
Operating expenses |
|
$ |
25,365 |
|
$ |
17,547 |
|
$ |
47,519 |
|
$ |
36,473 |
|
Net income |
|
$ |
44,059 |
|
$ |
27,936 |
|
$ |
81,674 |
|
$ |
62,362 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net cash provided by operating activities |
|
|
|
|
|
$ |
86,857 |
|
$ |
74,664 |
| ||
Net cash used in investing activities |
|
|
|
|
|
$ |
(58,036 |
) |
$ |
(75,019 |
) | ||
Net cash (used in) provided by financing activities |
|
|
|
|
|
$ |
(38,460 |
) |
$ |
8,081 |
|
The following table presents the Companys limited partner ownership of the Partnership for the periods ended June 30, 2017 and December 31, 2016.
|
|
Partnership |
|
Total |
|
GP Holdings % |
|
% Ownership in |
|
As of: |
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|
28,757,246 |
|
70,917,372 |
|
41 |
% |
41 |
% |
Equity offering in June 2016 |
|
|
|
9,200,000 |
|
|
|
|
|
Equity offering in October 2016 |
|
|
|
20,930,233 |
|
|
|
|
|
Common units issued under ATM program |
|
|
|
944,700 |
|
|
|
|
|
Vested phantom units, net |
|
|
|
280,451 |
|
|
|
|
|
December 31, 2016 |
|
28,757,246 |
|
102,272,756 |
|
28 |
% |
26 |
% |
|
|
|
|
|
|
|
|
|
|
Vested phantom units, net |
|
|
|
30,352 |
|
|
|
|
|
June 30, 2017 |
|
28,757,246 |
|
102,303,108 |
|
28 |
% |
26 |
% |
Rice Midstream GP Holdings LP
The Company evaluated GP Holdings for consolidation and determined GP Holdings to be a VIE. The Company determined that the primary beneficiary of GP Holdings is Midstream Holdings. Midstream Holdings holds a 91.75% limited partnership interest in GP Holdings and GP Management holds all of the substantive voting and participating rights to direct the activities of GP Holdings. As a result, through this ownership, the Company holds the power to direct the activities of GP Holdings that most significantly impact GP Holdings economic performance and the obligation to absorb losses or the right to receive benefits from GP Holdings that could potentially be significant to GP Holdings.
As of June 30, 2017, the Company consolidates GP Holdings, recording noncontrolling interest related to the ownership interests of GP Holdings attributable to the Investors. GP Holdings maintains goodwill of $15.4 million and has no other significant assets, liabilities or operations other than consolidation of the Partnership.
Strike Force Midstream Holdings LLC
On February 1, 2016, Strike Force Midstream Holdings LLC (Strike Force Holdings), a wholly-owned subsidiary of Midstream Holdings, and Gulfport Midstream, entered into an Amended and Restated Limited Liability Company Agreement (the Strike Force LLC Agreement) of Strike Force Midstream to engage in the natural gas midstream business in approximately 319,000 acres in Belmont and Monroe Counties, Ohio. Under the terms of the Strike Force LLC Agreement, Strike Force Holdings made an initial contribution to Strike Force Midstream of certain pipelines, facilities and rights of way and cash in the amount of $41.0 million in exchange for a
75% membership interest in Strike Force Midstream. Gulfport Midstream made an initial contribution of a gathering system and related assets in exchange for a 25% membership interest in Strike Force Midstream. The assets contributed by Gulfport Midstream had a fair value of $22.5 million which was determined using Level 3 valuation inputs included in the discounted cash flow method within the income approach. The income approach includes estimates and assumptions related to future throughput volumes, operating costs, capital spending and changes in working capital. Estimating the fair value of these assets required judgment and determining the fair value is sensitive to changes in assumptions. Additionally, on February 1, 2016, Strike Force Midstream and Strike Force Holdings entered into a services agreement whereby Strike Force Holdings will provide all of the services necessary to operate, manage and maintain Strike Force Midstream.
The Company evaluated Strike Force Midstream for consolidation and determined Strike Force Midstream to be a VIE. Strike Force Holdings was determined to be the primary beneficiary as a result of its power to direct the activities of Strike Force Midstream that most significantly impact Strike Force Midstreams economic performance and the obligation to absorb losses or the right to receive benefits through its 75% membership interest in Strike Force Midstream.
As of June 30, 2017, the Company consolidates Strike Force Midstream, recording noncontrolling interest related to the ownership interests of Strike Force Midstream attributable to Gulfport Midstream. The following table presents summary information of assets and liabilities of Strike Force Midstream that is included in the Companys condensed consolidated balance sheet that are for the use or obligation of Strike Force Midstream.
(in thousands) |
|
June 30, 2017 |
|
December 31, 2016 |
| ||
Assets (liabilities): |
|
|
|
|
| ||
Cash |
|
$ |
38,142 |
|
$ |
36,572 |
|
Accounts receivable |
|
7,160 |
|
2,529 |
| ||
Property and equipment, net |
|
203,925 |
|
100,232 |
| ||
Accounts payable |
|
(1,987 |
) |
(3,863 |
) | ||
Accrued capital expenditures |
|
(32,261 |
) |
(18,962 |
) | ||
Other current liabilities |
|
(83 |
) |
(44 |
) | ||
The following table presents summary information for Strike Force Midstreams financial performance included in the condensed consolidated statement of operations for the three and six months ended June 30, 2017 and 2016 and cash flows for the six months ended June 30, 2017 and 2016, inclusive of affiliate amounts.
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
(in thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Operating revenues |
|
$ |
11,646 |
|
$ |
2,264 |
|
$ |
16,985 |
|
$ |
2,883 |
|
Operating expenses |
|
$ |
2,837 |
|
$ |
1,527 |
|
$ |
5,245 |
|
$ |
2,415 |
|
Net income |
|
$ |
8,850 |
|
$ |
737 |
|
$ |
11,812 |
|
$ |
468 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net provided by (used in) operating activities |
|
|
|
|
|
$ |
7,599 |
|
$ |
(791 |
) | ||
Net cash used in investing activities |
|
|
|
|
|
$ |
(93,291 |
) |
$ |
(18,076 |
) | ||
Net cash provided by financing activities |
|
|
|
|
|
$ |
87,261 |
|
$ |
53,000 |
|
Rice Energy Operating LLC
Following completion of the Vantage Acquisition, the Company operates the Vantage assets through Rice Energy Operating. As part of the consideration for the Vantage Acquisition, the Vantage Sellers received an aggregate 16.49% membership interest in Rice Energy Operating. In connection with the issuance of such membership interests to the Vantage Sellers, the Company and the Vantage Sellers entered into Rice Energy Operatings Third Amended and Restated Limited Liability Company Agreement (Third A&R LLC Agreement). Under the Third A&R LLC Agreement, the Company controls all of the day-to-day business affairs and decision
making of Rice Energy Operating without approval of any other member, unless otherwise stated in the Third A&R LLC Agreement. As such, the Company, through its officers and directors, is responsible for all operational and administrative decisions of Rice Energy Operating and the day-to-day management of Rice Energy Operatings business. Pursuant to the terms of the Third A&R LLC Agreement, the Company cannot, under any circumstances, be removed or replaced as the sole manager of Rice Energy Operating, except by its own election so long as it remains a member of Rice Energy Operating.
The Company evaluated Rice Energy Operating for consolidation and determined it to be a VIE. The Company determined that it is the primary beneficiary of Rice Energy Operating as it had both (i) the power, through control of all day-to-day business affairs and decision making of Rice Energy Operating that most significantly impact its economic performance and (ii) obligation to absorb losses or the right to receive benefits through its 87.04% membership interest in Rice Energy Operating. The 12.96% ownership held by the Vantage Sellers as of June 30, 2017 is presented as noncontrolling interest in the consolidated financial statements.
As of June 30, 2017, the Company consolidates Rice Energy Operating, recording noncontrolling interest related to the ownership interests of Rice Energy Operating attributable to the Vantage Sellers. The financial position, results of operations and cash flows of Rice Energy Operating do not materially differ from the Companys second quarter 2017 condensed consolidated financial statements.
The following tables present the outstanding common units owned by Rice Energy and the Vantage Sellers along with their respective ownership percentages in the Company as of June 30, 2017 and December 31, 2016.
As of June 30, 2017:
Unitholders |
|
Common Units |
|
Preferred |
|
Unitholders |
|
Rice Energy |
|
211,644,987 |
|
|
|
87.04 |
% |
Vantage Sellers(1) |
|
31,520,664 |
|
31,521 |
|
12.96 |
% |
Total |
|
243,165,651 |
|
31,521 |
|
100.00 |
% |
(1) During the six months ended June 30, 2017, the Vantage Sellers elected to have the Company redeem 8,479,336 REO Common Units for newly-issued shares of Rice Energy common stock. Upon exercise of the redemptions, the Vantage Sellers surrendered to the Company a corresponding 8,479 shares of preferred stock.
As of December 31, 2016:
Unitholders |
|
Common Units |
|
Preferred |
|
Unitholders |
|
Rice Energy |
|
202,606,908 |
|
|
|
83.51 |
% |
Vantage Sellers |
|
40,000,000 |
|
40,000 |
|
16.49 |
% |
Total |
|
242,606,908 |
|
40,000 |
|
100.00 |
% |
14. Stock-Based Compensation
From time to time, the Company grants stock-based compensation awards to certain non-employee directors and employees under its long-term incentive plan (the LTIP). Pursuant to the LTIP, the aggregate maximum number of shares of common stock issued under the LTIP will not exceed 17,500,000 shares. The Company has granted both restricted stock units and performance stock units, which vest upon the passage of time. The performance stock units ultimate payout is based upon the attainment of specified performance criteria over a performance period. During the three and six months ended June 30, 2017, the Company granted approximately 0.1 million and 0.9 million restricted stock units, respectively, which are expected to vest ratably over approximately one to three years. During the three and six months ended June 30, 2017, the Company granted approximately zero and 0.7 million performance stock units, respectively, which are expected to cliff vest in approximately three years. Stock-based compensation cost related to awards under the LTIP was $6.5 million and $11.9 million for the three and six months ended June 30, 2017, respectively, and $5.2 million and $9.2 million for the three and six months ended June 30, 2016, respectively. The Company has unrecognized compensation cost related to LTIP awards of $43.0 million which will be recognized over a period of one to three years.
Further information on stock-based compensation recorded in the condensed consolidated financial statements is detailed below.
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
(in thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
General and administrative expense |
|
$ |
6,229 |
|
$ |
6,149 |
|
$ |
11,315 |
|
$ |
10,789 |
|
Lease operating and midstream operation and maintenance expense |
|
182 |
|
83 |
|
386 |
|
253 |
| ||||
Property, plant and equipment, net |
|
239 |
|
63 |
|
436 |
|
263 |
| ||||
Total cost of stock-based compensation plans |
|
$ |
6,650 |
|
$ |
6,295 |
|
$ |
12,137 |
|
$ |
11,305 |
|
15. Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share takes into account the dilutive effect of potential common stock that could be issued by the Company in conjunction with redemptions of Rice Energy Operating common units (REO Common Units) and stock awards that have been granted to directors and employees. The following is a calculation of the basic and diluted weighted-average number of shares of common stock outstanding and EPS for three and six months ended June 30, 2017 and 2016.
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
(in thousands, except share data) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Income (loss) (numerator): |
|
|
|
|
|
|
|
|
| ||||
Net income (loss) attributable to Rice Energy Inc. |
|
$ |
83,525 |
|
$ |
(156,686 |
) |
$ |
57,227 |
|
$ |
(174,274 |
) |
Less: Preferred dividends on redeemable noncontrolling interest |
|
(7,709 |
) |
(7,587 |
) |
(15,333 |
) |
(10,719 |
) | ||||
Less: Accretion of redeemable noncontrolling interest |
|
(12,947 |
) |
(357 |
) |
(13,655 |
) |
(683 |
) | ||||
Net income (loss) available to Rice Energy Inc. common stockholders |
|
62,869 |
|
(164,630 |
) |
28,239 |
|
(185,676 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average number of shares of common stock (denominator): |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
205,791,010 |
|
153,203,901 |
|
204,619,590 |
|
144,811,902 |
| ||||
Diluted |
|
207,713,584 |
|
153,203,901 |
|
206,508,591 |
|
144,811,902 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.31 |
|
$ |
(1.07 |
) |
$ |
0.14 |
|
$ |
(1.28 |
) |
Diluted |
|
$ |
0.30 |
|
$ |
(1.07 |
) |
$ |
0.14 |
|
$ |
(1.28 |
) |
For the three and six months ended June 30, 2017, shares in the amount of 36,779,485 and 38,301,930, respectively, attributable to equity awards and units in REO were not included in the diluted earnings per share calculation because to do so would have been anti-dilutive. For the three and six months ended June 30, 2016, shares in the amount of 1,528,234 and 807,511, respectively, attributable to equity awards were not included in the diluted earnings per share calculation because to do so would have been anti-dilutive.
As part of the consideration associated with the Vantage Acquisition, the Vantage Sellers were issued 40,000,000 REO Common Units. The holders of the REO Common Units, other than the Company, are entitled to redeem, from time to time, all or a portion of their REO Common Units. Each REO Common Unit will be redeemed for, at Rice Energy Operatings option, a newly-issued share of common stock of the Company or a cash
payment equal to the volume-weighted average closing price of a share of the Companys common stock for the five trading days prior to and including the last full trading day immediately prior to the date that the member delivers a notice of redemption (subject to customary adjustments, including for stock splits, stock dividends and reclassifications). Upon the exercise of the redemption right, the redeeming member surrenders its REO Common Units to Rice Energy Operating and the corresponding number of 1/1000ths of shares of preferred stock in respect of each redeemed REO Common Unit to Rice Energy Operating for cancellation. As of June 30, 2017, the Vantage Sellers redeemed 8,479,336 of Rice Energy Operating common units for newly-issued shares of Rice Energy common stock. Upon exercise of those redemptions, the Vantage Sellers surrendered to the Company a corresponding 8,479 shares of Preferred Stock. As of June 30, 2017, the Vantage Sellers held a membership interest of approximately 12.96% in REO.
16. Income Taxes
The Company is a corporation under the Internal Revenue Code subject to federal income tax at a statutory rate of 35% of pretax earnings and, as such, its future income taxes will be dependent upon its future taxable income. The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense, subject to certain loss limitation provisions. All of the Partnerships earnings are included in the Companys net income; however, the Company is not required to record income tax expense with respect to the portion of the Partnerships earnings allocated to the Partnerships noncontrolling public limited partners, which reduces the Companys effective tax rate. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.
Tax expense for the three and six months ended June 30, 2017 was $33.9 million and $33.3 million, respectively, resulting in effective tax rates of approximately 20% during each period. The tax benefit for the three and six months ended June 30, 2016 was $120.5 million and $126.9 million, respectively, resulting in an effective tax rate of approximately 46% and 48%, respectively. The effective tax rate for the three and six months ended June 30, 2017 and 2016 differs from the statutory rate due principally to nondeductible incentive unit expense and the portion of the Partnerships earnings allocated to its noncontrolling public limited partners, and the application of loss limitation provisions.
Based on managements analysis, the Company did not have any uncertain tax positions as of June 30, 2017.
The assignment of the common and subordinated units in the Midstream Holdings Investment resulted in the sale or exchange of more than 50 percent of its capital and profits interests of the Partnership within 12 months. Accordingly, the Partnership is considered to have technically terminated as a partnership for U.S. federal income tax purposes. The technical termination will not affect the Partnerships consolidated financial statements, nor will it affect the Partnerships classification as a partnership or the nature or extent of its qualifying income for U.S. federal income tax purposes. The taxable year for all unitholders ended on February 22, 2016 and will result in a deferral of depreciation deductions that were otherwise allowable in computing the taxable income of the Partnerships unitholders for the period from January 1, 2016 through February 22, 2016.
The Companys change in tax status concurrent with the Vantage Acquisition on October 19, 2016 resulted in a second technical termination of the Partnership. The taxable year for all unitholders ended on October 19, 2016 and will result in a deferral of depreciation deductions that were otherwise allowable in computing the taxable income of the Partnerships unitholders for the period February 23, 2016 through October 19, 2016.
The members of Rice Energy Operating, including the Company, incur U.S. federal, state and local income taxes on their share of any taxable income of Rice Energy Operating, if any. Under the Third A&R LLC Agreement, Rice Energy Operating is required to make cash tax distributions to its members, subsequent to the end of a given calendar year, based upon income allocated to each member and subject to the availability of distributable cash (as defined in the Third A&R LLC Agreement).
17. New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The FASB created Topic 606 which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. The FASB and International Accounting Standards Board initiated this joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for both U.S. GAAP and International Financial Reporting Standards. ASU 2014-09 will enhance comparability of revenue recognition practices across entities, industries and capital markets compared to existing guidance. Additionally, ASU 2014-09 will reduce the number of requirements which an entity must consider in recognizing revenue, as this update will replace multiple locations for guidance. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. These updates do not change the core principle of the guidance in Topic 606 (as amended by ASU 2014-09), but rather provide further guidance with respect to the implementation of ASU 2014-09. The effective date for ASU 2016-10, 2016-11, 2016-12 and ASU 2014-09, as amended by ASU 2015-14, is for annual reporting periods beginning after December 15, 2017, including interim periods within those years. In preparation for the adoption of the new standard in the fiscal year beginning January 2018, the Company continues to evaluate contract terms and potential impacts of the five-step model specified by the new guidance. That five-step model includes: (1) determination of whether a contract-an agreement between two or more parties that creates legally enforceable rights and obligations-exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company anticipates adopting the standard using the modified retrospective approach at adoption. The Company is currently evaluating individual customer contracts within each of our business segments and documenting changes to our accounting policies and controls as we continue to evaluate the impact of the adoption of this standard.
In February 2016, the FASB issued ASU, 2016-02, Leases (Topic 842) ASU 2016-02 which requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company continues to evaluate a representative sample of agreements, including existing leases, to assess the impact of the new guidance on its financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 affects entities that issue share-based payment awards to their employees. ASU 2016-09 is designed to simplify several aspects of accounting for share-based payment award transactions, including: (a) income tax consequences, (b) classification of awards as either equity or liabilities, (c) classification on the statement of cash flows and (d) forfeiture rate calculations. The Company adopted ASU 2016-09 on January 1, 2017 and determined that the standard did not have a material impact on the condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this ASU on January 1, 2017, and has determined that the new standard could potentially have a material impact on future consolidated financial statements for acquisitions that are not considered to be businesses.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test of Goodwill Impairment. ASU 2017-04 simplifies the quantitative goodwill impairment test requirements by eliminating the requirement to calculate the implied fair value of goodwill (Step 2 of the current goodwill impairment test). Instead, a company would record an impairment charge based on the excess of a reporting units carrying value over its fair value (measured in Step 1 of the current goodwill impairment test). This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. Entities will apply the standards provisions prospectively. The Company adopted ASU 2017-04 on January 1, 2017 and determined that this standard will not have a material quantitative effect on the financial statements, unless an impairment charge was necessary.
In May 2017, the FASB issued ASU 2017-09, Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.
18. Subsequent Events
The Company has evaluated subsequent events through the date these financial statements were issued. The Company has determined there were no events, other than as described below, that required disclosure or recognition in these financial statements.
On July 7, 2017, the Company completed an asset acquisition pursuant to a purchase and sale agreement with an undisclosed seller to acquire approximately 16,400 Marcellus Shale acres, the majority of which are located in Greene County, Pennsylvania, for a purchase price of $180.3 million in cash. The Company funded the consideration for the acquisition with cash on hand and borrowings under the Companys A&R Credit Agreement. In conjunction with the execution of the purchase agreement, the Company deposited $18.0 million into an escrow account, which is included in the acquisition deposit line on the Companys condensed consolidated balance sheet as of June 30, 2017 and as an investing outflow on the condensed consolidated statement of cash flows for the six months ended June 30, 2017.
On July 11, 2017, the Company entered into a purchase and sale agreement (the Barnett Purchase and Sale Agreement) by and among Vantage Fort Worth Energy LLC, a subsidiary of the Company, and an undisclosed buyer. Pursuant to the Barnett Purchase and Sale Agreement, the buyer will acquire substantially all of the Companys oil and gas properties in the Fort Worth Basin and assume the related obligations for an aggregate purchase price of $175.0 million, subject to purchase price adjustments and customary closing conditions. The net carrying value of the Companys Fort Worth Basin oil and gas properties was approximately $175.0 million as of June 30, 2017. The transaction has an effective date of January 1, 2017 and is expected to close in the third quarter of 2017. Although the Company is unable to estimate the final net proceeds from the divestiture, we anticipate that a loss will occur as a result of the disposition and such loss could be material.
In July 2017, the Vantage Sellers elected to have the Company redeem 2,152,152 REO Common Units for newly-issued shares of Rice Energy common stock. Upon exercise of the redemption, the Vantage Sellers surrendered to the Company a corresponding 2,152 shares of Preferred Stock.
19. Guarantor Financial Information
On April 25, 2014, the Company issued $900.0 million in aggregate principal amount of the 2022 Notes and on March 26, 2015, the Company issued $400.0 million in aggregate principal amount of the 2023 Notes. The obligations under the Notes are fully and unconditionally guaranteed by the guarantors, subject to release provisions described in Note 5. In connection with the closing of the Vantage Acquisition, the Company and Rice Energy Operating entered into a Debt Assumption Agreement dated as of October 19, 2016 pursuant to which Rice Energy Operating agreed to become a co-obligor of the Notes and certain entities acquired in the Vantage Acquisition became wholly-owned subsidiaries of Rice Energy Operating and guarantors of the Notes. Each of the guarantors is 100% owned by Rice Energy Operating.
The Company is a holding company whose sole material asset is an equity interest in Rice Energy Operating. The Company is a member and the sole manager of Rice Energy Operating. Rice Energy owns an approximate 87.04% membership in Rice Energy Operating as of June 30, 2017. Rice Energy is responsible for all operational, management and administrative decisions related to Rice Energy Operatings business. In accordance with the Third A&R LLC Agreement, the Company may not be removed as the sole manager of Rice Energy Operating so long as it continues to be a member of Rice Energy Operating.
As of June 30, 2017, the Company held approximately 87.04% of the economic interest in Rice Energy Operating, with the remaining 12.96% membership interest collectively held by the Vantage Sellers. The Vantage Sellers have no voting rights with respect to their membership interest in Rice Energy Operating. In connection with the closing of the Vantage Acquisition, the Company issued shares of preferred stock to the Vantage Sellers in an amount equal to 1/1000 of the number of REO Common Units they received at the closing of the Vantage Acquisition. Pursuant to the certificate of designation setting forth the terms, rights and obligations and preferences of the preferred stock, each 1/1000 share of preferred stock entitles the holder to one vote on all matters submitted to a vote of the holders of common stock. Accordingly, the Vantage Sellers collectively have a number of votes in the Company equal to the aggregate number of REO Common Units that they hold.
The Vantage Sellers have a redemption right to cause Rice Energy Operating to redeem, from time to time, all or a portion of their REO Common Units. Each REO Common Unit will be redeemed for, at Rice Energy Operatings option, a newly-issued share of common stock of the Company or a cash payment equal to the volume-weighted average closing price of a share of the Companys common stock for the five trading days prior to and including the last full trading day immediately prior to the date that the member delivers a notice of redemption (subject to customary adjustments, including for stock splits, stock dividends and reclassifications). Upon the exercise of the redemption right, the redeeming member surrenders its REO Common Units to Rice Energy Operating and the corresponding number of 1/1000ths of shares of preferred stock in respect of each redeemed Common Unit to Rice Energy Operating for cancellation. The Third A&R LLC Agreement requires that the Company contribute cash or shares of its common stock to Rice Energy Operating in exchange for a number of REO Common Units equal to the number of REO Common Units to be redeemed from the member. Rice Energy Operating will then distribute such cash or shares of the Companys common stock to such Vantage Seller to complete the redemption. Upon the exercise of the redemption right, the Company may, at its option, effect a direct exchange of the REO Common Units (and the corresponding shares of preferred stock (or fractions thereof) from the redeeming Vantage Seller.
As a result, the Company expects that over time it will have an increasing economic interest in Rice Energy Operating as the Vantage Sellers elect to exercise their redemption right. Moreover, any transfers of REO Common Units by the Vantage Sellers (other than permitted transfers to affiliates) must be approved by the Company. The Company intends to retain full voting and management control over Rice Energy Operating.
The Companys subsidiaries that comprise its Rice Midstream Holdings segment and Rice Midstream Partners segment are unrestricted subsidiaries under the indentures governing the Notes and consequently are not guarantors. In accordance with positions established by the SEC, the following shows separate financial information with respect to the Company, Rice Energy Operating and the guarantors and the non-guarantor subsidiaries. Separate financial statements for Rice Energy Operating will be provided in Rice Energy Operatings Quarterly Report on Form 10-Q for the three months ended June 30, 2017. The principal elimination entries below eliminate investment in subsidiaries and certain intercompany balances and transactions.
Condensed Consolidated Balance Sheet as of June 30, 2017
(in thousands) |
|
Rice Energy |
|
Rice Energy |
|
Guarantors |
|
Non- |
|
Eliminations |
|
Consolidated |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash |
|
$ |
19,770 |
|
$ |
108,731 |
|
$ |
(19,154 |
) |
$ |
52,193 |
|
$ |
|
|
$ |
161,540 |
|
Accounts receivable |
|
120 |
|
1,804 |
|
315,469 |
|
22,026 |
|
|
|
339,419 |
| ||||||
Receivable from affiliates |
|
18,089 |
|
1,301 |
|
(46,051 |
) |
26,661 |
|
|
|
|
| ||||||
Prepaid expenses, deposits and other assets |
|
6,847 |
|
21 |
|
4,221 |
|
258 |
|
|
|
11,347 |
| ||||||
Derivative assets |
|
|
|
2,294 |
|
8,330 |
|
|
|
|
|
10,624 |
| ||||||
Total current assets |
|
44,826 |
|
114,151 |
|
262,815 |
|
101,138 |
|
|
|
522,930 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Investments in (advances from) subsidiaries |
|
3,492,232 |
|
4,882,206 |
|
724 |
|
|
|
(8,375,162 |
) |
|
| ||||||
Gas collateral account |
|
|
|
|
|
5,220 |
|
112 |
|
|
|
5,332 |
| ||||||
Property, plant and equipment, net |
|
25,657 |
|
|
|
5,114,594 |
|
1,391,137 |
|
(85,137 |
) |
6,446,251 |
| ||||||
Acquisition deposit |
|
|
|
|
|
18,033 |
|
|
|
|
|
18,033 |
| ||||||
Deferred financing costs, net |
|
|
|
20,766 |
|
|
|
12,508 |
|
|
|
33,274 |
| ||||||
Goodwill |
|
|
|
384,431 |
|
|
|
494,580 |
|
|
|
879,011 |
| ||||||
Intangible assets, net |
|
|
|
|
|
|
|
43,717 |
|
|
|
43,717 |
| ||||||
Other non-current assets |
|
744 |
|
|
|
45 |
|
|
|
|
|
789 |
| ||||||
Derivative assets |
|
|
|
23,972 |
|
21,741 |
|
|
|
|
|
45,713 |
| ||||||
Total assets |
|
$ |
3,563,459 |
|
$ |
5,425,526 |
|
$ |
5,423,172 |
|
$ |
2,043,192 |
|
$ |
(8,460,299 |
) |
$ |
7,995,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
|
$ |
674 |
|
$ |
200 |
|
$ |
11,043 |
|
$ |
12,214 |
|
$ |
|
|
$ |
24,131 |
|
Royalties payable |
|
|
|
|
|
104,091 |
|
|
|
|
|
104,091 |
| ||||||
Accrued capital expenditures |
|
|
|
|
|
120,163 |
|
56,431 |
|
|
|
176,594 |
| ||||||
Accrued interest |
|
|
|
14,208 |
|
|
|
332 |
|
|
|
14,540 |
| ||||||
Leasehold payables |
|
|
|
|
|
19,538 |
|
|
|
|
|
19,538 |
| ||||||
Derivative liabilities |
|
|
|
34,458 |
|
4,603 |
|
|
|
|
|
39,061 |
| ||||||
Embedded derivative liability |
|
|
|
|
|
|
|
15,417 |
|
|
|
15,417 |
| ||||||
Other accrued liabilities |
|
17,748 |
|
2,375 |
|
53,446 |
|
16,625 |
|
|
|
90,194 |
| ||||||
Total current liabilities |
|
18,422 |
|
51,241 |
|
312,884 |
|
101,019 |
|
|
|
483,566 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term debt |
|
|
|
1,281,279 |
|
|
|
318,500 |
|
|
|
1,599,779 |
| ||||||
Leasehold payable |
|
|
|
|
|
12,279 |
|
|
|
|
|
12,279 |
| ||||||
Deferred tax liabilities |
|
362,767 |
|
|
|
|
|
|
|
|
|
362,767 |
| ||||||
Derivative liabilities |
|
|
|
22,091 |
|
2,500 |
|
|
|
|
|
24,591 |
| ||||||
Other long-term liabilities |
|
9,183 |
|
|
|
74,738 |
|
6,283 |
|
|
|
90,204 |
| ||||||
Total liabilities |
|
390,372 |
|
1,354,611 |
|
402,401 |
|
425,802 |
|
|
|
2,573,186 |
| ||||||
Mezzanine equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Redeemable noncontrolling interest |
|
|
|
|
|
|
|
396,711 |
|
|
|
396,711 |
| ||||||
Stockholders equity before noncontrolling interest |
|
3,210,729 |
|
3,492,232 |
|
5,020,771 |
|
(138,564 |
) |
(8,460,299 |
) |
3,124,869 |
| ||||||
Noncontrolling interest |
|
(37,642 |
) |
578,683 |
|
|
|
1,359,243 |
|
|
|
1,900,284 |
| ||||||
Total liabilities and stockholders equity |
|
$ |
3,563,459 |
|
$ |
5,425,526 |
|
$ |
5,423,172 |
|
$ |
2,043,192 |
|
$ |
(8,460,299 |
) |
$ |
7,995,050 |
|
Condensed Consolidated Balance Sheet as of December 31, 2016
(in thousands) |
|
Rice Energy |
|
Rice Energy |
|
Guarantors |
|
Non- |
|
Eliminations |
|
Consolidated |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash |
|
$ |
2,756 |
|
$ |
230,944 |
|
$ |
164,522 |
|
$ |
71,821 |
|
$ |
|
|
$ |
470,043 |
|
Accounts receivable |
|
22,525 |
|
|
|
201,122 |
|
28,990 |
|
(34,012 |
) |
218,625 |
| ||||||
Prepaid expenses, deposits and other |
|
2,651 |
|
|
|
2,214 |
|
194 |
|
|
|
5,059 |
| ||||||
Derivative assets |
|
|
|
689 |
|
|
|
|
|
|
|
689 |
| ||||||
Total current assets |
|
27,932 |
|
231,633 |
|
367,858 |
|
101,005 |
|
(34,012 |
) |
694,416 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gas collateral account |
|
|
|
|
|
5,220 |
|
112 |
|
|
|
5,332 |
| ||||||
Investments in subsidiaries |
|
2,928,250 |
|
4,406,023 |
|
6,101 |
|
|
|
(7,340,374 |
) |
|
| ||||||
Property, plant and equipment, net |
|
25,622 |
|
|
|
4,947,518 |
|
1,203,047 |
|
(58,275 |
) |
6,117,912 |
| ||||||
Deferred financing costs, net |
|
|
|
21,372 |
|
|
|
15,012 |
|
|
|
36,384 |
| ||||||
Goodwill |
|
|
|
384,430 |
|
|
|
494,581 |
|
|
|
879,011 |
| ||||||
Intangible assets, net |
|
|
|
|
|
|
|
44,525 |
|
|
|
44,525 |
| ||||||
Derivative assets |
|
138 |
|
27,894 |
|
11,296 |
|
|
|
|
|
39,328 |
| ||||||
Other non-current assets |
|
|
|
|
|
614 |
|
|
|
|
|
614 |
| ||||||
Total assets |
|
$ |
2,981,942 |
|
$ |
5,071,352 |
|
$ |
5,338,607 |
|
$ |
1,858,282 |
|
$ |
(7,432,661 |
) |
$ |
7,817,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
|
$ |
926 |
|
$ |
|
|
$ |
8,724 |
|
$ |
8,594 |
|
$ |
|
|
$ |
18,244 |
|
Royalties payable |
|
|
|
|
|
87,098 |
|
|
|
|
|
87,098 |
| ||||||
Accrued capital expenditures |
|
|
|
|
|
89,403 |
|
35,297 |
|
|
|
124,700 |
| ||||||
Accrued interest |
|
|
|
14,208 |
|
|
|
232 |
|
|
|
14,440 |
| ||||||
Leasehold payables |
|
|
|
|
|
22,869 |
|
|
|
|
|
22,869 |
| ||||||
Derivative liabilities |
|
|
|
72,391 |
|
66,997 |
|
|
|
|
|
139,388 |
| ||||||
Other accrued liabilities |
|
54,064 |
|
4,786 |
|
84,950 |
|
16,219 |
|
(34,012 |
) |
126,007 |
| ||||||
Total current liabilities |
|
54,990 |
|
91,385 |
|
360,041 |
|
60,342 |
|
(34,012 |
) |
532,746 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term debt |
|
|
|
1,279,481 |
|
|
|
243,000 |
|
|
|
1,522,481 |
| ||||||
Leasehold payable |
|
|
|
|
|
9,237 |
|
|
|
|
|
9,237 |
| ||||||
Deferred tax liabilities |
|
|
|
26,561 |
|
209,276 |
|
122,789 |
|
|
|
358,626 |
| ||||||
Derivative liabilities |
|
|
|
9,766 |
|
16,711 |
|
|
|
|
|
26,477 |
| ||||||
Other long-term liabilities |
|
8,858 |
|
|
|
66,949 |
|
5,541 |
|
|
|
81,348 |
| ||||||
Total liabilities |
|
63,848 |
|
1,407,193 |
|
662,214 |
|
431,672 |
|
(34,012 |
) |
2,530,915 |
| ||||||
Mezzanine equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Redeemable noncontrolling interest |
|
|
|
|
|
|
|
382,525 |
|
|
|
382,525 |
| ||||||
Stockholders equity before noncontrolling interest |
|
2,972,578 |
|
2,928,250 |
|
4,676,393 |
|
(270,370 |
) |
(7,398,649 |
) |
2,908,202 |
| ||||||
Noncontrolling interests in consolidated subsidiaries |
|
(54,484 |
) |
735,909 |
|
|
|
1,314,455 |
|
|
|
1,995,880 |
| ||||||
Total liabilities and stockholders equity |
|
$ |
2,981,942 |
|
$ |
5,071,352 |
|
$ |
5,338,607 |
|
$ |
1,858,282 |
|
$ |
(7,432,661 |
) |
$ |
7,817,522 |
|
Condensed Consolidated Statement of Operations for the Three Months Ended June 30, 2017
(in thousands) |
|
Rice |
|
Rice |
|
Guarantors |
|
Non- |
|
Eliminations |
|
Consolidated |
| ||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas, oil and NGL sales |
|
$ |
|
|
$ |
|
|
$ |
348,892 |
|
$ |
|
|
$ |
|
|
$ |
348,892 |
|
Gathering, compression and water services |
|
|
|
|
|
|
|
104,324 |
|
(66,259 |
) |
38,065 |
| ||||||
Other revenue |
|
|
|
|
|
11,350 |
|
|
|
|
|
11,350 |
| ||||||
Total operating revenues |
|
|
|
|
|
360,242 |
|
104,324 |
|
(66,259 |
) |
398,307 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease operating |
|
|
|
|
|
17,740 |
|
|
|
(95 |
) |
17,645 |
| ||||||
Gathering, compression and transportation |
|
|
|
|
|
85,915 |
|
|
|
(46,784 |
) |
39,131 |
| ||||||
Production taxes and impact fees |
|
|
|
|
|
6,679 |
|
|
|
|
|
6,679 |
| ||||||
Exploration |
|
|
|
|
|
7,106 |
|
|
|
|
|
7,106 |
| ||||||
Midstream operation and maintenance |
|
|
|
|
|
|
|
10,714 |
|
(2,366 |
) |
8,348 |
| ||||||
Incentive unit expense |
|
|
|
|
|
4,663 |
|
137 |
|
|
|
4,800 |
| ||||||
Acquisition expense |
|
|
|
|
|
1,356 |
|
1,052 |
|
|
|
2,408 |
| ||||||
General and administrative |
|
|
|
|
|
25,652 |
|
13,574 |
|
|
|
39,226 |
| ||||||
Depreciation, depletion and amortization |
|
|
|
|
|
141,479 |
|
9,332 |
|
(4,907 |
) |
145,904 |
| ||||||
Amortization of intangible assets |
|
|
|
|
|
|
|
406 |
|
|
|
406 |
| ||||||
Other expense |
|
|
|
|
|
11,211 |
|
1,996 |
|
|
|
13,207 |
| ||||||
Total operating expenses |
|
|
|
|
|
301,801 |
|
37,211 |
|
(54,152 |
) |
284,860 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income (loss) |
|
|
|
|
|
58,441 |
|
67,113 |
|
(12,107 |
) |
113,447 |
| ||||||
Interest expense |
|
|
|
(23,898 |
) |
4 |
|
(3,375 |
) |
|
|
(27,269 |
) | ||||||
Other income (loss) |
|
|
|
201 |
|
(20 |
) |
92 |
|
|
|
273 |
| ||||||
Gain on derivative instruments |
|
|
|
56,228 |
|
47,330 |
|
|
|
|
|
103,558 |
| ||||||
Loss on embedded derivatives |
|
|
|
|
|
|
|
(15,417 |
) |
|
|
(15,417 |
) | ||||||
Amortization of deferred financing costs |
|
|
|
(2,175 |
) |
|
|
(1,251 |
) |
|
|
(3,426 |
) | ||||||
Equity income (loss) in affiliate |
|
137,214 |
|
106,858 |
|
|
|
|
|
(244,072 |
) |
|
| ||||||
Income before income taxes |
|
137,214 |
|
137,214 |
|
105,755 |
|
47,162 |
|
(256,179 |
) |
171,166 |
| ||||||
Income tax expense |
|
(33,917 |
) |
|
|
|
|
|
|
|
|
(33,917 |
) | ||||||
Net income (loss) |
|
103,297 |
|
137,214 |
|
105,755 |
|
47,162 |
|
(256,179 |
) |
137,249 |
| ||||||
Less: Net income attributable to the noncontrolling interests |
|
(19,866 |
) |
|
|
|
|
(33,858 |
) |
|
|
(53,724 |
) | ||||||
Net income (loss) attributable to Rice Energy |
|
83,431 |
|
137,214 |
|
105,755 |
|
13,304 |
|
(256,179 |
) |
83,525 |
| ||||||
Less: Preferred dividends and accretion of redeemable noncontrolling interests |
|
|
|
|
|
|
|
(20,656 |
) |
|
|
(20,656 |
) | ||||||
Net income (loss) attributable to Rice Energy Inc. common stockholders |
|
$ |
83,431 |
|
$ |
137,214 |
|
$ |
105,755 |
|
$ |
(7,352 |
) |
$ |
(256,179 |
) |
$ |
62,869 |
|
Condensed Consolidated Statement of Operations for the Three Months Ended June 30, 2016
(in thousands) |
|
Rice Energy |
|
Rice Energy |
|
Guarantors |
|
Non- |
|
Eliminations |
|
Consolidated |
| ||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas, oil and NGL sales |
|
$ |
|
|
$ |
|
|
$ |
122,312 |
|
$ |
|
|
$ |
|
|
$ |
122,312 |
|
Gathering, compression and water services |
|
|
|
|
|
|
|
58,420 |
|
(34,692 |
) |
23,728 |
| ||||||
Other revenue |
|
|
|
|
|
9,958 |
|
|
|
|
|
9,958 |
| ||||||
Total operating revenues |
|
|
|
|
|
132,270 |
|
58,420 |
|
(34,692 |
) |
155,998 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease operating |
|
|
|
|
|
9,038 |
|
|
|
|
|
9,038 |
| ||||||
Gathering, compression and transportation |
|
|
|
|
|
51,307 |
|
|
|
(24,138 |
) |
27,169 |
| ||||||
Production taxes and impact fees |
|
|
|
|
|
2,659 |
|
|
|
|
|
2,659 |
| ||||||
Exploration |
|
|
|
|
|
5,548 |
|
|
|
|
|
5,548 |
| ||||||
Midstream operation and maintenance |
|
|
|
|
|
|
|
4,602 |
|
(47 |
) |
4,555 |
| ||||||
Incentive unit expense |
|
|
|
|
|
14,141 |
|
699 |
|
|
|
14,840 |
| ||||||
Acquisition expense |
|
|
|
|
|
|
|
84 |
|
|
|
84 |
| ||||||
General and administrative |
|
|
|
|
|
18,351 |
|
10,921 |
|
|
|
29,272 |
| ||||||
Depreciation, depletion and amortization |
|
|
|
|
|
79,516 |
|
8,412 |
|
(3,176 |
) |
84,752 |
| ||||||
Amortization of intangible assets |
|
|
|
|
|
|
|
403 |
|
|
|
403 |
| ||||||
Other expense |
|
|
|
|
|
11,096 |
|
361 |
|
|
|
11,457 |
| ||||||
Total operating expenses |
|
|
|
|
|
191,656 |
|
25,482 |
|
(27,361 |
) |
189,777 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating (loss) income |
|
|
|
|
|
(59,386 |
) |
32,938 |
|
(7,331 |
) |
(33,779 |
) | ||||||
Interest expense |
|
|
|
(22,853 |
) |
(24 |
) |
(1,925 |
) |
|
|
(24,802 |
) | ||||||
Other income |
|
|
|
558 |
|
1,991 |
|
|
|
|
|
2,549 |
| ||||||
Loss on derivative instruments |
|
|
|
(75,167 |
) |
(126,388 |
) |
|
|
|
|
(201,555 |
) | ||||||
Amortization of deferred financing costs |
|
|
|
(1,122 |
) |
|
|
(496 |
) |
|
|
(1,618 |
) | ||||||
Equity (loss) income in affiliate |
|
(155,200 |
) |
(144,423 |
) |
(61 |
) |
|
|
299,684 |
|
|
| ||||||
Income before income taxes |
|
(155,200 |
) |
(243,007 |
) |
(183,868 |
) |
30,517 |
|
292,353 |
|
(259,205 |
) | ||||||
Income tax (expense) benefit |
|
|
|
87,807 |
|
84,985 |
|
(52,296 |
) |
|
|
120,496 |
| ||||||
Net (loss) income |
|
(155,200 |
) |
(155,200 |
) |
(98,883 |
) |
(21,779 |
) |
292,353 |
|
(138,709 |
) | ||||||
Less: Net income attributable to the noncontrolling interests |
|
|
|
|
|
|
|
(17,977 |
) |
|
|
(17,977 |
) | ||||||
Net (loss) income attributable to Rice Energy |
|
(155,200 |
) |
(155,200 |
) |
(98,883 |
) |
(39,756 |
) |
292,353 |
|
(156,686 |
) | ||||||
Less: Preferred dividends and accretion of redeemable noncontrolling interests |
|
|
|
|
|
|
|
(7,944 |
) |
|
|
(7,944 |
) | ||||||
Net (loss) income attributable to Rice Energy Inc. common stockholders |
|
$ |
(155,200 |
) |
$ |
(155,200 |
) |
$ |
(98,883 |
) |
$ |
(47,700 |
) |
$ |
292,353 |
|
$ |
(164,630 |
) |
Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2017
(in thousands) |
|
Rice Inc. |
|
Rice Energy Operating LLC |
|
Guarantors |
|
Non- Guarantors |
|
Eliminations |
|
Consolidated |
| ||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas, oil and NGL sales |
|
$ |
|
|
$ |
|
|
$ |
705,726 |
|
$ |
|
|
$ |
|
|
$ |
705,726 |
|
Gathering, compression and water services |
|
|
|
|
|
|
|
193,918 |
|
(125,510 |
) |
68,408 |
| ||||||
Other revenue |
|
|
|
|
|
17,979 |
|
|
|
|
|
17,979 |
| ||||||
Total operating revenues |
|
|
|
|
|
723,705 |
|
193,918 |
|
(125,510 |
) |
792,113 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease operating |
|
|
|
|
|
40,389 |
|
|
|
(95 |
) |
40,294 |
| ||||||
Gathering, compression and transportation |
|
|
|
|
|
167,810 |
|
|
|
(89,253 |
) |
78,557 |
| ||||||
Production taxes and impact fees |
|
|
|
|
|
12,832 |
|
|
|
|
|
12,832 |
| ||||||
Impairment of proved/unproved properties |
|
|
|
|
|
92,355 |
|
|
|
|
|
92,355 |
| ||||||
Exploration |
|
|
|
|
|
11,118 |
|
|
|
|
|
11,118 |
| ||||||
Midstream operation and maintenance |
|
|
|
|
|
|
|
19,654 |
|
(4,656 |
) |
14,998 |
| ||||||
Incentive unit expense |
|
|
|
|
|
7,464 |
|
219 |
|
|
|
7,683 |
| ||||||
Acquisition expense |
|
|
|
|
|
1,563 |
|
1,052 |
|
|
|
2,615 |
| ||||||
General and administrative |
|
|
|
|
|
48,867 |
|
24,183 |
|
|
|
73,050 |
| ||||||
Depreciation, depletion and amortization |
|
|
|
|
|
273,317 |
|
18,351 |
|
(8,886 |
) |
282,782 |
| ||||||
Amortization of intangible assets |
|
|
|
|
|
|
|
808 |
|
|
|
808 |
| ||||||
Other expense |
|
|
|
|
|
17,256 |
|
2,109 |
|
|
|
19,365 |
| ||||||
Total operating expenses |
|
|
|
|
|
672,971 |
|
66,376 |
|
(102,890 |
) |
636,457 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income (loss) |
|
|
|
|
|
50,734 |
|
127,542 |
|
(22,620 |
) |
155,656 |
| ||||||
Interest expense |
|
|
|
(47,790 |
) |
3 |
|
(6,505 |
) |
|
|
(54,292 |
) | ||||||
Other income |
|
|
|
97 |
|
219 |
|
137 |
|
|
|
453 |
| ||||||
Gain on derivative instruments |
|
|
|
1,404 |
|
87,375 |
|
|
|
|
|
88,779 |
| ||||||
Loss on embedded derivatives |
|
|
|
|
|
|
|
(15,417 |
) |
|
|
(15,417 |
) | ||||||
Amortization of deferred financing costs |
|
|
|
(3,576 |
) |
|
|
(2,502 |
) |
|
|
(6,078 |
) | ||||||
Equity income (loss) in affiliate |
|
107,314 |
|
157,179 |
|
2 |
|
|
|
(264,495 |
) |
|
| ||||||
Income before income taxes |
|
107,314 |
|
107,314 |
|
138,333 |
|
103,255 |
|
(287,115 |
) |
169,101 |
| ||||||
Income tax expense |
|
(33,341 |
) |
|
|
|
|
|
|
|
|
(33,341 |
) | ||||||
Net income |
|
73,973 |
|
107,314 |
|
138,333 |
|
103,255 |
|
(287,115 |
) |
135,760 |
| ||||||
Less: Net income attributable to the noncontrolling interests |
|
(16,841 |
) |
|
|
|
|
(61,692 |
) |
|
|
(78,533 |
) | ||||||
Net income (loss) attributable to Rice Energy |
|
57,132 |
|
107,314 |
|
138,333 |
|
41,563 |
|
(287,115 |
) |
57,227 |
| ||||||
Less: Preferred dividends and accretion of redeemable noncontrolling interests |
|
|
|
|
|
|
|
(28,988 |
) |
|
|
(28,988 |
) | ||||||
Net income (loss) attributable to Rice Energy Inc. common stockholders |
|
$ |
57,132 |
|
$ |
107,314 |
|
$ |
138,333 |
|
$ |
12,575 |
|
$ |
(287,115 |
) |
$ |
28,239 |
|
Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2016
(in thousands) |
|
Rice Energy Inc. |
|
Rice Energy Operating LLC |
|
Guarantors |
|
Non- Guarantors |
|
Eliminations |
|
Consolidated |
| ||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas, oil and NGL sales |
|
$ |
|
|
$ |
|
|
$ |
234,754 |
|
$ |
|
|
$ |
|
|
$ |
234,754 |
|
Gathering, compression and water services |
|
|
|
|
|
|
|
123,614 |
|
(75,334 |
) |
48,280 |
| ||||||
Other revenue |
|
|
|
|
|
12,906 |
|
|
|
|
|
12,906 |
| ||||||
Total operating revenues |
|
|
|
|
|
247,660 |
|
123,614 |
|
(75,334 |
) |
295,940 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease operating |
|
|
|
|
|
20,109 |
|
|
|
|
|
20,109 |
| ||||||
Gathering, compression and transportation |
|
|
|
|
|
99,510 |
|
|
|
(44,209 |
) |
55,301 |
| ||||||
Production taxes and impact fees |
|
|
|
|
|
4,310 |
|
|
|
|
|
4,310 |
| ||||||
Impairment of fixed assets |
|
|
|
|
|
|
|
2,595 |
|
|
|
2,595 |
| ||||||
Exploration |
|
|
|
|
|
6,538 |
|
|
|
|
|
6,538 |
| ||||||
Midstream operation and maintenance |
|
|
|
|
|
|
|
14,224 |
|
(47 |
) |
14,177 |
| ||||||
Incentive unit expense |
|
|
|
|
|
37,012 |
|
1,970 |
|
|
|
38,982 |
| ||||||
Acquisition expense |
|
|
|
|
|
|
|
556 |
|
|
|
556 |
| ||||||
General and administrative |
|
|
|
|
|
34,786 |
|
19,359 |
|
|
|
54,145 |
| ||||||
Depreciation, depletion and amortization |
|
|
|
|
|
154,105 |
|
15,238 |
|
(5,406 |
) |
163,937 |
| ||||||
Amortization of intangible assets |
|
|
|
|
|
|
|
811 |
|
|
|
811 |
| ||||||
Other expense |
|
|
|
|
|
15,499 |
|
149 |
|
|
|
15,648 |
| ||||||
Total operating expenses |
|
|
|
|
|
371,869 |
|
54,902 |
|
(49,662 |
) |
377,109 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating (loss) income |
|
|
|
|
|
(124,209 |
) |
68,712 |
|
(25,672 |
) |
(81,169 |
) | ||||||
Interest expense |
|
|
|
(45,616 |
) |
(34 |
) |
(3,673 |
) |
|
|
(49,323 |
) | ||||||
Other income |
|
|
|
748 |
|
2,013 |
|
1 |
|
|
|
2,762 |
| ||||||
Gain on derivative instruments |
|
|
|
(59,040 |
) |
(72,336 |
) |
|
|
|
|
(131,376 |
) | ||||||
Amortization of deferred financing costs |
|
|
|
(2,287 |
) |
|
|
(882 |
) |
|
|
(3,169 |
) | ||||||
Equity (loss) income in affiliate |
|
(174,761 |
) |
(146,077 |
) |
(3,029 |
) |
|
|
323,867 |
|
|
| ||||||
(Loss) income before income taxes |
|
(174,761 |
) |
(252,272 |
) |
(197,595 |
) |
64,158 |
|
298,195 |
|
(262,275 |
) | ||||||
Income tax benefit (expense) |
|
|
|
77,511 |
|
89,278 |
|
(39,918 |
) |
|
|
126,871 |
| ||||||
Net (loss) income |
|
(174,761 |
) |
(174,761 |
) |
(108,317 |
) |
24,240 |
|
298,195 |
|
(135,404 |
) | ||||||
Less: Net income attributable to the noncontrolling interests |
|
|
|
|
|
|
|
(38,870 |
) |
|
|
(38,870 |
) | ||||||
Net (loss) income attributable to Rice Energy |
|
(174,761 |
) |
(174,761 |
) |
(108,317 |
) |
(14,630 |
) |
298,195 |
|
(174,274 |
) | ||||||
Less: Preferred dividends and accretion of redeemable noncontrolling interests |
|
|
|
|
|
|
|
(11,402 |
) |
|
|
(11,402 |
) | ||||||
Net (loss) income attributable to Rice Energy Inc. common stockholders |
|
$ |
(174,761 |
) |
$ |
(174,761 |
) |
$ |
(108,317 |
) |
$ |
(26,032 |
) |
$ |
298,195 |
|
$ |
(185,676 |
) |
Condensed Statement of Cash Flows for the Six Months Ended June 30, 2017
(in thousands) |
|
Rice Energy Inc. |
|
Rice Energy Operating LLC |
|
Guarantors |
|
Non- Guarantors |
|
Eliminations |
|
Consolidated |
| ||||||
Net cash (used in) provided by operating activities |
|
$ |
(32,462 |
) |
$ |
(48,401 |
) |
$ |
315,987 |
|
$ |
122,833 |
|
$ |
(31,506 |
) |
$ |
326,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital expenditures for property and equipment |
|
(2,246 |
) |
|
|
(491,768 |
) |
(181,818 |
) |
31,506 |
|
(644,326 |
) | ||||||
Acquisitions |
|
|
|
|
|
|
|
(3,671 |
) |
|
|
(3,671 |
) | ||||||
Acquisition deposit |
|
|
|
|
|
(18,033 |
) |
|
|
|
|
(18,033 |
) | ||||||
Investment in subsidiaries |
|
26,862 |
|
(10,138 |
) |
|
|
|
|
(16,724 |
) |
|
| ||||||
Net cash provided by (used in) investing activities |
|
24,616 |
|
(10,138 |
) |
(509,801 |
) |
(185,489 |
) |
14,782 |
|
(666,030 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from borrowings |
|
|
|
|
|
|
|
75,500 |
|
|
|
75,500 |
| ||||||
Repayments of debt obligations |
|
(768 |
) |
|
|
|
|
|
|
|
|
(768 |
) | ||||||
Debt issuance costs |
|
|
|
(1,359 |
) |
|
|
(40 |
) |
|
|
(1,399 |
) | ||||||
Distributions to the Partnerships public unitholders |
|
|
|
(1,225 |
) |
|
|
(38,977 |
) |
|
|
(40,202 |
) | ||||||
Tax distribution to Vantage Sellers |
|
34,228 |
|
(34,228 |
) |
|
|
|
|
|
|
|
| ||||||
Net cash contributions to Strike Force Midstream by Gulfport Midstream |
|
|
|
|
|
|
|
21,815 |
|
|
|
21,815 |
| ||||||
Preferred dividends on Series B Units |
|
|
|
|
|
|
|
(15,270 |
) |
|
|
(15,270 |
) | ||||||
Employee tax withholding for settlement of stock compensation award vestings |
|
(8,600 |
) |
|
|
|
|
|
|
|
|
(8,600 |
) | ||||||
Contributions from parent |
|
|
|
(26,862 |
) |
10,138 |
|
|
|
16,724 |
|
|
| ||||||
Net cash provided by (used in) financing activities |
|
24,860 |
|
(63,674 |
) |
10,138 |
|
43,028 |
|
16,724 |
|
31,076 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Increase (decrease) in cash |
|
17,014 |
|
(122,213 |
) |
(183,676 |
) |
(19,628 |
) |
|
|
(308,503 |
) | ||||||
Cash, beginning of year |
|
2,756 |
|
230,944 |
|
164,522 |
|
71,821 |
|
|
|
470,043 |
| ||||||
Cash, end of period |
|
$ |
19,770 |
|
$ |
108,731 |
|
$ |
(19,154 |
) |
$ |
52,193 |
|
$ |
|
|
$ |
161,540 |
|
Condensed Statement of Cash Flows for the Six Months Ended June 30, 2016
(in thousands) |
|
Rice Energy Inc. |
|
Rice Energy Operating LLC |
|
Guarantors |
|
Non- Guarantors |
|
Eliminations |
|
Consolidated |
| ||||||
Net cash provided by (used in) operating activities |
|
$ |
10,046 |
|
$ |
(14,481 |
) |
$ |
158,472 |
|
$ |
79,934 |
|
$ |
(31,077 |
) |
$ |
202,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital expenditures for property and equipment |
|
(15,254 |
) |
|
|
(371,066 |
) |
(129,286 |
) |
31,077 |
|
(484,529 |
) | ||||||
Capital expenditures for acquisitions |
|
|
|
|
|
|
|
(7,744 |
) |
|
|
(7,744 |
) | ||||||
Investment in subsidiaries |
|
55,566 |
|
70,047 |
|
|
|
|
|
(125,613 |
) |
|
| ||||||
Net cash provided by (used in) investing activities |
|
40,312 |
|
70,047 |
|
(371,066 |
) |
(137,030 |
) |
(94,536 |
) |
(492,273 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from borrowings |
|
|
|
|
|
|
|
120,000 |
|
|
|
120,000 |
| ||||||
Repayments of debt obligations |
|
(690 |
) |
|
|
|
|
(255,000 |
) |
|
|
(255,690 |
) | ||||||
Debt issuance costs |
|
32 |
|
|
|
|
|
(701 |
) |
|
|
(669 |
) | ||||||
Distributions to the Partnerships public unitholders |
|
|
|
|
|
|
|
(17,636 |
) |
|
|
(17,636 |
) | ||||||
Shares of common stock issued in April 2016 offering, net of offering costs |
|
311,764 |
|
|
|
|
|
|
|
|
|
311,764 |
| ||||||
RMP common units issued in the Partnerships June 2016 offering, net of offering costs |
|
|
|
|
|
|
|
164,150 |
|
|
|
164,150 |
| ||||||
Proceeds from conversion of warrants |
|
100 |
|
|
|
|
|
|
|
|
|
100 |
| ||||||
Proceeds from issuance of redeemable noncontrolling interests, net of offering costs |
|
|
|
|
|
|
|
368,767 |
|
|
|
368,767 |
| ||||||
RMP common units issued in the Partnerships ATM program, net of offering costs |
|
|
|
|
|
|
|
15,782 |
|
|
|
15,782 |
| ||||||
Preferred dividends on Series B Units |
|
|
|
|
|
|
|
(3,576 |
) |
|
|
(3,576 |
) | ||||||
Contributions from parent |
|
|
|
(55,566 |
) |
224,627 |
|
(294,674 |
) |
125,613 |
|
|
| ||||||
Net cash provided by financing activities |
|
311,206 |
|
(55,566 |
) |
224,627 |
|
97,112 |
|
125,613 |
|
702,992 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Increase (decrease) in cash |
|
361,564 |
|
|
|
12,033 |
|
40,016 |
|
|
|
413,613 |
| ||||||
Cash, beginning of year |
|
78,474 |
|
2 |
|
57,798 |
|
15,627 |
|
|
|
151,901 |
| ||||||
Cash, end of period |
|
$ |
440,038 |
|
$ |
2 |
|
$ |
69,831 |
|
$ |
55,643 |
|
$ |
|
|
$ |
565,514 |
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our 2016 Annual Report, as well as the condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. See Cautionary Statement Regarding Forward-Looking Statements. Also, see the risk factors and other cautionary statements described under the heading Item 1A. Risk Factors included elsewhere in this Quarterly Report. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
Rice Energy is an independent natural gas and oil company focused on the acquisition, exploration and development of natural gas, oil and NGL properties in the Appalachian Basin. We operate in three business segments, which are managed separately due to their distinct operational differences - the Exploration and Production segment, the Rice Midstream Holdings segment and the Rice Midstream Partners segment. The Exploration and Production segment is responsible for the acquisition, exploration and development of natural gas, oil and NGLs. The Rice Midstream Holdings segment is engaged in the gathering and compression of natural gas, oil and NGL production for us and third parties in Belmont and Monroe Counties, Ohio. The Rice Midstream Partners segment is engaged in the gathering and compression of natural gas, oil and NGL production in Washington and Greene Counties, Pennsylvania, and in the provision of water services to support the well completion services of us and third parties in Washington and Greene Counties, Pennsylvania and Belmont County, Ohio.
Proposed Merger with EQT Corporation
On June 19, 2017, we and EQT entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which, subject to the satisfaction or waiver of certain conditions, an indirect, wholly-owned subsidiary of EQT will merge with and into us (the Merger), and immediately thereafter we will merge with and into another indirect, wholly-owned subsidiary of EQT (LLC Sub), with LLC Sub continuing as the surviving entity in such merger as an indirect, wholly-owned subsidiary of EQT.
On the terms and subject to the conditions set forth in the Merger Agreement, which has been unanimously approved by the respective boards of directors of us and EQT, at the effective time of the Merger, each share of our common stock issued and outstanding immediately before that time (other than shares of our common stock held by
EQT or certain of its direct and indirect subsidiaries, shares held by us in treasury or shares with respect to which appraisal has been properly demanded pursuant to Delaware law) will automatically be converted into the right to receive 0.37 shares of EQT common stock and $5.30 in cash. The consummation of the Merger is subject to approval by the shareholders of both us and EQT and certain customary regulatory and other closing conditions and is expected to close in the fourth quarter of 2017.
The Merger Agreement provides for certain termination rights for both us and EQT, including the right of either party to terminate the Merger Agreement if the Merger is not consummated by February 19, 2018 (which may be extended by either party to May 19, 2018 under certain circumstances). Upon termination of the Merger Agreement under certain specified circumstances, we may be required to pay EQT, or EQT may be required to pay us, a termination fee of $255.0 million. In addition, if the Merger Agreement is terminated because of a failure of a partys shareholders to approve the proposals required to complete the Merger, that party may be required to reimburse the other party for its transaction expenses in an amount equal to $67.0 million.
Vantage Acquisition
Following completion of the Vantage Acquisition, we operate Vantage through Rice Energy Operating. As part of the consideration for the Vantage Acquisition, certain affiliates of Quantum Energy Partners, Riverstone Holdings LLC and Lime Rock Partners (such affiliates, the Vantage Sellers) were issued 1/1000th of a share of our preferred stock for each unit held in Rice Energy Operating. In connection with the issuance of such membership interests to the Vantage Sellers, we and the Vantage Sellers entered into Rice Energy Operatings Third Amended and Restated Limited Liability Company Agreement (the Third A&R LLC Agreement). Under the Third A&R LLC Agreement, as the sole manager, we control all of the day-to-day business affairs and decision-making of Rice Energy Operating without approval of any other member, unless otherwise stated in the Third A&R LLC Agreement. As such, we, through our officers and directors, are responsible for all operational and administrative decisions of Rice Energy Operating and the day-to-day management of Rice Energy Operatings business. Pursuant to the terms of the Third A&R LLC Agreement, we cannot, under any circumstances, be removed or replaced as the sole manager of Rice Energy Operating, except by our own election, so long as we remain a member of Rice Energy Operating. Provisions regarding the operations of Rice Energy Operating and the rights and obligations of the holders of Rice Energy Operating common units are set forth in the Third A&R LLC Agreement. As of June 30, 2017, we owned an 87.04% membership interest in Rice Energy Operating. The remaining 12.96% membership interest in Rice Energy Operating is owned by the Vantage Sellers and is reflected as noncontrolling interest in the consolidated financial statements.
Sources of Revenues
The substantial majority of our revenues are derived from the sale of natural gas and do not include the effects of derivatives. Our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in realized prices. Our gathering, compression and water services revenues are primarily derived from our gathering and compression contracts in addition to fees charged to outside working interest owners.
The following table provides detail of our operating revenues from the condensed consolidated statements of operations for the three and six months ended June 30, 2017 and 2016.
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
(in thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Natural gas sales |
|
$ |
345,085 |
|
$ |
121,312 |
|
$ |
697,047 |
|
$ |
232,866 |
|
Oil and NGL sales |
|
3,807 |
|
1,000 |
|
8,679 |
|
1,888 |
| ||||
Gathering, compression and water services |
|
38,065 |
|
23,728 |
|
68,408 |
|
48,280 |
| ||||
Other revenue |
|
11,350 |
|
9,958 |
|
17,979 |
|
12,906 |
| ||||
Total operating revenues |
|
$ |
398,307 |
|
$ |
155,998 |
|
$ |
792,113 |
|
$ |
295,940 |
|
NYMEX Henry Hub prompt month contract prices are widely-used benchmarks in the pricing of natural gas. The following table provides the high and low prices for NYMEX Henry Hub prompt month contract prices and our differential to the average of those benchmark prices for the periods indicated.
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
NYMEX Henry Hub High ($/MMBtu) |
|
$ |
3.27 |
|
$ |
2.93 |
|
$ |
3.65 |
|
$ |
2.93 |
|
NYMEX Henry Hub Low ($/MMBtu) |
|
$ |
2.83 |
|
$ |
1.71 |
|
$ |
2.44 |
|
$ |
1.64 |
|
|
|
|
|
|
|
|
|
|
| ||||
NYMEX Henry Hub Price ($/MMBtu) |
|
$ |
3.18 |
|
$ |
1.95 |
|
$ |
3.25 |
|
$ |
2.02 |
|
Less: Average Basis Impact ($/MMBtu) |
|
(0.49 |
) |
(0.27 |
) |
(0.43 |
) |
(0.31 |
) | ||||
Plus: Btu Uplift (MMBtu/Mcf) |
|
0.14 |
|
0.09 |
|
0.14 |
|
0.08 |
| ||||
Pre-Hedge Realized Price ($/Mcf) |
|
$ |
2.83 |
|
$ |
1.77 |
|
$ |
2.96 |
|
$ |
1.79 |
|
Consolidated Results of Operations
Below are some highlights of our financial and operating results for the three and six months ended June 30, 2017 and 2016:
· Our natural gas, oil and NGL sales were $348.9 million and $122.3 million in the three months ended June 30, 2017 and 2016, respectively, and $705.7 million and $234.8 million in the six months ended June 30, 2017 and 2016, respectively.
· Our production volumes were 123.2 Bcfe and 68.9 Bcfe in the three months ended June 30, 2017 and 2016, respectively, and 237.7 Bcfe and 130.3 Bcfe in the six months ended June 30, 2017 and 2016, respectively.
· Our gathering, compression and water services revenues were $38.1 million and $23.7 million in the three months ended June 30, 2017 and 2016, respectively, and $68.4 million and $48.3 million in the six months ended June 30, 2017 and 2016, respectively.
· Our per unit cash production costs were $0.51 per Mcfe and $0.56 per Mcfe in the three months ended June 30, 2017 and 2016, respectively, and $0.55 per Mcfe and $0.60 per Mcfe in the six months ended June 30, 2017 and 2016, respectively.
The following tables set forth selected operating and financial data for the three and six months ended June 30, 2017 and 2016:
|
|
Three Months Ended June |
|
|
|
Six Months Ended June 30, |
|
|
| ||||||||||
|
|
2017 |
|
2016 |
|
Change |
|
2017 |
|
2016 |
|
Change |
| ||||||
Natural gas sales (in thousands) |
|
$ |
345,085 |
|
$ |
121,312 |
|
$ |
223,773 |
|
$ |
697,047 |
|
$ |
232,866 |
|
$ |
464,181 |
|
Oil and NGL sales (in thousands) |
|
3,807 |
|
1,000 |
|
2,807 |
|
8,679 |
|
1,888 |
|
6,791 |
| ||||||
Natural gas, oil and NGL sales (in thousands) |
|
$ |
348,892 |
|
$ |
122,312 |
|
$ |
226,580 |
|
$ |
705,726 |
|
$ |
234,754 |
|
$ |
470,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas production (Bcf) |
|
121.9 |
|
68.7 |
|
53.2 |
|
235.1 |
|
129.7 |
|
105.4 |
| ||||||
Oil and NGL production (MBbls) |
|
207.9 |
|
40.7 |
|
167.2 |
|
430.9 |
|
96.8 |
|
334.1 |
| ||||||
Total production (Bcfe) |
|
123.2 |
|
68.9 |
|
54.3 |
|
237.7 |
|
130.3 |
|
107.4 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average natural gas prices before effects of hedges per Mcf |
|
$ |
2.83 |
|
$ |
1.77 |
|
$ |
1.06 |
|
$ |
2.96 |
|
$ |
1.79 |
|
$ |
1.17 |
|
Average realized natural gas prices after effects of hedges per Mcf (1) |
|
2.68 |
|
2.75 |
|
(0.07 |
) |
2.83 |
|
2.81 |
|
0.02 |
| ||||||
Average oil and NGL prices per Bbl: |
|
18.31 |
|
24.56 |
|
(6.25 |
) |
20.14 |
|
19.50 |
|
0.64 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average costs per Mcfe |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease operating |
|
$ |
0.14 |
|
$ |
0.13 |
|
$ |
0.01 |
|
$ |
0.17 |
|
$ |
0.15 |
|
$ |
0.02 |
|
Gathering, compression and transportation |
|
0.32 |
|
0.39 |
|
(0.07 |
) |
0.33 |
|
0.42 |
|
(0.09 |
) | ||||||
Production taxes and impact fees |
|
0.05 |
|
0.04 |
|
0.01 |
|
0.05 |
|
0.03 |
|
0.02 |
| ||||||
General and administrative |
|
0.32 |
|
0.42 |
|
(0.10 |
) |
0.31 |
|
0.42 |
|
(0.11 |
) | ||||||
Depreciation, depletion and amortization |
|
1.18 |
|
1.23 |
|
(0.05 |
) |
1.19 |
|
1.26 |
|
(0.07 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total gathering, compression and water services revenues (in thousands): |
|
$ |
38,065 |
|
$ |
23,728 |
|
$ |
14,337 |
|
$ |
68,408 |
|
$ |
48,280 |
|
$ |
20,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gathering volumes (MDth/d) |
|
2,535 |
|
1,592 |
|
943 |
|
2,371 |
|
1,441 |
|
930 |
| ||||||
Compression volumes (MDth/d) |
|
1,338 |
|
1,025 |
|
313 |
|
1,361 |
|
770 |
|
591 |
| ||||||
Water distribution volumes (MMgal) |
|
424 |
|
335 |
|
89 |
|
789 |
|
797 |
|
(8 |
) |
(1) The effect of hedges includes realized gains and losses on commodity derivative transactions.
(in thousands, |
|
Three Months Ended June |
|
|
|
Six Months Ended June 30, |
|
|
| ||||||||||
share data) |
|
2017 |
|
2016 |
|
Change |
|
2017 |
|
2016 |
|
Change |
| ||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas, oil and NGL sales |
|
$ |
348,892 |
|
$ |
122,312 |
|
$ |
226,580 |
|
$ |
705,726 |
|
$ |
234,754 |
|
$ |
470,972 |
|
Gathering, compression and water services |
|
38,065 |
|
23,728 |
|
14,337 |
|
68,408 |
|
48,280 |
|
20,128 |
| ||||||
Other revenue |
|
11,350 |
|
9,958 |
|
1,392 |
|
17,979 |
|
12,906 |
|
5,073 |
| ||||||
Total operating revenues |
|
398,307 |
|
155,998 |
|
242,309 |
|
792,113 |
|
295,940 |
|
496,173 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease operating |
|
17,645 |
|
9,038 |
|
8,607 |
|
40,294 |
|
20,109 |
|
20,185 |
| ||||||
Gathering, compression and transportation |
|
39,131 |
|
27,169 |
|
11,962 |
|
78,557 |
|
55,301 |
|
23,256 |
| ||||||
Production taxes and impact fees |
|
6,679 |
|
2,659 |
|
4,020 |
|
12,832 |
|
4,310 |
|
8,522 |
| ||||||
Exploration |
|
7,106 |
|
5,548 |
|
1,558 |
|
11,118 |
|
6,538 |
|
4,580 |
| ||||||
Midstream operation and maintenance |
|
8,348 |
|
4,555 |
|
3,793 |
|
14,998 |
|
14,177 |
|
821 |
| ||||||
Incentive unit expense |
|
4,800 |
|
14,840 |
|
(10,040 |
) |
7,683 |
|
38,982 |
|
(31,299 |
) | ||||||
Acquisition expense |
|
2,408 |
|
84 |
|
2,324 |
|
2,615 |
|
556 |
|
2,059 |
| ||||||
Impairment of gas properties |
|
|
|
|
|
|
|
92,355 |
|
|
|
92,355 |
| ||||||
Impairment of fixed assets |
|
|
|
|
|
|
|
|
|
2,595 |
|
(2,595 |
) | ||||||
General and administrative |
|
39,226 |
|
29,272 |
|
9,954 |
|
73,050 |
|
54,145 |
|
18,905 |
| ||||||
Depreciation, depletion and amortization |
|
145,904 |
|
84,752 |
|
61,152 |
|
282,782 |
|
163,937 |
|
118,845 |
| ||||||
Amortization of intangible assets |
|
406 |
|
403 |
|
3 |
|
808 |
|
811 |
|
(3 |
) | ||||||
Other expense |
|
13,207 |
|
11,457 |
|
1,750 |
|
19,365 |
|
15,648 |
|
3,717 |
| ||||||
Total operating expenses |
|
284,860 |
|
189,777 |
|
95,083 |
|
636,457 |
|
377,109 |
|
259,348 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income (loss) |
|
113,447 |
|
(33,779 |
) |
147,226 |
|
155,656 |
|
(81,169 |
) |
236,825 |
| ||||||
Interest expense |
|
(27,269 |
) |
(24,802 |
) |
(2,467 |
) |
(54,292 |
) |
(49,323 |
) |
(4,969 |
) | ||||||
Other income |
|
273 |
|
2,549 |
|
(2,276 |
) |
453 |
|
2,762 |
|
(2,309 |
) | ||||||
Gain (loss) on derivative instruments |
|
103,558 |
|
(201,555 |
) |
305,113 |
|
88,779 |
|
(131,376 |
) |
220,155 |
| ||||||
Loss on embedded derivatives |
|
(15,417 |
) |
|
|
(15,417 |
) |
(15,417 |
) |
|
|
(15,417 |
) | ||||||
Amortization of deferred financing costs |
|
(3,426 |
) |
(1,618 |
) |
(1,808 |
) |
(6,078 |
) |
(3,169 |
) |
(2,909 |
) | ||||||
Income (loss) before income taxes |
|
171,166 |
|
(259,205 |
) |
430,371 |
|
169,101 |
|
(262,275 |
) |
431,376 |
| ||||||
Income tax (expense) benefit |
|
(33,917 |
) |
120,496 |
|
(154,413 |
) |
(33,341 |
) |
126,871 |
|
(160,212 |
) | ||||||
Net income (loss) |
|
137,249 |
|
(138,709 |
) |
275,958 |
|
135,760 |
|
(135,404 |
) |
271,164 |
| ||||||
Less: Net income attributable to noncontrolling interests |
|
(53,724 |
) |
(17,977 |
) |
(35,747 |
) |
(78,533 |
) |
(38,870 |
) |
(39,663 |
) | ||||||
Net income (loss) attributable to Rice Energy Inc. |
|
83,525 |
|
(156,686 |
) |
240,211 |
|
57,227 |
|
(174,274 |
) |
231,501 |
| ||||||
Less: Preferred dividends and accretion of redeemable noncontrolling interests |
|
(20,656 |
) |
(7,944 |
) |
(12,712 |
) |
(28,988 |
) |
(11,402 |
) |
(17,586 |
) | ||||||
Net income (loss) attributable to Rice Energy Inc. common stockholders |
|
$ |
62,869 |
|
$ |
(164,630 |
) |
$ |
227,499 |
|
$ |
28,239 |
|
$ |
(185,676 |
) |
$ |
213,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loss per share - basic |
|
$ |
0.31 |
|
$ |
(1.07 |
) |
1.38 |
|
$ |
0.14 |
|
$ |
(1.28 |
) |
$ |
1.42 |
| |
Loss per share - diluted |
|
$ |
0.30 |
|
$ |
(1.07 |
) |
1.37 |
|
$ |
0.14 |
|
$ |
(1.28 |
) |
$ |
1.42 |
|
Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016
Total operating revenues. The increase in total operating revenues was the result of a 77% increase in natural gas production from 68.7 Bcfe in the second quarter of 2016 compared to 121.9 Bcfe in the second quarter of 2017. During the three months ended June 30, 2017, we turned 30 gross (26 net) wells into sales, bringing our total producing well count to 431 gross (329 net). Also contributing to the increase in operating revenues was an increase in our period-over-period realized price. Our realized price for the three months ended June 30, 2017 was $2.83 per Mcf compared to $1.77 for the three months ended June 30, 2016, in each case before the effect of hedges. Operating revenues were also positively impacted by a 60% increase in gathering, compression and water services revenues period-over-period. In addition, post-acquisition revenue associated with the Vantage Acquisition was $106.0 million for the three months ended June 30, 2017.
Lease operating. The increase in lease operating expense from $9.0 million for the three months ended June 30, 2016 to $17.6 million for the three months ended June 30, 2017, or 95%, was primarily attributable to an increase in our production base period-over-period. In addition, lease operating expense per unit of production increased period-over-period from $0.13 for the three months ended June 30, 2016 to $0.14 for the three months ended June 30, 2017. The increase on a per unit basis was primarily attributable to the addition of producing wells in the Fort Worth Basin acquired from Vantage in the fourth quarter of 2016.
Gathering, compression and transportation. Gathering, compression and transportation expense for the second quarter of 2017 of $39.1 million was comprised of $30.0 million of transportation contracts with third parties and $9.1 million of gathering and compression charges from third parties. The 44% increase was primarily attributable to a 79% increase in production volumes for the three months ended June 30, 2017 compared to the three months ended June 30, 2016, which favorably impacted the gathering, compression and transportation rate.
Production taxes and impact fees. Production taxes are directly related to natural gas, oil and NGLs sales. The increase from $2.7 million for the three months ended June 30, 2016 to $6.7 million for the three months ended June 30, 2017, or 151%, was primarily due to a severance tax on gas produced by our Fort Worth Basin assets.
Midstream operation and maintenance. The increase in midstream operation and maintenance expense from $4.6 million for the three months ended June 30, 2016 to $8.3 million for the three months ended June 30, 2017, or 83%, primarily relates to additional operation and maintenance expense associated with midstream and water assets acquired in connection with the Vantage Acquisition that were not present in the prior year. In addition, the increase in operation and maintenance expense was due to an increase in variable water costs associated with the need for supplemental water systems to support combination hydraulic fracturing during the three months ended June 30, 2017, as well as an increase in pipeline maintenance expenses.
Incentive unit expense. Incentive unit expense decreased 68% period-over-period. In the second quarter of 2016, the $14.8 million expense consisted of $5.8 million of non-cash compensation expense related to the Rice Energy Holdings LLC (Rice Holdings) incentive units and $9.0 million of non-cash compensation expense related to the quarterly fair market value adjustment for the NGP Holdings incentive units. In the second quarter of 2017, the $4.8 million expense consisted of non-cash compensation expense related to the Rice Holdings incentive units. No future expense will be recognized related to the NGP Holdings incentive units as a result of the April 2016 settlement of the remaining NGP Holdings incentive unit obligation. See Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-12. Incentive Units for additional information.
General and administrative. For the three months ended June 30, 2017, general and administrative expense increased approximately 34%, which was primarily attributable to the addition of personnel to support our growth activities and related salary and employee benefits. On a per unit basis, general and administrative expense decreased by 24%, from $0.42 per Mcfe during the three months ended June 30, 2016 to $0.32 per Mcfe during the
three months ended June 30, 2017, primarily due to a 79% increase in production. Included in general and administrative expense is stock compensation expense of $6.2 million and $6.1 million for the three months ended June 30, 2017 and 2016, respectively.
Depreciation, depletion and amortization expense (DD&A). The increase from $84.8 million for the three months ended June 30, 2016 to $145.9 million for the three months ended June 30, 2017, or 72%, was a result of a greater number of producing wells in the second quarter of 2017 compared to the second quarter of 2016. As of June 30, 2017, we had 431 gross (329 net) producing wells, a 39% increase when compared to the number of producing wells as of June 30, 2016. On a per unit basis, DD&A expense decreased $0.05 per Mcfe, or 4%, from $1.23 for the three months ended June 30, 2016 to $1.18 per Mcfe for the three months ended June 30, 2017 due primarily to well cost reductions and drilling and completion efficiencies that we have achieved during the period.
Interest expense. The increase from $24.8 million for the three months ended June 30, 2016 to $27.3 million for the three months ended June 30, 2017, or 10%, was a result of higher levels of average borrowings outstanding during the second quarter of 2017 as compared to the second quarter of 2016 in order to fund our capital programs.
Gain (loss) on derivative instruments. The $103.6 million gain on derivative contracts in the second quarter of 2017 is comprised of cash payments of $18.7 million on the settlement of maturing contracts and a $122.2 million unrealized gain in the second quarter of 2017. The $201.6 million loss on derivative contracts in the second quarter of 2016 was comprised of $67.4 million of cash receipts on the settlement of maturing contracts and a $268.9 million unrealized loss.
Loss on embedded derivatives. The $15.4 million loss on embedded derivatives in the second quarter of 2017 was related to our reassessment of the probability of a Change in Control under the LLC Agreement and the GP Holdings A&R LPA following our entry into the Merger Agreement and determination that the occurrence of a Change in Control was probable. As a result, we assessed certain embedded derivatives requiring bifurcation in the LLC Agreement and GP Holdings A&R LPA and determined that the value of the Investor Put Right increased as a result of the change in probability. As of June 30, 2017, the embedded derivative fair value of the Investor Put Right was approximately $15.4 million and is included as an embedded derivative liability in the accompanying condensed consolidated balance sheet. Please see Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-10. Mezzanine Equity for further information.
Income tax (expense) benefit. The increase in income tax expense from an income tax benefit of $120.5 million for the three months ended June 30, 2016 to an income tax expense of $33.9 million for the three months ended June 30, 2017, or 128%, was primarily the result of an increase in net income before income taxes.
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016
Total operating revenues. The $496.2 million, or 168% increase in total operating revenues period-over-period was mainly a result of an increase in natural gas production from 129.7 Bcfe for the six months ended June 30, 2016 to 235.1 Bcfe for the six months ended June 30, 2017. Also contributing to the increase in operating revenues was an increase in our period-over-period realized price. Our realized price for the six months ended June 30, 2017 was $2.96 per Mcf compared to $1.79 per Mcf for the six months ended June 30, 2016, in each case before the effect of hedges. Operating revenues were also positively impacted by a 42% increase in gathering, compression and water service revenues period-over-period. In addition, post-acquisition revenue associated with the Vantage Acquisition was $201.9 million for the six months ended June 30, 2017.
Lease operating. The $20.2 million, or 100% increase in lease operating expenses period-over-period was primarily attributable to an increase in our production base period-over-period. In addition, lease operating expense per unit of production increased period-over-period from $0.15 for the six months ended June 30, 2016 to $0.17 for the six months ended June 30, 2017. The increase on a per unit basis was primarily attributable to the addition of producing wells in the Fort Worth Basin acquired from Vantage in the fourth quarter of 2016.
Gathering, compression and transportation. Gathering, compression and transportation expense for the six months ended June 30, 2017 of $78.6 million is mainly comprised of $62.8 million of transportation contracts with
third parties and $15.8 million of gathering charges from third parties. The $23.3 million, or 42% increase was primarily attributable to an 82% increase in production volumes for the six months ended June 30, 2017 compared to the six months ended June 30, 2016, which favorably impacted the gathering, compression and transportation rate.
Production taxes and impact fees. Production taxes are directly related to natural gas, oil and NGLs sales. The $8.5 million, or 198%, increase in production taxes for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 is primarily due to a severance tax on gas produced by our Fort Worth Basin assets.
Incentive unit expense. Incentive unit expense decreased 80% period-over-period. In the six months ended June 30, 2016, the $39.0 million expense consisted of $11.7 million of non-cash compensation expense related to the Rice Holdings incentive units and $27.3 million of compensation expense related to the final fair market value adjustment for the NGP Holdings incentive units. In the six months ended June 30, 2017, the $7.7 million expense consisted of of non-cash compensation expense related to the Rice Holdings incentive units. No future expense will be recognized related to the NGP Holdings incentive units as a result of the April 2016 settlement of the remaining NGP Holdings incentive unit obligation. See Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-12. Incentive Units for additional information.
Impairment of gas properties. For the six months ended June 30, 2017, we recorded a $92.4 million impairment related to certain proved gas properties located in the Fort Worth Basin. As a result of significant declines in forward Waha basis differentials, which is the primary sales point for our Fort Worth Basin production, we performed an asset recoverability test and determined that the carrying value of our Fort Worth Basin proved properties exceeded its fair value. See Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-3. Impairment for additional information.
General and administrative. For the six months ended June 30, 2017, general and administrative expense increased approximately 35%, which was primarily attributable to the addition of personnel to support our growth activities and related salary and employee benefits. On a per unit basis, general and administrative expense decreased by 26%, from $0.42 per Mcfe during the six months ended June 30, 2016 to $0.31 per Mcfe during the six months ended June 30, 2017, primarily due to a 82% increase in production. Included in general and administrative expense is stock compensation expense of $11.3 million and $10.8 million for the six months ended June 30, 2017 and 2016, respectively.
DD&A. The increase from $163.9 million for the six months ended June 30, 2016 to $282.8 million for the six months ended June 30, 2017, or 72%, was a result of a greater number of producing wells in the six months ended June 30, 2017 compared to the six months ended June 30, 2016. As of June 30, 2017, we had 431 gross (329 net) producing wells, a 39% increase when compared to the number of producing wells as of June 30, 2016. On a per unit basis, DD&A expense decreased 0.07 per Mcfe, or 6%, from $1.26 for the six months ended June 30, 2016 to 1.19 per Mcfe for the six months ended June 30, 2017 due primarily to well cost reductions and drilling and completion efficiencies that we have achieved during the period.
Interest expense. The increase from $49.3 million for the six months ended June 30, 2016 to $54.3 million for the six months ended June 30, 2017, or 10%, was a result of higher levels of average borrowings outstanding during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 in order to fund our capital programs.
Gain (loss) on derivative instruments. The $88.8 million gain on derivative contracts in the six months ended June 30, 2017 is comprised of cash payments of $32.3 million on the settlement of maturing contracts and a $121.1 million unrealized gain in the six months ended June 30, 2017. The $131.4 million loss on derivative contracts in the six months ended June 30, 2016 was comprised of $131.5 million of cash receipts on the settlement of maturing contracts and a $262.8 million unrealized loss.
Loss on embedded derivatives. The $15.4 million loss on embedded derivatives in the second quarter of 2017 was related to our reassessment of the probability of a Change in Control under the LLC Agreement and the GP Holdings A&R LPA following our entry into the Merger Agreement and determination that the occurrence of a Change in Control was probable. As a result, we assessed certain embedded derivatives requiring bifurcation in the LLC Agreement and GP Holdings A&R LPA and determined that the value of the Investor Put Right increased as a
result of the change in probability. As of June 30, 2017, the embedded derivative fair value of the Investor Put Right was approximately $15.4 million and is included as an embedded derivative liability in the accompanying condensed consolidated balance sheet. Please see Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-10. Mezzanine Equity for further information.
Income tax (expense) benefit. The increase in income tax expense from an income tax benefit of $126.9 million for the six months ended June 30, 2016 to an income tax expense of $33.3 million for the six months ended June 30, 2017, or 126%, was primarily the result of an increase in net income before income taxes.
Business Segment Results of Operations
We operate in three business segments: Exploration and Production, Rice Midstream Holdings and Rice Midstream Partners. We evaluate our business segments based on their contribution to our consolidated results based on operating income. Please see Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-8. Financial Information by Business Segment for a reconciliation of the operating results and assets of our business segments.
The following tables set forth selected operating and financial data for each business segment during the three and six months ended June 30, 2017 compared to the three and six months ended June 30, 2016:
Exploration and Production Segment
(in thousands, |
|
Three Months Ended June |
|
|
|
Six Months Ended June 30, |
|
|
| ||||||||||
volumes) |
|
2017 |
|
2016 |
|
Change |
|
2017 |
|
2016 |
|
Change |
| ||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas, oil and NGL sales |
|
$ |
348,892 |
|
$ |
122,312 |
|
$ |
226,580 |
|
$ |
705,726 |
|
$ |
234,754 |
|
$ |
470,972 |
|
Other revenue |
|
11,350 |
|
9,958 |
|
1,392 |
|
17,979 |
|
12,906 |
|
5,073 |
| ||||||
Total operating revenues |
|
360,242 |
|
132,270 |
|
227,972 |
|
723,705 |
|
247,660 |
|
476,045 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease operating |
|
17,740 |
|
9,038 |
|
8,702 |
|
40,389 |
|
20,108 |
|
20,281 |
| ||||||
Gathering, compression and transportation |
|
85,915 |
|
51,307 |
|
34,608 |
|
167,810 |
|
99,510 |
|
68,300 |
| ||||||
Production taxes and impact fees |
|
6,679 |
|
2,659 |
|
4,020 |
|
12,832 |
|
4,310 |
|
8,522 |
| ||||||
Exploration |
|
7,106 |
|
5,548 |
|
1,558 |
|
11,118 |
|
6,538 |
|
4,580 |
| ||||||
Incentive unit expense |
|
4,664 |
|
14,141 |
|
(9,477 |
) |
7,464 |
|
37,012 |
|
(29,548 |
) | ||||||
Acquisition costs |
|
1,356 |
|
|
|
1,356 |
|
1,563 |
|
|
|
1,563 |
| ||||||
Impairment of gas properties |
|
|
|
|
|
|
|
92,355 |
|
|
|
92,355 |
| ||||||
Impairment of fixed assets |
|
|
|
|
|
|
|
|
|
2,595 |
|
(2,595 |
) | ||||||
General and administrative |
|
25,653 |
|
18,413 |
|
7,240 |
|
48,868 |
|
34,854 |
|
14,014 |
| ||||||
Depreciation, depletion and amortization |
|
141,478 |
|
79,515 |
|
61,963 |
|
273,317 |
|
154,471 |
|
118,846 |
| ||||||
Other expense |
|
11,210 |
|
11,097 |
|
113 |
|
17,255 |
|
15,500 |
|
1,755 |
| ||||||
Total operating expenses |
|
301,801 |
|
191,718 |
|
110,083 |
|
672,971 |
|
374,898 |
|
298,073 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income (loss) |
|
$ |
58,441 |
|
$ |
(59,448 |
) |
$ |
117,889 |
|
$ |
50,734 |
|
$ |
(127,238 |
) |
$ |
177,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Natural gas production (Bcf): |
|
121.9 |
|
68.7 |
|
53.2 |
|
235.1 |
|
129.7 |
|
105.4 |
| ||||||
Oil and NGL production (MBbls): |
|
207.9 |
|
40.7 |
|
167.2 |
|
430.9 |
|
96.8 |
|
334.1 |
| ||||||
Total production (Bcfe) |
|
123.2 |
|
68.9 |
|
54.3 |
|
237.7 |
|
130.3 |
|
107.4 |
|
Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016
Natural gas, oil and NGL sales. The 185% increase in natural gas sales was the result of an increase in production in the second quarter of 2017 compared to the second quarter of 2016, as discussed above. During the three months ended June 30, 2017, we turned 30 gross (26 net) wells into sales, bringing our total producing well count to 431 gross (329 net). In addition to the impact of increased production volumes on operating revenues, our realized price increased from $1.77 per Mcf in the second quarter of 2016 to $2.83 per Mcf in the second quarter of 2017, in each case before the effect of hedges. In addition, post-acquisition revenue and production volumes associated with the Vantage Acquisition was $90.3 million and 32.5 Bcfe for the three months ended June 30, 2017, respectively.
Lease operating. The 95% increase in lease operating expense was primarily attributable to an increase in our production base period-over-period. In addition, lease operating expense per unit of production increased period-over-period from $0.13 for the three months ended June 30, 2016 to $0.14 for the three months ended June 30, 2017. The increase on a per unit basis was primarily attributable to the addition of producing wells in the Fort Worth Basin acquired from Vantage in the fourth quarter of 2016.
Gathering, compression and transportation. Gathering, compression and transportation expense of $85.9 million for the second quarter of 2017 includes approximately $53.9 million of affiliate and third-party gathering fees and $32.1 million of transportation contracts with third parties. The 67% increase in gathering, compression and transportation expenses was mainly due to increased volumes associated with the Rice Midstream Partners segment and the Rice Midstream Holdings segment in the second quarter of 2017 compared to the second quarter of 2016.
Production taxes and impact fees. Production taxes are directly related to natural gas, oil and NGLs sales. The increase from $2.7 million for the three months ended June 30, 2016 to $6.7 million for the three months ended June 30, 2017, or 151%, was primarily due to a severance tax on gas produced by our Fort Worth Basin assets.
General and administrative. General and administrative expense increased from $18.4 million for the three months ended June 30, 2016 to $25.7 million for the three months ended June 30, 2017, an increase of 39%. The increase period-over-period was primarily attributable to the addition of personnel to support our growth activities and related salary and employee benefits. Included in general and administrative expense is stock compensation expense of $4.9 million and $3.2 million for the three months ended June 30, 2017 and 2016, respectively.
DD&A. DD&A expense increased from $79.5 million for the three months ended June 30, 2016 to $141.5 million for the three months ended June 30, 2017, an increase of 78%. The increase in segment DD&A was a result of an increase in production and greater number of producing wells in the second quarter of 2017 compared to the second quarter of 2016. As of June 30, 2017, we had 431 gross (329 net) producing Appalachian wells, a 39% increase when compared to the number of producing wells as of June 30, 2016.
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016
Natural gas, oil and NGL sales. The 201% increase in natural gas sales was the result of an increase in production in the six months ended June 30, 2017 compared to the six months ended June 30, 2016, as discussed above. During the six months ended June 30, 2017, we turned 61 gross (55 net) wells into sales, bringing our total producing well count to 431 gross (329 net). In addition to the impact of increased production volumes on operating revenues, our realized price increased from $1.79 per Mcf in the six months ended June 30, 2016 to $2.96 per Mcf in the six months ended June 30, 2016, in each case before the effect of hedges. In addition, post-acquisition revenue and production volumes associated with the Vantage Acquisition was $174.1 million and 60.4 Bcfe for the three months ended June 30, 2017, respectively.
Lease operating. The 100% increase in lease operating expenses period-over-period was primarily attributable to an increase in our production base period-over-period. In addition, lease operating expense per unit of production increased period-over-period from $0.15 for the six months ended June 30, 2016 to $0.17 for the six months ended June 30, 2017. The increase on a per unit basis was primarily attributable to the addition of producing wells in the Fort Worth Basin acquired from Vantage in the fourth quarter of 2016.
Gathering, compression and transportation. Gathering, compression and transportation expense of $167.8 million for the six months ended June 30, 2017 includes approximately $100.6 million of affiliate and third-party gathering fees and $67.2 million of transportation contracts with third parties. The 69% increase in gathering, compression and transportation expenses was mainly due to increased volumes associated with the Rice Midstream Partners segment and the Rice Midstream Holdings segment in the six months ended June 30, 2017 compared to the six months ended June 30, 2016.
Production taxes and impact fees. Production taxes are directly related to natural gas, oil and NGLs sales. The $8.5 million, or 198%, increase in production taxes for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 is primarily due to a severance tax on gas produced by our Fort Worth Basin assets.
Impairment of gas properties. For the six months ended June 30, 2017, we recorded a $92.4 million impairment related to certain proved gas properties located in the Fort Worth Basin. As a result of significant declines in forward Waha basis differentials, which is the primary sales point for our Fort Worth Basin production, we performed an asset recoverability test and determined that the carrying value of our Fort Worth Basin proved properties exceeded its fair value. See Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-3. Impairment for additional information.
General and administrative. General and administrative expense increased from $34.9 million for the six months ended June 30, 2016 to $48.9 million for the six months ended June 30, 2017, an increase of 40%. The increase period-over-period was primarily attributable to the addition of personnel to support our growth activities and related salary and employee benefits. Included in general and administrative expense is stock compensation expense of $8.9 million and $5.8 million for the six months ended June 30, 2017 and 2016, respectively.
DD&A. DD&A expense increased from $154.5 million for the six months ended June 30, 2016 to $273.3 million for the six months ended June 30, 2017, an increase of 77%. The increase in segment DD&A was a result of
an increase in production and greater number of producing wells in the six months ended June 30, 2017 compared to the six months ended June 30, 2016. As of June 30, 2017, we had 431 gross (329 net) producing Appalachian wells, a 39% increase when compared to the number of producing wells as of June 30, 2016.
Rice Midstream Holdings Segment
(in thousands, |
|
Three Months Ended June |
|
|
|
Six Months Ended June 30, |
|
|
| ||||||||||
except volumes) |
|
2017 |
|
2016 |
|
Change |
|
2017 |
|
2016 |
|
Change |
| ||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gathering revenues |
|
$ |
29,334 |
|
$ |
9,240 |
|
$ |
20,094 |
|
$ |
52,874 |
|
$ |
17,776 |
|
$ |
35,098 |
|
Compression revenues |
|
2,613 |
|
2,633 |
|
(20 |
) |
5,918 |
|
4,748 |
|
1,170 |
| ||||||
Total operating revenues |
|
31,947 |
|
11,873 |
|
20,074 |
|
58,792 |
|
22,524 |
|
36,268 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Midstream operation and maintenance |
|
1,013 |
|
462 |
|
551 |
|
1,774 |
|
1,471 |
|
303 |
| ||||||
Incentive unit expense |
|
136 |
|
699 |
|
(563 |
) |
219 |
|
1,970 |
|
(1,751 |
) | ||||||
General and administrative |
|
6,375 |
|
5,071 |
|
1,304 |
|
11,145 |
|
8,827 |
|
2,318 |
| ||||||
Acquisition costs |
|
556 |
|
84 |
|
472 |
|
556 |
|
484 |
|
72 |
| ||||||
Depreciation, depletion and amortization |
|
1,790 |
|
1,556 |
|
234 |
|
3,187 |
|
2,645 |
|
542 |
| ||||||
Other expense |
|
1,977 |
|
|
|
1,977 |
|
1,977 |
|
|
|
1,977 |
| ||||||
Total operating expenses |
|
11,847 |
|
7,872 |
|
3,975 |
|
18,858 |
|
15,397 |
|
3,461 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
|
$ |
20,100 |
|
$ |
4,001 |
|
$ |
16,099 |
|
$ |
39,934 |
|
$ |
7,127 |
|
$ |
32,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gathering volumes (MDth/d): |
|
1,175 |
|
658 |
|
517 |
|
1,073 |
|
556 |
|
517 |
| ||||||
Compression volumes (MDth/d): |
|
446 |
|
461 |
|
(15 |
) |
502 |
|
412 |
|
90 |
|
Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016
Total operating revenues. Operating revenues increased from $11.9 million for the three months ended June 30, 2016 to $31.9 million for the three months ended June 30, 2017, an increase of 169%. The increase in total operating revenues was mainly the result of an increase in affiliate gathering and compression volumes between the Exploration and Production segment and the Rice Midstream Holdings segment, as well as an increase in third-party gathering volumes.
Midstream operation and maintenance. Midstream operation and maintenance expense increased from $0.5 million for the three months ended June 30, 2016 to $1.0 million for the three months ended June 30, 2017, an increase of 119%. The increase in midstream operation and maintenance expense was primarily due to increased preventative maintenance expenses on compressor stations and the timing of other general maintenance during the three months ended June 30, 2017.
General and administrative. General and administrative expense increased from $5.1 million for the three months ended June 30, 2016 to $6.4 million for the three months ended June 30, 2017, an increase of 26%. The increase in general and administrative expense period-over-period was primarily attributable to costs associated with personnel to support the Rice Midstream Holdings segments growth activities. Included in general and administrative expense is stock compensation expense of $1.2 million and $1.7 million for the second quarter of 2017 and 2016, respectively.
DD&A. DD&A expense increased from $1.6 million for the three months ended June 30, 2016 to $1.8 million for the three months ended June 30, 2017, an increase of 15%. The increase in DD&A was mainly the result of an increase in midstream assets placed in service subsequent to the second quarter of 2016 and the related depreciation on those assets.
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016
Total operating revenues. Operating revenues increased from $22.5 million for the six months ended June 30, 2016 to $58.8 million for the six months ended June 30, 2017, an increase of 161%. The increase in total operating revenues was mainly the result of an increase in affiliate gathering and compression volumes between the Exploration and Production segment and the Rice Midstream Holdings segment, as well as an increase in third-party gathering volumes.
Midstream operation and maintenance. Midstream operation and maintenance expense increased from $1.5 million for the six months ended June 30, 2016 to $1.8 million for the six months ended June 30, 2017, an increase of 21%. The increase was primarily due to increased preventative maintenance expenses during the six months ended June 30, 2017.
General and administrative. General and administrative expense increased from $8.8 million for the six months ended June 30, 2016 to $11.1 million for the six months ended June 30, 2017, an increase of 26%. The increase in general and administrative expense period-over-period was primarily attributable to costs associated with personnel to support the Rice Midstream Holdings segments growth activities. Included in general and administrative expense is stock compensation expense of $2.1 million and $2.9 million for the six months ended June 30, 2017 and 2016, respectively.
DD&A. DD&A expense increased from $2.6 million for the six months ended June 30, 2016 to $3.2 million for the six months ended June 30, 2017, an increase of 20%. The increase in DD&A was mainly the result of an increase in midstream assets placed in service subsequent to the second quarter of 2016 and the related depreciation on those assets.
Rice Midstream Partners Segment
(in thousands, |
|
Three Months Ended June |
|
|
|
Six Months Ended June 30, |
|
|
| ||||||||||
except volumes) |
|
2017 |
|
2016 |
|
Change |
|
2017 |
|
2016 |
|
Change |
| ||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gathering revenues |
|
$ |
40,314 |
|
$ |
26,249 |
|
$ |
14,065 |
|
$ |
76,534 |
|
$ |
51,934 |
|
$ |
24,600 |
|
Compression revenues |
|
6,270 |
|
3,787 |
|
2,483 |
|
12,052 |
|
4,902 |
|
7,150 |
| ||||||
Water services revenues |
|
25,793 |
|
16,511 |
|
9,282 |
|
46,541 |
|
44,254 |
|
2,287 |
| ||||||
Total operating revenues |
|
72,377 |
|
46,547 |
|
25,830 |
|
135,127 |
|
101,090 |
|
34,037 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Midstream operation and maintenance |
|
9,701 |
|
4,141 |
|
5,560 |
|
17,880 |
|
12,752 |
|
5,128 |
| ||||||
General and administrative |
|
7,198 |
|
5,787 |
|
1,411 |
|
13,037 |
|
10,463 |
|
2,574 |
| ||||||
Depreciation, depletion and amortization |
|
7,543 |
|
6,855 |
|
688 |
|
15,164 |
|
12,225 |
|
2,939 |
| ||||||
Acquisition costs |
|
496 |
|
|
|
496 |
|
496 |
|
73 |
|
423 |
| ||||||
Amortization of intangible assets |
|
406 |
|
403 |
|
3 |
|
808 |
|
811 |
|
(3 |
) | ||||||
Other expense (income) |
|
20 |
|
361 |
|
(341 |
) |
133 |
|
149 |
|
(16 |
) | ||||||
Total operating expenses |
|
25,364 |
|
17,547 |
|
7,817 |
|
47,518 |
|
36,473 |
|
11,045 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
|
$ |
47,013 |
|
$ |
29,000 |
|
$ |
18,013 |
|
$ |
87,609 |
|
$ |
64,617 |
|
$ |
22,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gathering volumes (MDth/d): |
|
1,360 |
|
934 |
|
426 |
|
1,298 |
|
885 |
|
413 |
| ||||||
Compression volumes (MDth/d): |
|
892 |
|
564 |
|
328 |
|
859 |
|
358 |
|
501 |
| ||||||
Water services volumes (MMgal): |
|
424 |
|
335 |
|
89 |
|
789 |
|
797 |
|
(8 |
) |
Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016
Total operating revenues. Operating revenues increased from $46.5 million for the three months ended June 30, 2016 to $72.4 million for the three months ended June 30, 2017, an increase of 55%. The increase in operating revenues period-over-period primarily relates to increased gathering and compression revenues associated with a 46% and 58% increase in gathering and compression throughput, respectively. The increase in operating revenues also related to the impact of post-acquisition revenues associated with the Vantage Midstream Entities of $15.7 million for the three months ended June 30, 2017, which was comprised of gathering, compression and water distribution volumes of 377 MDth/d, 50 MDth/d and 63 MMgal, respectively. Additionally, the increase is attributable to a $9.3 million increase in water services revenue due to a 27% increase in fresh water distribution volumes of 335 MMgal for the three months ended June 30, 2016 to 424 MMgal for the three months ended June 30, 2017.
Operation and maintenance expense. Total operation and maintenance expense increased from $4.1 million for the three months ended June 30, 2016 to $9.7 million for the three months ended June 30, 2017, an increase of 134%. The increase period-over-period was primarily due to increases in line maintenance expenses, as well as increases in compressor rental charges associated with the addition of compressor stations acquired in connection
with the Vantage Midstream Acquisition. Additionally, the increase relates to an increase in variable water costs associated with supplemental water systems supporting combination fracing in Ohio.
General and administrative expense. General and administrative expense increased from $5.8 million for the three months ended June 30, 2016 to $7.2 million for the three months ended June 30, 2017, an increase of 24%. The increase in general and administrative expense period-over-period was primarily attributable to costs associated with personnel to support our growing midstream operations in Pennsylvania.
DD&A. Depreciation expense increased from $6.9 million for the three months ended June 30, 2016 to $7.5 million for the three months ended June 30, 2017, an increase of 10%. The increase period-over-period was primarily due to additional assets placed into service subsequent to the second quarter of 2016 associated with our gathering, compression and water handling and treatment services. From June 30, 2016 through June 30, 2017, our gathering and water pipeline miles increased by 40% and 22%, respectively.
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016
Total operating revenues. Operating revenues increased from $101.1 million for the six months ended June 30, 2016 to $135.1 million for the six months ended June 30, 2017, an increase of 34%. The increase in operating revenues period-over-period primarily relates to increased gathering and compression revenues associated with a 192% and 377% increase in gathering and compression throughput, respectively. The increase in operating revenues also related to the impact of post-acquisition revenues associated with the Vantage Midstream Entities of $27.8 million for the six months ended June 30, 2017, which was comprised of gathering, compression and water distribution volumes of 377 MDth/d, 50 MDth/d and 63 MMgal, respectively.
Operation and maintenance expense. Total operation and maintenance expense increased from $12.8 million for the six months ended June 30, 2016 to $17.9 million for the six months ended June 30, 2017, an increase of 40%. The increase period-over-period was primarily due to increases in line maintenance expenses as well as increases in compressor rental charges associated with the addition of compressor stations acquired in connection with the Vantage Midstream Entities. Additionally, the increase relates to an increase in variable water costs associated with the supplemental water systems supporting combination fracs in Ohio.
General and administrative expense. General and administrative expense increased from $10.5 million for the six months ended June 30, 2016 to $13.0 million for the six months ended June 30, 2017, an increase of 25%. The increase in general and administrative expense period-over-period was primarily attributable to costs associated with personnel to support our growing midstream operations in Pennsylvania.
DD&A. Depreciation expense increased from $12.2 million for the six months ended June 30, 2016 to $15.2 million for the six months ended June 30, 2017, an increase of 24%. The increase period-over-period was primarily due to additional assets placed into service subsequent to the second quarter of 2016 associated with our gathering, compression and water handling and treatment services. From June 30, 2016 through June 30, 2017, our gathering and water pipeline miles increased by 40% and 22%, respectively.
Capital Resources and Liquidity
Our primary sources of liquidity have been the proceeds from equity and debt financings and borrowings under our credit facilities. Our primary use of capital has been the acquisition and development of natural gas properties and associated midstream infrastructure. As we pursue reserve and production growth, we monitor which capital resources, including equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. We also expect to fund a portion of these requirements with cash flow from operations as we continue to bring additional upstream and midstream production online.
The members of Rice Energy Operating, including us, incur U.S. federal, state and local income taxes on their share of taxable income of Rice Energy Operating, if any. Under the Third A&R LLC Agreement, Rice Energy Operating is required to make cash tax distributions to its members, subsequent to the end of a given
calendar year, based upon income allocated to each member and subject to the availability of distributable cash (as defined in the Third A&R LLC Agreement).
Cash Flow Provided by Operating Activities
Net cash provided by operating activities was $326.5 million for the six months ended June 30, 2017, compared to $202.9 million for the six months ended June 30, 2016. The increase in operating cash flow was primarily due to an increase in production and commodity prices, partially offset by an increase in cash operating expenses.
Cash Flow Used in Investing Activities
During the six months ended June 30, 2017, cash flows used in investing activities was $666.0 million, which primarily consisted of capital expenditures for property and equipment of $644.3 million, as compared to $492.3 million for the six months ended June 30, 2016, of which $484.5 million was associated with capital expenditures for property and equipment.
Capital expenditures for the Exploration and Production segment totaled $494.0 million and $386.3 million for the six months ended June 30, 2017 and 2016, respectively. The increase was primarily attributable to the development of our natural gas properties.
Capital expenditures for the Rice Midstream Holdings segment totaled $123.8 million and $54.3 million for the six months ended June 30, 2017 and 2016, respectively. The increase was attributable to an increase in capital expenditures for Midstream Holdings infrastructure, including capital expenditures for Strike Force Midstreams midstream infrastructure.
Capital expenditures for the Rice Midstream Partners segment totaled $58.0 million and $75.0 million for the six months ended June 30, 2017 and 2016, respectively. The decrease was primarily attributable to a decrease in the capital expenditures related to the Rice Midstream Partners segments water services assets, offset by increases in capital expenditures for compression assets.
Cash Flow Provided by Financing Activities
Net cash provided by financing activities of $31.1 million during the six months ended June 30, 2017 was primarily the result of borrowings on our revolving credit facilities, partially offset by distributions to the Partnerships public unitholders and payments of preferred dividends to redeemable noncontrolling interest holders. Net cash provided by financing activities of $703.0 million during the six months ended June 30, 2016 was primarily the result of the proceeds from the Midstream Holdings Investment (See Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-10. Mezzanine Equity for additional information), proceeds from the April 2016 equity offering, proceeds from the Partnerships June 2016 equity offering and proceeds from the Partnerships ATM program, offset by net repayments on our revolving credit facilities and distributions to the Partnerships public unitholders.
Debt Agreements
Senior Notes
On April 25, 2014, we issued $900.0 million in aggregate principal amount of 6.25% senior notes due 2022 (the 2022 Notes) in a private placement to eligible purchasers under Rule 144A and Regulation S of the Securities Act, which resulted in net proceeds to us of $882.7 million after deducting estimated expenses and underwriting discounts and commissions of approximately $17.3 million.
The 2022 Notes will mature on May 1, 2022, and interest is payable on the 2022 Notes on each May 1 and November 1. Upon the occurrence of a Change of Control (as defined in the indenture governing the 2022 Notes),
unless we have given notice to redeem the 2022 Notes, the holders of the 2022 Notes will have the right to require us to repurchase all or a portion of the 2022 Notes at a price equal to 101% of the aggregate principal amount of the 2022 Notes, plus any accrued and unpaid interest to the date of purchase. We may redeem some or all of the 2022 Notes at redemption prices (expressed as percentages of principal amount) equal to 104.688% prior to May 1, 2018, 103.125% for the twelve-month period beginning May 1, 2018, 101.563% for the twelve-month period beginning on May 1, 2019 and 100.000% beginning on May 1, 2020, plus accrued and unpaid interest to the redemption date.
On March 26, 2015, we issued $400.0 million in aggregate principal amount of 7.25% senior notes due 2023 (the 2023 Notes) in a private placement to eligible purchasers under Rule 144A and Regulation S of the Securities Act, which resulted in net proceeds to us of $389.3 million after deducting estimated expenses and underwriting discounts and commissions of approximately $10.7 million. We used the net proceeds for general corporate purposes, including capital expenditures. The original issuance discount of $3.1 million related to the 2023 Notes is recorded as a reduction of the principal amount.
The 2023 Notes will mature on May 1, 2023, and interest is payable on the 2023 Notes on each May 1 and November 1. At any time prior to May 1, 2018, we may redeem up to 35% of the 2023 Notes at a redemption price of 107.250% of the principal amount, plus accrued and unpaid interest to the redemption date, with the proceeds of certain equity offerings so long as the redemption occurs within 180 days of completing such equity offering and at least 65% of the aggregate principal amount of the 2023 Notes remains outstanding after such redemption. Prior to May 1, 2018, we may redeem some or all of the notes for cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. Upon the occurrence of a change of control (as defined in the indenture governing the 2023 Notes), unless we have given notice to redeem the 2023 Notes, the holders of the 2023 Notes will have the right to require us to repurchase all or a portion of the 2023 Notes at a price equal to 101% of the aggregate principal amount of the 2023 Notes, plus any accrued and unpaid interest to the date of purchase. On or after May 1, 2018, we may redeem some or all of the 2023 Notes at redemption prices (expressed as percentages of principal amount) equal to 105.438% for the twelve-month period beginning on May 1, 2018, 103.625% for the twelve-month period beginning May 1, 2019, 101.813% for the twelve-month period beginning on May 1, 2020 and 100.000% beginning on May 1, 2021, plus accrued and unpaid interest to the redemption date.
On October 19, 2016, we entered into supplemental indentures that provide for, among other things, the addition of Rice Energy Operating as a co-obligor under each indenture. The indentures governing the 2022 Notes and the 2023 Notes (collectively, the Notes) restrict our ability and the ability of certain of our subsidiaries to: (i) incur or guarantee additional debt or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire our capital stock or subordinated debt; (iii) make certain investments; (iv) incur liens; (v) enter into transactions with affiliates; (vi) merge or consolidate with another company; (vii) transfer and sell assets; and (viii) create unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications. If at any time when the Notes are rated investment grade by both Moodys Investors Service, Inc. and Standard & Poors Ratings Services and no default (as defined in the indentures governing the Notes) has occurred and is continuing, many of such covenants will terminate and we and our subsidiaries will cease to be subject to such covenants.
Senior Secured Revolving Credit Facility
In April 2013, we entered into a Senior Secured Revolving Credit Facility (the Senior Secured Revolving Credit Facility) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders. In April 2014, we, as borrower, and Rice Drilling B, as predecessor borrower, amended and restated the credit agreement governing the Senior Secured Revolving Credit Facility to, among other things, assign all of the rights and obligations of Rice Drilling B as borrower under the Senior Secured Revolving Credit Facility to us.
In connection with the closing of the Vantage Acquisition, in October 2016, we entered into a Fourth Amended and Restated Credit Agreement (the A&R Credit Agreement), among us, Rice Energy Operating, Wells Fargo Bank, N.A., as administrative agent, and the lenders and other parties thereto. The A&R Credit Agreement provides, among other things, for the assignment of our rights and obligations as borrower under the Senior Secured Revolving Credit Facility to Rice Energy Operating and the addition of us as a guarantor of those obligations.
On June 15, 2017, Rice Energy Operating, as borrower, and we, as parent guarantor, entered into the Third Amendment to the A&R Credit Agreement. The lenders under the A&R Credit Agreement completed their semi-annual redetermination of the borrowing base. Following the redetermination, our borrowing base and aggregate elected commitment amounts each increased from $1.45 billion to $1.6 billion.
As of June 30, 2017, the borrowing base was $1.6 billion and the sublimit for letters of credit was $400.0 million. We had zero borrowings outstanding and $211.0 million in letters of credit outstanding under the A&R Credit Agreement as of June 30, 2017, resulting in availability of $1.4 billion. The maturity date of the Senior Secured Revolving Credit Facility is October 19, 2021. The next redetermination of the borrowing base is expected to occur in October 2017.
Eurodollar loans under the Senior Secured Revolving Credit Facility bear interest at a rate per annum equal to LIBOR plus an applicable margin ranging from 225 to 325 basis points, depending on the percentage of borrowing base utilized, and base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent banks reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 225 basis points, depending on the percentage of borrowing base utilized.
The A&R Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Senior Secured Revolving Credit Facility to be immediately due and payable. We were in compliance with such covenants and ratios effective as of June 30, 2017.
Midstream Holdings Revolving Credit Facility
On December 22, 2014, Midstream Holdings entered into a credit agreement (the Midstream Holdings Credit Agreement) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders establishing a revolving credit facility (the Midstream Holdings Revolving Credit Facility) with a maximum credit amount of $300.0 million and a sublimit for letters of credit of $25.0 million.
As of June 30, 2017, Midstream Holdings had $112.5 million of borrowings outstanding and no letters of credit under this facility, resulting in availability of $187.5 million. The year-to-date average daily outstanding balance of the Midstream Holdings Revolving Credit Facility was approximately $74.6 million, and interest was incurred on the facility at a weighted average interest rate of 3.2% through June 30, 2017. The Midstream Holdings Revolving Credit Facility is available to fund working capital requirements and capital expenditures and to purchase assets. The maturity date of the Midstream Holdings Revolving Credit Facility is December 22, 2019.
Principal amounts borrowed are payable on the maturity date, and interest is payable quarterly for base rate loans and at the end of the applicable interest period for Eurodollar loans. Midstream Holdings may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 225 to 300 basis points, depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent banks reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 200 basis points, depending on the leverage ratio then in effect. Midstream Holdings also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The Midstream Holdings Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Midstream Holdings Revolving Credit Facility to be immediately due and payable. Midstream Holdings was in compliance with such covenants and ratios effective as of June 30, 2017.
RMP Revolving Credit Facility
On December 22, 2014, Rice Midstream OpCo entered into a credit agreement (the RMP Credit Agreement) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders establishing a revolving credit facility (the RMP Revolving Credit Facility).
As of June 30, 2017, the revolving credit facility provided for lender commitments of $850.0 million, with an additional $200.0 million of commitments available under an accordion feature subject to lender approval. Rice Midstream OpCo had $206.0 million of borrowings outstanding and no letters of credit outstanding under the RMP Revolving Credit Facility as of June 30, 2017, resulting in availability of $644.0 million. The average daily outstanding balance of the RMP Revolving Credit Facility was approximately $194.0 million, and interest was incurred at a weighted average annual interest rate of 2.9% through June 30, 2017. The RMP Revolving Credit Facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions and repurchase units and for general partnership purposes and matures on December 22, 2019. The Partnership and its restricted subsidiaries are the guarantors of the obligations under the RMP Revolving Credit Facility.
Principal amounts borrowed are payable on the maturity date, and interest is payable quarterly for base rate loans and at the end of the applicable interest period for Eurodollar loans. Rice Midstream OpCo may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 200 to 300 basis points, depending on the leverage ratio then in effect, and base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent banks reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 100 to 200 basis points, depending on the leverage ratio then in effect. Rice Midstream OpCo also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The RMP Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the RMP Revolving Credit Facility to be immediately due and payable. The Partnership was in compliance with such covenants and ratios effective as of June 30, 2017.
Commodity Hedging Activities
Our primary market risk exposure is in the prices we receive for our natural gas production. Realized pricing is primarily driven by the spot regional market prices applicable to our U.S. natural gas production. Pricing for natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future. The prices we receive for production depend on many factors outside of our control, including volatility in the differences between product prices at sales points and the applicable index price.
To mitigate the potential negative impact on our cash flow caused by changes in oil and natural gas prices, we have entered into financial commodity derivative contracts in the form of swaps, zero cost collars, calls, puts and basis swaps to ensure that we receive minimum prices for a portion of our future oil and natural gas production when management believes that favorable future prices can be secured. We typically hedge the NYMEX Henry Hub price for natural gas. Pursuant to our A&R Credit Agreement, we are now permitted to hedge the greater of (i) the percentage of proved reserve volumes (Column A) or (ii) the percentage of internally forecasted production (Column B).
Months next succeeding the time as of which compliance is |
|
Column A |
|
Column B |
|
Months 1 through 18 |
|
85 |
% |
90 |
% |
Months 19 through 36 |
|
85 |
% |
75 |
% |
Months 37 through 60 |
|
85 |
% |
60 |
% |
Months 61 through 72 |
|
85 |
% |
40 |
% |
Our hedging activities are intended to support natural gas prices at targeted levels and to manage our exposure to natural gas price fluctuations. The counterparty is required to make a payment to us for the difference between the floor price specified in the contract and the settlement price, which is based on market prices on the settlement date, if the settlement price is below the floor price. We are required to make a payment to the counterparty for the difference between the ceiling price and the settlement price if the ceiling price is below the settlement price. These contracts may include price swaps whereby we will receive a fixed price for our production and pay a variable market price to the contract counterparty and zero cost collars that set a floor and ceiling price for the hedged production. For a description of our commodity derivative contracts, please see Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-6. Derivative Instruments and 7. Fair Value of Financial Instruments included elsewhere in this Quarterly Report. We do not designate our current portfolio of commodity derivative contracts as hedges for accounting purposes, and, as a result, changes in fair value of these derivative instruments are recognized in earnings. Please read Item 3. Quantitative and Qualitative Disclosures About Market Risk for additional discussion of our and Rice Energy Operatings commodity derivative contracts.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments. Different amounts could be reported using different assumptions and estimates. Our critical accounting policies are described in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates in our 2016 Annual Report in addition to the discussion included herein. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to our condensed consolidated financial statements contained in this Quarterly Report.
On a quarterly basis, in accordance with ASC 360, we perform a qualitative assessment of whether events or changes in circumstances exist that could be indicators that the carrying amount of proved properties may not be recoverable. During the first quarter of 2017, we identified significant declines in forward Waha basis differentials, which is the primary sales point for our Fort Worth Basin production. The expected prolonged declines indicated a potential impairment trigger, and, as a result, we performed an asset recoverability test of our Fort Worth Basin properties. Based upon the results of the recoverability assessment, we concluded that the carrying value of the Fort Worth Basin properties exceeded the undiscounted cash flows. The fair value of the Fort Worth Basin proved properties was determined using a combination of the market and income approach to determine fair value. Significant inputs to the valuation of the discounted cash flows of natural gas and oil properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management which included Level 3 unobservable inputs to the fair value measurement. The difference between the carrying value and fair value resulted in an asset impairment of $92.4 million within the Exploration and Production segment in the first quarter of 2017.
Off-Balance Sheet Arrangements
As of June 30, 2017, we did not have any off-balance sheet arrangements as defined by the SEC. In the ordinary course of business, we enter into various commitment agreements and other contractual obligations, some of which are not recognized in our consolidated financial statements in accordance with GAAP. See Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-9. Commitments and Contingencies for a description of our commitments and contingencies.