After losing a bid for core Marcellus acreage to Vantage Energy in May, Rice Energy announced its plan to acquire Vantage for approximately US$2.7 billion. In a new report, our US Lower 48 experts discuss the implications of this acquisition for Rice Energy's gas production and expansion into the Barnett Shale.
One week after Vantage Energy launched a second attempt at an IPO, Rice Energy announced its plans to acquire Vantage for US$2.7 billion. Rice will pay US$2.1 billion for Vantage's upstream assets, and Rice Midstream Partners (RMP) will purchase the acquired midstream assets for US$600 million. As a result of the acquisition, Rice's natural gas production in 2017 will increase by an estimated 70% — from 900–955 mmcfed to 1,280–1,355 mmcfed — and the company will be well positioned to handle the immense production growth through RMP, its midstream arm. According to analysis using our North America Company and Play Analysis Tool, Rice will be the 6th largest northeast producer after the acquisition.
This bolt-on acquisition will enable Rice to immediately increase its drilling inventory and grow its midstream footprint. Because the Vantage acreage is adjacent to Rice's current leasehold in the Marcellus and Utica Shales, the company will benefit from development synergies such as the ability to increase its position for infill drilling by 20,000–40,000 acres and develop more wells on pads and with longer laterals. The company's strong existing presence and operational scale in the area should allow for easy integration of assets and almost-immediate development.
The upstream assets are valued at US$1.8 billion and include 85,000 net core Marcellus acres in Greene County, with rights to the Utica Shale on approximately 52,000 net acres. The bulk of the value is derived from the assets in the Marcellus Greene Dry Gas sub-play and the underlying Utica SWPA Lean Gas Core, where we estimate wells break even at US$3.35/mcf and US$2.96/mcf, respectively. See our recent Marcellus and Utica type curve updates for more information on these plays.
Rice has also acquired rights to 31,000 net acres in Texas' Barnett Shale with a strong base of flowing production. This represents Rice's first holding outside of Appalachia, and although Rice has previously been purely a northeast operator, it remains to be seen whether the company will retain or market its newly acquired Barnett assets. For more on the Vantage acquisition, please see our recently published M&A note.
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