Rice Energy Inc. (NYSE: RICE) has struck a deal to acquire Vantage Energy LLC’s Marcellus acreage in the vaunted Greene County, Pa., core as well as rights to the Utica and Barnett shale plays.

Rice will pay $2.7 billion for Vantage, which had filed documents Sept. 13 with the Securities and Exchange Commission to conduct an IPO. The transaction consists of $2.1 billion for Vantage’s upstream assets and $600 million for its midstream assets.

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The deal is a turnabout for Rice, which earlier this year had bid $200 million on Alpha Natural Resource’s core Marcellus and Utica acreage. However, Vantage made an end-run to snatch up the acreage with a $339.5 million bid.

By 2017, the company expects the acquisition to generate 70% year-over-year growth.

The deal increases Rice’s overall acreage by 55% and swells its number of Marcellus locations by 65% while positioning it as the largest leaseholder in Greene. Vantage has 72 producing Marcellus wells that “de-risk the acquired asset base,” Rice said.

The company also said that, pro forma for the deal, its enterprise value will rise to $9 billion from about $6.3 billion.

In the second quarter, net production on Vantage’s assets was 399 million cubic feet equivalent per day (MMcfe/d), with 65% from the Appalachian Basin and 35% from the Barnett.

Rice appears to have gotten a reasonable deal for Vantage’s assets at $10,600 per acre, said Jonathan D. Wolff, an equity analyst at Jefferies.

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The price excludes the $600 million midstream purchase and gives no value to the Barnett acreage. Wolff valued the acquired production at $3,000 per flowing million cubic feet equivalent (MMcfe).

“This compares to the recent Greene County acreage sale [that Vantage bought] at about $12,400 per acre,” Wolff said.

It remains to be seen how Rice intends to increase margins through improved transportation as well as its plans for the Barnett.

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The deal stands to enhance growth for Rice Midstream Partners LP (NYSE: RMP), as well. All of Vantage's Pennsylvania acreage will be dedicated to Rice Midstream, “which already has a substantial gathering business in Greene County,” Wolff said.

Rice acquired midstream assets that include 30 miles of dry gas gathering and compression assets.

Rice will sell the midstream assets to Rice Midstream for $600 million. The company owns about 55% of Rice Midstream’s units.

Daniel J. Rice IV, Rice CEO, said the deal represents the largest core dry gas Marcellus acquisition to date and called it transformational for the company.

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“This acquisition adheres to our proven strategy of pursuing core shale gas acreage, leveraging our industry-leading technical shale team to deliver best-in-class well results and capturing a greater share of the value chain through our premier midstream services business,” he said. “Our transaction financings are meant to strengthen Rice Energy's balance sheet even further, including positioning us to capture an additional 20,000 to 40,000 acres of leasehold adjacent to our existing position.”

Rice plans to offer 40 million shares of its common stock to the public to fund part of the acquisition.

Roger Biemans, CEO of Vantage Energy, said the company and sponsors Quantum Energy Partners, Riverstone Holdings LLC and Lime Rock Partners assembled one of the largest and most attractive core dry gas positions in the Marcellus Shale.

“We believe the combination of Rice and Vantage creates the premier natural gas company in the country,” Biemans said. “Rice will have a multi-decade inventory of the most economic dry gas in North America, a tremendous growth story for its midstream business and a management team that has proven its ability to execute on its strategy.”

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The transaction is expected to close fourth-quarter 2016.

Evercore acted as financial adviser to Rice Energy's board of directors. Wells Fargo Securities LLC and Barclays Capital Inc. provided committed financing to Rice Energy and Rice Midstream's upsized revolving credit facilities. Latham & Watkins LLP served as legal counsel to Rice Energy.

Simmons & Co. International served as exclusive financial adviser to Rice Midstream’s conflicts committee and provided a fairness opinion for the midstream asset acquisition by Rice Midstream.

Akin Gump Strauss Hauer & Feld LLP served as legal counsel to the conflicts committee of Rice Midstream. Goldman Sachs acted as financial adviser to the Vantage Sellers. Vinson & Elkins LLP served as legal counsel to the Vantage sellers. Willkie Farr & Gallagher LLP represented Riverstone Holdings.

Darren Barbee can be reached at dbarbee@hartenergy.com.


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