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Rice Energy Reports Third Quarter 2017 Results

CANONSBURG, Pa., Nov. 2, 2017 /PRNewswire/ -- Rice Energy Inc. (NYSE: RICE) ("Rice Energy") today reported third quarter 2017 financial and operating results. Highlights include:

  • Net production averaged 1,440 MMcfe/d, a 6% increase from second quarter 2017
  • Rice Midstream Holdings LLC ("RMH") gathering throughput averaged 1,438 MDth/d, a 22% increase from second quarter 2017
  • Record low lease operating expense of $0.11 per Mcfe, a 21% decrease from second quarter 2017
  • Net loss attributable to common stockholders of $107.1 million, or $0.49 per diluted share
  • Reported Adjusted EBITDAX(1) of $233.9 million
  • Exited the quarter with low leverage(1) of 1.4x
  • Closed the sale of the Barnett assets for $175 million(2)

Commenting on the results, Daniel J. Rice IV, Chief Executive Officer, said, "On behalf of the Rice family and our board, I want to take this opportunity to express our gratitude to our employees and shareholders for their unwavering dedication to Rice Energy's mission of becoming the paradigm for oil and gas companies of the shale generation. We are proud of the shareholder value that we have created while operating within our core values of stewardship, innovation, seeking excellence and teamwork."

Mr. Rice continued, "Our success is a testament to the core assets that we have acquired and developed with our shalennial(3) team and I am highly confident that our operational momentum, as evidenced by our record third quarter results, will meaningfully contribute to EQT's future success. We are excited to combine our core assets with EQT's to create one of the most complete energy companies in the United States and derive even more long-term value for our shareholders."

1.

Please see Supplemental "Non-GAAP Financial Measures" for a description of Adjusted EBITDAX, Further Adjusted EBITDAX and related reconciliations to the comparable GAAP financial measures. Leverage is defined as the ratio of net debt to last twelve months Further Adjusted EBITDAX.


2.

On September 29, 2017, Rice Energy received $141 million associated with the closing of the sale of the Barnett assets, which reflects customary purchase price adjustments attributable to a January 1, 2017 effective date.


3.

Shalennial /SHālˈenēəl/
noun: (1) an evolving, tech-driven leader of the shale generation; (2) an employee of Rice Energy


Special Meeting of Stockholders

We expect to hold a special meeting of stockholders in connection with the proposed merger with EQT Corporation (NYSE: EQT) ("EQT") on November 9, 2017 at 8:00 a.m. local time at Rice Energy's executive offices at 2200 Rice Drive, Canonsburg, PA 15317. Rice Energy stockholders of record at the close of business on September 21, 2017 will be entitled to receive notice of the special meeting and to vote at the special meeting.

Third Quarter 2017 Results


Consolidated Results


Three Months Ended

September 30, 2017


Nine Months Ended

September 30, 2017






Operating revenues (in thousands)


$

365,282



$

1,157,395







Operating expenses


(in
thousands)


($ / Mcfe)


(in
thousands)


($ / Mcfe)

Lease operating(1)


$

14,392



$

0.11



$

54,336



$

0.15


Gathering, compression, transportation


45,138



0.34



123,695



0.33


Production taxes and impact fees


6,179



0.05



19,011



0.05


General and administrative(1)


29,906



0.23



91,641



0.25


Depreciation, depletion and amortization


156,890



1.18



439,672



1.19









(in
thousands)


(per diluted
share)


(in
thousands)


(per diluted
share)

Net loss attributable to common stockholders


$

(107,092)



$

(0.49)



$

(79,382)



$

(0.38)


Adjusted EBITDAX(2)


$

233,858





$

710,175




Adjusted net income(3)


$

11,706



$

0.05



$

85,481



$

0.40




Financial position (in millions)

As of September 30, 2017

Total liquidity(4)

$

1,648


Cash and cash equivalents

$

271


Long-term debt

$

1,803


Leverage(2)

1.4


As of September 30, 2017, our liquidity position, excluding RMP, was $1,648 million comprised of $1,439 million of upstream liquidity ($187 million of cash on hand and $1,252 million revolver availability) and $209 million of RMH liquidity ($83 million of cash on hand and $127 million revolver availability). Our balance sheet remains strong with low leverage(2) of 1.4x.

1.

Excludes stock-based compensation expense of $0.1 million and $6.3 million attributable to lease operating and general and administrative expenses, respectively, for the three months ended September 30, 2017 and $0.5 million and $17.6 million is excluded in lease operating and general and administrative expenses, respectively, for the nine months ended September 30, 2017.

2.

Please see Supplemental "Non-GAAP Financial Measures" for a description of Adjusted EBITDAX, Further Adjusted EBITDAX and related reconciliations to the comparable GAAP financial measures. Leverage is defined as the ratio of net debt to last twelve months Further Adjusted EBITDAX.

3.

The above Adjusted net income per diluted share calculation is computed based on the weighted average number of diluted shares outstanding of 220,893,125 and 211,353,970 for the three and nine months ended September 30, 2017, respectively.

4.

Excludes Rice Midstream Partners LP.

E&P Segment Results


Three Months Ended
September 30, 2017


Nine Months Ended
September 30, 2017








Production






Net production (Bcfe)


132



370



Net production (MMcfe/d)


1,440



1,356



Operated


93%



92%









Operating revenues (in thousands)






Natural gas, oil & NGL sales


$

303,196


$

1,008,922



Other revenue


11,200



29,179



Realized gain (loss) on derivative instruments


25,642



(1,522)



Total operating revenues and realized loss on derivative instruments


$

340,038


$

1,036,579









Realized Pricing ($/MMBtu)






NYMEX Henry Hub price


$

3.00


$

3.17



Average basis impact


(0.76)



(0.51)



FT fuel and variables


(0.08)



(0.08)



Btu uplift (MMBtu/Mcf)


0.12



0.14



Pre-hedge realized price ($/Mcf)


2.28



2.72



Post-hedge realized price ($/Mcf)


$

2.47


$

2.71









Operating expenses


(in
thousands)


($ / Mcfe)


(in
thousands)


($ / Mcfe)


Lease operating(1)


$

14,419



$

0.11



$

54,458



$

0.15


Gathering and compression


60,068



0.45



160,635



0.43


Transportation


35,795



0.27



103,038



0.28


Production taxes and impact fees


6,179



0.05



19,011



0.05


Exploration


5,042



0.04



16,160



0.04


General and administrative(1)


18,759



0.14



58,709



0.16


Depreciation, depletion and amortization


153,221



1.16



426,538



1.15








Operating (loss) income (in thousands)


$

(21,396)


$

29,338









E&P capital expenditures (in millions)






Operated Marcellus


$

149


$

352



Operated Ohio Utica


69



202



Non-operated Utica


8



42



Total Drilling & Completion


226



596



Land(2)


35



139



Total


$

261


$

735









Financial position (in millions)




As of

September 30, 2017


E&P liquidity




$

1,439



Cash and cash equivalents




$

187



Long-term debt




$

1,407



E&P Operational Highlights


Three Months Ended
September 30, 2017



Marcellus


Utica


Barnett


Total

Production (MMcfe/d)


899



472



69



1,440











Operational activity (net wells)









Drilled


25



7





32


Completed


20



10





30


Average lateral lengths


7,750



11,000















Appalachia net acres


211,000



66,000





277,000


During the quarter, we turned to sales three net Marcellus wells with an average lateral length of 6,600 feet and five net operated Utica wells with an average lateral length of 8,000 feet. In addition, we turned to sales four net non-operated Ohio Utica wells. Our third quarter development costs per lateral foot averaged $860 in the Marcellus and $1,150 in the Utica for wells drilled and completed.

1.

Excludes stock-based compensation expense of $0.1 million and $4.7 million attributable to lease operating and general and administrative expenses, respectively, for the three months ended September 30, 2017 and $0.5 million and $13.6 million is included in lease operating and general and administrative expenses, respectively, for the nine months ended September 30, 2017.

2.

Excludes $36 million and $105 million of royalty purchases for the three and nine months ended September 30, 2017, respectively. During the first nine months of the year, we added approximately 11,000 royalty acres.

RMH Segment Results

(in thousands, except volumes)


Three Months Ended
September 30, 2017


Nine Months Ended
September 30, 2017






Operating volumes (MDth/d)





Gathering volumes





Affiliate


546



487

Third-party


892



709

Total


1,438



1,196






Compression volumes





Affiliate


295



270

Third-party


235



242

Total


530



512

Operating revenues




Gathering


$

36,312


$

89,185

Compression


3,212


9,130

Total


39,524


98,315





Total operating expenses


10,554


29,413

Operating income


$

28,970


$

68,902





Capital expenditures (in millions)


$

60


$

173





LP + IDR cash distributions received from RMP(1) (in millions)


$

9


$

26





Financial position (in millions)



As of

September 30, 2017

RMH liquidity



$

209

Cash and cash equivalents



$

83

Revolving credit facility



$

174





Acreage dedication



172,000

Third-party



72%

Second quarter gathering throughput averaged 1,438 MDth/d, which consisted of 1,093 MDth/d related to the operations of Rice Olympus Midstream ("ROM") and 668 MDth/d related to the operations of Strike Force Midstream, offset by an elimination of 323 MDth/d that is related to operations of both ROM and Strike Force Midstream.

1.

Net of 91.75% ownership interest.

RMP Segment Results

(in thousands, except volumes)


Three Months Ended

September 30, 2017


Nine Months Ended
September 30, 2017






Operating volumes (MDth/d)





Gathering volumes





Affiliate


1,168



1,106

Third-party


315



254

Total


1,483



1,360






Compression volumes





Affiliate


712



661

Third-party


315



255

Total


1,027



916






Water services assets (MMGal)






Pennsylvania


279



652

Ohio


298



714

Total


577



1,366






Operating revenues





Gathering


$

47,068



$

123,601

Compression


7,266



19,318

Water


27,367



73,909

Total


81,701



216,828






Total operating expenses


27,054



74,571

Operating income


54,647



142,257






Capital expenditures (in millions)


$

63



$

136






Financial position (in millions)




As of

September 30, 2017

RMP liquidity




$

630

Cash and cash equivalents




$

2

Revolving credit facility




$

222






Acreage dedication




243,000

Third-party




14%

Third quarter gathering throughput averaged 1,483 MDth/d, consisting of 1,168 MDth/d affiliate volumes and 315 MDth/d third party volumes. Freshwater delivery volumes were 577 MMgal, consisting of 431 MMgal affiliate volumes and 146 MMgal third party volumes, driving significant growth as a result of accelerated completion activity.

On October 20, 2017, RMP declared a quarterly distribution of $0.2814 per unit for the third quarter 2017, an increase of $0.0103 per unit, or 4%, relative to second quarter 2017. The distribution will be payable on November 16, 2017 to unitholders of record as of November 7, 2017.

RMP's results were released today and are available at www.ricemidstream.com.

About Rice Energy

Rice Energy Inc. is an independent natural gas and oil company focused on the acquisition, exploration and development of natural gas and oil properties in the Appalachian Basin. For more information, please visit our website at www.riceenergy.com.

Forward Looking Statements

This release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than historical facts included or incorporated herein that address activities, events or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), projected operational results, production growth, basis exposure, hedging, the timing and number of well completions, forecasted gathering volumes, revenues, Adjusted EBITDAX, further Adjusted EBITDAX; distribution growth, distributable cash flow, the timing of completion and nature of midstream projects, the terms, timing and completion of any acquisitions or divestitures, business strategy and measures to implement strategy, competitive strengths, goals, expansion and growth of our business and operations, plans, market conditions, references to future success, references to intentions as to future matters and other such matters are forward-looking statements. All forward-looking statements speak only as of the date of this release. Although we believe that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions or expectations will be achieved. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements.

We caution you that these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the exploration for and development, production, gathering and sale of natural gas, NGLs and oil. These risks include, but are not limited to: commodity price volatility; inflation; lack of availability of drilling and production equipment and services; environmental risks; drilling and other operating risks; regulatory changes; the uncertainty inherent in estimating natural gas reserves and in projecting future rates of production, cash flow and access to capital; the timing of development expenditures; and risks related to joint venture operations. Information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our Forms 10-K, 10-Q and 8-K. Consequently, all of the forward-looking statements made in this news release are qualified by these cautionary statements and there can be no assurances that the actual results or developments anticipated by us will be realized, or even if realized, that they will have the expected consequences to or effects on us, our business or operations. We have no intention, and disclaim any obligation, to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise.

This release does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities or a solicitation of any vote or approval. This communication relates to a proposed business combination between EQT and Rice.

In connection with the proposed transaction, EQT has filed with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-4 on July 27, 2017, that includes a joint proxy statement of EQT and Rice and also constitutes a prospectus of EQT, and has filed a definitive proxy statement on October 12, 2017. Each of EQT and Rice also plan to file other relevant documents with the SEC regarding the proposed transactions. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended. The definitive joint proxy statement/prospectus(es) for EQT and/or Rice will be mailed to shareholders of EQT and/or Rice, as applicable.

INVESTORS AND SECURITY HOLDERS OF EQT AND RICE ARE URGED TO READ THE PROXY STATEMENT(S), REGISTRATION STATEMENT(S), PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS THAT MAY BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.

Investors and security holders will be able to obtain free copies of these documents (if and when available) and other documents containing important information about EQT and Rice, once such documents are filed with the SEC through the website maintained by the SEC at www.sec.gov. Copies of the documents filed with the SEC by EQT will be available free of charge on EQT's website at www.eqt.com or by directing a request to Investor Relations, EQT Corporation, EQT Plaza, 625 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3111, Tel. No. (412) 553-5700. Copies of the documents filed with the SEC by Rice will be available free of charge on Rice's website at www.riceenergy.com or by directing a request to Investor Relations, Rice Energy Inc., 2200 Rice Drive, Canonsburg, Pennsylvania 15317, Tel. No. (724) 271-7200.

EQT, Rice and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information about the directors and executive officers of Rice is set forth in Rice's proxy statement for its 2017 annual meeting of shareholders, which was filed with the SEC on April 17, 2017. Information about the directors and executive officers of EQT is set forth in its proxy statement for its 2017 annual meeting, which was filed with the SEC on March 6, 2017. These documents may be obtained free of charge from the sources indicated above.

Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when such materials become available. Investors should read the joint proxy statement/prospectus carefully when it becomes available before making any voting or investment decisions. You may obtain free copies of these documents from EQT or Rice using the sources indicated above.

Rice Energy Inc.

Consolidated Statements of Operations

(Unaudited)



Three Months Ended

September 30,


Nine Months Ended
September 30,

(in thousands, except share data)

2017


2016


2017


2016

Operating revenues:








Natural gas, oil and natural gas liquids sales

$

303,196



$

162,354



$

1,008,922



$

397,108


Gathering, compression and water services

50,886



25,176



119,294



73,456


Other revenue

11,200



11,390



29,179



24,296


Total operating revenues

365,282



198,920



1,157,395



494,860










Operating expenses:








Lease operating

14,392



11,668



54,336



31,557


Gathering, compression and transportation

45,138



29,597



123,695



84,898


Production taxes and impact fees

6,179



3,695



19,011



8,005


Exploration

5,042



3,396



16,160



9,934


Midstream operation and maintenance

6,536



4,080



21,498



18,225


Incentive unit expense

3,271



5,920



10,954



44,902


Acquisition expense

6,330



614



8,945



1,171


Stock compensation expense

6,469



5,953



18,170



16,994


Impairment of gas properties





92,355




Impairment of fixed assets







2,595


Loss on sale of Barnett Assets

15,915





15,915




General and administrative

29,906



24,365



91,641



67,721


Depreciation, depletion and amortization

156,890



83,195



439,672



247,132


Amortization of intangible assets

412



411



1,220



1,222


Other expense

14,876



10,153



34,241



25,800


Total operating expenses

311,356



183,047



947,813



560,156










Operating income (loss)

53,926



15,873



209,582



(65,296)


Interest expense

(28,734)



(24,421)



(83,026)



(73,744)


Other (expense) income

(196)



(1,900)



258



862


Gain on derivative instruments

32,534



183,915



121,313



52,539


Gain (loss) on embedded derivatives

1,049





(14,368)




Amortization of deferred financing costs

(3,262)



(1,247)



(9,340)



(4,416)


Income (loss) before income taxes

55,317



172,220



224,419



(90,055)


Income tax benefit (expense)

(10,559)



(81,142)



(43,900)



45,729


Net income (loss)

44,758



91,078



180,519



(44,326)


Less: Net income attributable to noncontrolling interests

(44,438)



(16,665)



(122,971)



(55,535)


Net (loss) income attributable to Rice Energy Inc.

320



74,413



57,548



(99,861)


Less: Preferred dividends and accretion of redeemable noncontrolling interests

(107,412)



(8,581)



(136,930)



(19,983)


Net (loss) income attributable to Rice Energy Inc. common stockholders

$

(107,092)



$

65,832



$

(79,382)



$

(119,844)










(Loss) earnings per share—basic

$

(0.49)



$

0.42



$

(0.38)



$

(0.80)


(Loss) earnings per share—diluted

$

(0.49)



$

0.41



$

(0.38)



$

(0.80)



Rice Energy Inc.

Segment Results of Operations

(Unaudited)

Exploration and Production Segment



Three Months Ended

September 30,


Nine Months Ended
September 30,

(in thousands, except volumes)

2017


2016


2017


2016









Operating volumes:








Natural gas production (MMcf)

131,162



68,524



366,295



198,269


Oil and NGL production (MBbls)

215



35



646



132


Total production (MMcfe)

132,449



68,733



370,168



199,058










Operating results:








Operating revenues:








Natural gas, oil and NGL sales

$

303,196



$

162,695



$

1,008,922



$

397,449


Other revenue

11,200



11,390



29,179



24,296


Total operating revenues

314,396



174,085



1,038,101



421,745










Operating expenses:








Lease operating

14,419



11,668



54,458



31,557


Gathering, compression and transportation

95,863



56,957



263,673



156,467


Production taxes and impact fees

6,179



3,695



19,011



8,005


Exploration

5,042



3,396



16,160



9,934


Incentive unit expense

3,177



5,751



10,641



42,763


Acquisition costs

6,410



614



7,973



614


Impairment of gas properties





92,355




Impairment of fixed assets







2,595


Loss on sale of Barnett Assets

15,915





15,915




Stock compensation expense

4,794



4,053



14,062



10,035


General and administrative

18,759



15,934



58,709



45,027


Depreciation, depletion and amortization

153,221



79,736



426,538



234,207


Other expense

12,013



10,063



29,268



25,561


Total operating expenses

335,792



191,867



1,008,763



566,765










Operating income (loss)

$

(21,396)



$

(17,782)



$

29,338



$

(145,020)










Average costs per Mcfe:








Lease operating

$

0.11



$

0.17



$

0.15



$

0.16


Gathering and compression

0.45



0.44



0.43



0.42


Transportation

0.27



0.39



0.28



0.37


Production taxes & impact fees

0.05



0.05



0.05



0.04


Exploration

0.04



0.05



0.04



0.05


Incentive unit expense

0.02



0.08



0.03



0.21


Stock compensation

0.04



0.06



0.04



0.05


General and administrative

0.14



0.23



0.16



0.23


Depreciation, depletion and amortization

1.16



1.16



1.15



1.18


Rice Midstream Holdings Segment




Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands, except volumes)


2017


2016


2017


2016










Operating volumes:









Gathering volumes (MDth/d)


1,438



812



1,196



642


Compression volumes (MDth/d)


530



483



512



436











Operating results:









Operating revenues:









Gathering revenues


$

36,312



$

16,189



$

89,185



$

33,969


Compression revenues


3,212



2,796



9,130



7,540


Total operating revenues


39,524



18,985



98,315



41,509











Operating expenses:









Midstream operation and maintenance


1,505



960



3,242



2,418


Incentive unit expense


94



169



313



2,139


Acquisition expense


(115)





443



484


Stock compensation expense


1,505



1,291



3,679



4,231


General and administrative


4,882



4,058



13,889



9,958


Depreciation, depletion and amortization


2,067



1,577



5,254



4,222


Other expense


616





2,593




Total operating expenses


10,554



8,055



29,413



23,452











Operating income


$

28,970



$

10,930



$

68,902



$

18,057


Rice Midstream Partners Segment




Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands, except volumes)


2017


2016


2017


2016










Operating volumes:









Gathering volumes (MDth/d)


1,483



957



1,360



909


Compression volumes (MDth/d)


1,027



745



916



488


Water services volumes (MMGal)


577



135



1,366



932











Operating results:









Operating revenues:









Gathering revenues


$

47,068



$

28,473



$

123,601



$

80,408


Compression revenues


7,266



5,030



19,318



9,931


Water services revenues


27,367



7,564



73,909



51,818


Total operating revenues


81,701



41,067



216,828



142,157











Operating expenses:









Midstream operation and maintenance


10,259



4,559



28,139



17,292


Acquisition expense


35



411



529



73


Equity compensation expense


169



609



429



2,728


General and administrative


6,265



4,373



19,043



12,736


Depreciation expense


7,667



5,489



22,831



17,714


Amortization of intangible assets


412





1,220



1,222


Other expense


2,247



90



2,380



239


Total operating expenses


27,054



15,531



74,571



52,004











Operating income


$

54,647



$

25,536



$

142,257



$

90,153



Rice Energy Inc.
Supplemental Non-GAAP Financial Measures
(Unaudited)

Adjusted EBITDAX and Further Adjusted EBITDAX are supplemental non-GAAP financial measures that are used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDAX as net (loss) before non-controlling interest; interest expense; income taxes; depreciation, depletion and amortization; amortization of deferred financing costs; amortization of intangible assets; derivative fair value (gain) loss, excluding net cash receipts on settled derivative instruments; non-cash stock compensation expense; non-cash incentive unit expense; exploration expenses; and other non-recurring items. We define Further Adjusted EBITDAX as Adjusted EBITDAX after non-controlling interest and water revenue adjustment. Neither Adjusted EBITDAX nor Further Adjusted EBITDAX is a measure of net income as determined by United States generally accepted accounting principles, or GAAP.

Management believes Adjusted EBITDAX is a useful measure to the users of our financial statements because it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Management believes Further Adjusted EBITDAX is useful because it allows them to assess the level of consolidated leverage of the company and compare this level to peers. The adjustments made to Adjusted EBITDAX to calculate Further Adjusted EBITDAX address the intercompany eliminations of items impacting Adjusted EBITDAX as a result of the consolidation of RMP, the outstanding indebtedness of which is consolidated with that of the company without regard to non-controlling interest. These adjustments include the addition of non-controlling interest as well as the addition of a water revenue adjustment attributable to charges for fresh water delivery services and produced water hauling services provided by RMP to RICE, a charge that generates revenue for RMP but does not have a corresponding expense at the RICE level, as such costs are capitalized.

Adjusted EBITDAX and Further Adjusted EBITDAX should not be considered as alternatives to, or more meaningful than, net income as determined in accordance with GAAP or as indicators of our operating performance or liquidity. Certain items excluded from Adjusted EBITDAX and Further Adjusted EBITDAX are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX or Further Adjusted EBITDAX. Our computations of Adjusted EBITDAX and Further Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies. We believe that these measures are widely followed measures of operating performance used by investors.

The following table presents a reconciliation of the non-GAAP financial measure of Adjusted EBITDAX to the GAAP financial measure of net income (loss).

(in thousands)

Three Months Ended
September 30, 2017


Nine Months Ended
September 30, 2017


Twelve Months Ended

September 30, 2017

Adjusted EBITDAX reconciliation to net income:






Net income (loss)

$

44,758



$

180,519



$

(23,975)


Interest expense

28,734



83,026



108,909


Depreciation, depletion and amortization

156,890



439,672



560,995


Amortization of deferred financing costs

3,262



9,340



12,469


Amortization of intangible assets

412



1,220



1,632


Acquisition expense

6,330



8,945



13,883


Impairment of gas properties



92,355



113,208


Impairment of fixed assets





20,462


(Gain) loss on derivative instruments (1)

(32,534)



(121,313)



151,462


Net cash receipts (payments) on settled derivative instruments (1)

25,642



(1,522)



36,243


Non-cash stock compensation expense

6,469



18,170



40,068


Non-cash incentive unit expense

3,271



10,954



17,813


Income tax expense

10,559



43,900



(52,583)


Exploration expense

5,042



16,160



21,385


(Gain) loss on embedded derivatives

(1,049)



14,368



14,368


Loss on sale of Barnett Assets

15,915



15,915



15,915


Other expense





6,506


Non-controlling interest attributable to midstream entities

(39,843)



(101,534)



(121,414)


Adjusted EBITDAX(2)

$

233,858



$

710,175



$

937,346




1.

The adjustments for the derivative fair value (gains) losses and net cash receipts on settled commodity derivative instruments have the effect of adjusting net income (loss) for changes in the fair value of derivative instruments, which are recognized at the end of each accounting period because we do not designate commodity derivative instruments as accounting hedges. This results in reflecting commodity derivative gains and losses within Adjusted EBITDAX on a cash basis during the period the derivatives settled.

2.

Excluded from the above Adjusted EBITDAX reconciliation is the impact of non-controlling interest attributable to midstream entities and the elimination of intercompany water revenues between Rice Energy subsidiaries and Rice Midstream Partners of $39.8 million and $14.4 million, respectively, for the three months ended September 30, 2017, $101.5 million and $46.0 million, respectively, for the nine months ended September 30, 2017, and $121.4 million and $64.7 million, respectively, for the twelve months ended September 30, 2017. When including these impacts, our Further Adjusted EBITDAX is $288.1 million, $857.7 million and $1.1 billion for the three, nine and twelve months ended September 30, 2017, respectively. Our consolidated net debt to last twelve months Further Adjusted EBITDAX ratio is 1.4x. Also included in the above reconciliation is the non-controlling interest attributable to Rice Energy Operating LLC, as we view our business on a fully diluted basis.


Rice Energy Inc.
Supplemental Non-GAAP Financial Measures
(Unaudited)

Adjusted net income (loss) is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define adjusted net income (loss) as net income (loss) before impairment of gas properties, impairment of fixed assets, derivative fair value (gain) loss, net cash receipts on settled derivative instruments, incentive unit expense, acquisition expense and other non-recurring items. Adjusted net income (loss) is not a measure of net income as determined by United States generally accepted accounting principles, or GAAP.

We believe that many investors use adjusted net income (loss) in making investment decisions and in evaluating our operational trends and our performance relative to other oil and gas producing companies.

The following table presents a reconciliation of the non-GAAP financial measure of adjusted net income to the GAAP financial measure of net income.

(in thousands)

Three Months Ended
September 30, 2017


Nine Months Ended
September 30, 2017

Reconciliation to net income attributable to Rice Energy Inc:




Net income

$

44,758



$

180,519


Non-controlling interest attributable to midstream entities

(39,843)



(101,534)


Impairment of gas properties



92,355


Gain on derivative instruments (1)

(32,534)



(121,313)


Net cash receipts (payments) on settled derivative instruments (1)

25,642



(1,522)


Incentive unit expense

3,271



10,954


(Gain) loss on embedded derivatives

(1,049)



14,368


Loss on sale of Barnett Assets

15,915



15,915


Income tax effect of reconciling items

(4,454)



(4,261)


Adjusted net income attributable to Rice Energy Inc.(2)

$

11,706



$

85,481




1.

The adjustments for the derivative fair value (gains) losses and net cash receipts on settled commodity derivative instruments have the effect of adjusting net income (loss) for changes in the fair value of derivative instruments, which are recognized at the end of each accounting period because we do not designate commodity derivative instruments as accounting hedges. This results in reflecting commodity derivative gains and losses within adjusted net income on a cash basis during the period the derivatives settled.

2.

The above Adjusted net income reconciliation deducts the tax impact of non-controlling interest attributable to midstream entities of $39.8 million and $101.5 million for the three and nine months ended September 30, 2017, respectively. Also, the above reconciliation does not deduct the non-controlling interest attributable to Rice Energy Operating LLC, as we view our business on a fully diluted basis.


Rice Energy Inc.

Supplemental Balance Sheet Data

(Unaudited)


The table below provides supplemental balance sheet data as of September 30, 2017.


(in thousands)

September 30, 2017

Cash and cash equivalents

$

271,243


Long-term debt


6.25% Senior Notes Due April 2022(1)

889,668


7.25% Senior Notes Due May 2023(2)

392,510


Senior Secured Revolving Credit Facility

125,000


Midstream Holdings Revolving Credit Facility

173,500


RMP Revolving Credit Facility

222,000


Total long-term debt

$

1,802,678


Net debt

$

1,531,435




1.

Net of unamortized deferred finance costs and original discount issuances of $10,332 (in thousands).

2.

Net of unamortized deferred finance costs and original discount issuances of $7,490 (in thousands).

Rice Energy Inc.

Derivatives Information

(Unaudited)


This table provides data associated with our derivatives as of October 9, 2017 for the periods indicated:


All-In Fixed Price Derivatives

Rem.
2017


2018


2019


2020


2021











NYMEX Natural Gas Swaps:










Volume Hedged (BBtu/d)

720



665



467



578



338


Wtd Average Swap Price ($/MMBtu)

$

3.22



$

3.00



$

2.93



$

2.92



$

2.85












NYMEX Natural Gas Collars:










Volume Hedged (BBtu/d)

290



285



190






Wtd Average Floor Price ($/MMBtu)

$

3.08



$

3.15



$

3.00



$



$


Wtd Average Call Price ($/MMBtu)

$

3.73



$

3.63



$

3.50



$



$












NYMEX Natural Gas Calls:










Volume Hedged (BBtu/d)

50



120



152



135



20


Wtd Average Price ($/MMBtu)

$

2.92



$

3.32



$

3.45



$

3.47



$

3.70












NYMEX Natural Gas Deferred Puts:










Volume Hedged (BBtu/d)

80



30



20






Wtd Avg. Net Floor Price ($/MMBtu)

$

2.59



$

2.77



$

2.80



$



$












NYMEX Volume Excl Calls (BBtu/d)

1,090



980



677



578



338


NYMEX Volume Incl Calls (BBtu/d)

1,140



1,100



829



713



358


Swap, Collar & Put Floor ($/MMBtu)

$

3.14



$

3.04



$

2.95



$

2.92



$

2.85












Waha Natural Gas Swaps










Volume Hedged (BBtu/d)

45



22



9






Wtd Average Swap Price ($/MMBtu)

$

3.11



$

3.01



$

3.29



$



$












Dominion Natural Gas Swaps










Volume Hedged (BBtu/d)

250



257



92






Wtd Average Swap Price ($/MMBtu)

$

2.24



$

2.23



$

2.34



$



$












Total Fixed Price Derivatives










Volume Hedged Excl. Calls (BBtu/d)

1,385



1,259



778



578



338


Volume Hedged Incl. Calls (BBtu/d)

1,435



1,379



930



713



358


Wtd Average Swap Price ($/MMBtu)

$

2.97



$

2.87



$

2.88



$

2.92



$

2.85












Basis Contract Derivatives










Appalachian Basis










Volume Hedged (BBtu/d)

500



361



450



515



340


Wtd Average Swap Price ($/MMBtu)

$

(0.96)



$

(0.65)



$

(0.58)



$

(0.56)



$

(0.54)












Other Basis (MichCon/Gulf Coast)










Volume Hedged (BBtu/d)

447


302


167


73



20


Wtd Average Swap Price ($/MMBtu)

$

(0.13)



$

(0.13)



$

(0.15)



$

(0.14)



$

(0.12)












Total Basis Swaps










Volume Hedged (BBtu/d)

947



663



617



588



360


Wtd Average Swap Price ($/MMBtu)

$

(0.57)



$

(0.41)



$

(0.46)



$

(0.51)



$

(0.52)












WTI Swaps










Volume Hedged (Bbls/d)

50









Wtd Average Swap Price ($/bbl)

$

45



$



$



$



$












NGL Swaps










Volume Hedged (Bbls/d)

496









Wtd Average Swap Price ($/bbl)

$

15



$



$



$



$


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SOURCE Rice Energy Inc.