(Recasts with Rice response, adds EQT letter, updates share price)
By David French and Arundhati Sarkar
Jan 22 (Reuters) - EQT Corp's production guidance for 2019 and a plan for increased focus on generating cash flow drew a rebuke from founders of the company it merged with 15 months ago, who said they would challenge the energy firm's board in an upcoming shareholder ballot.
Pittsburgh-based EQT became one of the largest gas-focused U.S. producers when it completed its tie-up with Rice Energy in November 2017.
Despite its new scale, EQT's share price has lagged since the merger - a situation which spurred in December two of Rice Energy's founders, Toby and Derek Rice, to call for changes.
In response, EQT said it would focus on generating free cash flow that could be returned to shareholders, with EQT Chief Executive Robert McNally telling Reuters it was "highly likely" it would seek to buy back shares in the "near term."
Shareholder reaction to the plan was broadly negative, with EQT shares ending 5.5 percent lower.
The sentiment was matched by the two Rice brothers, who said in a statement that EQT's plan "does not address the fundamental concerns being raised", and they will ask shareholders to replace board members and install Toby Rice as CEO.
A spokeswoman for EQT did not respond to a request for comment on the Rice statement.
However, according to a letter sent to the brothers, seen by Reuters, the EQT board said while it was "open-minded" to new ideas and adding management expertise, it questioned the "experience and suitability" of the brothers to be appointed CEO and to the board.
The core schism is over how the company develops its assets: the Rice brothers insist EQT's poor stock performance since the merger has been because the current management has not fulfilled the firm's potential, while EQT insist the siblings' projections are inflated and based on outdated market conditions.
Under its plan, EQT expects to generate around $2.7 billion of accumulated adjusted free cash flow over the next five years. Adjusted free cash flow in 2019 was expected to be $350 million.
Aiding cash flow generation would be $100 million of cost savings, an initiative to trim a further 10 percent of costs across its development program, as well as an up-to-21 percent decline in forecasted capital expenditure this year versus 2018.
The company also plans to sell its 19.9 percent stake in Equitrans Midstream Corp, the pipelines business that EQT spun out in November.
The Rice brothers have insisted they can generate an additional $400 million to $600 million pre-tax free cash flow per year under their plan - which has attracted the support of top-ten shareholder D. E. Shaw Group.
A spokesman for D. E. Shaw did not immediately respond to a request for comment.
(Reporting by David French in New York and Arundhati Sarkar in Bengaluru; Additional Reporting by Svea Herbst in Boston; editing by Bernadette Baum and Lisa Shumaker)