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Why Millennium Management starts new position in Rice Energy

Smita Nair

Overview: Millennium Management's 1Q14 positions (Part 2 of 7)

(Continued from Part 1)

Millennium Management and Rice Energy

Millennium Management has top new positions in Rice Energy Inc. (RICE) and Anixter International Inc. (AXE). Positions were increased in PPL Corp. (PPL), Devon Energy (DVN), Teva Pharmaceuticals (TEVA), and Edison International (EIX).

Millennium Management initiated a new position in Rice Energy Inc. (RICE), which accounted for 0.21% of the fund’s portfolio.

Rice Energy is an independent natural gas and oil company engaged in the acquisition, exploration, and development of natural gas and oil properties in the Appalachian Basin. It was founded by former BlackRock Inc. portfolio manager Daniel J. Rice in 2007. It holds around 43,978 net acres in the southwestern core of the Marcellus Shale, primarily in Washington County, Pennsylvania, and 46,700 net acres in the southeastern core of the Utica Shale, primarily in Belmont County, Ohio.

Rice raises $924 million in January debut

Rice Energy, which is based in Canonsburg, Pennsylvania, raised $924 million in its initial public offering (or IPO) held in January by offering 44 million shares at the higher end of $21 per share. It noted that, “Our initial public offering in January, 2014, was the second largest U.S. independent E&P IPO in history, providing us increased liquidity to pursue production growth and the ability to invest in strategic midstream and leasehold opportunities in order to support long-term value creation.” It had posted a net loss of $16.5 million ($0.13 per diluted share) for the year ending December 31, 2013, over production costs and other expenses.

Rice Energy Inc. posted a $124.1 million profit for 1Q14 and earnings of $0.99 a diluted share compared to a $6.8 million loss during the first three months of 2013. Revenue increased to $90.5 million, from $13.2 million in the year ago quarter. During the 1Q14, Rice averaged 209 million cubic feet (MMcf) per day of net production—an increase of 135% over the prior year’s comparable quarter and 36% over the 4Q13.

The company said it benefited from high realized gas prices, adding, “we brought online ten Marcellus wells in 2014, and we just recently completed our first Utica well, which we expect to bring online in the second quarter of 2014.” It also tapped the high yield bond market and gained “$581.0 million of liquidity that can be used to fund the 2014 capital expenditures program.”

Rice forecast first Utica Shale well production by early July

Rice recently said it has successfully tested the company’s first Utica Shale well and anticipates first production by early July. It said owns an approximate 93% working interest in the well, which has an effective lateral length of 6,957 feet and was completed with a 40-stage frac. The release added that it has “entered into a precedent agreement for 175,000 MMBtu per day firm transportation on the Rockies Express Pipeline beginning in June, 2015, for a term of 20 years. The Rockies Express Pipeline will provide greater access to Gulf Coast and Midwest markets. ”

Rice Energy said in March that “assuming the execution of the $1,230 million capital plan discussed above, it expects that 2014 average net daily production will be between 260 MMcf per day and 310 MMcf per day (100% natural gas), representing a 106% to 146% increase over 2013 average net daily production.”

Moody’s noted in an April release that “Rice has established a favorable acreage position in the Marcellus, which provides visible production and cash flow growth potential. However, it will require significant outspending of cash flow to develop and hold Rice’s acreage positions in both in the Marcellus and the still emerging Utica Shale, entailing execution risk and reliance on external funding sources to finance. While Rice has improved its drilling performance and benefits from a low cost structure, with a high level of operational control of its Marcellus properties and valuable midstream infrastructure, the company is still in the early stages.”

Continue to Part 3

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