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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from_______ to_______              
Commission File Number: 001-36273
Rice Energy Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
46-3785773
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
2200 Rice Drive
Canonsburg, Pennsylvania
 
15317
(Address of principal executive offices)
 
(Zip code)
 
 
 
(724) 271-7200
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þYes ¨No
 
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þYes ¨No
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer ¨
Non-accelerated filer ¨
 
Smaller reporting company ¨
(Do not check if a smaller reporting company)
 
Emerging growth company ¨

 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨Yes þNo
 
 
 
Number of shares of the registrant’s common stock outstanding at May 2, 2017: 205,060,517 shares of common stock.





RICE ENERGY INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS


2



Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report regarding our strategy, future operations, financial position, estimated revenues and income/losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Annual Report”) on file with the Securities and Exchange Commission (the “SEC”).
Forward-looking statements may include statements about:
our business strategy;
our reserves;
our financial strategy, liquidity and capital required for our development program;
realized natural gas, natural gas liquid (“NGL”) and oil prices;
timing and amount of future production of natural gas, NGLs and oil;
our hedging strategy and results;
our future drilling plans;
competition and government regulations;
pending legal or environmental matters;
our marketing of natural gas, NGLs and oil;
our leasehold or business acquisitions;
costs of developing our properties and conducting our gathering and other midstream operations;
operations of Rice Midstream Partners LP;
monetization transactions, including asset sales to Rice Midstream Partners LP;
general economic conditions;
credit and capital markets;
uncertainty regarding our future operating results; and
plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.
We caution you that these forward-looking statements are subject to all of the 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; risks relating to joint venture operations; and the other risks described under the heading “Item 1A. Risk Factors” in our 2016 Annual Report.
Reserve engineering is a process of estimating underground accumulations of natural gas, NGLs and oil that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions could change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of natural gas, and NGLs and oil that are ultimately recovered.
Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.

3



Commonly Used Defined Terms
As used in the Quarterly Report, unless the context indicates or otherwise requires, the following terms have the following meanings:
“Rice Energy,” the “Company,” “we,” “our,” “us” or like terms refer collectively to Rice Energy Inc. and its consolidated subsidiaries;
“Rice Energy Operating” or “REO” refers to Rice Energy Operating LLC, a subsidiary of Rice Energy formerly known as Rice Energy Appalachia, LLC;
“Rice Drilling B” refers to Rice Drilling B LLC, a subsidiary of Rice Energy;
the “Partnership” or “RMP” refers to Rice Midstream Partners LP (NYSE: RMP);
“Rice Midstream OpCo” refers to Rice Midstream OpCo LLC, a wholly-owned subsidiary of RMP;
“Midstream Holdings” refers to Rice Midstream Holdings LLC, a subsidiary of Rice Energy;
“GP Holdings” refers to Rice Midstream GP Holdings LP, a subsidiary of Rice Energy;
“Vantage” refers collectively to Vantage Energy, LLC and Vantage Energy II, LLC; and
the “Vantage Acquisition” refers to the Company’s acquisition of Vantage and its subsidiaries.

    


4



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Rice Energy Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
March 31, 2017
 
December 31, 2016
Assets
 
 
 
Current assets:
 
 
 
Cash
$
430,956

 
$
470,043

Accounts receivable
240,148

 
218,625

Prepaid expenses and other
8,586

 
5,059

Derivative assets

 
689

Total current assets
679,690

 
694,416

 
 
 
 
Gas collateral account
5,332

 
5,332

Property, plant and equipment, net
6,233,712

 
6,117,912

Deferred financing costs, net
34,613

 
36,384

Goodwill
879,011

 
879,011

Intangible assets, net
44,124

 
44,525

Derivative assets
72,987

 
39,328

Other non-current assets
1,334

 
614

Total assets
$
7,950,803

 
$
7,817,522

 
 
 
 
Liabilities, mezzanine equity and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
50,513

 
$
18,244

Royalties payable
125,054

 
87,098

Accrued capital expenditures
148,177

 
124,700

Accrued interest
35,851

 
14,440

Leasehold payable
18,318

 
22,869

Derivative instruments
180,145

 
139,388

Other accrued liabilities
107,501

 
126,007

Total current liabilities
665,559

 
532,746

 
 
 
 
Long-term liabilities:
 
 
 
Long-term debt
1,543,380

 
1,522,481

Leasehold payable
12,518

 
9,237

Deferred tax liabilities
364,612

 
358,626

Derivative instruments
21,105

 
26,477

Other long-term liabilities
85,023

 
81,348

Total liabilities
2,692,197

 
2,530,915

 
 
 
 
Mezzanine equity:
 
 
 
Redeemable noncontrolling interest, net (Note 10)
383,233

 
382,525

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $0.01 par value; authorized - 650,000,000 shares; issued and outstanding - 205,049,274 shares and 202,606,908 shares, respectively
2,050

 
2,026

Preferred stock, $0.01 par value; authorized - 50,000,000 shares; issued and outstanding - 38,020 and 40,000 shares, respectively

 


5


Additional paid in capital
3,333,796

 
3,313,917

Accumulated deficit
(434,039
)
 
(407,741
)
Stockholders’ equity before noncontrolling interest
2,901,807

 
2,908,202

Noncontrolling interests in consolidated subsidiaries
1,973,566

 
1,995,880

Total liabilities, mezzanine equity and stockholders’ equity
$
7,950,803

 
$
7,817,522

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6



Rice Energy Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended March 31,
(in thousands, except share data)
2017
 
2016
Operating revenues:
 
 
 
Natural gas, oil and natural gas liquids sales
$
356,834

 
$
112,442

Gathering, compression and water distribution
30,343

 
24,552

Other revenue
6,629

 
2,948

Total operating revenues
393,806

 
139,942

 
 
 
 
Operating expenses:
 
 
 
Lease operating (1)
22,649

 
11,071

Gathering, compression and transportation
39,426

 
28,132

Production taxes and impact fees
6,153

 
1,651

Exploration
4,012

 
990

Midstream operation and maintenance (1)
6,650

 
9,622

Incentive unit expense
2,883

 
24,142

Acquisition expense
207

 
472

Impairment of gas properties
92,355

 

Impairment of fixed assets

 
2,595

General and administrative (1)
33,824

 
24,873

Depreciation, depletion and amortization
136,878

 
79,185

Amortization of intangible assets
402

 
408

Other expense
6,158

 
4,191

Total operating expenses
351,597

 
187,332

 
 
 
 
Operating income (loss)
42,209

 
(47,390
)
Interest expense
(27,023
)
 
(24,521
)
Other income
180

 
214

(Loss) gain on derivative instruments
(14,779
)
 
70,179

Amortization of deferred financing costs
(2,652
)
 
(1,552
)
Loss before income taxes
(2,065
)
 
(3,070
)
Income tax benefit
576

 
6,375

Net (loss) income
(1,489
)
 
3,305

Less: Net income attributable to noncontrolling interests
(24,809
)
 
(20,893
)
Net loss attributable to Rice Energy Inc.
(26,298
)
 
(17,588
)
Less: Preferred dividends and accretion of redeemable noncontrolling interests
(8,332
)
 
(3,458
)
Net loss attributable to Rice Energy Inc. common stockholders
$
(34,630
)
 
$
(21,046
)
 
 
 
 
Weighted average number of shares of common stock—basic
203,435,154

 
136,419,903

Weighted average number of shares of common stock—diluted
203,435,154

 
136,419,903

Loss per share—basic
$
(0.17
)
 
$
(0.15
)
Loss per share—diluted
$
(0.17
)
 
$
(0.15
)

(1)
For the three months ended March 31, 2017, stock-based compensation expense of $0.2 million and $5.1 million is included in lease operating and general and administrative expense, respectively. In addition, for the three months ended March 31, 2016, stock-based compensation expense of $0.1 million, $0.1 million and $4.6 million was included in lease operating, midstream operation and maintenance and general and administrative expense. See Note 14 for additional information.


7


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

8


Rice Energy Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
(in thousands)
2017
 
2016
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(1,489
)
 
$
3,305

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
136,878

 
79,185

Amortization of deferred financing costs
2,652

 
1,552

Amortization of intangibles
402

 
408

Exploration
4,012

 
990

Incentive unit expense
2,883

 
24,142

Stock compensation expense
5,290

 
4,640

Impairment of fixed assets

 
2,595

Impairment of gas properties
92,355

 

Derivative instruments fair value loss (gain)
14,779

 
(70,179
)
Cash (payments) receipts for settled derivatives
(11,548
)
 
64,062

Deferred income tax benefit
(4,378
)
 
(6,375
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(21,524
)
 
7,589

Prepaid expenses and other assets
(4,577
)
 
(611
)
Accounts payable
11,913

 
(3,275
)
Accrued liabilities and other
2,004

 
30,290

Royalties payable
37,956

 
(11,180
)
Net cash provided by operating activities
267,608

 
127,138

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(297,963
)
 
(289,719
)
Acquisitions
(3,671
)
 
(7,700
)
Net cash used in investing activities
(301,634
)
 
(297,419
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
20,000

 
90,000

Repayments of debt obligations
(313
)
 
(81,317
)
Net contributions to Strike Force Midstream by Gulfport Midstream
9,614

 

Debt issuance costs
(81
)
 
(879
)
Distributions to the Partnership’s public unitholders
(19,083
)
 
(8,284
)
Tax distribution to Vantage Sellers
(1,225
)
 

Proceeds from issuance of redeemable noncontrolling interests, net of offering costs

 
373,942

Preferred dividends to redeemable noncontrolling interest holders
(7,772
)
 

Employee tax withholding for settlement of stock compensation award vestings
(6,201
)
 

Net cash (used in) provided by financing activities
(5,061
)
 
373,462

 
 
 
 
Net (decrease) increase in cash
(39,087
)
 
203,181

Cash at the beginning of the year
470,043

 
151,901

Cash at the end of the period
$
430,956

 
$
355,082

 
 
 
 
(in thousands)
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 
 
 

9


Asset contribution to Strike Force Midstream by Gulfport Midstream
$

 
$
22,500

Capital expenditures financed by accounts payable
$
34,713

 
$
31,841

Capital expenditures financed by accrued capital expenditures
$
148,177

 
$
92,152

Natural gas properties financed through deferred payment obligations
$
30,836

 
$
11,675

Application of advances from joint interest owners
$

 
$
(4,366
)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


10


Rice Energy Inc.
Condensed Consolidated Statements of Equity
(Unaudited)

(in thousands)
Common Stock ($0.01 par)
 
Additional Paid-In Capital
 
Accumulated (Deficit) Earnings
 
Stockholders Equity before Non-Controlling Interest
 
Non-Controlling Interest
 
Total
Balance, January 1, 2016
$
1,364

 
$
1,416,523

 
$
(137,990
)
 
$
1,279,897

 
$
624,571

 
$
1,904,468

Incentive unit compensation

 
24,142

 

 
24,142

 

 
24,142

Stock compensation
1

 
3,946

 

 
3,947

 
1,031

 
4,978

Preferred dividends on redeemable noncontrolling interest

 
(3,132
)
 

 
(3,132
)
 

 
(3,132
)
Accretion of redeemable noncontrolling interest

 
(326
)
 

 
(326
)
 

 
(326
)
Distributions to the Partnership’s public unitholders

 


 

 

 
(8,284
)
 
(8,284
)
Contribution from noncontrolling interest

 

 

 

 
22,500

 
22,500

Consolidated net income (loss)

 

 
(17,588
)
 
(17,588
)
 
20,893

 
3,305

Balance, March 31, 2016
$
1,365

 
$
1,441,153

 
$
(155,578
)
 
$
1,286,940

 
$
660,711

 
$
1,947,651

 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
$
2,026

 
$
3,313,917

 
$
(407,741
)
 
$
2,908,202

 
$
1,995,880

 
$
4,904,082

Incentive unit compensation

 
2,883

 

 
2,883

 

 
2,883

Stock compensation

 
7,082

 

 
7,082

 

 
7,082

Issuance of common stock upon vesting of stock compensation awards, net of tax withholdings
4

 
(7,799
)
 

 
(7,795
)
 

 
(7,795
)
Preferred dividends on redeemable noncontrolling interest

 
(7,624
)
 

 
(7,624
)
 

 
(7,624
)
Accretion of redeemable noncontrolling interest

 
(708
)
 

 
(708
)
 

 
(708
)
Contribution from noncontrolling interest

 

 

 

 
9,614

 
9,614

REO Common Unit conversion into Rice Energy common stock, net of tax
20

 
26,045

 

 
26,065

 
(36,429
)
 
(10,364
)
Tax distribution to Vantage Sellers

 

 

 

 
(1,225
)
 
(1,225
)
Distributions to the Partnership’s public unitholders

 

 

 

 
(19,083
)
 
(19,083
)
Consolidated net (loss) income

 

 
(26,298
)
 
(26,298
)
 
24,809

 
(1,489
)
Balance, March 31, 2017
$
2,050

 
$
3,333,796

 
$
(434,039
)
 
$
2,901,807

 
$
1,973,566

 
$
4,875,373

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

11


Rice Energy Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements of Rice Energy Inc. (the “Company”) have been prepared by the Company’s management in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. The unaudited condensed consolidated financial statements included herein contain all adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of March 31, 2017 and December 31, 2016 and its condensed consolidated statements of operations, cash flows and equity for the three months ended March 31, 2017 and 2016.
The accompanying condensed consolidated financial statements include the financial results of the Company, its consolidated subsidiaries and certain variable interest entities in which the Company is the primary beneficiary. See Note 13 for additional discussion of variable interest entities.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes therein for the year ended December 31, 2016, as filed with the Securities and Exchange Commission (“SEC”) by the Company in its Annual Report on Form 10-K (the “2016 Annual Report”). Certain prior period financial statement amounts have been reclassified to conform to current period presentation. All intercompany transactions have been eliminated in consolidation.
2.
Acquisitions
Vantage Acquisition
On October 19, 2016, the Company completed the acquisition of Vantage Energy, LLC and Vantage Energy II, LLC (collectively, “Vantage”) and their subsidiaries (the “Vantage Acquisition”) pursuant to the terms of the Purchase and Sale Agreement (the “Vantage Purchase Agreement”) dated September 26, 2016 between and among the Company, Vantage Energy Investment LLC, Vantage Energy Investment II LLC and Vantage. Pursuant to the terms of the Vantage Purchase Agreement, Rice Energy Operating LLC (“Rice Energy Operating”) acquired Vantage from certain affiliates of Quantum Energy Partners, Riverstone Holdings LLC and Lime Rock Partners (such affiliates, the “Vantage Sellers”) for approximately $2.7 billion, which consisted of approximately $1.0 billion in cash, the assumption of net debt of approximately $707.0 million and the issuance of 40.0 million common units in Rice Energy Operating that were immediately exchangeable into 40.0 million shares of common stock of the Company, valued at approximately $1.0 billion.
On September 26, 2016, the Company entered into a Purchase and Sale Agreement (the “Midstream Purchase Agreement”) by and between the Company and Rice Midstream Partners LP (the “Partnership”). Pursuant to the terms of the Midstream Purchase Agreement, as amended, immediately following the close of the Vantage Acquisition on October 19, 2016, the Partnership acquired from the Company all of the outstanding membership interests of Vantage Energy II Access, LLC and Vista Gathering, LLC (collectively, the “Vantage Midstream Entities”). The Partnership’s acquisition of the Vantage Midstream Entities from the Company is accounted for as a combination of entities under common control at historical cost. The Vantage Midstream Entities, which became wholly-owned subsidiaries of the Partnership upon the completion of the acquisition of the Vantage Midstream Entities, own midstream assets, including approximately 30 miles of dry gas gathering and compression assets. In consideration for the acquisition of the Vantage Midstream Entities, the Partnership paid the Company $600.0 million in aggregate cash consideration, which the Partnership funded through the net proceeds of a private placement of Partnership common units and borrowings under its revolving credit facility.
Allocation of Purchase Price
The following table summarizes the preliminary purchase price and the preliminary estimated values of assets and liabilities assumed based on the fair value as of October 19, 2016, with any excess of the purchase price over the estimated fair value of the identified net assets acquired recorded as goodwill. Approximately $369.0 million and $455.4 million of goodwill has been allocated to the Exploration and Production segment and Rice Midstream Partners segment, respectively. The amount of goodwill allocated to the Rice Midstream Partners segment includes an acquired 67.5% interest in the Wind Ridge system previously owned by Access Midstream Partners. The Partnership acquired the Wind Ridge system in connection with the Vantage Midstream Acquisition for approximately $14.3 million, of which $10.9 million was ascribed to property and equipment and $3.4 million to goodwill. Additionally, as a result of the enhanced cash flow distribution to Rice Midstream GP

12


Holdings LP (“GP Holdings”) expected to result from the Vantage Midstream Acquisition, the Company, through its preliminary purchase price allocation of the Vantage Acquisition, ascribed additional goodwill of $15.4 million to the Rice Midstream Partners segment. Goodwill primarily relates to the Company’s ability to control the Vantage acquired assets and recognize synergies related to administrative and capital efficiencies, extended laterals, the creation of additional contiguous leasing opportunities not previously available and additional dedicated acreage.
Certain data necessary to complete the purchase price allocation is not yet available, including, but not limited to, title defect analysis. The Company expects to complete the purchase price allocation once it has received all of the necessary information. Prior to the completion of our purchase price allocation, the value of the assets and liabilities may be revised as appropriate. Goodwill associated with the Vantage Acquisition is fully deductible for tax purposes.
(in thousands)
 
 
Consideration Given:
 
 
Fair value of issued Rice Energy Operating units
 
$
1,001,200

Cash consideration, net of cash acquired
 
981,080

Total consideration
 
$
1,982,280

 
 
 
Estimated Fair Value of Assets Acquired and Liabilities Assumed:
 
 
Current assets, net of cash acquired
 
$
49,532

Natural gas and oil properties
 
2,178,076

Midstream property, plant and equipment
 
144,562

Other non-current assets
 
27,437

Current liabilities
 
(103,322
)
Fair value of debt assumed
 
(706,912
)
Other non-current liabilities
 
(51,052
)
Noncontrolling interest in Rice Energy Operating
 
(395,910
)
Total estimated fair value of assets acquired and liabilities assumed
 
$
1,142,411

Goodwill
 
839,869

The fair value of natural gas and oil properties are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of natural gas and oil properties were measured using valuation techniques that convert future cash flows into a single discounted amount. Significant inputs to the valuation of natural gas and oil properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management at the time of the valuation and are the most sensitive and may be subject to change. The fair value of undeveloped property was determined based upon a market approach of comparable transactions using Level 3 inputs.
The fair value measurements of the debt assumed were determined using Level 1 inputs. The debt balance includes amounts related to Vantage’s second lien note and amounts outstanding under Vantage’s credit facility, which were assumed by the Company and repaid concurrent to the Vantage Acquisition.
The valuation of Rice Energy Operating common units issued as consideration was primarily calculated based upon Level 1 inputs. The common unit value was included as an input in determining the fair value of the noncontrolling interests, which were further adjusted using level 3 inputs to reflect the value of ownership retained by the Vantage Sellers. Upon the redemption of certain common units during the first quarter of 2017, the Vantage Sellers held a 15.64% ownership interest in Rice Energy Operating as of March 31, 2017.
Post-Acquisition Operating Results
The acquired entities contributed the following to the Company’s consolidated operating results for the three months ended March 31, 2017.

13


(in thousands)
 
 
Revenue attributable to Rice Energy Inc.
 
$
95,836

Net loss attributable to noncontrolling interests
 
$
(5,827
)
Net loss attributable to Rice Energy Inc.
 
$
(31,431
)
Unaudited Pro Forma Information
The following table presents unaudited pro forma combined financial information for the three months ended March 31, 2016, which presents the Company’s results as though the Vantage Acquisition had been completed at January 1, 2016. The pro forma combined financial information is not necessarily indicative of the results that might have actually occurred had the Vantage Acquisition been completed at January 1, 2016; furthermore, the financial information is not intended to be a projection of future results.
 
 
Pro Forma
(in thousands, except per share data)
 
Three Months Ended
March 31, 2016
Operating revenues
 
$
190,086

Net income
 
$
34,278

Less: Net income attributable to noncontrolling interests
 
$
(27,469
)
Net income attributable to Rice Energy
 
$
6,809

Income per share (basic)
 
$
0.17

Income per share (diluted)
 
$
0.14

3.
Impairment
The carrying values of the Company’s proved properties are reviewed periodically when events or circumstances indicate that the remaining carrying amount may not be recoverable. This evaluation is performed at the lowest levels for which there are identifiable cash flows that are largely independent of other groups of assets by comparing estimated undiscounted cash flows to the carrying value and including risk-adjusted probable and possible reserves, if deemed reasonable. Key assumptions utilized in determining the estimated undiscounted future cash flows are generally consistent with assumptions used in the Company’s budgeting and forecasting processes. If the carrying value of proved properties exceeds the estimated undiscounted future cash flows, they are written down to fair value. Fair value of proved properties is estimated by discounting the estimated future cash flows using discount rates and consideration of expected assumptions that would be used by a market participant.
As of March 31, 2017, the Company identified significant declines in forward Waha basis differentials, which is the primary sales point for its Fort Worth Basin production. Such expected prolonged declines indicated a potential impairment trigger, and, as a result, the Company performed an asset recoverability test of its Fort Worth Basin properties. Based upon the results of the recoverability assessment, the Company concluded that the carrying value of its Fort Worth Basin properties exceeded its undiscounted cash flows. The fair value of the Fort Worth Basin proved properties was determined using a combination of the market and income approach to determine fair value. Significant inputs to the valuation of the discounted cash flows of natural gas and oil properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management which included Level 3 unobservable inputs to the fair value measurement. The difference between the carrying value and fair value resulted in an asset impairment of $92.4 million within the Exploration and Production segment for the period ended March 31, 2017.

14


4.
Accounts Receivable
Accounts receivable are primarily from the Company’s joint interest partners and natural gas marketers. The Company extends credit to parties in the normal course of business based upon management’s assessment of their creditworthiness. An allowance is provided for those accounts for which collection is estimated as doubtful; uncollectible accounts are written off and charged against the allowance. In estimating the allowance, management considers, among other things, how recently and how frequently payments have been received and the financial position of the party. Allowances for uncollectible accounts were not material for the periods presented. Accounts receivable as of March 31, 2017 and December 31, 2016 are detailed below.
(in thousands)
March 31, 2017
 
December 31, 2016
Joint interest
$
83,899

 
$
53,577

Natural gas sales
138,935

 
145,887

Other
17,314

 
19,161

Total accounts receivable
$
240,148

 
$
218,625

5.
Long-Term Debt
Long-term debt consists of the following as of March 31, 2017 and December 31, 2016:
(in thousands)
March 31, 2017
 
December 31, 2016
Long-term Debt
 
 
 
Senior Notes Due 2022, net of unamortized deferred financing costs and original discount issuances of $11,460 and $12,023, respectively (a)
$
888,540

 
$
887,977

Senior Notes Due 2023, net of unamortized deferred financing costs and original discount issuances of $8,160 and $8,496, respectively (b) 
391,840

 
391,504

Senior Secured Revolving Credit Facility (c)

 

Midstream Holdings Revolving Credit Facility (d)
73,000

 
53,000

RMP Revolving Credit Facility (e)
190,000

 
190,000

Total long-term debt
$
1,543,380

 
$
1,522,481

Senior Notes
6.25% Senior Notes Due 2022 (a)
The Company has $900.0 million in aggregate principal amount of 6.25% senior notes due 2022 outstanding (the “2022 Notes”). The 2022 Notes will mature on May 1, 2022, and interest is payable on the 2022 Notes on each May 1 and November 1. At any time prior to May 1, 2017, the Company may redeem up to 35% of the 2022 Notes at a redemption price of 106.25% of the principal amount, plus accrued and unpaid interest, with the proceeds of certain equity offerings, so long as the redemption occurs within 180 days of completing such equity offering and at least 65% of the aggregate principal amount of the 2022 Notes remains outstanding after such redemption. Prior to May 1, 2017, the Company may redeem some or all of the 2022 Notes for cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest. Upon the occurrence of a change of control, unless the Company has given notice to redeem the 2022 Notes, the holders of the 2022 Notes will have the right to require the Company to repurchase all or a portion of the 2022 Notes at a price equal to 101% of the aggregate principal amount of the 2022 Notes, plus any accrued and unpaid interest. On or after May 1, 2017, the Company may redeem some or all of the 2022 Notes at redemption prices (expressed as percentages of principal amount) equal to 104.688% for the twelve-month period beginning on May 1, 2017, 103.125% for the twelve-month period beginning May 1, 2018, 101.563% for the twelve-month period beginning on May 1, 2019 and 100.000% beginning on May 1, 2020, plus accrued and unpaid interest.
7.25% Senior Notes Due 2023 (b)
The Company has $400.0 million in aggregate principal amount of 7.25% senior notes due 2023 outstanding (the “2023 Notes”). The 2023 Notes will mature on May 1, 2023, and interest is payable on the 2023 Notes on each May 1 and November 1. At any time prior to May 1, 2018, the Company may redeem up to 35% of the 2023 Notes at a redemption price of 107.250% of the principal amount, plus accrued and unpaid interest, with the proceeds of certain equity offerings so long as the redemption occurs within 180 days of completing such equity offering and at least 65% of the aggregate principal amount of the 2023 Notes remains outstanding after such redemption. Prior to May 1, 2018, the Company may redeem some or all of the notes for cash at a

15


redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest. Upon the occurrence of a change of control, unless the Company has given notice to redeem the 2023 Notes, the holders of the 2023 Notes will have the right to require the Company to repurchase all or a portion of the 2023 Notes at a price equal to 101% of the aggregate principal amount of the 2023 Notes, plus any accrued and unpaid interest. On or after May 1, 2018, the Company may redeem some or all of the 2023 Notes at redemption prices (expressed as percentages of principal amount) equal to 105.438% for the twelve-month period beginning on May 1, 2017, 103.625% for the twelve-month period beginning May 1, 2019, 101.813% for the twelve-month period beginning on May 1, 2020 and 100.000% beginning on May 1, 2021, plus accrued and unpaid interest.
The 2022 Notes and the 2023 Notes (collectively, the “Notes”) are the Company’s senior unsecured obligations, rank equally in right of payment with all of the Company’s existing and future senior debt, and will rank senior in right of payment to all of the Company’s future subordinated debt. The Notes will be effectively subordinated to all of the Company’s existing and future secured debt to the extent of the value of the collateral securing such indebtedness. The Notes are jointly and severally, fully and unconditionally, guaranteed by the Company’s Guarantors.
Senior Secured Revolving Credit Facility (c)
In April 2013, the Company entered into a Senior Secured Revolving Credit Facility (the “Senior Secured Revolving Credit Facility”) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders. In April 2014, the Company, as borrower, and Rice Drilling B LLC (“Rice Drilling B”), as predecessor borrower, amended and restated the credit agreement governing the Senior Secured Revolving Credit Facility (the “Amended Credit Agreement”) to, among other things, assign all of the rights and obligations of Rice Drilling B as borrower under the Senior Secured Revolving Credit Facility to the Company.
In connection with the closing of the Vantage Acquisition, in October 2016, the Company entered into a Fourth Amended and Restated Credit Agreement (the “A&R Credit Agreement”), among the Company, Rice Energy Operating, Wells Fargo Bank, N.A., as administrative agent, and the lenders and other parties thereto. The A&R Credit Agreement provides, among other things, for the assignment of the Company’s rights and obligations as borrower under the Senior Secured Revolving Credit Facility to Rice Energy Operating LLC (“Rice Energy Operating”) and the addition of the Company as a guarantor of those obligations.
On March 16, 2017, Rice Energy Operating, as borrower, and the Company, as parent guarantor, entered into the Second Amendment (the “Second Amendment”) to the A&R Credit Agreement. The Second Amendment, among other things, (i) revised the tenor and aggregate notional volume limitations for the Company’s hedging arrangements contained in the A&R Credit Agreement to permit secured financial and physical hedging for up to six years from the date of the applicable contract, while increasing the aggregate notional volumes that may be subject to such contracts in the fourth and fifth years, (ii) permitted certain unsecured physical hedging transactions through the greater of the year 2030 or a rolling ten-year period, and (iii) amended the long-term senior unsecured debt rating threshold with respect to qualifying non-lender hedge counterparties.
As of March 31, 2017, the borrowing base was $1.45 billion and the sublimit for letters of credit was $400.0 million. The Company had zero borrowings outstanding and $211.0 million in letters of credit outstanding under the A&R Credit Agreement as of March 31, 2017, resulting in availability of $1.24 billion. As of March 31, 2017, the maturity date of the Senior Secured Revolving Credit Facility is October 19, 2021. The next redetermination of the borrowing base is expected to occur in May 2017.
Eurodollar loans under the Senior Secured Revolving Credit Facility bear interest at a rate per annum equal to LIBOR plus an applicable margin ranging from 225 to 325 basis points, depending on the percentage of borrowing base utilized, and base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 225 basis points, depending on the percentage of borrowing base utilized.
The A&R Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Senior Secured Revolving Credit Facility to be immediately due and payable.
The Company was in compliance with such covenants and ratios effective as of March 31, 2017.

16


Midstream Holdings Revolving Credit Facility (d)
On December 22, 2014, Midstream Holdings entered into a credit agreement (the “Midstream Holdings Credit Agreement”) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders establishing a revolving credit facility (the “Midstream Holdings Revolving Credit Facility”) with a maximum credit amount of $300.0 million and a sublimit for letters of credit of $25.0 million.
As of March 31, 2017, Midstream Holdings had $73.0 million of borrowings outstanding and no letters of credit under this facility, resulting in availability of $227.0 million. The year-to-date average daily outstanding balance of the Midstream Holdings Revolving Credit Facility was approximately $56.3 million, and interest was incurred on the Midstream Holdings Revolving Credit Facility at a weighted average interest rate of 3.1% through March 31, 2017. The Midstream Holdings Revolving Credit Facility is available to fund working capital requirements and capital expenditures and to purchase assets. The maturity date of the Midstream Holdings Revolving Credit Facility is December 22, 2019.
Principal amounts borrowed are payable on the maturity date, and interest is payable quarterly for base rate loans and at the end of the applicable interest period for Eurodollar loans. Midstream Holdings may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 225 to 300 basis points, depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 200 basis points, depending on the leverage ratio then in effect. Midstream Holdings also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The Midstream Holdings Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Midstream Holdings Revolving Credit Facility to be immediately due and payable. Midstream Holdings was in compliance with such covenants and ratios effective as of March 31, 2017.
RMP Revolving Credit Facility (e)
On December 22, 2014, Rice Midstream OpCo, a wholly-owned subsidiary of the Partnership, entered into a credit agreement (the “RMP Credit Agreement”) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders establishing a revolving credit facility (the “RMP Revolving Credit Facility”).
As of March 31, 2017, the RMP Revolving Credit Facility provided for lender commitments of $850.0 million, with an additional $200.0 million of commitments available under an accordion feature subject to lender approval. Rice Midstream OpCo had $190.0 million of borrowings outstanding and no letters of credit outstanding under the RMP Revolving Credit Facility as of March 31, 2017, resulting in availability of $660.0 million. The average daily outstanding balance of the RMP Revolving Credit Facility was approximately $190.0 million, and interest was incurred at a weighted average annual interest rate of 2.8% through March 31, 2017. The RMP Revolving Credit Facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions and repurchase units and for general partnership purposes and matures on December 22, 2019. The Partnership and its restricted subsidiaries are the guarantors of the obligations under the RMP Revolving Credit Facility.
Principal amounts borrowed are payable on the maturity date, and interest is payable quarterly for base rate loans and at the end of the applicable interest period for Eurodollar loans. Rice Midstream OpCo may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 200 to 300 basis points, depending on the leverage ratio then in effect, and base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 100 to 200 basis points, depending on the leverage ratio then in effect. The carrying amount of the RMP Revolving Credit Facility is comprised of borrowings for which interest accrues under a fluctuating interest rate structure. Accordingly, the carrying value approximates fair value as of March 31, 2017 and represents a Level 1 measurement. Rice Midstream OpCo also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The RMP Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the RMP Revolving Credit Facility to be immediately due and payable. The Partnership was in compliance with such covenants and ratios effective as of March 31, 2017.
Expected Aggregate Maturities

17


Expected aggregate maturities of long-term debt as of March 31, 2017 are as follows (in thousands):
Remainder of Year Ending December 31, 2017
$

Year Ending December 31, 2018

Year Ending December 31, 2019
263,000

Year Ending December 31, 2020

Year Ending December 31, 2021 and Beyond
1,297,696

Total
$
1,560,696

Interest paid in cash was approximately $6.1 million and $2.4 million for the three months ended March 31, 2017 and 2016, respectively.
6.
Derivative Instruments
The Company uses derivative commodity instruments that are placed with major financial institutions whose creditworthiness is regularly monitored. Substantially all of the Company’s derivative counterparties share in the Senior Secured Revolving Credit Facility collateral. The Company has entered into various derivative contracts to manage price risk and to achieve more predictable cash flows. As a result of the Company’s hedging activities, the Company may realize prices that are greater or less than the market prices that it would have received otherwise.
As of March 31, 2017, the Company has entered into derivative instruments with various financial institutions, fixing the price it receives for a portion of its future sales of produced natural gas. The Company’s fixed price derivatives primarily include swap and collar contracts that are tied to the commodity prices on NYMEX. As of March 31, 2017, the Company has entered into NYMEX hedging contracts through December 31, 2021, hedging a total of approximately 1,298 Bcfe of its projected natural gas production at a weighted average price of $3.02 per MMBtu. Additionally, the Company has entered into basis swap contracts to hedge the difference between the NYMEX index price and various local index prices. The fixed price and basis hedging contracts the Company has entered into through December 31, 2021 at other various sales points cover a total of approximately 1,090 Bcfe.

The Company recognizes all derivative instruments as either assets or liabilities at fair value per FASB ASC 815. The Company’s derivative commodity instruments have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized currently in earnings. The following tables present the gross amounts of recognized derivative assets and liabilities, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the consolidated balance sheets for the periods presented, all at fair value:
 
As of March 31, 2017
(in thousands)
Derivative instruments, gross

Derivative instruments subject to master netting arrangements

Derivative instruments, recorded in the Condensed Consolidated Balance Sheet, net
Derivative assets
$
152,995

 
$
(80,008
)
 
$
72,987

Derivative liabilities
$
275,740

 
$
(74,490
)
 
$
201,250

 
 
 
 
 
 
 
As of December 31, 2016
(in thousands)
Derivative instruments, gross
 
Derivative instruments subject to master netting arrangements
 
Derivative instruments, recorded in the Condensed Consolidated Balance Sheet, net
Derivative assets
$
103,507

 
$
(63,490
)
 
$
40,017

Derivative liabilities
$
286,019

 
$
(120,154
)
 
$
165,865


18


7.
Fair Value of Financial Instruments
The Company determines the fair value of its financial instruments, which are comprised primarily of derivative instruments, on a recurring basis as these instruments are required to be recorded at fair value for each reporting amount. Certain amounts in the Company’s financial statements were measured at fair value on a nonrecurring basis, including discounts associated with long-term debt. Fair value is based on quoted market prices, where available. If quoted market prices are not available, fair value is based upon models that use as inputs market-based parameters, including but not limited to forward curves, discount rates, broker quotes, volatilities and nonperformance risk.
The Company has categorized its fair value measurements into a three-level fair value hierarchy, based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Company’s fair value measurements relating to derivative instruments are included in Level 2. Since the adoption of fair value accounting, the Company has not made any changes to its classification of financial instruments in each category.
Items included in Level 3 are valued using internal models that use significant unobservable inputs. Items included in Level 2 are valued using management’s best estimate of fair value corroborated by third-party quotes.
The following assets and liabilities were measured at fair value on a recurring basis during the period (refer to Note 6 for details relating to derivative instruments):
 
As of March 31, 2017
 
 
 
Fair Value Measurements at Reporting Date Using
(in thousands)
Carrying Value
 
Total Fair Value
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Assets:
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
$
72,987

 
$
72,987

 
$

 
$
72,987

 
$

Total assets
$
72,987

 
$
72,987

 
$

 
$
72,987

 
$

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
$
201,250

 
$
201,250

 
$

 
$
201,250

 
$

Total liabilities
$
201,250

 
$
201,250

 
$

 
$
201,250

 
$

 
As of December 31, 2016
 
 
 
Fair Value Measurements at Reporting Date Using
(in thousands)
Carrying Value
 
Total Fair Value
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Assets:
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
$
40,017

 
$
40,017

 
$

 
$
40,017

 
$

Total assets
$
40,017

 
$
40,017

 
$

 
$
40,017

 
$

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
$
165,865

 
$
165,865

 
$

 
$
165,865

 
$

Total liabilities
$
165,865

 
$
165,865

 
$

 
$
165,865

 
$

The carrying value of cash and cash equivalents approximates fair value due to the short maturity of the instruments. The Company’s non-financial assets, such as property, plant and equipment, goodwill and intangible assets are recorded at fair value upon business combination and are remeasured at fair value only if an impairment charge is recognized. To the extent necessary, the Company applies unobservable inputs and management judgment due to the absence of quoted market prices (Level 3) to the valuation methodologies for these non-financial assets.

19


The estimated fair value and gross carrying amount of long-term debt as reported on the condensed consolidated balance sheets as of March 31, 2017 and December 31, 2016 is shown in the table below (refer to Note 5 for details relating to the debt instruments). The fair value was estimated using Level 2 inputs based on rates reflective of the remaining maturity as well as the Company’s financial position. The gross carrying value of the revolving credit facilities approximates fair value for the periods presented below.
 
As of March 31, 2017
 
As of December 31, 2016
Long-Term Debt (in thousands)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Senior Notes Due 2022
$
900,000

 
$
933,750

 
$
900,000

 
$
929,250

Senior Notes Due 2023
397,696

 
426,000

 
397,601

 
428,000

Midstream Holdings Revolving Credit Facility
73,000

 
73,000

 
53,000

 
53,000

RMP Revolving Credit Facility
190,000

 
190,000

 
190,000

 
190,000

Total
$
1,560,696

 
$
1,622,750

 
$
1,540,601

 
$
1,600,250

8.
Financial Information by Business Segment
The Company is organized and operates in three different operating segments: the Exploration and Production segment, the Rice Midstream Holdings segment and the Rice Midstream Partners segment. The segments represent components of the Company that engage in activities (a) from which revenue is generated and expenses are incurred; (b) whose operating results are regularly reviewed by the Chief Operating Decision Maker, who makes decisions about resources to be allocated to the segment and (c) for which discrete financial information is available. Operating segments are evaluated on their contribution to the Company’s consolidated results based on operating income. Other income and expenses, interest and income taxes are managed on a consolidated basis. The segment accounting policies are the same as those described in Note 1 to the Company’s Consolidated Financial Statements for the year ended December 31, 2016 contained in its 2016 Annual Report.
The operating results and assets of the Company’s reportable segments were as follows for the three months ended March 31, 2017:
(in thousands)
 
Exploration and Production
 
Rice Midstream Holdings
 
Rice Midstream Partners
 
Elimination of Intersegment Transactions
 
Consolidated Total
Total operating revenues
 
$
363,463

 
$
26,844

 
$
62,750

 
$
(59,251
)
 
$
393,806

Total operating expenses
 
371,170

 
7,011

 
22,154

 
(48,738
)
 
351,597

Operating (loss) income
 
$
(7,707
)
 
$
19,833

 
$
40,596

 
$
(10,513
)
 
$
42,209

 
 
 
 
 
 
 
 
 
 
 
Capital expenditures for segment assets
 
$
225,760

 
$
62,431

 
$
28,506

 
$
(18,734
)
 
$
297,963

Depreciation, depletion and amortization
 
$
131,839

 
$
1,397

 
$
7,621

 
$
(3,979
)
 
$
136,878

Segment assets
 
$
6,183,393

 
$
424,890

 
$
1,415,551

 
$
(73,031
)
 
$
7,950,803

Goodwill
 
$
368,992

 
$

 
$
510,019

 
$

 
$
879,011

The operating results of the Company’s reportable segments were as follows for the three months ended March 31, 2016:

20


(in thousands)
 
Exploration and Production
 
Rice Midstream Holdings
 
Rice Midstream Partners
 
Elimination of Intersegment Transactions
 
Consolidated Total
Total operating revenues
 
$
115,390

 
$
10,651

 
$
54,543

 
$
(40,642
)
 
$
139,942

Total operating expenses
 
183,181

 
7,526

 
18,926

 
(22,301
)
 
187,332

Operating (loss) income
 
$
(67,791
)

$
3,125

 
$
35,617

 
$
(18,341
)
 
$
(47,390
)
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures for segment assets
 
$
235,674

 
$
38,373

 
$
36,243

 
$
(20,571
)
 
$
289,719

Depreciation, depletion and amortization
 
$
74,956

 
$
1,089

 
$
5,370

 
$
(2,230
)
 
$
79,185

The assets of the Company’s reportable segments were as follows as of December 31, 2016:
(in thousands)
 
Exploration and Production
 
Rice Midstream Holdings
 
Rice Midstream Partners
 
Elimination of Intersegment Transactions
 
Consolidated Total
Segment assets
 
$
6,120,530

 
$
360,292

 
$
1,399,217

 
$
(62,517
)
 
$
7,817,522

Goodwill
 
$
384,431

 
$

 
$
494,580

 
$

 
$
879,011

9.
Commitments and Contingencies
On October 14, 2013, the Company entered into a Development Agreement and Area of Mutual Interest Agreement (collectively, the “Utica Development Agreements”) with Gulfport Energy Corporation (“Gulfport”) covering approximately 50,000 aggregate net acres in the Utica Shale in Belmont County, Ohio. Pursuant to the Utica Development Agreements, the Company had approximately 68.7% participating interest in acreage currently owned or to be acquired by the Company or Gulfport located within Goshen and Smith Townships (the “Northern Contract Area”) and an approximately 48.2% participating interest in acreage currently owned or to be acquired by the Company or Gulfport located within Wayne and Washington Townships (the “Southern Contract Area”), each within Belmont County, Ohio. The majority of the remaining participating interests are held by Gulfport. The participating interests of the Company and Gulfport in each of the Northern and Southern Contract Areas approximated the Company’s then-current relative acreage positions in each area.
The Utica Development Agreements have terms of ten years and are terminable upon 90 days’ notice by either party; provided that, with respect to interests included within a drilling unit, such interests shall remain subject to the applicable joint operating agreement and the Company and Gulfport shall remain operators of drilling units located in the Northern and Southern Contract Areas, respectively, following such termination.
Firm Transportation
The Company has commitments for gathering and firm transportation under existing contracts with third parties. Future payments under these contracts as of March 31, 2017 totaled $4.9 billion (remainder of 2017 - $128.2 million, 2018 - $242.1 million, 2019 - $235.4 million, 2020 - $235.1 million, 2021 - $234.7 million, 2022 - $234.4 million and thereafter - $3.6 billion).
Drilling Rig Service Commitments
As of March 31, 2017, the Company had four horizontal rigs under contract, of which three expire in 2017 and one expires in 2018. The Company also had three tophole drilling rigs under contract, of which one expires in 2017, one expires in 2018 and one expires in 2019. Future payments under these contracts as of March 31, 2017 totaled $42.4 million (remainder of 2017 - $27.0 million, 2018 - $13.7 million and 2019 - $1.7 million). Any other rig performing work for the Company is performed on a well-by-well basis and therefore can be released without penalty at the conclusion of drilling on the current well, the costs of which have not been included in the amounts above. The values above represent the gross amounts that the Company is committed to pay without regard to its proportionate share based on its working interest.
Frac Sand Commitments
Commencing in January 2017, the Company has commitments for frac sand to be used as a proppant in its hydraulic fracturing operations. Future commitments under these contracts as of March 31, 2017 totaled $41.9 million (remainder of 2017 - $11.4 million, 2018 - $15.1 million and 2019 - $15.4 million).

21



Litigation
From time to time the Company is party to various legal and/or regulatory proceedings arising in the ordinary course of business. While the ultimate outcome and impact to the Company cannot be predicted with certainty, the Company believes that all such matters are without merit and involve amounts which, if resolved unfavorably, either individually or in the aggregate, will not have a material adverse effect on its financial condition, results of operations or cash flows. When it is determined that a loss is probable of occurring and is reasonably estimable, the Company accrues an undiscounted liability for such contingencies based on its best estimate using information available at the time. The Company discloses contingencies where an adverse outcome may be material, or in the judgment of management, the matter should otherwise be disclosed.
10.
Mezzanine Equity
On February 17, 2016, Midstream Holdings and Rice Midstream GP Holdings LP, a Delaware limited partnership (“GP Holdings”) and subsidiary of Midstream Holdings, entered into a securities purchase agreement (the “Securities Purchase Agreement”) with EIG Energy Fund XVI, L.P., EIG Energy Fund XVI-E, L.P., and EIG Holdings (RICE) Partners, LP (collectively, the “Investors”) pursuant to which (i) Midstream Holdings agreed to issue and sell 375,000 Series B Units (“Series B Units”) with an aggregate liquidation preference of $375.0 million and (ii) GP Holdings agreed to issue and sell common units representing an 8.25% limited partner interest in GP Holdings (“GP Holdings Common Units”) for aggregate consideration of $375.0 million in a private placement (the “Midstream Holdings Investment”) exempt from the registration requirements under the Securities Act. In conjunction with the Securities Purchase Agreement, Midstream Holdings issued 1,000 Series A Units to Rice Energy Operating. The Midstream Holdings Investment closed on February 22, 2016 (the “Closing Date”).
In connection with the Closing Date, (i) Rice Energy Operating and the Investors entered into the Amended and Restated Limited Liability Company Agreement of Midstream Holdings (the “LLC Agreement”), which defines the preferences, rights, powers and duties of holders of the Series B Units and (ii) Rice Midstream GP Management LLC (“GP Management”), as general partner of GP Holdings, and Midstream Holdings and the Investors, as limited partners, entered into the Amended and Restated Agreement of Limited Partnership of GP Holdings, which defines the preferences, rights, powers and duties of holders of the GP Holdings Common Units (the “GP Holdings A&R LPA”).
In connection with the Midstream Holdings Investment, Midstream Holdings received gross proceeds of $375.0 million less transaction fees and expenses of approximately $6.2 million. Midstream Holdings used approximately $69.0 million of the proceeds to reduce outstanding borrowings under the Midstream Holdings Revolving Credit Facility and $300.0 million was distributed to the Company.
Series B Units
Pursuant to the LLC Agreement, the Series B Units rank senior to all other equity interests in Midstream Holdings with respect to the payment of distributions and distribution of assets upon liquidation, dissolution and winding up. The Series B Units will pay quarterly distributions at a rate of 8% per annum, payable in cash or “in-kind” through the issuance of additional Series B Units, subject to certain exceptions, at Midstream Holdings’ option for the first two years, and in cash thereafter. Distributions are payable on January 1, April 1, July 1 and October 1 of each year that the Series B Units remain outstanding. For purposes of the first quarter 2017 distribution, the Company paid $7.6 million in cash in April 2017.
The Investors holding Series B Units have the option to require Midstream Holdings to redeem the Series B Units on or after the tenth anniversary of the Closing Date at an amount equal to $1,000 per Series B Unit plus any accrued and unpaid distributions (the “Liquidation Preference”). The Series B Units are subject to an optional cash redemption by Midstream Holdings after the third anniversary of the Closing Date, at an amount equal to the Liquidation Preference. If any of the Company, the Partnership or Midstream Holdings undergoes a Change in Control (as defined in the Securities Purchase Agreement), the Investors have the right to require Midstream Holdings to repurchase any or all of the Series B Units for cash, and Midstream Holdings has the right to repurchase any or all of the Series B Units for cash. The holders of the Series B units do not have the power to vote or dispose of the equity interest in the Partnership held by GP Holdings.
In relation to the Series B Units, the occurrence of certain events or violations of certain financial and non-financial restrictions will constitute “Triggering Events” (as defined in the Securities Purchase Agreement) that may result in various consequences, including additional restrictions on the activities of Midstream Holdings, including the termination of the Investor’s additional commitment, increases in the distribution rate, additional governance rights for the Investors and other measures depending on the applicable Triggering Event. As of March 31, 2017, none of the Triggering Events have occurred.

22


In the event that Midstream Holdings or GP Holdings pursues an initial public offering, Midstream Holdings may redeem the Series B Units at a redemption price equal to the Liquidation Preference on the date of the closing of the applicable initial public offering plus all additional distributions that would have otherwise been paid through the third anniversary of the Closing Date. Midstream Holdings may satisfy this redemption price in cash or common equity interests of the entity that completes an initial public offering. In the event of any liquidation and winding up of Midstream Holdings, profits and losses will be allocated to the holders of the Series B Units so that, to the maximum extent possible, the capital accounts of the Series B unitholders will equal the aggregate Liquidation Preference.
GP Holdings Common Units
Pursuant to the GP Holdings A&R LPA, the holders of the GP Holdings Common Units are entitled to distributions of GP Holdings in proportion to their pro rata share of the outstanding GP Holdings Common Units. Distributions will occur upon GP Holdings receipt of any distributions of cash in respect of the equity interests in the Partnership held by GP Holdings.
The Investors holding GP Holdings Common Units have tag-along rights in connection with a sale of the common equity interests in GP Holdings to a third-party. The holders of GP Holdings Common Units will have drag-along rights in connection with a sale of the majority of the common equity interests in GP Holdings to a third-party, subject to the achievement of an agreed-upon minimum return. If a qualifying initial public offering of GP Holdings is not consummated prior to the fifth anniversary of the Closing Date, the holders of the GP Holdings Common Units shall have the right to require GP Holdings to repurchase all of their GP Holdings Common Units for cash in an aggregate purchase price of $125.0 million. In the event of a Change in Control or a GP Change in Control (as each term is defined in the GP Holdings A&R LPA) of the Company, Midstream Holdings or GP Holdings, the Purchasers shall have the right to require GP Holdings to repurchase all of their GP Holdings Common Units for an aggregate purchase price of $125.0 million. The holders of the GP Holdings Common Units do not have the power to vote or dispose of the Partnership’s units held by GP Holdings.
In the event GP Holdings sells any of its assets, subject to certain exceptions, GP Holdings may only make distributions of such proceeds to the extent that GP Holdings meets certain requirements, including the requirement to retain a certain amount of cash or cash equivalents following the sale of such assets. In the event of any liquidation and winding up of GP Holdings, GP Management, in its capacity as general partner, will appoint a liquidator to wind up the affairs and make final distributions as provided for in the GP Holdings A&R LPA.
After September 30, 2016 and prior to the eighteen-month anniversary of the closing of the Midstream Holdings Investment, upon the satisfaction of certain financial and operational metrics, Midstream Holdings has the right to require the Investors to purchase additional Series B Units and GP Holdings Common Units. Midstream Holdings may require the Investors to purchase at least $25.0 million of additional units on up to three occasions, up to a total aggregate amount of $125.0 million. Pursuant to the Securities Purchase Agreement, Midstream Holdings is required to pay the Investors a quarterly cash commitment fee of 2% per annum on any undrawn amounts of the additional $125.0 million commitment. The commitment fee paid in cash was approximately $0.6 million for the three months ended March 31, 2017. No additional units have been purchased by the Investors since the closing of the Midstream Holdings Investment.
As the Investors have an option to redeem the Series B Units and GP Holdings Common Units for cash at a future date, the proceeds from the redeemable noncontrolling interest (net of accretion and issuances costs and fees) are not considered to be a component of stockholders’ equity on the condensed consolidated balance sheet, and such Series B Units and GP Holdings Common Units are reported as mezzanine equity on the condensed consolidated balance sheet. The following table represents the value allocated to the Series B Units and GP Holdings Common Units at inception.
(in thousands)
 
At Inception
 
Noncontrolling interest in Series B Units
$
341,661

Noncontrolling interest in GP Holdings Common Units
33,339

Less: issuance costs and fees
(6,242
)
Carrying amount of redeemable noncontrolling interest at inception
$
368,758


23


While the Series B Units are not currently redeemable, the initial value allocated to them will be accreted to their full redemption value through February 22, 2026 using the effective interest rate method, as it is considered probable that they will become redeemable. The following table represents detail of the balance of redeemable noncontrolling interest, net on the condensed consolidated balance sheet as of March 31, 2017.
(in thousands)
 
As of March 31, 2017
 
Face amount of Series B Units
$
375,000

Plus: distributions paid in kind
11,504

Less: un-accreted discount
(31,040
)
Carrying amount of noncontrolling interest in Series B Units
355,464

Plus: noncontrolling interest in GP Holdings Common Units
33,339

Less: unamortized issuance costs and fees
(5,570
)
Redeemable noncontrolling interest, net
$
383,233

The Investors holding GP Common Units are subject to an allocation of income and losses associated with their respective ownership percentages in GP Holdings. Income attributable to the Investors for the three months ended March 31, 2017 and for the period from February 22, 2016 through March 31, 2016 was $0.9 million and $0.5 million, respectively.
11.
Stockholders’ Equity
The Company’s Board of Directors did not declare or pay a dividend for the three months ended March 31, 2017. On January 20, 2017, a cash distribution of $0.2505 per common and subordinated unit was paid by the Partnership to the Partnership’s unitholders related to the fourth quarter of 2016. On April 20, 2017, the Board of Directors of the Partnership’s general partner declared a cash distribution to the Partnership’s unitholders for the third quarter of 2016 of $0.2608 per common and subordinated unit. The cash distribution will be paid on May 18, 2017 to unitholders of record at the close of business on May 9, 2017. Also on May 18, 2017, a cash distribution of $1.2 million will be made to GP Holdings related to its incentive distribution rights in the Partnership in accordance with the partnership agreement.
The Company’s authorized common stock includes 650,000,000 shares of common stock, $0.01 par value per share. The following table presents a summary of changes to the Company’s common shares from January 1, 2016 through March 31, 2017:
Balance, January 1, 2016
136,387,194

April 2016 Equity Offering
20,000,000

September 2016 Equity Offering
46,000,000

Conversion of warrants into shares of common stock
30,242

Common stock awards vested, net
189,472

Balance as of December 31, 2016
202,606,908

Conversion of REO Common Units into shares of common stock
1,980,000

Common stock awards vested, net
462,366

Balance, March 31, 2017
205,049,274

12.
Incentive Units
In connection with the Company’s initial public offering (“IPO”) and the related corporate reorganization, the Rice Energy Operating incentive unit holders contributed their Rice Energy Operating incentive units to NGP Holdings and Rice Energy Holdings LLC (“Rice Holdings”) in return for (i) incentive units in such entities that, in the aggregate, were substantially similar to the Rice Energy Operating incentive units they previously held and (ii) shares of common stock in the amount of $3.4 million related to the extinguishment of the incentive burden attributable to Mr. Daniel J. Rice III. No payments were made in respect of incentive units prior to the completion of the Company’s IPO. As a result of the IPO, the payment likelihood related to the NGP Holdings and Rice Holdings incentive units was deemed probable, requiring the Company to recognize compensation expense. The compensation expense related to these interests is treated as additional paid in capital from NGP Holdings and Rice Holdings in the Company’s financial statements and is not deductible for federal or state income tax purposes. The compensation expense recognized is a non-cash charge, with the settlement obligation resting on NGP Holdings and Rice Holdings, and as such, the incentive units are not dilutive to Rice Energy Inc.

24


NGP Holdings
The NGP Holdings incentive units were considered a liability-based award and were adjusted to fair market value on a quarterly basis until all payments were made. During 2016, NGP Holdings sold its remaining shares of the Company’s common stock in connection with the Company’s public offering on April 15, 2016 (the “April 2016 Equity Offering”). No future expense will be recognized related to the NGP Holdings incentive units as a result of the April 2016 settlement of the remaining NGP Holdings incentive unit obligation. The Company recognized $18.2 million of non-cash compensation expense for the three months ended March 31, 2016.
Rice Holdings
The Rice Holdings incentive units are considered an equity-based award with the fair value of the award determined at the grant date and amortized over the service period of the award using the straight-line method. Compensation expense relative to the Rice Holdings incentive units was $2.9 million and $5.9 million for the three months ended March 31, 2017 and 2016, respectively. The Company will recognize approximately $8.1 million of additional compensation expense over the next year related to the Rice Holdings incentive units.
In August 2014, the triggering event for the Rice Holdings incentive units was achieved. As a result, in September 2014, 2015 and 2016, Rice Holdings distributed one quarter, one third and one half, respectively, of its then-remaining assets (consisting solely of shares of the Company’s common stock) to its members pursuant to the terms of its limited liability company agreement. In addition, in September 2017, Rice Holdings will distribute all of its then-remaining assets (consisting solely of shares of the Company’s common stock) to its members pursuant to the terms of its limited liability company agreement. As a result, over time, the shares of the Company’s common stock held by Rice Holdings will be transferred in their entirety to the members of Rice Holdings. 
Combined
Total combined compensation expense attributable to the incentive units was $2.9 million and $24.1 million for the three months ended March 31, 2017 and 2016, respectively.
The three tranches of the incentive units having a time vesting feature and were fully vested as of December 31, 2016.
Two tranches of the incentive units do not have a time vesting feature, and their payouts are triggered upon a future payment condition. As such, none of these awards have vested as of March 31, 2017.
13.
Variable Interest Entities
Pursuant to an evaluation performed upon adoption of ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” the Company concluded that the Partnership, GP Holdings, Strike Force Midstream LLC (“Strike Force Midstream”), a subsidiary of Midstream Holdings and Gulfport Midstream Holdings LLC (“Gulfport Midstream”), a wholly owned subsidiary of Gulfport, and Rice Energy Operating each meet the criteria for variable interest entity (“VIE”) classification, as described in further detail below.
Rice Midstream Partners LP
The Company evaluated the Partnership for consolidation and determined the Partnership to be a VIE. The Company determined that the primary beneficiary of the Partnership is GP Holdings. As of March 31, 2017, Midstream Holdings held a significant indirect interest in the Partnership through (i) its ownership of a 91.75% limited liability partnership interest in GP Holdings, which owned an approximate 28% limited partner interest in the Partnership, and (ii) through ownership of its wholly-owned subsidiary Rice Midstream Management LLC (the “GP”), which holds all of the substantive voting and participating rights in the Partnership. As a result, through this ownership, the Company holds the power to direct the activities of the Partnership that most significantly impact the Partnership’s economic performance and the obligation to absorb losses or the right to receive benefits from the Partnership that could potentially be significant to the Partnership.
As of March 31, 2017, the Company consolidated the Partnership, recording noncontrolling interest related to the net income of the Partnership attributable to its public unitholders. The following table presents summary information of assets and liabilities of the Partnership that is included in the Company’s condensed consolidated balance sheets that are for the use or obligation of the Partnership.

25


(in thousands)
March 31, 2017
 
December 31, 2016
Assets (liabilities):
 
 
 
Cash
$
12,990

 
$
21,834

Accounts receivable
7,126

 
8,758

Other current assets
115

 
64

Property and equipment, net
830,039

 
805,027

Goodwill and intangible assets, net
538,704

 
539,105

Deferred financing costs, net
11,542

 
12,591

Accounts payable
(6,848
)
 
(4,172
)
Accrued capital expenditures
(11,951
)
 
(9,074
)
Other current liabilities
(7,139
)
 
(8,376
)
Long-term debt
(190,000
)
 
(190,000
)
Other long-term liabilities
(5,967
)
 
(5,189
)
The following table presents summary information of the Partnership’s financial performance included in the condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended March 31, 2017 and 2016, inclusive of affiliate amounts.
 
Three Months Ended March 31,
(in thousands)
2017
 
2016
Operating revenues
$
62,750

 
$
54,543

Operating expenses
$
22,154

 
$
18,926

Net income
$
37,615

 
$
34,426

 
 
 
 
Net cash provided by operating activities
$
46,209

 
$
36,435

Net cash used in investing activities
$
(28,506
)
 
$
(36,243
)
Net cash (used in) provided by financing activities
$
(26,547
)
 
$
2,021

The following table presents the Company’s limited partner ownership of the Partnership for the periods ended March 31, 2017 and December 31, 2016.
As of:
Partnership units owned by GP Holdings (Common and Subordinated)
 
Total Partnership Units Outstanding
 
GP Holdings % Ownership in the Partnership
 
% Ownership in the Partnership Retained by the Company
December 31, 2015
28,757,246

 
70,917,372

 
41
%
 
41
%
Equity offering in June 2016

 
9,200,000

 
 
 
 
Equity offering in October 2016

 
20,930,233

 
 
 
 
Common units issued under ATM program

 
944,700

 
 
 
 
Vested phantom units, net

 
280,451

 
 
 
 
December 31, 2016
28,757,246

 
102,272,756

 
28
%
 
26
%
 
 
 
 
 
 
 
 
March 31, 2017
28,757,246

 
102,272,756

 
28
%
 
26
%
Rice Midstream GP Holdings LP
The Company evaluated GP Holdings for consolidation and determined GP Holdings to be a VIE. The Company determined that the primary beneficiary of GP Holdings is Midstream Holdings. Midstream Holdings holds a 91.75% limited partnership interest in GP Holdings and Rice Midstream GP Management LLC (“GP Management”), the general partner of GP

26


Holdings and wholly-owned subsidiary of Midstream Holdings, holds all of the substantive voting and participating rights to direct the activities of GP Holdings. As a result, through this ownership, the Company holds the power to direct the activities of GP Holdings that most significantly impact GP Holdings’ economic performance and the obligation to absorb losses or the right to receive benefits from GP Holdings that could potentially be significant to GP Holdings.
As of March 31, 2017, the Company consolidates GP Holdings, recording noncontrolling interest related to the ownership interests of GP Holdings attributable to the Investors. GP Holdings maintains goodwill of $15.4 million and has no other significant assets, liabilities or operations other than consolidation of the Partnership.
Strike Force Midstream Holdings LLC
On February 1, 2016, Strike Force Midstream Holdings LLC (“Strike Force Holdings”), a wholly-owned subsidiary of Midstream Holdings, and Gulfport Midstream Holdings, LLC (“Gulfport Midstream”), a wholly-owned subsidiary of Gulfport, entered into an Amended and Restated Limited Liability Company Agreement (the “Strike Force LLC Agreement”) of Strike Force Midstream to engage in the natural gas midstream business in approximately 319,000 acres in Belmont and Monroe Counties, Ohio. Under the terms of the Strike Force LLC Agreement, Strike Force Holdings made an initial contribution to Strike Force Midstream of certain pipelines, facilities and rights of way and cash in the amount of $41.0 million in exchange for a 75% membership interest in Strike Force Midstream. Gulfport Midstream made an initial contribution of a gathering system and related assets in exchange for a 25% membership interest in Strike Force Midstream. The assets contributed by Gulfport Midstream had a fair value of $22.5 million which was determined using Level 3 valuation inputs included in the discounted cash flow method within the income approach. The income approach includes estimates and assumptions related to future throughput volumes, operating costs, capital spending and changes in working capital. Estimating the fair value of these assets required judgment and determining the fair value is sensitive to changes in assumptions. Additionally, on February 1, 2016, Strike Force Midstream and Strike Force Holdings entered into a services agreement whereby Strike Force Holdings will provide all of the services necessary to operate, manage and maintain Strike Force Midstream.
The Company evaluated Strike Force Midstream for consolidation and determined Strike Force Midstream to be a VIE. Strike Force Holdings was determined to be the primary beneficiary as a result of its power to direct the activities of Strike Force Midstream that most significantly impact Strike Force Midstream’s economic performance and the obligation to absorb losses or the right to receive benefits through its 75% membership interest in Strike Force Midstream.
As of March 31, 2017, the Company consolidates Strike Force Midstream, recording noncontrolling interest related to the ownership interests of Strike Force Midstream attributable to Gulfport Midstream. The following table presents summary information of assets and liabilities of Strike Force Midstream that is included in the Company’s condensed consolidated balance sheet that are for the use or obligation of Strike Force Midstream.
(in thousands)
March 31, 2017
 
December 31, 2016
Assets (liabilities):
 
 
 
Cash
$
25,870

 
$
36,572

Accounts receivable
3,465

 
2,529

Property and equipment, net
161,146

 
100,232

Accounts payable
(5,697
)
 
(3,863
)
Accrued capital expenditures
(26,573
)
 
(18,962
)
Other current liabilities
(80
)
 
(44
)
The following table presents summary information for Strike Force Midstream’s financial performance included in the condensed consolidated statement of operations for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended March 31, 2017 and 2016, inclusive of affiliate amounts.

27


 
Three Months Ended March 31,
(in thousands)
2017
 
2016
Operating revenues
$
5,339

 
$
619

Operating expenses
$
2,408

 
$
888

Net income (loss)
$
2,961

 
$
(269
)
 
 
 
 
Net provided by (used in) operating activities
$
2,545

 
$
(9,816
)
Net cash used in investing activities
$
(51,701
)
 
$
(3,618
)
Net cash provided by financing activities
$
38,454

 
$
41,000

Rice Energy Operating LLC
Following completion of the Vantage Acquisition, the Company operates the Vantage assets through Rice Energy Operating. As part of the consideration for the Vantage Acquisition, the Vantage Sellers received an aggregate 16.49% membership interest in Rice Energy Operating. In connection with the issuance of such membership interests to the Vantage Sellers, the Company and the Vantage Sellers entered into Rice Energy Operating’s Third Amended and Restated Limited Liability Company Agreement (“Third A&R LLC Agreement”). Under the Third A&R LLC Agreement, the Company controls all of the day-to-day business affairs and decision making of Rice Energy Operating without approval of any other member, unless otherwise stated in the Third A&R LLC Agreement. As such, the Company, through its officers and directors, is responsible for all operational and administrative decisions of Rice Energy Operating and the day-to-day management of Rice Energy Operating’s business. Pursuant to the terms of the Third A&R LLC Agreement, the Company cannot, under any circumstances, be removed or replaced as the sole manager of Rice Energy Operating, except by its own election so long as it remains a member of Rice Energy Operating.
The Company evaluated Rice Energy Operating for consolidation and determined it to be a VIE. The Company determined that it is the primary beneficiary of Rice Energy Operating as it had both (i) the power, through control of all day-to-day business affairs and decision making of Rice Energy Operating that most significantly impact its economic performance and (ii) obligation to absorb losses or the right to receive benefits through its 84.36% membership interest in Rice Energy Operating. The 15.64% ownership held by the Vantage Sellers as of March 31, 2017 is presented as noncontrolling interest in the consolidated financial statements.
As of March 31, 2017, the Company consolidates Rice Energy Operating, recording noncontrolling interest related to the ownership interests of Rice Energy Operating attributable to the Vantage Sellers. The financial position, results of operations and cash flows of Rice Energy Operating do not materially differ from the Company’s first quarter 2017 condensed consolidated financial statements.
The following tables present the outstanding common units owned by Rice Energy and the Vantage Sellers along with their respective ownership percentages in the Company as of March 31, 2017 and December 31, 2016.
As of March 31, 2017:
 
 
 
 
 
 
Unitholders
 
Common Units
 
Preferred Stock
 
Unitholders’ Ownership (%)
Rice Energy
 
205,049,274

 

 
84.36
%
Vantage Sellers(1)
 
38,020,000

 
38,020

 
15.64
%
Total
 
243,069,274

 
38,020

 
100.00
%
(1)
During the three months ended March 31, 2017, the Vantage Sellers had redeemed 1,980,000 Rice Energy Operating common units for newly-issued shares of Rice Energy common stock. Upon exercise of the redemptions, the Vantage Sellers surrendered to the Company a corresponding 1,980 shares of preferred stock.

28


As of December 31, 2016:
 
 
 
 
 
 
Unitholders
 
Common Units
 
Preferred Stock
 
Unitholders’ Ownership (%)
Rice Energy
 
202,606,908

 

 
83.51
%
Vantage Sellers
 
40,000,000

 
40,000

 
16.49
%
Total
 
242,606,908

 
40,000

 
100.00
%
14.
Stock-Based Compensation
From time to time, the Company grants stock-based compensation awards to certain non-employee directors and employees under its long-term incentive plan (the “LTIP”). Pursuant to the LTIP, the aggregate maximum number of shares of common stock issued under the LTIP will not exceed 17,500,000 shares. The Company has granted both restricted stock units and performance stock units, which vest upon the passage of time. The performance stock units’ ultimate payout is based upon the attainment of specified performance criteria over a performance period. During the three months ended March 31, 2017, the Company granted approximately 0.8 million restricted stock units, which are expected to vest ratably over approximately one to three years. During the three months ended March 31, 2017, the Company granted approximately 0.7 million performance stock units, which are expected to cliff vest in approximately three years. Stock-based compensation cost related to awards under the LTIP was $5.4 million and $3.9 million for the three months ended March 31, 2017 and 2016, respectively. The Company has unrecognized compensation cost related to LTIP awards of $46.9 million which will be recognized over a period of one to three years.
Further information on stock-based compensation recorded in the condensed consolidated financial statements is detailed below.
 
Three Months Ended
March 31,
(in thousands)
2017
 
2016
General and administrative expense
$
5,086

 
$
4,640

Lease operating and midstream operation and maintenance expense
204

 
169

Property, plant and equipment, net
197

 
200

Total cost of stock-based compensation plans
$
5,487

 
$
5,009


29


15.
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share takes into account the dilutive effect of potential common stock that could be issued by the Company in conjunction with Rice Energy Operating Common Unit redemptions and stock awards that have been granted to directors and employees. The following is a calculation of the basic and diluted weighted-average number of shares of common stock outstanding and EPS for the three months ended March 31, 2017 and 2016.
 
Three Months Ended March 31,
(in thousands, except share data)
2017
 
2016
Income (loss) (numerator):
 
 
 
Net loss attributable to Rice Energy Inc.
$
(26,298
)
 
$
(17,588
)
Less: Preferred dividends on redeemable noncontrolling interest
(7,624
)
 
(3,132
)
Less: Accretion of redeemable noncontrolling interest
(708
)
 
(326
)
Net loss available to common stockholders
$
(34,630
)
 
$
(21,046
)
 
 
 
 
Weighted-average number of shares of common stock (denominator):
 
 
 
Basic
203,435,154

 
136,419,903

Diluted
203,435,154

 
136,419,903

 
 
 
 
Income (loss) per share:
 
 
 
Basic
$
(0.17
)
 
$
(0.15
)
Diluted
$
(0.17
)
 
$
(0.15
)
For the three months ended March 31, 2017 and 2016, shares in the amount of 819,784 and 1,773,828, respectively, attributable to equity awards were not included in the diluted earnings per share calculation because to do so would have been anti-dilutive. Additionally, 39,875,427 and 86,789 potentially dilutive shares were excluded from the diluted earnings per share calculation due to a net loss for the three months ended March 31, 2017 and 2016.
As part of the consideration associated with the Vantage Acquisition, the Vantage Sellers were issued 40,000,000 Rice Energy Operating common units (the “REO Common Units”). The holders of the REO Common Units, other than the Company, are entitled to redeem, from time to time, all or a portion of their REO Common Units. Each REO Common Unit will be redeemed for, at Rice Energy Operating’s option, a newly-issued share of common stock of the Company or a cash payment equal to the volume-weighted average closing price of a share of the Company’s common stock for the five trading days prior to and including the last full trading day immediately prior to the date that the member delivers a notice of redemption (subject to customary adjustments, including for stock splits, stock dividends and reclassifications). Upon the exercise of the redemption right, the redeeming member surrenders its REO Common Units to Rice Energy Operating and the corresponding number of 1/1000ths of shares of preferred stock in respect of each redeemed Common Unit to Rice Energy Operating for cancellation. As of March 31, 2017, the Vantage Sellers redeemed 1,980,000 of Rice Energy Operating common units for newly-issued shares of Rice Energy common stock. Upon exercise of the redemption, the Vantage Sellers surrendered to the Company a corresponding 1,980 shares of Preferred Stock. As of March 31, 2017, the Vantage Sellers held a membership interest of approximately 15.64% in the Company.
16.
Income Taxes
The Company is a corporation under the Internal Revenue Code subject to federal income tax at a statutory rate of 35% of pretax earnings and, as such, its future income taxes will be dependent upon its future taxable income. The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense, subject to certain loss limitation provisions. All of the Partnership’s earnings are included in the Company’s net income; however, the Company is not required to record income tax expense with respect to the portion of the Partnership’s earnings allocated to the Partnership’s noncontrolling public limited partners, which reduces the Company’s effective tax rate. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.


30


Tax benefit for the three months ended March 31, 2017 and 2016 was $0.6 million and $6.4 million, respectively, resulting in an effective tax rate of approximately 28% and 208%, respectively. The effective tax rate for the three months ended March 31, 2017 and 2016 differs from the statutory rate due principally to nondeductible incentive unit expense and the portion of the Partnership’s earnings allocated to its noncontrolling public limited partners, and the application of loss limitation provisions.
Based on management’s analysis, the Company did not have any uncertain tax positions as of March 31, 2017.
The assignment of the common and subordinated units in the Midstream Holdings Investment resulted in the sale or exchange of more than 50 percent of its capital and profits interests of the Partnership within 12 months. Accordingly, the Partnership is considered to have “technically terminated” as a partnership for U.S. federal income tax purposes. The technical termination will not affect the Partnership’s consolidated financial statements, nor will it affect the Partnership’s classification as a partnership or the nature or extent of its “qualifying income” for U.S. federal income tax purposes. The taxable year for all unitholders ended on February 22, 2016 and will result in a deferral of depreciation deductions that were otherwise allowable in computing the taxable income of the Partnership’s unitholders for the period from January 1, 2016 through February 22, 2016.

The Company’s change in tax status concurrent with the Vantage Acquisition on October 19, 2016 resulted in a second technical termination of the Partnership. The taxable year for all unitholders ended on October 19, 2016 and will result in a deferral of depreciation deductions that were otherwise allowable in computing the taxable income of the Partnership’s unitholders for the period February 23, 2016 through October 19, 2016.
The members of Rice Energy Operating, including the Company, incur U.S. federal, state and local income taxes on their share of any taxable income of Rice Energy Operating, if any. Under the Third A&R LLC Agreement, Rice Energy Operating is required to make cash tax distributions to its members, subsequent to the end of a given calendar year, based upon income allocated to each member and subject to the availability of distributable cash (as defined in the Third A&R LLC Agreement).
17.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” The FASB created Topic 606 which supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance throughout the Industry Topics of the Codification. The FASB and International Accounting Standards Board initiated this joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for both U.S. GAAP and International Financial Reporting Standards. ASU 2014-09 will enhance comparability of revenue recognition practices across entities, industries and capital markets compared to existing guidance. Additionally, ASU 2014-09 will reduce the number of requirements which an entity must consider in recognizing revenue, as this update will replace multiple locations for guidance. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-11, “Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) – Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting” and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) – Narrow Scope Improvements and Practical Expedients.” These updates do not change the core principle of the guidance in Topic 606 (as amended by ASU 2014-09), but rather provide further guidance with respect to the implementation of ASU 2014-09. The effective date for ASU 2016-10, 2016-11, 2016-12 and ASU 2014-09, as amended by ASU 2015-14, is for annual reporting periods beginning after December 15, 2017, including interim periods within those years. In preparation for the adoption of the new standard in the fiscal year beginning January 2018, the Company continues to evaluate contract terms and potential impacts of the five-step model specified by the new guidance. That five-step model includes: (1) determination of whether a contract-an agreement between two or more parties that creates legally enforceable rights and obligations-exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company anticipates adopting the standard using the modified retrospective approach at adoption. The Company will be evaluating individual customer contracts within each of our business segments and documenting changes to our accounting policies and controls as we continue to evaluate the impact of the adoption of this standard. 
In February 2016, the FASB issued ASU, 2016-02, “Leases (Topic 842)” ASU 2016-02 which requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating a

31


representative sample of agreements, including existing leases, to assess the impact of the new guidance on its financial statements.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 affects entities that issue share-based payment awards to their employees. ASU 2016-09 is designed to simplify several aspects of accounting for share-based payment award transactions, including: (a) income tax consequences, (b) classification of awards as either equity or liabilities, (c) classification on the statement of cash flows and (d) forfeiture rate calculations. The Company adopted ASU 2016-09 on January 1, 2017 and determined that the standard did not have a material impact on the condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this ASU on January 1, 2017, and has determined that the new standard could potentially have a material impact on future consolidated financial statements for acquisitions that are not considered to be businesses.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test of Goodwill Impairment.” ASU 2017-04 simplifies the quantitative goodwill impairment test requirements by eliminating the requirement to calculate the implied fair value of goodwill (Step 2 of the current goodwill impairment test). Instead, a company would record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value (measured in Step 1 of the current goodwill impairment test). This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. Entities will apply the standard’s provisions prospectively. The Company adopted ASU 2017-04 on January 1, 2017 and determined that this standard will not have a material quantitative effect on the financial statements, unless an impairment charge was necessary.
18.     Guarantor Financial Information
On April 25, 2014, the Company issued $900.0 million in aggregate principal amount of the 2022 Notes and on March 26, 2015, the Company issued $400.0 million in aggregate principal amount of the 2023 Notes. The obligations under the Notes are fully and unconditionally guaranteed by the guarantors, subject to release provisions described in Note 5. In connection with the closing of the Vantage Acquisition, the Company and Rice Energy Operating entered into a Debt Assumption Agreement dated as of October 19, 2016 pursuant to which Rice Energy Operating agreed to become a co-obligor of the Notes and certain entities acquired in the Vantage Acquisition became wholly-owned subsidiaries of Rice Energy Operating and guarantors of the Notes. Each of the guarantors is 100% owned by Rice Energy Operating.
The Company is a holding company whose sole material asset is an equity interest in Rice Energy Operating. The Company is a member and the sole manager of Rice Energy Operating. Rice Energy owns an approximate 83.51% membership in Rice Energy Operating as of December 31, 2016. Rice Energy is responsible for all operational, management and administrative decisions related to Rice Energy Operating’s business. In accordance with the Third A&R LLC Agreement, the Company may not be removed as the sole manager of Rice Energy Operating so long as it continues to be a member of Rice Energy Operating.
As of March 31, 2017, the Company held approximately 84.36% of the economic interest in Rice Energy Operating, with the remaining 15.64% membership interest collectively held by the Vantage Sellers. The Vantage Sellers have no voting rights with respect to their membership interest in Rice Energy Operating. In connection with the closing of the Vantage Acquisition, the Company issued shares of preferred stock to the Vantage Sellers in an amount equal to 1/1000 of the number of REO Common Units they received at the closing of the Vantage Acquisition. Pursuant to the certificate of designation setting forth the terms, rights and obligations and preferences of the preferred stock, each 1/1000 share of preferred stock entitles the holder to one vote on all matters submitted to a vote of the holders of common stock. Accordingly, the Vantage Sellers collectively have a number of votes in the Company equal to the aggregate number of REO Common Units that they hold.
The Vantage Sellers have a redemption right to cause Rice Energy Operating to redeem, from time to time, all or a portion of their Common Units. Each REO Common Unit will be redeemed for, at Rice Energy Operating’s option, a newly-issued share of common stock of the Company or a cash payment equal to the volume-weighted average closing price of a share of the Company’s common stock for the five trading days prior to and including the last full trading day immediately prior to the date that the member delivers a notice of redemption (subject to customary adjustments, including for stock splits, stock dividends and reclassifications). Upon the exercise of the redemption right, the redeeming member surrenders its REO Common Units to

32


Rice Energy Operating and the corresponding number of 1/1000ths of shares of preferred stock in respect of each redeemed Common Unit to Rice Energy Operating for cancellation. The Third A&R LLC Agreement requires that the Company contribute cash or shares of its common stock to Rice Energy Operating in exchange for a number of REO Common Units equal to the number of Rice Energy Operating Common Units to be redeemed from the member. Rice Energy Operating will then distribute such cash or shares of the Company’s common stock to such Vantage Seller to complete the redemption. Upon the exercise of the redemption right, the Company may, at its option, effect a direct exchange of the REO Common Units (and the corresponding shares of preferred stock (or fractions thereof) from the redeeming Vantage Seller.
As a result, the Company expects that over time it will have an increasing economic interest in Rice Energy Operating as the Vantage Sellers elect to exercise their redemption right. Moreover, any transfers of REO Common Units by the Vantage Sellers (other than permitted transfers to affiliates) must be approved by the Company. The Company intends to retain full voting and management control over Rice Energy Operating.
The Company’s subsidiaries that comprise its Rice Midstream Holdings segment and Rice Midstream Partners segment are unrestricted subsidiaries under the indentures governing the Notes and consequently are not guarantors. In accordance with positions established by the SEC, the following shows separate financial information with respect to the Company, Rice Energy Operating and the guarantors and the non-guarantor subsidiaries. Separate financial statements for Rice Energy Operating will be provided in Rice Energy Operating’s Quarterly Report on Form 10-Q for the three months ended March 31, 2017. The principal elimination entries below eliminate investment in subsidiaries and certain intercompany balances and transactions.

33


Condensed Consolidated Balance Sheet as of March 31, 2017
 
 
 
 
 
 
(in thousands)
Rice Energy Inc.
 
Rice Energy Operating LLC
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash
$
1,677

 
$
95,838

 
$
289,346

 
$
44,095

 
$

 
$
430,956

Accounts receivable
247

 

 
224,448

 
15,453

 

 
240,148

Receivable from affiliates
16,263

 
(1,637
)
 
(28,851
)
 
14,225

 

 

Prepaid expenses and other assets
6,432

 
9

 
1,885

 
260

 

 
8,586

Total current assets
24,619

 
94,210

 
486,828

 
74,033

 

 
679,690

 
 
 
 
 
 
 
 
 
 
 
 
Investments in (advances from) subsidiaries
3,286,803

 
4,900,055

 
725

 

 
(8,187,583
)
 

Gas collateral account

 

 
5,220

 
112

 


 
5,332

Property, plant and equipment, net
24,672

 

 
4,974,820

 
1,307,249

 
(73,029
)
 
6,233,712

Deferred financing costs, net

 
20,855

 

 
13,758

 

 
34,613

Goodwill

 
384,431

 

 
494,580

 

 
879,011

Intangible assets, net

 

 

 
44,124

 

 
44,124

Other non-current assets
859

 

 
475

 

 

 
1,334

Derivative assets

 
37,453

 
35,534

 

 

 
72,987

Total assets
$
3,336,953

 
$
5,437,004

 
$
5,503,602

 
$
1,933,856

 
$
(8,260,612
)
 
$
7,950,803

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,054

 
$
(2,065
)
 
$
35,242

 
$
16,282

 
$

 
$
50,513

Royalties payables

 

 
125,054

 

 

 
125,054

Accrued capital expenditures

 

 
100,264

 
47,913

 

 
148,177

Accrued interest

 
35,521

 

 
330

 

 
35,851

Leasehold payables

 

 
18,318

 

 

 
18,318

Derivative Instruments
 
 
115,625

 
64,520

 
 
 
 
 
180,145

Other accrued liabilities
44,381

 
1,378

 
46,884

 
14,858

 

 
107,501

Total current liabilities
45,435

 
150,459

 
390,282

 
79,383

 

 
665,559

 
 
 
 
 
 
 
 
 
 
 
 
Long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt

 
1,280,380

 

 
263,000

 

 
1,543,380

Leasehold payable

 

 
12,518

 

 

 
12,518

Deferred tax (benefit) liabilities
364,612

 

 

 

 

 
364,612

Derivative instruments

 
21,105

 

 

 

 
21,105

Other long-term liabilities
8,853

 
1

 
70,201

 
5,968

 

 
85,023

Total liabilities
418,900

 
1,451,945

 
473,001

 
348,351

 

 
2,692,197

Mezzanine equity:
 
 
 
 
 
 
 
 
 
 


Redeemable noncontrolling interest

 

 

 
383,233

 

 
383,233

Stockholders’ equity before noncontrolling interest
2,975,561

 
3,286,803

 
5,030,601

 
(130,546
)
 
(8,260,612
)
 
2,901,807

Noncontrolling interest
(57,508
)
 
698,256

 

 
1,332,818

 

 
1,973,566

Total liabilities and stockholders’ equity
$
3,336,953


$
5,437,004

 
$
5,503,602

 
$
1,933,856

 
$
(8,260,612
)
 
$
7,950,803


34


Condensed Consolidated Balance Sheet as of December 31, 2016
 
 
 
 
 
 
(in thousands)
Rice Energy Inc.
 
Rice Energy Operating LLC
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash
$
2,756

 
$
230,944

 
$
164,522

 
$
71,821

 
$

 
$
470,043

Accounts receivable
22,525

 

 
201,122

 
28,990

 
(34,012
)
 
218,625

Prepaid expenses, deposits and other
2,651

 

 
2,214

 
194

 

 
5,059

Derivative instruments

 
689

 

 

 

 
689

Total current assets
27,932

 
231,633

 
367,858

 
101,005

 
(34,012
)
 
694,416

 
 
 
 
 
 
 
 
 
 
 
 
Gas collateral account

 

 
5,220

 
112

 

 
5,332

Investments in subsidiaries
2,928,250

 
4,406,023

 
6,101

 

 
(7,340,374
)
 

Property, plant and equipment, net
25,622

 

 
4,947,518

 
1,203,047

 
(58,275
)
 
6,117,912

Deferred financing costs, net

 
21,372

 

 
15,012

 

 
36,384

Goodwill

 
384,430

 

 
494,581

 

 
879,011

Intangible assets, net

 

 

 
44,525

 

 
44,525

Derivative instruments
138

 
27,894

 
11,296

 

 

 
39,328

Other non-current assets

 

 
614

 

 

 
614

Total assets
$
2,981,942

 
$
5,071,352

 
$
5,338,607

 
$
1,858,282

 
$
(7,432,661
)
 
$
7,817,522

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
926

 
$

 
$
8,724

 
$
8,594

 
$

 
$
18,244

Royalties payables

 

 
87,098

 

 

 
87,098

Accrued capital expenditures

 

 
89,403

 
35,297

 

 
124,700

Leasehold payables

 

 
22,869

 

 

 
22,869

Derivative instruments

 
72,391

 
66,997

 

 

 
139,388

Other accrued liabilities
54,064

 
18,994

 
84,950

 
16,451

 
(34,012
)
 
140,447

Total current liabilities
54,990

 
91,385

 
360,041

 
60,342

 
(34,012
)
 
532,746

 
 
 
 
 
 
 
 
 
 
 
 
Long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt

 
1,279,481

 

 
243,000

 

 
1,522,481

Leasehold payable

 

 
9,237

 

 

 
9,237

Deferred tax liabilities

 
26,561

 
209,276

 
122,789

 

 
358,626

Derivative instruments

 
9,766

 
16,711

 

 

 
26,477

Other long-term liabilities
8,858

 

 
66,949

 
5,541

 

 
81,348

Total liabilities
63,848

 
1,407,193

 
662,214

 
431,672

 
(34,012
)
 
2,530,915

Mezzanine equity:
 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interest

 

 

 
382,525

 

 
382,525

Stockholders’ equity before noncontrolling interest
2,972,578

 
2,928,250

 
4,676,393

 
(270,370
)
 
(7,398,649
)
 
2,908,202

Noncontrolling interests in consolidated subsidiaries
(54,484
)
 
735,909

 

 
1,314,455

 

 
1,995,880

Total liabilities and stockholders’ equity
$
2,981,942

 
$
5,071,352

 
$
5,338,607

 
$
1,858,282

 
$
(7,432,661
)
 
$
7,817,522




  

35


Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2017
 
 
(in thousands)
 
Rice Energy Inc.
 
Rice Energy Operating LLC
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas, oil and NGL sales
 
$

 
$

 
$
356,834

 
$

 
$

 
$
356,834

Gathering, compression and water distribution
 

 


 

 
89,593

 
(59,250
)
 
30,343

Other revenue
 

 

 
6,629

 

 

 
6,629

Total operating revenues
 

 

 
363,463

 
89,593

 
(59,250
)
 
393,806

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Lease operating
 

 

 
22,649

 

 

 
22,649

Gathering, compression and transportation
 

 

 
81,895

 

 
(42,469
)
 
39,426

Production taxes and impact fees
 

 

 
6,153

 

 

 
6,153

Exploration
 

 

 
4,012

 

 

 
4,012

Midstream operation and maintenance
 

 

 

 
8,940

 
(2,290
)
 
6,650

Incentive unit income
 

 

 
2,801

 
82

 

 
2,883

Acquisition expense
 

 

 
207

 

 

 
207

Impairment of Gas Properties
 

 
 
 
92,355


 

 

92,355

General and administrative
 

 

 
23,215

 
10,609

 

 
33,824

Depreciation, depletion and amortization
 

 

 
131,838

 
9,018

 
(3,978
)
 
136,878

       Amortization of intangible assets
 

 

 

 
402

 

 
402

       Other expense
 

 

 
6,045

 
113

 

 
6,158

Total operating expenses
 

 

 
371,170

 
29,164

 
(48,737
)
 
351,597

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (loss) income
 



 
(7,707
)
 
60,429

 
(10,513
)
 
42,209

Interest expense
 

 
(23,892
)
 
(1
)
 
(3,130
)
 

 
(27,023
)
Other (loss) income
 

 
(104
)
 
239

 
45

 

 
180

Gain on derivative instruments
 

 
(54,824
)
 
40,045

 

 

 
(14,779
)
Amortization of deferred financing costs
 

 
(1,401
)
 

 
(1,251
)
 

 
(2,652
)
Equity (loss) income in affiliate
 
(29,900
)
 
50,321

 
2

 

 
(20,423
)
 

Income before income taxes
 
(29,900
)

(29,900
)
 
32,578

 
56,093

 
(30,936
)
 
(2,065
)
Income tax (expense) benefit
 
576

 

 

 

 

 
576

Net (loss) income
 
(29,324
)

(29,900
)
 
32,578

 
56,093

 
(30,936
)
 
(1,489
)
Less: Net income attributable to the noncontrolling interests
 
3,025

 

 

 
(27,834
)
 

 
(24,809
)
Net (loss) income attributable to Rice Energy
 
(26,299
)

(29,900
)
 
32,578

 
28,259

 
(30,936
)
 
(26,298
)
Less: accretion and preferred dividends on redeemable noncontrolling interests
 

 

 

 
(8,332
)
 

 
(8,332
)
Net (loss) income attributable to Rice Energy Inc. common stockholders
 
$
(26,299
)

$
(29,900
)
 
$
32,578

 
$
19,927

 
$
(30,936
)
 
$
(34,630
)


36


Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2016
 
 
(in thousands)
 
Rice Energy Inc.
 
Rice Energy Operating LLC
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Operating revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas, oil and NGL sales
 
$

 
$

 
$
112,442

 
$

 
$

 
$
112,442

Gathering, compression and water distribution
 

 

 

 
65,195

 
(40,643
)
 
24,552

Other revenue
 

 

 
2,948

 

 

 
2,948

Total operating revenues
 



 
115,390

 
65,195

 
(40,643
)
 
139,942

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Lease operating
 

 

 
11,071

 

 

 
11,071

Gathering, compression and transportation
 

 

 
48,204

 

 
(20,072
)
 
28,132

Production taxes and impact fees
 

 

 
1,651

 

 

 
1,651

Impairment of fixed assets
 

 

 

 
2,595

 

 
2,595

Exploration
 

 

 
990

 

 

 
990

Midstream operation and maintenance
 

 

 

 
9,622

 

 
9,622

Incentive unit income
 

 

 
22,871

 
1,271

 

 
24,142

Acquisition expense
 

 

 

 
472

 

 
472

General and administrative
 

 

 
16,435

 
8,438

 

 
24,873

Depreciation, depletion and amortization
 

 

 
74,589

 
6,826

 
(2,230
)
 
79,185

       Amortization of intangible assets
 

 

 

 
408

 

 
408

       Other expense
 

 

 
4,403

 
(212
)
 

 
4,191

Total operating expenses
 



 
180,214

 
29,420

 
(22,302
)
 
187,332

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (loss) income
 

 

 
(64,824
)
 
35,775

 
(18,341
)
 
(47,390
)
Interest expense
 

 
(22,763
)
 
(10
)
 
(1,748
)
 

 
(24,521
)
Other (loss) income
 

 
191

 
22

 
1

 

 
214

Gain on derivative instruments
 

 
16,127

 
54,052

 

 

 
70,179

Amortization of deferred financing costs
 

 
(1,166
)
 

 
(386
)
 

 
(1,552
)
Equity (loss) income in affiliate
 
(19,561
)
 
(1,654
)
 
(2,968
)
 

 
24,183

 

Income before income taxes
 
(19,561
)

(9,265
)
 
(13,728
)
 
33,642

 
5,842

 
(3,070
)
Income tax (expense) benefit
 

 
(10,296
)
 
4,293

 
12,378

 

 
6,375

Net (loss) income
 

 
(19,561
)
 
(9,435
)
 
46,020

 
5,842

 
3,305

Less: Net income attributable to the noncontrolling interests
 

 

 

 
(20,893
)
 

 
(20,893
)
Net (loss) income attributable to Rice Energy
 


(19,561
)
 
(9,435
)
 
25,127

 
5,842

 
(17,588
)
Less: accretion and preferred dividends on redeemable noncontrolling interests
 

 

 

 
(3,458
)
 

 
(3,458
)
Net (loss) income attributable to Rice Energy Inc. common stockholders
 
$


$
(19,561
)
 
$
(9,435
)
 
$
21,669

 
$
5,842

 
$
(21,046
)
 





37


Condensed Statement of Cash Flows for the Three Months Ended March 31, 2017
 
 
 
 
 
 
(in thousands)
 
Rice Energy Inc.
 
Rice Energy Operating LLC
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
 
$
(7,901
)
 
$
(10,939
)
 
$
232,924

 
$
68,192

 
$
(14,668
)
 
$
267,608

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures for property and equipment
 
(108
)
 

 
(225,652
)
 
(90,937
)
 
18,734

 
(297,963
)
Capital expenditures for acquisitions
 

 

 

 
(3,671
)
 

 
(3,671
)
Investment in subsidiaries
 
13,444

 
(109,419
)
 
4,066

 

 
91,909

 

Net cash used in investing activities
 
13,336

 
(109,419
)
 
(221,586
)
 
(94,608
)
 
110,643

 
(301,634
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
 

 

 

 
20,000

 

 
20,000

Repayments of debt obligations
 
(313
)
 

 

 

 

 
(313
)
Debt issuance costs
 

 
(79
)
 

 
(2
)
 

 
(81
)
Distributions to the Partnership's public unitholders
 

 

 

 
(19,083
)
 

 
(19,083
)
Tax distribution to Vantage Sellers
 

 
(1,225
)
 

 

 

 
(1,225
)
Contribution to Strike Force Midstream by Gulfport Midstream
 

 

 

 
9,614

 

 
9,614

Preferred dividends to redeemable noncontrolling interest holders
 

 

 

 
(7,772
)
 

 
(7,772
)
Employee tax withholding for settlement of stock compensation award vestings
 
(6,201
)
 

 

 

 

 
(6,201
)
Contributions from parent
 

 
(13,444
)
 
113,486

 
(4,067
)
 
(95,975
)
 

Net cash provided by financing activities
 
(6,514
)
 
(14,748
)
 
113,486

 
(1,310
)
 
(95,975
)
 
(5,061
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in cash
 
(1,079
)
 
(135,106
)
 
124,824

 
(27,726
)
 

 
(39,087
)
Cash, beginning of year
 
2,756

 
230,944

 
164,522

 
71,821

 

 
470,043

Cash, end of period
 
$
1,677

 
$
95,838

 
$
289,346

 
$
44,095

 
$

 
$
430,956



38


Condensed Statement of Cash Flows for the Three Months Ended March 31, 2016
 
 
 
 
 
 
(in thousands)
 
Rice Energy Inc.
 
Rice Energy Operating LLC
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
 
$
25,610

 
$
(6,105
)
 
$
89,713

 
$
38,491

 
$
(20,571
)
 
$
127,138

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures for property and equipment
 
(11,193
)
 

 
(224,481
)
 
(74,616
)
 
20,571

 
(289,719
)
Capital expenditures for acquisitions
 

 

 

 
(7,700
)
 

 
(7,700
)
Investment in subsidiaries
 
139,958

 
146,063

 

 

 
(286,021
)
 

Net cash used in investing activities
 
128,765

 
146,063

 
(224,481
)
 
(82,316
)
 
(265,450
)
 
(297,419
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
 

 

 

 
90,000

 

 
90,000

Repayments of debt obligations
 
(317
)
 

 

 
(81,000
)
 

 
(81,317
)
Debt issuance costs
 
(209
)
 

 

 
(670
)
 

 
(879
)
Distributions to the Partnership's public unitholders
 

 

 

 
(8,284
)
 

 
(8,284
)
Proceeds from issuance of non-controlling redeemable interest
 

 

 

 
373,942

 

 
373,942

Contributions from parent
 

 
(139,958
)
 
149,215

 
(295,278
)
 
286,021

 

Net cash provided by financing activities
 
(526
)
 
(139,958
)
 
149,215

 
78,710

 
286,021

 
373,462

 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in cash
 
153,849

 

 
14,447

 
34,885

 

 
203,181

Cash, beginning of year
 
78,473

 
2

 
57,798

 
15,627

 

 
151,901

Cash, end of period
 
$
232,322

 
$
2

 
$
72,245

 
$
50,512

 
$

 
$
355,082




39



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our 2016 Annual Report, as well as the condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. See “Cautionary Statement Regarding Forward-Looking Statements.” Also, see the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included elsewhere in this Quarterly Report. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
Rice Energy is an independent natural gas and oil company focused on the acquisition, exploration and development of natural gas, oil and NGL properties in the Appalachian Basin. We operate in three business segments, which are managed separately due to their distinct operational differences - the Exploration and Production segment, the Rice Midstream Holdings segment and the Rice Midstream Partners segment. The Exploration and Production segment is responsible for the acquisition, exploration and development of natural gas, oil and NGLs. The Rice Midstream Holdings segment is engaged in the gathering and compression of natural gas, oil and NGL production for us and third parties in Belmont and Monroe Counties, Ohio. The Rice Midstream Partners segment is engaged in the gathering and compression of natural gas, oil and NGL production in Washington and Greene Counties, Pennsylvania, and in the provision of water services to support the well completion services of us and third parties in Washington and Greene Counties, Pennsylvania and Belmont County, Ohio.
Vantage Acquisition
Following completion of our the Vantage Acquisition, we operate Vantage through Rice Energy Operating. As part of the consideration for the Vantage Acquisition, certain affiliates of Quantum Energy Partners, Riverstone Holdings LLC and Lime Rock Partners (such affiliates, the “Vantage Sellers”) were issued 1/1000th of a share of our preferred stock for each unit held in Rice Energy Operating. In connection with the issuance of such membership interests to the Vantage Sellers, we and the Vantage Sellers entered into Rice Energy Operating’s Third Amended and Restated Limited Liability Company Agreement (the “Third A&R LLC Agreement”). Under the Third A&R LLC Agreement, as the sole manager, we control all of the day-to-day business affairs and decision making of Rice Energy Operating without approval of any other member, unless otherwise stated in the Third A&R LLC Agreement. As such, we, through our officers and directors, are responsible for all operational and administrative decisions of Rice Energy Operating and the day-to-day management of Rice Energy Operating’s business. Pursuant to the terms of the Third A&R LLC Agreement, we cannot, under any circumstances, be removed or replaced as the sole manager of Rice Energy Operating, except by our own election, so long as we remain a member of Rice Energy Operating. Provisions regarding the operations of Rice Energy Operating and the rights and obligations of the holders of Rice Energy Operating common units (the “REO Common Units”), are set forth in the Third A&R LLC Agreement. As of March 31, 2017, we owned an 84.36% membership interest in Rice Energy Operating. The remaining 15.64% membership interest in Rice Energy Operating is owned by the Vantage Sellers and is reflected as noncontrolling interest in the consolidated financial statements.
Sources of Revenues
The substantial majority of our revenues are derived from the sale of natural gas and do not include the effects of derivatives. Our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in realized prices. Our gathering, compression and water services revenues are primarily derived from our gathering and compression contracts in addition to fees charged to outside working interest owners.
The following table provides detail of our operating revenues from the condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016.

40



 
Three Months Ended March 31,
(in thousands)
2017
 
2016
Natural gas sales
$
351,962

 
$
111,554

Oil and NGL sales
4,872

 
888

Gathering, compression and water services
30,343

 
24,552

Other revenue
6,629

 
2,948

Total operating revenues
$
393,806

 
$
139,942

NYMEX Henry Hub prompt month contract prices are widely-used benchmarks in the pricing of natural gas. The following table provides the high and low prices for NYMEX Henry Hub prompt month contract prices and our differential to the average of those benchmark prices for the periods indicated.
 
Three Months Ended March 31,
 
2017
 
2016
NYMEX Henry Hub High ($/MMBtu)
$
3.65

 
$
2.47

NYMEX Henry Hub Low ($/MMBtu)
$
2.44

 
$
1.64

 
 
 
 
NYMEX Henry Hub Price ($/MMBtu)
$
3.32

 
$
2.09

Less: Average Basis Impact ($/MMBtu)
(0.36
)
 
(0.35
)
Plus: Btu Uplift (MMBtu/Mcf)
0.15

 
0.09

Pre-Hedge Realized Price ($/Mcf)
$
3.11

 
$
1.83

Consolidated Results of Operations
Below are some highlights of our financial and operating results for the three months ended March 31, 2017 and 2016:
Our natural gas, oil and NGL sales were $356.8 million and $112.4 million in the three months ended March 31, 2017 and 2016, respectively.
Our production volumes were 114.5 Bcfe and 61.4 Bcfe in the three months ended March 31, 2017 and 2016, respectively.
Our gathering, compression and water distribution revenues were $30.3 million and $24.6 million in the three months ended March 31, 2017 and 2016, respectively.
Our per unit cash production costs were $0.59 per Mcfe and $0.67 per Mcfe in the three months ended March 31, 2017 and 2016, respectively.

41



The following tables set forth selected operating and financial data for the three months ended March 31, 2017 and 2016:
 
Three Months Ended March 31,
 
 
 
2017
 
2016
 
Change
Natural gas sales (in thousands)
$
351,962

 
$
111,554

 
$
240,408

Oil and NGL sales (in thousands)
4,872

 
888

 
3,984

Natural gas, oil and NGL sales (in thousands)
$
356,834

 
$
112,442

 
$
244,392

 
 
 
 
 
 
Natural gas production (Bcf)
113.2

 
61.0

 
52.2

Oil and NGL production (MBbls)
223

 
56

 
167

Total production (Bcfe)
114.5

 
61.4

 
53.1

 
 
 
 
 
 
Average natural gas prices before effects of hedges per Mcf
$
3.11

 
$
1.83

 
$
1.28

Average realized natural gas prices after effects of hedges per Mcf (1)
2.99

 
2.88

 
0.11

Average oil and NGL prices per Bbl:
21.85

 
15.83

 
6.02

 
 
 
 
 
 
Average costs per Mcfe
 
 
 
 
 
Lease operating
$
0.20

 
$
0.18

 
$
0.02

Gathering, compression and transportation
0.34

 
0.46

 
(0.12
)
Production taxes and impact fees
0.05

 
0.03

 
0.02

General and administrative
0.30

 
0.41

 
(0.11
)
Depreciation, depletion and amortization
1.20

 
1.29

 
(0.09
)
 
 
 
 
 
 
Total gathering, compression and water distribution revenues
(in thousands):
$
30,343

 
$
24,552

 
$
5,791

 
 
 
 
 
 
Gathering volumes (MDth/d)
2,204

 
1,289

 
915

Compression volumes (MDth/d)
1,388

 
514

 
874

Water services volumes (MMgal)
365

 
463

 
(98
)
(1) The effect of hedges includes realized gains and losses on commodity derivative transactions.

42



 
Three Months Ended March 31,
 
 
(in thousands, except per share data)
2017
 
2016
 
Change
Operating revenues:
 
 
 
 
 
Natural gas, oil and NGL sales
$
356,834

 
$
112,442

 
$
244,392

Gathering, compression and water distribution
30,343

 
24,552

 
5,791

Other revenue
6,629

 
2,948

 
3,681

Total operating revenues
393,806

 
139,942

 
253,864

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Lease operating
22,649

 
11,071

 
11,578

Gathering, compression and transportation
39,426

 
28,132

 
11,294

Production taxes and impact fees
6,153

 
1,651

 
4,502

Exploration
4,012

 
990

 
3,022

Midstream operation and maintenance
6,650

 
9,622

 
(2,972
)
Incentive unit expense
2,883

 
24,142

 
(21,259
)
Acquisition expense
207

 
472

 
(265
)
Impairment of gas properties
92,355

 

 
92,355

Impairment of fixed assets

 
2,595

 
(2,595
)
General and administrative
33,824

 
24,873

 
8,951

Depreciation, depletion and amortization
136,878

 
79,185

 
57,693

Amortization of intangible assets
402

 
408

 
(6
)
Other expense
6,158

 
4,191

 
1,967

Total operating expenses
351,597

 
187,332

 
164,265

 
 
 
 
 
 
Operating income (loss)
42,209

 
(47,390
)
 
89,599

Interest expense
(27,023
)
 
(24,521
)
 
(2,502
)
Other income
180

 
214

 
(34
)
(Loss) gain on derivative instruments
(14,779
)
 
70,179

 
(84,958
)
Amortization of deferred financing costs
(2,652
)
 
(1,552
)
 
(1,100
)
Loss before income taxes
(2,065
)
 
(3,070
)
 
1,005

Income tax benefit
576

 
6,375

 
(5,799
)
Net (loss) income
(1,489
)
 
3,305

 
(4,794
)
Less: Net income attributable to noncontrolling interests
(24,809
)
 
(20,893
)
 
(3,916
)
Net loss attributable to Rice Energy Inc.
(26,298
)
 
(17,588
)
 
(8,710
)
Less: Preferred dividends and accretion of redeemable noncontrolling interests
(8,332
)
 
(3,458
)
 
(4,874
)
Net loss attributable to Rice Energy Inc. common stockholders
$
(34,630
)
 
$
(21,046
)
 
$
(13,584
)
 
 
 
 
 
 
Weighted average number of shares of common stock - basic
203,435,154

 
136,419,903

 
67,015,251

Weighted average number of shares of common stock - diluted
203,435,154

 
136,419,903

 
67,015,251

Loss per share - basic
$
(0.17
)
 
$
(0.15
)
 
(0.02
)
Loss per share - diluted
$
(0.17
)
 
$
(0.15
)
 
(0.02
)
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
Total operating revenues. The increase in total operating revenues was the result of an 86% increase in natural gas production from 61.4 Bcfe in the first quarter of 2016 compared to 114.5 Bcfe in the first quarter of 2017. During the three months ended March 31, 2017, we turned 29 gross (26 net) wells into sales, bringing our total producing well count to 401 gross (308 net). Also contributing to the increase in operating revenues was an increase in our period-over-period realized price. Our

43



realized price for the three months ended March 31, 2017 was $3.11 per Mcf compared to $1.83 for the three months ended March 31, 2016, in each case before the effect of hedges. Operating revenues were also positively impacted by a 24% increase in gathering, compression and water services revenues period-over-period. In addition, post-acquisition revenue associated with the Vantage Acquisition was $95.8 million for the three months ended March 31, 2017.
Lease operating. The increase in lease operating expense from $11.1 million for the three months ended March 31, 2016 to $22.6 million for the three months ended March 31, 2017, or 105%, was primarily attributable to an increase in our production base period-over-period. In addition, lease operating expense per unit of production increased period-over-period from $0.18 for the three months ended March 31, 2016 to $0.20 for the three months ended March 31, 2017. The increase on a per unit basis was primarily attributable to the addition of producing wells in the Fort Worth Basin acquired from Vantage in the fourth quarter of 2016.
Production taxes and impact fees. Production taxes are directly related to natural gas, oil and NGLs sales. The increase from $1.7 million for the three months ended March 31, 2016 to $6.2 million for the three months ended March 31, 2017, or 273%, was primarily due to a severance tax equal to the market value on gas produced by our Fort Worth Basin assets that were acquired in the Vantage Acquisition.
Gathering, compression and transportation. Gathering, compression and transportation expense for the first quarter of 2017 of $39.4 million was comprised of $32.7 million of transportation contracts with third parties and $6.7 million of gathering and compression charges from third parties. The 40% increase was primarily attributable to an 86% increase in production volumes, as well as increased firm transportation expense for the three months ended March 31, 2017, which favorably impacted the gathering, compression and transportation rate.
Midstream operation and maintenance. The 31% decrease in midstream operation and maintenance expense period-over-period primarily related to a decrease in water delivery volumes during the first quarter 2017 due to the timing of our hydraulic fracturing activities.
Incentive unit expense. Incentive unit expense decreased 88% period-over-period. In the first quarter of 2016, the $24.1 million expense consisted of $5.9 million of non-cash compensation expense related to the Rice Holdings incentive units and $18.2 million of non-cash compensation expense related to the quarterly fair market value adjustment for the NGP Holdings incentive units. In the first quarter of 2017, the $2.9 million expense consisted of non-cash compensation expense related to the Rice Holdings incentive units. No future expense will be recognized related to the NGP Holdings incentive units as a result of the April 2016 settlement of the remaining NGP Holdings incentive unit obligation. See “Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements—12. Incentive Units” for additional information.
Impairment of gas properties. For the three months ended March 31, 2017, we recorded a $92.4 million impairment related to certain proved gas properties located in the Fort Worth Basin. As a result of significant declines in forward Waha basis differentials, which is the primary sales point for our Fort Worth Basin production, we performed an asset recoverability test and determined that the carrying value of our Fort Worth Basin proved properties exceeded its fair value. See “Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements—3. Impairment” for additional information.
General and administrative. For the three months ended March 31, 2017, general and administrative expense increased approximately 36%, which was primarily attributable to the addition of personnel to support our growth activities and related salary and employee benefits. On a per unit basis, general and administrative expense decreased by 27%, from $0.41 per Mcfe during the three months ended March 31, 2016 to $0.30 per Mcfe during the three months ended March 31, 2017, primarily due to an 86% increase in production. Included in general and administrative expense is stock compensation expense of $5.1 million and $4.6 million for the three months ended March 31, 2017 and 2016, respectively.
DD&A. The increase from $79.2 million for the three months ended March 31, 2016 to $136.9 million for the three months ended March 31, 2017, or 73%, was a result of an increase in production and greater number of producing wells in the first quarter of 2017 compared to the first quarter of 2016. As of March 31, 2017, we had 401 gross (308 net) producing wells, a 42% increase when compared to the number of producing wells as of March 31, 2016. On a per unit basis, DD&A expense decreased $0.09 per Mcfe, or 7%, from $1.29 for the three months ended March 31, 2016 to $1.20 per Mcfe for the three months ended March 31, 2017 due primarily to well cost reductions and drilling and completion efficiencies that we have achieved during the period.
Interest expense. The increase from $24.5 million for the three months ended March 31, 2016 to $27.0 million for the three months ended March 31, 2017, or 10%, was a result of higher levels of average borrowings outstanding during the first quarter of 2017 as compared to the first quarter of 2016 in order to fund our capital programs.

44



(Loss) gain on derivative instruments. The $14.8 million loss on derivative contracts in the first quarter of 2017 is comprised of cash payments of $13.6 million on the settlement of maturing contracts and a $1.2 million unrealized loss in the first quarter of 2017. The $70.2 million gain on derivative contracts in the first quarter of 2016 was comprised of $64.1 million of cash receipts on the settlement of maturing contracts and a $6.1 million unrealized gain.
Income tax benefit. The decrease in income tax benefit from $6.4 million for the three months ended March 31, 2016 to $0.6 million for the three months ended March 31, 2017, or 91%, was primarily the result of a decrease in net loss before income taxes and a lower effective tax rate during the first quarter of 2017, compared to the first quarter of 2016.
Business Segment Results of Operations
We operate in three business segments: Exploration and Production, Rice Midstream Holdings and Rice Midstream Partners. We evaluate our business segments based on their contribution to our consolidated results based on operating income. Please see “Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements—8. Financial Information by Business Segment” for a reconciliation of the operating results and assets of our business segments.
The following tables set forth selected operating and financial data for each business segment during the three months ended March 31, 2017 compared to the three months ended March 31, 2016:
Exploration and Production Segment
 
Three Months Ended March 31,
 
 
(in thousands, except volumes)
2017
 
2016
 
Change
Operating revenues:
 
 
 
 
 
Natural gas, oil and NGL sales
$
356,834

 
$
112,442

 
$
244,392

Other revenue
6,629

 
2,948

 
3,681

Total operating revenues
363,463

 
115,390

 
248,073

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Lease operating
22,649

 
11,071

 
11,578

Gathering, compression and transportation
81,895

 
48,203

 
33,692

Production taxes and impact fees
6,153

 
1,651

 
4,502

Exploration
4,012

 
990

 
3,022

Incentive unit expense (income)
2,800

 
22,871

 
(20,071
)
Acquisition costs
207

 

 
207

Impairment of gas properties
92,355

 

 
92,355

Impairment of fixed assets

 
2,595

 
(2,595
)
General and administrative
23,215

 
16,441

 
6,774

Depreciation, depletion and amortization
131,839

 
74,956

 
56,883

Other expense (income)
6,045

 
4,403

 
1,642

Total operating expenses
371,170

 
183,181

 
187,989

 
 
 
 
 
 
Operating loss
$
(7,707
)
 
$
(67,791
)
 
$
60,084

 
 
 
 
 
 
Operating volumes:
 
 
 
 
 
Natural gas production (Bcf):
113.2

 
61.0

 
52.2

Oil and NGL production (MBbls):
223

 
56

 
167

Total production (Bcfe)
114.5

 
61.4

 
53.1

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
Natural gas, oil and NGL sales. The 215% increase in natural gas sales was the result of an increase in production in the first quarter of 2017 compared to the first quarter of 2016, as discussed above. During the three months ended March 31, 2017, we turned 29 gross (26 net) wells into sales, bringing our total producing well count to 401 gross (308 net). In addition to the

45



impact of increased production volumes on operating revenues, our realized price increased from $1.83 per Mcf in the first quarter of 2016 to $3.11 per Mcf in the first quarter of 2017, in each case before the effect of hedges. In addition, post-acquisition revenue and production volumes associated with the Vantage Acquisition was $83.7 million and 27.9 Bcfe for the three months ended March 31, 2017, respectively.
Lease operating. The 105% increase in lease operating expense was primarily attributable to an increase in our production base period-over-period. In addition, lease operating expense per unit of production increased period-over-period from $0.18 for the three months ended March 31, 2016 to $0.20 for the three months ended March 31, 2017. The increase on a per unit basis was primarily attributable to the addition of producing wells in the Fort Worth Basin acquired from Vantage in the fourth quarter of 2016.
Production taxes and impact fees. Production taxes are directly related to natural gas, oil and NGLs sales. The increase from $1.7 million for the three months ended March 31, 2016 to $6.2 million for the three months ended March 31, 2017, or 273%, was primarily due to a severance tax equal to the market value on gas produced by our Fort Worth Basin assets that were acquired in the Vantage Acquisition.
Gathering, compression and transportation. Gathering, compression and transportation expense of $81.9 million for the first quarter of 2017 includes $46.7 million of affiliate and third-party gathering fees and $35.2 million of transportation contracts with third parties. The 70% increase in gathering, compression and transportation expenses was mainly due to increased volumes associated with the Rice Midstream Partners segment and the Rice Midstream Holdings segment, as well as increased firm transportation expense in the first quarter of 2017 compared to the first quarter of 2016.
Impairment of gas properties. For the three months ended March 31, 2017, we recorded a $92.4 million impairment related to certain proved gas properties located in the Fort Worth Basin. As a result of significant declines in forward Waha basis differentials, which is the primary sales point for our Fort Worth Basin production, we performed an asset recoverability test and determined that the carrying value of our Fort Worth Basin proved properties exceeded its fair value. See “Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements—3. Impairment” for additional information.
General and administrative. General and administrative expense increased from $16.4 million for the three months ended March 31, 2016 to $23.2 million for the three months ended March 31, 2017, an increase of 41%. The increase period-over-period was primarily attributable to the addition of personnel to support our growth activities and related salary and employee benefits. Included in general and administrative expense is stock compensation expense of $4.0 million and $2.5 million for the three months ended March 31, 2017 and 2016, respectively.
DD&A. DD&A expense increased from $75.0 million for the three months ended March 31, 2016 to $131.8 million for the three months ended March 31, 2017, an increase of 76%. The increase in segment DD&A was a result of an increase in production and greater number of producing wells in the first quarter of 2017 compared to the first quarter of 2016. As of March 31, 2017, we had 401 gross (308 net) producing Appalachian wells, a 42% increase when compared to the number of producing wells as of March 31, 2016.

46



Rice Midstream Holdings Segment
 
Three Months Ended March 31,
 
 
(in thousands, except volumes)
2017
 
2016
 
Change
Operating revenues:
 
 
 
 
 
Gathering revenues
$
23,539

 
$
8,537

 
$
15,002

Compression revenues
3,305

 
2,114

 
1,191

Total operating revenues
26,844

 
10,651

 
16,193

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Midstream operation and maintenance
761

 
1,009

 
(248
)
Incentive unit expense
83

 
1,271

 
(1,188
)
General and administrative
4,770

 
3,756

 
1,014

Acquisition costs

 
400

 
(400
)
Depreciation, depletion and amortization
1,397

 
1,090

 
307

Total operating expenses
7,011

 
7,526

 
(515
)
 
 
 
 
 
 
Operating income
$
19,833

 
$
3,125

 
$
16,708

 
 
 
 
 
 
Operating volumes:
 
 
 
 
 
Gathering volumes (MDth/d):
969

 
454

 
515

Compression volumes (MDth/d):
562

 
362

 
200

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
Total operating revenues. Operating revenues increased from $10.7 million for the three months ended March 31, 2016 to $26.8 million for the three months ended March 31, 2017, an increase of 152%. The increase in total operating revenues was mainly the result of an increase in affiliate gathering and compression volumes between the Exploration and Production segment and the Rice Midstream Holdings segment, as well as an increase in third-party gathering volumes which include revenues associated with the contracts for Strike Force Midstream LLC.
Midstream operation and maintenance. Midstream operation and maintenance expense decreased from $1.0 million for the three months ended March 31, 2016 to $0.8 million for the three months ended March 31, 2017, a decrease of 25%. The decrease was primarily due to lower repair and maintenance expense incurred in the first quarter of 2017 compared to the first quarter of 2016.
General and administrative. General and administrative expense increased from $3.8 million for the three months ended March 31, 2016 to $4.8 million for the three months ended March 31, 2017, an increase of 27%. The increase in general and administrative expense period-over-period was primarily attributable to costs associated with personnel to support the Rice Midstream Holdings segment’s growth activities. Included in general and administrative expense is stock compensation expense of $1.0 million and $1.2 million for the first quarter of 2017 and 2016, respectively.
DD&A. DD&A expense increased from $1.1 million for the three months ended March 31, 2016 to $1.4 million for the three months ended March 31, 2017, an increase of 28%. The increase in DD&A was mainly the result of an increase in midstream assets placed in service subsequent to the first quarter of 2016 and the related depreciation on those assets.

47



Rice Midstream Partners Segment
 
Three Months Ended March 31,
 
 
(in thousands, except volumes)
2017
 
2016
 
Change
Operating revenues:
 
 
 
 
 
Gathering revenues
$
36,220

 
$
25,686

 
$
10,534

Compression revenues
5,782

 
1,114

 
4,668

Water services revenues
20,748

 
27,743

 
(6,995
)
Total operating revenues
62,750

 
54,543

 
8,207

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Midstream operation and maintenance
8,179

 
8,611

 
(432
)
General and administrative
5,839

 
4,676

 
1,163

Depreciation, depletion and amortization
7,621

 
5,370

 
2,251

Acquisition costs

 
73

 
(73
)
Amortization of intangible assets
402

 
408

 
(6
)
        Other expense (income)
113

 
(212
)
 
325

Total operating expenses
22,154

 
18,926

 
3,228

 
 
 
 
 
 
Operating income
$
40,596

 
$
35,617

 
$
4,979

 
 
 
 
 
 
Operating volumes:
 
 
 
 
 
Gathering volumes (MDth/d):
1,235

 
835

 
400

Compression volumes (MDth/d):
826

 
152

 
674

Water services volumes (MMgal):
365

 
463

 
(98
)
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
Total operating revenues. Operating revenues increased from $54.5 million for the three months ended March 31, 2016 to $62.8 million for the three months ended March 31, 2017, an increase of 15%. The increase in operating revenues period-over-period primarily relates to increased gathering and compression revenues associated with a 48% and 443% increase in gathering and compression throughput, respectively. In addition, post-acquisition revenue associated with the Vantage Midstream Entities was $12.2 million for the three months ended March 31, 2017, which was comprised of gathering, compression and water distribution volumes of 308 MDth/d, 50 MDth/d and 40 MMgal, respectively. Partially offsetting the increase was a decrease in water services revenue primarily due to a 21% decrease in fresh water distribution volumes associated with timing our well completions activities from 463 MMgal for the three months ended March 31, 2016 to 365 MMgal for the three months ended March 31, 2017.
General and administrative expense. General and administrative expense increased from $4.7 million for the three months ended March 31, 2016 to $5.8 million for the three months ended March 31, 2017, an increase of 25%. The increase in general and administrative expense period-over-period was primarily attributable to costs associated with personnel to support our growing midstream operations in Pennsylvania.
DD&A. DD&A expense increased from $5.4 million for the three months ended March 31, 2016 to $7.6 million for the three months ended March 31, 2017, an increase of 42%. The increase period-over-period was primarily due to additional assets placed into service subsequent to the first quarter of 2016 associated with our gathering, compression and water handling and treatment services. From March 31, 2016 through March 31, 2017, our gathering and water pipeline miles increased by 40% and 17%, respectively.

48



Capital Resources and Liquidity
Our primary sources of liquidity have been the proceeds from equity and debt financings and borrowings under our credit facilities. Our primary use of capital has been the acquisition and development of natural gas properties and associated midstream infrastructure. As we pursue reserve and production growth, we monitor which capital resources, including equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. We also expect to fund a portion of these requirements with cash flow from operations as we continue to bring additional upstream and midstream production online.
The members of Rice Energy Operating, including us, incur U.S. federal, state and local income taxes on their share of any taxable income of Rice Energy Operating, if any. Under the Third A&R LLC Agreement, Rice Energy Operating is required to make cash tax distributions to its members, subsequent to the end of a given calendar year, based upon income allocated to each member and subject to the availability of distributable cash (as defined in the Third A&R LLC Agreement).
Cash Flow Provided by Operating Activities
Net cash provided by operating activities was $267.6 million for the three months ended March 31, 2017, compared to $127.1 million for the three months ended March 31, 2016. The increase in operating cash flow was primarily due to an increase in production and commodity prices, partially offset by an increase in cash operating expenses.
Cash Flow Used in Investing Activities
During the three months ended March 31, 2017, cash flows used in investing activities of $301.6 million primarily consisted of capital expenditures for property and equipment, as compared to $297.4 million for the three months ended March 31, 2016, with $289.7 million related to capital expenditures for property and equipment.
Capital expenditures for the Exploration and Production segment were $225.8 million and $235.7 million for the three months ended March 31, 2017 and 2016, respectively. The decrease was primarily attributable to timing of the acquisition and development of our natural gas properties.
Capital expenditures for the Rice Midstream Holdings segment totaled $62.4 million and $38.4 million for the three months ended March 31, 2017 and 2016, respectively. The increase was attributable to an increase in capital expenditures for Midstream Holding’s infrastructure, including capital expenditures for Strike Force Midstream LLC’s midstream infrastructure.
Capital expenditures for the Rice Midstream Partners segment totaled $28.5 million and $36.2 million for the three months ended March 31, 2017 and 2016, respectively. The decrease was primarily attributable to a decrease in the capital expenditures related to the Rice Midstream Partners segment’s water services assets, offset by increases in capital expenditures for compression assets.
Cash Flow (Used in) Provided by Financing Activities
Net cash used in financing activities of $5.1 million during the three months ended March 31, 2017 was primarily the result of distributions to the Partnership’s public unitholders and payments of preferred dividends to redeemable noncontrolling interest holders, partially offset by borrowings on our revolving credit facilities. Net cash provided by financing activities of $373.5 million during the three months ended March 31, 2016 was primarily the result of the proceeds from the Midstream Holdings Investment (see Note 10) and borrowings on our revolving credit facilities, offset by distributions to the Partnership’s public unitholders.
Debt Agreements
Senior Notes
On April 25, 2014, we issued $900.0 million in aggregate principal amount of 6.25% senior notes due 2022 (the “2022 Notes”) in a private placement to eligible purchasers under Rule 144A and Regulation S of the Securities Act, which resulted in net proceeds to us of $882.7 million after deducting estimated expenses and underwriting discounts and commissions of approximately $17.3 million.
The 2022 Notes will mature on May 1, 2022, and interest is payable on the 2022 Notes on each May 1 and November 1. At any time prior to May 1, 2017, we may redeem up to 35% of the 2022 Notes at a redemption price of 106.25% of the principal amount, plus accrued and unpaid interest to the redemption date, with the proceeds of certain equity offerings so long as the redemption occurs within 180 days of completing such equity offering and at least 65% of the aggregate principal amount of the 2022 Notes remains outstanding after such redemption. Prior to May 1, 2017, we may redeem some or all of the 2022 Notes for

49



cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. Upon the occurrence of a Change of Control (as defined in the indenture governing the 2022 Notes), unless we have given notice to redeem the 2022 Notes, the holders of the 2022 Notes will have the right to require us to repurchase all or a portion of the 2022 Notes at a price equal to 101% of the aggregate principal amount of the 2022 Notes, plus any accrued and unpaid interest to the date of purchase. On and after May 1, 2017, we may redeem some or all of the 2022 Notes at redemption prices (expressed as percentages of principal amount) equal to 104.688% for the twelve-month period beginning on May 1, 2017, 103.125% for the twelve-month period beginning May 1, 2018, 101.563% for the twelve-month period beginning on May 1, 2019 and 100.000% beginning on May 1, 2020, plus accrued and unpaid interest to the redemption date.
On March 26, 2015, we issued $400.0 million in aggregate principal amount of 7.25% senior notes due 2023 (the “2023 Notes”) in a private placement to eligible purchasers under Rule 144A and Regulation S of the Securities Act, which resulted in net proceeds to us of $389.3 million after deducting estimated expenses and underwriting discounts and commissions of approximately $10.7 million. We used the net proceeds for general corporate purposes, including capital expenditures. The original issuance discount of $3.1 million related to the 2023 Notes is recorded as a reduction of the principal amount.
On October 19, 2016, we entered into supplemental indentures that provide for, among other things, the addition of Rice Energy Operating as a co-obligor under each indenture.
The 2023 Notes will mature on May 1, 2023, and interest is payable on the 2023 Notes on each May 1 and November 1. At any time prior to May 1, 2018, we may redeem up to 35% of the 2023 Notes at a redemption price of 107.250% of the principal amount, plus accrued and unpaid interest to the redemption date, with the proceeds of certain equity offerings so long as the redemption occurs within 180 days of completing such equity offering and at least 65% of the aggregate principal amount of the 2023 Notes remains outstanding after such redemption. Prior to May 1, 2018, we may redeem some or all of the notes for cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. Upon the occurrence of a change of control (as defined in the indenture governing the 2023 Notes), unless we have given notice to redeem the 2023 Notes, the holders of the 2023 Notes will have the right to require us to repurchase all or a portion of the 2023 Notes at a price equal to 101% of the aggregate principal amount of the 2023 Notes, plus any accrued and unpaid interest to the date of purchase. On or after May 1, 2018, we may redeem some or all of the 2023 Notes at redemption prices (expressed as percentages of principal amount) equal to 105.438% for the twelve-month period beginning on May 1, 2018, 103.625% for the twelve-month period beginning May 1, 2019, 101.813% for the twelve-month period beginning on May 1, 2020 and 100.000% beginning on May 1, 2021, plus accrued and unpaid interest to the redemption date.
The indentures governing the 2022 Notes and the 2023 Notes (collectively, the “Notes”) restrict our ability and the ability of certain of our subsidiaries to: (i) incur or guarantee additional debt or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire our capital stock or subordinated debt; (iii) make certain investments; (iv) incur liens; (v) enter into transactions with affiliates; (vi) merge or consolidate with another company; (vii) transfer and sell assets; and (viii) create unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications. If at any time when the Notes are rated investment grade by both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no default (as defined in the indentures governing the Notes) has occurred and is continuing, many of such covenants will terminate and we and our subsidiaries will cease to be subject to such covenants.
Senior Secured Revolving Credit Facility
In April 2013, we entered into a Senior Secured Revolving Credit Facility (the “Senior Secured Revolving Credit Facility”) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders. In April 2014, we, as borrower, and Rice Drilling B LLC (“Rice Drilling B”), as predecessor borrower, amended and restated the credit agreement governing the Senior Secured Revolving Credit Facility (the “Amended Credit Agreement”) to, among other things, assign all of the rights and obligations of Rice Drilling B as borrower under the Senior Secured Revolving Credit Facility to us.
In connection with the closing of the Vantage Acquisition, in October 2016, we entered into a Fourth Amended and Restated Credit Agreement (the “A&R Credit Agreement”), among us, Rice Energy Operating, Wells Fargo Bank, N.A., as administrative agent, and the lenders and other parties thereto. The A&R Credit Agreement provides, among other things, for the assignment of our rights and obligations as borrower under the Senior Secured Revolving Credit Facility to Rice Energy Operating and the addition of us as a guarantor of those obligations.
On March 16, 2017, Rice Energy Operating, as borrower, and we, as parent guarantor, entered into the Second Amendment (the “Second Amendment”) to the A&R Credit Agreement. The Second Amendment, among other things, (i) revises the tenor and aggregate notional volume limitations for our hedging arrangements contained in the A&R Credit Agreement to permit secured financial and physical hedging for up to six years from the date of the applicable contract, while increasing the aggregate notional

50



volumes that may be subject to such contracts in the fourth and fifth years, (ii) permits certain unsecured physical hedging transactions through the greater of the year 2030 or a rolling ten-year period, and (iii) amends the long-term senior unsecured debt rating threshold with respect to qualifying non-lender hedge counterparties.
As of March 31, 2017, the borrowing base was $1.45 billion and the sublimit for letters of credit was $400.0 million. We had zero borrowings outstanding and $211.0 million in letters of credit outstanding under the A&R Credit Agreement as of March 31, 2017, resulting in availability of $1.24 billion. As of March 31, 2017, the maturity date of the Senior Secured Revolving Credit Facility is October 19, 2021. The next redetermination of the borrowing base is expected to occur in May 2017.
Following the effectiveness of the A&R Credit Agreement, Eurodollar loans under the Senior Secured Revolving Credit Facility bear interest at a rate per annum equal to LIBOR plus an applicable margin ranging from 225 to 325 basis points, depending on the percentage of borrowing base utilized, and base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 225 basis points, depending on the percentage of borrowing base utilized.
The A&R Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Senior Secured Revolving Credit Facility to be immediately due and payable. We were in compliance with such covenants and ratios effective as of March 31, 2017.
Midstream Holdings Revolving Credit Facility
On December 22, 2014, Rice Midstream Holdings LLC (“Midstream Holdings”) entered into a credit agreement (the “Midstream Holdings Credit Agreement”) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders establishing a revolving credit facility (the “Midstream Holdings Revolving Credit Facility”) with a maximum credit amount of $300.0 million and a sublimit for letters of credit of $25.0 million.
As of March 31, 2017, Midstream Holdings had $73.0 million of borrowings outstanding and no letters of credit under this facility, resulting in availability of $227.0 million. The year-to-date average daily outstanding balance of the Midstream Holdings Revolving Credit Facility was approximately $56.3 million, and interest was incurred on the facility at a weighted average interest rate of 3.1% through March 31, 2017. The Midstream Holdings Revolving Credit Facility is available to fund working capital requirements and capital expenditures and to purchase assets. The maturity date of the Midstream Holdings Revolving Credit Facility is December 22, 2019.
Principal amounts borrowed are payable on the maturity date, and interest is payable quarterly for base rate loans and at the end of the applicable interest period for Eurodollar loans. Midstream Holdings may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 225 to 300 basis points, depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 200 basis points, depending on the leverage ratio then in effect. Midstream Holdings also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The Midstream Holdings Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Midstream Holdings Revolving Credit Facility to be immediately due and payable. Midstream Holdings was in compliance with such covenants and ratios effective as of March 31, 2017.
RMP Revolving Credit Facility
On December 22, 2014, Rice Midstream OpCo LLC, a wholly-owned subsidiary of the Partnership (“Rice Midstream OpCo”), entered into a credit agreement (the “RMP Credit Agreement”) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders establishing a revolving credit facility (the “RMP Revolving Credit Facility”).
As of March 31, 2017, the revolving credit facility provided for lender commitments of $850.0 million, with an additional $200.0 million of commitments available under an accordion feature subject to lender approval. Rice Midstream OpCo had $190.0 million of borrowings outstanding and no letters of credit outstanding under the RMP Revolving Credit Facility as of March 31, 2017, resulting in availability of $660.0 million. The average daily outstanding balance of the RMP Revolving Credit Facility was approximately $190.0 million, and interest was incurred at a weighted average annual interest rate of 2.8% through March 31, 2017. The RMP Revolving Credit Facility is available to fund working capital requirements and capital expenditures,

51



to purchase assets, to pay distributions and repurchase units and for general partnership purposes and matures on December 22, 2019. The Partnership and its restricted subsidiaries are the guarantors of the obligations under the RMP Revolving Credit Facility.
Principal amounts borrowed are payable on the maturity date, and interest is payable quarterly for base rate loans and at the end of the applicable interest period for Eurodollar loans. Rice Midstream OpCo may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 200 to 300 basis points, depending on the leverage ratio then in effect, and base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 100 to 200 basis points, depending on the leverage ratio then in effect. Rice Midstream OpCo also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The RMP Credit Agreement also contains certain financial covenants and customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the RMP Revolving Credit Facility to be immediately due and payable. The Partnership was in compliance with such covenants and ratios effective as of March 31, 2017.
Commodity Hedging Activities
Our primary market risk exposure is in the prices we receive for our natural gas production. Realized pricing is primarily driven by the spot regional market prices applicable to our U.S. natural gas production. Pricing for natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future. The prices we receive for production depend on many factors outside of our control, including volatility in the differences between product prices at sales points and the applicable index price.
To mitigate the potential negative impact on our cash flow caused by changes in oil and natural gas prices, we have entered into financial commodity derivative contracts in the form of swaps, zero cost collars, calls, puts and basis swaps to ensure that we receive minimum prices for a portion of our future oil and natural gas production when management believes that favorable future prices can be secured. We typically hedge the NYMEX Henry Hub price for natural gas. Pursuant to our A&R Credit Agreement, we are now permitted to hedge the greater of (i) the percentage of proved reserve volumes (Column A) or (ii) the percentage of internally forecasted production (Column B).
Months next succeeding the time as of which compliance is measured
 
Column A
 
Column B
Months 1 through 18
 
85
%
 
90
%
Months 19 through 36
 
85
%
 
75
%
Months 37 through 60
 
85
%
 
60
%
Months 61 through 72
 
85
%
 
40
%
Our hedging activities are intended to support natural gas prices at targeted levels and to manage our exposure to natural gas price fluctuations. The counterparty is required to make a payment to us for the difference between the floor price specified in the contract and the settlement price, which is based on market prices on the settlement date, if the settlement price is below the floor price. We are required to make a payment to the counterparty for the difference between the ceiling price and the settlement price if the ceiling price is below the settlement price. These contracts may include price swaps whereby we will receive a fixed price for our production and pay a variable market price to the contract counterparty and zero cost collars that set a floor and ceiling price for the hedged production. For a description of our commodity derivative contracts, please see “Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements—6. Derivative Instruments and 7. Fair Value of Financial Instruments” included elsewhere in this Quarterly Report.

52



Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments. Different amounts could be reported using different assumptions and estimates. Our critical accounting policies are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2016 Annual Report in addition to the discussion included herein. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to our condensed consolidated financial statements contained in this Quarterly Report. 
On a quarterly basis, in accordance with ASC 360, we perform a qualitative assessment of whether events or changes in circumstances exist that could be indicators that the carrying amount of proved properties may not be recoverable. During the first quarter of 2017, we identified significant declines in forward Waha basis differentials, which is the primary sales point for our Fort Worth Basin production. The expected prolonged declines indicated a potential impairment trigger, and, as a result, we performed an asset recoverability test of its Fort Worth Basin properties. Based upon the results of the recoverability assessment, we concluded that the carrying value of the Fort Worth Basin properties exceeded the undiscounted cash flows. The fair value of the Fort Worth Basin proved properties was determined using a combination of the market and income approach to determine fair value. Significant inputs to the valuation of the discounted cash flows of natural gas and oil properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management which included Level 3 unobservable inputs to the fair value measurement. The difference between the carrying value and fair value resulted in an asset impairment of $92.4 million within the Exploration and Production segment for the period ended March 31, 2017.
Off-Balance Sheet Arrangements
As of March 31, 2017, we did not have any off-balance sheet arrangements as defined by the SEC. In the ordinary course of business, we enter into various commitment agreements and other contractual obligations, some of which are not recognized in our consolidated financial statements in accordance with GAAP. See “Item 1. Financial Statements—9. Commitments and Contingencies” for a description of our commitments and contingencies.


53



Item 3. Quantitative and Qualitative Disclosures about Market Risk
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in oil and natural gas prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk sensitive instruments were entered into for hedging purposes, rather than for speculative trading.
Commodity price risk and hedges
Our primary market risk exposure is in the price we receive for our natural gas production. Realized pricing is primarily driven by market prices applicable to our U.S. natural gas production. Pricing for natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future. The prices we receive for production depend on many factors outside of our control, including volatility in the differences between product prices at sales points and the applicable index price.
To mitigate some of the potential negative impact on our cash flow caused by changes in commodity prices, we enter into financial commodity swap contracts to receive fixed prices for a portion of our natural gas production to mitigate the potential negative impact on our cash flow.
Our financial hedging activities are intended to support natural gas prices at targeted levels and to manage our exposure to natural gas price fluctuations. The counterparty is required to make a payment to us for the difference between the fixed price and the settlement price if the settlement price is below the fixed price. We are required to make a payment to the counterparty for the difference between the fixed price and the settlement price if the fixed price is below the settlement price. These contracts may include financial price swaps whereby we will receive a fixed price for our production and pay a variable market price to the contract counterparty, cashless price collars that set a floor and ceiling price for the hedged production, or basis differential swaps. If the applicable monthly price indices are outside of the ranges set by the floor and ceiling prices in the various collars, we and the counterparty to the collars would be required to settle the difference.
As of March 31, 2017, we have entered into derivative instruments with various financial institutions, fixing the price we receive for a portion of our natural gas through December 31, 2021. Our commodity hedge position as of March 31, 2017 is summarized in Notes 6 and 7 to our condensed consolidated financial statements included elsewhere in the Quarterly Report. Our financial hedging activities are intended to support natural gas prices at targeted levels and to manage our exposure to price fluctuations. 
By removing price volatility from a portion of our expected natural gas production through December 31, 2021, we have mitigated, but not eliminated, the potential effects of changing prices on our operating cash flow for those periods. While mitigating negative effects of falling commodity prices, these derivative contracts also limit the benefits we would receive from increases in commodity prices above the hedge prices.
Interest rate risks
Our primary interest rate risk exposure results from our credit facilities.
As of March 31, 2017, we had no borrowings and approximately $211.0 million in letters of credit outstanding under our Senior Secured Revolving Credit Facility. As of March 31, 2017, we had availability under the borrowing base of our Senior Secured Revolving Credit Facility of approximately $1.24 billion and the borrowing base was $1.45 billion. We have a choice of borrowing in Eurodollars or at the base rate. Under the A&R Credit Agreement, Eurodollar loans bear interest at a rate per annum equal to LIBOR plus an applicable margin ranging from 225 to 325 basis points, depending on the percentage of our borrowing base utilized. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 225 basis points, depending on the percentage of our borrowing base utilized.
As of March 31, 2017, Midstream Holdings had $73.0 million in borrowings outstanding and no letters of credit under the Midstream Holdings Revolving Credit Facility. Midstream Holdings may elect to borrow in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 225 to 300 basis points, depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 125 to 200 basis points, depending on the leverage ratio then in effect.

54



The average annual weighted average interest rate incurred on the Midstream Holdings Revolving Credit Facility during the three months ended March 31, 2017 was approximately 3.1%. A 1.0% increase in the applicable average interest rates for the three months ended March 31, 2017 would have resulted in an estimated $0.1 million increase in interest expense.
As of March 31, 2017, Rice Midstream OpCo had $190.0 million of borrowings outstanding and no letters of credit under the RMP Revolving Credit Facility. Rice Midstream OpCo has a choice of borrowing in Eurodollars or at the base rate. Following the effectiveness of the Second Amendment, Eurodollar loans will bear interest at a rate per annum equal to the applicable LIBOR Rate plus an applicable margin ranging from 200 to 300 basis points, depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 100 to 200 basis points, depending on the leverage ratio then in effect. Following the effectiveness of the Second Amendment, Rice Midstream OpCo also pays a commitment fee based on the undrawn commitment amount ranging from 37.5 to 50 basis points.
The average annual weighted average interest rate incurred on the RMP Revolving Credit Facility during the three months ended March 31, 2017 was approximately 2.8%. A 1.0% increase in the applicable average interest rates for the three months ended March 31, 2017 would have resulted in an estimated $0.5 million increase in interest expense.
As of March 31, 2017, we did not have any derivatives in place to mitigate the effects of interest rate risk. We may implement an interest rate hedging strategy in the future.
Counterparty and customer credit risk
Our principal exposures to credit risk are through joint interest receivables ($83.9 million in receivables as of March 31, 2017) and the sale of our natural gas production ($138.9 million in receivables as of March 31, 2017), which we market to multiple natural gas marketing companies. Joint interest receivables arise from billing entities who own partial interest in the wells we operate. These entities participate in our wells primarily based on their ownership in leases on which we wish to drill. We have minimal ability to choose who participates in our wells. We are also subject to credit risk with three natural gas marketing companies that hold a significant portion of our natural gas receivables. We do not require our customers to post collateral. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results.
By using derivative instruments to hedge exposures to changes in commodity prices, we expose ourselves to the credit risk of our counterparties. Credit risk is the potential failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty is expected to owe us, which creates credit risk. To minimize the credit risk in derivative instruments, it is our policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers. The creditworthiness of our counterparties is subject to review annually, or on an as-needed basis. We have derivative instruments in place with 15 different counterparties. As of March 31, 2017, our contracts with J. Aron & Company and Wells Fargo Bank N.A. accounted for 26% and 23% of the net fair market value of our derivative assets, respectively. We believe these counterparties are acceptable credit risks. We are not required to post letters of credit as collateral to J. Aron & Company and Wells Fargo Bank N.A. under current contracts, nor are they required to provide credit support or collateral to us. As of March 31, 2017 and December 31, 2016, we did not have any past due receivables from counterparties.


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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of Rice Energy’s management, including Rice Energy’s principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2017. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that the information we are required to disclose in the reports we file and submit under the Exchange Act is accumulated and communicated to Rice Energy’s management, including Rice Energy’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, Rice Energy’s principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2017.
Changes in Internal Control over Financial Reporting
We are in the process of integrating Vantage’s and our internal control over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Except as noted above, during the three months ended March 31, 2017, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are party to various legal and/or regulatory proceedings from time to time arising in the ordinary course of business. While the ultimate outcome and impact to us cannot be predicted with certainty, we believe that all such matters are without merit and involve amounts which, if resolved unfavorably, either individually or in the aggregate, will not have a material adverse effect on our financial condition, results of operations or cash flows. When we determine that a loss is probable of occurring and is reasonably estimable, we accrue an undiscounted liability for such contingencies based on our best estimate using information available at the time. We disclose contingencies where an adverse outcome may be material, or in the judgment of management, the matter should otherwise be disclosed.
Environmental Proceedings
From time to time our operations are inspected by governmental authorities. These authorities may issue proposed penalties for alleged violations of environmental laws discovered as a result of such inspections. Fines and penalties for environmental law violations can often exceed $100,000. While we cannot predict the ultimate outcome of any such matters, we do not expect that any currently known violations, individually or in the aggregate, will have a material adverse impact on our financial results.
Item 1A. Risk Factors
Our business faces many risks. Any of the risks discussed elsewhere in this Quarterly Report and our other SEC filings could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.
For a discussion of our potential risks and uncertainties, see the risk factors below and the information in “Item 1A. Risk Factors” in our 2016 Annual Report.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered sales of securities. There were no sales of unregistered equity securities during the period covered by this report.
Issuer purchases of equity securities. The following table contains information about our acquisition of equity securities during the three months ended March 31, 2017:
Period
 
Total Number of Shares Withheld (1)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares that May Be Purchased Under the Plans or Programs
January 1 - January 31, 2017
 
130,198

 
$
21.03

 

 

February 1 - February 28, 2017
 
46,321

 
$
21.66

 

 

March 1 - March 31, 2017
 
136,576

 
$
18.74

 

 

    Total
 
313,095

 
$
20.12

 

 

(1)
All shares withheld during the three months ended March 31, 2017 were used to offset tax withholding obligations that occur upon the vesting of restricted stock units and delivery of common stock under the terms of our long-term incentive plan.
Item 6. Exhibits
Exhibit Number

Exhibit
2.1***
 
Purchase and Sale Agreement, dated as of September 26, 2016, by and among Vantage Energy Investment LLC, Vantage Energy Investment II LLC, Rice Energy Inc., Vantage Energy, LLC, and Vantage Energy II, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on September 30, 2016).
2.2***
 
Purchase and Sale Agreement, dated as of September 26, 2016, by and between Rice Energy Inc. and Rice Midstream Partners LP (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on September 30, 2016).
3.1
 
Amended and Restated Certificate of Incorporation of Rice Energy Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on February 4, 2014).
3.2
 
Amended and Restated Bylaws of Rice Energy Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on February 23, 2017).

3.3
 
Certificate of Designation of Class A Preferred Stock of Rice Energy Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on October 25, 2016).
10.1
 
Second Amendment to Fourth Amended and Restated Credit Agreement, dated as of March 16, 2017, by and among Rice Energy Inc., Rice Energy Operating LLC, Wells Fargo Bank, N.A., as administrative agent and each of the lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on March 21, 2017).
10.2
 
Indemnification Agreement (Dr. Kathryn J. Jackson) (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 6, 2017).
31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*

XBRL Instance Document.
101.SCH*

XBRL Schema Document.
101.CAL*
 
XBRL Calculation Linkbase Document.
101.DEF*
 
XBRL Definition Linkbase Document.
101.LAB*
 
XBRL Labels Linkbase Document.
101.PRE*
 
XBRL Presentation Linkbase Document.
    
*
Filed herewith.
**
Filed herewith. Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of Section 18 of the Exchange Act, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, except to the extent that the registrant specifically incorporates it by reference.
***
The schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of such schedules to the Securities and Exchange Commission upon request.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
RICE ENERGY INC.
 
 
 
 
Date:
May 4, 2017
By:
/s/ Daniel J. Rice IV
 
 
 
Daniel J. Rice IV
 
 
 
Director, Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
May 4, 2017
By:
/s/ Grayson T. Lisenby
 
 
 
Grayson T. Lisenby
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
(Principal Financial Officer)


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EXHIBIT INDEX
Exhibit Number
 
Exhibit
2.1***
 
Purchase and Sale Agreement, dated as of September 26, 2016, by and among Vantage Energy Investment LLC, Vantage Energy Investment II LLC, Rice Energy Inc., Vantage Energy, LLC, and Vantage Energy II, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on September 30, 2016).
2.2***
 
Purchase and Sale Agreement, dated as of September 26, 2016, by and between Rice Energy Inc. and Rice Midstream Partners LP (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on September 30, 2016).
3.1
 
Amended and Restated Certificate of Incorporation of Rice Energy Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on February 4, 2014).
3.2
 
Amended and Restated Bylaws of Rice Energy Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on February 23, 2017).

3.3
 
Certificate of Designation of Class A Preferred Stock of Rice Energy Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on October 25, 2016).
10.1
 
Second Amendment to Fourth Amended and Restated Credit Agreement, dated as of March 16, 2017, by and among Rice Energy Inc., Rice Energy Operating LLC, Wells Fargo Bank, N.A., as administrative agent and each of the lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on March 21, 2017).
10.2
 
Indemnification Agreement (Dr. Kathryn J. Jackson) (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 6, 2017).
31.1*
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
 
XBRL Instance Document.
101.SCH*
 
XBRL Schema Document.
101.CAL*
 
XBRL Calculation Linkbase Document.
101.DEF*
 
XBRL Definition Linkbase Document.
101.LAB*
 
XBRL Labels Linkbase Document.
101.PRE*
 
XBRL Presentation Linkbase Document.
*
Filed herewith.
**
Filed herewith. Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of Section 18 of the Exchange Act, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, except to the extent that the registrant specifically incorporates it by reference.
***
The schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of such schedules to the Securities and Exchange Commission upon request.







60



GLOSSARY OF OIL AND NATURAL GAS TERMS

The following are abbreviations and definitions of certain terms used in this document, which are commonly used in the oil and natural gas industry:
“Barrel” or “Bbl.” 42 U.S. gallons measured at 60 degrees Fahrenheit.
Btu.” One British thermal unit, the quantity of heat required to raise the temperature of a one-pound mass of water by one degree of Fahrenheit.
Basin.” A large natural depression on the earth’s surface in which sediments generally brought by water accumulate.
Completion.” The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.
DD&A.” Depreciation, depletion, amortization and accretion.
Dry hole.” A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.
Formation.” A layer of rock which has distinct characteristics that differs from nearby rock.
“MBbls.” One thousand barrels.
Mcf.” One thousand cubic feet of natural gas.
Mcfe.” One thousand cubic feet of natural gas equivalent, determined by using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate of natural gas liquids.
“MDth/d.” One thousand dekatherms per day.
“MMBbls.” One million barrels.
MMBtu.” One million Btu.
MMGal.” One million gallons.
MMcf.” One million cubic feet of natural gas.
MMcfe.” One million cubic feet of natural gas equivalent, determined by using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate of natural gas liquids.
NGLs.” Natural gas liquids. Hydrocarbons found in natural gas which may be extracted as liquefied petroleum gas and natural gasoline.
NYMEX.” The New York Mercantile Exchange.
Net acres.” The percentage of total acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100 acres owns 50 net acres.
Prospect.” A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.
Working interest.” The right granted to the lessee of a property to explore for and to produce and own natural gas or other minerals. The working interest owners bear the exploration, development, and operating costs on either a cash, penalty, or carried basis.

61