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Thus, it was an unusual combination of risk-taking and meticulous research that positioned Rice for its fantastic IPO, a ringing suc- cess that Danny Rice describes as an endorsement of the shale industry as well as his company.


“Folks in the Marcellus are trading at a much higher multiple of current year or forward year EBITDA than any other basin,” he notes. “What that says to us, and to people on the outside looking in, is investors have a whole lot more confidence in the visibility and likelihood of this thing continuing for a much longer time than in other areas. They’re paying for more future value.


“For the nation, it’s the catalyst for us to become energy inde- pendent and become a net exporter of gas and oil, which was unthinkable five years ago. There are probably 50,000 wells that potentially can be drilled across Pennsylvania and into West Virginia over the next 30 or 40 years. To date, I think we’ve drilled maybe 7 percent of those wells. We’re just getting started. We’re in the second inning of this ballgame.”


As for the future of Rice, look for consolidation and growth of its current position rather than a large land-grab approach.


“We kind of have our horse blinders on to the development of our existing position,” Danny Rice says. “We have a 10-to-15-year drilling inventory in the Marcellus, a 10-to-15-year drilling inven- tory in Ohio. So we have enough on our plate to keep us busy. Our business model doesn’t include acquiring 1 million acres. It’s always been a quality over quantity approach.


“We’ve remained pretty darn disciplined to this day on making sure we’re picking up the highest quality stuff we can find. Until we’ve exhausted all those options, we’re really not interested in venturing beyond our current backyard. It’s a huge sandbox we’re playing in. We’re not going to leave this playground for a while.”


THE FUTURE? IT’S IN THE PIPELINE F


or Rice Energy, as for all Marcellus operators in an expansionist mode, one potential impediment to growth is a lack of pipeline capacity. It’s a dy- namic area, as pipeline development has become a high-profile spectacle,


often with uncertain results. On its own, Rice has constructed about 60 miles of pipeline to carry its gas to major networks. Danny Rice is confident those grids will be expanded, so the company’s transport planning is long range.


“There’s competition on the front end, on the leasing, and now there’s starting to be more competition on the back end, on getting our gas to customers and securing transportation,” he says. “There’s a finite amount of acreage; there’s a finite amount of pipe- line capacity, and all of us have growing resources. So there obviously will be competition in those two areas.


“Pipeline capacity is a governor of how quickly companies can grow and reinvest their cash. New pipelines will get built, but with a lead-time of two to four years, you can’t really be planning just for the next 12 months. You have to be looking three to four years out; that’s what we’re doing. We’re already setting our development schedule and pipeline contracts out to 2018.”


Marcellus Quarterly 2014 19


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