spwm eqtA year and a half after selling their Marcellus shale-gas company to the much larger EQT Corp., the founders of Rice Energy launched a board room rebellion to remove EQT’s management for allowing the company’s value to drop by 42 percent, according to published reports.

The failure to deliver on returns promised to investors at the time of the merger was cited by industry analysts as a cautionary example of how size does not always translate into profits.

The merger formed a company that produced more natural gas than ExxonMobil with the potential for even greater volumes from massive new horizontal well projects in the Marcellus located on adjacent acreage positions held by the two companies, according to a report in the Wall Street Journal.

“We strongly believe the potential of the EQT-Rice merger can still be realized, but a major course correction is needed,” according to a statement issued by members of the Rice family, who hold a 2.7 percent stake in EQT.

EQT management told its shareholders in January it would cut costs by $50 million annually, mostly through lay-offs, and urged investors to reject the proposal to shake up the company because it was “based on flawed assumptions” according to Robert McNally, CEO at EQT.

In April 2018, EQT announced it had drilled at horizontal well to a total depth of 18,670 ft. and indicated new wells drilled to total depth of up to 20,000 ft. would be possible. By October however, EQT management admitted some wells drilled further than 15,000 ft. had run into problems, and that even with an additional $300MM in capital expenditure, company gas production would decline by three percent for the year.

Corporate policies that drive growth over returns have come under fire from many in the investment community, the newspaper reported. Over the past decade, oil and gas companies have spent about $100 billion more than they earned, causing investors to lose patience. As a result, many shale companies have moved toward consolidations and divested non-core assets to fund acquisitions.

The rocky honeymoon of the EQT-Rice merger shows that bulking up a shale operation is not always a formula for increased profits.