Rice Energy Inc. (NYSE: RICE) ended up an also-ran to acquire core Marcellus and Utica acreage in central Greene County, Pa.

On April 12, Rice entered into a stalking horse agreement with a subsidiary of bankrupt Alpha Natural Resources Inc. to buy the acreage for $200 million. However, at a May 16 auction an unidentified third party outbid Rice with a price of $339.5 million for the acreage.

Rice still walks away with some of the purse. The company is entitled to a $2 million break fee and expense reimbursements of up to $1.5 million. The company provided a $20 million deposit.

In anticipation of the purchase, the company raised about $312 million, which was also to be used for general corporate purposes. The sale diluted ownership by 13%.

“In light of the outcome of the auction and upon completion of the offering, the company has $1.5 billion of total liquidity,” Rice said in Securities and Exchange Commission (SEC) filings. “The company intends to use the proceeds from the offering for general corporate purposes, which may include funding a portion of its 2017 capital budget.”

Wells Fargo Securities LLC said that, while disappointing for Rice to lose out on quality acreage in its core operating area, it was wise not to engage in an expensive bidding war that could have cost it leverage and liquidity.

“In addition, the company comes out on the other side with a stronger balance sheet following the recent equity raise, and more fire power to either execute an increased drilling program or take advantage of other acreage acquisition opportunities,” Wells Fargo said in May 17 commentary. “With more than 10 years of drilling inventory without the Alpha assets, the company has a solid development pipeline and maintaining a strong balance sheet will be rewarded over long term in our view.”

The company would have acquired the Marcellus acreage at $6,600 per acre and increased its inventory to 182 net Marcellus and 50 net deep Utica locations, said Gordon Douthat, Wells Fargo Securities senior analyst.

Rice had said the core acreage is directly adjacent to “our existing proved developed Marcellus position in Greene County and increases our inventory of low-risk, core dry gas Marcellus locations by 37%.” Additionally, the producing royalty interests and the emerging deep Utica acreage provide a compelling mix of near-term cash.

Rice also said it completed its lending redetermination, which resulted in a $125 million increase to its borrowing base for a total of $875 million its borrowing base.

Darren Barbee can be reached at dbarbee@hartenergy.com.

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