U.S. oil and gas company EQT Corp said on Monday it would buy Rice Energy for $6.7 billion, a deal that would create the biggest natural gas producer in the United States.
This would be the biggest deal ever for EQT as it looks to expand its natural gas business.
Rice Energy's shares surged almost 27 percent to $24.95 in afternoon trading, but below the $27.05 per share offered by EQT. EQT's shares were down 7.6 percent.
The deal would put the combined EQT-Rice ahead of Exxon Mobil Corp as the nation's biggest gas producer. U.S. energy firms are pumping money into gas-rich states like Pennsylvania, West Virginia and Ohio. The United States should soon become the world's top natural gas exporter.
"EQT appears to be empire building," analysts at Mizuho said in a report, noting they expect EQT to begin monetizing Rice's midstream assets by dropping them down to EQT Midstream Partners, which could raise $1.3 billion.
EQT said it would be able to drill longer horizontal wells in Pennsylvania after the deal as most of the acquired acreage is next to where EQT already drills or owns land.
"EQT is a decade behind in fracking technology used by industry leaders in Marcellus/Utica," said Dallas Salazar, CEO of energy consulting firm Atlas Consulting. "EQT needs a lot, and Rice offers a lot of what it needs."
EQT has been buying acreage in the Marcellus shale field, with some of the cheapest gas in the country. Most recently it picked up 53,400 acres in the field from Stone Energy Corp.
EQT said the acquisition would increase its 2017 average sales volume by 1.3 billion cubic feet equivalent per day (bcfe/d) and core acres in the Marcellus field by 187,000 to 670,000.
The deal would also give the company access to Rice Energy's midstream assets, including a 92 percent interest in Rice Midstream GP Holdings. EQT will take on about $1.5 billion in debt.
Rice Energy shareholders will receive $5.30 per share in cash and 0.37 EQT shares for each share they hold, EQT said.
The offer translates to a price of $27.05 per Rice Energy share, representing a premium of 37.4 percent to the stock's Friday closing price, according to Reuters calculations.
Citigroup was EQT's financial adviser, while Wachtell, Lipton, Rosen & Katz were its legal advisers. Barclays Capital Inc was Rice Energy's financial adviser and Vinson & Elkins LLP its legal adviser.
(Additional reporting by Scott DiSavino in New York)