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Former BlackRock Manager Finds Billions on Rice Energy

Daniel J. Rice III, who spent about seven years managing energy assets for BlackRock Inc., became a billionaire in January after Rice Energy Inc. sold shares in an initial public offering.

Rice Energy, the natural gas company he founded in 2007, produces about 161 million cubic feet of natural gas a day from its wells in southwestern Pennsylvania and southeastern Ohio. The 62-year-old owns about 42.7 million shares of the company directly and through two entities, Rice Partners and Rice Holdings. The company has risen 14 percent since the offering, valuing his stake at $1.02 billion, according to the Bloomberg Billionaires Index.

The former BlackRock fund manager controls a portion of the shares with two sons, Rice Energy Chief Executive Officer Daniel Rice IV, 33, and Chief Operating Officer Toby Rice, 31, according to filings with the U.S. Securities and Exchange Commission. A third son, Derek Rice, 28, is vice president of exploration and geology.

“Rice helped his sons set up this new company for drilling in the northeast,” Jim Willis, editor of trade publication Marcellus Drilling News, said by phone from his office in Binghamton, New York. “They are doing very good work and going about it the right way.”

William E. Jordan, Rice Energy’s general counsel and corporate secretary, confirmed the Rice family’s stake in a phone interview. Rice, who lives in the Boston area, has never appeared on an international wealth ranking, and didn’t respond to e-mail and phone requests seeking comment.

Undervalued Companies

The billionaire in 1990 began managing the Energy & Resources Portfolio for State Street Research & Management Co., which BlackRock acquired in 2005. He relied on energy-price forecasts to find undervalued companies, a process that delivered peer-besting returns and above-average risk, according to a June 2012 report by Morningstar Inc. analyst Rob Wherry.

In the decade ended Dec. 31, 2010, Rice beat 99.9 percent of all U.S. stock-fund managers, according to data compiled by Bloomberg. He lagged behind 99 percent of his peers in his final six months at the helm.

Rice founded the Canonsburg, Pennsylvania-based shale gas producer in 2007, when he was managing more than $1 billion for BlackRock funds and institutional clients. He retired from the world’s largest money manager five years later to avoid the appearance of a conflict of interest, according to a June 2012 statement by BlackRock spokeswoman Bobbie Collins. Rice Energy at the time had a subsidiary that had a joint venture with one of his mutual fund’s top holdings, Alpha Natural Resources Inc.

Fracking, Drilling

His formation of the natural gas exploration and production company coincided with the rise of extraction methods such as hydraulic fracturing and horizontal drilling. The techniques enabled companies to access little-tapped oil and gas resources in shale rock, such as the Marcellus formation in Pennsylvania and the Utica formation in Ohio.

The company holds about 43,350 net acres in the southwestern portion of the Marcellus Shale in western Pennsylvania, and 46,490 net acres in the Utica Shale, the majority of which is located in Belmont County, Ohio.

The increase of domestic gas production has led benchmark natural gas Henry Hub prices to fall to about $6 from more than $8 per million cubic feet in 2007. In the nine months ended Sept. 30, Rice Energy had $123.7 million in revenue and lost $7.8 million, according to the filings.

Mitigating Conflicts

Rice began serving last year as the primary portfolio manager for energy sector strategies at GRT Capital Partners LLC in Boston, a hedge fund company with about $885 million in assets under management, according to Amanda Kuhl, a company spokeswoman.

Daniel Neumann, who assisted Rice in managing five energy funds at BlackRock and took over the Energy & Resources Portfolio as co-manager in 2012, has been employed by GRT Capital since September, according to GRT’s website.

In its Form ADV amended with the SEC in January, GRT disclosed that Rice has a potential conflict of interest managing GRT funds.

“Mr. Rice and the Investment Manager take steps that they reasonably believe mitigate against any conflicts that may arise as a result of Mr. Rice’s involvement with Rice Energy Inc.,” the company said in the filing.

A Rice Energy subsidiary yesterday bought assets in eastern Washington and Green Counties, Pennsylvania, from M3 Appalachia Gathering LLC, a subsidiary of Houston-based M3 Midstream LLC, for $110 million in cash.

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