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EQT accuses rogue worker of aiding Rice group's takeover efforts

A laid-off EQT Corp. engineer had until March 22 to respond to the company's demand that he submit his personal electronic gear for a search for evidence that he took trade secrets from the Appalachian shale driller and is now helping a hostile shareholder group.

EQT claimed in a March 18 filing to the U.S. District Court for the Western District of Pennsylvania that former employee Jeffrey Lo used information he took from the company the night before being fired to help the former leaders of Rice Energy make a case for a complete makeover of EQT. EQT wants to search Lo's cell phone, laptops, email and Google Drive accounts for more evidence that he took company secrets and shared them with the Rice team.

Claiming that disgruntled workers are helping the Rice group marks a nasty turn in what is setting up to be a vicious proxy battle at EQT's annual meeting in July. Toby and Derek Rice, who became significant EQT shareholders when the company bought Rice Energy for $6.7 billion in November 2017, launched a campaign in January to replace EQT's board and upper management. The Rice brothers said their experience shows they could lower EQT's costs. They announced their slate of new directors March 21.

EQT claims that reservoir engineer Lo and former production engineering manager Charles Cunningham used their knowledge and stolen data to help the Rice brothers prepare a Feb. 5 presentation that would show lower well costs and generate $500 million per year in free cash flow.

The motivation for both was to get in good graces with the Rice team and find work back at EQT if and when the Rice family took over, according to EQT.

EQT presented more than 100 pages of edited depositions by Cunningham, whom EQT is suing in state court for trade secret theft, and selected copies of emails and texts between the two in support of a wider search of Lo's digital gear.

The Rice group said EQT is using Lo and Cunningham to distract from its failures in the field. "Despite EQT's transparent attempt to smear the Rice team, the fact is that all of our materials and analyses have been based on and sourced to public information," Rice group spokesman Jim Barron said March 21. "It is telling that EQT would try to divert attention from the real issue which is how its poor operational performance has destroyed substantial shareholder value."

EQT declined to comment beyond what the company had told the court. "EQT takes this matter very seriously, and is committed to protecting the company's trade secrets and intellectual property," spokeswoman Linda Robertson said.

Neither Lo's nor Cunningham's attorneys replied to a request for comment.

According to EQT, Lo downloaded data the night before his January firing and within weeks was helping the Rice group build an investor presentation that showed that Rice managers would drill better wells cheaper. Lo turned to former production manager Cunningham to confirm EQT's well-cost numbers.

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Cunningham said the numbers he gave Lo were just confidence boosters that Rice was on the correct track and never appeared in the presentation. "I went through all the footnotes, all the slides three times, spent hours on it," Cunningham said in March 13 deposition for his state court case. "I can't find any direct evidence of the information I gave [Lo], any direct figures or use of those figures in the slide deck."

Whether the well-cost numbers were or were not used, Cunningham was effusive in his praise of Lo's work as the two texted during the Rice group's Feb. 5 web presentation. "Great slides," Cunningham texted Lo, "APPENDIX LEAVES NO DOUBTS. Very detailed."

"Yeah dude. They're [presumably EQT] just digging their grave, too," Lo responded later. "Too stubborn to ever admit wrong in fear of their own selfish reputation."

"Sad that Rice had to do their peer analysis for them," Cunningham texted.

"Rice team is happy to do that for them," Lo replied, a key piece of EQT's evidence that Lo was working for the opposition.

"Lo's statement that the Rices were somehow engaging in a 'peer analysis' for EQT in February 2019 supports that Lo had been involved in providing non-public EQT information to the 'Rice Team,'" EQT told the court.

EQT says Cunningham acknowledged taking trade secrets and his testimony proves that Lo was playing with words when he told the federal court March 5 that he never downloaded proprietary information to his cellphone or laptop. "Crucially, Lo declined to swear that he does not currently possess EQT's trade secrets, confidential information and/or proprietary information on Google Drive or other cloud-based storage spaces," EQT's said.

While Cunningham acknowledged taking company data as he was being laid off, he excused it repeatedly in his deposition, saying, in essence, that everyone took their work product with them when they left as samples for future jobs.

EQT said a forensic examination of two company-owned storage devices Lo left behind when he was laid off with roughly 100 others in January showed that Lo came to EQT's downtown Pittsburgh headquarters the night before he was to be laid off and searched his company and personal storage for specific programs and data that were company property. A forensic analysis of his moves through his hard drive, laptop and cloud-based memories indicates that Lo ensured EQT's proprietary well-management programs and data had been copied to his Google Drive account, EQT said. (U.S. District Court for the Western District of Pennsylvania docket 19-CV-00178)