Dominion Sells More of Its Oil and Gas Assets

By Steven Mufson
Washington Post Staff Writer
Tuesday, June 5, 2007

Dominion Resources has agreed to sell most of its onshore oil and gas reserves for $6.5 billion, part of a strategy to streamline the company and focus on its electric utility, which serves customers in much of Virginia and parts of North Carolina.

In the larger of two deals, Loews, the holding company controlled by the Tisch family of New York, agreed to pay $4 billion for 2.5 trillion cubic feet of Dominion natural gas reserves in west Texas, Michigan and Alabama. Separately, XTO Energy in Fort Worth said it would pay $2.5 billion for 1 trillion cubic feet of reserves in the Rocky Mountains, Texas and southern Louisiana.

Loews chief executive James Tisch said in a conference call that he expects strong U.S. demand for natural gas "as we move into a world worried about global warming and greenhouse gases." Despite increases in imports of liquefied natural gas, Tisch said, "my guess is that we're nonetheless going to see a tight supply-and-demand situation in the United States."

Loews, originally a resort hotel business, now owns Lorillard Tobacco, CNA Financial, watchmaker Bulova and a controlling stake in Diamond Offshore Drilling.

The Richmond utility holding company, which had put most of its oil and gas assets up for sale last November, said it would use the proceeds to reduce debt and buy back shares. A Dominion spokesman said the company also hopes to boost its stock price by shedding operations that hinge on volatile oil and gas prices and concentrating on more predictable electricity sales. It also plans to retain its natural gas pipeline and storage operations.

Dominion chief executive Thomas F. Farrell III said in a statement that the new, leaner Dominion expects to have operating earnings of $6 a share in 2008 and to achieve 4 to 6 percent annual growth in per-share earnings after that.

"Our $3.2 billion to $3.5 billion range of estimated debt reduction lays the groundwork for us to achieve [and] maintain a high triple-B credit rating over the next few years. Every dollar not used for debt retirement can be committed to the repurchase of common stock," Farrell said.

In an earlier deal, Dominion sold its Gulf of Mexico oil and gas reserves to Eni, the Italian multinational oil company, for $4.8 billion. And two Canadian energy trusts last week agreed to pay $583 million for Dominion's deposits in Canada.

Those deals, combined with the two announced yesterday, raised $11.9 billion, putting the company on better footing to add electric power generation in Virginia, which it said would require an additional 4,000 megawatts of capacity by 2011.

Dominion is building wind turbines in West Virginia with 82 megawatts of capacity, and it has proposed a variety of new power-generation projects, including a 300-megawatt natural-gas-fired plan in Ladysmith, Va., and a 600-megawatt coal-fired plant in Wise County, Va.

It is also seeking a permit to build 1,500 megawatts of nuclear capacity by adding a third reactor unit at its North Anna plant in Virginia.

Utility analysts said yesterday, however, that the sale of Dominion's oil and gas assets had brought in less money than anticipated.

Although Dominion is still seeking to sell additional onshore oil and gas reserves, analysts said they now expect the total to reach $13.5 billion, compared with the $15 billion that was expected when the company first said it intended to sell the reserves.

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