Warren Buffett’s Berkshire buys Dominion Energy natural gas assets in $10 billion deal
Warren Buffett’s Berkshire Hathaway is finally pulling the trigger.
The conglomerate is spending $4 billion to buy the natural gas transmission and storage assets of Dominion Energy. Including the assumption of debt, the deal totals almost $10 billion. It’s the first major purchase from Berkshire since the coronavirus pandemic and subsequent market collapse in March.
At his annual shareholder meeting in May, Buffett revealed that Berkshire had built up a record $137 billion cash hoard as the financial market tanked, and that he hadn’t seen many favorable deals, despite the stock market’s deep swoon.
“We have not done anything because we don’t see anything that attractive to do,” Buffett said at the time, suggesting that the quick actions taken by the Federal Reserve this year meant companies could get more access to financing in the public markets than they could during the financial crisis in 2008 and 2009.
“If we really liked what we were seeing, we would do it, and that will happen someday,” Buffett said in May.
For Dominion, the move is one of a series it is taking to transition to a pure-play regulated utility company that focuses on clean energy production from wind, solar and natural gas. Following the sale, Dominion expects that 90% of its future operating earnings will come from its utility companies that provide energy to more than 7 million customers in states like Virginia, North and South Carolina, Ohio and Utah.
Dominion is simultaneously announcing that it is cancelling the the Atlantic Coast Pipeline project with Duke Energy. The $8 billion project has faced increasing regulatory scrutiny and delays that have ballooned projected costs and raised doubts about its economic feasibility.
As a result of the sale and its streamlined operations, Dominion is warning that it now expects its operating earnings for 2020 to be $3.37 to $3.63 a share. Its previous guidance was for $4.25 to $4.60 a share. The company is also planning to cut its dividend in the fourth quarter to 63 cents a share, from the 94 cents a share that it paid out in each of the first two quarters of the year and that it anticipates paying out for the third quarter.
Currently, Dominion pays out 85% of its operating earnings, but post transaction the company is targeting an operating earnings payout of 65%, which it says is more in line with its peers.
For Berkshire, the move greatly increases its footprint in the natural gas business. With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States, up from 8% currently.
Under the terms of the transaction, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission, and 50% of Iroquois Gas Transmission System. Berkshire will also acquire 25% of Cove Point LNG, an export, import and storage facility for liquefied natural gas, one of just six LNG export terminals in the U.S.
Berkshire Energy will pay $4 billion in cash for the assets, and assume $5.7 billion in debt. Dominion plans to use about $3 billion of the after-tax proceeds to buy back its shares later this year.
The deal is subject to regulatory approval and is expected to close in the fourth quarter of this year.
By Erin Cox July 5, 2020 at 3:10 p.m. CDT washingtonpost.com
This is a developing story. It will be updated.
The two energy companies behind the controversial, 600-mile Atlantic Coast Pipeline abandoned their six-year bid to build it on Sunday, saying the project has become too costly and the regulatory environment too uncertain to justify further investment.
The natural-gas pipeline would have traversed the Appalachian Trail on its way from West Virginia through Virginia and into North Carolina. It drew national attention — and opposition — from environmentalists.
Virginia-based Dominion Energy and North Carolina-based Duke Energy spent years fighting regulatory battles that went all the way to the Supreme Court, which ruled favorably for the companies last month.
But company officials said in a statement that other recent federal court rulings have heightened the litigation risk, extended the project’s timeline and further balloned the cost of the project, which already risen from an estimated $5 billion in 2014 to $8 billion today.
“This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the United States,” Dominion chief executive Thomas F. Farrell II and Duke Energy chief executive Lynn J. Good said in a joint statement. “Until these issues are resolved, the ability to satisfy the country’s energy needs will be significantly challenged.”
I just added some interesting context to the Dominion decision in the other thread that should be part of the discussion beyond political leadership. I think that market forces, not politics, speak to the real reason for the abandonment by Dominion, not only of the proposed Atlantic Coast Pipeline but of all their natural gas related infrastructure and investments.