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Dominion to Sell Natural Gas Assets to Berkshire for $9.7B

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Dominion Energy (D - Free Report) announced that it has entered into a definite agreement to sell natural gas transmission and storage assets to an affiliate of Berkshire Hathaway Inc. (BRK.B - Free Report) for $9.7 billion. The transaction includes the assumption $5.7 billion of the existing debt of Dominion’s natural gas business.

The deal will include more than 7,700 miles of natural gas storage and transmission pipelines, and about 900 billion cubic feet of gas storage currently operated by Dominion. This agreement is expected to be over by the fourth quarter of 2020, subject to necessary regulatory approval.

Rationale Behind Selling Natural Gas Assets

The deal will support Dominion’s transition toward regulated and sustainable operations. Post this transaction, the company expects up to 90% of future operating earnings to come from the portfolio of regulated electric and natural gas utility companies. This transaction will also allow Dominion to focus on clean electric generation and lower emissions from power production. The company aims to retire more than 4 gigawatts (GW) of coal- and oil-fired electric generation from its portfolio in the 2018-2025 time period. In addition, utilities like NextEra Energy (NEE - Free Report) and Xcel Energy (XEL - Free Report) , among others, have chalked out plans to lower carbon emissions from the production process.

Dominion has issued 22 million shares for the acquisition of Dominion Energy Midstream Partners’ common units. This share dilution is expected to have an adverse impact on 2020 earnings. However, Dominion intends to utilize after-tax adjusted transaction proceeds of nearly $3 billion to repurchase outstanding shares, which will have a positive impact on earnings over the long term.

This deal will also assist Dominion to lower the long-term debt level by $5.7 billion and further strengthen the balance sheet. The company’s long-term debt at the end of first-quarter 2020 was $31.1 billion.

Revision in Guidance

Taking into consideration the impact of this asset divestiture agreement, Dominion revised its earnings guidance. The company now expects 2020 earnings within $3.37-$3.63 per share, down from its previous guided range of $4.25-$4.60.

The company expects 2021 operating earnings per share to improve 10-11% year over year, taking into account the full-year positive impact of planned share repurchases, and 6.5% annually starting in 2022, off a 2021 base.

It expects 2021 annual dividend to decline to $2.50 per share from the 2020 level of $3.76 due to lack of income from divested natural gas assets, but expects 2022 annual dividend to improve 6% from 2021 levels.

Price Performance

In the past 12-month period, the stock has gained 5.7% against the industry’s decline of 7.3%.



Zacks Rank

Dominion currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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