November 1, 2006
RICHMOND, Va. — Dominion (NYSE: D) will pursue the sale of most of its oil and natural gas exploration and production assets to put additional focus on growing its electric generation and energy distribution, transmission, storage and retail businesses. The move is designed to enhance long-term value by realigning Dominion’s operations and risk profile more closely with the company’s peer investment group of utilities.
As part of the repositioning, Dominion would retain its low-risk Appalachian Basin properties because of their value to the company’s natural gas pipeline, storage and gathering businesses. The Appalachian properties account for approximately 17 percent of proved reserves and 8 percent of Dominion’s average daily production as of September 30, 2006. These reserves would produce less than 5 percent of Dominion’s consolidated future operating earnings upon completion of any sale.
Proceeds from any sale would position Dominion to reduce debt, including debt at its CNG subsidiary, as well as to repurchase shares and/or to acquire assets that strengthen its remaining businesses. Following the sale, the remaining businesses should grow consolidated operating earnings at a rate of 4 to 6 percent annually while reducing the volatility of earnings.
Also following any sale, Dominion expects to maintain its existing targets for credit metrics. The company believes that this, combined with a lower business-risk profile, will enable it to maintain or improve its credit ratings at both Dominion and CNG.
Thomas F. Farrell II, president and chief executive officer, said:
"Our strategic review has determined that the best long-term course for Dominion is to place greater emphasis on our traditional utility businesses, which will account for about 64 percent of our income this year. We are very good at managing these businesses safely and efficiently, and we are widely considered to have very talented and skilled employees and one of the best sets of assets in the country.
"Equally important, these are the businesses that provide the balance of risk and reward with which our traditional shareholder base appears to be most comfortable. By redeploying net cash proceeds to debt reduction, stock buybacks and expansion of our remaining businesses, we believe that shareholders would see solid, reliable growth from a complementary set of assets.
"Dominion’s E&P business has delivered solid returns for several years. Our E&P team has created a great deal of value for our shareholders and the business is well positioned to continue growing production and earnings. We believe that a transaction will capture for our shareholders the value that Dominion E&P’s management team and employees have generated."
A formal sales process will begin in mid-February 2007 after the reserve audit for 2006 is completed. Closing is targeted to occur by mid-2007.
Dominion’s E&P assets are managed by Dominion subsidiary Dominion Exploration & Production Inc., one of the largest and most successful independent E&P companies in the United States. Houston-based Dominion E&P is one of the nation’s largest E&P companies in terms of reserves and production. It has been the nation’s most-active driller of new wells over the past four years, with just under 4,000 net wells.
Excluding the Appalachian Basin, Dominion’s unaudited estimate of proved reserves as of September 30, 2006, amounted to 5.5 trillion cubic feet equivalent. These reserves are located across several of the most prolific North American natural gas- and oil-producing regions, including the deepwater Gulf of Mexico, West Texas, the Mid-Continent and Rockies and the Western Canadian Sedimentary Basin. Of these reserves, about 76 percent are developed and the balance is undeveloped. About 76 percent of the reserves are natural gas with crude oil accounting for the balance. Average daily production coming from the non-Appalachian Basin properties, as of September 30, 2006, was 1,175 million cubic feet equivalent per day.
"The premier quality of our E&P reserves and operations is expected to produce significant interest among potential bidders," Farrell said. "These operations have a demonstrated track record of solid growth in reserves and production at top-quartile finding and development costs. It is rare that a business of this size and quality becomes available.
"Following a sale, our remaining E&P reserves of about 1.1 trillion cubic feet equivalent would fit well geographically and operationally with our natural gas pipeline, storage and gathering businesses. They have a risk profile more consistent with the risk profile of Dominion’s other businesses."
Today’s announced decision grows out of a previously announced ongoing strategic review of Dominion’s portfolio of businesses and assets. "I want to make it clear that our strategic review process is complete and that we intend to keep the resulting business profile for the foreseeable future," Farrell said. "However, our review of individual assets in each business unit will continue. We will work to improve the return on invested capital across the company."
Dominion has engaged the investment banking firms of JP Morgan, Lehman Brothers and Juniper Advisory LP with respect to the potential sale. Merrill Lynch is advising Dominion on market perception of existing and future activities. BakerBotts LLP and McGuireWoods LLP are the company’s legal advisers for the potential sale.
Dominion is one of the nation's largest producers of energy, with a portfolio of about 28,000 megawatts of generation, about 6.6 trillion cubic feet equivalent of proved natural gas reserves and 7,800 miles of natural gas transmission pipeline. Dominion also operates one of the nation's largest underground natural gas storage systems with about 950 billion cubic feet of storage capacity and serves retail energy customers in 11 states. For more information about Dominion, visit the company's Web site at http://www.dom.com.
This press release contains certain forward-looking statements including our projected future long-term operating earnings growth rates, projected future earnings mix, projected future trading multiples and projected use of proceeds that are subject to various risks and uncertainties. Factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations may include factors that are beyond the company's ability to control or estimate precisely, such as fluctuations in energy-related commodity prices, including changes in the cost of fuel for our regulated electric business, the timing of the closing dates of acquisitions or divestitures (including any divestiture of our natural gas and oil assets), risks associated with the realignment of our operating assets (including costs associated with any sale of our exploration and production business and the costs and reinvestment risks related to the redeployment of proceeds from any sales), realization of and timing of the receipt of expected business interruption insurance proceeds, additional risk exposure associated with the termination of business interruption and offshore property damage related to our exploration and production operations and our inability to replace such insurance on commercially reasonable terms, estimates of future market conditions, estimates of proved and unproved reserves, the company’s ability to meet its natural gas and oil production forecasts, the behavior of other market participants, and the effects of hurricanes on our operations, gas and oil production and realized prices. Other factors include, but are not limited to, weather conditions, governmental regulations, economic conditions in the company's service area, risks of operating businesses in regulated industries that are subject to changing regulatory structures, changes to regulated gas and electric rates collected by Dominion, risks associated with the realignment of our operating assets (including the potential dilutive effect on earnings in the near term, costs associated with any sale of our exploration and production business and the redeployment of proceeds from any sales), changes to rating agency requirements and ratings, changing financial accounting standards, trading counter-party credit risks, risks related to energy trading and marketing, and other uncertainties. Other risk factors are detailed from time to time in Dominion’s most recent quarterly report on Form 10-Q or annual report on Form 10-K filed with the Securities & Exchange Commission.
This press release is not an offer to sell securities and we are not soliciting any offers to buy securities.