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Dominion's Stake in Atlantic Coast Pipeline Would Increase With Piedmont/AGL Acquisitions

Duke Energy Corp.'s bid to purchase Piedmont Natural Gas Co. would give it and Dominion Resources Inc. a larger stake in the $4.5 billion Atlantic Coast Pipeline (ACP), which is being designed to ship more Appalachian natural gas to the Southeast.

Dominion CEO Thomas Farrell said that if Duke closes its transaction and Southern Company closes its purchase of AGL Resources Inc., Dominion would own a 48% interest in the pipeline, while Duke would own 47% and Southern would own 5% (see Daily GPIOct. 26;Aug. 24). Prior to the planned acquisitions, which are both expected to close by late next year, Dominion would have owned 45%, while Duke would have owned 40%; Piedmont 10% and AGL 5%.

"Dominion will remain the operator and there will be no changes in the management or operation of the project," Farrell said Monday during a third quarter earnings call. "As provided for in our existing agreement, upon closing of the transaction, the ownership structure will be recalibrated, with Dominion retaining its leading ownership percentage."

For Dominion, which saw its earnings grow in the third quarter and its revenue hold up in a challenging market, ACP is part of an organic growth strategy to keep that momentum going. Dominion Midstream Partners LP, which was formed in October 2014 to primarily own Dominion Cove Point LNG, has 3 Bcf/d of growth projects under way. Dominion Resources owns more than 68% of the master limited partnership (MLP).

Management added that the MLP would require no dropdowns or equity to support a 22% year-over-year growth rate in 2016. ACP filed its Federal Energy Regulatory Commission applications in September; surveying is nearly 85% complete. The backers expect to begin construction in 4Q2016 and have the pipeline, which is about 96% subscribed by LDCs, in service by November 2018.

Farrell added that the company's Cove Point facility in Maryland, which would enable Dominion to export 5.75 million tons/year of liquefied natural gas (LNG), remains on schedule and on budget. About 47% of the project is complete.

Dominion reported net income of $611 million ($1.03/share) in the third quarter, compared to $545 million (93 cents/share) in the year-ago period, mainly from gains on asset farm-outs and a strong performance from its power generation segment. Revenue dipped slightly from $3.1 billion in the year-ago period to $3 billion on higher expenses.

The company closed its first farm-out of 16,000 acres in the Utica Shale in September. Management said it still has another 160,000 acres available in the play that it could farm-out.

"There is certainly a lot of stress among the producer community, but there is also a real interest in getting a secure acreage position in this basin, and what our acreage offers is really a lot of acreage that is blocked up, that is contiguous," said Paul Koonce, CEO of the company's energy infrastructure group. "Because it's held-by-production, there's no limit on when the leases will expire. So from that standpoint, there continues to be a lot of real interest, especially when you look at some of these Utica initial production rates. We've seen real strong interest and have seen no let up."

Dominion did not disclose the terms of its Utica deal. The company is one of the nation's largest producers and transporters of energy, with a portfolio of 24,000 MW of electric generation capacity and 12,200 miles of natural gas transmission, gathering and storage pipelines.

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