Dominion will receive $424.4 million in cash for a fixed-term overriding royalty interest in more than 2,900 producing natural gas wells across the United States under a volumetric production payment (VPP) with UBS Investment Bank that was announced Friday.
The wells are located in Utah, New Mexico, Alabama, West Virginia and Michigan. Dominion will retain control of the properties and rights to future development drilling, as well as production above the VPP volumes.
"This VPP transaction allows us to monetize a portion of our reserves while retaining control of the underlying assets," said Duane Radtke, CEO of Dominion Exploration & Production. "It also provides a stable and predictable supply of natural gas to UBS from our long-lived gas production."
The VPP transaction will allow UBS to receive 76.4 Bcf of gas over the next four years. UBS's production will be delivered to multiple pooling points in various states at an initial rate in excess of 67 MMcf/d, declining to 43 MMcf/d at the end of the four-year term. Total 2005 volume will be 19.8 Bcf.
The VPP transaction, Dominion's third since 2003, will reduce Dominion's natural gas reserves by 76.4 Bcf. Dominion will recognize revenue from the transaction as natural gas is produced and delivered at approximately $5.50/Mcf, and it will continue to incur the operating costs. The transaction has no effect on Dominion's 2005 operating earnings per share guidance.
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