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Dominion Talks Marcellus Play, Pipes in 3Q Earnings

Despite the impact of "unfavorable weather" on its regulated electric utility operations, higher contributions from that segment, the gas transmission segment and the unregulated retail energy marketing segment helped catapult Dominion's 3Q2009 earnings 17% above the year-ago quarter.

"Our core businesses continued to deliver strong operating earnings results this quarter despite unfavorable weather in our electric service territory," said CEO Thomas F. Farrell II. "Driven by the performance of our regulated businesses and combined with lower financing costs and a lower effective income tax rate, our operating earnings exceeded the top end of our guidance range. In consideration of our year-to-date operating earnings and our limited sensitivity to commodity price changes, we are affirming our 2009 operating earnings guidance range of $3.20-3.30/share."

For the three months ending Sept. 30, the Richmond, VA-based diversified energy company posted unaudited earnings of $594 million ($1/share) compared with $508 million (87 cents) for the same period in 2008. Operating earnings, which Dominion uses as its primary performance measurement, amounted to $592 million (99 cents/share) compared with operating earnings of $545 million (94 cents) for the same period in 2008.

During a Friday conference call, CFO Mark McGettrick noted that even unfavorable weather couldn't keep earnings down. "When compared to the third quarter of 2008 our operating earnings were up 5 cents/share despite one of the mildest July's on record in terms of weather." He noted that while overall sales were down slightly, "Dominion Virginia Power's revenues were up because of higher electric transmission and military privatization revenues."

Dominion's asset portfolio includes more than 27,500 MW of generation, 1.1 Tcfe of proved natural gas and oil reserves, 14,000 miles of natural gas transmission, gathering and storage pipeline and 6,000 miles of electric transmission lines. The company operates 975 Bcf of storage capacity and serves retail energy customers in 12 states.

Farrell said Friday the company is expanding its gas transmission infrastructure. In late September Dominion said it was targeting the Appalachian Basin with a pipeline project that would carry shale and traditional gas production from West Virginia and southwestern Pennsylvania to storage fields and pipelines in Pennsylvania (see NGI, Oct. 5). In August Dominion announced a partnership with Williams to develop the Keystone Connector project, which would carry up to 1 Bcf/d from the Rockies Express Pipeline terminus in Ohio to eastern and Mid-Atlantic markets (see NGI, Aug. 17).

"This quarter we also continued our emphasis on meeting the growing energy infrastructure needs of our customers by pre-filing our Appalachian Gateway Project with the Federal Energy Regulatory Commission and announcing our intention to form a joint venture with Williams to market and develop a new pipeline called Keystone Connector," Farrell said Friday.

Farrell also addressed the company's plans for its Marcellus acreage. Dominion sold most of its E&P assets in several transactions in 2007, but it kept its leasehold in the Appalachian Basin (see NGI, Aug. 20, 2007).

"With respect to Dominion's Marcellus Shale acreage, we do not plan to develop this property ourselves but rather capture its value for our shareholders through an outright sale, a farm-out or a similar transaction over the next two years, depending on market conditions," Farrell said.

Looking ahead, Dominion expects 4Q2009 operating earnings of 55-65 cents/share, down from the 72 cents recorded during 4Q2008. The CEO affirmed Dominion's 2010 operating earnings outlook of $3.20-3.40/share.

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