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Dominion Targets Shale Boom with Processing, Takeaway and Export Projects

While lower profits in its merchant generation business and a decrease in weather-related energy sales hampered Dominion Resources Inc.'s full-year and 4Q2011 earnings, the Richmond, VA-based company said it has made "significant progress" in developing infrastructure projects to serve the robust shale gas production from the Marcellus and surrounding plays.

CEO Tom Farrell told financial analysts during Friday's conference call that subsidiary Dominion Transmission Inc. (DTI) made progress on several capital projects in 2011, including the first phase of a natural gas processing and fractionation plant in Natrium, WV, construction of the Appalachian Gateway Pipeline, and expansions of the Ellisburg-to Craigs and Northeast pipelines, all of which he said would be in brought into service this year (see Shale Daily, Sept. 16, 2011; Aug. 8, 2011; June 20, 2011; May 23, 2011).

With so much shale gas on hand, Farrell added that interest was also growing in the company's plans to export liquefied natural gas (LNG) from its Cove Point terminal in Lusby, MD, which is situated on the Chesapeake Bay (see Shale Daily, June 1, 2011).

"We are engaged in discussions with numerous potential customers in Europe and Asia, as well as producers in the Appalachian Basin," Farrell said, adding that last October the company asked the U.S. Department of Energy (DOE) for approval to export up to 365 Bcfe/year for 25 years to non-free trade agreement countries. "Our filing supports our belief that the project will have many positive economic benefits, and we are hopeful for DOE approval later this year."

Commenting on operations for the fourth quarter, Farrell said Dominion received permits from Ohio to drill 51 new horizontal wells in the Utica Shale, more than doubling the number in effect at the end of 3Q2011.

"Every single Utica well online in the state of Ohio is tied into the wet gas gathering system at Dominion East Ohio," he said, adding that the company's Hastings Extraction/Fractionation Plant near Pine Grove, WV, had a record fractionation volume of over 180 million gallons of natural gas liquids (NGLs) in 2011. "Producer activity in the Marcellus and Utica formations is occurring despite low natural gas prices due to the economic value of the liquids contained in the gas stream."

According to Farrell, Dominion plans to invest $11.6 billion over the next five years to build new facilities and to replace much of the gathering, processing and transmission lines in eastern Ohio.

The first phase of the Natrium facility is expected to cost $500 million and be in service by December, processing 200 MMcf/d and fractionating 36,000 b/d of NGLs. Natrium's second phase is expected to be in service by 4Q2013. Meanwhile, the $634 million Appalachian Gateway pipeline -- a 109-mile line designed to carry shale and conventional gas produced in West Virginia and southwestern Pennsylvania to markets in the Mid-Atlantic and Northeast -- is expected to be in service by September.

DTI plans to expand its Ellisburg-to Craigs pipeline by November to accommodate Tennessee Gas Pipeline, which signed a 10-year lease agreement for capacity on the line. Tennessee wants to move up to 150,000 Dth/d from its 300 Line in northern Pennsylvania to its 200 Line in upstate New York. DTI's plan to expand its Northwest pipeline to 200,000 Dth/d is also expected to be completed by November. Like the Appalachian Gateway, it will also service markets in the Mid-Atlantic and Northeast.

Dominion reported earnings of $201 million for 4Q2011 (35 cents/share), a decline of nearly 33% from the $298 million (51 cents/share) the company made during the same quarter the previous year. Overall profits were dragged down because the company's generation division made just $117 million during 4Q2011, down more than 42% from the $203 million the division brought in for 4Q2010.

For the full-year 2011, Dominion made $1.4 billion ($2.45/share), just about half of the $2.8 billion ($4.76/share) the company made in 2010.

"We delivered operating earnings per share within our guidance range in the face of a sluggish, yet improving economy, weak commodity prices and mild weather, particularly in the fourth quarter," Farrell said. "[Our] shareholders were rewarded in 2011 with a total return of 29.4%, which exceeded the returns for most of our industry peers as well as the overall market."

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