Dominion Resources Inc. is well into the process to secure a partner to farm-out about 100,000 prospective liquids-rich acres in West Virginia, offering a can’t-lose proposition for both sides, a spokesman said Monday.

The acreage set to be farmed out lies about 5,000 feet below about 1 Tcf of Dominion gas storage facilities, the company said last week (see Shale Daily, Sept. 13a). Besides strong prospects for natural gas liquids, the farm-out may give Dominion grabs on processing and transporting the production, according to Dan Donovan.

The farmout, a planned master limited partnership (MLP) and initial approval by federal officials for Dominion to export liquefied natural gas from its Cove Point terminal in Calvert, MD have been met with enthusiasm by investors, sending the company’s stock price from $58.61 on Wednesday to $61.28 when trading ended Friday.

The decision to retain the mineral rights in the Appalachian Basin five years ago, when the company sold most of its exploration and production assets, is paying off, Donovan told NGI’s Shale Daily.

“The farmout is a big thing,” he said. “It’s unusual to be less interested in cash up front plus a royalty. We are more interested in being the processor of the gas and providing transportation…

“We feel comfortable that the acreage in the farmout can be drilled below our storage field. We have other storage fields right below the Marcellus Shale where we don’t feel comfortable about someone drilling. But the land to be farmed out can be drilled down and over.”

As part of its long-range growth plans in the basin, Dominion is creating an MLP, as yet unnamed, that initially would have access to the cash flow of Cove Point and Blue Racer Midstream LLC, a 50-50 $1.5 billion joint venture (JV) with Williams unit Caiman Energy II LLC that would provide services to gas operators in the Utica Shale in Ohio and portions of Pennsylvania (see Shale Daily, Dec. 24, 2012). The Cove Point export venture is slated to cost more than $3 billion (see Shale Daily, Sept. 13b).

“An MLP could have access to about $1 billion in cash flow from Cove Point and the Blue Racer JV,” Donovan said. “There’s also the possibility we may form another MLP” that could include regulated entities within Dominion Gas, including Dominion Transmission, East Ohio Gas and an interest in the Iroquois Pipeline (estimated at 24%). The second MLP may provide another $1 billion in cash flow.

“Basically, the reason we are doing this is the growth from those companies is generating a low of cash flow, which fits into MLP structures,” he said.

In a separate move, Dominion is creating a holding company, Dominion Gas Holdings, for its regulated companies, Dominion Transmission, Dominion East Ohio and its 24% interest in Dominion Iroquois. “The holding company would give bondholders and shareholders a more transparent view of the actual debt levels,” Donovan said. “We also don’t think those companies’ true value is reflected in the stock price…By separating them, we think investors will be able to recognize the value.”

Through all of the myriad restructurings since 2008, Dominion has been working to unlock shareholder value. “If we just did an MLP with Cove Point and Blue Racer, it would be one of the top MLPs in the country,” Donovan said.

“Call us lucky, but we are benefiting from the Marcellus Shale and now the Utica Shale. It is leading to so many investment opportunities that with just these two structural moves — the holding company and the MLP — we are unlocking more value for shareholders.”

Energy analysts appear to agree.

“After a decade-long deliberation, Dominion Resources has finally decided to form a MLP,” write Zacks Equity Research. “The timing is immaculate given Dominion’s high quality assets and the recent Department of Energy approval to export natural gas. In fact, selling natural gas in the overseas market could be a cash churning business for these energy companies…”

Dominion “is presently involved in a number of development projects and will require ample funds to carry out these activities. The projects in which this proposed MLP will be involved in will generate free cash flows. Moreover, the predictable and stable revenue streams of the MLP will attract investor attention…

“Though Dominion will not find it difficult to secure funds from other sources, the MLP structure will make it all the more convenient to raise fresh capital from the markets. In this low interest rate environment, we believe the Dominion MLP will attract investors looking for assured returns in the guise of cash distribution.”

JP Morgan analyst Christopher Turnure upgraded shares of Dominion (D) to “overweight” from “neutral,” setting a $68/share target. “Together with the impact of announced incremental Marcellus and utility capital spending potential, we now believe D shares deserve a higher multiple. We do not believe the recent outperformance and current valuation reflect this growth due in part to the fact that some of the growth details including those of the MLP formation are yet-to-be-determined. We still feel the name has potential for significant outperformance and offers among the more attractive and diverse growth profiles in the utility space.”