Dominion Resources Inc. (D:US), the third-largest U.S. utility owner, will form a master-limited partnership for natural gas assets next year that may generate as much as $2 billion annually in earnings.
Initial holdings would include the Cove Point liquefied natural gas terminal in Maryland and Dominion’s stake in Blue Racer Midstream LLC, a joint venture in Ohio’s Utica Shale, Chief Executive Officer Thomas Farrell said today at a New York conference sponsored by Barclays Plc. (BARC) The partnership may generate as much as $1 billion of earnings before interest, taxes, depreciation and amortization annually, he said.
U.S. partnerships don’t pay corporate income tax and have more cash available to pay holders of units, which are like shares. Dominion’s pipelines may be added later to the partnership, yielding another $1 billion in Ebitda, according to a slide presentation.
“Investors tend to consider MLPs better vehicles for value realization for gas infrastructure assets than publicly traded utility holding companies” like Dominion, Kit Konolige, a New York-based analyst for BGC Financial LP, wrote today in a note to clients.
Dominion rose 3.3 percent to $60.54 at 11:32 a.m. in New York. Earlier the shares touched $61.94, the highest intraday price in at least 23 years, according to data compiled by Bloomberg.
Today’s share move will pressure utilities including PPL Corp. (PPL:US), American Electric Power (AEP:US) Co. and Duke Energy Corp. (DUK:US) to consider forming master-limited partnerships or other publicly traded securities that pay higher yields, Konolige wrote.
Dominion owns Virginia’s largest electric utility, which accounted for 57 percent of its 2012 sales, according to data (D:US) compiled by Bloomberg. The company won approval yesterday from the U.S. Energy Department to export liquefied natural gas from Cove Point in Maryland to countries that don’t have free trade agreements with the U.S.
The corporation is also forming a nonpublic subsidiary, Dominion Gas Holdings LLC, that will issue pipeline debt, and is in talks to sell gas-production leases on 100,000 acres of the Marcellus Shale of West Virginia, Farrell said.
Duke and Southern Co. are the largest U.S. utility owners by market value.
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