- The Washington Times - Monday, November 7, 2005

Hurricanes Katrina and Rita cost Dominion Resources Inc. $358 million during the third quarter, but the Richmond utility company and energy producer insists that the impact of the storms will be temporary.

“In terms of our business, Dominion sustained only modest physical damage to its Gulf of Mexico facilities,” Chief Executive Officer Thomas Capps told investors Thursday after the company released its latest earnings report.

The hurricanes delayed the equivalent of about 14 billion cubic feet of natural-gas and oil production during the third quarter, Dominion reported, resulting in 20 cents per share in lost output. Net income plummeted 96 percent to $15 million (4 cents per diluted share) from $337 million ($1.02) a year ago. Adjusting for hurricane-related costs, Dominion would have earned $373 million ($1.08) in the third quarter.

“[Reduced production] is going to cost them significantly more in the fourth quarter, so the earnings outlook for this year is lower,” said Michael Worms, a financial analyst with Harris Nesbitt Corp. in New York. Mr. Worms does not own shares of Dominion, which has been a client of his firm’s in the past.

Dominion — the second-largest electric utility company in the U.S. by market share — expects a much larger fourth-quarter production shortfall of 66 billion cubic feet, amounting to 75 cents per share in lost output. The company attributed most of that shortfall to third-party facilities, not owned by Dominion, that remain offline.

“The fact is that production will be negatively impacted going into 2006,” said Mr. Worms, who still estimates that the company’s total return, including dividends, will outperform the industry average by 15 percent over the next nine to 15 months.

Dominion stock closed yesterday at $74.65 per share on the New York Stock Exchange, down 65 cents from Friday’s close and nearly $11 off its recent high of $86.50 set Oct. 3.

Dominion said it has business-interruption insurance that will cover storm damage to its facilities. Policies in effect at the time of the hurricanes include a $700 million claim limit for Katrina and $350 million for Rita. Mr. Capps told shareholders that the company will not speculate on the amount of insurance payments until its next scheduled investor conference call Jan. 26.

“They believe they can recoup all of the losses this year as part of business insurance interruptions next year,” said Paul Fremont, an analyst with Jefferies & Co. in New York.

Mr. Fremont, who does not own any Dominion shares, said the company could be more aggressive in its production goals.

“The company basically came out and said: ‘If you take 2005 and 2006 together, those two years are expected to be unchanged when we come back and talk to you in January,’” Mr. Fremont said. “The problem with that is the company should have recognized a very sizable increase in earnings power based on the run-up in oil and gas prices in ‘06. Coming back and saying they’re able to achieve the same number is a relative disappointment.”

Mr. Worms was optimistic about Dominion’s potential for growth.

“We like the company for several reasons,” he said, including good management and strong assets. “We see significant earnings growth over the next several years, particularly in 2007 and 2008.”

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