- The Washington Times - Tuesday, September 11, 2001

Dominion Resources Inc. is buying Louis Dreyfus Natural Gas Corp. for $2.3 billion in cash, stock and assumed debt in a deal that will increase the natural-gas reserve of Virginia's largest utility by 60 percent.
Dominion, of Richmond, will pay $20 in cash and nearly a third of a share for each Louis Dreyfus share. That puts the stock at $40.20 a share, a 22 percent premium over Friday's closing price.
The deal will double Dominion's energy-trading operations by 2003, and leave it with 4.6 trillion cubic feet of oil and gas reserves for consumer supply and fueling of its power plants, Thomas Capps, chairman and chief executive of Dominion, said during a conference call yesterday.
"The acquisition of Louis Dreyfus Natural Gas is a natural fit economically, strategically and geographically," he said.
Natural gas accounts for 30 percent of Dominion's business.
Sixty percent of the company is Dominion Virginia Power, the state's largest utility. The company also owns smaller gas and electric utilities in Pennsylvania, Ohio, West Virginia and North Carolina, serving 4 million customers.
The purchase of Louis Dreyfus, of Oklahoma City, will bump Dominion's gas-trading volumes up to 2.4 trillion cubic feet annually, and electricity trading to 265 million megawatt hours in the three years after the purchase, Dominion said.
A megawatt hour is enough to light about 1,000 U.S. homes for an hour.
"Natural gas is still an important part of the story because they can turn it into electricity, or gas, or store it and sell it later when prices are better," said Michael Beall, an analyst with Davenport & Co. in Richmond.
Natural gas has fallen 75 percent this year on the New York Mercantile Exchange after reaching records in December. Lower prices have made natural-gas exploration and production companies attractive targets for acquisition.
Two transactions took place last week in the sector: Devon Energy Corp. agreed to buy Anderson Exploration Ltd. of Canada for $4.13 billion, and Santa Fe International agreed to buy rival Global Marine Inc. for $3.49 billion.
Dominion has been expanding through acquisition for three years. It bought a nuclear-power plant from Northeast Utilities for $1.3 billion just over a year ago, and it acquired two Canadian companies in the two years before that.
"They like to buy into businesses when they are out of favor because they are making a long-term investment," said Barry Abramson, an analyst with UBS Warburg in New York. "I think that's one reason you can say this deal has very good timing."
Both analysts rate the stock a buy, saying they like how Dominion has sought to balance between its regulated and deregulated businesses.
Dominion shares closed at $60.26 on the New York Stock Exchange, down $2.37 from Friday; Louis Dreyfus' stock jumped $5.72 to $38.68 on the same exchange.
Aside from trading operations, the deal brings to Dominion drilling units in the Permian Basin of western Texas and eastern New Mexico, parts of Oklahoma and Kansas, the Gulf of Mexico, and eastern Texas and western Louisiana.
This makes Louis Dreyfus a good fit because Dominion's drilling operations are mostly onshore in the United States, analysts said.
The companies said they expect the deal to close during the last quarter of the year. Regulatory approval is expected quickly and without problems, analysts said.
The deal, in which Dominion assumes $505 million of debt, will be the last in the natural-gas arena for the company for now, Mr. Capps said yesterday. But, he added, the company will look to add more power-generating assets in order to supply about 30 million U.S. homes with electricity in 2005.


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