- The Washington Times - Monday, June 4, 2007

Dominion Resources Inc. said yesterday it has agreed to sell the lion’s share of its onshore natural gas and oil exploration business for $6.5 billion as part of the company’s plan to raise cash and focus on its utility and power-generation businesses.

The Richmond energy company is selling reserves of 3.5 trillion cubic feet of gas to Loews Corp., a diversified holding company based in New York, and XTO Energy Inc., a Fort Worth, Texas, producer of oil and natural gas.

“With today’s announced divestitures, sales proceeds for more than 85 percent of reserves to be sold are known,” said Thomas F. Farrell II, Dominion’s chairman, president and chief executive officer.

“We now have sufficient information to accurately model the new company on a post-divestiture basis.”

Loews is paying $4 billion for Dominion’s business in the Permian Basin, Michigan and Alabama, constituting about 2.5 trillion cubic feet of gas.

For $2.5 billion, XTO will acquire operations in the Rocky Mountains, Gulf Coast, San Juan Basin and south Louisiana, equal to about 1 trillion cubic feet.

Shares of Dominion, the country’s second-largest utility, closed up 23 cents at $87.87 on the New York Stock Exchange yesterday.

Dominion said the transactions, expected to close in August, will enable the company to focus on its power-generation and energy-distribution, transmission, storage and retail businesses.

“Given the above average growth rate in our Virginia service territory, the incentives provided by the new hybrid regulatory model, the superior growth opportunities in our pipeline and storage business, and improving conditions in markets served by our merchant power fleet, the New Dominion should deliver long-term earnings per share and dividend growth above the average of our industry peers,” Mr. Farrell said.

During the past year, Dominion’s stock has been underperforming compared with its peers. Its shares have gained 18 percent, trailing the Dow Jones Utilities Average, which grew 25 percent.

“The last couple of years, there has been some concern in the marketplace about the company’s exposure to [the exploration and production business] and volatility in gas prices,” said Mike Worms, an analyst with BMO Capital Markets.

“With the growth that’s in Virginia, the company foresees additional growth prospects in terms of building out transmission and building out new generation.”

Last month, the company announced plans to sell its Canadian natural gas and oil exploration businesses for $583 million. Earlier in the year, Dominion agreed to shed its Gulf of Mexico oil and gas assets in a $4.8 billion deal.

Mr. Worms, who doesn’t own any shares, said the decision to focus on Dominion’s core business “will help the valuation.”

On May 2, the company announced first-quarter earnings of $453 million ($1.29 per diluted share), a 15-percent drop from $534 million ($1.53) a year ago.

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