Dominion unloads assets to Berkshire

Mike Zaccardi, CFA, CMT

Warren Buffett is at it again! Berkshire Hathaway is buying nearly $10 billion of assets from one of the nation’s largest utility companies, Dominion Energy, as energy-related firms continue to exit the oil & gas exploration and production (and transport) business.

Low crude oil and natural gas prices make for an unprofitable environment for many players. Regulatory uncertainty played a big role Dominion and Duke abandoning this specific project. The deal was announced Sunday afternoon. It is unclear if Buffett thought up the idea in the bathtub (investors during the Great Financial Crisis recall that story!)

For this deal, the notorious Atlantic Coast Pipeline is at stake. Duke Energy and Dominion cited high uncertainty regarding the development of the pipeline, so they collectively tossed up their hands. Berkshire Hathaway was willing to remove natural gas transmission and storage assets and some related debt from Dominion for $9.7 billion.

Currently, Dominion is the second biggest holding in the XLU Select Sector SPDR ETF at about 9% while Duke is the 3 largest holding – near 7.5%. So this is an important transaction in the Utilities sector.

Berkshire Hathaway has long been a major player in the energy and energy-transport business. Buffett’s Berkshire has suffered in its stock performance during recent years as energy equities have turned sour versus the broader market.

Will assets in the mid-Atlantic help the holding company behemoth? It remains to be seen. Just last month the Supreme Court issued a favorable ruling for the buildout of the pipeline, but Dominion and Duke are still too uneasy about the environment to pursue it further.

The deal also means Berkshire will be a bigger player in Liquified Natural Gas (LNG) projects as the acquisition includes assets at the Cove Point facility.

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Chart used with permission from TradingView.com

Read more about the deal in the WSJ