Electric utility Dominion Resources, Inc. (D) said Monday that it agreed to sell its natural gas and oil exploration and production business to CONSOL Energy Inc. (CNX), a producer of thermal coal, metallurgical coal and natural gas, for a total of $3.475 billion in cash. The transaction is expected to close by April 30, subject to customary closing conditions. Further, Dominion affirmed its fiscal 2010 operating earnings forecast.
The deal, which is subject to adjustments pursuant to the terms of the Purchase and Sale Agreement, includes the rights to about 491 thousand acres in the Marcellus formation. Richmond, Virginia-based Dominion's E&P business is one of the oldest and most active drillers in Pennsylvania and West Virginia.
Commenting on the deal, Dominion's Chairman, President and Chief Executive Officer Thomas Farrell II said, "With today's announced divestiture, Dominion is taking another significant step in moving toward a more regulated business model. This transaction is accretive to earnings per share, reduces our commodity sensitivity by over 20 percent, and eliminates our need to issue new shares to fund our infrastructure growth program through 2011."
As per Farrell II, the company's decision to sell the business was due to its previously-announced plan to monetize Marcellus acreage, either in multiple transactions or all at once. "As we analyzed the various alternatives, and their respective impact on the value of the remaining business, we determined that combining our conventional Appalachian E&P operations with the rights to the Marcellus formation resulted in the best long-term value for our investors," Farrell said.
According to Dominion, its estimated after-tax proceeds of $2.2 to $2.4 billion, depending on the final tax determination, will help the company offset its equity needs for 2010 and 2011, fund the revenue credits to Dominion Virginia Power customers included in the rate case settlement agreement and repurchase common stock. The company could also use the proceeds to fund a contribution to its employee benefit plans and/or reduce debt. In a separate statement, CONSOL Energy, a high-Btu bituminous coal and natural gas company, said that the acquisition of Dominion's E&P business complements its existing natural gas business which is operated through its 83% owned subsidiary CNX Gas, an Appalachian gas producer. The company plans to raise approximately $4 billion and is targeting a balanced mix of equity and debt to fund the acquisition and development of the acquired acreage. Following the deal, CONSOL Energy will maintain its strong balance sheet and liquidity position.
On a pro forma basis, the acquisition will make CONSOL Energy the largest producer of natural gas in the Appalachian basin. The deal will result in tripling its development assets in Marcellus Shale fairway to approximately 750,000 acres with the addition of Dominion's approximately 500,000 Marcellus Shale acres in Pennsylvania and West Virginia.
With the transaction, CONSOL Energy's total proved gas reserves will be increased by more than 50% to approximately 3 trillion cubic feet from 1.9 trillion cubic feet, and doubles its potential gas resource base to approximately 41 trillion cubic feet. The company will acquire a total of 1.46 million oil and gas acres from Dominion, together with over 9,000 producing wells that are expected to produce more than 41 Bcfe in 2010. Of this, about 27 Bcfe will be imputed to CONSOL Energy between May 1, 2010 and the end of the year assuming an April 30, 2010 closing. Upon completion of the deal, CONSOL Energy's natural gas business is expected to account for as much as 35% of CONSOL Energy's total revenue.
Brett Harvey, CONSOL Energy's president and chief executive officer stated, "Since 2005, CONSOL Energy will have doubled its annual gas production to 100 Bcf in 2010. This acquisition will further accelerate that trend with the addition of the extremely attractive resource-rich, low-cost Marcellus Shale assets. Two compelling aspects of this transaction are that 98% of Dominion's Marcellus acres are held by production and the average net revenue interest is 87.5%."
CONSOL Energy said it is evaluating a range of structural alternatives to facilitate the operation and development of the acquired assets, which includes consideration of the acquisition by CONSOL Energy of the shares of CNX Gas common stock that it does not already own.
Harvey added, "CONSOL Energy will be in a position to use its capital and free cash flow from its coal operations and newly-acquired gas assets to fund the development of both its coal and natural gas activities."
In the transaction, Dominion is being advised by the investment banking firm of Barclays Capital Inc, while its legal adviser is Baker Botts L.L.P.
BofA Merrill Lynch is the financial advisor to CONSOL Energy and Wachtell, Lipton, Rosen & Katz and Akin Gump Strauss Hauer & Feld LLP its legal counsel. Stifel, Nicolaus & Company, Incorporated also acted as financial advisor, while BofA Merrill Lynch and PNC Bank have provided financing commitments to complete the acquisition.
Further, Dominion affirmed its 2010 operating earnings guidance of $3.20 to $3.40 per share. On average, 17 analysts polled by Thomson Reuters expect the company to report earnings of $3.25 per share for the year, with estimates ranging between $3.13 and $3.35 per share. Analysts' estimates typically exclude special items.
Dominion said it expects the February 2010 sale of Dominion Peoples to result in an after-tax loss of about $140 million, as well as after-tax expenses of approximately $50 million that would negatively impact full-year 2010 reported earnings, but would not be included in operating earnings. Also, the company expects a gain of approximately $1.37 billion for the Appalachian E&P sale to be reflected in 2010 reported earnings, but would not be included in 2010 operating earnings.
It was on February 1 that Dominion said it closed the sale of its Pennsylvania natural gas distribution company, Dominion Peoples to PNG Companies LLC, an affiliate of SteelRiver Infrastructure Fund North America for about $780 million. Dominion then aid it plans to use after-tax proceeds of about $542 million from the transaction to reduce debt.
Farrell added, "Our regulated businesses are now expected to contribute about 70% of our consolidated operating earnings in 2011, up from less than 45% in 2006. Exiting the E&P business will enhance the visibility of our core natural gas pipeline and storage businesses and reduce our on-going capital expenditures by approximately $200 million per year. Our activities in the Appalachian region will focus on investments such as the Appalachian Gateway project as well as the significant amount of new gathering and pipeline infrastructure that development of the Marcellus formation will demand."
D, which has been trading between $28.70 and $40.29 in the past 52 weeks, is currently trading at $39.91, up $0.23 or 0.58%, on a volume of 1.74 million shares.
CNX is currently down $4.52 or 8.32% at $49.80, on a volume of 2.63 million shares.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.