[Editor’s note: This story was updated at 9:54 a.m. CT July 6.]

Berkshire Hathaway Inc., the conglomerate headed by famed investor Warren Buffett, agreed on July 5 to acquire the natural gas transmission and storage assets of Dominion Energy Inc.

The all-cash transaction has an enterprise value of approximately $9.7 billion including the assumption of $5.7 billion of debt, according to a Dominion release.

The deal reflects a strategic repositioning by Dominion on its regulated utility operations, according to CEO Thomas F. Farrell II, and also follows the company’s decision to cancel the Atlantic Coast Pipeline, a natural gas pipeline initially proposed in 2014.

“Today’s announcement further reflects Dominion Energy’s focus on its premier state-regulated, sustainability-focused utilities that operate in some of the most attractive regions in the country. ... This narrowing of focus will also allow us to increase our long-term earnings growth rate guidance by around 30%,” Farrell said in a statement on July 5.

Analysts with Tudor, Pickering, Holt & Co. (TPH) noted the transaction likely signifies a broader shift away from midstream by the utilities sector.

“The transaction follows the buy-in of Dominion Midstream early last year and is likely indicative of a broader shift among regulated utilities to deemphasize midstream operations as the sector’s prior push toward unregulated growth opportunities comes full circle,” TPH analysts wrote in a July 6 research note. “Recent transactions for midstream assets with a utility buyer have seen increased investor scrutiny centered on earnings quality [more concern on wellhead assets] and general decarbonization trends.”

In his statement, Farrell added that the transaction will also align Dominion with its sustainability focus, which includes a net-zero target by 2050. He also noted Dominion’s goal to invest up to $55 billion in emissions reduction technologies over the next 15 years and plans to retire more than four gigawatts of coal- and oil-fired electric generation by 2025. 

In a statement commenting on the transaction, Buffett, who serves as chairman of Berkshire Hathaway, said: “I admire Tom Farrell for his exceptional leadership across the energy industry as well as within Dominion Energy. We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business.”

Dominion’s gas transmission and storage business includes over 7,700 miles of natural gas transmission lines, with approximately 20.8 Bcf/d of transportation capacity and 900 Bcf of operated natural gas storage with 364 Bcf of company-owned working storage capacity, and partial ownership of a LNG export, import and storage facility.

As part of the transaction, Berkshire Hathaway Energy, subsidiary of Berkshire Hathaway Inc., will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission; and 50% of Iroquois Gas Transmission System. The agreement does not include acquisition of the Atlantic Coast Pipeline.

Additionally, the company will acquire 25% of Cove Point LNG in Maryland—one of only six LNG export facility in the U.S. Dominion Energy will continue to own 50% of Cove Point. Brookfield Asset Management Inc. will own the remaining 25% share, which it acquired from Dominion late last year for approximately $2.1 billion.

Berkshire Hathaway Energy will operate the Cove Point facility once the transaction closes, which is expected in fourth-quarter 2020.

In addition to assuming about $5.7 billion of existing debt related to Dominion Energy’s gas transmission and storage segment, Berkshire Hathaway will make a cash payment of approximately $4 billion to Dominion Energy upon closing.  Dominion Energy plans to use the proceeds to repurchase common shares.

Assuming a Cove Point valuation in-line with the sale to Brookfield in fourth-quarter 2019, TPH analysts estimate the Berkshire Hathaway transaction value implies a slightly lower multiple for Dominion’s remaining pipeline assets, with primary natural gas midstream operators trading at a similar or higher multiple.

McGuireWoods LLP served as legal counsel to Dominion Energy for the transaction. Barclays was the company's lead financial adviser. Morgan Stanley also acted as financial adviser to the company.

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