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Berkshire Hathaway Energy Is Buying Dominion Energy’s Gas Transmission & Storage Business For $9.7 Billion

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It’s a tricky time to invest in energy stocks. But tricky times can make the case for good investments. The natural gas sector is growing and increasingly dominant in the US. Natural gas is the cleanest of the fossil fuels. As such, perhaps it is no surprise that natural gas is also the fastest-growing fossil fuel. It saw a global 2.6% average annual growth rate over the past decade. With continuous growth in this sector, there is no reason why a shrewd investment firm shouldn’t have a significant stake in this sector. 

As such, Berkshire Hathaway (BRK.A Stock Report) has agreed to acquire the natural gas transmission and storage assets of Dominion Energy (D Stock Report). The deal will make the legendary value investor’s company one of the country’s largest gas transporters. This deal is marking a big shift towards cleaner energy for Dominion Energy, and another bet on fossil fuels by Warren Buffett. The cash-only deal values the assets at $9.7 billion with the assumptions of $5.7 billion in debt.

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Dominion Energy To Move Towards Clean Energy

This deal is part of Dominion’s effort to transition into clean energy. With the cancellation of the Atlantic Coast pipeline project, it is clear Dominion is planning for net-zero. The latest announcement marks a clear shift to deviate away from natural gas transport and storage. In fact, this deal is truly transformational for Dominion. It will significantly reduce the company’s debt and simultaneously be able to focus on its core electric regulated utility operations.

“We offer an industry-leading clean-energy profile which includes a comprehensive net zero target by 2050 for both carbon and methane emissions as well as one of the nation’s largest zero-carbon electric generation and storage investment programs. Over the next 15 years we plan to invest up to $55 billion in emissions reduction technologies including zero-carbon generation and energy storage, gas distribution line replacement, and renewable natural gas. In addition, between 2018 and 2025 we expect to retire more than four gigawatts of coal- and oil-fired electric generation. Thomas Farrell- CEO of Dominion Energy.

[Read More] Is A Rise In Electric Vehicle Demand Boosting These 2 Stocks?

Acquisition Allows Berkshire Hathaway To Gain Stronger Foothold In Fossil Fuel Industry

The transaction will transform Berkshire Hathaway Energy into one of the country’s largest natural gas transportation businesses. That’s because the company will carry 18% of all interstate natural gas transmission volumes in the country, up from 8%. For Warren Buffett, this latest move is his biggest acquisition since the beginning of the Covid-19 crisis. The deal gives Berkshire Hathaway ownership of almost 8,000 miles of natural gas transmission lines, and transport capacity of almost 21 billion cubic feet per day.

Given the utility nature of such energy infrastructure, it will fit into the Oracle of Omaha ‘s portfolio nicely. Commenting on the deal, Warren Buffett said, “we are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business.”

Bottom Line

The divestiture of the Dominion’s natural gas sector allows the company to focus on what truly matters to it in the long run. After all, the clean energy sector would face fewer hurdles moving forward amid increasing environmental awareness. The company also expects to lower its dividend payout after closing the transaction to be more in line with the broader utility market players. It seems to me that Dominion’s financial position will be in better shape a few years down the road. Lower debt and lower dividend payout will provide it with greater flexibility to invest in expanding its utility business moving forward. With all that being said, is Dominion Energy the best energy stock to watch right now?


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