Re-Posting: Warren Buffet And Dominion -- December 15, 2020

Link here.

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Re-posting from July 7, 2020.

Berkshire Hathaway Energy before the Dominion Deal:

PacifiCorp and Northern Natural Gas:

 MidAmerican and NV Energy:

 BHE Transmission and Kern River Transmission:

AltaLine:

Dominion natural gas pipeline and storage in these states:

For Berkshire, the deal means that Warren Buffett’s company will soon account for 18 percent of all natural gas moved across state lines, up from 8 percent currently. -- Source.

Previously posted:

Buffett and natural gas. Analysis continues:

"Warren Buffett's bet is a midstream buying signal. Berkshire Hathaway's long-awaited pandemic-era purchase in a seemingly difficult business might seem  like odd time, but there is good logic behind it -- WSJ, July 6, 2020, "Heard On The Street."

This is really pretty cool. Two items.

First: this is really, really quite interesting. Warren Buffett has been looking for an acquisition for quite some time. What better time to look at energy? Energy prices are incredibly low but the tea leaves suggest this will only be temporary. If you look at the map of his Berkshire Energy holdings, Buffett was "well-covered" in the west, southwest, and midwest. His big gap was on the east coast.

Buffett's been following the Atlantic Coast Pipeline story for quite some time and knows that the board rooms over at Dominion and Duke Energy were probably well-divided on whether to continue with that "white elephant," the Atlantic Coast Pipeline.

Aha! That's it. Maybe Dominion would like to get rid of that "white elephant." But how to do it? Warren comes up with a solution and gives Dominion a phone call. The rest is history. Love it.

Second: I've read any number of articles on this story since it was announced over the weekend, writers with their analysis. Very informative, very entertaining. But there is one word I've not yet seen used by any writer when discussing this story.

Years ago --- LOL, years ago? -- shoot, it was decades ago, I took a Forbes course on investing, one of the best things I ever did, that was probably back in 1983. One of the words I learned from the course: moat.

In this case, "moat" means any business endeavor ... from Investopedia:

What Is an Economic Moat?

The term economic moat, popularized by Warren Buffett, refers to a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. .July 7, 2019.

LOL. Connecting the dots. Amazing.

Warren Buffett followed his own advice several years ago when he bought the Burlington Northern Railroad, perhaps the classic example of a "moat."

Now, again, with a $10 billion acquisition, Warren Buffett is following his own advice. In the current political environment, I can't think of any sector with a bigger economic moat than the crude oil and natural gas pipeline sector.

Absolutely brilliant. And anyone who thinks there won't be continued growth along the Atlantic coast from North Carolina to Virginia to DC isn't paying attention.  AOC and New Yorkers may not want growth but folks south of the Mason-Dixon Line certainly do.

Analysis continues: Berkshire Hathaway, Dominion, Duke. Motley Fool here:

• Dominion (D) becomes a much safer retirement holding per Motley Fool;
• Dominion (and Duke) will quit dumping good money after bad money on a proposed $8 billion natural gas pipeline; always a good thing to quit losing money;
• Dominion's balance sheet improves;
• Dominion sees $3 billion in after-tax proceeds: will be used to re-purchase stock
• D's market cap: $63 billion
• D will reduce annual dividend to reflect new reality
• payout will improve company's payout ration from 85% to 65%, more in line with industry leaders
• dividend expected to drop from $3.76/share to $2.50 share
• 2020 operating earnings will likely fall to $3.50 vs $4.50/share
• D: drops almost 10% on news; now trading at $75

Analysis continues: "Warren Buffett's bet is a midstream buying signal. Berkshire Hathaway's long-awaited pandemic-era purchase in a seemingly difficult business might seem  like odd time, but there is good logic behind it -- WSJ, July 6, 2020, "Heard On The Street."

US pipelines becoming unbuildable -- Bloomberg.

To be an energy superpower, U.S. oil and gas requires a suitably gargantuan pipeline network that stretches for millions of miles. The country’s ability to expand that infrastructure is being tested like never before.

In what’s possibly the biggest victory yet for an environmental movement targeting the conduits carrying fossil fuels, Dominion Energy Inc. and its partner Duke Energy Corp. said Sunday they’ll no longer pursue their $8 billion Atlantic Coast natural gas pipeline after years of delays and ballooning costs.

It’s the third such project this year to be sidelined or canceled altogether amid mounting opposition to development of coal, oil and gas. Armed with experienced lawyers and record funding, environmental groups are finding enormous success blocking key pipeline permits in court. The keep-it-in-the-ground movement has increasingly turned its attention to the pipes, rather than the wells themselves, because they require various federal and state permits, which, for the most part, can be more easily litigated.

 RBN Energy: rulings on KXL permit cloud other oil and gas pipeline projects.

The demand destruction caused by COVID-19 hasn’t only hurt producers and refiners; it’s also slowed the development of a number of planned midstream projects. In fact, the only multibillion-dollar crude-related project to reach a final investment decision (FID) during the pandemic is TC Energy’s Keystone XL, which in late March won financial backing from Alberta’s provincial government. But Keystone XL soon hit another snag, this time in the form of U.S. district and appellate court rulings that vacated the project’s Nationwide Permit 12 for construction in and around hundreds of streams and wetlands along the U.S. portion of the pipeline’s route in the U.S. More important, the courts also put on ice — at least for now — the use of the general water-crossing permit for other new oil and natural gas pipelines as well. As we discuss in today’s blog, that could result in delays and legal challenges to dozens of projects that midstreamers and their counterparties have been counting on.

For midstream companies, the process of advancing a pipeline, an export terminal, or another major project is often fraught with challenges. For one, there’s the competition among midstreamers to line up the long-term commitments generally needed to secure financing — a factor that has always been a hurdle for large new midstream projects. Then there’s the matter of locking down the various regulatory approvals and permits that the project will need — again, always a stumbling block that has only increased in significance over the years. Today, environmental, landowner, and stakeholder challenges to pipeline projects, even from the states they traverse, have become very difficult. For example, Williams has failed to convince New York regulators that its Constitution Pipelien project passes environmental muster. And even when midstream developers do get the approvals and permits they need from administrative agencies, there’s always the very real possibility that there will be court challenges that could drag on for years.