The basic requirement to getting a good deal is to find a motivated seller. This week, Warren Buffet’s Berkshire Hathaway Inc. Energy company bought Dominion Energy’s midstream business for $9.7 billion including debt. The purchase price is $4 billion and assumed debt is around $5.7 billion. The entire pipeline and storage business of Dominion will be acquired. A 25% economic ownership interest in Cove Point LNG, which is one of the six liquefied natural gas export facilities in the U.S. and the only facility in the east coast. Berkshire gets the critical infrastructure of over 7,700 miles of natural gas transmission lines and 20.8 Billion cubic feet of natural gas store. The deal also provides geographic diversification to Berkshire. The transaction is expected to close in the fourth quarter of 2020.
The acquisition has put to work a small portion of the pile of $137 billion cash Berkshire has. Buffet is known for swooping down during recessions and economic downturns and making very favorable deals. But the long bull market of the past 8 or 9 years did not give him an opportunity to make him those acquisitions. In the market crash of March 2020, Buffet also sold his entire airlines stake for 40% losses. This acquisition should get the ball rolling again.
Dominion Energy’s challenges building Atlantic Coast pipeline
Dominion Energy Inc. was building the Atlantic Coast Pipeline project alongside Duke Energy Corp. to carry natural gas through West Virginia, Virginia and North Carolina and underneath the Appalachian Trail. The project hit many roadblocks due to protests by environmental organizations and people and both the companies recently abandoned the project. Both the companies had together about $3.4 billion in the project. It is becoming increasingly difficult to build natural gas pipelines across the United States. This was the last straw for Dominion and it was looking to exit the oil pipeline business.
Advantage Berkshire Hathaway Inc. Energy
Berkshire Energy (BHE) has a considerable presence in the Midwest, and Southwest and this acquisition expands its footprint to the Northeast as well. With few newer pipeline constructions, the existing players will be having a great advantage in monetizing the oil supply through the pipelines. This is the way Buffet operates, he knows very well, what he knows and once an opportunity comes, he grabs it.