• Berkshire Hathaway is buying natural gas assets from Dominion Energy.
  • The deal will cost $4 billion in cash plus $5.7 billion of assumed debt.
  • If approved by regulators, closing is scheduled for Q4 2020.

Warren Buffett's Berkshire Hathaway Inc. (BRK.A, BRK.B) has announced an agreement to purchase the natural gas transmission and storage assets of utility company Dominion Energy Inc. (D) in a deal currently valued at $9.7 billion in total, including a cash payment of $4 billion and the assumption of $5.7 billion of debt incurred by the Gas Transmission & Storage segment of Dominion. Subject to regulatory approvals, the deal is expected to close during the fourth quarter of 2020. 

It is Berkshire Hathaway's latest foray into the energy market, and it happens at a time when the coronavirus pandemic, in addition to a feud between OPEC members and its allies, leveled energy prices across the complex. By purchasing Dominion's assets, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States, up from 8% currently.

What Berkshire Will Get

The deal would transfer more than 7,700 miles of natural gas transmission lines from Dominion to Berkshire, including about 20.8 billion cubic feet per day of transportation capacity, 900 billion cubic feet of operated natural gas storage with 364 billion cubic feet of company-owned working storage capacity, plus partial ownership of a liquefied natural gas export, import and storage facility.

Additionally, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline, and Carolina Gas Transmission, plus 50% of the Iroquois Gas Transmission System. The deal does not include Dominion's Atlantic Coast Pipeline. However, it does include 25% of Cove Point LNG, a liquefied natural gas (LNG) export, import and storage facility in Maryland that is one of only six LNG export facilities in the U.S. Dominion will retain a 50% ownership stake in Cove Point, while Brookfield Asset Management will continue as a 25% owner.

Berkshire's Logic

“This premier natural gas transmission and storage business has been operated and managed in a best-in-class manner,” according to Bill Fehrman, Berkshire Hathaway Energy’s president and CEO. “Acquiring this portfolio of natural gas assets considerably expands our company’s footprint in several Eastern and Western states as well as globally, increasing the market reach and diversity of Berkshire Hathaway Energy,” he added.

Dominion's Rationale

Thomas F. Farrell II, the chairman, CEO, and president of Dominion, had this to say about the deal: "This narrowing of focus will also allow us to increase our long-term earnings growth rate guidance by around 30 percent...This transaction represents another significant step in our evolution as a company, allowing us to focus even more on fulfilling utility customer needs and positioning us for a bright and increasingly sustainable future."

Tapping a Huge Cash Hoard

Berkshire ended Q1 2020 with cash and cash equivalents of $137.3 billion, up from $128.0 billion in Q4 2019. During his latest annual meeting in May, in response to a shareholder question about how he planned to deploy his growing cash hoard, Buffett said, "We are not in the business of subsidizing companies with [our] shareholder money." It appears that he now has found an attractive enough deal, in the face of battered energy prices.