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Ohio Utica Shale

Warm winter hurts profit, Dominion says

By Bob Downing Published: November 5, 2012

From the Marcellus Drilling News:

Dominion is a huge utility and midstream (pipeline) company with customers and operations throughout the Marcellus and Utica Shale region. Dominion issued their third quarter financials and it was not a pretty picture. Earnings for 3Q12 were down nearly half of what they were from 3Q11. Ouch. The reason? Dominion puts a lot of the blame on a hangover from a warm winter.

There’s not much in the way comment on their activities in the Marcellus in their statement below (they do mention the new Natrium, WV plant and a few other items). MDN includes their 3Q12 financial update because they are an important player in the Marcellus and Utica Shale and the overall health of the company is important to the industry.


Here’s the Dominion update (minus the spreadsheets that always accompany these updates):

Dominion today announced unaudited reported earnings determined in accordance with Generally Accepted Accounting Principles (GAAP) for the three months ended Sept. 30, 2012, of $209 million ($0.36 per share), compared with reported earnings of $392 million ($0.69per share) for the same period in 2011.

Operating earnings for the three months ended Sept. 30, 2012, amounted to $526 million ($0.92 per share), compared to original operating earnings of $541 million ($0.95 per share) for the same period in 2011. Operating earnings are defined as reported (GAAP) earnings adjusted for certain items.

Dominion uses operating earnings as the primary performance measurement of its earnings guidance and results for public communications with analysts and investors. Dominion also uses operating earnings internally for budgeting, for reporting to the board of directors, for the company’s incentive compensation plans and for its targeted dividend payouts and other purposes. Dominion management believes operating earnings provide a more meaningful representation of the company’s fundamental earnings power.

The principal differences between GAAP earnings and operating earnings for the quarter were charges related to certain merchant generation plants, which have been or are in the process of being sold or retired.

Business segment results and detailed descriptions of items included in 2012 and 2011 reported earnings but excluded from operating earnings can be found on Schedules 1, 2 and 3 of this release.

Thomas F. Farrell II, chairman, president and chief executive officer, said:

“Our third-quarter results came in toward the bottom of our guidance range of $0.90 to $1.00 reflecting the effects of unplanned outages at Millstone Unit 2 and our Hastings Extraction Plant, lower results from Dominion Retail and milder-than-normal weather in our electric service territory. We remain on track to deliver weather-normalized 5 percent to 6 percent earnings per share growth and continue to execute our long-term infrastructure growth plan.

“We recognized significant milestones associated with our growth plan this quarter. At Dominion Energy, the Appalachian Gateway Project, which transports natural gas produced in West Virginia and Pennsylvania, was placed into service, on time and within budget. In addition, two projects providing transportation services of Marcellus Shale volumes – Ellisburg to Craigs, with capacity of 150,000 dekatherms per day, and Northeast Expansion, with capacity of 200,000 dekatherms per day – are slated to be in-service in November, also on schedule and within budget. Construction is well under way and we are working towards a year-end in-service for Phase 1 of the Natrium natural gas processing and fractionation plant, which is expected to provide enough capacity to process 200 million cubic feet of natural gas per day and fractionate 36,000 barrels of natural gas liquids per day.

“In our Generation segment, construction is well under way on the 1,329-megawatt, gas-fired power station in Warren County, Va. The approximately $1.1 billion project is scheduled for completion in late 2014. Plans are advancing on a similar-sized combined-cycle facility, the Brunswick County Power Station. We recently executed an Engineering, Procurement and Construction (EPC) agreement and plan to file for regulatory approval in the fourth quarter with an expected commercial operation in 2016. The coal-to-biomass conversions of Altavista, Southampton, and Hopewell are proceeding on schedule and projected to come online by year end 2013. Also, we recently filed an application with the Virginia State Corporation Commission for a coal-to-natural gas conversion of our 227-megawatt Bremo Power Station. Commercial operation is expected to commence in the summer of 2014, pending regulatory approval.”

Third-quarter 2012 operating earnings compared to 2011

The decrease in third-quarter 2012 operating earnings per share as compared to original third-quarter 2011 operating earnings per share is primarily attributable to milder-than-normal weather in our regulated electric service territory and lower merchant margins. Positive factors for the quarter were lower interest expenses and a lower effective tax rate.

Details of third-quarter 2012 operating earnings as compared to 2011 can be found on Schedule 4 of this release.

Fourth-quarter, full-year 2012 and full-year 2013 operating earnings guidance

Dominion expects fourth-quarter 2012 operating earnings in the range of 65 cents per share to 75 cents per share as compared to original fourth-quarter 2011 operating earnings of 58 cents per share. Positive factors for the fourth-quarter of 2012 compared to the same period of the prior year include an expected return to normal weather in our electric service territory, higher rate adjustment clause earnings and anticipated growth in our electric service territory as well as higher revenues related to our growth projects. Negative factors for the quarter include lower merchant generation margins and higher operating expenses. GAAP earnings for the fourth quarter of 2011 were 35 cents per share. A reconciliation between original operating and GAAP earnings for the fourth quarter of 2011 can be found on Schedule 3 of this release.

Amounts for 2011 have been recast to reflect results for State Line and Salem Harbor generating stations as discontinued operations. However, Dominion uses original 2011 amounts prior to recast to calculate operating earnings growth targets as well as for comparison to 2012 operating earnings and statistics.

In providing its fourth-quarter, full-year 2012 and full-year 2013 operating earnings guidance, the company notes that there could be differences between expected reported earnings and estimated operating earnings for matters such as, but not limited to, divestitures or changes in accounting principles. At this time, Dominion management is not able to estimate the aggregate impact, if any, of these items on reported earnings, other than those as set forth on Schedule 2 – Reconciliation of 2012 Operating Earnings to Reported Earnings on page 8 of the 3Q12 Earnings Release Kit. Accordingly, the company is not able to provide a corresponding GAAP equivalent for its operating earnings guidance.*

*Dominion (Oct 25, 2012) – Dominion Announces Third-quarter 2012 Earnings



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