Dominion Resources: Cove Point

Abstract

The treasurer for Dominion Resources Inc. (Dominion), a major U.S. diversified producer and distributor of energy, was heading to meet with the company's investment bankers to discuss the impact of a large project upon Dominion's financing strategy for the next five years. The Cove Point liquefied natural gas (LNG) project would require $3.6 billion to build and represented one of the largest single capital investments in the company's 100-plus year history. Excerpt UVA-F-1740 Rev. Feb. 18, 2016 Dominion Resources: Cove Point Scott Hetzer quickly shoved his notes and laptop into his briefcase and slipped on his suit jacket. Hetzer, the treasurer for Dominion Resources Inc. (Dominion), a major U.S. diversified producer and distributor of energy, was heading to meet with the company's investment bankers to discuss the impact of a large project upon Dominion's financing strategy for the next five years. The Cove Point liquefied natural gas (LNG) project would require $ 3.6billion to build and represented one of the largest single capital investments in the company's 100-plus year history. It was February 15, 2013, and the recent boom in hydraulic fracturing (fracking) had turned the U.S. natural gas market on its head, creating the opportunity to transform Cove Point from an importer of natural gas into primarily an exporter. In the company's 2012 annual report, CEO Thomas F. Farrell II highlighted the project by stating, “We firmly believe that incorporating liquefaction and export capability into our Cove Point LNG import terminal located on the Chesapeake Bay in Lusby, Maryland, can be beneficial both to you, our shareholders, and to gas producers operating in the eastern half of the U.S.” The surging demand for LNG had allowed Dominion to sign long-term contracts for 100% of Cove Point's projected capacity, mitigating the project's financial risk. By mid-2014, Dominion expected to receive the final required permits from the regulatory authorities, such that the only remaining task was to revise the company's financing strategy from 2013 to 2017 to include the $ 3.6billion investment. After settling into the meeting room in Dominion's Richmond, Virginia, headquarters across from the team of bankers, Hetzer began, “Cove Point represents a terrific opportunity for all Dominion's stakeholders, but financing this sizable project clearly presents multiple financial challenges.” Hetzer knew that determining the optimal mix of debt and equity would need to address the impact upon Dominion's credit ratings as well as regulators and Dominion's existing stock and debt holders. . . .