berkshire acquires dominion energy gas

first major purchase in months

Hondo Lane | July 06, 2020

(Petrolytics) - Hope everyone had a good long weekend. Quick recap of overnight trading:

  • WTI opened last night $40.20/bbl - currently battling for $40/bbl
  • Nat gas opened at $1.73/mmbtu Henry Hub - currently trading at $1.85 (after making new lows two weeks ago

Dominating the headlines this morning is the news that Berkshire made their first major purchase in a few months - Dominion Energy's gas business. Dovetailing that is the announcement that Dominion and Duke have cancelled the Atlantic Coast Pipeline project. And while the US Supreme Court ruled 7-2 in favor of the project and permitting agencies, a number of delays and uncertainties have rendered the project "too uncertain to justify investing more shareholder capital". Of course, the acquisition was probably a contributing factor as well. API and NABTU issued a statement condemning the cancellation stating that it sets back American employment and denies access to cleaner and affordable US natural gas.

"These challenges cost Americans along its route the environmental, employment, and economic benefits that modern pipeline projects bring"

API and NABTU Presidents

Other than Berkshire's continued bet for fossil fuels, additional key industry developments to watch:

  1. Pending refining industry crisis? - appears that the "the immediate problem is compounded by a longer-term trend: the industry has probably overbuilt over the last decades, and older plants in places like Europe and the U.S. can’t compete with new ones popping up in China and elsewhere in the world." Agree or disagree with this sentiment?
  2. Public operators facing pressure to release private outlook - We're skeptical about this. Price forecasts are probably increasing with time, as always. Activists and investors should do their own homework. Don't blindly trust financial statements given the agency problem. Publishing internal price forecasts could have unintended consequences with regard to managerial incentives (that could conflict directly with shareholder interests, as is common).
  3. WHO appears to be wrong ...again - absence of evidence is not evidence of absence!

As always, we're interested to hear your thoughts on the pulse of the industry. Please reach out here or on Twitter with any insights, questions/concerns, or feedback. Our improvement is dependent on two-way dialogue.

Stay safe.