Deepwater's potential fits with Dominion's bullish-on-gas strategy: if the founders of the company that eventually became Dominion Resources--George Washington and James Madison--could only see it now.

Publication: Oil and Gas Investor

Bookmark this article Print this article Link to this article Email this article Digg It! Add to del.icio.us RSS

COPYRIGHT 2005 Hart Publications, Inc.

Those early U.S. leaders had a clear vision of how to govern a large, fast-growing country, but they could not have dreamed of the technological and social advances that vision would drive.

A little more than 40 years after Benjamin Franklin flew a kite in an electrical storm in 1752--only 19 years after the 13 American colonies declared their independence--the history of what endures today as a leading energy company began.

It would still be more than half a century before Col. Drake drilled the first commercial oil discovery. It would be close to 150 years after Dominion's corporate roots were established before natural gas was considered a usable product, not a nuisance.

Oil and gas development out of the sight of land in the Gulf of Mexico also was a century and a half into the future.

Beginning a new era

Fast forward through more than two centuries, and the descendant of Washington's and Madison's company is a diversified and integrated energy provider. It generates close to 30,000 MW of electricity, has nearly 6 trillion cubic feet equivalent (Tcfe) of oil and natural gas reserves and operates a 7,900-mile (127,111-km) natural gas transmission pipeline network.

At nearly 1 Tcf, its underground natural gas storage capacity is the largest in the nation, accounting for almost one-third of total U.S. capacity. The company serves 5 million natural gas and electric customers in nine states. It is an impressive record and a solid presence in a fiercely competitive industry.

Now well into its third century, Dominion's future is at least as promising as it has been at any time in the past.

With a clear vision of where new opportunities lie, and the financial strength and operating expertise to exploit those opportunities, Dominion has aligned itself with a future energy market in which natural gas plays an increasingly important role. As part of that strategy, its Dominion E&P operating segment, in only a handful of years, has built a competitive capability in one of the most difficult environments in the energy business--deepwater exploration and production (E&P).

The E&P division's 2005 capital budget of more than $1.2 billion, a big chunk of the company's total spending of $2.8 billion, will support an aggressive program that will drill nearly 1,300 gross wells onshore and offshore during the year.

"Dominion is an integrated story," said Duane Radtke, Dominion E&P president and chief executive officer (CEO). "A key part of that story is the deep water of the U.S. Gulf of Mexico. We see the future there as very, very good."

Building a gas strategy

In 1990, Tom E. Capps, Dominion Resources chairman and CEO, saw natural gas and electricity markets begin to converge and decided Dominion should be long electricity.

"If that convergence was going to occur, he reasoned that it would also be smart to be long natural gas," Radtke said.

Initially, as Dominion began to develop its long position in the 1990s, it invested in gas in the way a utility would invest, acquiring and participating in low-risk natural gas projects, including coalbed methane development. Those steady efforts built the company's gas reserves to about 1 Tcf of natural gas.

That low-risk gas development strategy continued until 2000, when Dominion acquired Consolidated Natural Gas Co. With that acquisition came CNG Exploration and Production Co. For many years, CNG had been an active explorer on the Gulf of Mexico's Continental Shelf and in the late 1990s, it stepped into deep water. CNG brought to Dominion an active deepwater exploration effort as well as significant long-life onshore reserves.

"Those two types of assets were at the opposite ends of the risk spectrum," Radtke said. "Our appetite for risk was relatively low, so we had two choices. We could shrink or sell the higher risk deepwater Gulf operation, or we could work toward creating a balanced portfolio that included more long-life onshore assets with more offshore growth opportunities."

The choice...

Read the full article for free courtesy of your local library.