Shares of Dominion Energy (D 0.67%) fell as much as 11.3% on Monday after the company announced two seismic shifts in strategy. First, Dominion and partner Duke Energy (DUK 0.04%) announced the cancellation of the Atlantic Coast Pipeline. Despite earning a decisive win in the Supreme Court in June allowing the duo to proceed with the massive project, the threat of lawsuits and delays proved too much to overcome.
Second, Dominion Energy agreed to sell its natural gas transmission and storage assets to Berkshire Hathaway for $9.7 billion. The all-cash transaction includes the assumption of $5.7 billion in debt, while the remaining $4 billion will be plowed into stock buybacks.
As of 1:34 p.m. EDT today, the dividend stock had settled to a 9.8% loss.
The Atlantic Coast Pipeline was intended to send natural gas from the energy-rich Appalachian region to the energy-poor Mid-Atlantic and Southeast. Originally estimated to cost between $4.5 billion and $5 billion, delays and lawsuits drove up costs to nearly $8 billion.
One obstacle proved fatal: The pipeline had to cross the Appalachian Trail at about 600 feet underground. While the U.S. Forest Service granted Dominion Energy and Duke Energy a permit to proceed, a lawsuit argued the permit was illegitimate. It was elevated to the Supreme Court, which just last month ruled the permit was lawful. But the threat of more delays and lawsuits forced the companies to nix their plans.
Dominion Energy was hoping to leverage its vast natural gas storage and transmission assets in the region to complement the project. But with the pipeline canceled, it made sense to divest the assets and downsize operations.
While the move virtually guarantees the company is going all-in with its ambitious offshore wind portfolio, management pledged to use the $4 billion in cash proceeds to repurchase shares. Given the nascent state of the offshore wind industry, that financial decision might prove questionable in the not-too-distant future.
After exiting natural gas storage and transmission, Dominion Energy is likely to focus its growth strategy on offshore wind power. Individual investors will find new obstacles and opportunities in the next-generation renewable energy source, but the business is at least geographically positioned to succeed.
Thinking more broadly, today's news could have consequences well beyond Dominion Energy. For instance, it could signal trouble for other pipeline operators attempting to move excess natural gas from Appalachia southward.
It could also boost confidence in America's fledgling efforts to jump-start what could become the world's largest offshore wind-power market by 2030. If the national pipeline of projects develops as hoped, then the many major American cities on the Eastern Seaboard could be increasingly powered by zero-carbon electricity by the end of the decade, with Dominion Energy playing a central role.