E Dominion Midstream: Buying Adequate Income With Growth Potential

Dominion Midstream Partners (DM) is all about LNG exports and pipelines. Similar to other large energy and integrated natural gas companies, last fall Dominion Resources (D) spun off MLP assets into a new trading company, Dominion Midstream. Investors looking for MLP growth above the industry average should look at DM, especially after the recent stock price disaster. Strong earnings growth will fuel substantially higher distributions over time.

D dropped down ownership of its Cove Point MD LNG terminal. Initially built as an import facility, Cove Point is in the process of converting to an export LNG facility. 32 of the 33 permits necessary are in place and the $3.8 billion conversion is expected to be operational in 2017. At that time, Cove Point will be the closest export facility to the Marcellus and Utica gas fields. 

DM has contracts with two large Asian companies to purchase all of Cove Point’s 4.6 million tons of planned annual output. With Japan shifting away from nuclear power to natural gas, Sumitomo Corp. has contracted for half of the facilities capacity. GAIL Limited, India’s largest natural gas processing and distributing company, has signed up for the other half of Cove Point’s capacity. These contracts are fee-based take-or-pay where the commodity price risk is offloaded to the buyers. 

In addition to Cove Point, Dominion Resources dropped down interest in the 1500 mile Carolina Gas Transmission CGT pipeline. Purchased from SCANA Corp (SCG) for $495 million, DM paid D $295 million in 2-yr notes and issued $200 million in units. The pipeline connects the Carolinas and Georgia to new gas fields in the Marcellus.  

In addition to Cove Point and CGT, Dominion Midstream Partners purchased a 26% ownership interest in the Iroquois Gas Transmission System. DM issued approximately 8.6 million common units to affiliates of National Grid PLC (NGG) and New Jersey Resources (NJR) to acquire the ownership interests. Iroquois is a joint venture with TransCanada (TRP) to ship gas from Eastern Canada to New York City.