Fitch Ratings considers Dominion Resources, Inc.'s (DRI) announcement that it is entering into an equal partnership with Caiman Energy II, LLC (Caiman) to develop midstream assets in Utica Shale to be supportive of credit quality, but not likely to affect current ratings ('BBB+' Issuer Default Rating [IDR]). Management expects the joint venture (JV), Blue Racer Midstream, LLC, to close before year-end 2012.
DRI will contribute gathering and processing assets into the JV, and Caiman will contribute private equity. The DRI assets include certain of East Ohio Gas' gathering facilities, the Natrium processing and fractionation facility (currently under construction in West Virginia with completion expected in 2013), and a pipeline connecting the Natrium facility to the East Ohio gathering system. DRI will continue to operate the midstream assets once transferred to the JV. Caiman will contribute into the JV private equity capital up to $800 million. Investors in Caiman include Williams Partners L.P. ('BBB-' IDR), EnCap Flatrock Midstream, Highstar Capital and management.
Participation in the JV moderately lowers business risk, reduces capital expenditures, and management expects to benefit from cash received for the assets. The moderate after-tax earnings contribution, coupled with the reduction of volumetric risk assumed with the midstream assets will solidify the company's credit profile. Management forecasts a decrease in the five-year $13.5 billion capital plan by $450 million, due to capital funding needs of the midstream assets being assumed by the JV.
Fitch considers the formation of the JV, together with recent announcements to divest three under-performing coal-fired merchant assets and shut down the Kewaunee nuclear plant in Wisconsin, as further de-risking of the business and better positioning the company for its aggressive capital investment plan. Current ratings reflect the strong cash flows from a large diverse asset base, including significant contribution from regulated businesses, an aggressive capital investment plan and a high level of parent debt.
Additional information is available at 'www.fitchratings.com'.
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