Dominion Power 2007 Annual Report Download - page 80

Notes to Consolidated Financial Statements, Continued
N OTE 5. A CQUISITIONS
Pablo Energy LLC
In February 2006, we completed the acquisition of Pablo Energy
LLC (Pablo) for approximately $92 million in cash. Pablo held
producing and other properties located in the Texas Panhandle
area. The operations of Pablo were formerly included in our
Dominion E&P operating segment. Following the disposition of
these, and all of our other non-Appalachian E&P operations
during 2007 and the realignment of our business units in the
fourth quarter of 2007, the historical results of these operations
are now included in our Corporate and Other segment.
Kewaunee Nuclear Power Station
In July 2005, we completed the acquisition of the 556 megawatt
(Mw) Kewaunee nuclear power station (Kewaunee), located in
northeastern Wisconsin, from Wisconsin Public Service Corpo-
ration, a subsidiary of WPS Resources Corporation, and Wiscon-
sin Power and Light Company, a subsidiary of Alliant Energy
Corporation, for approximately $192 million in cash. The oper-
ations of Kewaunee are included in our Dominion Generation
operating segment.
USGen Power Stations
In January 2005, we completed the acquisition of three fossil-fuel
fired generation facilities from USGen New England, Inc. for
$642 million in cash. The plants, collectively referred to as
Dominion New England, include the 1,568 Mw Brayton Point
power station in Somerset, Massachusetts; the 754 Mw Salem
Harbor power station in Salem, Massachusetts; and the 432 Mw
Manchester Street power station in Providence, Rhode Island.
The operations of Dominion New England are included in our
Dominion Generation operating segment.
N OTE 6. D ISPOSITIONS
Sale of Non-Appalachian Natural Gas and Oil E&P
Operations and Assets
We have completed the sale of our non-Appalachian natural gas
and oil E&P operations and assets for approximately $13.9 bil-
lion. At December 31, 2006, our non-Appalachian natural gas
and oil assets included about 5.5 trillion cubic feet equivalent
(Tcfe) of proved reserves. The Appalachian assets that we have
retained included about 1.1 Tcfe of proved reserves at
December 31, 2007 and 2006.
Due to the sale of our entire Canadian cost pool, the results of
operations for our Canadian E&P business are reported as dis-
continued operations in our Consolidated Statements of Income.
The results of operations for our U.S. non-Appalachian E&P
business were not reported as discontinued operations in our
Consolidated Statements of Income since we did not sell our
entire U.S. cost pool, which includes the retained Appalachian
assets.
We used most of the after-tax proceeds from these dis-
positions to reduce our outstanding debt and repurchase shares of
our common stock, as discussed in Notes 19 and 21.
The E&P operations we have sold are as follows:
Canadian Operations
On June 26, 2007, we completed the sale of our Canadian E&P
operations to Paramount Energy Trust and Baytex Energy Trust
for approximately $624 million. The sale resulted in an after-tax
gain of $59 million ($0.08 per share). We expect to pay the tax
related to the gain on the sale by the end of the second quarter of
2008.
The following table presents selected information regarding
the results of operations of our Canadian E&P operations, which
are reported as discontinued operations in our Consolidated
Statements of Income:
Year Ended December 31, 2007 2006 2005
(millions)
Operating revenue $82 $144 $134
Income before income taxes 145(1) 24 29
(1) Amount includes pre-tax gain of $191 million recognized on the sale.
U.S. Operations
On July 2, 2007, we completed the sale of substantially all of our
offshore E&P operations to Eni Petroleum Co. Inc. (Eni) for
approximately $4.73 billion.
On July 31, 2007, we completed the sale to HighMount
Exploration & Production LLC, a newly formed subsidiary of
Loews Corporation, of our E&P operations in the Alabama,
Michigan and Permian basins for approximately $4.0 billion.
Also on July 31, 2007, we completed the sale to XTO Energy
Inc. of our E&P operations in the Gulf Coast, Rocky Mountains,
South Louisiana and San Juan Basin of New Mexico for approx-
imately $2.5 billion.
On August 31, 2007, we completed the sale to Linn Energy,
LLC, of our E&P operations in the Mid-Continent Basin for
approximately $2.0 billion.
Costs Associated with Disposal of Non-Appalachian E&P
Operations
The sales of our U.S. non-Appalachian E&P operations resulted
in the discontinuance of hedge accounting for certain cash flow
hedges since it became probable that the forecasted sales of gas
and oil will not occur. In connection with the discontinuance of
hedge accounting for these contracts, we recognized charges,
recorded in other operations and maintenance expense in our
Consolidated Statement of Income, predominantly reflecting the
reclassification of losses from AOCI to earnings and subsequent
changes in fair value of these contracts of $541 million ($342
million after-tax) in 2007. We terminated these gas and oil
derivatives subsequent to the disposal of the non-Appalachian
E&P business. We recognized a similar charge of $15 million ($9
million after-tax) in 2007 related to our Canadian operations,
which is reflected in discontinued operations in our Consolidated
Statement of Income.
During 2007, we also recorded a charge of approximately
$171 million ($108 million after-tax) for the recognition of cer-
tain forward gas contracts that previously qualified for the normal
purchase and sales exemption under SFAS No. 133. The $171
million charge includes $139 million associated with VPP agree-
ments to which we were a party. We paid $250 million to termi-
nate the VPP agreements and have retained the repurchased fixed-
78 Dominion 2007 Annual Report