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12 DOMINION 2006 Annual Report
The surest way to build on past success is to act as
your own devil’s advocate. Test assumptions.
Ask hard questions. Look at the broader picture
and consider alternatives, even when things are working
well. We do.
Longtime investors in Dominion know that our explo-
ration and production (E&P) unit has played an impor-
tant role in the profitability of the company’s integrated
mix of natural gas and electric power businesses.
By the end of 2006, thanks to reserve growth, increas-
ing production and rising energy prices, our natural gas
and oil E&P unit contributed 34 percent of Dominion’s
primary operating segment earnings,or $680 million.
POTENTIAL E&P SALE YIELDS COMPELLING INVESTOR BENEFIT
This scale gave us an opportunity to re-evaluate our
strategic direction. During 2006, we assessed the wisdom
of selling the E&P business to refocus on our regulated
and other unregulated businesses. Our E&P leaders and
their team have done a superior job in growing both their
assets and earnings. After a lengthy and thorough analysis,
however, we announced in November a decision to pur-
sue the sale of almost all of our E&P assets. We would
keep our Appalachian properties, which would represent
less than 5 percent of our post-sale consolidated earnings.
The determination to pursue a sale of about one-third
of our company during my first year as CEO was not an
easy one. If completed, the sale would represent the most
significant change in our business strategy since our suc-
cessful merger with Consolidated Natural Gas in 2000.
Why do it? The answer lies in Dominion’s basic busi-
ness philosophy: a commitment to managing for the
long-term rather than the short, in the belief that higher
earnings based on higher risks is not the best way to
create the stable, long-term investment profile preferred
by investors like Dominion’s shareholders.
For investors, the benefits of this risk-reducing step
would include:
■More stable earnings growth that is less dependent on
volatile oil and natural gas markets and deserving of high-
er valuation multiples enjoyed by our peer companies.
DEAR FELLOW SHAREHOLDERS
EACH OF OUR SUPERBLY OPERATED REMAIN-
ING BUSINESSES WILL HAVE ITS OWN UNIQUE
PROSPECTS FOR EARNINGS GROWTH.