(Jun 4, 2007)

Loews invests in natural gas

By Jonathan Stempel
From Reuters

NEW YORK (Reuters) - Loews Corp.'s <LTR.N> $4.03 billion purchase of gas exploration and production assets from Dominion Resources Inc. <D.N> gives the conglomerate a way to spend excess cash and diversify its revenue stream as it bets on rising natural gas prices.

"It vindicates Loews' strategy of holding cash at the holding company level," said Matt Nellans, a Morningstar Inc. analyst. "It got a reasonable price and Dominion's exploration and production management team. Absent a complete bottoming out of natural gas prices, the deal should work out well."

The two companies announced the deal on Monday. Loews shares rose to a record.

The main properties being acquired are located in the Permian Basin in Texas, the Black Warrior Basin in Alabama and the Antrim Shale in Michigan, with estimated reserves of about 2.5 trillion cubic feet of gas. The price equates to about $1.61 per thousand cubic feet, Loews said.

Loews Chief Executive James Tisch, whose billionaire family runs New York-based company, has been looking for ways to deploy some $5.5 billion in cash.

Loews, the majority owner of natural gas pipeline operator Boardwalk Pipeline Partners LP <BWP.N> and Diamond Offshore Drilling Inc. <DO.N>, plans to set up a new company for the acquired assets.

It also will keep existing management, led by Timothy Parker, a Dominion senior vice president of exploration and production.

Natural gas "will be a fuel of choice for years to come (as) we move into a world that is worried about global warming and greenhouse gases," Tisch said on a conference call.

"We're seeing a reserve base in the United States that is, at best, staying flat, and we're seeing reduced importing of natural gas from Canada," he added. "If prices just stay where they are, we'll do very well with this investment."

Richmond, Virginia-based Dominion is also selling other U.S. gas and oil operations to XTO Energy Inc. <XTO.N> for $2.5 billion as it focuses on its power business.

Loews expects a third-quarter closing. It said it may obtain bank loans, but not sell public debt, at the subsidiary level to help fund the acquisition.

"This acquisition will further diversify Loews' holdings and reduce its concentration of cash flow from tobacco operations," Standard & Poor's credit analyst Rick Joy wrote.

Loews' businesses include financial, tobacco, energy, hotel and watch-making. It said it owns 75 percent of Boardwalk, 51 percent of Diamond, 89 percent of insurer CNA Financial Corp. <CNA.N>, and all of tobacco company Lorillard Inc., Loews Hotels and watchmaker Bulova Corp.

Loews shares were up $1, or 2 percent, at $52.02 in afternoon trading on the New York Stock Exchange. Their previous high was $51.50, set on May 31. The shares began the year at $41.47.

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