Dynegy to Sell Gas Pipeline to MidAmerican

Dynegy Inc. agreed to sell a natural-gas pipeline for $928 million to MidAmerican Energy Holdings, a unit of Warren Buffett’s Berkshire Hathaway Inc. that has been buying energy assets.

MidAmerican also agreed to assume $950 million in debt to acquire the 16,600-mile Northern Natural Gas pipeline system, which runs from Texas to the Great Lakes, the companies said.

Dynegy acquired Northern from Enron Corp. for $1.5 billion in cash and $950 million of assumed debt. It is selling assets after energy trading declined and credit dried up. The purchase is the second this year for MidAmerican, which paid $960 million to Williams Cos. in March for the Kern River gas pipeline.

Shares of Dynegy, which have fallen 97% in the last year, rose 52 cents to $1.20 in New York Stock Exchange composite trading. Berkshire Hathaway shares rose $4,655, or 7.3%, to $68,305.

“This will cut Dynegy’s cash flow and earnings, but right now, it’s about survival for them,” said Reed Wasden & Associates analyst Aaron Tyler, who rates Dynegy shares “hold” and owns none.

Buffett represents a “shrewd new player” among pipeline owners exploiting “fire sales” by companies that need to raise cash, said Carol Freedenthal of Jofree Energy Consulting of Houston. Northern Natural can deliver 4.3 billion cubic feet of gas a day and has links with other U.S. pipelines.

MidAmerican is “getting some marvelous assets at great prices,” Reed Wasden’s Tyler said, which had valued the pipeline system at $2.5 billion. “It gives them a nice presence in the natural-gas business.”

Given “current market conditions for fixed assets, we believe we received a fair price for the pipeline,” Dynegy spokesman Steve Stengel said. Dynegy had said Northern Natural would contribute $90 million a year to its earnings.

Dynegy is trying to raise $2 billion after the company’s cash flow dwindled and its credit rating was cut to junk by Standard & Poor’s. The Houston-based company canceled a $325-million bond offering by its Illinois utility last week.

Standard & Poor’s said the sale wouldn’t affect Dynegy’s credit rating for now because the transaction “relieves some near-term liquidity issues.”

S&P; put Northern Natural Gas debt on CreditWatch with positive implications, reflecting MidAmerican’s higher credit rating.

“This could really pull Dynegy out of the fire,” Tyler said. “They may be getting enough cash for them to survive the next year and a half.” He had expected Dynegy to get $650 million from selling a non-controlling 50% stake in Northern Natural, as the company had announced in May.

Stengel said the 100% sale of Northern Natural “doesn’t change our strategy at all. We are continuing with the other elements of our capital and liquidity plan.”

Elimination of the Northern Natural debt will leave Dynegy with a $300-million maturity in November and no other significant loans maturing until May, the company said.

Cash from the sale may make it easier for Dynegy to keep a controlling interest in other businesses it sells, Tyler said. “This really puts them in a much better position to sell stakes in other assets,” he said. “If you’re going halves with Dynegy, you’re going to want to know your partner will still be around.”