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Sempra: Full Speed Ahead on LNG, Mexico Project, But Defers on MLP Formation

San Diego-based Sempra Energy senior officials said Tuesday they are moving ahead on plans for expanding liquefied natural gas (LNG) exports from the Gulf Coast and building more infrastructure in Mexico. But previous plans for creating a master limited partnership (MLP) around some of the company's profitable assets (see Daily GPIJune 17) have been put on hold due to unfavorable market conditions.

In June Sempra's board of directors approved forming a MLP, Sempra Partners LP, to own some of the company’s non-utility natural gas assets, but CEO Debra Reed said poor market conditions have caused the company to put those plans on hold for an indefinite period. "Currently, MLP market conditions are not ideal, so we will not go forward at this time," Reed said.

While reporting reduced quarter over quarter profits and an increase for the first nine months this year, Reed and Sempra President Mark Snell said expansion of a fourth train at the Cameron, LA, LNG export facility has penciled out to be one of the lowest-cost trains in the industry, and the company's prospects for growth in Mexico are expanding beyond natural gas infrastructure to natural gas liquids, electric transmission and other opportunities through Sempra's Mexico-based subsidiary, IEnova.

Following completion of engineering contracts for the proposed expansion at Cameron, Sempra has secured "LNG train costs that could be one of the lowest-cost projects worldwide and competitive in the marketplace," Reed said, adding  that with firm engineering, procurement, construction (EPC) pricing Sempra can now conduct "focused discussions" with prospective customers.

Sempra should have announcements to make in that regard in the first quarter next year before making a final investment decision to proceed with the Cameron expansion, which has a pending application at the Federal Energy Regulatory Commission, Reed and Snell told analysts during a 3Q2015 conference call. "We continue to target announcing customer agreements prior to the end of the first quarter next year," Reed said.

In Mexico, Reed said the near-term investment opportunity for new gas pipelines to serve electric generation plants now exceeds $6 billion, involving six different projects, for which bids will be awarded this month. There are also plans for awarding bids next year for major new electric transmission projects in Mexico, and IEnova plans to participate in the bidding competition, she said.

In regard to the proposed MLP, which drew numerous questions during the conference call, Read said Sempra is watching market conditions and plans to re-evaluate the situation at mid-year next year. "We do not require equity from the MLP markets to finance our base [five-year] growth plan, and we have flexibility in how we move forward," Reed said. "If we move forward, we will be convinced that the size and sustainability of the long-term value proposition for the Sempra shareholder is intact."

On LNG, the latest numbers on the additional train at Cameron indicate that it will be "one of the most -- if not, the most -- cost-effective facilities in the United States," Reed said. Snell added that the company has been carrying on "substantive discussions" with potential customers, and the construction cost analysis now provides more data for those prospective customers to work with.

"We expect to have some results toward the end of this year and toward the end of the first quarter next year," Snell said, adding that the deals won't all come at once, though. "Our firm decision to move forward on [train No. 4] would be late in the first quarter."

In response to the growing reports that the LNG market globally is oversupplied and drying up, at least in the short term, Snell said when the needs for LNG beyond 2020-2021 are looked at, "there is definitely a need for additional capacity. He noted that this year already has resulted in 27 LNG contracts worldwide, and 17 of those are 20-year deals. "So there is plenty of activity ongoing," he said. "We remain confident we'll move forward on train four."

Reed called Mexico Sempra's "wonderful growth platform," ranging from the $6 billion in gas pipelines now being bid on, power transmission, and also the longer-term development of oil properties by Mexico's state-run oil/gas company, Petroleos Mexicanos (Pemex). "We see some great opportunities for new liquids pipelines to provide takeaway capacity from some of those Pemex oil properties," she said. "There is also potentially gathering and processing in those areas."

For 3Q2015, Sempra earned $248 million (99 cents/share), compared to $348 million ($1.39) for the same period last year. For the first nine months this year, earnings were $980 million ($3.91), compared to $864 million ($3.45) for the same period in 2014.

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