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Sempra Timetable for Cameron LNG Exports Pushed to 2019

The first liquefied natural gas (LNG) exports from Sempra Energy's Cameron, LA, facility have been pushed to 2019 because of issues related to engineering, procurement and construction (EPC), executives said Friday.

Sempra CEO Debra Reed did not sugarcoat the news during a conference call to discuss 2Q2017 results. If the Cameron project were to incur higher costs, they would be by the project's equity partner/customers, she said.

San Diego-based Sempra still would realize contracted returns on equity for the project, which is designed for eventual capacity to export up to 3.5 Bcf/d, she said.

Sempra and its partners have continued to question EPC contractor CB&I regarding the project timetable. In March 2014, CB&I and Chivy International Corps. were awarded a $6 billion contract to build the facilities at in Hackberry, LA.

"Our observations are that certain aspects of the work may be ahead of schedule, but many others are behind the schedule we received last October," Reed said. "Based on several factors, we think it is reasonable to expect that train one could be delayed into 2019, with trains two and three following throughout 2019.

“These factors include an updated schedule from the contractor,” along with Cameron’s partners review of the schedule, “and the inherent risk in constructing and testing these types of facilities."

Sempra now does not expect any earnings in 2018 for the Cameron LNG project. Despite revisions to the schedule, management said it does not expect “any material impact on the long-term economics of the project,” with expected earnings of $300-350 million in 2020.

Joseph Householder, senior executive overseeing Cameron, and Reed were questioned about the revised timetable during the conference call. One analyst asked if Sempra was re-thinking plans to build additional export capacity beyond the first three trains now under construction.

"I would say our focus is on trains one through three right now and getting this done," Reed said. "But we have been having meetings with the partners to look at development of further trains on the site,” and Householder met with partners a few weeks ago. “I think we're making some progress but I don't expect anything to be resolved for the end of this year."

The Cameron partners have retained outside engineering consultants to help assess the situation and make recommendations. All parties are "focused on bringing the three trains into service as soon as practical," Reed said.

The CEO expressed concerns about impacts on near-term earnings. "Let me be clear, we are disappointed in the most recent change and the impact on our near-term earnings and cash flow. We have revised our 2018 financial plan to assume no earnings from Cameron in 2018."

She also noted that during large construction projects like Cameron contractors often determine that they are owed additional compensation, schedule extensions, or both.

"While Cameron has received information from the contractor claiming they are owed amounts beyond the contract value, sufficient details have not been provided to enable an evaluation of the validity or the amount” at this time, she said.

"The contractors informed us that they will supplement the information at a future time. I will reiterate we expect the protection we put in place to keep Cameron's long-term economics materially the same.”

Sempra reported 2Q2017 net income of $248 million ($1.03/share), compared with $27 million (6 cents) in 2Q2016. Revenue increased year/year to $2.53 billion from $2.16 billion.

The Sempra LNG & Midstream unit earned $27 million net in the second quarter, versus a year-ago loss of $149 million. The LNG unit recorded a $28 million after-tax recovery in the latest period related to last year’s permanent releases of pipeline capacity, compared with a related $123 million after-tax loss in 2016.

Meanwhile, Sempra Mexico recorded a net loss of $9 million in 2Q2017, compared with earnings a year earlier of $57 million. The loss primarily came from a $47 million impairment recorded on the Termoelectrica de Mexicali power plant, which is being held for sale, as well as unfavorable foreign-currency and inflation effects.

Last week, Sempra’s Mexican subsidiary IEnova also announced several long-term capacity agreements with San Antonio, TX-based Valero to develop three liquids terminals in Mexico City, Puebla and the Port of Veracruz. These projects represent IEnova's first ventures in Mexico's emerging $10 billion liquids market.

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