The times have changed in energy marketing and trading, and in the business world at large -- and that, in a nutshell, is why David Messer, the head of RBS Sempra Commodities, decided to pack it in last week for family breakfasts and deep sea fishing, according to Sempra Energy CEO Donald Felsinger.
"I think, finally David said 'look, it's a much different business than the business we started 12 years ago; it's got a lot more outside influences on it.' I'm not talking about RBS at all," Felsinger said. "I'm talking about just the Congress, the shareholders, other people looking at how the business is operated and the name-calling that takes place. It's not a fun place to work in any business today."
And according to speculation in the business press, it's getting less remunerative, too. The Royal Bank of Scotland was recently nationalized (see NGI, March 9), and a review of pay and bonuses for traders and others is in the offing, according to reports. Frank Gallipoli, who was president of the RBS commodities trading venture, resigned earlier this month, to be followed by Messer.
Sempra last week offered no reason for the sudden departure, noting that CFO Mark Snell and Jeremy Wright, the chief administrative officer of RBS's markets business, will manage the global commodity trading business jointly in the interim until a successor to Messer is named. In an e-mail Messer told employees of Sempra's various businesses that after 26 years in the trading business he was resigning to spend more time with his family. His immediate plans involved taking "a trip with my wife, making breakfast for my kids, learning to grill a perfect steak and catching a 500-pound tuna off of Montauk."
"...I think David said to himself, 'I made a lot of money. I'm tired. I've got a young family. I've got a house that I've been playing with for 12 years and put a lot of money in. There are other things in life that I want to do,'" said Felsinger, who emphasized that the company "would not shoot itself in the foot" by trying to scrimp on whatever salary and perks it offers to Messer's eventual replacement.
Snell told analysts the risk that RBS would want to exit the trading venture "is relatively low" as the UK government understands "that this is a business that [Sempra] needs to be in. All the reasons they entered into the joint venture are still 100% valid," he said.
For those who remain with the commodities business and with Sempra there is plenty to do, Felsinger and other executives told financial analysts at a company meeting in New York City last Thursday. Sempra provided earnings-per-share (EPS) guidance for 2010 of $5.00-5.25 and for 2013 a target of $5.65-5.95. The 2010 EPS guidance represents a 15% increase over previously announced 2009 guidance of $4.35-4.60. From 2009 through 2013, the company expects annual capital expenditures to average approximately $2.4 billion.
Felsinger emphasized that Sempra has positioned itself well to take advantage of the evolving natural gas market while the commodities business continues to play an important and profitable, albeit smaller, roll at the company. He said natural gas will "continue to be the fossil fuel of choice" in the United States. Price volatility will remain, he said, and while gas prices are in the basement now, they will be in for a hefty bounce once the recession ends and demand picks up, due to the fact that producers have laid down so many rigs, Felsinger said.
Much of the company's plans going forward are focused on assets it acquired through the acquisition of Energy South, which was announced last summer (see NGI, Aug. 4, 2008). Gulf Coast region pipeline and storage assets are particularly attractive now -- with the emergence of gas shale plays in the region -- and will be later as more cargoes of liquefied natural gas (LNG) are drawn to U.S. shores, said Sempra COO Neal Schmale.
Schmale noted that the company's contracting strategies have been focused on creating "utility-like" earnings in its nonregulated businesses. A common feature of the infrastructure businesses, he said, is a focus on natural gas, and the Gulf Coast is a target area geographically.
The LNG market is no longer predicated on point-to-point deals, Schmale said and is now a world market in which suppliers need to have access to multiple markets. With the significant drop in demand for LNG in Asian markets, cargoes from the Middle East are now turning toward Atlantic Basin markets, which means the United States and Europe. Given Europe's dearth of gas storage capacity compared with the United States, Schmale said he expects more LNG to be coming to the United States, to Sempra's benefit. "The sellers [of LNG] are going to have to understand the need to hold regasification capacity in multiple markets," he said.
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