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'Weather-Related' Cameron LNG Construction Delays Push Back Start Date, Sempra Says

Sempra Energy is doing its own due diligence as the joint venture (JV) it helped fashion to build liquefied natural gas (LNG) export facilities at its Cameron, LA, terminal site is grappling with construction delays that the contractor now estimates will push back the facility's start to mid-2018, Sempra's senior executives said Tuesday on a year-end earnings conference call.

While the project is lagging, the contractor, CB&I, bears the financial risk, and Sempra's earnings will not be affected by the delays, according to CEO Debra Reed and Joe Householder, corporate group president for infrastructure businesses.

Reed said the contractor's latest estimate calls for Cameron's first LNG production train to be operable in the mid part of next year with the second train coming on line by the end of 2018, and the third train operable in mid-2019. Expectations had been that Cameron's initial three trains would all be fully operational by the end of 2018.

Last fall, Sempra officials initially reported the problems from excessive Gulf Coast rain and flooding, but at that point the JV had not met with the engineering/contractor. Householder said he and a Sempra Director who is a former CEO from a major global engineering/contractor, Fluor Corp., met with CB&I on Monday to protect the San Diego-based Louisiana site owner's interest in the project.

"These are complex projects; there are more than 20,000 line items involved," said Householder, noting that the meeting underscored the fact that while weather is a major factor there are many other elements and issues impacting the need to push the construction schedule back by at least six months. "Remember, the Cameron JV is in charge of the contract on a daily basis, and the director and I were just there doing due diligence for Sempra."

He and Reed talked about Cameron on the earnings conference call in which Sempra reported essentially flat quarterly and full-year profits year over year.

In response to an analyst's question about the viability of Sempra's plans to add up to two additional trains at Cameron beyond the first three, Reed said that was still in the works, assuming Sempra can convince one of its reluctant JV partners to reconsider an earlier decision not to participate in any expansion.

Noting that Sempra purposely structured the project to avoid taking the construction and timing risks of an LNG export project, Reed said, "We have a JV to oversee the construction, so we fashioned this in a way to protect our shareholders' interests and to keep the economics of the project solid regardless of what happened with the timing or the cost of the construction.

"We laid  off those risks intentionally," she said. "But that is not to say that we are not looking at expansion; when we did the JV contract, we also looked at the expandability of the facility, and there are specific terms in the agreement on how we would expand to a five-train facility. As we had said before, one of our partners has not been willing to provide the equity for the expansion, and we are working to resolve those issues with that partner so we can expand to a train four.

"We've had meetings with that partner, and we're in discussions, and once we get that resolved we're very interested in moving ahead with Cameron train four because we think in will be one of the lowest-cost options in the marketplace."

For 4Q2016, Sempra reported adjusted earnings of $383 million ($1.52/share), compared to $367 million ($1.46) for the same quarter a year earlier. For all of 2016, adjusted earnings were $1.26 billion ($5.05), compared to $1.29 billion ($5.17) for all of 2015.

Sempra's two California utilities, San Diego Gas and Electric Co.(SDG&E) and Southern California Gas Co., continued to produce the bulk of the parent company's full year profits, although their profits collectively were down by about $87 million year over year. Collectively they had 2016 earnings of $919 million ($570 million for SDG&E), compared to slightly more than $1 billion in 2015.

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