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Sempra Flows Gas in Key Projects; 1Q Profits Up

Sempra Energy senior officials were popping superlatives, if not champagne corks, Friday, celebrating the first shipments for their liquefied natural gas (LNG) West Coast project and the western half of the Rockies Express Pipeline, along with an increase in first-quarter net income compared to the same period in 2007 ($242 million, or 92 cents/share, versus $228 million, or 86 cents/share, last year).

Sempra CEO Donald Felsinger called 2008 a "milestone year," marking the San Diego-based energy holding company's 10th anniversary since it was formed as a merger of Enova and Pacific Enterprises, the holding companies for San Diego Gas and Electric Co. (SDG&E) and Southern California Gas Co. (SoCalGas), respectively. He reiterated Sempra's continued focus on new natural gas infrastructure and a stronger focus on renewable energy projects.

"We received our first LNG cargo, and that ship left our facility last Monday [April 28], and we expect another shipment to arrive in the next couple of days," said Felsinger in reference to the commissioning now under way at Sempra's Costa Azul terminal along the Pacific Coast of North Baja California, Mexico, about 60 miles south of the U.S. border. "We expect the project to begin commercial operations and begin receiving revenues later in May.

"This is the first LNG receipt terminal on the West Coast and an accomplishment that we are all extremely proud of," said Felsinger, adding that Sempra's second LNG terminal at Cameron in Louisiana along the Gulf of Mexico coast is 80% complete and on track to be completed by the end of this year. Sempra also reported an early termination of a capacity agreement at Cameron by a unit of Merrill Lynch, which has reported multi-billion-dollar losses in recent periods due to the subprime mortgage credit meltdown; Merrill paid Sempra a $10 million penalty for the early termination.

"We have signaled in many different forums that we are all about organic growth," Felsinger said. "The area we will continue to focus on is natural gas infrastructure. We think the country is going to need a lot more of it -- especially with this whole debate on global warming and constraints on emissions. Other than that we are rapidly ramping up our renewables business, and over time you will see us become a bigger player in the renewables space."

In response to an analyst's question, Felsinger repeated Sempra's previously stated interest in investing in an LNG liquefaction project, but it would depend on the timing, geographic location, partners and the potential markets for the gas. "If we found a location in the world where it made sense for us to invest in liquefaction, after giving it proper consideration, we would certainly look at it," he said.

Sempra on April 1 completed its launch of a commodities joint venture with the Royal Bank of Scotland, RBS Sempra Commodities, which acquired the operations of Sempra Commodities.

"Because of RBS's involvement around the world, we would expect to have more upstream opportunities globally," Felsinger said. And CFO Mark Snell said Sempra is expecting earnings from the commodities joint venture to be in the range of $250-350 million this year, with relatively little, if any, fallout from the larger global credit crunch tied.

Unlike more recent quarterly results, Sempra's two California utilities provided more than half of the profit increase in the first quarter, accounting for $131 million of net income. SDG&E earnings rose 12% to $74 million in the first quarter, compared with $62 million the same period last year, and SoCalGas profits were $57 million in the first quarter, compared with $55 million for the same period in 2007.

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