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Post-Baum, Sempra Energy Expects No Changes, CFO Says

With CEO Steve Baum officially retired on Wednesday, and a new three-person senior management team from within the company, Sempra Energy expects to stay its current course, including timely sales of assets, continued development of liquefied natural gas (LNG) and related facilities, along with holding on to its so-far successful trading operation, Sempra's new CFO, Mark Snell, told a session at the Credit Suisse Energy Summit Tuesday in Vail, CO.

Snell, along with Chairman/CEO Donald Felsinger and COO Neal Schmale make up the new top executive team with Baum's departure.

"While we have made some changes in the upper management, these are all folks who have been around for awhile, so I wouldn't expect any drastic changes in our direction or strategic thinking," Snell said at the conclusion of his prepared remarks. "We still have the same plan, same growth opportunities."

With oil and gas prices globally at historically high levels, Snell indicated that in addition to the ongoing sale of the Texas generation assets, Sempra is selling some relatively small oil and gas royalty assets and some "leftover" small businesses that were part of its now closed energy services business, Sempra Energy Solutions. Later in the year, Sempra may sell its South American natural gas and electric utility assets, said Snell, noting the final decision had not been made on that yet.

In response to a question, Snell said Sempra plans to hold onto its trading unit, which he emphasized has become a key part of its merchant energy operations in both the natural gas and electricity sectors. Even though in the beginning the company's trading business was more of an "appendage," Snell said it is now much more essential to the company's day-to-day operations.

"In the last couple of years it has become a very integral part of our business," he said. "All of our power plants in the West are dispatched by our trading company; they procure all the gas coming into the plants, do daily scheduling, etc., so it has become an integral part of our business. On the gas side, they market the LNG were doing and they're opening up opportunities for us in the pipeline business, so it is much more of a collaborative effort and we are dealing with them much more closely than we ever had in the past.

"In almost every decision we're making in terms of future investments, there is some seat at the table for trading."

Regarding the impending sale of the company's extensive Texas power plants, particularly the coal-fired plants, Snell said units, such as Twin Oaks and Coleto Creek, became "much more valuable, much quicker" than anticipated with the extraordinary run-up of natural gas wholesale prices. (Twin Oaks was sold recently to PNM Resources for $480 million; Sempra bought it for $120 million three years ago.)

Snell indicated that Sempra feels the plants may have reached their peak values, and natural gas prices are likely to moderate over time as more LNG supplies are imported and demand is reduced by the high prices. "We thought this was an opportune time to put the plants on the market, and we have had a very positive response," Snell said. "It is also an opportune time because we can use the funds from this and other asset sales to fund our ongoing development program and ongoing increase capital expenditures at the utilities (Southern California Gas Co. and San Diego Gas and Electric Co.).

For the company's growing LNG operations, Snell said Sempra ideally is attempting to have about half of its terminal capacities covered by tolling arrangements and the rest of the facilities' supplies under contract where it has rights to the gas. At the LNG terminal now under construction at Costa Azul along the North Baja Pacific Coast in Mexico that is the arrangement: half of the 1 Bcf/d capacity is a tolling arrangement with Shell and the other half is gas Sempra has bought from BP Indonesia and will process and market itself.

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