Stung by lower-than-expected first quarter results worsened by one-time charges due to accounting changes, Sempra Energy CEO Steve Baum Thursday predicted his energy trading operation would rebound in the short term from the first quarter loss. He also predicted his company would be North America’s largest importer of liquefied natural gas (LNG) by 2007.

Among several positive results in the first quarter, Baum listed Sempra’s acquisition of the development rights and site for the Cameron LNG receiving terminal in Louisiana from Dynegy, and obtaining environmental permits for the North Baja Energia Costa Azul LNG project in Mexico. Approvals from the Mexican federal energy authorities and local land-use permits are expected “shortly,” Baum said, adding that FERC should approval the Louisiana terminal construction by year-end.

He reiterated the San Diego-based company’s expectation that the North Baja California LNG terminal will be fully completed by the end of 2006 and the Cameron facility will be ready to go the following year.

“Together the two facilities will give us processing capability for 2.5 Bcf/d of natural gas, making Sempra the largest owner of LNG import capability in North America,” he said.

Citing accounting changes and losses in its energy trading operations, Sempra reported first quarter earnings that were down by nearly 40% from 2002 first-quarter results — $88 million, or 42 cents/diluted share this year, compared with $146 million, or 71 cents/diluted share for the same period last year. Shifting to a new accounting principle led to $29 million, or 14 cents/diluted share, of the difference, and overall for comparison purposes first-quarter results this year would have been $126 million, or 60 cents/diluted share, Sempra said.

In the short term, Baum acknowledged that the accounting change to move away from mark-to-market accounting on certain trading activity “had its largest impact” on Sempra Energy Trading, contributing to the $18 million loss for the first quarter. Trading earnings would have been a plus $19 million without the accounting change, Baum said.

“Over the past 13 quarters, trading has produced profits ranging from $10 million to $86 million, and it is this proven track record that gives us confidence that trading will provide annual earnings that are consistent with our plans,” Baum said.

The downturn in total company earnings came despite a 27% increase in revenues for the first quarter — $1.9 billion, compared with $1.5 billion in the first quarter 2002. Operations in the merchant energy plant development unit, Sempra Energy Resources, showed an increase in earnings ($10 million in the first quarter, compared with a new loss of $3 million a year earlier).

Sempra’s two major utility subsidiaries, Southern California Gas Co. and San Diego Gas and Electric Co., earned $103 million the first quarter, but that was down from $113 million in the same period last year. The trading unit posted an $18 million loss in the first quarter, compared with net income of $42 million for the same period in 2002. Sempra officials predicted a “rebound” in trading and “solid results” by the end of the year.

Sempra Energy International’s first quarter earnings decreased slightly to $7 million from $8 million during the same period in 2002, and the commodity and energy services unit, Sempra Energy Solutions, posted a net loss of $1 million in the first quarter, compared with net income of $1 million for the first quarter of 2002. For the latter, the new accounting principle had a $1 million cumulative effect on the results.

Earnings for all of 2003 are expected to be in the $2.60-2.80/share range, said Sempra CEO Steve Baum. “Our California utilities performed well in the first quarter. We also are making progress on several of our key strategic initiatives, especially our expansion into the liquefied natural gas market and bringing new generation facilities online in the Pacific Southwest.”

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