With some key uncertainties now resolved in its utilities and commodities businesses, San Diego-based Sempra Energy is raising its confidence level and profit guidance for the rest of the year, CEO Donald Felsinger told financial analysts during an earnings conference call Thursday.
Profits for the quarter, year-over-year, were down overall — $244 million (98 cents/share), compared with $277 million ($1.05) — for the second quarter in 2007.
While its results from its California utilities, pipelines, storage and independent generation businesses were all improved from the second quarter last year, this was the first earnings report under Sempra’s new $3.3 billion joint-venture commodities business — RBS Sempra Commodities (see Daily GPI, April 2). Under the RBS partnership, Sempra has reduced ownership in its energy trading unit, but has less risk and more access to a greater number of global deals due to the worldwide reach of the Royal Bank of Scotland (RBS), the company said.
Closing the energy trading joint venture was one of several “uncertainties” hanging over Sempra at the beginning of 2008 that have now been resolved, said Felsinger. He listed additional milestones as the general rate case decision for the California utilities that came July 31 from the state regulatory commission and the extension of the Rockies Express Pipeline (REX), which is now flowing 1.5 Bcf/d east.
“The strong results we saw this quarter were driven primarily by natural gas and power,” Felsinger said. “But another key result we are seeing is increased ‘deal-flow’ [due to the RBS joint venture], coming from both new customers and new areas of business. At the moment we have a pipeline to about 50 large deals pending, many of which combine customer needs for financing with their need to hedge some form of commodity risk exposure. These are exactly the types of deals we were targeting by partnering with RBS.”
On the recently announced pending $510 million Gulf of Mexico-based gas storage/utility acquisition of EnergySouth, Felsinger indicated that at least 40 Bcf of the potential 57 Bcf storage capacity in separate Alabama and Mississippi gas storage development will be commercially available by the end of 2011. For the two fields — Bay Gas Storage and Mississippi Hub — there is about 20 Bcf of capacity already under contract.
The Bay Gas Storage facility plans to expand to 27 Bcf of total capacity; it currently has 11.4 Bcf of working capacity that is fully contracted, and another 5 Bcf is 92% contracted and under construction with a scheduled start date in the first quarter of 2010. Mississippi Hub eventually will grow to 30 Bcf capacity, and its first 6 Bcf phase is under construction with 4 Bcf of that capacity already under contract.
Sempra plans to operate the 93,000-customer gas distribution utility in Alabama, Mobile Gas Service Corp., that it acquired with the storage field deal, said Felsinger. He did not say when Sempra might consider either selling or adding to the utility assets in the Gulf region.
Noting that Sempra intends to expand its footprint in the Gulf region, Felsinger said the EnergySouth deal “allows [it] to better serve key markets in the Southeast where gas demand outpaces the national average, and the new assets complement existing assets in the region and position us for growth.”
Felsinger talked about some continuing uncertainties amidst ongoing successes in Sempra’s investments in REX and various liquefied natural gas (LNG) projects, including rising costs (estimated at $5.6 billion overall) for REX with all of its expansions and uncontracted for capacity at its Cameron (LA) LNG terminal that is nearing the end of construction and ready for commercial operations next year.
“There have been a number of things that have gone well with this [REX] project, but the challenge of late has been cost increases on the eastern-most segments of the pipeline due primarily to labor cost escalations and changes in the preferred route,” Felsinger said. “Even with the cost increases, when REX is fully operational, we’ll have around $650 million of equity and be receiving dividends each year of about $70-80 million.”
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