Sempra Energy Earnings Call Nuggets: Southwest Merchant Gas Fired Assets, Cheniere

On Thursday, Sempra Energy (NYSE:SRE) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Southwest Merchant Gas Fired Assets

Stephen Byrd – Morgan Stanley: I just wanted to talk about the Southwest merchant gas fired assets. Given the SONGS outage and just with low natural gas, do you have any just updates or implications over the performance of those assets or just general interest in those assets?

Debra L. Reed – CEO: Well, I would say that there has been a lot more interest generally in generation in the southwest. There are a number of RFPs that are out right now or coming out in the very near future, so we have got long-term contracts for generation. Some of that is associated with the – the one through cooling issues, some of it is associated with looking at possible coal retirement. I will ask Mark to add a little bit of color on what’s happening in the current marketplace.

A Closer Look: Sempra Energy Earnings Cheat Sheet>>

Mark A. Snell – President: Well clearly with the outage at SONGS and some of the other maintenance issues with some of the other plants in the region, we have had a tighter market than we expect in the – for this time of the year. As we roll in the summer, it looks like we are going to have – I would say as we look at it today, it looks like we could have a slightly tighter market than what we have experienced in the past couple of summers. So, that should have some upward pressure on pricing, but we are not, we really haven’t made any change in our outlook for what we think that business will do for the year. We could pleasantly surprised, but I think at the end of the day we are kind of sticking to the number that we gave you at the Analyst Conference.

Stephen Byrd – Morgan Stanley: Then just on LNG export, actually this is on Costa Azul. I was just curious, are you having any discussions on possibly turning that into export or is that not really a focus area right now?

Mark A. Snell – President: We certainly are taking a look at that, it’s an interesting opportunity for us. It has some advantages as being closer to Asia and not having to go through the canal and all that. So, we are definitely taking a look at it. We don’t have as much as land there as we do in Cameron, but it is something we could – we could handle maybe one, maybe two trains at the most there, but it is something that we are exploring. But our top priority is to get Cameron online and to move that forward, and obviously we took a big step in that today and we are really excited about it and we think that will add tremendous value.

Debra L. Reed – CEO: I would just add that unlike Cameron, the facility in Baja is fully contracted for 20 plus years. So, it’s not – for us, the priority is definitely on getting Cameron, which is not fully contracted, fully utilized and producing earnings.

Cheniere

Kit Konolige – Konolige Research: A couple of questions kind of following on this, on Cameron, can you give us a perspective on, I think Cheniere, I think got their equity infusion and is kind of ready to roll. Can you update us on where they are and what if any implications that has for you guys on a competitive basis?

Mark A. Snell – President: Very well. The GDF announcement that we had today kind of completes the circle for us, so we have all three trains now that we have customers for and we’re just going to work forward on moving that. I think one of the things that where we are what we feel very comfortable with is, our partners in this project and our major customers are all experienced LNG players that have long customer relationships with Korea, with Japan, with Chile, with places that are some of the biggest users of LNG in the world. So, we feel like we’re in a very good position to move our project forward.

Kit Konolige – Konolige Research: If I can just follow on that a little bit, can you then point out to us what you see as, I think I know generally but what you see as kind of been the next critical steps that we need to keep an eye on obviously ultimately we need federal government approval to go ahead and financing but if there are specific benchmarks.

Mark A. Snell – President: Look, I think the things that are – the big milestones to come forward is, first let me just remind everybody that we do have export capability to all the free trade countries and that includes Korea which is a very big user of LNG. The next step is to get the non-free trade export permit and we expect to get that as we’ve said sort of later in the year, could be either early part of next year. But that’s something that we’ve got to get done. We also would need a FERC permit to construct and we are working on that right now. We would expect to get that some time later in the year. We are working on the final design and engineering. Those kinds of things need to be done to get the FERC permit. So, we’ve got ways to go, we’re just off to a very good start.