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    Sempra (SRE)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$72.71Last close (May 6, 2024)
    Post-Earnings Price$73.18Open (May 7, 2024)
    Price Change
    $0.47(+0.65%)

    What went well

    • Sempra is making steady progress on LNG projects, with FID for Cameron expansion expected in the first half of 2025 , and there is robust commercial interest in their LNG projects and expansion opportunities, including Port Arthur Phase 2, with teams actively engaged in commercial discussions for long-term contracted volumes.
    • Oncor, Sempra's Texas utility, has filed a $3 billion System Resiliency Plan (SRP), which is incremental to its existing $24.2 billion capital plan, and is expected to significantly benefit customers and support further growth.
    • Positive regulatory developments in California, including the affirmation of the current cost of capital mechanism (CCM), improve regulatory certainty, and the pending rate case decision, expected as early as Q3, may positively impact earnings.

    What went wrong

    • Permitting delays for Port Arthur Phase 2 due to DOE non-FTA export permit pause could affect project timelines and future growth prospects.
    • Supply chain and labor constraints in the LNG market and utility sector may impact Sempra's development projects, potentially causing delays or increased costs.
    • Significant capital expenditure plans, such as the $3 billion SRP filing, may require additional financing or put pressure on the balance sheet, especially if regulatory approvals are delayed or if execution issues arise.

    Q&A Summary

    1. DOE Permit Pause Impact
      Q: How does the DOE permit pause affect LNG projects and FID timing?
      A: Management believes the permitting pause is temporary and expects permits to be issued early next year. It impacts only Port Arthur Phase 2, while other projects like Cameron Phase 2 are unaffected. They continue to advance these projects with strong commercial value and target FID for Cameron expansion in the first half of 2025. ,

    2. Financing Plan and Equity Needs
      Q: Can existing financing support increased CapEx for SRP and SIP?
      A: Management is confident in the balance sheet's strength and sees no need for additional equity. They have efficiently financed growth since 2018, achieving around 10% annual EPS growth. Equity needs were addressed last fall, allowing support for incremental CapEx without new equity issuance.

    3. Texas Load Growth and Investment
      Q: Is Oncor's capital plan sufficient for ERCOT's load growth outlook?
      A: The latest ERCOT data shows significant load growth, potentially adding California's peak demand by 2030. Management expects 40-50% of this growth to occur in Oncor's service territory. They anticipate evaluating the capital plan in the fall to possibly increase investment to meet this demand. ,

    4. Supply Chain Constraints
      Q: Are supply chain issues affecting T&D and LNG project execution?
      A: While some supply chain constraints exist, management is confident in project execution. Oncor has diversified suppliers and secured equipment for the first two years of their plan. For LNG projects, construction at ECA Phase 1 is over 80% complete with no significant issues, and Port Arthur Phase 1 progresses on schedule. ,

    5. ConocoPhillips' Stake in Port Arthur
      Q: What is Conoco's stance on selling down their Port Arthur stake?
      A: ConocoPhillips remains a key strategic partner with alignment on both Phase 1 and Phase 2 of Port Arthur. While their investment in Phase 2 is undecided, strong collaboration continues due to mutual strategic interests, especially regarding gas supply from the Permian Basin.

    6. Renewable Energy Investments
      Q: Will SIP rebuild its renewable portfolio with more projects?
      A: Management is enthusiastic about projects like Cimarron Wind and sees opportunities to efficiently build additional solar and wind assets. This aligns with their strategy to focus on recurring cash flows and leverage leadership positions in large markets like Mexico, integrated with California.

    7. SRP Filing Details
      Q: How will SRP spend progress and what’s the procedural timeline?
      A: The SRP filing was made recently, with the commission expected to review and approve within 180 days, likely by Q4. The $3 billion investment over three years (2025–2027) is slightly backloaded, aiming to enhance system resiliency and reliability. ,

    8. LNG Market Dynamics
      Q: Is there renewed off-taker interest in LNG projects?
      A: Despite peers facing delays, Sempra sees robust commercial interest in their LNG projects. They continue global engagements with potential long-term offtake partners and believe market interest remains strong, advancing projects when returns are appropriate.

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