Q2 2024 Earnings Summary
- Sempra Infrastructure is advancing Port Arthur LNG Phase 2, having executed a Heads of Agreement (HOA) with Saudi Aramco for 5 million tonnes per annum of offtake capacity and a 25% equity interest in the project, demonstrating strong global demand for U.S. LNG and significant growth opportunities.
- Commercial discussions for Port Arthur LNG Phase 2 are progressing very well, with a reasonable likelihood that the remainder of the volume will be under similar HOA-type agreements in the coming months, indicating robust future demand and potential for strong investment returns.
- Despite the schedule change at ECA LNG Phase 1, Sempra expects to maintain mid-teen equity returns on the project, showcasing their ability to manage large-scale projects effectively and deliver shareholder value.
- Delays and increased costs in the ECA LNG Phase 1 project: The project is delayed until the spring of 2026 due to the contractor's inability to retain necessary labor resources, leading to an estimated $300 million increase in capital expenditures for Sempra's net share.
- Lower earnings at Sempra Infrastructure due to new tariffs and higher expenses: Sempra Infrastructure experienced $48 million lower equity earnings and revenues in the transportation business, impacted by new tariffs in Mexico, higher income tax expenses, higher operating and maintenance costs, and lower revenues.
- Potential delays in regulatory approvals in California: The California General Rate Case (GRC) decision has been delayed, with a proposed decision expected later this summer and a final decision by year-end. This uncertainty could impact financial performance due to retroactive rate adjustments.
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ECA Project Delays and Cost Impact
Q: Can you mitigate the ECA project delays and cost overruns?
A: Management acknowledges that the ECA LNG project schedule has been delayed, resulting in an estimated $300 million increase in capital for Sempra's net share. Despite this, they remain confident in achieving their targeted mid-teen equity returns and have reconfirmed EPS guidance for 2024 and 2025. They are taking steps to offset the delays, including asset optimization and operational efficiencies, and see significant growth across utility platforms to support financial commitments. -
Port Arthur LNG Progress Unaffected
Q: Do ECA delays impact Port Arthur LNG projects?
A: Management confirms that Port Arthur LNG Phase 1 is not impacted by ECA delays, as it operates in a different market with a separate labor pool and has a fully wrapped EPC contract with Bechtel. For Phase 2, they have executed a fixed-price EPC agreement with Bechtel and an HOA with Saudi Aramco for 25% project equity and 5 mtpa of offtake. Commercial discussions are progressing well, and they are excited about the significant growth opportunity. -
Growth Opportunities in Texas
Q: How significant are the growth prospects in Texas, including the SRP and ERCOT plans?
A: Management emphasizes unprecedented growth in Texas, with Oncor's System Resiliency Plan involving nearly $3 billion in capital investments, incremental to a $24 billion existing capital plan. Oncor expects to be a heavy participant in ERCOT's proposed $13-15 billion transmission projects in the Permian Basin. They anticipate starting SRP-related investments late this year and see continued opportunities to invest in reliability and resiliency. -
California GRC Outcome and Guidance
Q: Will delays in the California GRC affect 2025 guidance?
A: Management is confident that the General Rate Case will be resolved by year-end, with rates retroactively effective to January 1, 2024. They have put forward strong filings aligned with state priorities and have a track record of achieving good regulatory outcomes. They expect to provide a strong update on forward guidance, including the capital plan, on the Q4 call. -
Timing of Texas Rate Case
Q: When will you file the next rate case in Texas?
A: While evaluating cost pressures such as increased wildfire insurance, management notes they are not required to file another rate case until the summer of 2027. They continue to assess the situation annually but have no immediate plans to file.
Research analysts covering SEMPRA.