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Sempra Energy bets on liquefied natural gas to power future growth

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Most people may take natural gas for granted. It fuels the flame on your stove, fires your furnace. It's there when you need it.

For Sempra Energy, natural gas is big business.

The San Diego company owns Southern California Gas Co., the nation's largest natural gas distribution company, and San Diego Gas & Electric, one of the largest publicly owned power companies in the country.

Sempra reported net income of $1 billion last year on revenue of $10.6 billion. It has 17,000 employees worldwide and provides energy to more than 30 million people.

The company is led by Debra L. Reed, who holds a bachelor's degree in civil engineering from USC. Before she was named Sempra's chief executive in 2011, she served as chief executive of Southern California Gas and San Diego Gas & Electric.

She joined Southern California Gas in 1978 and became the company's first female officer 10 years later. Today, she is one of 23 female CEOs of Fortune 500 companies and has been recognized by Fortune magazine as one of the "50 Most Powerful Women in Business."

The latest

Sempra Energy is making a big investment in liquefied natural gas. It expects to spend $9 billion to $10 billion on a liquefaction facility in Hackberry, La.

When the facility, named Cameron, becomes fully operational, it will be capable of exporting about 1.7 billion cubic feet a day of liquefied natural gas for export to gas-hungry markets in Asia and Europe.

The facility could generate more than $10 billion in revenue a year.

Liquefaction is a process by which natural gas is converted to a liquid, placed in tankers and shipped to overseas customers, which then process the liquid back into a gas.

In February, the company received a conditional permit from the Energy Department to export natural gas from Cameron to countries outside the North American Free Trade Agreement, principally Japan, which Sempra sees as its largest potential market for U.S. gas.

Analysts have been salivating at the project's potential.

"Cameron is clearly the jewel in the crown," BGC Financial analyst Kit Konolige said in a Feb. 27 research note.

Accomplishments

Sempra's revenue, profit and market capitalization have been growing steadily for years.

Reed said the company has a "portfolio of assets that produces strong, predictable cash flows and supports an increasing dividend."

She said the company's return on equity is "among the best in our utility peer group." And the company maintains a "low-risk profile similar to other utilities."

"What I'm really most proud of is the great growth of the company; you just don't find that in our sector much," Reed said.

She pointed out that shares gained 30% last year and 34% the year before. "It's a really exciting time for our business," she said.

Challenges

Investors weren't happy to learn last month that Sempra Energy postponed a planned partnership that would have been publicly traded.

Reed told analysts in an earnings call in February that Sempra decided to postpone the partnership after determining that existing assets "don't provide the certainty of cash flows" to support a partnership that would "generate the premium valuation our shareholders deserve."

She said she thinks it makes more sense to wait for the Louisiana facility to become fully operational and include it in a partnership.

There are other issues.

"One of the greatest obstacles we face [is] the time it takes to get regulatory approval" for major projects, Reed said. "When you're building big infrastructure, trying to get through the regulatory process is always a challenge."

Analyst views

Eleven analysts recommended buying Sempra Energy stock, six suggested holding it and one said it's time to sell. On average, they estimated the stock will be trading at $99.38 a year from now.

Sempra Energy "has been one of the best performing stocks in the [energy] group ... largely on the strength of its non-utility infrastructure plays," Konolige said in the Feb. 27 research note.

stuart.pfeifer@latimes.com

Copyright © 2014, Los Angeles Times
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