Sempra Energy Reports Second-Quarter 2018 Results

SAN DIEGO, Aug. 6, 2018 /PRNewswire/ -- Sempra Energy (NYSE: SRE) today reported second-quarter 2018 losses of $561 million, or $2.11 per diluted share, compared with earnings of $259 million, or $1.03 per diluted share, in the second quarter 2017. Sempra Energy's second-quarter 2018 results included a $755 million impairment (after tax and noncontrolling interests) related to the planned sale of certain U.S. midstream assets and a $145 million after-tax impairment related to the planned sale of U.S. wind investments. On an adjusted basis, excluding the aforementioned impairment charges, Sempra Energy's second-quarter 2018 earnings were $361 million, or $1.35 per diluted share, up from $276 million, or $1.10 per diluted share, in last year's second quarter.

"In the second quarter, we achieved solid operating results and, with our recent successful equity offerings, we have strengthened our balance sheet," said Jeffrey W. Martin, CEO of Sempra Energy. "We also have taken significant steps to begin optimizing our portfolio of assets and expand our liquefied natural gas (LNG) business. These initiatives are integral to our long-term strategic plan, which should deliver shareholder value through superior earnings and dividend growth."

Sempra Energy's losses for the first six months of 2018 were $214 million, or $0.82 per diluted share, compared with earnings of $700 million, or $2.77 per diluted share, in the first six months of 2017. Adjusted earnings for the first six months of 2018 were $733 million, or $2.78 per diluted share, compared with $714 million, or $2.83 per diluted share, in the first six months of 2017.

On June 28, following the company's annual strategic review, Sempra Energy announced a portfolio optimization initiative designed to create incremental shareholder value. The company intends to sell several energy infrastructure assets, including its entire portfolio of U.S. wind and U.S. solar assets and investments, as well as certain U.S. midstream storage assets. Proceeds from the sales will be used to support growth opportunities in the company's other businesses and further strengthen Sempra Energy's balance sheet.

On July 13, Sempra Energy successfully completed equity offerings that are expected to raise $1.82 billion, assuming settlement of all forward sale agreements by issuance of common stock. The funds will be used to complete the financing for the acquisition earlier this year of an 80.25-percent stake in Oncor Electric Delivery Co. with approximately 65 percent in equity.

OPERATING HIGHLIGHTS

In the second quarter, Sempra LNG & Midstream advanced development of its Port Arthur LNG and Energía Costa Azul natural gas liquefaction-export projects. On June 26, Port Arthur LNG entered into a preliminary 20-year agreement for the sale of 2 million tonnes per annum (Mtpa) of natural gas to the Polish national oil company, beginning in 2023, subject to reaching a definitive agreement. On June 22 and June 25, respectively, Sempra LNG & Midstream announced the selection of Bechtel as the engineering, procurement, construction and commissioning (EPC) contractor for the Port Arthur liquefaction project under development in Texas and a partnership of TechnipFMC and Kiewit as the EPC contractor for the Energía Costa Azul liquefaction project under development in Mexico.

Last month, Sempra Energy's Mexican operating unit, IEnova, announced it had been awarded a 20-year contract by the Topolobampo Port Administration in Mexico to build and operate an estimated $150 million receipt, storage and send-out liquid fuels marine terminal in the state of Sinaloa. Operations are expected to commence in the fourth quarter 2020. To support the project, IEnova has entered into 10- and 15-year U.S. dollar-denominated contracts for 100 percent of the terminal's capacity. The two contracts are with refining and fuel marketing companies. Both contracts have the potential to be extended to 20 years.

NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures include Sempra Energy's 2018 adjusted earnings and adjusted earnings per share for both the second quarter and first six months of 2018 and 2017. Information regarding these non-GAAP financial measures is in the appendix on Table A of the second-quarter financial tables.

INTERNET BROADCAST

Sempra Energy will broadcast a live discussion of its earnings results over the Internet today at 12 p.m. EDT with senior management of the company. Access is available by logging onto the website at www.sempra.com. For those unable to log onto the live webcast, the teleconference will be available on replay a few hours after its conclusion by dialing (888) 203-1112 and entering passcode 7703894.

Sempra Energy, based in San Diego, is a Fortune 500 energy services holding company with 2017 revenues of more than $11 billion. Sempra Energy is the utility holding company with the largest U.S. customer base. The Sempra Energy companies' approximately 20,000 employees serve more than 40 million consumers worldwide.

This press release contains statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by words such as "believes," "expects," "anticipates," "plans," "estimates," "projects," "forecasts," "contemplates," "assumes," "depends," "should," "could," "would," "will," "confident," "may," "can," "potential," "possible," "proposed," "target," "pursue," "outlook," "maintain," or similar expressions or discussions of guidance, strategies, plans, goals, opportunities, projections, initiatives, objectives or intentions. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future results may differ materially from those expressed in the forward-looking statements.

Factors, among others, that could cause our actual results and future actions to differ materially from those described in any forward-looking statements include risks and uncertainties relating to: actions and the timing of actions, including decisions, new regulations, and issuances of permits and other authorizations by the California Public Utilities Commission, U.S. Department of Energy, California Department of Conservation's Division of Oil, Gas, and Geothermal Resources, Federal Energy Regulatory Commission, U.S. Environmental Protection Agency, Pipeline and Hazardous Materials Safety Administration, Los Angeles County Department of Public Health, Public Utility Commission of Texas, states, cities and counties, and other regulatory and governmental bodies in the U.S. and other countries in which we operate; the timing and success of business development efforts and construction projects, including risks in timely obtaining or maintaining permits and other authorizations, risks in completing construction projects on schedule and on budget, and risks in obtaining the consent and participation of partners and counterparties; the resolution of civil and criminal litigation and regulatory investigations; deviations from regulatory precedent or practice that result in a reallocation of benefits or burdens among shareholders and ratepayers; denial of approvals of proposed settlements or modifications of settlements; and delays in, or disallowance or denial of, regulatory agency authorizations to recover costs in rates from customers or regulatory agency approval for projects required to enhance safety and reliability, any of which may raise our cost of capital and materially impair our ability to finance our operations; the greater degree and prevalence of wildfires in California in recent years and risk that we may be found liable for damages regardless of fault, such as in cases where the inverse condemnation doctrine applies, and risk that we may not be able to recover any such costs in rates from customers in California; the availability of electric power, natural gas and liquefied natural gas, and natural gas pipeline and storage capacity, including disruptions caused by failures in the transmission grid, moratoriums or limitations on the withdrawal or injection of natural gas from or into storage facilities, and equipment failures; changes in energy markets, volatility in commodity prices and moves to reduce or eliminate reliance on natural gas; risks posed by actions of third parties who control the operations of our investments, and risks that our partners or counterparties will be unable or unwilling to fulfill their contractual commitments; weather conditions, natural disasters, accidents, equipment failures, computer system outages, explosions, terrorist attacks and other events that disrupt our operations, damage our facilities and systems, cause the release of greenhouse gases, radioactive materials and harmful emissions, cause wildfires and subject us to third-party liability for property damage or personal injuries, fines and penalties, some of which may not be covered by insurance (including costs in excess of applicable policy limits), may be disputed by insurers or may otherwise not be recoverable through regulatory mechanisms or may impact our ability to obtain satisfactory levels of insurance, to the extent that such insurance is available or not prohibitively expensive; cybersecurity threats to the energy grid, storage and pipeline infrastructure, the information and systems used to operate our businesses and the confidentiality of our proprietary information and the personal information of our customers and employees; our ability to successfully execute our plan to divest certain non-utility assets within the anticipated timeframe, if at all, or that such plan may not yield the anticipated benefits; actions of activist shareholders, which could impact the market price of our common stock, preferred stock and other securities and disrupt our operations as a result of, among other things, requiring significant time and attention by management and our board of directors; capital markets and economic conditions, including the availability of credit and the liquidity of our investments; fluctuations in inflation, interest and currency exchange rates and our ability to effectively hedge the risk of such fluctuations; the impact of recent federal tax reform and uncertainty as to how it may be applied, and our ability to mitigate adverse impacts; actions by credit rating agencies to downgrade our credit ratings or those of our subsidiaries or to place those ratings on negative outlook and our ability to borrow at favorable interest rates; changes in foreign and domestic trade policies and laws, including border tariffs, and revisions to international trade agreements, such as the North American Free Trade Agreement, that make us less competitive or impair our ability to resolve trade disputes; the ability to win competitively bid infrastructure projects against a number of strong and aggressive competitors; expropriation of assets by foreign governments and title and other property disputes; the impact on reliability of San Diego Gas & Electric Company's (SDG&E) electric transmission and distribution system due to increased amount and variability of power supply from renewable energy sources; the impact on competitive customer rates due to the growth in distributed and local power generation and the corresponding decrease in demand for power delivered through SDG&E's electric transmission and distribution system and from possible departing retail load resulting from customers transferring to Direct Access and Community Choice Aggregation or other forms of distributed and local power generation, and the potential risk of nonrecovery for stranded assets and contractual obligations; the ability to realize the anticipated benefits from our investment in Oncor Electric Delivery Holdings Company LLC (Oncor Holdings); Oncor Electric Delivery Company LLC's (Oncor) ability to eliminate or reduce its quarterly dividends due to regulatory capital requirements, certain reductions in its senior secured credit rating, or the determination by Oncor's independent directors or a minority member director to retain such amounts to meet future requirements; and other uncertainties, some of which may be difficult to predict and are beyond our control.

These risks and uncertainties are further discussed in the reports that Sempra Energy has filed with the U.S. Securities and Exchange Commission (SEC). These reports are available through the EDGAR system free-of-charge on the SEC's website, www.sec.gov. Investors should not rely unduly on any forward-looking statements. These forward-looking statements speak only as of the date hereof, and the company undertakes no obligation to update or revise these forecasts or projections or other forward-looking statements, whether as a result of new information, future events or otherwise.

Sempra South American Utilities, Sempra Infrastructure, Sempra LNG & Midstream, Sempra Renewables, Sempra Mexico, Sempra Texas Utility, Oncor Electric Delivery Company LLC (Oncor) and Infraestructura Energética Nova, S.A.B. de C.V. (IEnova) are not the same companies as the California utilities, San Diego Gas & Electric Company (SDG&E) or Southern California Gas Company (SoCalGas), and Sempra South American Utilities, Sempra Infrastructure, Sempra LNG & Midstream, Sempra Renewables, Sempra Mexico, Sempra Texas Utility, Oncor and IEnova are not regulated by the California Public Utilities Commission.

SEMPRA ENERGY
Table A (Continued)

RECONCILIATION OF SEMPRA ENERGY ADJUSTED EARNINGS TO SEMPRA ENERGY GAAP (LOSSES) EARNINGS (Unaudited)

Sempra Energy Adjusted Earnings and Adjusted Earnings Per Share exclude items (after the effects of income taxes and, if applicable, noncontrolling interests) in 2018 and 2017 as follows:

Three months ended June 30, 2018:

• $(755) million impairment of certain non-utility natural gas storage assets in the southeast U.S. at Sempra LNG & Midstream
• $(145) million other-than-temporary impairment of certain U.S. wind equity method investments at Sempra Renewables
• $(22) million impacts associated with Aliso Canyon litigation at SoCalGas

Three months ended June 30, 2017:

• $(47) million impairment of Sempra Mexico's Termoeléctrica de Mexicali (TdM) assets that were held for sale until June 2018
• $2 million deferred income tax benefit on the TdM assets that were held for sale
• $28 million of recoveries related to 2016 permanent release of pipeline capacity at Sempra LNG & Midstream

Six months ended June 30, 2018:

• $(755) million impairment of certain non-utility natural gas storage assets
• $(145) million other-than-temporary impairment of certain U.S. wind equity method investments
• $(22) million impacts associated with Aliso Canyon litigation
• $(25) million income tax expense to adjust Tax Cuts and Jobs Act of 2017 (TCJA) provisional amounts

Six months ended June 30, 2017:

• $(47) million impairment of TdM assets that were held for sale
• $5 million deferred income tax benefit on the TdM assets that were held for sale
• $28 million of recoveries related to 2016 permanent release of pipeline capacity

Sempra Energy Adjusted Earnings and Adjusted Earnings Per Common Share are non-GAAP financial measures (GAAP represents accounting principles generally accepted in the United States of America). Because of the significance and/or nature of the excluded items, management believes that these non-GAAP financial measures provide a meaningful comparison of the performance of Sempra Energy's business operations from 2018 to 2017 and to future periods. Non-GAAP financial measures are supplementary information that should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. The table below reconciles for historical periods these non-GAAP financial measures to Sempra Energy GAAP (Losses) Earnings and GAAP Diluted (Losses) Earnings Per Common Share, which we consider to be the most directly comparable financial measures calculated in accordance with GAAP.    

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SOURCE Sempra Energy