Sempra Energy CEO Jeffrey Martin
By Jarrett Banks
KKR & Co. agreed to pay $3.37 billion for a 20% stake in a Sempra Energy unit comprising the U.S. company’s infrastructure assets, including a liquefied natural gas project and a Mexican renewables and pipelines operator. The deal values Sempra Infrastructure Partners at about $25.2 billion, including expected asset-related debt.
The move comes four months after Sempra announced the creation of the new unit to simplify its structure and aid development of gas and renewables projects. The company, which recently announced a $32 billion capital-spending plan focused on its Texas and California utilities, plans to use the proceeds to fund growth of its U.S. utilities and strengthen its balance sheet.
Utilities should see core growth opportunities under President Joe Biden’s infrastructure proposals. Exec Edge sat down with Sempra CEO Jeffrey Martin to find out more about the company’s plans.
Exec Edge: Sempra Energy announced today its sale of a 20% stake of Sempra Infrastructure Partners to KKR. Can you give us an overview of the sale?
Our mission is to become North America’s premier energy infrastructure company, and this sale is helping to advance that goal. We entered into a definitive agreement to sell a non-controlling, 20% interest in Sempra Infrastructure Partners to KKR for $3.37 billion in cash, subject to adjustments, which values Sempra Infrastructure Partners at approximately $25.2 billion, including expected asset-related debt at closing of $8.37 billion. We expect SIP will benefit greatly from our partnership with KKR and their expertise as a leading global investment firm. The transaction is expected to close by mid-2021, subject to customary closing conditions.
Exec Edge: What does today’s news mean for your infrastructure investments?
Today’s announcement is part of the series of integrated transactions announced to simplify our infrastructure investments under one platform. This sale combines the strengths of Sempra LNG, a leading developer of liquefied natural gas (LNG) export infrastructure, and IEnova (Infraestructura Energética Nova, S.A.B de C.V.), one of the largest private energy companies in Mexico and a leading developer and operator of renewables and natural gas infrastructure in that country. The new platform is expected to create scale and unlock portfolio synergies. The transaction also highlights the value of our LNG business and sends a clear signal about the expected growth of our infrastructure portfolio.
Exec Edge: How will you deploy the proceeds from the sale?
The sale of a non-controlling interest in Sempra Infrastructure Partners allows us to raise capital efficiently to fund growth across our utility and infrastructure platforms and strengthen Sempra’s balance sheet. Our resource priorities remain ensuring safety and reliability at all our operating companies; investing in growth and other areas at our U.S. utilities; continuing to strengthen the balance sheet; and investing in infrastructure growth projects we believe have attractive, risk-adjusted returns.
Exec Edge: How does this new platform contribute to the role of business within the energy transition?
First, we must acknowledge that a complex, global climate challenge requires a global solution. Coal powers a substantial amount, if not the majority of, the electricity needs for many nations in Asia and in the developing world. At Sempra Energy, we are deeply committed to making infrastructure investments that support the world’s transition to a carbon neutral energy system. To help in that transition, we expect our LNG exports can reduce the cost differential between coal and natural gas while lowering global emissions, thereby speeding the transition to less carbon intensive forms of energy by providing cleaner, reliable natural gas to world markets. We believe that displacing coal and scaling up natural gas as a natural partner to renewables are among the most cost-effective ways to reduce carbon emissions. The process should accelerate as global LNG export and import infrastructure is expanded.
Exec Edge: In the past you have shared your views about reducing global energy poverty, how does this transaction help achieve those goals?
Energy poverty is prevalent today, meaning the lack of access to affordable and sustainable energy still exists for nearly 3 million people around the world, according to the International Energy Agency (IEA). Access to energy drives health, safety, and modern life, and disparities became more apparent during the COVID-19 pandemic. Between now and 2040, areas where energy poverty is prevalent will generate nearly 90% of incremental global electricity demand, according to the IEA. Sempra’s LNG assets can help provide the energy infrastructure solutions that allow those nations to reduce energy poverty, build more sustainable communities and improve the lives of their citizens.
We need to build and modernize grids with the same urgency as we develop renewables. This includes helping to deliver a 21st century energy system through deliberate investments in hydrogen, renewable natural gas, fuel cells, electric vehicle infrastructure, and carbon capture and storage. This transaction with KKR improves our ability to grow and capture new investment opportunities in cleaner formers of energy as well as the critical infrastructure that stores and transports it.
This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on assumptions with respect to the future, involve risks and uncertainties, and are not guarantees. Future results may differ materially from those expressed in any forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this press release. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.
Forward-looking statements in this press release include any statements regarding the ability to complete the proposed transactions described herein on the anticipated timeline or at all, the anticipated benefits of these transactions if completed, the projected impact of these transactions on Sempra Energy’s performance or opportunities, and any other statements regarding Sempra Energy’s expectations, beliefs, plans, objectives or prospects or future performance or financial condition as a result of or in connection with these transactions. In this press release, forward-looking statements can be identified by words such as “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,” “should,” “could,” “would,” “will,” “confident,” “may,” “can,” “potential,” “possible,” “proposed,” “in process,” “under construction,” “in development,” “target,” “outlook,” “maintain,” “continue,” or similar expressions, or when we discuss our guidance, priorities, strategy, goals, vision, mission, opportunities, projections, intentions or expectations.
Factors, among others, that could cause our actual results and to differ materially from those described in any forward-looking statements include risks and uncertainties relating to: the timing of the proposed transactions described herein; the ability to satisfy the conditions to closing these transactions; the ability to obtain regulatory approvals necessary to complete these transactions; the ability to achieve the anticipated benefits of these transactions; the effect of this communication on Sempra Energy’s stock prices; transaction costs; the diversion of management time on transaction-related issues; the effects on these transactions of industry, market, economic, political or regulatory conditions outside of Sempra Energy’s control; the effects on these transactions of disruptions to Sempra Energy’s respective businesses; California wildfires, including the risks that we may be found liable for damages regardless of fault and that we may not be able to recover costs from insurance, the wildfire fund established by California Assembly Bill 1054 or in rates from customers; decisions, investigations, regulations, issuances or revocations of permits and other authorizations, renewals of franchises, and other actions by (i) the Comisión Federal de Electricidad, California Public Utilities Commission (CPUC), U.S. Department of Energy, Public Utility Commission of Texas, and other regulatory and governmental bodies and (ii) states, counties, cities and other jurisdictions in the U.S., Mexico and other countries in which we do business; the success of business development efforts, construction projects and major acquisitions and divestitures, including risks in (i) the ability to make a final investment decision, (ii) completing construction projects or other transactions on schedule and budget, (iii) the ability to realize anticipated benefits from any of these efforts if completed, and (iv) obtaining the consent of partners or other third parties; the resolution of civil and criminal litigation, regulatory inquiries, investigations and proceedings, and arbitrations, including, among others, those related to the natural gas leak at Southern California Gas Company’s (SoCalGas) Aliso Canyon natural gas storage facility; the impact of the COVID-19 pandemic on our capital projects, regulatory approval processes, supply chain, liquidity and execution of operations; actions by credit rating agencies to downgrade our credit ratings or to place those ratings on negative outlook and our ability to borrow on favorable terms and meet our substantial debt service obligations; moves to reduce or eliminate reliance on natural gas and the impact of volatility of oil prices on our businesses and development projects; weather, natural disasters, pandemics, accidents, equipment failures, explosions, acts of terrorism, computer system outages and other events that disrupt our operations, damage our facilities and systems, cause the release of harmful materials, cause fires and subject us to 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 affordable insurance; the availability of electric power and natural gas and natural gas storage capacity, including disruptions caused by failures in the transmission grid, limitations on the withdrawal of natural gas from storage facilities, and equipment failures; 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; expropriation of assets, failure of foreign governments and state-owned entities to honor their contracts, and property disputes; the impact at San Diego Gas & Electric Company (SDG&E) on competitive customer rates and reliability due to the growth in distributed and local power generation, including from departing retail load resulting from customers transferring to Direct Access and Community Choice Aggregation, and the risk of nonrecovery for stranded assets and contractual obligations; Oncor Electric Delivery Company LLC’s (Oncor) ability to eliminate or reduce its quarterly dividends due to regulatory and governance requirements and commitments, including by actions of Oncor’s independent directors or a minority member director; volatility in foreign currency exchange and interest and inflation rates and commodity prices and our ability to effectively hedge these risks; changes in tax and trade policies, laws and regulations, including tariffs and revisions to international trade agreements that may increase our costs, reduce our competitiveness, or impair our ability to resolve trade disputes; 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, and on the company’s website, www.sempra.com. Investors should not rely unduly on any forward-looking statements.
Sempra North American Infrastructure, Sempra LNG, Sempra Mexico, Sempra Texas Utilities, Oncor and IEnova are not the same companies as the California utilities, SDG&E or SoCalGas, and Sempra North American Infrastructure, Sempra LNG, Sempra Mexico, Sempra Texas Utilities, Oncor and IEnova are not regulated by the CPUC.