One on One with Sempra Energy CEO Donald Felsinger
Thursday, August 02, 2007
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SUSIE GHARIB: Sempra Energy shares sparked higher today after the parent of San Diego Gas and Electric posted better than expected earnings. Sempra says income from continuing operations came in at $1.06 a share in the second quarter. That's up from last year and well ahead of analyst estimates of $0.83. Revenues rose 7 percent to $2.7 billion on higher prices at the company's commodity business. Joining me now to talk more about Sempra, the company's Chairman and CEO Donald Felsinger. Congratulations, Mr. Felsinger on a solid quarter.
DONALD FELSINGER, CHAIRMAN & CEO, SEMPRA ENERGY: Thank you. It was a good quarter.
GHARIB: So what is your outlook for earnings and revenues for the rest of 2007?
FELSINGER: Well, we reaffirmed our earnings for the year to be between $3.75 and $3.95 a share. And we're on target now to make that happen.
GHARIB: And what's going to drive that growth?
FELSINGER: Well, we have a lot of good businesses. All of our businesses are performing well. Our utilities here in California, our pipeline's business, our commodity's trading business are all right on track right now to meet our earnings target.
GHARIB: As you mentioned about your commodities trading unit, that was very strong in the past quarter. Do you see that trend continuing throughout the year?
FELSINGER: I do. We tend to make money whether the market is going up or going down because the customers that we deal with are all trying to get rid of the volatility in the prices and want to buy, in essence, insurance on their energy prices. That's what we do for a living in that business. And nothing here that I see is going to change to cause anything different than that.
GHARIB: We've seen oil prices jump something like 20 percent in just the last two months. And there are some oil analysts who I have talked to have said that $80 is the new baseline price. Do you agree with that?
FELSINGER: Well, there's no doubt that there are things that are happening around the world that are causing oil prices to remain high. And we probably will see $80 prices before we see $60 prices again. So I think it's probably, you know, a safe outcome.
GHARIB: I understand that Sempra has some liquefied natural gas plants that are going to be coming on line soon. How will that impact your earnings down the line?
FELSINGER: This is part of our growth strategy, Sempra is a natural gas infrastructure builder. And one of the things we're focused on is to alleviate the pressure that exists on the North American gas markets. We're currently at a point where we are consuming more natural gas than we are producing. And that means we need to look to other countries to be able to bring natural gas into North America. We are building infrastructure to allow that to happen. We are building receipt terminals to allow natural gas to come into North America through Mexico and also a terminal we're building in Louisiana. That coupled with pipelines that we are building and natural gas underground storage facilities are all longer term going to take some of the pressure off natural gas prices in the next decade. That's the business that we're focused on right now.
GHARIB: And what impact will that have on your future earnings?
FELSINGER: Well, this part of our growth strategy so as we look out into the future years, natural gas infrastructure whether it be pipeline, storage or LNG receipt terminals will be the major driver of our earnings going forward.
GHARIB: Real quickly let's talk about Sempra stock. It's been struggling ever since you announced early in July that you have plans for a dividend increase and a big stock buyback. What's it going to take to get investors enthusiastic about Sempra?
FELSINGER: We announced a deal with the Royal Bank of Scotland to allow us to take our commodities trading business that generated about $500 million in earnings last year, to take it to the next level. Even though Sempra is a fairly large company, our balance sheet isn't big enough to allow this company to grow to its full potential. So we partnered up with RBS and we have sold off part of the income stream for next year to allow that to happen. When this happens and we close this deal, I think the market will recognize the value we've created and our stock should rebound.
GHARIB: All right, Mr. Felsinger, thank you so much for coming on NIGHTLY BUSINESS REPORT. We appreciate it.
FELSINGER: Thank you.
GHARIB: My guest tonight Donald Felsinger, chairman & CEO of Sempra Energy.
