Sempra US Gas & Power, a unit of Sempra Energy, has announced that it has entered into a purchase-and-sale agreement with a subsidiary of Tallgrass Development, LP to sell Sempra US Gas & Power's 25% interest in the Rockies Express Pipeline (REX) for approximately US$440 million in cash.
The transaction is subject to customary closing conditions and a right of first refusal. Sempra Energy expects the transaction to close in the second quarter and result in an after-tax loss of approximately US$27 million.
Additionally, Sempra US Gas & Power intends to permanently release the remaining uncontracted capacity that it holds on REX that it had been releasing on an interim basis. The effect of the permanent capacity release is expected to result in a charge to earnings of between US$100 million and US$120 million during the second quarter 2016, representing an acceleration of losses that would otherwise be realised over the contract term, which extends through November 2019. It is expected that the approximately US$27 million after-tax loss from the sale, as well as the loss resulting from the permanent release of capacity, will be excluded from Sempra Energy's adjusted 2016 earnings guidance.
"After careful evaluation of our natural gas portfolio, we determined that our minority stake in REX is not consistent with our long-term growth strategy," said Patti Wagner, President and Chief Executive Officer of Sempra US Gas & Power. "While REX is an important part of the country's natural gas pipeline system, we believe that given the changing market conditions, we can more productively redeploy the proceeds from the REX sale into long-term growth opportunities that better meet our strategy and risk profile."
"While Sempra Energy's earnings from REX for March through December 2016 will be reduced by approximately US$60 million, forecasted earnings from REX were expected to be immaterial to Sempra Energy beginning in 2020," said Joseph A. Householder, Executive Vice President and Chief Financial Officer of Sempra Energy. "We expect to redeploy the sale proceeds to mitigate the loss of REX earnings in the near term and increase our long-term earnings profile."
Sempra Energy plans to provide updated adjusted earnings guidance for 2016 by the company's annual financial analyst conference on 24 May 2016.
Edited from source by Stephanie Roker
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