桑普拉能源 (SRE) 2018 Q2 法說會逐字稿

Good day, and welcome to the Sempra Energy second quarter earnings conference call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Faisel Khan. Please go ahead.

Thanks. Good morning, and welcome to Sempra Energy's Second Quarter 2018 Earnings Call. A live webcast of this teleconference and slide presentation is available on our website under the Investor Relations section.

Here in San Diego are several members of our management team, including Jeff Martin, Chief Executive Officer; Joe Householder, President and Chief Operating Officer; Trevor Mihalik, Chief Financial Officer; Dennis Arriola, Chief Strategy Officer and Executive Vice President of External Affairs in South America; Martha Wyrsch, General Counsel; Scott Drury, President of San Diego Gas & Electric; and Peter Wall, Chief Accounting Officer and Controller.

Before starting, I'd like to remind everyone we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K and 10-Q filed with the SEC.

It's important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis, and that we'll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and to Table A in our second quarter 2018 earnings press release for a reconciliation to GAAP measures.

I'd also like to mention that the forward-looking statements contained in this presentation speak only as of today, August 6, 2018, and the company does not assume any obligation to update or revise any of these forward-looking statements in the future.

With that, please turn to Slide 4, and let me hand the call over to Jeff Martin.

Thanks a lot, Faisal. Before we get started, I'd also like to thank everyone who joined us at our analyst conference in New York. We enjoyed the opportunity to talk about our strategic goals, planned asset sales, financial projections and long-term vision. Since the analyst conference, we've had the opportunity to continue this dialogue and have met with over 100 investors. We appreciate the positive feedback we continue to receive on our plans and are committed to delivering long-term value to all of our shareholders.

Our management team continues to focus on 3 things: number one, advancing our strategic vision to become the premier North American energy infrastructure company, with leadership positions in the most attractive markets; number two, strengthening our balance sheet to support our strategic initiatives; and number three, making progress on our existing and new projects that -- our transmission and distribution and long-term contracted business model. As we discussed in New York, our focus is on delivering shareholder value through superior earnings per share and dividend per share growth.

On today's call, I'll provide an update on some of the topics covered at our Analyst Day, new project announcements and the progress we're seeing in our LNG business. Afterwards, Trevor will review our second quarter financials, the key drivers influencing our results and our guidance. I'd like to highlight that we're reaffirming our full year 2018 adjusted earnings guidance of $5.30 to $5.80 per share.

Please turn to the next slide. In late June, we communicated our strategic vision. It's focused on high-grading our portfolio with transmission and distribution investments and long-term contracted assets in Tier 1 markets, all with a focus of becoming America's premier energy infrastructure company. In conjunction with this effort, we announced the planned sales of our U.S. wind, U.S. solar and certain U.S. midstream assets.

Since then, we've launched the sales process and hired advisers, and we continue to be very encouraged by the substantial market interest we've received. Also, you'll recall, at the Analyst Day, we discussed a need for an additional $1.6 billion of equity in order to reach our targeted capital structure for the Oncor transaction of approximately 65% equity to total capital. Related to this, in mid-July, we executed on the issuance of $1.1 billion of common equity-forwards and $500 million of mandatory convertible preferred shares. We're pleased to say that both offerings were very well received by the market. In fact, both offerings experienced robust demand and, in combination, were 3x oversubscribed. Additionally, the green shoots on each of the securities were fully exercised by the underwriters, bringing the total expected gross proceeds to $1.85 billion.

As I mentioned earlier, the funds raised will be used to complete our targeted financing structure that we provided both to the market and the Public Utility Commission of Texas for the Oncor transaction and will help ensure that our company is positioned for success going forward.

Also as we laid out at our analyst conference, our long-term vision includes providing industry-leading earnings per share and dividend per share growth, while maintaining an investment-grade-plus credit rating over the long term. Notably, our initiatives to high-grade our portfolio and reduce our risk profile have allowed Moody's to consider revising our FFO-to-debt threshold down to between 16% and 17%. We believe this is appropriate and an achievable range and should allow us to effectively execute our capital plans.

Moving on to the wildfire issue. We, along with other stakeholders, continue to execute our 3-pronged strategy designed to help mitigate the risk to our customers and help ensure the long-term health of California utilities. Given the recent progress from the formation of the special legislative committee, bills in the legislature and Governor Brown's proposal to specifically address inverse condemnation, we're optimistic that appropriate legislation could be put in place to address this issue by the end of this month.

Also, I'd like to briefly touch on our recent conversations with the Elliott/Bluescape partnership. We're highly engaged in constructive dialogue at the highest levels of each organization and have had multiple face-to-face meetings. Most recently, 3 of our board members have now met with members of the Elliott/Bluescape partnership at their offices in New York. In our view, all parties have strong interest in maximizing shareholder value and constructive conversations are continuing. At the end of the day, our management team believes our disciplined North American-focused strategy should create significant long-term shareholder value, and we're extremely focused on executing this strategic vision.

Now please turn to the next slide. We continue to make great progress on our existing and new projects. Let me start by discussing our LNG projects, where we believe we're well positioned to help meet the world's growing natural gas demand with Cameron and 3 other LNG development opportunities.

First, the construction on Cameron Trains 1 through 3 continues to progress. The facility remains on track for all 3 trains to produce LNG in 2019, which McDermott recently affirmed on their earnings call. In addition, in mid-July, Total completed its acquisition of Engie's LNG asset. We're actually quite excited to have Total as a new partner. It is a well-led company and has a growing leadership position in this space, and we look forward to working with him on this project and potential expansion opportunities at the facility.

Shifting to our other LNG opportunities as highlighted at the recent analyst conference. We're highly encouraged by our progress. We recently selected an EPC contractor for ECA and continue to receive significant market interest, given the project's West Coast location. We also selected an EPC contractor for Port Arthur and announced a (inaudible) agreement with a Polish oil and gas company, outlining terms for a 20-year proposed agreement to supply 2 mtpa of LNG, which is in addition to the Memorandum of Understanding signed with KOGAS just last year.

Please turn to the next slide, where I'll review new projects at our other businesses. Starting with IEnova, we continue to establish a dominant market position in the liquid storage business and were recently awarded the Topolobampo Marine Terminal project. Additionally, we announced an expansion of the Veracruz Terminal and a redistribution of capacity at the Mexico City and Puebla Terminals. Related to these updates, the total investment for the terminals in Veracruz, Mexico City and Puebla is now expected to be $315 million, which is a $40 million increase.

In Chile, Chilquinta recently announced the acquisition of 2 operating transmission lines for $220 million, subject to customary regulatory approvals. A good portion of these operating assets are within Chilquinta's service territory and are already integrated with their existing distribution infrastructure. The transaction is likely to close in the second half of 2018 and is expected to be funded with cash on hand in Chile. The projects in Mexico and Chile support the strategy we developed along with our board, which seeks to high-grade our portfolio through T&D and long-term contracted assets. Just as importantly, they'll help improve energy accessibility and resiliency in both countries.

Turning now to California. We recently submitted an application for a natural gas leak abatement program per Senate Bill 1371. We requested a CapEx amount of approximately $115 million. It would be deployed over a 3-year period. This program will help ensure the delivery of safe, reliable natural gas and further the state's goal of reducing GHG emissions.

An additional positive development was the CPUC's mitigation report released at the beginning of July, which directed us to increase the storage volume of Aliso Canyon from approximately 24.6 Bcf to roughly 34 Bcf. This further supports our stance that Aliso and natural gas are an integral component of energy reliability and affordability in southern California. More than 90% of southern California residents depend on natural gas for their daily needs. By some estimates, converting to all electric appliances could cause the average household over $7,000 upfront and up to $1,000 per year in increased appliance and energy costs. That's why, from a customer perspective, we certainly support trends toward electrification, while also supporting the ongoing role of natural gas.

With that, let me hand it over to Trevor who will review our financial results.

Thanks, Jeff. Earlier this morning, we reported second quarter losses of $561 million or $2.11 per share. These results include the impairment charges primarily related to our U.S. natural gas storage business, which we discussed at our Analyst Day. This compares to second quarter 2017 earnings of $259 million or $1.03 per share. On an adjusted basis, we reported earnings of $361 million or $1.35 per share. This compares to second quarter 2017 adjusted earnings of $276 million or $1.10 per share.

Let's turn to the next slide, where I'll discuss the key drivers impacting our quarterly results. Our adjusted quarter results were primarily driven by the following: $114 million of earnings at the Sempra Texas utility segment due to the acquisition of our interest in Oncor in March of 2018; and $46 million of higher earnings at the Sempra Mexico segment, primarily due to favorable foreign currency and inflation-related impacts, net of hedges. This is partially offset by $81 million primarily related to higher interest expense in preferred dividends at parent, which includes the impact of the Oncor acquisition financing.

With these results, we are reaffirming our 2018 adjusted earnings guidance of $5.30 to $5.80 per share and GAAP guidance of $1.78 to $2.28 per share, but we continue to monitor the peso movements relative to our guidance assumptions.

Please turn to the next slide and I'll hand it back over to Jeff.

Thanks a lot, Trevor. I want to emphasize that execution of our strategic plan to create long-term shareholder value remains top of mind. In the nearer term, our management team is focused on the following items: resolving our general rate cases; executing the sale of our U.S. wind, U.S. solar and certain U.S. midstream assets; progressing the construction of Cameron; and advancing our California wildfire risk mitigation strategy.

I'd also like to take the opportunity to again thank everyone who participated in the recent equity offering. The shareholder support we received is important to us in terms of delivering our long-term vision of delivering quality growth and value creation.

With that, we'll conclude our prepared remarks and stop to take your questions.

(Operator Instructions) And we'll take our first question from Stephen Byrd with Morgan Stanley.

Jeff, you mentioned at the beginning of your discussion, a targeted FFO-to-debt level. And I was just thinking through Sempra has a number of sort of upside growth potential areas of spending. And as you look at it now, when you look at your projected financials, your projected FFO-to-debt levels, if you were successful in some of those incremental growth opportunities, what does that FFO-to-debt sort of target level tell us? Does that imply you have some degree of dry powder with respect to leverage? Or does it -- does it mean we should assume a more traditional need for incremental equity, if you do have incremental upside CapEx?

Thanks, Stephen. I appreciate the question. I'll give you a few comments on it, and pass it to Trevor. But in general, we've been pressed from time to time about what is your specific FFO-to-debt target. As you know, we've spent a lot of time kind of choreographing our strategic plan with all 3 credit rating agencies. I think, what we've tried to do really is make sure that we're very, very clear that we expect to maintain an investment grade-plus credit rating. I think the second thing we've tried to do is spend a lot of time explaining where we were a decade ago, where we had exposure to IPP businesses, where we had exposure to commodity businesses, and how we've had a pretty concerted effort of trying to high-grade the portfolio where we can have a lot more transparency around -- about our future cash flows. And we've really found that, Stephen, to be around the transmission and distribution type of assets. So what we've done in Texas, the announcement we recently had in Chile, this is really kind of the ongoing focus. And what that's really resulted in is the type of dialogue and conversations you see come out of Moody's, where they're open-minded about reducing our overall risk profile. So our goal is to make sure that we're really doing everything as a business in terms of cash flows, repatriation and divestitures to support the type of growth initiatives that you're referring to. I'll stop there and see if, Trevor, if you wanted to add any comments to that.

Sure. Thanks, Jeff. Yes, Stephen, the only other thing I would add, really, is one of the things, once Cameron comes online that is a significant change in the cash flows for the organization, which will certainly support the FFO-to-debt metrics. And so depending on what we monetize, the wind and the solar assets forward could significantly help with the growth prospects. And again, what we laid out at the analyst conference with regards to the $15 billion capital plan and the incremental equity offering that we just completed, we believe, over the period of time, we will be in a position to support our investment grade-plus credit rating.

Understood. And then, shifting gears to California, and I think the very large recent wildfires highlight the seriousness of the issue, and we certainly hear regularly from investors the urgent need to have legislation. I was curious, in your dialogue, you mentioned, you were, I think the word was optimistic or hopeful that we'd see legislation in this session. Can you talk a little bit about the kind of dialogue you've had? What gives you some optimism in terms of ensuring that we get legislation that the investment community very much wants to see?

Well, I'm glad you asked that question. And obviously, this is top of mind to a lot of investors. I'll provide a couple comments, then ask Joe to provide some comments as well. I think the way I thought about it, Stephen, is, last fall, it was really a process of problem identification. Obviously, the CPUC ruled on our WEMA decision, which put a lot of this in play in terms of how people thought about the problem. In the first quarter of 2018, there was a large education process. I think part of that was really aimed at making sure that people understood that this was not a problem that was unique to the California investor-owned utilities. It impacted municipals, it impacted the residential communities' ability to procure insurance. It had a broad impact to the state. And I think one of the things we couldn't be more pleased about now is to see the type of leadership coming out of both houses of the legislature. The governor has really stepped forward. And I think the conversation today is less about one particular bill number or one particular Assembly Bill number and really about the value of what's taking place in the conference committee. So there's a committee meeting tomorrow on safe and reliable energy grid, and there's a committee meeting on Thursday on inverse condemnation and electric utilities. I think the dialogue has progressed to the point that it's right where it should be, right? We've got the right people focused on the right issues. It's being redefined more broadly as a statewide issue and not an investor-owned utility issue. And I think that's part of my calls for optimism. Now I'll see, Joe, if you'd like to supplement that.

Thanks, Jeff. I would just add a couple things. I think that the governor wants to help the utilities. He wants to further his energy policies and -- his agenda, and the IOUs play a large role in that. So I think, as Jeff mentioned, 2 weeks ago, the conference committee had their first meeting. We had the opportunity to participate in that meeting. We were the only investor-owned utility that was at that meeting. But our Director of the Fire Science and Climate Adaptation, he was there at that meeting. And now, tomorrow, they're having this meeting, and it's not only members from each of the California investor-owned utilities, but also people who are representing the municipals. So this is a statewide issue. It's not just investor-owned. So we're encouraged that they're having that meeting tomorrow, followed by another meeting on Thursday. The agenda for that meeting isn't out yet. You can see these other agendas on their website. But we are encouraged about this. We're working with the various stakeholders in this, and we see the opportunity for some movement this month, while the legislature finishes its work this year.

Moving on, we'll take our next question from Steve Fleishman from Wolfe Research.

The -- I appreciate the update on the activist engagement. Maybe, is it possible you could give a little more color on maybe where there are areas that -- of agreement or disagreement on?

Thanks, Steve. I mentioned this in my prepared remarks, obviously, we went -- took a team back to New York. Jesse Cohn is the Head of their national practice, and that's who I've been dealing with directly. I mean, I think all of the conversations you expect us to be having are being had. The conversations are quite constructive. And I think that the most important thing is the issues that we're all focused on are the right issues. It's really around making sure that we're continuing to try to find a way to not only have an identity of interest with Elliott and Bluescape, but also, making sure we're thinking of the interests of all of our shareholders. So I'm actually quite optimistic. The tone of the conversations are good. All the right people are engaged and I remain very optimistic about it.

Great. Okay. And then, on the -- just on the -- you mentioned Moody's and the 16% to 17%. I assume you're kind of saying that's consistent with your -- with where your plan roughly gets you to then, that kind of range.

I think -- Yes, Steve, appreciate that question because we've spent a little bit of time at the analyst conference talking about how much time we've been spending with the credit rating agencies. A lot of that, as you know, was, as we approached the Oncor transaction last summer, we had laid out our long-term plans with a view of making sure that we could accommodate that type of transaction. So we've always been fairly high touch with respect to the credit rating agencies. But over the last 9 months, in particular, it's been a very engaged process. So when we got to the analyst conference, it was really about laying out the fact that yes, we're doing all the right things to make sure that we're managing our cash flows and supporting our balance sheet. I've talked about some of those. But it was also about making sure that we got the message across, Steve, about what impact our focus on the portfolio should have to our risk profile. And I think that's reflected in what Moody's said. So it's probably less about whether we've created a cushion or not created a cushion. We need to make sure that we're executing the way that we've laid it out because we do think there's a lot of opportunities in front of us and making sure we're very closely aligned with the agencies is important to us.

And do you have an idea of when they're going to resolve their review or outlook?

I'll pass it to Trevor.

Yes. They have come out and recently published on us. And as Jeff said, they have given us a period of time as a result of the Oncor acquisition and the Oncor financing associated with that, that over a period of time, we could get to the appropriate equity structure of 65-35. And while we have done the equity offerings, a lot of those are under forward contracts, and so the expected proceeds will come in over time. And so the agencies gave us approximately 18 months to get the Oncor financing in place. And then, of course, it also, like we said earlier, the proceeds from the expected sales will also have a significant impact.

And what I would add to that, Steve, too, is I think part of the value here, just like as management communicates with The Street, part of it is making sure that when you sit down with the credit rating agencies, you deliver what you tell them you're going to deliver. So just last year, we actually exceeded our FFO-to-debt metrics, which was one of our goals. We set out some goals about the targeted capital structure. Not only did we deliver it, we delivered it early, and that's one of the things we're trying to make sure is that we follow through on these types of things. I think the wildcard continues to be the issues that Stephen raised, which is what takes place with the California regulatory environment, right? So I would expect that the agencies will be very much geared to seeing what takes place in the legislative environment. And that really was one of the wildcards that was not factored in last fall when we were talking about the Oncor transaction. So part of this is to stay closely aligned, deliver what we think is some improvements from the legislation going forward. And I think there's some alignment in the state to do that.

Moving on, we'll take our next question from Julien Dumoulin-Smith with Bank of America.

So I wanted to follow up on the Total developments. Obviously, well anticipated, but how does that change the marketing efforts on the Cameron expansion front? And then, secondly, I suppose in tandem, hard to ignore the developments in China around their tariff. How does that impact these -- thus far, your efforts across the portfolio of projects you're pursuing?

Great. I'll kick this off and pass it to Joe, but let me just start with Total. I think I may have mentioned this at the conference. But when we were at the World Gas Conference with Octávio and Joe, we had the chance to have dinner with Patrick Pouyanne at Total, and I am personally impressed with him as a company. I said in my prepared remarks, I think it's a very well-led company, and I think they have a very ambitious view of an integrated natural gas strategy. They've targeted having about 40 million tons per annum as part of their portfolio by 2020, both balanced between roughly half of that being equity-owned gas. So that's a conversation that we're going to continue. I think we're glad to have them as a partner at Cameron. And certainly, they've even said publicly that they're very interested in participating in the expansion process there. So as you think about the marketing activities, I view Cameron 1 as more of relationship management and advancing the interests of our existing customers at that facility. And then, in terms of the larger issue you're raising about China and tariff issues, I mean, at this point, it's tough to -- maybe even premature to forecast the impacts of that, but I think what I'm a little bit confident about is LNG is an important part of China's future. We certainly see that as the key fuel that'll help push coal off of their grid. And frankly, the United States will always be one of the lowest-cost suppliers. And we think this bodes well for the future. But I'll pass it on to Joe to see if he'll make any more comments about the marketing impact.

Thanks, Jeff. I think you pretty much summed it up, but I will say in a number of conversations that I had with Total as they were working with us to request all the approvals they needed to make their acquisition, they emphasized a number of times that they really only did this because they wanted to have the access to the expansion. And so they're very open about that and want to engage in that topic. I've had some conversations with some of our other partners, and I think we're all starting to see that, especially as we see 1, 2 and 3 coming toward completion. And so look, our focus is staying on 1, 2, 3, but I think we have to start engaging in discussions around that. And I think that Total will bring a lot to that discussion. And I don't have anything else to add on the tariffs evolving.

Great. And then, maybe can I just bring it back to another issue to get a little bit more clarity on the credit side? Obviously, the 16% to 17% threshold is mentioned a couple of times here, but it's predicated, in part, on a business mix change, I presume. What's the time frame on those sales? And is that what's linked here to kind of get the affirmation of the outlook, I suppose, separately and distinctly from a California resolution? And maybe to tack on a second piece of that, to that end, in terms of business mix, obviously, you're making pretty explicit efforts on several of your assets. Should we read by the acquisition of the Chilean assets of late that perhaps that's maybe firmly off the table?

I think there's about 3 questions in there, Julien. Let me make a run at it. I think that the -- I would probably decouple this first issue of whether the 16% to 17% is tied to the divestitures. The 16% to 17% is a reformed view by Moody's about the measures we've taken over the last 3 to 5 years to reposition the portfolio. So it's based upon their view of the existing portfolio and really the capstone investment in that trend line around Oncor. Secondly, I do want to emphasize that how we handle the divestitures is really important to us. There is a fairly wide range of outcomes that could occur there. Our Chief Strategy Officer, Dennis Arriola, is leading that divestiture campaign, and we've been very aggressive right out of the shoot to get that moving. So that's something we look forward to making comments on to you in the future. And then, to your third question, about Chile is, it's definitely not off the table. I think what we've tried to say is we've laid out a very disciplined phased approach to our strategy about what we're going to, basically, articulate, both with our board and the market, in Q1 of next year, and then in the following Q1 of 2020. And what we're trying to do is to say that acquisition is reflective of how you'd run the business whether you're a buyer or a seller or you're looking to partner. So we're going to look at our international business with fresh eyes. I mean, the legal term is de novo. We're going to start from the bottoms up and we're going to try to get to the best possible answer, near term and long term, for our investors. So there's absolutely nothing off the table. That was an ordinary course bolt-on to the existing franchise, which we, quite frankly, think makes it more valuable.

The one thing I would say, is that, that transaction we discussed at our analyst meeting, too. So that was in Dennis' slide deck as well.

Moving on, we'll take the next question from Shahriar Pourreza from Guggenheim Partners.

So you just actually did touch on my Chilean question that Julien just asked. But I'm curious, whatever decision you guys choose with South America, is there an opportunity to reach a conclusion and a decision before you build Cameron? Or should we sort of thinking about any strategic decision you think about with South America would have to be as you get closer to Cameron closure?

Yes. It's actually a really great question, and I'll explain why, which is we've talked about the fact that we're trying to improve our balance sheet. And part of what we tried to explain at the analyst conference was the choreography, that there's a time line that allows you to look more aggressively at the portfolio. And that time line was choreographed against how we repatriate cash today and improve our balance sheet near term. Now obviously, to your point, Shar, it's really an inflection point in 2020, when we expect to have, obviously, all 3 trains fully up and running. And that gives us a lot more flexibility with respect to our balance sheet. But prior to that time, you can sell assets like wind or solar once, which are not "credit dilutive", but as you look at transactions which could be credit dilutive, there are scenarios where those can also be advantageous to our shareholders. We just have to choreograph those. And that's why we laid it out in a 3-phase approach. The ones, which can be beneficial to our balance sheet today, at least in the nearer term, we've articulated as Phase 1. And we will look at the South America and international businesses between now and Q1 of next year because we're getting closer to obviously having each of the trains producing LNG. So there is a certain time line to that. But certainly, we can make a decision on South America prior to the full commission of every train at Cameron.

That's terrific, Jeff. And just let me ask you one last one because sometime it's a source of confusion. I mean, clearly, from your slide decks and your prepared remarks, you echo becoming a premier North American infrastructure company, right? So that inherently assumes LNG and IEnova remain very strategic for Sempra into the longer (inaudible).

Well, I think this goes back to the time line question as well, which is what we've tried to say is that Phase 1 is the opportunity to transact on assets today in North America where we think we can redeploy the capital more effectively. Phase 2 is going to be a bottoms-up review of our international businesses with a focus on South America. Obviously, that's choreographed against the strength of our balance sheet. You'll recall that I described the fact that each of the credit rating agencies have assigned more value to Peru and Chile from a credit standpoint because of their regulatory diversity and their very, very high FFO-to-debt, right? So as we go forward and continue to improve our balance sheet, it gives us more flexibility there. And with respect to LNG, look, I think we talked about this. We were very intent on trying to highlight value with our LNG business as part of our TRV vehicle, right? Much like an MLP. If that market went away, we're going to continue to develop that business. And it's really, Shar, about looking for that efficient frontier where, as we develop that business and build scale and greater visibility to cash flows, we certainly would welcome the opportunity to take that to market to create value for our shareholders. Joe, would you like to add anything to that?

Yes. Thanks, Jeff. Yes, I -- look, these 2 businesses are important parts of our growth. And since 2012, they've created $40 a share value in our stock price and we think that, that can be significantly higher. So we think both of those are great infrastructure growth areas. I think there's a lot of complementary parts to them. And so I think those are a keen focus for us. What we do with them over time, we'll see, but I think that they are -- for us right now, they are a priority.

Moving on, we'll take the next question from Michael Lapides from Goldman Sachs.

Of the 3 LNG projects in the growth pipeline, which of the 3, whether Cameron 4 and 5, Port Arthur and Costa Azul, do you think is kind of further ahead in the process relative to the other ones and why?

Well, I'll take a shot at it, Joe, and you can chip in with me. But I think it's -- what's interesting about your question is each of them have their own unique attributes from a marketing standpoint. I described in an earlier question that the Cameron expansion feels more like relationship management issue. Obviously, we're focused on getting Trains 1 through 3 done. That's the laser focus of our entire LNG business, obviously. But having Total in the mix now, I think, kind of makes it more important that we're building great relationships with those 3 customers. Being able to build Trains 4 and 5 would be a huge opportunity for us. On the West Coast, clearly, as you see more and more natural gas coming out of the Gulf, it's pretty intriguing if you could actually develop a project where you can access San Juan or Permian gas and take it off the West Coast of North America. So as you can imagine, those people that want destination flexibility want to have a shorter time to the Asian markets without going through the Panama Canal and the issues there. That certainly has drawn a tremendous amount of interest. And frankly, Port Arthur is very well situated. Geographically, there are a lot of folks that understand the value of the Port Arthur facility, particularly as you saw some affirmation of that, Michael, with the recent HOA we signed with Poland, which, by the way, most people were surprised to see that, that was a 20-year agreement, right? So I think each of these 3 facilities provides some unique marketing advantages. One of the things that's intriguing, before I pass it to Joe, is much like back in the IPP days, Michael, when you used to talk about system sales, that was how the California Department of Water Resources contract was structured, there's a lot of interest in some of the conversations that Octávio's team is having around participating in more than one project, which I think is also interesting. And Joe, perhaps, you can add some color to the question.

Thanks, Jeff. Yes, Michael, I think I've said this before. Look, we don't particularly prioritize them that way because each of them has a little bit different situation. And each of them has a lot of interest, as Jeff was saying. And so when we were at the World Gas Conference, Jeff and myself with Octávio and some of his team, we talked to a number of different important buyers who each have different interests in them. So clearly, there are some at Cameron. We have permits. At ICA, we have permits we're working on and hope to finalize our permit at Port Arthur this year. We're working with EPC contractors now at both of the other facilities. And so each of them is a little bit different. We like them all and don't prioritize one over the other in like we want that one first and put all the team on that one. At this point, we're looking at all of them because they all have good opportunity.

Got it. Okay. And can I ask just a question about ICA regarding the energy infrastructure, meaning the pipeline infrastructure in Mexico needed to get Permian -- let's say, Permian gas over to ICA? Just curious how difficult -- how easy or hard would it be to actually permit this. Do you have some of the same issues that some of the other developers, folks like TransCanada, have seen getting pipelines built in Mexico? Just curious in terms of how realistic this is.

I would just say, we've talked a little bit about the mid-scale project, Michael, which is 2.5 mtpa. We expect to use existing American pipeline system for that, by and large, to get it to this part of the country. If we go to the larger-scale project, which is 11 mtpa, we expect that that's probably a new pipeline. I don't think we've determined yet whether the route is most efficacious to bring it across northern Mexico or bring it -- a portion of it across the United States. But I can tell you the key is to have an access to the Permian, right? If you can actually do that in a way that's cost-effective and, basically, launch LNG off the West Coast, it is hugely -- has a lot of interest from the market. Joe, you want to comment on the pipeline?

I would only add on to that, we've built or partnered with 11 of the 14 pipelines built in Mexico, so we have not had a problem getting them permitted.

Moving on, we'll take our next question from Ryan Levine with Citi.

What's the impact to the recently announced and potential future Chilean investments on the expectation for cash repatriation from South America? And what's the return profile for the recent announced projects?

I'll pass that to Trevor. Go ahead, Trevor.

Yes, Ryan. Right now, the repatriation that we announced with the $1.6 billion over 5 years was, call it, roughly $400 million to $500 million coming in, in 2018. None of that cash is coming from Mexico. That's all cash coming from Chile -- or none of it is coming from Chile, it's coming from Peru and Mexico. So the cash that we're going to be using for the investment in that transmission line is just cash that is the cash in Chile.

The second part of his question was the return expectations. It's immediately accretive, and Dennis, do you want to add anything to the investment?

Sure. Right. This is Dennis. We looked at this and one of the things that we really liked about this was that it's strategic because the operating assets are actually a part of our system right now. When you look at the vast majority of the transmission assets there, they're already associated with ours, so there's synergies there. But from a return perspective, we were -- I think we were smart about it. We're looking for double-digit leveraged returns, high single-digit unlevered returns. And again, we're using existing cash from our business. This is a good investment regardless of whether we continue to stay in the country and grow or if we decide to monetize it in the future, it only enhances the overall value.

The only thing I would also add to that is that these assets are in Chilquinta service territory as well, so it's a natural follow on.

Are there any additional opportunities in Chile?

This is Dennis, again. We're looking at it, obviously, given where we're located outside of Santiago. There are some additional add-ons. We're continuing to look at some of the zonal transmission bids and the national one. But again, we're only going to do this if it makes sense or if it's complementary to our existing system. We're not just going to go chase an investment because it's in the country of Chile.

Okay. And could you comment on the current appetite for additional U.S. acquisitions?

Sure, this is Jeff. We don't comment on M&A, generally. I think that what we've laid out right now is we've got a fairly aggressive capital program going forward. We'll continue to look at things if we think it's strategic to us. I think we've been very clear about the types of things we're interested in, particularly in transmission and distribution, so that's an area will continue to follow, but I think we're really focused Ryan on executing our plan. And we'll stay close to the markets, which are most important to us, which are California, Texas and Mexico.

Okay. And then, regarding the ICA mid-scale project, what's the current outlook for permitting for that project? And are there any developments on that front?

This is Joe. We basically have the full permit for the larger-scale project, and we're working with a government agency to modify that to accommodate this and hope to do that over the next couple of months.

Moving on, we'll take our next question from Paul Patterson from Glenrock Associates.

So I wanted to just sort of follow up on the asset sales. The $1.87 billion, approximately, assets held for sale, the vast majority of that, I assume, is the wind and midstream and what have you. How much should we think is sort of the tax basis for that?

How much do you think the tax basis is for what we're selling?

Yes.

Well, again, I would just say, on the $1.87 billion, the impairment was roughly $1.5 billion associated with that. And then...

$900 million after-tax.

Yes. $900 million after-tax. On the tax basis for those assets, you can assume that the tax basis is actually fairly low in those assets.

From bonus.

Yes. Mostly from bonus depreciation. And then, also on the wind side, associated with a lot of those entities we've sold down half of the interest on the wind side through the tax partnership structures.

And Paul, you know we have large NOLs, so it will not be a big cash impact, the tax effect.

Sure. And then, just, could you remind us what the earnings associated with those assets are?

You can see them. We published that at the analyst conference, Paul, so you can see those assets for '18, '19 and '20 and the guidance ranges because we gave it at the segment level. It goes up to roughly -- it goes from about $80 million to $100 million per year on the wind and solar side and the midstream assets that we're selling are at a loss today.

Okay. No, I apologize. I appreciate that. I just wanted to see if there had been any change in that. And then, just finally, on the Elliott. They've, I guess, been having ex parte discussions at the California PUC. And I was wondering if there was any -- if you knew what that was about? Or just, what is that? Do you know what it's about?

Yes. As you read any ex parte notification, it talks about the overall scope of the ex parte conversation. Then afterwards, they make a filing relative to that. And I would refer you to the public record on that, Paul.

Okay. I did see the record on it. I guess, I was wondering if that's sort of a normal thing? Or I don't -- I hear you. I'll just -- I appreciate your comments.

Moving on, we'll take our final question from Lasan Johong from Auvila Research Consulting.

Instead of ask a follow-on, I'll just ask 2 questions. First of all, what's your California risk appetite? And what I mean by that is, if you had opportunities to make additional acquisitions there, whether it's a (inaudible) call for [IMU], is that something that would be interesting? And kind of a follow-up to Ryan's question, the reason why I ask is, obviously, PG&E announced that they may be splitting up the company. The second question is with regards to President Trump's comments to Angela Merkel about importing Russian gas. In light of that comment, has Sempra seen an uptick in interest from either Eastern Europe or Europe in general for U.S. LNG? And is this something that is real? Or is it just political?

Thank you for both of those questions, Lasan. I'm glad you joined the call. With respect to the M&A question, obviously, broadly speaking, we don't typically comment on M&A. But I would probably answer it this way, that, last summer, before they had these wildfire issues here in California, we had made the decision that we thought Texas was a great market from a regulatory standpoint, that they had good demographic growth, constructive regulation, and it was something that was a target of interest for us because of the T&D focus. So I think that gave us a great opportunity, number one, to get some more regulatory diversity. And given where we're at in our discussion with the credit rating agencies, that kind of guides your thinking about where you'd be more focused at this point in time. And then, on your second question, we certainly have followed both pipelines into Germany, both Nord Stream 1 as well as Nord Stream 2. I think the president has been spot on. I think you go back to the 2014 EU charter, there's been an emphasis for the entire EU community to diversify their fuel supply for their energy markets. So I think this is really an opportunity. That's why we talked about, a little bit earlier, about the importance of Port Arthur and the ability of some of these facilities that we have in the Gulf to access the western European marketplace. We continue to think that the drivers there are more around energy security and energy independence, which are somewhat different from the drivers that we discussed at the analyst conference for Asia. So we certainly think that the political statement that the President's made, the work he's done with the EU, is actually quite constructive for the entire LNG industry here in the U.S.

At this time, I'd like to turn the conference back over to Jeff Martin for any additional or closing remarks.

Well, look, we're very appreciative of everyone joining our call today. Per custom, if you have any follow-up questions, feel free to contact the IR team, and have a great day.

And that will conclude today's conference. We do thank you for participation. You may now disconnect.