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Sempra Energy to Build $130M Liquid Fuel Terminal in Mexico


Sempra Energy’s SRE Mexican subsidiary, Infraestructura Energética Nova, S.A.B. de C.V. (IEnova) recently unveiled a liquid fuels project worth approximately $130 million. Per the terms, IEnova will construct a marine liquid fuels terminal at the La Jovita Energy Hub in the port city of Ensenada. The terminal, which is known as Baja Refinados, will operate as a receipt, storage and send-out terminal.

Details of the Project

Per the contract, in addition to developing the terminal, IEnova will be responsible for obtaining permits and providing engineering, construction and financing services. It will also supervise the work related to operations and maintenance.

On completion, the Baja Refinados terminal will have a capacity to supply 1 million barrels of gasoline and diesel in the Mexican state of Baja California. IEnova expects to commence operations at the project around the second half of 2020.

Moreover, IEnova entered into a long-term agreement with Chevron Combustibles de México, which will allow it to utilize 50% of the facility's storage and fuel capacity for supplying liquid fuel to Chevron service stations and other commercial and industrial consumers in the Baja California region. The agreement will also enable Chevron to acquire 20% of the project’s equity ownership, once its commercial operations commences.

Our View

The new liquid fuels terminal project marks an expansion of business operations for IEnova in Mexico, where the company already enjoys a strong presence. Moreover, realizing the growing energy market in the region, IEnova has been making significant investments lately. In this line IEnova plans to build and operate two storage terminals near Puebla and Mexico City with storage capacities of 500,000 and 800,000 barrels, respectively.

Notably, Mexico’s growth prospects in terms of its energy sector has improved lately, catalyzed by the comprehensive Energy Reform implemented in 2013, after it suffered a major setback a few years back owing to its declining oil-production. Per a report published by the International Energy Agency, Mexico’s total energy demand is expected to increase by approximately 20% by 2040 from 2016’s level, with increasing dominance of liquid fuels in power generations. This has prompted energy services provider like Sempra Energy to expand its footprints in the nation by constructing new projects like the latest one.

Over the next five years, the Zacks’ estimate for Sempra Energy’s long-term EPS growth stands at 8.99%, with a total capital investment assumption of $24.8 billion. Considering the above mentioned developments, we believe the recent liquid fuel terminal project further strengthens Sempra Energy’s confidence in the IEnova unit as one of its major growth drivers over the next several years.

Price Performance

Sempra Energy has marginally underperformed the broader industry over a year. During this period, the company’s shares lost 1.1% as against the broader industry’s loss of 0.1%. The underperformance may have been caused by stiff competition throughout the United States and the company’s exposure to foreign currency risks.

Zacks Rank & Other Stocks to Consider

Sempra Energy currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the same space are South Jersey Industries SJI, NewJersey Resources Corporation NJR and Chesapeake Utilities Corporation CPK. While South Jersey Industries and
NewJersey Resources sport a Zacks Rank #1 (Strong Buy), Chesapeake Utilities carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

South Jersey Industries’ long-term growth is 10%. The Zacks Consensus Estimate for 2018 earnings rose by 14 cents to $1.58 in the last 90 days.

NewJersey Resources has surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average surprise of 516.94%. The Zacks Consensus Estimate for 2018 earnings rose by 77 cents
to $2.60 in the last 90 days.

Chesapeake Utilities’ long-term growth currently is 6%. The Zacks Consensus Estimate for 2018 earnings rose by 5 cents to $3.44 in the last 90 days.

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