SRE Expands Natural Gas Footprint

Sempra Energy’s (SRE - Analyst Report) subsidiary Sempra U.S. Gas & Power has decided to acquire Willmut Gas & Oil Company (“Willmut”) for an undisclosed amount. Based in Hattiesburg, Mississippi, Willmut is a privately-held natural gas utility that provides service to about 20,000 customers in greater Hattiesburg as well as in some areas of Covington, Jones, Rankin and Simpson Counties.

Effective from January 1, 2012, Sempra Energy went into a restructuring process. This led to the consolidation of Sempra Generation, Sempra Pipelines & Storage and Sempra LNG subsidiaries into two new operating units namely, Sempra International and Sempra U.S Gas & Power. Now, the company operates through four units: San DiegoGas & Electric, Southern California Gas Company, Sempra International and Sempra U.S. Gas & Power.

Currently, Sempra U.S. Gas & Power owns Mobile Gas, which is a natural gas distribution utility. Besides serving residential, commercial and industrial customers in Mobile, Alabama, it also provides service to several natural gas storage and pipeline assets in Mississippi, Louisiana, and Alabama.

This acquisition will add to its service portfolio and and help it to expand its natural gas footprint in Southeast U.S. However, the Mississippi Public Service Commission approval is still pending.

Sempra Energy’s diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks. We believe that the company is well positioned given stable earningsthrough its utility subsidiaries, which cater to more than 20 million customers in central and southern California. The company is also implementing infrastructure improvement programs, focused mainly on system reliability, smart grid technology and compliance with California’s renewable energy mandate that adds visibility to the story.

However, we are concerned about pending regulatory cases and the absence of any near-term positive triggers. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of electricity and natural gas. The company’s businesses are broadly divided into Sempra Utilities and Sempra Global and parent. The company mainly competes with Edison International (EIX - Analyst Report) and PG&E Corporation (PCG - Analyst Report).

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