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Sempra (SRE) Unit Buys Mexico Pipeline Interest for $520M

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Sempra Energy (SRE - Free Report) announced that its subsidiary, Infraestructura Energética Nova, S.A.B. de C.V. (IEnova), has acquired Pemex Transformación Industrial's (Pemex) participation in Ductos y Energeticos del Norte. Thanks to this acquisition, IEnova’s share in the Los Ramones II Norte pipeline will increase to 50% from 25%.

Deal Details

Los Ramones II Norte connects the Los Ramones I pipeline and the Los Ramones II Sur pipeline in central Mexico. IEnova acquired Pemex’s share in this pipeline for $231 million and also assumed Pemex’s debt in it of $289 million.

This 452 km 42-inch diameter Los Ramones II Norte pipeline commenced operations in February 2016. It transports natural gas from Nuevo Leon to San Luis Potosí. This pipeline has the ability to transport 1.42 billion cubic feet day (Bcf/d) and has two compressor stations.

This acquisition is expected to close in the fourth quarter of 2017, once all the necessary approvals are received from the concerned authorities.

Mexico’s Demand for Natural Gas

Mexico has been registering an increase in demand for natural gas, primarily due to its electricity and industrial sector. Per a report from FTI Consulting, Mexico’s natural gas demand will grow to 9.2 Bcf/d or 22% above 2015 levels by 2030 and imports will rise 53% to 5.4 Bcf/d.

In excess of 50% of the natural gas demand in Mexico will be met through imports and the natural gas producers of United States will play a key role. The natural gas pipelines will play a crucial role to transport this much needed volume of natural gas to Mexico from the United States.

Our View

Given the current capacity of Los Ramones II Norte Pipeline, it nearly accounts for nearly 19% of the total natural gas transported in Mexico. No doubts, increasing stake in such a pipeline will boost the profitability of Sempra Energy.

Zacks Rank & Stocks to Consider

Sempra Energy currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry worth considering are Clean Energy Fuels Corp. (CLNE - Free Report) , Just Energy Group, Inc. and Spire Inc. (SR - Free Report) . All stocks carry a Zacks Rank#2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Clean Energy Fuels has surpassed the Zacks Consensus Estimate in the last four quarters, with an average surprise of 131.8%. The company’s 2017 year earnings estimates have improved 66.7% over the last 90 days to 5 cents.

Just Energy has surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average surprise of 202.5%. The company’s current-year earnings estimates have improved 112.5% over the last 90 days to 68 cents.

Spire has surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average surprise of 1.8%. The company’s current-year earnings estimates have improved 0.8% over the last 90 days to $3.56.

Price Movement

Year to date, Sempra Energy has outperformed the industry it belongs to. During this period, the company’s shares have rallied 11.2% compared with the industry’s gain of 7.2%.



This might have been driven by the systematic investments that Sempra Energy makes in its infrastructure development projects.

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