Sempra announced that its 70%-owned subsidiary, Sempra Infrastructure Partners, LP (Sempra Infrastructure), reached a positive final investment decision (FID) for the development, construction and operation of the Port Arthur LNG Phase 1 project in Jefferson County, Texas.
Sempra Infrastructure closed its joint venture with an affiliate of ConocoPhillips (NYSE: COP), as well as announced an agreement to sell an indirect, non-controlling interest in the project to an infrastructure fund managed by KKR. Additionally, Sempra Infrastructure announced the closing of the project’s $6.8 billion non-recourse debt financing and the issuance of the final notice to proceed under the project’s engineering, procurement and construction agreement.
“At Sempra, we believe bold, forward-looking partnerships will be central to solving the world’s energy security and decarbonization challenges,” said Jeffrey W. Martin, chairman and chief executive officer of Sempra. “With strong customers, top-tier equity sponsors in ConocoPhillips and KKR and a world class contractor in Bechtel, this project has the potential to become one of America’s most significant energy infrastructure investments over time, while creating jobs and spurring continued economic growth across Texas and the Gulf Coast region.”
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“Sempra’s selection of Port Arthur as the location for a new natural gas liquefication and export terminal is a strategic decision that will cement Texas’ position as the energy capital of the world,” said Texas Gov. Greg Abbott. “With a highly skilled workforce and business-friendly climate, and as a national leader in LNG exports, Texas is the prime location to expand LNG operations to unleash the United States’ full economic potential in such a critical industry. Expanding LNG is imperative to American energy security, and the State of Texas looks forward to working alongside Sempra to advance this mission and bring more jobs and greater opportunities to hardworking Texans.”
The Port Arthur LNG Phase 1 project is fully permitted and is designed to include two natural gas liquefaction trains, two liquefied natural gas (LNG) storage tanks and associated facilities with a nameplate capacity of approximately 13 million tonnes per annum (Mtpa). Total capital expenditures for the Port Arthur Phase 1 project are estimated at $13 billion.
The long-term contractable capacity of approximately 10.5 Mtpa is fully subscribed under binding long-term agreements with strong counterparties —ConocoPhillips, RWE Supply and Trading, PKN ORLEN S.A., INEOS and ENGIE S.A., all of which became effective upon reaching FID. Sempra Infrastructure is also actively marketing and developing the competitively positioned Port Arthur LNG Phase 2 project, which is expected to have similar offtake capacity to Phase 1.
Sempra and ConocoPhillips closed their joint venture whereby an affiliate of ConocoPhillips has acquired a 30% non-controlling interest in the project, is purchasing 5 Mtpa of LNG offtake from the project under a 20-year sale and purchase agreement and is managing the project’s overall natural gas supply requirements. ConocoPhillips will also have certain rights to participate in future expansion projects in both equity and offtake.
“Our strategic LNG partnership with Sempra will help supply growing global demand for natural gas, a lower greenhouse gas emissions-intensity fuel expected to play a critical role in the energy transition and global energy mix going forward,” said Ryan Lance, ConocoPhillips chairman and chief executive officer. “ConocoPhillips has more than 60 years of experience with LNG, and we look forward to continuing to build our LNG portfolio and expanding our role in delivering a lower-carbon future that strengthens U.S. and global energy security.”
Sempra Infrastructure announced an agreement whereby KKR will acquire a 25% to 49% indirect, non-controlling interest in the Port Arthur LNG Phase 1 project. Pursuant to the agreement with KKR, Sempra Infrastructure will retain certain economic and other rights with respect to the interest being transferred while granting KKR certain minority interest protections. KKR is making the investment primarily through its Global Infrastructure Investors IV fund.
“We are pleased to invest in this critical energy infrastructure project and extend our strategic partnership with Sempra and their world-class team,” said James Cunningham, Partner at KKR. “Phase 1 will create new jobs, support American economic growth and deliver reliable and cleaner energy during the global energy transition. Consistent with KKR Infrastructure’s strategy of seeking stable and predictable returns for investors, our investment in Phase 1 is backed by robust cash flows through long-term contracts with high-quality counterparties.”
Sempra Infrastructure is targeting 20% to 30% of indirect ownership interest in the project, subject to the closing of the KKR sale. For illustrative purposes, if Sempra Infrastructure’s indirect ownership interest is at the midpoint of the referenced range, or 25%, Sempra Infrastructure would expect its share of average adjusted EBITDA after full commercial operations to be approximately $410 million annually and its equity commitment to be approximately $1.55 billion. Sempra’s share of the above estimates would be equal to 70% of these amounts. The foregoing estimates exclude other potentially significant economic benefits associated with, among other items, the development of future phases and further optimization of the project.
Sempra Infrastructure has contracted with global engineering, construction and project management firm Bechtel Energy Inc. and has issued a final notice to proceed for the project. The expected commercial operation dates for Train 1 and Train 2 are 2027 and 2028, respectively.
“We’re proud to partner with Sempra to deliver a world-class LNG facility. Building from mature, scalable energy technologies helps safeguard our energy supplies and promote the transition to lower-carbon energy,” said Brendan Bechtel, Chairman and CEO of Bechtel. “Bechtel has a record of delivering LNG infrastructure on the U.S. Gulf Coast and bringing quality jobs and training opportunities to local communities. The 5,000 construction jobs this project creates will provide outstanding opportunities for craft professionals — growing a skilled workforce that will benefit the region for years to come.”
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Sempra Infrastructure believes that building strong relationships and supporting the communities where its employees live and work is fundamental to how it does business. Moreover, the company focuses its community development initiatives on local priorities including education and leadership development, environmental stewardship and safety.
Since 2015, Port Arthur LNG has invested more than $40 million to support Jefferson County communities, including working with local vendors to procure materials and services for the relocation of a 3.5-mile portion of Highway 87 and on grants to more than 60 local non-profits, schools and business development groups.
The Phase 1 project is another significant opportunity to expand Sempra Infrastructure’s economic impact. The project is expected to create an estimated 5,000 highly skilled jobs during construction and boost the economies in Port Arthur and Jefferson County.
“Sempra has long been an economic driver for Jefferson County here in Southeast Texas, and this new Port Arthur LNG facility will continue that trend by bringing thousands of jobs, new markets for natural gas and more energy security for our nation,” Speaker of the Texas House of Representatives Dade Phelan said. “Texas House District 21 is proud of this latest development that showcases our great state’s leadership in economic development, job creation and energy production.”
The successful completion of the KKR sale is subject to regulatory approvals and other customary closing conditions, and the completion of construction of Port Arthur LNG Phase 1 is subject to a number of risks and uncertainties. Additional details about these transactions can be found in the current report on Form 8-K Sempra filed with the U.S. Securities and Exchange Commission on March 20, 2023, as well as in the informational slides on the Investors section of Sempra’s website at sempra.com/investors.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is a non-GAAP financial measure (GAAP is generally accepted accounting principles).
Citi advised Sempra on various aspects of the transaction and J.P. Morgan Securities LLC acted as advisor on the project financing.