8-KOther Events

SEMPRA 8-K Report, Corporate Update (Dec 19, 2017)

Filed December 19, 2017For Securities:SRESREA

Summary

Sempra Energy's subsidiary, Cameron LNG, has entered into a Settlement Agreement with its EPC Contractor to resolve all outstanding claims for additional compensation and schedule extensions. Under this agreement, Cameron LNG will make additional contract and bonus payments that are within the project's established contingency. These payments are contingent upon the EPC Contractor meeting specific milestones, particularly those related to the commissioning of the LNG trains. The agreement also waives liquidated damages for the original contract schedule and reestablishes them based on a new settlement schedule. The company continues to project that all three LNG trains at the Cameron LNG liquefaction facility will be operational in 2019. This projection is supported by the terms of the Settlement Agreement, updated project schedules from the EPC Contractor and Cameron LNG's internal reviews, as well as an assessment of the contractor's progress and remaining work. While this agreement resolves significant disputes, investors should remain aware of the inherent risks associated with large-scale construction projects.

Key Highlights

  • 1Cameron LNG settled all outstanding claims with its EPC Contractor for additional compensation and schedule extensions.
  • 2The settlement includes additional contract and bonus payments to the EPC Contractor, which are within the project's budget contingency.
  • 3Bonus payments are conditional upon the EPC Contractor achieving specific milestones, including those related to LNG train commissioning.
  • 4Liquidated damages for schedule delays have been waived for the original contract schedule and are now tied to a new settlement schedule.
  • 5Sempra Energy maintains its expectation that all three Cameron LNG trains will be producing LNG in 2019.
  • 6The effectiveness of the settlement is subject to the EPC Contractor (CB&I) meeting certain financial and facility acquisition obligations.

Frequently Asked Questions

The additional payments under the settlement are within the project contingency that Cameron LNG had already budgeted when Sempra made its final investment decision in August 2014, suggesting no immediate material negative financial impact beyond the planned contingency.

Yes, the effectiveness of the Settlement Agreement is subject to certain conditions, including the EPC Contractor (CB&I) satisfying obligations related to its financing facilities and the acquisition of replacement facilities. Cameron LNG can waive these conditions.

Based on the settlement, contractor schedules, and internal reviews, Sempra Energy continues to believe it is reasonable to expect all three LNG trains at the Cameron LNG liquefaction facility to be producing LNG in 2019.

The dispute involved claims from the EPC Contractor that they were owed additional compensation beyond the original contract price and were entitled to schedule extensions for the construction of the Cameron LNG facility.