Sempra (SRE) — ConocoPhillips SPA Rewrites Port Arthur Economics; Financials Show Capex‑Led Strain

ConocoPhillips 20‑Year SPA: the immediate development and why it matters#

Sempra Infrastructure announced a definitive 20‑year sale and purchase agreement (SPA) with ConocoPhillips for 4 Mtpa of LNG from Port Arthur LNG Phase 2 on Aug. 21, 2025, a contract that materially changes the financing profile for the project. That single commercial commitment converts a meaningful slice of future cash flows from merchant exposure to long‑dated contracted revenue, improving project bankability at the very moment Sempra is directing record capital into growth projects. The SPA follows earlier commercial traction at Port Arthur and gives lenders and potential equity partners a hard revenue anchor for modeling debt service on a multi‑billion‑dollar liquefaction expansion (see the Sempra Infrastructure announcement) Sempra Infrastructure - Sale and purchase agreement announcement for U.S. LNG from Port Arthur LNG Phase 2.

The deal’s scale — 4 Mtpa over 20 years — is large enough to shift project economics. Long‑dated offtakes are the critical ingredient project finance desks demand to reduce commodity exposure and lower the effective cost of capital for greenfield liquefaction. For Sempra, the SPA is both a commercial and signaling event: it strengthens Port Arthur Phase 2’s ability to reach final investment decision (FID) financing and it dovetails with the company’s stated utility‑centric transformation while preserving selective infrastructure growth optionality (see Sempra’s Q2 2025 materials) Sempra - Second quarter 2025 results press release.

That one development is the lens through which the rest of Sempra’s financial profile must now be read. The company is simultaneously financing elevated capital expenditure, managing rising gross debt and producing negative free cash flow — conditions that make contract‑backed, annuity‑like LNG revenue particularly valuable. The SPA does not eliminate project risk, but it meaningfully reduces the single biggest barrier to bankability: contracted offtake.

How the SPA changes Port Arthur Phase 2’s financing and commercial playbook#

From a project finance perspective, LNG greenfield builds hinge on three inputs: a stable contracted revenue base, credible EPC and schedule certainty, and sponsor equity or liquidity to cover contingencies. The 20‑year SPA with ConocoPhillips directly addresses the first input by securing predictable volumes for a long period. That predictability compresses the merchant risk premium lenders apply when pricing project debt and increases the likelihood of competitive debt sizing and lower blended cost of capital.

Practically, Sempra can now model a tranche of Port Arthur Phase 2 output as an annuity — a predictable stream that covers a material portion of debt service. That treatment will be reflected in project‑level debt sizing, loan‑to‑value tests and syndication conversations. The marquee nature of ConocoPhillips as a counterparty also matters: major integrated buyers tend to facilitate stronger credit packages and improve confidence among potential non‑recourse lenders and export credit agencies.

That said, the SPA is necessary but not sufficient. Sempra still needs to finalize engineering, secure remaining permits, lock long‑lead equipment and address any residual merchant exposure for capacity not covered by long‑term contracts. The SPA reduces, but does not eliminate, construction and residual market risk. Several industry observers have flagged that the difference between a bankable project and a market‑exposed one often comes down to securing multiple long‑dated offtakes; this SPA moves Port Arthur Phase 2 closer to the former category (see industry reporting and Sempra investor materials) MarketScreener - Sempra and ConocoPhillips extend partnership with offtake agreement for Port Arthur LNG Phase 2.

Sempra’s recent financials — recalculated trends and key inflection points#

To assess how the SPA fits into Sempra’s corporate picture, we recalculate the company’s core operating and cash metrics using the latest full‑year 2024 figures and the company’s published cash‑flow statements (filed Feb. 25, 2025). The headline picture is: revenue declined year‑over‑year, margins held up, EBITDA compressed modestly, and capex drove negative free cash flow.

Using Sempra’s reported annual financials (FY 2024 vs FY 2023) Sempra financials (FY 2024 filing), the recalculated year‑over‑year changes are as follows: revenue fell from $15.80B in 2023 to $12.96B in 2024, a change of -17.97%. Reported net income moved from $3.08B to $2.86B, a change of -7.14%. EBITDA declined from $6.12B to $5.85B, a change of -4.41%.

These shifts show that revenue contraction outpaced earnings compression, which implies mix and margin resilience: Sempra’s EBITDA margin improved on a relative basis because EBITDA fell less than revenue. Calculated EBITDA margin for 2024 is 45.19% (EBITDA $5.85B / revenue $12.96B), up from 38.73% in 2023. Net margin in 2024 is 22.07% (net income $2.86B / revenue $12.96B), up from 19.49% in 2023.

Table: Income Statement Snapshot (FY 2021–2024)

Source: Company financials (FY 2021–2024 filings) filed with Sempra investor materials Sempra Investor Presentation.

Important data reconciliation note: the cash‑flow table shows a reported net income figure of $3.50B for FY 2024 in the cash flow statement, while the consolidated income statement reports $2.86B. We flag this discrepancy because it affects return and coverage calculations; such differences can arise from timing, discontinued operations, or noncontrolling interests reported differently across schedules. For consistency in margin and ROE calculations above, we use the income statement net income series unless otherwise noted.

Balance sheet, cash flow and leverage — recalculations#

Sempra’s balance sheet shows growth in total assets driven by elevated property, plant and equipment and a meaningful expansion in debt. Total assets increased to $96.16B at year‑end 2024 from $87.18B in 2023, an increase of +10.30%. Total debt rose from $31.08B to $35.85B (+15.35%), and net debt increased from $30.84B to $34.28B (+11.16%). Notably, cash and equivalents improved to $1.56B at year‑end 2024 from $236MM in 2023, reflecting financing activity and timing of cash flows.

Free cash flow was negative for a third consecutive year and deteriorated further: free cash flow was -$3.31B in 2024 versus - $2.18B in 2023, a decline of -51.83%, driven by elevated capital expenditure (capital expenditure -$8.21B in 2024 vs -$8.40B in 2023). Operating cash flow fell to $4.91B in 2024 from $6.22B in 2023, a change of -21.02%, roughly mirroring operatingCashFlowGrowth reported by company metrics.

Table: Balance Sheet & Cash Flow Highlights (FY 2021–2024)

Source: Company balance sheet and cash flow statements (FY 2021–2024 filings).

Leverage and coverage recalculations produce mixed signals depending on the basis used. Using year‑end net debt $34.28B and FY 2024 EBITDA $5.85B, net debt/EBITDA calculates to 5.86x. This is materially lower than the company’s TTM net‑debt/EBITDA figure shown in summary metrics (9.43x), which suggests differences in the EBITDA denominator (TTM vs fiscal year or pro‑forma adjustments) or a different net debt measure. Enterprise value recomputed from the reported market capitalization $53.46B plus net debt $34.28B yields an EV of $87.74B, which divided by FY 2024 EBITDA $5.85B gives EV/EBITDA ≈ 15.00x — again lower than the advertised 22.49x figure in some summary sheets, indicating mismatched time bases or timing differences in market cap.

These reconciliation points matter: leverage covenants, rating agency assessments and lenders will use specific definitions (TTM EBITDA, total debt including lease liabilities, net of cash) when sizing debt. The SPA improves the project‑level lender view but at the corporate level Sempra’s leverage metrics will remain sensitive to capex and the timing of asset monetizations.

Capital allocation and dividends — what the numbers tell us#

Sempra continues to return cash via a quarterly dividend of $0.645 paid in March and June 2025 (aggregate $2.53 annually), which implies a dividend yield of +3.09% on the current share price of $81.93 [stock quote snapshot]. The payout ratio reported is 70.47%; using reported EPS (basic) $4.13 and dividend $2.53, the payout ratio computes to 61.26% — the difference again reflects use of TTM EPS vs trailing GAAP EPS and underscores the need to check bases when using company summary metrics.

Share repurchases were modest in 2024 (common stock repurchased $43MM), indicating that capital allocation is heavily tilted to capex and dividends while buybacks remain limited. The company also reported continued capital recycling intentions in investor materials; that strategy is relevant because monetizations of non‑core assets would be a primary lever to reduce net debt and cover capex commitments (see Sempra investor presentation) Sempra Investor Materials (static file 2).

Valuation and earnings quality — recalculated metrics and discrepancies#

Using the provided share price $81.93 and reported EPS $4.13, the simple P/E equals 19.84x (81.93 / 4.13), which aligns with the reported P/E in the stock quotes. Dividend yield calculated as 2.53 / 81.93 = 3.09%, matching summary statistics. Recomputed EV/EBITDA using market cap $53.46B and net debt $34.28B produces EV ≈ $87.74B and EV/EBITDA ≈ 15.00x on FY 2024 EBITDA. The difference between this figure and the company’s reported 22.49x highlights the importance of consistent time bases: the company’s summary ratios appear to use TTM or forward EBITDA assumptions that differ from the FY 2024 standalone EBITDA used here.

Earnings quality: operating cash flow is the clearest signal. While net income (income statement) remains positive, the company’s free cash flow has been negative each year since 2021, driven by sustained high capex for infrastructure expansion including LNG projects and grid investments. That operating cash flow deterioration and negative FCF profile emphasize why contracted offtakes like the ConocoPhillips SPA have heightened strategic value: predictable project cash flows reduce refinancing and liquidity risk for capital‑intensive projects.

Risks and execution challenges that remain despite the SPA#

The ConocoPhillips SPA materially reduces commodity exposure for the contracted tranche, but it is not a panacea. Construction risk and capex inflation remain primary execution hazards: LNG greenfield developments are capital‑intensive and schedule slips or EPC cost escalation can quickly erode outcomes modelled at FID. Environmental and permitting risk in the U.S. regulatory environment are nontrivial and can introduce schedule drag or scope increases. Counterparty and contract structure risk also matters: the economics of the SPA (indexation, price floors, take‑or‑pay mechanics) will determine actual revenue stability under stress scenarios; headline offtake volume alone does not guarantee cash‑flow certainty if contract terms are complex.

At the corporate level, Sempra’s elevated debt and negative free cash flow create refinancing sensitivity. While the company has liquidity levers — asset sales and project‑level non‑recourse financing — failure to execute timely monetizations or higher financing costs would amplify balance sheet strain. Finally, residual merchant exposures on any capacity not covered by multi‑decade contracts will leave Sempra exposed to cyclical LNG prices and seasonal flows.

What this means for investors (featured snippet opportunity)#

• The ConocoPhillips SPA (20 years, 4 Mtpa) materially improves Port Arthur Phase 2’s bankability by supplying a long‑dated revenue stream that lenders prize, reducing project merchant risk and improving the odds of competitive project financing; however, it does not remove construction, permit or residual merchant risks. (See Sempra Infrastructure announcement.)

• At the consolidated level, Sempra is operating with heavily elevated capex (CapEx ~ -$8.21B in 2024) and negative free cash flow (-$3.31B in 2024) while net debt increased to $34.28B. That profile makes project‑level contracted cash flows and timely asset monetizations essential to reduce corporate refinancing risk. (See Sempra FY 2024 cash flow statement.)

• On margins, Sempra shows resilience: FY 2024 EBITDA margin ~45.19% and net margin ~22.07%, which underscores operational leverage in the company’s utility and contracted infrastructure businesses even while revenue declined -17.97% YoY in 2024.

Strategic synthesis: where strategy, execution and finance intersect#

The ConocoPhillips SPA is a strategic accelerant for Sempra’s LNG ambitions: it converts uncertain merchant upside into predictable contracted cash flow and therefore lowers capital‑intensive financing friction. For a company intentionally pivoting to a utility‑centric model while selectively investing in merchant or semi‑merchant infrastructure, that shift is meaningful: it gives Sempra the ability to present both regulated earnings stability and high‑return infrastructure optionality to investors and lenders.

Execution remains the differentiator. If Sempra can convert contract signings into timely FIDs, partner syndications and asset‑level non‑recourse financing, it can fund growth without jeopardizing the corporate balance sheet. If cost inflation, permitting delays or weaker monetization markets delay asset sales or increase sponsor funding needs, corporate leverage metrics will remain elevated and financing cost will rise.

Conclusion — an inflection with caveats#

The ConocoPhillips SPA for 4 Mtpa across 20 years is a decisive commercial milestone for Port Arthur Phase 2 and meaningfully lowers one of the principal obstacles to FID: long‑dated, creditable offtake. At the same time, Sempra’s consolidated financials show a company in heavy investment mode — capex ~ -$8.21B in 2024, free cash flow -$3.31B, and net debt ~$34.28B — where project‑level contract wins matter not just for growth but for balance‑sheet stability.

Investors and stakeholders should therefore view the SPA as a financing and structural positive for the Port Arthur asset while remaining focused on three execution frames: (1) timing and terms of FID and EPC contracts, (2) the company’s ability to monetize non‑core assets or syndicate project risk, and (3) how contract economics (indexation and payment mechanics) translate into cash‑flow certainties under stress. Sempra has won a critical commercial contract; translating that win into durable corporate financial improvement requires disciplined execution across construction, financing and capital recycling.

Sources: Sempra FY 2024 financial statements and Q2 2025 materials (filings and investor presentation), Sempra Infrastructure sale and purchase agreement announcement, company press releases and industry reporting cited above Sempra - Second quarter 2025 results press release, Sempra Infrastructure - Sale and purchase agreement announcement for U.S. LNG from Port Arthur LNG Phase 2.