The Total Price of Historic U.S. Gas Leak Is Anyone's Guess

  • Sempra Energy estimates costs to be at least $250 million
  • Company not able to estimate fines, penalties and damages

Sempra Energy has plugged a massive leak from a natural gas well in California. Getting a handle on how much it’ll end up costing the company is a whole other story.

The utility owner has estimated costs of as much as $300 million, but that figure doesn’t include fines, penalties and legal expenses that may come from the more than 60 lawsuits and multiple government investigations. Sempra’s Southern California Gas Co. utility is also facing misdemeanor charges for reporting the leak late. So putting a total price tag on the incident that has sickened residents, displaced thousands for months and released 2.3 million tons of greenhouse gases may take months.

The uncertainty over exactly how much Sempra will have to shell out has been dragging down the company’s stock, according to John Bartlett, who helps manage $2.6 billion including utility funds that hold Sempra for W.H. Reaves & Co. Inc. Its shares have fallen 6.4 percent since the leak was detected on Oct. 23, underperforming the Standard & Poor’s 500 Utilities Index which has climbed 1.8 percent. The leak is one of the biggest ever recorded, according to the New York-based Environmental Defense Fund.

“There are still some things that are unknowable,” Bartlett said by phone from Jersey City, New Jersey. “The book is still open to some degree.”

Excluding Costs

The costs of responding to the leak and mitigating environmental and community impacts, including drilling the relief well, temporarily relocating about 6,400 residents and losing stored gas, may total $250 million to $300 million, Sempra said in a regulatory filing. The estimate doesn’t include any reserves for damage awards, civil or criminal fines, penalties and associated legal costs, said the company, which has more than $1 billion in insurance that’s expected to cover many of the expenses.

“I really don’t know what the total costs are or will be,” Jimmie Cho, senior vice president of gas operations for Southern California Gas, said Thursday in a telephone interview.

California Attorney General, the city and county of Los Angeles are among those who have filed suit. The U.S. Environmental Protection Agency and various state agencies including the California Division of Oil, Gas and Geothermal Resources are investigating.

Costs that aren’t covered by insurance, or delays in insurance payments, may have a “material adverse effect” on the company’s cash flows, Sempra’s filing shows.

Outside estimates of the final tab vary.

Last month, Barclays analysts said in a report that total costs may reach as much as $610 million. Estimates of more than $1 billion in financial exposure “seem high”, Greg Gordon, an analyst with Evercore ISI, said in a Jan. 31 research note.

Still, the leak will probably raise the company’s future insurance premiums, as well as those of other gas storage operators, said Brandon Barnes, an energy litigation analyst for Bloomberg Intelligence. And if the company is found by investigators to have been negligent, potential damages may rack up, he said.

"The costs associated with the leak come from multiple angles and are highly uncertain," Barnes said.

Sempra is scheduled to report fourth-quarter results on Feb. 26.

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