Overview and Financial Performance
Sequent Energy Management is a wholly-owned subsidiary of Southern Company Gas and benefits from the strong financial profile and risk management capabilities of its parent. Southern Company Gas has solid investment-grade corporate credit ratings with each of the major rating agencies, providing a stable financial foundation for Sequent's operations.
Sequent began operations in 2001 in the world's energy capital Houston, Texas. Sequent is involved in asset management and optimization, storage, transportation, producer and peaking services and wholesale marketing of natural gas across the United States and in Canada. Nicor Enerchange, which was integrated into Sequent as part of the Southern Company Gas and Nicor Inc. merger completed in December 2011, expands Sequent’s wholesale marketing of natural gas supply services in the Midwest and enables Sequent to serve commercial and industrial customers in the Midwest primarily in the northern Illinois market.
One of Sequent’s core lines of business are the asset management agreements it has in place with some of Southern Company Gas’ utilities. These agreements are designed to efficiently manage storage and transportation assets belonging to Southern Company Gas’ utilities, including the purchase and sale of natural gas as well as excess transportation and storage capacity that may not be needed on a daily basis to meet system requirements. The agreements have either annual minimum guarantees within a profit sharing structure, a profit sharing structure without any annual minimum guarantee, or a fixed fee. Southern Company Gas’ utilities began entering into these agreements with Sequent in 2001 and from 2001 through 2011 Sequent has made sharing payments under these agreements totaling $192 million, benefiting Southern Company Gas’ utility customers’ through lower bills and funding certain of Southern Company Gas’ infrastructure improvements and heating assistance programs.
Volatility in the natural gas market arises from a number of factors such as weather fluctuations or changes in supply or demand for natural gas in different regions of the country. The volatility of natural gas commodity prices have an impact on Sequent’s customer rates, long-term competitive position against other energy sources, the ability to capture value and ultimately Sequent’s earnings. The following is a 5-year historical chart of Sequent’s reported earnings before interest and taxes (EBIT):
EBIT is a non-GAAP (accounting principles generally accepted in the United States of America) financial measure. A reconciliation of the referenced non-GAAP financial measure is available on the Southern Company Gas’ website at southerncompanygas.com under the Investor Relations section.
Sequent buys and sells natural gas, with daily physical volumes of 5.2 billion cubic feet (Bcf), across over 100 pipelines with almost 500 counterparties located across North America. Based on first quarter 2012 wholesale physical volumes sold (in Bcf/day) and according to Gas Daily, Sequent is ranked in the top 10 of North American natural gas marketers.
For more details on the financial profile of Sequent Energy Management, please refer to the "Investor Relations" section at southerncompanygas.com.