Tankers: Floating Storage Scenario Analysis & Utilization Impact

Our 3-Stage Approach To Tankers For the Remainder Of 2020

• Our 3-Stage Approach To The Remainder Of 2020                            Pages 1-2
• Floating Storage Scenario Analysis – Impact On Utilization             Pages 2-3
• Storage Arbitrage, Inventories, & Rate Reactions                               Pages 4-7
• Multi-Factor Crude Tanker Utilization Model                                       Pages 8-9
• Updated Tanker NAVs, Valuation Metrics, & Estimates                     Pages 9-10

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Depth Of Floating Storage Build Key For Tanker Equities In Q220. Amid the double black swan start to the year (OPEC supply shock/pricing war coupled with demand destruction from the COVID-19 response), tanker equities have (generally) acted as a hedge against the rest of the energy tape, as the prospect of significant structural and arb-driven floating storage has supported tanker earnings well above seasonal trends (page 4). While increasing OPEC & Russian crude production battle to replace US exports (the degree to which remains in question) – the market mechanism for finding that new global production balance should ultimately result in saturated land based storage and a ramp in floating storage (already ~100mb), and narrower tanker capacity, providing a significant tailwind for tanker cash flows. From an equity perspective, we think about Tanker stocks (FRO, EURN, DHT, ASC, etc.) in 3 stages….(Pages 1-2)

What Would Robust Floating Storage Mean For Tanker Rates & Utilization In Q2/Q3? We ran a multi-factor scenario analysis based on our updated crude tanker utilization model, flexed for different levels of incremental daily crude production moving into floating storage over the next 2-3 quarters. At the low end of the range…(Pages 2-8)

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W|EPC: Force Majeure & The LNG Supply Chain: Scenarios For BH, Kiewit, & Venture Global

Reviewing Satellite Images Of Italian Fabrication Yards & Force Majeure Flow Charts

• Supply Chain Overview                                                                                    Pages 1-2
• Satellite Images: BH’s Fabrication Yard In Avenza, Italy                              Pages 2-4
• Implications Of Calcasieu’s Unique Contractual/Structural Dynamics     Pages 3-5
• Force Majeure Flow Charts: Wrapped vs Unwrapped                                Pages 4-5
• Pertinent Questions From Here                                                                       Pages 5-6

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The LNG Supply Chain & Force Majeure Dominoes. Given the continued, rolling implications of the global response to COVID-19, we thought it was worthwhile to examine potential points of friction as it pertains to the implications of Force Majeure (FM) declarations on large-scale, multi-faceted LNG export projects. We believe such a scenario is relevant for Venture Global’s Calcasieu Pass (CPLNG) project given its globally linked supply chain – including its liquefaction modules which are being fabricated at a Baker Hughes (BH) fabrication facility in Avenza, Italy. (Satellite images on Pages 2-4)

Venture Global’s Potential FM Predicament Is Unique. A typical, fully wrapped, EPC contract would typically just keep an owner on the hook for extensions to a contractor’s guaranteed completion date. However, the less expensive, decentralized contracting structure that Venture Global has assembled for CPLNG could potentially expose the project to contractors looking to recover mitigation and prolongation costs. (Pages 2-4)

Implications Of FM Claim For BH, Kiewit, & VG. We believe work on CPLNG’s modules was still progressing last week (with non-essential personnel working from home), given the escalation in restrictions we believe those productivity dynamics are (justifiably) fluid. Should BH file a successful FM claim, it would most likely be granted… (Pages 3-6)

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W|EPC Utilities & Energy – Sempra Deep Dive – Oncor, March 2020

 Sempra (SRE) Capital Project Analysis – Oncor March 2020.

As part of our W|EPC Utility & Energy Project coverage, we’ve put together a deep dive into a number of large public utilities, including SRE, SO, D, AEP, CNP, ENB, EPD, ET, KMI, XOM, TOT, RDS:A, and others. We’ve included more information about our W|EPC Utility & Energy project coverage in the back of this presentation.

Given its size, and the sheer volume of projects and jurisdictions, we’re breaking our Sempra (SRE) coverage down into underlying components, with our Oncor deep dive below. Oncor Electric Delivery Company, LLC, is headquartered in Dallas, TX and is a regulated electrical distribution and transmission business. It is owned by two investors, SRE (80.25%) and Texas Transmission Investment LLC (19.75%).

Our Key Takeaways On Oncor:

• Out-sized Role In Critical TX Projects
  • Oncor is involved with 5 out of the 10 most important projects to provide more efficient electricity dispatch, while supporting the increasing electrical demand in Texas. (Page 5)
• Oncor vs. Other Investor Owned Utilities
  • Oncor has 156 more projects scheduled to be completed in 2020 than AEP, ET (50% AEP/50% Berkshire Hathaway) and CNP combined. (Page 8)
• Final Estimates vs. Final Actual Costs
  • Over the last 15 months, Oncor’s reported final construction costs for 190 projects were 12% higher than their final estimated costs. (Pages 9-10)
• Lubbock Power and Light
  • Oncor’s May 2019 acquisition of InfraREIT included a variety of electricity transmission and distribution projects & assets, which included ~$3600MM joint project with Lubbock Power and Light (LP&L). (Pages 13, 17-20)
• Future Project Opportunities
  • The integration of LP&L to ERCOT should reduce congestion costs in the Panhandle of Texas and increase demand for new transmission projects in/and around Oncor’s coverage area. (Page 4)

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Tankers Reset As OPEC War Changes Economics

• Market Updates & Thoughts………………..Pages 1-3
• Tanker Trade Dynamics………………………Page 4
• Fuel Spreads, Economics……………………Page 5
• Crude/Product/LPG Rate Changes…………Pages 6-9
• LNG Arb, Freight Dynamics…………………Pages 10-11
• Container Fundamentals……………………Page 12
• Relative Valuations…………………………..Pages 13-19

Tanker Spot Rates Soften Off Of Peak Levels As Saudi Reign In Freight Rebates: Spot rates weakened on slow fixture activity, crude prices bounding from under $25/barrel to ~$30/barrel (Brent), and Saudi Arabia announced limiting freight compensation to 10% of crude’s official selling price. According to TradeWinds, at least 10 VLCC & Suezmax spot fixtures loading Saudi crude had failed last week. VLCC spot rates (TCEs) led the decline with rates falling to $135.3K/day (-52% w/w and +408% m/m), Suezmax TCEs at $70.0K/day (-42% w/w and +166% m/m), and Aframax TCEs firming to $59.5K/day (+39% w/w and +120% m/m). We note rates remain well above consensus.

Roughly Half Of Bahri’s VLCC On Subject Destined For USG: Last week, Saudi Arabia’s Bahri put 25 VLCCs on subject after their announcement to flood the oil market (by increasing its production and lowering its oil price) in response to OPEC+ disbandment (see our OPEC+ Fallout note). VLCC rates had spiked as Saudi Arabia was said to provide freight rebates to some customers for crude transports between Saudi Arabia and Egypt. Bahri owns 41 VLCCs and rarely enters the spot market to charter third party tonnage. In addition to the large number of subjects, the intended destination for these vessels are telling of Saudi’s intent: 10 of the 25 VLCCs are destinated for the U.S. Gulf, 4 are likely going to Europe, 10 are fixed to discharge at the entry point of the Sumed pipeline (Ain Sokhna) which transports crude oil through Egypt to the Mediterranean (likely to end up in Europe). None of the spot VLCCs are fixed to Eastern destinations.

Scrubber Payback Period Upended Following Crash In Crude Prices: The spread between HSFO and LSFO has narrowed to $87/mt in Singapore and $47/mt in Rotterdam (Figures 2 & 3), extending the payback period to ~4 years. A VLCC fitted with a scrubber is able to command a spot earnings premium of ~$4.5K/day, down from nearly $20K/day at the start of the year.

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Tellurian Loan Extension Provides A Much Needed Band-aid, But Broader Restructuring Still Required

https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/032320-loan-extension-provides-lifeline-as-tellurian-tries-to-advance-driftwood-lng-project-in-us

LNG Canada Update: Shell, Fluor, JGC, & Force Majeure

• **March 18 Update………………………………….Page 2
• Executive Summary…………………………………Page 3
• COVID-19 Impact……………………………………Page 4
• EPC Schedule Analysis……………………………..Page 5
• Site Labor Analysis 6………………………………..Page 6
• Site Labor EPC Cost Impact……………………….Page 7
• Conclusions…………………………………………..Page 8

Update: In light of yesterday’s announcement that the Shell-led LNG Canada project was cutting its staffing levels in half over the coming days, we felt it worthwhile to pass along our LNG Canada Update from late February, along with a slide on our updated thoughts. (Page 2)

COVID-19 Impact Updates
1. The World Health Organization (WHO) officially declared COVID-19 a pandemic on 11-Mar-20.
a. JFJV may have a stronger FM claim now that WHO has declared the COVID-19 a pandemic, to the extent that JFJV specifically has “pandemic” or “epidemic” listed as an FM event in their contract.
b. FM Impact of Chinese module fabrication yards…….Page 4

2. On 17-Mar, LNG Canada and JFJV both announced that JFJV’s on-site workforce in Kitimat would be halved in order to increase social distancing and help prevent the spread of COVID-19. Given that the announcement was made jointly between JFJV and LNG Canada – impact on FM/schedule relief.…..Page 5

3.While JFJV did not announce when the site at Kitimat would resume a full workforce, it took “several” weeks for workers to return to JFJV’s Chinese fabrication yards…..Page 5

LNG Canada Planned Vs Foretasted Progress – Where Were We In February, and Where Are We Heading Now?…..Pages 5-8

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