LNG Canada Update: Trouble Ahead For Shell’s LNG Flagship?

An Empty Module Yard & Mounting Schedule Delays

• Key Takeaways (pages 1, 5)
• Estimated LNG Canada Schedule Shifts (page 2-3)
• Satellite Image Review: COOEC Fluor Module Yard Layout (May 17, 2020) (page 4)
• Satellite Image Review: Module Layout Descriptions (page 5)
• Satellite Image Review: CFHI Module Yard Pre-Assembly Areas (page 6)
• Long-Term Thoughts & Key Questions (page 7)

Key Highlights:
• Still Moving At A Crawl. As of May, module fabrication was ~2% complete, well behind our ~11% estimate in W|EPC’s February 2020 (pre-COVID 19) schedule…
• Satellite Image Review: The COOEC-Fluor Heavy Industries (CFHI) module yard pre-assembly areas look…
• Playing Catch Up Won’t Be Cheap. The schedule slip should put even more pressure on the back-end of LNG Canada’s timeline…continued…

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W|EPC Risks: Venture Global – Keeping An Eye On Pile Design Changes

W|EPC Risks: Venture Global – Calcasieu Pass LNG – Keeping An Eye On Pile Design Changes

Key Takeaways:
• An engineering design change at Calcasieu Pass (CPLNG) required additional piling and out of sequence construction activities.
• Meaningful engineering changes during construction & fabrication can undermine the benefits of modularization, by creating cost overruns and delays.
• No Related Delays Are Visible Yet. However, we should get a better view of the actual impact as Calcasieu enters the mechanical phases of fabrication and construction – where the ramification of errors or changes becomes more evident.

Keeping An Eye Out For Material Quantity Growth. On May 22nd, 2020, CPLNG requested FERC approve eight (8) additional piles in the Pre-Treatment Common Pipe Rack 27X (PTC27X) area due to changes in the pipe stress data. Pipe stress calculations are developed to ensure the piping design and layout can support the expansions and contractions caused by processing hydrocarbons. Pipe stress data is one of the most important elementsin determining the piping layout, structural steel design, material quantities needed for the CPLNG modules, and pile layout.

The PTC27X pile construction design was previously submitted to FERC on December 30, 2019 and approved for construction on January 31, 2020. PTC27X piling submittal timeline:

• Original Submittal to FERC: 12/30/19
• FERC Approved: 1/31/20
• Revised Submittal to FERC: 5/22/20
• FERC Approved: 6/4/20

Was Module Engineering For PTC27X Finally Completed Last Month? On May 22, 2020 CPLNG requested FERC approve the PTC27X pipe rack foundations and steel construction. We believe the final PTC27X pipe rack module engineering is now complete, subject to FERC Approval. The PTC27X modules were designed per….continued

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EPC Risks: Energy Transfer (ET) Capital Project Monitor – Q220

W|EPC: Energy Transfer (ET) Capital Project Monitor – Q220

• Energy Transfer (ET) Q220 Capital Project Monitor: Key Takeaways (slide 2)
• Energy Transfer Capital Budget Overview (slide 3)
• Energy Transfer: NGL Fractionation History (slide 5)
• Tale of the Tape: ETvs. EPD (slide 6)
• Mariner East 2X (slide 8)
• Orbit Ethane Export Terminal(slide 9)
• Lone Star Express Pipeline (slide 11)
• Lake Charles LNG: Fighting Yesterday’s War? (slides 13-20)

Key Takeaways:
1. Does ET’s Frac 8 Have a Cost Advantage over EPD’s Frac 12?
2. Energy Transfer’s NGL BPD Frac Costs Keep Falling
3. Budget Cuts, COVID-19 Impact, & Schedule Delays
4. Lake Charles LNG – Fighting Yesterday’s War?

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W|EPC: Objections To Venture Global’s Storage Tank Design

Venture Global –  PHMSA Objects to Calcasieu Pass LNG’s Storage Tank Design

• A day after Venture Global successfully raised the first LNG storage tank roof
  (4/27/20) at its Calcasieu Pass LNG facility, PHMSA issued a memo (4/25/20) to
  FERC objecting to the LNG storage tank design, citing non-compliance with the
  National Fire Protection Association (NFPA 59A).
• LNG storage tanks must be designed and constructed to meet several regulations
  and codes, including NFPA 59A.
• The timing of PHMSA’s objection is notable since the tank design should
  have been approved by PHMSA & FERC prior to the start of construction.

Continued….
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Exxon, Qatar & Golden Pass: Something’s Gotta Give

Analyzing Project Costs & Logistics In The COVID Era
(Part 1 of 2 – Satellite Image Analysis Later This Week)

• Golden Pass: 4 Key Takeaways……………………………………Page 2
• EPC: Monthly Progress Evolution……………………………….. Page 3
• April 2020 Project Update…………………………………………Page 4
  • IP & Construction Activity ……………………………………Page 5
  • Labor Logistics In The COVID Era ………………………….Page 6
  • Cost Analysis – Significant Overruns Already?……………Page 8
  • COVID-19 Impact …………………………………………….Page 9
• December 2019 Baseline
  • Partner Organization, Key Participants ……………………Page 10
  • EPC Roles: MDR, Zachry, Chiyoda …………………………Page 12
  • Variance Analysis …………………………………………….Page 14

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Key Takeaways:

1) What’s Eating Golden Pass? QP & XOM Get Squirrelly In Press. On April 6th, the NYT ran an exclusive quoting Saad al-Kaabi (former QP CEO & current Qatar Energy Minister) as saying Golden Pass (GPX) was proceeding and on schedule. However, that was quickly followed by QP’s 30% partner Exxon (XOM) cutting $11B of 2020 CAPEX, delaying FID for Rovuma LNG (Mozambique), reiterating Coral LNG’s development, while ignoring GPX altogether. Since then, the NYT took down the article, energy markets are upside down, & questions mount. Based on actual EPC progress, we believe the reaffirmed GPX schedule falls somewhere between…..continued (Pages 2-3)
2) Is Golden Pass In Trouble? Monthly Progress Analysis. We believe GPX’s engineering has remained well behind schedule. Data suggests GPX has been attempting (unsuccessfully) to ramp labor earlier than planned…continued (Pages 9 & 13-14)
3) Labor Logistics In The COVID Era…On 4/17/20, GPX requested additional on-site parking amid challenges with safely busing craft workers to the site amid a global pandemic, however busing craft workers wasn’t supposed to begin for another year (2021). This minor, intuitive disclosure actually offers a few significant read-throughs for the project, as well as its path moving forward…continued (Pages 6-8)
4) Cost Overruns Poised To Accelerate From Here? Over the next 6 months we believe the project is already looking at construction cost overruns (relative to its baseline schedule) of at least…continued (Page 7)

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W|EPC: AEP Capital Project Analysis – Q220

Digging Into AEP’s Capital Project Backlog

• AEP Company Overview                                                       Page 2
• Key Takeaways                                                                         Page 3
• ERCOT Overview                                                                     Page 4
• AEP’s Activity Level vs Guided Capex                                 Pages 5-8
• Cost Overrun Analysis: Who Stays On Budget?
  • AEPT                                                                                    Page 9
  • SWEPCO                                                                            Page 10
  • ETT                                                                                       Page 11
• Ongoing Capital Projects – Current Status                          Pages 12 -15
• ETT’s CREZ Project Problem – Warranty Status?                Pages 16-17
• Project Profile: Solstice To Bakersfield, 345-kV T-Line      Pages 18-20
• Additional Management Questions                                     Page 21

American Electric Power (AEP, Market Cap ~$42B) has been in business for 114 years, with 5.5 MM customers across 11 states, including Texas. General Project EPC Background (AEP Subsidiaries):
American Electric Power Texas (AEPT) is a subsidiary of AEP, and provides transmission and distribution of electric power to ~1MM customers through Retail Electric Provider’s (REPs) in west, central, and south Texas, with an ROE sitting at at ~9.4%.

Southwestern Electric Power Company’s (SWEPCO), also an AEP sub, has 4K miles of transmission lines and 5K MW’s of generation capacity, supporting 536K customers primarily in Western Louisiana, North East Texas, the Panhandle of Texas, and Western Arkansas. SWEPCO’s ROE sit at ~9.6%.

Electric Transmission Texas, LLC, (ETT) is 50/50 JV between AEP and Berkshire Hathaway Energy Company, and owns/operates transmission facilities within Electric Reliability Council of Texas (ERCOT), primarily around the AEPT service territory.  ETT’s ROE sits at ~9.6%, and it’s capital budget is not broken out within AEP’s forecasted numbers. AEPT and SEPC 2020-2024 capital forecast (~$8.4B) comprises ~25% of AEP’s total expected spend (~$33B) over that period.

Key Takeaways:
• Why Utility Project Tracking Is Increasingly Important In This Environment…
• Estimated vs. Actual Project Costs – Who comes in well under budget…and who doesn’t? (Pages 9-11)
• AEPT & SWEPCO Capex Trending Materially Below Forecast (Pages 5-8)
• The Jury Is Still Out On $1.6B Of Project Costs (Pages 12-15)
• ETT – Ongoing Problems With CREZ Projects, But No Warranty Cost Recovery Claims? (Pages 16-17)
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W|EPC: Sempra’s Costa Azul – Is ECA Different? A Deep Dive Into SRE’s Mighty Mouse

Sempra LNG’s Costa Azul – Analysis & Risks As Larger Projects Falter

• Overview                                                                            Pages 1-3
• ECA Phase 1 & 2 Structures                                            Pages 3-4
• Supply Dynamics & Feedstock Analysis                       Pages 6-7
• Sempra LNG Commercial Arrangements                    Pages 8-9
• EPC Analysis
  • Project History & Dynamics                                    Pages 9-10
  • TechnipFMC – Historical Execution Details         Pages 10-12
  • Site Issues With Modularization                            Pages 12-13
  • Independent Site & Schedule Analysis                Pages 13-17
  • Project Cost Analysis & Major Risks                      Pages 18-26
• Shipping, Midstream                                                        Pages 27-28
• Management Questions                                                  Pages 29-30
• Conclusions                                                                        Pages 30-31

Mighty Mouse? Sempra’s (SRE) Costa Azul LNG (ECA, 2.4mtpa Phase-1) might be the only North American LNG project with a realistic chance at FID in 2020. As we saw last cycle, being small (and cheap) can be an advantage in difficult markets. As we note below, we’ve included our key takeaways around 1) Project viability in the current environment, 2) Site & Permitting Issues, 3) our independent project timeline & cost estimates, and 4) our Independent assessment of ECA’s project economics. 

Background: Energía Costa Azul (ECA) is a 1 BCF/d LNG import terminal located north of Ensenada, Baja California, Mexico, ~31 miles south of the U.S./Mexican border (San Diego-Tijuana). It’s owned by Infrastructura Energetic Nova (IEnova), one of the largest natural gas infrastructure developers in Mexico, and is listed on the Mexican Stock Exchange (BMV: IENOVA). Sempra Energy owns 66.43% of IEnova.
Existing Infrastructure: The current ECA import terminal (Figure 1) includes the following infrastructure: (1) a marine berth and breakwater; (2) two 160,000 m3 LNG tanks; and (3) LNG vaporizers, nitrogen injection systems, and pipeline interconnections. Similar to some existing U.S. exporters and brownfield projects, ECA will be turning their facilities around to export LNG.

Permitting: ECA has received most of the major Mexico and U.S. permits needed to begin construction, but still lacks a key Mexican land-use permit. ECA LNG is not subject to FERC review under the National Gas Act (NGA) or National Environmental Policy Agency (NEPA). However, ECA is subject to various Mexican state and federal regulatory agencies, such as the Secretaris de Medio Ambiente y Recursos Naturales/ Ministry of Environmental and Natural Resources (SEMARNAT) and the Agencia Nacional de Seguridad Industrial y de Proteccion al Medio Ambiente del Sector Hidrocarburos/ National Agency for Industrial Security and Environmental Protection for the Hydrocarbon Industry (ASEA), as well as the U.S. Department of Energy (DOE).…continued
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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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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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Noisy Neighbors: A Commonwealth LNG Deep Dive & Venture Global’s Engineering Update

Energy EPC: Venture Global’s Engineering Update & A Detailed Look At Their Commonwealth LNG

Venture Global LNG: Costs Ramping At Calcasieu?

Headcount, Parking Data Suggest Material EPC Inflation

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• Construction Details:                                                           Pages 1-2
• Parking & Headcount estimates                                        Pages 2-3
• Previous CPLNG Cost Curve                                               Page 3
• Our New CPLNG Labor Cost Estimates                           Page 3 
• EPC Costs – Expanded                                                         Page 4
• Key Questions From Here                                                   Pages 4-5

Forcasted Ramp In Craft Labor Headcount Indicate Costs Likely Trending Above Plan. Recent filings indicate that Calcasieu Pass LNG’s (CPLNG) average on-site workforce is set to more than double compared to company Pre-FID plans, while also introducing a night-shift. While there are likely several variables in play here, we believe the data (analyzed in the pages that follow), suggests that CPLNG’s on-site craft labor costs could increase materially……(data and our estimates on pages 2-5).

Parking Lot Infrastructure: In addition to the craft labor increases, there’s usually an increase in both indirect construction support infrastructure and the associated cost for that infrastructure. An example of this phenomenon is the reported increases by CPLNG in parking lot infrastructure. While not usually top-of-mind, ancillary factors like parking carry a real cost for projects this large, and significant increase in parking requirements would be felt in a projects budget. This same correlation is true for other indirect costs like lunch tents, lavatories, office spaces, personal protective equipment, health & safety supervision, small tools and consumables, radios and other IT equipment, trash removal, security, craft training, and on and on. That trend in data over the past year shows….(continued on pages 2-3).

While there could be several explanations for the ramp in labor (too many to list within a single note), if we were stakeholders we’d want to understand what’s actually driving the ramp in labor, and how any associated overrun in direct and indirect costs are being accounted for by CPLNG. While our cost overrun estimate (pages 2-3) is just that – an estimate – we’re confident the
fundamental relationship between labor head count and project costs have us pointed in the right direction.
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