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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LNG’s Black Friday

LNG’s Black Friday: Endgame For TELL,
Magnolia (LNG-ASX) Gets Taken Out

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The Walls Close In Around TELL – Stock Down 72% This Week As Liquidity & Commercial Realities Finally Overlap. TELL has traded down 52% today, as continued commercial slippage, mounting liquidity concerns, and the broader market de-risking have combined to price-in the new economic reality for Tellurian: It’s not going to make it. The week started off with proponents of TELL/Driftwood wondering whether another presidential photo-op and some interim Petronet commercial progress could be stretched into an event meaningful enough to support a TELL capital raise and runway extension. It was a thin premise to begin with, and the list of plausible alternatives was already getting shorter. We believe what followed – first silence, then Petronet seemingly downsizing to a 1.0mtpa competitive tender, then an extension of the original Petronet MOU which brought TELL’s next maturity into play – was effectively the latest in a string of “the emperor has no clothes” moments for the remaining TELL bull thesis. It just happened to coincide with one of the steepest market corrections in recent history. See Pages 2-4 for more detail.

LNG Ltd. (Magnolia LNG) Magnolia LNG Developer Likely Going Private In $75MM Takeover Deal: We’ve suspended our coverage and estimates for LNG Ltd. On 2/28, Liquefied Natural Gas
Limited (ASX: LNG, US ADR: LNGLY) halted trading as it entered into a bid implementation agreement (BIA – Figure 2) with LNG9 PTE Ltd. Under Australian law, the bidder (LNG9) needs to get to 90% to force full consolidation, with options to get there if it doesn’t initially hit that hurdle. LNG9 will make an off-market takeover bid to acquire all issued ordinary shares of LNGL and take the company private (offer to shareholders to commence on April 2 and close on May 3). According to management the deal comes after a very thorough vetting of the market. Stonepeak also seems…See Pages 4-6 for more detail. 

Webber R|A Barge Week- Part 2: The M&A Menu

Barge Week Continues at Webber R|A with our Barge M&A Menu, out yesterday.

The Barge M&A Menu: Assessing 2020 Consolidation Options includes:

• The Elephant In The Room – Inland Special Situations (Page 2-3)
• High Profile Coastal Distress (Pages 4-5)
• Strategic Pivots Into Ancillary Sectors (Marine Services & Bunkering)? (Pages 6-9)
• Fleet & Company Details, & Our View On Viability & Timing

Laying Out KEX’s M&A Menu: We expect M&A to remain a major theme for KEX in 2020, particularly with several high-profile, ongoing distressed situations in the barge space (Bouchard, ACBL, Harley Marine, etc.). While there’s no shortage of opportunities for KEX to continue acting as the sector’s primary consolidator, the makeup of viable targets looks increasingly diverse. Despite the headlines, the number of traditional M&A opportunities within KEX’s core inland business are actually getting fewer and further between, while distress builds in
pockets of the tangential coastal market (Bouchard ) and the Marine Service & Bunkering markets (Harley Marine, potentially Vane Brothers). We take a look at those scenarios in the pages that follow.

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It’s Barge Week At Webber R|A!

KEX: Previewing Q419 Earnings & 2020 Guidance

• Inland & Coastal Color:                                                                  Page 3-4
• Inland Spot & Term Pricing Data (Current/Historical):            Page 5
• Inland Barge Orderbook & Delivery Schedule:                        Page 6

Heading into KEX’s Q4 earnings call (1/30) we expect a focus on: (more…)

LNG Update: Frozen 3? Funding Hot Potato For Novatek’s Arctic 2

Keeping An Eye On Budgeting Process For Arctic 2

Who Picks Up The Check For Arctic 2? The timeline for Novatek’s high-profile Arctic LNG 2 (19.8mpta) may have hit a modest speedbump, as the ~$1.9BN request to help finance critical aspects of Arctic 2 [the Utrenneye LNG terminal on Gydan peninsula (page 4), and reloading terminals in Murmansk (for European cargoes) and Kamchatka (for Asia cargoes)] are absent from Russia’s 2020 draft budget. While the project has already reached a positive FID, and is clearly a national priority – we think it’s worth watching whether any squabble over the ultimate funding source ends up delaying its operational timeline (which is already ambitious). The primary options appeared to be (1) the state budget (now absent), or (2) funding from the ~$124B National Wealth Fund, which appears to be a more complicated….

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Webber R|A: Vertical LNG Weekly

FERC Approves 4 Texas LNG Projects: On 11/21 The Federal Energy Regulatory Commission (FERC) voted in favor (2-1) of all three Brownsville LNG export terminals (below), along with Cheniere’s CC Stage – 3 expansion – granting all 4 projects final approval. Among those approved:

• NextDecade’s (NEXT) Rio Grande LNG (~27 mtpa)
• Annova LNG Brownsville (~7 mtpa)
• Texas LNG Brownsville (~4 mtpa)
• Cheniere’s (LNG) CC Stage – 3 expansion (~9.5 mtpa)

The approvals made meaningful progress for the projects, and come amid an uptick in local environmental pushback in Brownsville. While FERC approval is certainly helpful, all 4 projects still require meaningful commercialization targets to reach positive FID. We remain buyers of LNG and NEXT, as we view the Texas coast as the path of least resistance for associated Permian gas to reach the international markets.

Creating A Residual Value Floor: It’s also worth noting that we think the combination of an advantaged location and FERC approval effect helps create a meaningful asset and (to some degree) a valuation floor for the respective development companies. While we think the idea FERC/Site asset would have most of its practical relevance in a distressed scenario, we think its meaningful none-the-less, and not something we feel would be equal among projects (due to proximity advantages to the Permian).

European Investment Bank (EIB) Announces Phase Out Of Fossil Fuel Lending: Roughly two weeks before the 25th session of the Conference of the Parties (COP 25), the European Investment Bank (EIB), EU’s nonprofit long-term lending institution, announced it would (effectively) stop lending to fossil fuel projects, via particularly tight environmental guidelines. While the move is another meaningful step towards the de-carbonization of Europe, the immediate impact on LNG infrastructure is highly muted. For scale, the EIB lent out ~€11.8BN between 2013 and 2017, compared to JPM financing ~$62.7BN in 2018 alone. It’s also worth noting that the EIB can choose how they define alignment to the Paris Agreement, while others (World Bank, EBRD, Asian Development Bank, etc.) can choose different interpretations, and these institutions will still be able to finance midstream/downstream gas and gas-fired projects. On a more granular basis, most demand (and incremental lending) for natural gas projects now comes from non-European markets. Which typically has access to wider pockets of capital. For example, Mitsui recently invested in a major gas-fired power plant in Thailand, with financing provided by the Japan Bank for International Cooperation. Hence, we think the EIB move is material in the sense of sector leadership, but we aren’t expecting a dramatic market impact, at least at this point. Other notable takeaways from the EIB announcement: …….

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