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

For access information, please email us at [email protected]

• 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.
Click here to buy this report

LNG’s Black Friday

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

For access please email us at [email protected]

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. 

The Golar Clean Up Trade – Let’s Get Schwifty

Golar Q4 Earnings Preview – Reorg Pressure Ramps

GLNG/GMLP Equity Thesis, SOTP Valuation:                Pages 1-2, 6
Our Expected Golar Reorg Solution:                              Pages 2-4
GMLP: Risk around Eskimo/Jordan Contract?              Pages 2, 7
DCF-Based LNG Carrier Asset Curve:                             Page 5
Asset Level Leverage, Est. Market Values:                     Page 7
Golar Power Updates:                                                        Pages 4, 8

Expectations For Golar Q4 Earnings: Heading into GLNG & GMLP’s Q4 earnings report on Tuesday (2/25), our primary focus is on (1) the timing, scope, and structure of a potential reorganization of Golar’s corporate structure – with our detailed expectations below. This includes a spin of its downstream business (Golar Power), the ultimate placement of its LNG carrier fleet, and what to do with GMLP (34% yield), (2) we expect GLNG metrics (adjusted EBITDA) to be roughly inline for Q4, and (3) the ramping risk profile of GMLP – particularly around its role in a reorg, its credibility as a currency, and (potentially) the quietly rising risk around the Eskimo FSRU contract (page 3).

*It’s worth noting that the GLNG/GMLP Q4 earnings call is endearingly scheduled to overlap with Cheniere’s (LNG, CQP), so street bandwidth may be a bit stretched, at least to the extent that if the reported numbers are a mess, the impact of clarifying (or pacifying) comments from a 10AM earnings call may be bit dampened. To be fair, we guess the reverse is also true. Should be fun.

Getting Constructive On GLNG. The pressure on Golar to reorganize its complex structure has only grown – punctuated by Luxor filing as an activist stakeholder in late January (8% holders). We think Golar likely moves to clean up its structure in the next 6 months, particularly as some of its earlier options (spinning off its LNG carrier fleet with 3rd party involvement) are likely off the table, and more controlled, in-house solutions seem more viable. We run through our expectations on pages 2-4, but here’s the punchline: We’d be long GLNG, and short GMLP in a reorg.

GMLP: Ramping Risk Around The Eskimo FSRU? The Eskimo is one of GMLP’s core assets (~$40MM of EBITDA), and is about to hit the 5-year mark on its 10-year contract with Jordan in May 2020. While it’s typically highlighted as a fixed 10-year contract, there’s actually an out in the Eskimo contract…(Page 2, 8)

For access information, please email us at [email protected]

LNG Update: Coronavirus Force Majeure — Context, Data, and Exposure

Corona-Related Force Majeure: Highlights From Our Recent LNG Update

• Chinese LNG Contractual Exposure – SPA Breakdown By Counterparty                          Pages 2, 5-9
• Historical Context – SARS, 6 Previous Global Health Emergencies                                    Page 2
• NT Flash Points – 16 LNG Carriers Set To Call In China, Details                                           Page 3
• Logistical Headwinds – Trucked LNG Data, Breakdown                                                        Pages 4-5     
• Force Majeure Language – Cheniere (LNG)                                                                             Pages 10-12           

Coronavirus Puts Force Majeure In Play For Chinese Contracts: After days of speculation that Chinese LNG importers (CNOOC, Sinopec, CNPC) were considering invoking contractual force majeure clauses in their LNG contracts, CNOOC (China’s largest LNG importer – Figure 1) announced it had issued force majeure notices to their suppliers due to fallout from the coronavirus (nCoV). Total has reportedly rejected CNOOC’s notice of force majeure, setting up what we expect to be a continued string of notices and conflicting rhetoric, as the relatively opaque process plays out in a weakened and nervous LNG market, and amid the Q419 earnings cycle. While the ultimate impact of these contractual disputes is unclear – ranging from timeline delays (EPC), non-payment, and beyond — what does seem clear is that the issue should continue to build. As noted in Figure 3 – there are 16 LNG vessels scheduled to discharge in China over the next 5 business days, and we’d expect additional contractual flash points ahead.

Validity To Be Determined. We hope to get more clarity on the validity of force majeure claims in the coming days — particularly as they pertain to DES (fixed destination) and FOB cargos (flexible destinations — like Cheniere’s) which can be diverted to unaffected markets. We would think it’s less likely Cheniere’s FOB cargoes would be impacted by force majeure issues at the geographical origin of the original purchaser, given their inherent flexibility.

More Than Just A Demand Headwind In China. It’s also worth noting that Corona issues go beyond simply demand destruction within the Chinese market. Given pipeline infrastructure limitations in China, significant volumes of LNG are trucked to end users (Figures 4 & 5), which also brings logistical issues to the forefront, as there’s likely a similar lag in LNG truck drivers returning to work as those in factories and mills following the Lunar New Year holiday and quarantine efforts by the Chinese government. The risks also expand beyond volume-based LNG contracts, with shipyards, hard-asset delay schedules and tangential energy infrastructure also potentially impacted. Late yesterday gas producer Energean noted TechnipFMC had claimed corona-related force majeure on a FPSO meant for an Israeli offshore project

For access information, email us at [email protected]

LNG Update: USG Pricing Color & Mubadala Builds Its NEXT Stake

Updated Pricing Color For U.S. Developers: Cheniere, Shell, Venture Global, Next Decade, Freeport, Annova, Commonwealth, Delfin & More. Over the past week we’ve had several conversations with LNG buyers, project developers, and downstream operators, with the more pertinent color below:

LNG Pricing Currently Being Offered In The USG:
• Consensus Range: $2.25–2.40/mmbtu – Individual Developer Pricing Details On Page 2
• Outlier: $2.10-2.20/mmbtu – Individual Developer Pricing Details On Page 2
• Outlier: Offering ~$1.75/mmbtu – Individual Developer Pricing Details On Page 2

Favored Projects: Buyer With Some Effective Baseload Exposure – In the U.S. only really considering a handful of projects (page 2),  however, Qatar is the most likely – and buyer has option to pull from Ras Laffan or Golden Pass. Webber Note: the optionality here provides another window into how Qatar is marketing their entire ~100mtpa portfolio.

Venture Global: At least 2 buyers in Calcasieu potentially going back for more LNG in Plaquemines, site visits are still ongoing (page 3).

Project Roll Ups: One buyer speculated we’ll see some of the 3rd and 4th tier Greenfield projects get rolled up in 2020, as existing players look for cheaper growth optionality and early stage projects solve for funding issues. Webber Note: we agree, and think it could start in the next quarter or two, with a Brownfield or well-funded player consolidating some pre-FEED or pre-FERC powerpoint projects.

Mubadala Builds NEXT Equity Position: On 12/12, NEXT filed a shelf registration for 10.1MM shares, controlled by Mubadala Investment Company (Mubadala) – 8.0MM of which were issued to Mubadala on 10/24 (at $6.27/share) and 2.1MM of which Mubadala acquired from another shareholder (we believe BKR). While the stock traded off 4% as the registration headlines spooked the market a bit (unfortunately, a relatively predictable outcome, even for a maintenance filing), the stock regained the lost ground relatively quickly. We view the BKR sale (via BHGE) as mostly a post-spin cleanup effort, with at least  read through here that Mubadala likely wanted more equity than NEXT was willing to issue on a primary basis.

For access information, please email us at: [email protected]