W|EPC: Southern Company (SO) – Q420 Vogtle Project Monitor – Key Decisions That Could Haunt Cost Prudency

Key Takeaways: Vogtle Q420 Monitor – Key Decisions That Could Haunt Cost Prudency

Who Will Be Getting Stuck With +$2.1B In Cost Overruns? Once Vogtle Unit 4 reaches “fuel load”, Georgia Power/Southern Company (GP/SO) can request a cost prudency determination to push their portion of cost overruns (~$2.1B) into recoverable utility rates. (Page 4)

Regulators will determine cost prudency based on project data, testimony, and a simple question: What should a reasonable manager have done at the time of the decision? (Page 5)

We expect that process to be heavily scrutinized considering the scale of the overruns, and, in our opinion, some questionable GP/SO decisions. (Pages 4-5)

Decisions That Could Haunt GP/SO’s Prudency. We believe there’s a case to be made that multiple GP/SO management decisions ran contrary to industry standards, potentially contributing to ($) billions in cost overruns, including

• A failure to either include or implement multiple EPC contract……(Page 7)
• For the first 4-years of the project, GP/SO used only…..(Page 23)
• In 2017, it appears GP/SO did not validate critical underlying EPC…..(Pages 9- 10)

Analyzing 12-Years Of GP & SO Testimony… (Pages 20 & 23)

Please join us for our next Client Call at 12pm EST on Monday 10/26, to review our Vogtle Project Monitor. Please reach out to us for access details.

Table Of Contents:

• Key Takeaways – Page 2

• Who Owns $2.1B In Cost Overruns? – Page 3
• Georgia Public Service Commission 2018 Order – Page 4
• Cost Prudency Definition & Process – Page 5
• Decisions That Could Haunt GP/SO

• LSTK Contract Mismanagement  – Page 7
• Bankruptcy – Parent Company Guarantee Settlement – Page 8
• Estimate to Complete  – Page 9
• Transition from EPC LSTK to T&M – Page 10
• QRA – Cost – Page 11
• QRA – Schedule – Page 12

• GP Testimony & W|EPC Analysis (2009 to 2017

• EPC Contract Overview – Page 14
• October 2009 – Page 15
• October 2010 – Page 16
• April 2011 – Page 17
• November 2012 – Page 18
• June 2013 – Page 19
• October 2014 – Page 20
• October 2015 – Page 21
• December 2015 – Settlement of LD’s – Page 22
• December 2015 – Revised EPC Contract – Page 23
• October 2016 – Page 25
• April 2017 – Page 26

W|EPC: Southern Company (SO) – Q420 Vogtle Project Monitor – Key Decisions That Could Haunt Cost Prudency

For access information, please email us at [email protected], or our institutional sales at [email protected]

W|EPC: LNG Canada – Updated Satellite Image Analysis & Construction Progress – Q420 Project Monitor

 Shell ∙ Fluor ∙ Mitsubishi ∙ PetroChina ∙ PETRONAS ∙ KOGAS

Table Of Contents:

• LNG Canada Q4 Monitor: Key Takeaways…………………………..….…Page 2
• LNG Canada Cost & Schedule Updates
  • Updated Estimates…………………………..……………….….……..Page 4
  • Project Milestones………………………………………………………Page 5
  • Progress Analysis…………………………………………….….….….Page 6
  • Analyzing Fluor’s 27.5% Reported Progress…….…………….……Page 7
  • Project Staffing……………………………………………..……….….Page 8
• Satellite/Aerial Image Analysis
  • July 2020 Overview………………….…………………….….………Page 10
  • Sep 2020 Site Analysis……………………………………….………Page 11
  • Jul vs. Sep 2020 – LNG Storage Tank…………………………..….Page 12
  • Module Yard Analysis………………………………………………….Page 13

Key Takeaways:

• Delays At LNG Canada Continue to Build   (Pages 4 – 7, 10 – 13)
  • Fluor reported ~27.5% Engineering, Procurement, Fabrication, & Construction (EPFC) progress in September, vs our current estimate of…
  • We believe Fluor’s 27.5% guidance implies module fabrication progress of ~45%, which is ~9x…
  • Fluor also referenced COVID-related project delays (without getting specific)
  • Our Current Delay Estimate:…..
  • Estimated Probability Of Maintaining Schedule:…..
  • Mind The Gap: There are several potential explanations for such a degree of progress variance…
• Examining Fluor’s Goal of 2,500 On-Site Workers By Dec-20 (Pages 4, 8, 10 – 13)
  • Aerial images suggest meaningful concrete, structural steel, and significant construction activities have yet to start (beyond piling)…
  • Pre-COVID, Fluor’s reported onsite labor was higher than the project’s publicly reported staffing levels, leading to cost overruns (Pages, 4, 8)
  • Limited construction work fronts could constrain Flour’s ability to…
• Kicking The Can Down The Road… LNG Canada Starting to Resemble Another Fluor/JGC Project… (Pages 4, 8)
  • In 3Q13, CPChem awarded Fluor & JGC a ~$6B EPC contract for an Ethylene Cracker in Texas. ~39-months later, Fluor/JGC announced the project would be over budget. The project was finished in mid-2018 (a year behind its baseline plan).
  • ~23-months after FID, we believe the LNG Canada (JFJV) schedule is slipping and costs are…

W|EPC: LNG Canada – Updated Satellite Image Analysis & Construction Progress – Q420 Project Monitor

For access information, please email us at [email protected], or our institutional sales at [email protected]

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…

For access information please email us at [email protected]

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

For access information, email us at [email protected]

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?

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

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.

For access information please email us at [email protected]