OOTT Archives - Webber Research

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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Tankers: Moving From OPEC Trade, To Global COVID Relapse Hedge

Tanker Q120 Preview & Storage Update

Thesis (EURN, DHT, FRO, ASC, etc) …………………Pages 1-2
Floating Storage Scenario Analysis………………….Pages 2-5
Tanker Rates Reactions & Implications ……………..Page 5
Multi-Factor Supply/Demand Model……………….. Pages 6-7
Crude Inventory & Production Cuts………………….Pages 7-9
Valuations……………………………………………….. Pages 10-11
Earnings Estimates……………………………………..Page 12

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Contango, COVID, & Floating Storage To Dominate Q1 Earnings: As with our Barge Preview from last week, we expect the majority of this earnings season to revolve around the simultaneous COVID+OPEC supply & demand shocks to global energy markets, which have driven down global oil demand by ~15-30mbd, introduced negative crude pricing for certain landlocked geographies, and reinforced the notion of systemic, structural and economically driven floating storage. The result: our tanker rate charts look more like seismograph readings (page 5) and our tanker group is poised to throw off record cash flow in Q2 & Q3 (and potentially longer). We believe the long tanker trade is gradually transitioning from a shorter-term OPEC trade, into a longer-term COVID-19 global relapse hedge. We believe tanker dynamics from the remainder of 2020 and 2021 will be defined by the depth and duration of the floating storage dynamics – which we believe will be increasingly driven by the shape and pace of a global economic reopening vs any remaining OPEC/policy maneuvers. Now that crisis level production levels are now more defined, we believe tanker rates and equities will have a strong negative correlation to the success of any semi-synchronized economic reopening. Hence, Long Tankers = Long An Extended And Asymmetrical Global Reopening.

OPEC+ Fallout: Contagion Everywhere From Looming Price War…

***From Sunday 3/8***

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Tankers Among Few Eventual Beneficiaries

Impact On Tankers: Page 1, 3-5
The 2015 Tanker Comp, Similarities, Implied Upside Pages 3-4
Impact On LNG Developers (LNG, TELL, NEXT, GLNG, NFE) Pages 2-3
Historical & Implied Equity Correlations To Crude Vol Page 3
NAVs: Current, Mid-Cycle to Trough Range Page 3
OPEC+ Background Page 3, 6

This Is Going To Hurt: On Friday (3/6) talks between OPEC and its OPEC+ allies (Russia) over a corona-related production cut collapsed, sending oil prices down with it (Brent and WTI down 9% and 10%, respectively on Friday). While the lack of OPEC+ support for crude prices was enough to rattle markets, what’s transpired since – the relationship between the Saudis and the Russians rapidly devolving into what looks like an all-out pricing war – has the potential to reshape energy markets for years to come, and will likely take the mantle as the most value-destructive policy shift in decades.

Exogenous Demand Shock, Meet Exogenous Supply Shock. As noted below, Aramco has already come out with discounted crude prices (OSPs) on the back of the meeting, and is reportedly speaking to a potential production ramp from its current 9.7mbd, to well above 10mbd, and could even reach a record of 12mbd. Again – that would be additional supply into a market that’s already oversupplied amid global efforts to contain the Coronavirus (nCoV) weighing on demand. While the Russians have less available swing production, what they do have will be moving in the wrong direction as well, as they look to grab share from U.S. Shale producers.

How Does This Impact Our Universe:
Tankers: We’ll Call It Mixed… (And That’s One Of The Few Bright Spots). Once the dust settles the tanker group, including FRO, DHT, EURN, ASC, etc, should be one of the few actual overproduction beneficiaries as: 1) tanker activity and rates are generally positively levered to production volumes (including overproduction), and 2) we expect to see floating storage, both economic (as the front end of the crude forward curve collapses (already in progress) and…….continued on Pages 3-5

Most Relevant Tanker Comp: 2015, after OPEC failed to respond to falling crude prices. While overcapacity and falling crude prices ravaged the rest of the energy markets, Crude Tanker rates (VLCCs) averaged $65K/day (Figure 4) – a level not reached since 2008, up 116% y/y and the firmest level in nearly a decade. What would 2015 day rates mean for current tanker stocks? If we replaced our current 2020 rate decks with the 2015 average rates….continued on page Pages 2-3

Everything Stops. If nCoV brought the near-term prospects of new LNG business to a particularly slow crawl, we believe the OPEC+ blow up will bring it to a full stop, at least until the dust settles. For companies in the process of restructuring (like TELL).….continued on Pages 2-3

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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

Note 1: As expected (and highlighted in our Commonwealth LNG Report below – initially published nearly two weeks ago), Venture Global has filed motion to intervene in Commonwealth’s project development due to its planned activity and dredging in the Calcasieu Ship Channel. We’ll continue to monitor.

Note 2: Over the next few weeks we’ll be rolling out a new line of Energy EPC research, centered around the unique and insightful analysis of EPC Risks. Please let us know if you have any questions, and we’re excited to share more details soon!***

Commonwealth LNG (CWLNG) is a proposed 8.4 MTPA LNG export facility located on a 393-acre site in Cameron Parish, Louisiana. The Project is on the west side of the Calcasieu Ship Channel (“the Channel”) near the entrance of where the Channel spills into the US Gulf of Mexico. The Project is also located directly across the river from Venture Global LNG’s (“VGLNG”) 10.0 MTPA Calcasieu Pass LNG (CPLNG) export facility (Figure 1).

In the 20-pages that follow, we’ve analyzed the CWLNG project and how the Project’s boundaries and shipping operations may be an issue for CPLNG, the State of Louisiana, and the U.S. Coast Guard. (Webber note: again – VG filed a motion to intervene after this piece originally went to clients in late February)

CWLNG’s execution plan is based upon modularizing the LNG process and pre-treatment units as well as the LNG storage tanks. Typically, a full containment 160,000 m3 LNG storage tank takes 36 to 42 months to construct and commission. CWLNG has proposed modularizing six (6) 40,000 m3 single containment LNG tanks…(continued pages 2-22)

Venture Global LNG: Calcasieu Pass Engineering Update – Details, Background, & Key Questions

Key Points:

CPLNG’s engineering, procurement, and construction workflow/ sequencing is not following “traditional” EPC industry standards. (Pages 2-3)
It’s too early to tell if that differentiated sequencing has helped expedite the project or if procurement and construction activities will be impacted in later stages. (Page 3-4)
CPLNG’s recent engineering filings point to significant, relatively late-stage engineering changes (at least by historical standards) that warrant monitoring from a cost and timeline perspective. (analysis on Pages 4-6)

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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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