W|EPC: Golden Pass LNG (XOM, QP) – Project Update & On-Site Satellite Image Analysis – Q320

Golden Pass LNG: Our Delay & Contingency Fund Estimates Continue to Ramp

Key Takeaways:
• Chiyoda’s Engineering Delays Continue. We believe engineering delays have eroded a significant portion of the EPC risk, contingency, and profit, with the likelihood of ramping balance sheet exposure. (Pages 4 & 11)
• Our updated project timeline (delay) and contingency fund estimates are now material, sitting at….(continued)
• Our estimates point to Golden Pass project progress sitting closer to ~10% vs Chyioda’s report figure of 16% (Q2) based on both our satellite image review and….(continued)
• Sabine Pass Comparison. 18-Months after FID Sabine Pass LNG Trains 1 & 2 were 57.1% complete, vs our estimated range for Golden Pass LNG (~10-16%). (Page 8)

Table Of Contents

• Golden Pass Q320 Update – Key Takeaways (page 2)
• Revised Cost & Schedule Forecasts (page 3)
  • Cost Forecast (page 4)
  • Project Milestones (page 5)
  • Progress Analysis (page 6)
  • Analysis – Chiyoda’s 16% Reported Progress (page 7)
  • Putting It All Together – W|EPC Updated Contingency fund and project delay estimates
  • 18-Months After FID, Sabine Pass vs. Golden Pass LNG (page 8)
• Joint Venture Analysis (page 9)
  • Change Order Analysis vs. JV Structure (page 10)
  • Possible Impacts to Chiyoda (page 11)
• Satellite Image Analysis (page 12)
• Disclosures (page 17)

Golden Pass LNG Satellite Image Overview (page 13)

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W|EPC: Golden Pass LNG – Delay & Contingency Fund Estimates Continue To Ramp – Updated Project & Satellite Image Review

W|EPC: LNG Canada Q320 Monitor – Labor Dynamics & Baseline Satellite Image Review

LNG Canada Q320 Monitor – Labor Dynamics & Baseline Satellite Image Review

Shell • Petrochina • Mitsubishi • Kogas • Petronas

1) Union Craft Avg. Wage Rate Escalators & Impact On JGC/Fluor, and broader project cost…

What’s Happened/Changed: Part of our current focus is on LNG Canada’s wage rate escalation and union labor agreements post-2023.
Why Does That Matter: EPC lump sum proposals generally include labor escalation between 1-3% per annum (rates vary based on geography/availability). Labor agreements supporting LNG Canada and other B.C. projects expire in 2023 and have a relatively advantageous average labor escalation rate of…..continued.
For context, union labor strikes, renegotiated agreements, and significant wage rate escalation supported Gorgon LNG coming in $20B+ over budget. 
What’s The Impact:…..continued (Page 3)

2) Taking A Look At JFJV’s Longer-Term Labor Inflation Risk (Page 5)

3) JFJV’s Construction Activity – What does it tell us about the project timeline? (Page 8)

4) Satellite Image Analysis Baseline –  Benchmarks for Remainder of the Project…. (Pages 9-17)

W|EPC: LNG Canada Q320 Monitor – Labor Dynamics & Baseline Satellite Image Review

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W|EPC: Gorgon LNG’s Propane Kettle Cracks – Early Read

Overview:
On July 23, 2020, Reuters reported Australia’s Department of Mines, Industry Regulation & Safety (DMIRS) said “it plans to inspect Chevron’s Gorgon LNG plant as soon as possible following calls by a trade union to shut the plant.”
1. During routine maintenance, Chevron Australia discovered issues with the propane kettles on Train #2.
2. “The Australian Manufacturing Workers’ Union (AMWU) has called for Chevron to shut down the Gorgon plant for immediate safety inspections by a gov. regulator and for a report to be made public.”
3. Specifically, cracks up to 1 meter long and 30 millimeters deep were discovered by the non-destructive testing team (per AMWU). On July 28, 2020, a Chevron company spokesman said, “Chevron expected to restart Train #2 of its Gorgon LNG plant in early September after completing repairs.” Chevron said during routine maintenance that began on May 23rd and was scheduled to be completed by July 11, 2020, weld quality issues were discovered on 8 propane heat exchangers. Gorgon LNG Trains 1 & 3 are producing. On 07/29/20, inspectors from DMIRS were due on site to inspect the cracks after AMWUraised issues about the conditions of the South Korean-made kettles.

Key Takeaways:
• Inspectors from Western Australia’s “safety watchdog” were scheduled to inspect propane kettle cracks on Chevron’s Gorgon LNG Train-2 on 7/29
• Labor unions continue pushing back, requesting a full shut down of all three LNG trains for inspection.
• Publicly available technical details are limited, even for the folks who built Gorgon LNG (who we spoke with); however, we believe the 3-month estimated down time for repairs is….continued
• Primary rationale for a Train-1 and Train-3 inspection shut down would be…continued

W|EPC Thoughts & Observations
The publicly available technical details are limited, even for our contacts involved in building Gorgon LNG. However, we are watching the following:…continued

Concluding Thoughts…

Key Questions…

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Southern Company (SO): Vogtle Nuclear Project Q220 Quarterly Monitor

Southern Company (SO) Q2 Vogtle Nuclear Project Monitor – Key Highlights:

• Vogtle Expansion: 6-Years Late…And ~$13-$16 Billion Over Budget? (Slides 2-5)
• How Much Will SO Be On The Hook For? (Slides 3-6)
• Something’s Gotta Give: Key Commissioning Milestones Appear Crammed Together To Avoid ROE Reductions (Slides 6-8)
• Cost Projections Were Already Ramping…Before COVID-19 (Slides 9-12)
• Cost Prudency Reviews – A Make Or Break For Stakeholders?…. (Slides 13-19)

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• Quarterly Deep Dive Into Southern Company’s (SO) $27B Vogtle Nuclear Expansion. Southern Company (SO), is the largest owner of the Vogtle Nuclear Facility, via the 46% held by its wholly-owned subsidiary Georgia Power.
  • Vogtle has two active units (Units 1-2), which have been in-service since 1987-89. A two unit expansion (Units 3-4) was approved in 2009
  • Units 3 & 4 were originally expected to be in-service in 2016-17 and cost a combined ~$14B, the expansion project is now 6-7 years behind schedule, with costs rising to ~$27B….and potentially higher (slides 3-6).
  • Hence, the premise of adding a W|EPC Quarterly Vogtle Project Monitor to our Utility & Energy research platform: Digging into those cost overruns – particularly the bulging EPC costs, to get a more accurate and detailed view of the potential headwind for project stakeholders and SO shareholders.

Regulatory Background: Vogtle is regulated by the Georgia Public Service Commission (GPSC). GPSC’s primary role is to protect rate payers & determine if project costs can be justifiably passed-through via utility rates. In the quarters that follow we’ll venture to aggregate, analyze, and interpret cost overruns through the lens of GPSC, to put together a thoughtful estimate of what cost overruns will eventually land with SO shareholders.

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Webber R|A Renewables Weekly

Webber Research: Renewable Energy

Highlights:

• Orsted JV To Develop Clean Hydrogen In Copenhagen (page 1)
• US Extends Safe Harbor Deadlines (page 1)
• Next Generation EU (page 2)
• Saudi’s Alfanar Rumored To Be Senvion India Buyer (page 2)
• ENPH Collaboration With University of Washington (page 2)
• RUN Introduces Brightbox In Nevada & Colorado (page 2)
• ENS Board Changes & Dividend Declaration (page 2)
• SGRE SG 14-222 DD Backlog Updates (page 2)
• Vestas Expands 2020 Vietnam Intake To Over 300MW (page 3)
• Aerodyn To Develop 111-Meter TC1B Rotor Blade (page 3)
• US Net Electricity Generation (pages 3-4)
• Solar PV Pricing (page 4)
• LCOE Benchmarks & Timeseries (page 5)
• Global Wind Turbine Market Share (page 6)
• Solar PV Inverter Market Share (page 6)
• US Wind & Solar Projects Announced Or In Early Development (page 7)

Orsted JV To Develop Large-Scale Clean Hydrogen In Copenhagen: On 5/26 Orsted announced it entered into a JV with Copenhagen Airports, Maersk (marine), DSV Panalpina (logistics), DFDS (ferry), and SAS (aviation) to develop a hydrogen and e-fuel production facility. The project will be developed in three phases with the ultimate goal of providing renewable fuel sources for multiple transportation methods in the Greater Copenhagen Area. Phase 1 includes a 10MW electrolyser to generate renewable hydrogen fuel for buses and trucks – potentially operational as early as 2023. Phase 2 considers a 250MW electrolyser which would have the capacity to produce renewable methanol for maritime transport and renewable jet fuel for aviation – potentially operational by 2027 when the first offshore wind power is available from Ronne Banke off the island of Bornholm. Phase 3 would upgrade the electrolyser capacity to 1.3GW with the potential to displace 30% of fossil fuels used at Copenhagen Airports by 2030. Orsted said the project could reach FID as early as 2021 after receiving required regulatory approvals as well as a full feasibility study.

US Extends Safe Harbor Deadlines: continued…

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Webber Research: Renewable Energy Weekly

• ENPH Partners With 5B In Australia
• GE Renewable Energy Q1 Earnings
• Sunpower COVID Updates
• Safe Harbor Deadline Extension Brought To Treasury
• BNEF Semi-Annual LCOE Update (Page 2, Charts On Page 4)
• New York Approves Offshore Wind Plans, But Delays Action Due To COVID
• Orsted’s 120GW Skipjack Offshore Wind Farm Delayed 1 Year
• Q Cells Tops US Market Share
• Sunrun Hires New CFO
• Houston’s First Climate Action Plan
• California Confirms PV & Storage Installers Are Essential Workers
• Chicago Supporting EV Adoption
• Figures:
• US Net Electricity Generation By Type
• US Net Electricity Generation By Renewable Type
• Monthly Net Wind & Solar Generation State
• Weekly Solar System Pricing
• Grid-Tie Solar System Weekly Retailer Price ($US/Watt)
• Solar Panel / Solar Module 120W+ Weekly Retailer Price ($US/Watt)

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ENPH Partners With 5B In Australia: On 4/22 ENPH announced it would collaborate with Australian solar innovator, 5B in its role in the Resilient Energy Collective (REC) – aimed at providing solar power solutions to Australians disconnected by bushfires and floods. 5B selected ENPH’s IQ 7+ microinverters to pair with its portable Maverick solar array systems, which will also be outfitted with Enphase Envoy with (communication gateway) which connects the system to Enphase Enlighten for easy monitoring & maintenance. ENPH also announced a partnership with Sunlogics in Belgium on 4/29 as its exclusive microinverter supplier using IQ 7 and 7+ microinverters (also outfitted with Envoy). Separately, after the close on 4/27 ENPH was announced to replace Core Laboratories (CLB) in the S&P MidCap 400 index effective before the market open on 5/1. ENPH traded up 16% on 4/28 as a result.

GE Renewable Energy Q1 Earnings: On 4/29 GE reported a $302MM Q1 loss in its Renewable Energy segment, down from a $187MM loss in Q119. Orders declined 13% y/y to $3.1B, which GE attributed mostly to poor execution and only partly to COVIDrelated supply chain disruptions and delays. GE highlighted LM Wind’s sites closures in India and the US and capacity reductions at 3 other sites in its Onshore Wind business (previously disclosed). In its Offshore Wind business, GE remains on track for certification of its Haliade-X turbine and plans to start production after delivering its 80- unit 6MW commitments to EDF (expected completion 2021). In Grid & Hydro, GE is operating 15 factories at full utilization, 10 factories at less than 80% utilization, and 8 factories at less than 50% utilization. Its facilities located in China are operating at preCOVID levels, including Wuhan which was shut down for 6 weeks. Overall GE said COVID-19 has had a limited effect on its Renewables business but that it’s monitoring supply chain constraints and implementing cost-out and restructuring initiatives.

Sunpower COVID Updates: On 4/20 SPWR announced further actions to address the financial and operational impacts of the COVID-19 pandemic including reducing base salaries of executive management another 35-50% (after cutting 25-30% and withdrawing 2020 financial guidance a month earlier), idling factories in France, Malaysia, Mexico, the Philippines, and the US (with expectations to bring them back online in the coming few weeks), and temporarily transitioning a portion of its employees to 4-day work weeks in response to reduced demand and workload (affecting ~3,000 workers according to GTM), but it said it’s still on track to spin-off its manufacturing arm, Maxeon Solar Technologies by the end of Q2.

Safe Harbor Deadline Extension Brought To Treasury: Last week senators from the Energy and Natural Resources Committee wrote a letter to the Department of Treasury advocating a 1yr deadline extensions for the Investment Tax Credit (ITC) and Production Tax Credit (PTC) due to setbacks related to the COVID-19 outbreak. …continued

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