Webber Research ESG Scorecard: 2020

2020 ESG Scorecard – Updated Model, Same Idea. Before we delve into our updated rankings, framework, and company specific changes, we want to reiterate the idea that underpins this entire endeavor, which is that we believe there is no longer a place in the public shipping markets for companies that do not prioritize strong corporate governance and capital stewardship. We believe that risk premiums associated with poor governance and capital discipline should continue to widen, eventually pricing-out conflicted players and antiquated structures from public markets.

New Carbon Factor. Our 2020 ESG Scorecard includes a broadened methodology that incorporates the public disclosure of relevant of carbon data, which becomes the 9th factor within our proprietary multi-factor ESG model and increases the total number of subfactors to 20 (from 18). The carbon disclosure metrics we’ve chosen to initially include (AER & EEOI – see Page 15) are aimed at aligning our ESG framework with the Poseidon Principles, and intended to help facilitate the consistency and disclosure of carbon data to investors. We will also continue to display each company’s ESG Scorecard Quartile, as well as a Carbon Disclosure Indicator on the front page of our company-specific research notes – as we’ve done since we launched Webber Research in Q419.

Model Adjustments. We’ve given our new Carbon Factor a 20% weighting within our model, positioning it among the most dominant variables within our framework, while re-weighting other aspects of our model in order to accommodate the addition. Our revised factor weightings and methodology can be found on Pages 10-15. We also narrowed our 2020 ESG Scorecard universe to 52 companies from 56 (Page 5).

Carbon Disclosure: Who’s Participating? We’ve included a summary of our work around carbon disclosures on Pages 2-3. In total, 42% of the companies in our scorecard (22/52) met carbon disclosure requirements within our model. While we’re encouraged by the level of initial participation, there’s clearly room improvement. To that point, we’re aware of several companies still the process of aggregating, auditing, and (eventually) disclosing relevant carbon data to investors, which should continue to improve the participation level in subsequent scorecards.

Superior Governance Translates To Outperformance:

• Companies with the strongest ESG scores (EGLE, INSW, ASC, TRTN, GNK, EURN, OSG, MATX, GRIN, GLOG, INT, GLNG, and KEX) outperformed the group by 16% on a 5-year basis and 41% since inception.

• Companies with the weakest ESG scores (CMRE, KNOP, TGP, CPLP, NMM, NNA, DSX, DLNG, GSL, DAC, TNP, GASS, and SB) underperformed the group by (24%) on a 3-year basis and (25%) since inception.

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

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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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W|EPC: Objections To Venture Global’s Storage Tank Design

Venture Global –  PHMSA Objects to Calcasieu Pass LNG’s Storage Tank Design

• A day after Venture Global successfully raised the first LNG storage tank roof
  (4/27/20) at its Calcasieu Pass LNG facility, PHMSA issued a memo (4/25/20) to
  FERC objecting to the LNG storage tank design, citing non-compliance with the
  National Fire Protection Association (NFPA 59A).
• LNG storage tanks must be designed and constructed to meet several regulations
  and codes, including NFPA 59A.
• The timing of PHMSA’s objection is notable since the tank design should
  have been approved by PHMSA & FERC prior to the start of construction.

Continued….
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TPIC: Shuts Iowa/Juarez Facilities – Withdraws 2020 Guidance

We thought we’d pass along a snippet from our recent note on TPIC (4/23) – highlighting both its 2020 guidance withdraw, as well as the shutdown of its Iowa & Juarez facilities – which, while disclosed in subsequent filings, were not highlighted in the guidance suspension press release. For access information email us at [email protected]

TPIC: Newton Iowa Facility Latest To Be Affected By COVID-19. Earlier today TPIC announced it would pause production at its manufacturing facility in Newton, Iowa after 28 associates tested positive for COVID-19 last week. The Newton facility is set to be shut for roughly 1 week for deep cleaning and development of more advanced testing procedures for associates. Additional Updates: Not included in the press release was a series of updates to its other manufacturing facilities:

• Juarez, Mexico: 1 facility (of 3) temporarily closed due to an order from a division of the Mexico Secretary of Labor. TPIC said it plans to administratively challenge the order but that if it’s not reversed, the facility would be closed through 5/31.
• Matamoros, Mexico: Reduced capacity timeline extended from 4/30 to 5/31 due to the extension of Mexico’s sanitary emergency order and demands from its labor union.
• Chennai, India: Resumed limited production with additional personnel on 4/21 (previously targeted 4/15). Other facilities operating at normal capacity, including its 2 facilities in Izmir, Turkey which had been operating at 50% capacity for the first half of April.
• Guidance Suspension Not Surprising: As a result of the additional facility closures and the general unpredictability of the magnitude and duration of the pandemic, TPIC also announced it was withdrawing its 2020 guidance (Figure 1). The majority of TPIC’s Wind OEM peers and customers have already suspended guidance – making TPIC’s announcement seem largely inevitable – particularly after it had already tempered EBITDA expectations earlier this month (below). TPIC said it would provide an update on its Q120 earnings call (5/7) but we don’t expect a confident reset 2 weeks from now.
• That said, we do expect the revised guidance to be substantially lower – as we’ve already been modeling 2020 EBITDA 21% lower than the mid-point of….continued

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Renewable Energy: The Next Generation

Initiating Coverage Of ENPH, TPIC, REGI, & ENS

Executive Summary ……………………………………………….Page  5
Industry Overviews………………………………………………..Page 9
Near-Term Drivers.…………………………………………………Page 11
Solar …………………………………………………………………Page 14
Wind …………………………………………………………………Page 20
Biofuels ……………………………………………………………..Page 25
Energy Storage …………………………………………………….Page 30
Enphase Energy, Inc. (ENPH) …………………………………….Page 33
TPI Composites, Inc. (TPIC) ………………………………………Page 47
Renewable Energy Group, Inc. (REGI) ………………………….Page 59
Enersys (ENS) ………………………………………………………Page 70
Disclosures ………………………………………………………….Page 81

Rolling Out Our First Wave Of Renewable Energy Coverage: We are initiating coverage of REGI (Outperform, PT: $36), ENPH (Market Perform, PT: $33), TPIC (Market Perform, PT: $17), and ENS (Market Perform, PT: $55). As our historical energy infrastructure coverage has evolved, we’ve watched renewables consistently gain market share and play an increasingly competitive role in energy trade dynamics – particularly in the emerging markets, where we’ve seen prices come down, viability rise, and competitive flash points between traditional fuels, LNG, and renewables. Rather than focus solely on incumbent fuels and infrastructure, or solely on a potential bridge like LNG, we think it’s more prudent to cover energy transitions from every angle – hence our expansion into renewables.

Why These Names? We’re establishing a footprint in several renewable verticals: solar, wind, biofuels, and energy storage, creating a well-rounded platform that we can continue to expand. Within those verticals, ENPH, TPIC, REGI, and ENS were among the stocks most commonly highlighted by our clients as either underfollowed, misunderstood, or both. Although oil and gas (which remains the focal point of our legacy
coverage) still dominate global energy markets, it’s increasingly clear the future of energy is here – and it’s decarbonizing, innovating, and quickly becoming price competitive. We also think the group dovetails nicely with our skill-sets: analyzing SMID energy and infrastructure names with asymmetric risk/return profiles.

How Are We Tackling Renewables? There’s a reason why we were both drawn to and pushed toward this space – each company has a strong core business, at least one (or several) growth drivers, and the kind of significant shifting dynamics that can create particularly compelling risk/reward profiles.

COVID-19 Disclaimer: We continue to highlight our gratitude for health care providers and first responders during this time, and while our primary focus continues to be with the safety and well-being of our families, associates, and employees, the pandemic has certainly complicated our plans for initiation, however we think it’s important to have coverage through this period of uncertainty – rather than simply waiting for smoother seas. Each of our names have been and will continue to be greatly affected by the outbreak and associated economic downturn. Countries around the world have delayed energy auctions while agencies and data service providers have all begun to cut global supply and demand forecasts across all energy verticals. That said, it’s still too early to fully assess the potential impact on our industry- and company-level coverage. As a result, we are generally exercising caution with our ratings, price targets, and estimates until we get a broader view of the long-term disruption.

Investment Theses (Abridged)
Enphase Energy (ENPH) – Market Perform, PT: $33….continued (more…)