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Golden Pass Contractor Files for Chapter 11, Raising Concerns of a Longer Delay

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The lead contractor for Golden Pass LNG has filed for bankruptcy protection, creating risk of a potentially extended delay for the LNG project owned by ExxonMobil (XOM) and QatarEnergy. The timing for Golden Pass is a key factor that could swing natural gas demand and prices in 2025.

Zachry Holdings last Tuesday (May 21) filed for Chapter 11 protection, citing financial strain caused by “significant challenges and disruptions,” including the Covid-19 pandemic and recent geopolitical issues, as the lead contractor for Golden Pass LNG. Zachry is pursuing a "structured exit" from the project after failing to reach a resolution with the owners.

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The Chapter 11 filing supports earlier reporting by Bloomberg of a labor shortage at Golden Pass that could cause the project’s start date to slip to 2H25, from a current target of 1H25. Zachry is the lead contractor for project construction and is responsible for 52% of the total scope of work at Golden Pass. Along with Zachry, Golden Pass LNG has contracts with McDermott affiliate CB&I and Chiyoda for engineering, procurement and construction (EPC) services.

Despite the setback, the Golden Pass partners have not revised the project schedule and remain committed to completion. In a statement to a local Beaumont TV station, a spokesperson said work continues with McDermott and Chiyoda, with thousands of people still working at the site. Golden Pass is 75% completed, the spokesperson said.

In the Chapter 11 filing, Zachry filed a complaint in excess of $1B against Golden Pass LNG, alleging the owners induced Zachry and other contractors to front increased costs with promises of future repayment and to waive over $1B in change orders.

Zachary asserts that Golden Pass LNG was slow to evaluate claims of cost impacts that contractors had already paid out of pocket, while also pushing the EPC contractors to work at a faster pace to get the project back on schedule. Zachry claims it continued to work on Golden Pass while losing money, assuming it eventually would be made whole.

According to the filing, Golden Pass LNG issued a notice of default to Zachry in May ‘24, citing its failure to timely pay all its vendors, suppliers and subcontractors. Zachry claims Golden Pass had been directly paying its subcontractors and vendors for months under the terms of their EPC contract, then effectively forced Zachry into bankruptcy when it canceled those direct payments.

Earlier in May, East Daley reviewed a potential delay at Golden Pass LNG using the Macro Supply & Demand Forecast. We found a six-month delay would cut our Henry Hub forecast by ~$0.15/MMBtu through March 2026.

Despite the development, we remain bullish on the 2025 price outlook as new demand tightens the market. Even with a delay at Golden Pass, we still expect prices to run up heading into next winter and average ~$3.75/MMBtu in 2025 (see figure).

A delay at Golden Pass would remove ~219 Bcf of demand in the first half of 2025 from our Macro forecast. Nevertheless, the demand outlook remains strong in 2H24 and through 2025 with several other LNG projects planning to start, including Cheniere Energy’s (LNG) Corpus Christi Phase III project and Venture Global’s Plaquemines LNG. – Alex Gafford, Oren Pilant and Andrew Ware Tickers: LNG, XOM.


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