QatarEnergy and Exxon Mobil Corp.’s $9.25 billion Golden Pass LNG project has seen more golden days.

A bankruptcy declaration by primary construction firm Zachry Industrial Inc., a subsidiary of Zachry Holdings Inc., has pushed the start date for the 18 million tonnes per annum project back by eight months and over budget by at least $2 billion. QatarEnergy and Exxon Mobil have started damage control to get things back on track.

The Zachry bankruptcy filing no doubt caused a major headache for Doha-based QatarEnergy, which owns 70% of Golden Pass, and Spring, Texas-based Exxon Mobil with 30%.

In a concerted effort to continue to move the project forward, both companies will likely skip out on selecting a new lead contractor, East Daley Analytics energy analyst Oren Pilant told Hart Energy on July 9.

Zachry served as the lead contractor and was responsible for 52% of the total scope of work at Golden Pass, according to Pilant. McDermott International Inc. and Chiyoda International Corp. were the only other construction firms working on the project.

“They will probably move forward with McDermott and Chiyoda by splitting Zachry's scope of work between them,” Pilant said. “Bringing in a new EPC [engineering, procurement and construction] contractor at this stage would be prohibitively expensive; cost overruns are almost a given so any new contract drawn up would be more expensive.”

In an emailed statement to Hart, an Exxon Mobil spokesperson said the company was cognizant of the potential impact to the Golden Pass timeline.

“Golden Pass is working with all stakeholders to consider all available options to implement a smooth transition between contractors and minimize any impacts,” the spokesperson said.

State-owned QatarEnergy did not immediately reply to an email from Hart seeking comment.

The Golden Pass project entails the addition of liquefaction and export capabilities to an existing terminal and three liquefaction trains, Houston-based Golden Pass said on its website. Additionally, the project will have utility infrastructure to power processing and storage facilities.

The massive Qatar-Exxon joint investment in Golden Pass aims to tap low-carbon LNG feed-gas from Texas for export to world markets. U.S.-based liquefaction projects like Golden Pass aim to continue to provide needed energy supply to world markets, especially U.S. allies in Europe and Asia.

At peak construction, Golden Pass will employ over 9,000 workers (across the three joint venture partners), and further utilize the goods and services of 400 contractors, vendors and suppliers, Golden Pass said in a June 18 court filing with the U.S. Bankruptcy Court for the Southern District of Texas-Houston Division. Zachry’s bankruptcy motion is with the same court.

Exxon said in a statement on its website that preliminary estimates in 2019 by an independent study indicated that Golden Pass could generate up to $31 billion in economic gains in the U.S. alone and over $4.6 billion in direct federal, state and local tax revenues over the life of the project.

According to Golden Pass’ original timeline, the EPC contract required Zachry to complete Train 1 by Nov. 30, 2023, Train 2 by July 30, 2024 and Train 3 by Jan. 31, 2025.

In a golden world, the first two trains would have been completed by now. But, that’s not the case.

And these delays are certainly expensive. The longer the project goes without seeing revenue, the harder it will be to recoup, according to Pilant.

“The Commonwealth LNG CEO recently said the approximate one-year wait on the U.S. Department of Energy, lengthened by [U.S. President Joe] Biden's [LNG] pause, has cost the company $500 million, and construction hasn't even started yet. A one-year delay for Golden Pass would likely be several times more expensive,” Pilant said.

Zachry’s bankruptcy motion

In January 2019, Golden Pass LNG, Zachry and Chiyoda and CB&I LLC, a McDermott International subsidiary, executed the EPC contract for construction of the Golden Pass export facility, which spans over 750 acres in Sabine Pass, on the Gulf Coast of Texas.

At that time, Golden Pass and the EPC contract partners entered into a $9.25 billion lump sum, turnkey agreement that included “the detailed engineering, procurement, construction and commissioning of an LNG plant,” Golden Pass said in its June 18 court filing.

The EPC contract partners divided responsibility for the scope of construction for Train 1 (including the associated utilities, offsites and existing plant modifications (brownfield) required for the production and export of LNG from Train 1), Train 2 and Train 3, among Zachry, and the non-debtors—Chiyoda and CB&I.

Since then, things have taken a turn for the worst.

San Antonio-based Zachry officially initiated a voluntary court-supervised Chapter 11 process on May 21. The move aims to provide Zachry with time and flexibility to resolve issues related to Golden Pass. In particular, it looks to strengthen Zachry’s “overall financial position,” Zachry said the same day in a press release on its website.

Zachry claimed in its bankruptcy court filing that Golden Pass, since its inception, had “been plagued with unexpected challenges that put it behind schedule and over budget. But Golden Pass and its owners were focused on completing the project on time, which required the contractors (especially Zachry) to accelerate work and accrue increased costs to get the project back on track.”

By mid-2022, Zachry claimed that over $2.4 billion in additional funding was needed to complete the project on schedule according to Golden Pass’ terms. “The cost was extraordinary, but so was the payday Exxon Mobil and QatarEnergy would receive once the facility was complete,” Zachry said in the court filing.

Zachry said Golden Pass changed course in 2023 as its partners sought to slow down construction in a move to reduce costs. In the filing, Zachry said “the cost reduction process did not work, however, as the contract payment structure never caught Zachry up from all the losses it incurred in prior years.”

Zachry is seeking to recover over $1 billion in consideration given to Golden Pass.

“We are taking decisive actions to protect our business in light of what has transpired at Golden Pass,” a spokesperson with Zachry told Hart on July 9 in an emailed statement. “We are working to resolve the matter through the court-supervised process. All of our other projects are continuing to proceed as expected.”

Golden Pass’ emergency motion

Golden Pass’ June 18 court filing was an emergency motion requesting entry of an order compelling Zachry to reject its interest in the EPC contract. Alternatively, Golden Pass is seeking relief from the automatic stay.

“Zachry agreed that, if it was unable to achieve completion of an LNG train on or before its scheduled date, it was obligated to pay liquidation damages for the delay as set forth in the EPC contract,” Golden Pass said in its court filing. “Zachry has abandoned the LNG facility and, in any event, is incapable of performing under the EPC contract. It is also beyond dispute that Zachry’s actions have caused, and continue to cause, immediate and substantial harm that compounds on a daily basis.”

Zachry has fired thousands of workers and stopped paying its subcontractors, according to Golden Pass.

The total damages caused by Zachry’s breaches exceed $2 billion, Golden Pass claimed in the court filing, “including liquidated damages for delay, warranty claims, performance guarantees and additional costs Zachry is imposing on Golden Pass. Zachry has not and is incapable of curing these defaults.”

Many saw the Zachry bankruptcy filing as a power play to force Golden Pass back to the negotiating table since finding a new EPC contractor would undoubtedly be more expensive and time-consuming, East Daley’s energy analysts Alex Gafford, Oren Pilant and Andrew Ware wrote July 3 in a research report. They said Golden Pass’ filing to oust Zachry went against market talk of a settlement.

As a result of the latest uncertainty related to Golden Pass’ filing, East Daley’s in-service date for Train 1 of July 2025 is at risk. The Houston-based consultancy estimates a delay at Golden Pass would remove 219 Bcf of gas demand in the first half of 2025.

Last ditch efforts and adjusted timelines

Golden Pass is located about 10 miles south of Port Arthur in Jefferson County, Texas, on the Sabine-Neches Waterway. Port Arthur is located 90 miles east of Houston on the Texas Gulf Coast.

Golden Pass’ import project started in Nov. 2003 and construction of the terminal ended in 2010. Golden Pass received its first LNG cargo in Oct. 2010 on the Al Khuwair Q-Flex ship. However, an abundance of shale gas production, especially from Texas, gave Golden Pass the opportunity to dream of a new project in 2012, which entailed adding export capacity.

The Golden Pass facilities currently include five 155,000 cu. m LNG storage tanks, two marine berths capable of offloading various sized ocean-going LNG carriers and process facilities capable of regasifying LNG to produce 2 Bcf/d of gas. Part of the export expansion project includes making modifications to the existing facilities, expanding the facility’s storm protection levee system and increasing other various safety and security assets, according to Golden Pass.

Construction at the Golden Pass export project is 75% complete, the Exxon Mobil spokesperson told Hart. This is up 10% compared to details revealed in Golden Pass’ June 18 court filing.

At that time, after nearly four and a half years of planning and construction, Golden Pass was 65% complete (in terms of physical construction), with Train 1 and the utility and export terminal facilities 83% complete, Train 2 at 46% complete and Train 3 at 31% complete.

According to the Golden Pass court filing, a claims settlement agreement provided substantial additional relief to Zachry by extending the project’s schedule and target dates for each train by 10 months before liquidation damages would be imposed. Under this agreement, Zachry would have to complete Train 1 by Sep. 30, 2024, Train 2 by May 31, 2025 and Train 3 by Nov. 30, 2025.

A third amendment again extended the project deadlines—this time by an additional 7 months for each of the trains. Under this amendment, Zachry would have to complete Train 1 by April 30, 2025, Train 2 by Nov. 30, 2025 and Train 3 by April 30, 2026.

Looking out over the short-to-medium term horizon, LNG demand is expected to continue rising as the world increasingly shifts away from coal amid an energy transition.

“Global LNG demand is great enough that offtakers will secure volumes where they can find them, and won't preclude themselves from buying from U.S. projects,” East Daley’s Pilant said.

Golden days may yet be ahead for Golden Pass.

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