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Firm building QatarEnergy-Exxon LNG plant in Texas files for bankruptcy

Published 05/21/2024, 12:25 PM
Updated 05/21/2024, 03:50 PM
© Reuters. FILE PHOTO: Model of LNG tanker is seen in this illustration taken May 19, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
XOM
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By Curtis Williams

HOUSTON (Reuters) -The lead contractor building a Texas liquefied natural gas (LNG) plant for QatarEnergy and Exxon Mobil (NYSE:XOM) on Tuesday filed for Chapter 11 bankruptcy protection, citing challenges at the project.

Zachry Holdings, which held the lion's share of the $10 billion construction project called Golden Pass LNG, said it was pursuing a "structured exit." Exxon said it would review construction timing and provide an update in the future.

Golden Pass LNG is being built at the site of a former gas-import terminal that has been converted to process natural gas for LNG exports. It is one of two large U.S. LNG terminals whose startup will significantly expand exports in the next 12 months.

"We, along with the other stakeholders, are considering all available options to implement a smooth transition and minimize any impacts," an Exxon spokesperson said. "We plan to continue to fully support Golden Pass LNG through completion."

Exxon, which owns a 30% stake in the project, earlier this year said it expected first LNG production in the first half of 2025.

"Because we have been unable to find a path forward, we have been forced to take action to protect our business," John Zachry, CEO of the San Antonio, Texas-based company, said in a statement on Tuesday.

Zachry Holdings said it faced cost challenges over a change order and billings schedule, and it engaged in negotiations with Golden Pass LNG for additional funding without success, according to its filing in U.S. Bankruptcy Court for the Southern District of Texas.

Zachry's share of the project was valued at $5.8 billion.

Prior to April 2024, Zachry said it was incurring weekly expenses of $30 million to $40 million for payroll, vendor payments, equipment and other costs, but was receiving approximately $70 million per month from Golden Pass LNG.

“In March of this year, Golden Pass began direct-paying vendors, and clawed back much of those funds from advance progress payments due to Zachry,” the filing said.

Rival LNG developer Venture Global LNG "does not anticipate any material impacts" on work at its Plaquemines LNG export facility in Louisiana as a result of the Zachry bankruptcy filing, a spokesperson said.

Its plant is being constructed by a KBR (NYSE:KBR) and Zachry joint venture.

According to court filings, Golden Pass on May 8 notified Zachry of default of its engineering, procurement and construction contract, citing, among other factors, Zachry’s inability to pay subcontractors and vendors promptly, the court filing showed.

Zachry that same day received a notice of default from another Golden Pass contractor, Chiyoda International, the company said. Unable to reach an agreement with Golden Pass, Zachry said it had no choice but to file for Chapter 11 protection.

© Reuters. FILE PHOTO: Model of LNG tanker is seen in this illustration taken May 19, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

Golden Pass LNG had warned earlier this month of possible impacts on construction of the first three trains of the project, which was designed to produce up to 18 million metric tons per annum of LNG. The project is one of two large LNG export plants that had been expected to expand U.S. exports in the next 12 months.

The United States is the largest exporter of LNG.

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