Business Context and Reporting Period
This Form 8-K filing by Cheniere Energy, Inc. reports a material definitive agreement entered into on November 7, 2018. The filing concerns Sabine Pass Liquefaction, LLC ("SPL"), an indirect wholly owned subsidiary of Cheniere Energy Partners, L.P., and its engagement of Bechtel Oil, Gas and Chemicals, Inc. ("Bechtel") for the construction of the Sabine Pass LNG Stage 4 Liquefaction Facility in Cameron Parish, Louisiana.
Key Financial Metrics and Contract Terms
- Contract Price: Approximately $2.02 billion (Lump Sum Turnkey Agreement).
- Project Capacity: One liquefaction train with an expected nominal production capacity of approximately 4.5 million tonnes per annum (mtpa).
- Option: SPL retains an option to engineer, design, construct, and commission a third berth (costs excluded from the $2.02 billion).
- Termination for Convenience (Pre-Notice to Proceed): Bechtel entitled to a lump sum between $1.0 million and $2.5 million depending on the termination date.
- Termination for Convenience (Post-Notice to Proceed): Bechtel entitled to up to $30.0 million depending on the termination date.
- Delayed Notice to Proceed Termination: If the full notice to proceed is not issued by February 2, 2021, Bechtel is entitled to incurred costs plus a $5.0 million lump sum.
Material Changes and Contractual Provisions
The filing details the entry into a new EPC contract, representing a significant capital expenditure commitment for the Stage 4 facility. Key contractual mechanisms include:
- Change Orders: Bechtel may submit change orders for delays in notices to proceed (prior to July 1, 2019), changes in law, force majeure, or subsurface soil conditions differing from geotechnical studies. SPL may request change orders subject to agreement on price and schedule adjustments.
- Performance Guarantees: Bechtel must achieve 95% of the performance guarantee by the substantial completion date. Failure results in delay liquidated damages and a 10-month correction period.
- Liability: Bechtel's liability is limited as specified in the contract, except for indemnification obligations, title warranties, and the obligation to complete work to ensure the train is ready to produce LNG.
Outlook, Risks, and Contingencies
The project timeline is contingent on SPL issuing limited notices to proceed by specified dates prior to July 1, 2019, and a full notice to proceed by July 1, 2019. Failure to issue the full notice to proceed by February 2, 2021, allows either party to terminate the contract. Risks include potential cost adjustments via change orders due to delays, force majeure events, or changes in law. The filing notes that Bechtel's obligations are guaranteed by Bechtel Global Energy, Inc.
Investor Verification Checklist
- Verify the exact terms of the "Contract Price" adjustments and the specific thresholds for SPL-initiated change orders.
- Confirm the schedule for the issuance of the "limited notices to proceed" and the "full notice to proceed" to assess potential delay risks.
- Review the detailed definition of "delay liquidated damages" and "performance liquidated damages" in the full EPC Contract (Exhibit 10.1).
- Assess the financial impact of the $2.02 billion commitment on Cheniere's liquidity and debt covenants.
- Monitor the status of the option for the third berth and its potential future capital requirements.