Business Context and Reporting Period
This Form 8-K, filed on December 18, 2017, reports on events occurring on December 12, 2017. Cheniere Energy, Inc. (the "Registrant") disclosed that its wholly owned subsidiary, Corpus Christi Liquefaction, LLC ("CCL"), entered into a material definitive agreement regarding the development of the Corpus Christi Stage 2 Liquefaction Facility near Corpus Christi, Texas.
Key Financial Metrics and Contract Terms
The filing details a Fixed Price Separated Turnkey Agreement (EPC Contract (T3)) with Bechtel Oil, Gas and Chemicals, Inc. ("Bechtel").
- Contract Price: Approximately $2.36 billion.
- Project Scope: Engineering, procurement, construction, and commissioning of one liquefaction train with an expected nominal capacity of approximately 4.5 million tonnes per annum (mtpa), one LNG storage tank, and the completion of the second berth.
- Guarantee: Bechtel Global Energy, Inc. guarantees Bechtel's obligations.
- Financial Adjustments: The Contract Price is subject to adjustment only via change orders for specific events such as changes in law, force majeure, or delays in notice to proceed.
Material Changes and Contractual Provisions
This agreement amends and replaces a previous contract dated December 6, 2013. Key material terms include:
- Performance Guarantees: Bechtel must achieve 95% of the performance guarantee by the guaranteed substantial completion date. Failure to do so triggers delay liquidated damages and a 10-month correction period.
- Liquidated Damages: Bechtel is liable for delay liquidated damages if substantial completion occurs after the guaranteed date (subject to an initial grace period) and performance liquidated damages if performance guarantees are not met.
- Schedule Bonus: Bechtel is entitled to specified bonuses for timely substantial completion.
- Termination for Convenience: CCL may terminate for convenience. If terminated prior to the Notice to Proceed (NTP), Bechtel receives $1 million to $2.5 million. If terminated after NTP, Bechtel receives work performed, demobilization costs, and a portion of the unpaid contract price (capped at $30 million).
- Termination for Delayed NTP: If CCL fails to issue the NTP by February 15, 2020, either party may terminate, with Bechtel receiving incurred costs plus a fixed $5 million.
Outlook, Risks, and Contingencies
The filing outlines significant contingencies and risks associated with the project execution:
- Change Order Risks: Bechtel is entitled to change orders for various adverse events, including subsurface soil conditions differing from geotechnical studies, discovery of hazardous materials, and third-party physical damage.
- Default and Insolvency: CCL may terminate for Bechtel default (e.g., failure to commence work, insolvency) or Bechtel may terminate for CCL default (e.g., non-payment, insolvency).
- Force Majeure: Either party may terminate if a force majeure event suspends a substantial portion of work for more than 100 consecutive days or exceeds 180 days in aggregate within a 24-month period.
- Liability Limitations: Bechtel's liability is limited under the contract, except for indemnification obligations, title warranties, and the obligation to ensure the train is ready to receive gas and produce LNG.
Investor Verification Checklist
- Verify the total capital expenditure impact of the $2.36 billion contract price on Cheniere's balance sheet and liquidity.
- Monitor the issuance of the Notice to Proceed (NTP) to ensure it occurs before the February 15, 2020, termination deadline.
- Assess the potential financial exposure from change orders related to subsurface conditions or regulatory changes.
- Review the specific daily rates for delay liquidated damages and performance liquidated damages defined in the full EPC Contract (T3).
- Confirm the status of the parent guarantee provided by Bechtel Global Energy, Inc.