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Cameron LNG contractor pins construction delays on labor productivity, weather

The recently announced delay in building Sempra Energy's Cameron LNG export terminal is largely the result of lower-than-expected construction worker productivity, weather challenges and increased labor costs, a contractor on the project said after reporting massive losses related in part to the setback.

Chicago Bridge & Iron Co. N.V. CEO Patrick Mullen said during an Aug. 9 earnings call that the engineering, procurement and construction contractor has lowered its expectations moving forward and is seeking money to offset second-quarter charges attributed to the Louisiana LNG project and another LNG terminal it is building in Texas.

"We are working with Cameron LNG towards a finalized schedule and are also beginning to engage in discussions regarding claims for extension of time and recovery of certain costs," Mullen said.

Before the call, Chicago Bridge & Iron, or CB&I, reported $367 million in charges related to the Cameron and Freeport LNG export terminals, with the bulk of the costs attributed to Cameron. CB&I is building Cameron as part of a joint venture with Chiyoda Corp. CB&I shares were down 32% in late morning trading Aug. 10.

"Obviously, the cost impacts that we've taken into account this quarter represent a variety of things," Mullen said. "But I just want to reiterate that a lot of the key factors in cost, especially in construction, revolve around labor and labor productivity, and we have significantly moderated our expectations going forward, particularly on the first train."

Sempra reported Aug. 4 that the first liquefaction train at Cameron would not enter service until 2019, with the second and third following later that year. The company had previously expected trains 1, 2 and 3 to come online in mid-2018, late 2018 and mid-2019, respectively, but pushed back the timeline after conducting its own review of the project.

When asked on the CB&I call whether the contractor agrees with Sempra's new timeline, Mullen said the companies are "pretty close to that point of agreeing" but they have not "fully agreed."

Sempra executives had also noted the contractor's request to be paid beyond the amount defined in the lump-sum agreement, though they declined to disclose the amount. "I'm not going to go into the specifics of the dollars, because we do not have enough information to even review it, audit it or anything else," Joe Householder, Sempra's corporate group president of infrastructure businesses, said on the company's Aug. 4 earnings call.

Tudor Pickering Holt & Co. said in an Aug. 10 note that it was "unclear [on] the magnitude of CB&I's 'ask'" and that "the uncertainty around who is responsible for the potential higher costs will likely be an overhang for [Sempra] going forward."

The energy-focused investment bank added that it was concerned about the risk of further delays given the lack of a finalized schedule.

Sempra has maintained that the project's partners bear the brunt of the risk. The $10 billion liquefaction and export terminal is being developed by a joint venture that includes Engie, Mitsui & Co. Ltd. and Japan LNG Investments LLC, which are also the project's off-takers.