Golden Pass LNG Terminal LLC told the bankruptcy court handling Zachry Industrial Inc.’s restructuring that construction at its Texas export project could be at risk of “a near complete shut down” unless the firm is swiftly removed.
In an emergency motion filed over the Juneteenth holiday, lawyers for Golden Pass requested the U.S. Bankruptcy Court for the Southern District of Texas to “immediately reject” Zachry’s interest in the $9.25 billion engineering, procurement and construction (EPC) contract for the liquefied natural gas project (No. 24-90377, #0299).
“Zachry has abandoned the LNG facility and, in any event, is incapable of performing under the EPC contract,” according to the motion. “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.”
The San Antonio, TX-based construction firm is a part of an EPC partnership with Chiyoda Corp. and McDermott tasked with building the 18 million metric tons/year (mmty) Golden Pass project.
As the lead contractor in charge of staffing construction activities, Zachry’s financial issues and ongoing bankruptcy proceedings have prevented the remaining EPC partners from resuming large-scale construction, according to Golden Pass.
In May, Zachry laid off around 4,400 people assigned to the project. Earlier this month, Chiyoda disclosed the bankruptcy court has granted requests to allow it and McDermott to use some construction equipment still on site and pay contractors without directly involving Zachry.
However, Golden Pass claimed the remaining partners have been unable to rehire contractors and return to full-scale construction while Zachry is still part of the EPC contract.
“Immediate rejection of the EPC contract will break the logjam caused by Zachry’s inaction and allow the project to progress without this court predetermining any claims between the parties,” the Golden Pass motion noted.
A former contractor employed by Zachry also has filed a class action claim alleging the company initiated its mass layoff without proper legal notice.
Representatives with Zachry said on Wednesday that the firm didn’t intend to walk away from the project. However, they said progress has ultimately been impacted because Golden Pass hasn’t fully funded construction, according to a report by the San Antonio Express.
In May, Zachry CEO John Zachry said the challenge of keeping Golden Pass construction on track, while navigating inflationary impacts from the Covid-19 pandemic and geopolitical issues, had caused “significant financial strain” for the private firm.
In the emergency motion, Golden Pass confirmed that Zachry requested an additional $50 million in April and indicated it was “at least $200 million in arrears for vendors and subcontractors,” preventing it from continuing work on the project. A few weeks later, the firm delivered a letter to Golden Pass and the other EPC partners outlining the possibilities for its exit from the project.
“Obviously, this is a clear admission by Zachry of the reality of its own failures and the harm it has caused,” Golden Pass counsel wrote in the motion.
Golden Pass reportedly offered more than $1.4 billion in additional payments and bonuses, as well as adjusted completion timelines by 15 months, as a part of three different amendments with the EPC partnership, the company claimed.
In a recently published report of a May site inspection, FERC staff noted the anticipated in-service timing for related pipeline expansions was “expected sometime in the first half of 2025.” That timing matched guidance issued last year by Golden Pass joint venture partners ExxonMobil and QatarEnergy. However, Zachry’s bankruptcy “may impact completion timelines,” Federal Energy Regulatory Commission staff wrote.
