After recent weeks of new legal filings and accusations exchanged by San Antonio contractor Zachry Holdings Inc., its joint venture partners and two oil and gas giants in a battle over payments, layoffs, stalled work and project leadership at the estimated $10.5-billion Golden Pass liquefied natural gas export terminal expansion project in Texas, settlement talks appear to be underway, according to court documents and company statements. 

Proposals to resolve the standoff were submitted last month to a Houston federal court as part of bankruptcy proceedings Zachry began in May for the corporation and 20 units—citing “significant financial strain” from ongoing cost and schedule disputes on the project near Port Arthur in which owners Qatar Energy and ExxonMobil have 70% and 30% respective stakes. Zachry is the project lead contractor, with joint venture partners McDermott International and Chiyoda Corp.

Work, estimated to be more than 75% complete, involves a three-plant addition that is set to produce 18 million metric tons annually of LNG. 

Following an operations halt that led to thousands of jobsite layoffs, work slowdowns and blame attributed to both sides, attorneys for the contractor and owners in a June 27 hearing “were re-engaged in productive discussions to reach a global resolution,” says a source close to the negotiations. They seek more time to settle the major dispute without judicial intervention and before a final bankruptcy court hearing set for Aug. 12.  

“We’re all going to work as hard as we can between now and then to try to make a hearing unnecessary,” said Louis Strubeck, a Golden Pass project attorney. “We have some issues to work out … in a really complicated situation,” he said. "Much work remains to be done,” but there was “some pretty good progress,” said Zachry attorney Bojan Guzina.

'Substantial Harm'

It is beyond dispute that Zachry has abandoned the LNG facility and, in any event, is incapable of performing under the … contract,” said a June 18 Golden Pass filing that seeks an emergency court order to remove Zachry from the site. “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 order is needed so Golden Pass owners and the remaining contractors “can begin the work of rehiring as many workers and subcontractors … and stop the damage,” the filing says, claiming “purposeful and vindictive steps” by Zachry to harm the project—including stopped payments for critical workforce and equipment support, abandoned work on a critical levee and safety hazards. The order notes the revenue impact of stalled work.

“The scale and complexity of facility components left partially completed and exposed to the elements can't be understated," the filing says. “Zachry continues to attempt to hold the EPC contract hostage rather than agree to transfer any progressive scope of work necessary … to start the process of bringing back thousands of workers and scores of vendors and subcontractors.” Golden Pass claims the actions have caused damage that exceeds $2 billion. Chiyoda supported the emergency order in a separate filing.

But in a June 25 court filing, Zachry says it learned in April that Chiyoda and McDermott had formed its own joint venture and were recruiting the former lead firm’s subcontractors, also noting rumors of financial incentives awarded to continue work. 

Zachry also notes “no justification” for the emergency order, asserting that the contractor “made all necessary arrangements” to ensure project integrity and workforce safety. “Any alleged harm to Golden Pass while [the Zachry companies] use the time allotted by statute to make the decision to assume or reject the EPC contract is purely economic and of [the owner's] own making,” the contractor filing says. It seeks a hearing delay until near the end of September.

'Appropriate Compensation'

In a separate filing, Zachry Industrial EPC operations director Alan P. Fagan, who has led project work since 2018, says the contractor “has been working cooperatively” with Golden Pass and the other JV partners to transition former workers. 

But in a statement, Zachry says it expects "to receive fair and appropriate compensation" for its role in the construction joint venture, stressing the unlikelihood "of an amended EPC contract and … a structured exit to be the most likely outcome by the time [the firm] is exiting bankruptcy "

A late June Zachry court document also wants new documents and financial data from ExxonMobil, Qatar Energy and remaining site contractors for review because of “potential fraud.” 

But Zachry also faces a separate lawsuit filed by a former worker who claims her termination after the bankruptcy filing, and that of about 4,000 others reported to the state, were done without 60 days notice as required by Texas law. The suit, which seeks compensation, aims to become a class action. In a statement, the contractor says it is "aware of its obligations under the [law] and believes it was in compliance with those requirements. As we have noted previously, the recent layoffs are the direct consequence of the failure of Golden Pass and its shareholders to act in good faith or follow through on their commitments." 

Zachry says the issues forced the Chapter 11 filing "in order to protect its business, which is otherwise very strong." 

Golden Pass owners have not updated anticipated timeframe impact of the dispute on export terminal startup, but analysts had speculated first train operation by the end of next June, with trains two and three in December 2025 and March 2026, based on regulatory filings, Reuters said in June

Golden Pass also has asked the Federal Energy Regulatory Commission to allow it to speed work on a related gas pipeline and compressor station project, requesting 24/7 work schedules for some construction functions through Jan. 31, 2025, and an increase in peak workforce to 650.


Update: Court Temporarily Halts Biden LNG Pause 

The developer of another large LNG export terminal project on which Zachry is contractor, Plaquemines in Port Sulphur, La., has asked FERC for permission to add natural gas to a turbine generator as it nears anticipated service start later this year.  The first 1.8-billion-cu-ft-per-day phase of the project, being developed by Venture Global, is set for completion from 2024 to 2026, says Reuters based on analysts' reports. The second 1.2-bcfd phase would finish from 2025 to 2026. Plaquemines LNG has been described as a 20-million ton per year, $21-billion project.

FERC also approved on June 27 construction of the Calcasieu Pass 2 (CP2) project near Lake Charles, La., being developed as well by Venture Global. It is adjacent to the firm's Calcasieu Pass LNG facility. The developer has said it expects to spend more than $10 billion on the two projects and selected Australia-based Worley last year as EPC contractor for CP2. 

The FERC approval, anticipated since last year, came in a 2-1 vote but was opposed by Democratic commissioner Alison Clements who left the agency at the end of June. New commissioners, representing both parties, will join FERC for upcoming oil and gas project votes.

But CP2 still awaits separate gas export approval by the U.S. Energy Dept., a review that the Biden Administration paused in early 2024 for shipments to non-free trade agreement countries from that facility and others not yet approved or already in construction, while the agency studies development impacts on climate change. 

Other major projects likely affected are the 13.5-million ton per year Port Arthur phase 2 in Texas being developed by Sempra Infrastructure and the 9.3-million-tpy Commonwealth LNG in Cameron Parish, La.

But on July 1, a federal court judge in Lake Charles issued a preliminary injunction against the pause, in a legal challenge by 16 states with Republican governors. It is not clear how soon the project export reviews will resume in advance of a final court ruling on case merits.

DOE disagreed with the injunction in a statement and said it “continues to review the court’s order and evaluate next steps.”

Venture Global did not announce the FERC approval of CP2 on its website but said in a statement that offsite construction is underway.