Zachry Holdings Inc. is no longer prime contractor for the Golden Pass liquefied natural gas export terminal near Port Arthur, Texas, under an interim agreement with project owners ExxonMobil and Qatar Energy and co-contractors McDermott International Inc. and Chiyoda International Corp. approved July 24 by a federal bankruptcy judge in Houston.
The deal, while still subject to final court approval that could come in August, resolves months of legal charges and several years of difficult relations between the parties over costs, payments, major layoffs and stopped work on the megaproject of LNG estimated at $11 billion. The problems prompted Zachry to file for bankruptcy proceedings in May for the corporation and the 20 units, citing “significant financial strain” from ongoing cost and schedule disputes. The owner, Golden Pass LNG LLC, later filed for an emergency court order to remove the contractor from the site.
The ownership entity is 70% owned by Qatar Energy Inc. and 30% of ExxonMobil.
The settlement releases Zachry’s 52 percent interest in the project contract and allows McDermott and Chiyoda to immediately take over work to complete the project under a new contract, the July 19 court filing said. McDermott and Chiyoda had respective stakes in the project of 22% and 20%. The former team has worked on the project since 2019. The work, which is estimated to be more than 75% complete, involves the construction of a three-story facility that will produce 18 million metric tons per year of LNG for export.
“At dusk tonight, Zachry will no longer have any control or right to direct the project,” U.S. Bankruptcy Court Judge Marvin Isgur said at a July 24 hearing on the settlement.
Originally due for completion by the end of this year, its first train is expected to run next June, the owner previously said, with no further update.
After an operations shutdown that led to thousands of workplace layoffs and blame placed on both sides, attorneys for the contractor and the owners began settlement talks in June.
Under the agreement, Zachry would receive payment from Golden Pass LNG to begin exiting the project within five days of Isgur’s approval. The amount was redacted from the filing, as was the amount of the owner’s obligation to cover Zachry’s payments to vendors and subcontractors. The pact releases Zachry from claims on the project, with the contractor also agreeing to end its pending lawsuit against Golden Pass LNG and legal claims against McDermott and Chiyoda.
Zachry said he has already made a significant investment of time and money in the legal issues “before a single document has been produced or a single witness has been testified.” The settlement filing said the case would have taken “months if not years to litigate,” not including a potential appeals process.
The agreement also entitles Golden Pass to exercise its rights of interest on a $213 million letter of credit issued by Bank of America on behalf of Zachry, while the contractor has agreed to transfer equipment from the site to Golden Pass free of charge.
The agreement “fully resolves all financial and legal disputes between the parties … and allows Golden Pass to resume construction on an expedited basis,” Zachry said in a statement, as the company exits the project and accelerates its process bankruptcy restructuring. The company’s president and CEO, John B. Zachry, said the company will complete the process in the fall.
In its statement, Golden Pass said the deal allows the owner, McDermott and Chiyoda to “increase site construction activities and advance our LNG terminal.”