Is Tellurian Going Out Of Business? Tellurian Inc. faced a setback when it withdrew a $1 billion high-yield bond sale. This move has cast uncertainty over the future of its U.S. natural gas export project. Remarkably, as of the end of the third quarter, the company held $210.8 million in cash and carried no debt.
Whether Tellurian is on the brink of going out of business, but the answer remains uncertain. As a Motley Fool article indicates, Tellurian continues to be a high-risk, high-upside bet, relying not only on international natural gas demand. But also on its ability to secure favorable financing terms.
Another Motley Fool article highlights the ambiguity surrounding Tellurian’s path forward. The company’s ability to finance the substantial project remains unclear. It left investors and industry observers in suspense.
Tellurian views its Driftwood LNG project in Louisiana. The Executive Chairman Charif Souki explained to S&P Global Commodity Insights as the last major proposed US LNG export project with a real chance to supply global buyers by the decade’s end. This follows recent final investment decisions (FIDs) by rival project developers.
The recent FIDs, including NextDecade’s decision. It aimed to build the first phase of its Rio Grande project in Texas. This has occurred as Tellurian seeks equity investors. So that it can advance the Driftwood project and deliver LNG by 2027. Souki emphasized patience in securing deals. It benefits Tellurian shareholders, stating, “There’s no rush.” He noted that Driftwood is uniquely positioned to meet the supply-demand imbalance.
Driftwood, with permits in hand, could initially produce about 11 million mt/year. It expanded to 27.6 million mt/year. Tellurian expects to own 45% of the first phase and fully own the expansion. Tellurian is in discussions with two types of counterparties:
- International buyers seeking cost-effective American gas access
- American producers who want global pricing exposure
Souki remains confident in Tellurian’s approach. He cited that “Other projects’ progress indicates available capital for multibillion-dollar energy projects. Thanks to contributions from financial institutions and large energy companies.”
In 2023, three U.S. projects reached FID:
- The first phase of Rio Grande (17.6 million mt/year)
- The second stage of Venture Global’s Plaquemines project (20 million mt/year)
- The first phase of Sempra’s Port Arthur project (13 million mt/year).
Tellurian differs from other U.S. developers as it is not seeking long-term gas buyers who aren’t investing in Driftwood. Most rely on long-term offtake agreements so that they can secure financing. While Tellurian has just one remaining firm offtake agreement with Gunvor. Later, it could be terminated. Tellurian says it’s raised about $2 billion in mezzanine financing. It aims to secure $7 billion in bank financing. Partners are needed to ensure the remaining $2 billion equity for the first phase of Driftwood.
Construction of Driftwood began in March 2022, but financing challenges have slowed progress. However, Souki remains optimistic. He noted that the opportunity and demand for American gas persist.
“The site is not going anywhere,” Souki said. “The opportunity is not going anywhere. America will continue to produce gas, and the world will continue to need it. At the moment, there’s no urgency to rush.”
About Tellurian Inc.
Tellurian Inc. is a natural gas company based in Houston, Texas. It was established in 2016 by Charif Souki and Martin Houston. Octávio Simões currently serves as the President and CEO of the company.
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History
Charif Souki, the former founder and CEO of Cheniere Energy. He founded Tellurian after being ousted from Cheniere. Souki brought ambitious expansion plans to Tellurian. It aimed to undercut rivals, including Cheniere, by 15 to 20 percent. The company recruited several former Cheniere executives, including Meg Gentle, the former Cheniere marketing EVP.
In August 2016, Tellurian entered into a merger agreement with petroleum company Magellan. It was its early step in the energy industry. French oil and gas company Total also invested as it purchased a 23 percent stake for $207 million in December 2016. After a year of operation, Tellurian went public on the NASDAQ under the ticker symbol “TELL.”
In 2017, Tellurian acquired $85 million of shale assets in Louisiana. Later, it became the first U.S. developer to produce its fuel for export.
Driftwood LNG
Tellurian’s flagship project was the Driftwood LNG facility. It was located on the west bank of the Calcasieu River, south of Lake Charles, Louisiana—the project aimed to produce 27.6 million tonnes of LNG annually for export. Total agreed to purchase 2.5 million tonnes of LNG from Driftwood in July 2019. The project had an estimated cost of $30 billion, with a fixed-price contract from Bechtel. It garnered support from Total, Vitol, and India’s Petronet.
Challenges and Lawsuit
Towards the end of the decade, Tellurian faced various challenges, including:
- Delays in Driftwood’s construction
- Declining fuel prices
- US-China tensions
- The impact of the COVID-19 pandemic, particularly on major LNG importers like China
These difficulties led to a significant drop in Tellurian’s stock price. It resulted in a 40 percent reduction in staff in 2020.
Tellurian also became embroiled in a lawsuit with Carl Icahn and Cheniere. Souki had provided to Martin Houston’s Parallax Enterprises. Cheniere alleged that Souki used these loans. So that it can establish Tellurian, or it can be claimed that Souki stole early plans for Driftwood. Tellurian countered that the loan was void. Driftwood was a distinct and more extensive project. Cheniere had breached its contract with Parallax by withdrawing the funds. The lawsuit, which had been ongoing for years, was dismissed in 2020 before going to trial.
Business Partner with Shared Ownership
In the cases of Rio Grande and Port Arthur, its projects made significant progress as it announced substantial equity and offtake agreements with TotalEnergies and ConocoPhillips, respectively.
According to Charif Souki, similar deals are likely to involve companies. It shares similarities or variations of these models. He suggested. Suppose we consider the list of companies indicating a strong need for LNG in their portfolios over the next five years. The potential partners for such deals become evident.
The agreements made by Sempra and NextDecade included broader equity arrangements. It resulted in dilutions of developers’ ownership in their projects. Also, it allowed them to retain operational control.
Souki praised the approach of oil and gas majors. It emphasizes that combining offtake commitments with financial support for export facility construction is a “brilliant model.” He believes this approach represents what’s necessary to bring such projects to fruition. However, Souki expressed caution regarding broader equity deals associated with recent FID.
He emphasized that while capital is indeed available for these projects. The critical consideration is what remains for the shareholders. Souki assured its shareholders that the company would only pursue a deal that satisfied them. This commitment reflects Tellurian’s dedication to delivering value to its investors.
Debts and Liquidity
The primary challenge facing Tellurian Inc. is securing the necessary financing for its Driftwood LNG project. The company needs a realistic ability to raise the equity required for constructing the plant. Previously established long-term deals were canceled despite years of effort. Suitable financing still needs to be discovered. Even the Russia-Ukraine conflict provided a boost. It has remained the same predicament. Rising interest rates further hamper the company’s financing prospects.
Rumors suggest Tellurian is engaging in discussions with major Japanese and Indian firms and attempting to persuade them to invest in exchange for an equity share. However, prospects for success still appear dim. Other better-funded U.S. companies are keen on building LNG assets to capitalize on cost-effective natural gas production.
Attracting investors and retaining a majority stake through debt financing alone is challenging. Prevailing higher interest rates amplify this challenge. An interested investor may likely effectively acquire the company. Besides, it’s a stake in Driftwood LNG.
Notably, Tellurian aims to secure substantial project debt and equity stakes. But concrete announcements have yet to be made regarding raising this debt. Nevertheless, the company does possess revenue-generating assets.
Tellurian currently produces approximately 225 million cubic feet daily (MMcf/d) of natural gas. This production could reduce the company’s sensitivity to Henry Hub prices. The project’s existence remains essential.
The company generates roughly $320 million in annualized EBITDA. A noteworthy figure in comparison to its market capitalization of under $1 billion. With nearly 28 thousand acres at its disposal. Tellurian could opt for a strategy akin to other small-cap firms with significant project aspirations. They may focus on existing assets. While temporarily shelving the dream project, using cash and equity to acquire compelling assets while awaiting the original project’s progress.
What Is The Future Of Tellurian Stock?
Tellurian Inc. has consistently aspired to materialize the monumental Driftwood LNG project. It capitalized on the global demand for liquefied natural gas (LNG). The company’s strengths lie in its industry expertise. Or a preselected project site and the initiation of Phase 1 work. Tellurian has already invested approximately $1 billion into the area. It surpassed its market capitalization of $900 million, with plans for further expenditures. The company holds confidence that, upon completion, the project can yield substantial returns.
It’s essential to note that the mentioned investment represents Phase 1 for Tellurian. The company envisions future expansion. Also envisioning a network of plants capable of producing approximately 28 million metric tonnes per annum (mtpa) of LNG.
This would constitute roughly 30% of the current total U.S. LNG production. Or position the facility as one of the world’s largest natural gas consumers.
Tellurian Inc. Driftwood LNG project appears to face considerable challenges. Moreover, the chances of its progress are little without a fortunate turn of events. Unless a party requiring LNG sees the intrinsic value in the company’s location and preplanning efforts. The project’s prospects appear grim. This is regrettable, as it could have been a valuable long-term asset. It was practical, particularly for European energy firms.
Given the circumstances, Tellurian Inc. must urgently redefine its strategic direction or risk fading away. The company has cultivated a portfolio of natural gas assets.
Conclusion
We are still determining whether Tellurian is going out of business as the fate of Tellurian Inc. remains to be determined. Suppose the company persists in depleting its cash reserves on the Driftwood LNG project. If the project ultimately faces cancellation, the specter of bankruptcy looms large.
This risk becomes even more pronounced. If Tellurian resorts to acquiring new high-interest debt to finance the project. Numerous small-to-mid-cap firms have appeared on the horizon. They have been discussing multi-billion dollar projects for years. They are convincing a well-funded company to join forces. When they can undertake the endeavor independently, it is a formidable task. Driftwood LNG’s most valuable assets lie in its project execution experience. The fact that work has already commenced. However, these factors alone are not sufficient to garner the necessary support.