Tellurian Inc. (TELL) is a Houston-based energy company focused on developing a portfolio of liquefied natural gas (LNG) marketing and infrastructure assets, including the Driftwood LNG terminal and associated pipelines. The company has navigated a challenging operating environment in recent years, but remains committed to advancing its flagship Driftwood project and strengthening its financial position.
Business Overview and History Tellurian was founded in 2016 with the goal of establishing a competitive LNG enterprise and effectively supplying natural gas to customers worldwide. The company’s core asset is the Driftwood LNG project, an approximately 27.6 mtpa LNG export facility and associated pipeline network located in Calcasieu Parish, Louisiana. In 2017, Tellurian entered into a lump sum turnkey agreement for the engineering, procurement, and construction of the Driftwood LNG Phase 1 liquefaction facility. However, the project has faced challenges, including delays and cost overruns.
To support its operations and development activities, Tellurian has taken various financial measures. In 2021, the company raised significant capital through a registered public offering of $50 million aggregate principal amount of 8.25% Senior Unsecured Notes due 2028. Additionally, Tellurian secured an uncommitted trade finance credit line for up to $150 million to help finance the purchase of LNG cargoes.
Despite the challenges, Tellurian has continued to make progress on the Driftwood Project. The company has driven over 14,000 piles at the site and made progress on concrete foundations for critical equipment. Tellurian has also secured the FERC certificate for its pipelines and advanced the fabrication of compressors for the pipeline infrastructure.
In December 2023, Tellurian’s co-founder and former Chairman Charif Souki was removed from his executive and managerial roles, though he remains on the Board of Directors. This change was not attributed to any material or unexpected financial events.
Financials and Liquidity Tellurian’s financial performance has been impacted by the challenging market conditions in recent years. For the full year 2023, the company reported revenue of $166.13 million, a net loss of $166.18 million, operating cash flow (OCF) of -$11.19 million, and free cash flow (FCF) of -$328.69 million.
The most recent quarter (Q2 2024) showed a significant decline, with revenue of $0, net income of -$139,787,000, OCF of -$34,660,000, and FCF of -$58,353,000. Year-over-year (YoY) growth was not applicable as there were no revenues in the current quarter.
Despite these headwinds, Tellurian has taken steps to strengthen its balance sheet and liquidity position. In June 2024, the company closed the $260 million sale of its upstream assets to Aethon Energy Management, using the proceeds to retire $230 million in senior secured debt. This transaction significantly improved Tellurian’s financial flexibility as it continues to advance the Driftwood project.
As of June 30, 2024, Tellurian had total assets of $939.7 million, including $19.15 million in cash and cash equivalents. The company’s total debt stood at $134.2 million, down from $361.4 million at the end of 2023, reflecting the impact of the debt retirement. The debt-to-equity ratio as of June 30, 2024, was 0.2418322449001664.
Tellurian’s liquidity position is further supported by an uncommitted $150 million trade finance credit line, of which no amounts were drawn as of June 30, 2024. The company’s current ratio and quick ratio both stood at 0.27205098970112707, indicating potential short-term liquidity challenges.
Tellurian has also explored options to refinance its remaining debt and improve its liquidity, including amending the terms of its senior secured notes and senior convertible notes in early 2024. These actions have provided the company with greater financial flexibility as it navigates the current market environment.
Driftwood LNG Project Progress and Commercialization The Driftwood LNG project remains Tellurian’s primary focus, and the company has made steady progress on its development despite the challenging market conditions. The Driftwood terminal is planned to have a liquefaction capacity of up to approximately 27.6 million tonnes per annum (Mtpa) and is being constructed on approximately 1,200 acres in Calcasieu Parish, Louisiana.
As of June 30, 2024, Tellurian has capitalized approximately $553 million and $48.6 million in construction costs for the Driftwood terminal and related pipelines, respectively. The company currently estimates the total cost of the Driftwood Project to be approximately $25 billion, including owners’ costs, transaction costs and contingencies, but excluding interest costs incurred during construction and other financing costs.
In addition to the construction milestones and regulatory approvals mentioned earlier, Tellurian has continued to advance the commercialization of the project. In May 2024, Tellurian announced that it had entered into a Heads of Agreement with Aethon Energy for the sale of 2 mtpa of LNG from the Driftwood facility. This agreement, alongside the previously announced upstream asset sale to Aethon, demonstrates Tellurian’s ability to secure strategic partnerships and generate value from its portfolio of assets.
The company has also been in ongoing discussions with other potential customers and partners regarding additional offtake agreements and project financing for Driftwood. While the current market environment has posed challenges, Tellurian remains confident in the long-term viability and competitiveness of the Driftwood project.
Risks and Outlook Tellurian’s business faces several key risks, including the continued volatility in natural gas and LNG markets, potential delays or cost overruns in the Driftwood project’s construction, and the company’s ability to secure sufficient financing and commercial agreements to support the project’s development.
The company’s recent actions to improve its balance sheet and liquidity position have helped mitigate some of these risks, but Tellurian continues to navigate a challenging operating environment. The company’s ability to successfully commercialize the Driftwood project and secure additional customer offtake agreements will be crucial to its long-term success.
It’s worth noting that Tellurian has generated losses and cash outflows from operations, and has not yet established an ongoing source of revenue sufficient to fund its working capital needs and obligations. This raises substantial doubt about Tellurian’s ability to continue as a going concern. To address this, management is seeking to alleviate the situation by closing a merger with Woodside Energy, which has agreed to provide a bridge loan to fund the company’s ongoing operations and Driftwood Project construction activities.
Despite these challenges, Tellurian remains optimistic about the project’s long-term potential. The company’s CEO, Octávio Simões, has stated that Tellurian is “laser-focused on bringing Driftwood to final investment decision” and believes the project can be a “competitive LNG enterprise” that effectively supplies natural gas to customers worldwide.
Conclusion Tellurian Inc. (TELL) has faced significant headwinds in recent years, but the company has taken important steps to strengthen its financial position and advance its Driftwood LNG project. While the current market environment poses ongoing challenges, Tellurian’s commitment to the Driftwood project and its efforts to secure strategic partnerships and additional financing demonstrate its determination to create value for shareholders over the long term. The company’s ability to navigate its financial constraints and successfully bring the Driftwood project to fruition will be critical factors in determining its future success in the competitive LNG market.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.