Will Tellurian Inc. find the necessary financing to move the Driftwood LNG LLC project forward? That’s the $14 billion question.
Houston-based Tellurian, which is developing the project in Lake Charles, Louisiana, is now eyeing shareholder approval to double its authorized share count as well as a potential equity injection of up to $2 billion.
The company is also working on an agreement to divest 800 acres to be used for the Driftwood terminal for $1 billion that would be leased back to the company.
Tellurian’s board is seeking “approval and adoption by the stockholders” to boost the number of authorized common shares from 800 million to 1.6 billion for certain immaterial revisions, the company revealed in an April 13 proxy statement posted on its website.
Tellurian had 563 million shares outstanding and 105 million shares subject to reserves other than for the company’s equity at-the-market offering program as of April 7, according to the proxy.
The annual stockholders meeting is slated for June 7, and the board is cognizant of the potential negative impacts from its request to boost Tellurian’s share count.
“For example, in the absence of a proportionate increase in the company’s earnings and book value, an increase in the aggregate number of outstanding shares caused by the issuance of additional shares would dilute the earnings per share and book value per share of all of the existing outstanding shares of Tellurian common stock,” the proxy said.
The share issues details come after Wilmington Trust National Association on Feb. 7 exercised its right as administrative agent pursuant to a loan agreement to become a substituted shareholder in the company, which caused 25 million pledged shares held by Tellurian Executive Chairman Charif Souki to be transferred into its account.
Tellurian envisions development of the Driftwood LNG project in two phases. Phase I could provide 11 million tonnes per annum (mtpa) by early 2026, while Phase II could provide another 16.6 mtpa, according to the company’s website.
Construction has started, but the lingering issue is getting the funding squared down.
Seeking $2 billion in equity
Driftwood LNG is considered an important U.S. export development that could help to boost LNG exports to global markets short of gas, owing to reduced flows from Russia following sanctions imposed on Moscow for invading Ukraine in February 2022.
Souki, who was responsible for Sabine Pass and Corpus Christi LNG projects, says the estimated cost for Driftwood LNG Phase I would be around $14 billion.
In a global environment of $14 MMcf to $15 MMcf gas prices today and a price of around $2 in the U.S., the margin is sufficient to finance a project, Souki said on April 13 from New York in a video interview with Bloomberg.
“We’re down to looking for the last $1.5 billion-$2 billion, that will happen sometime pretty soon,” Souki said, adding that the funding would come from equity partners.
In recent months, Souki has cited partners and funding as key headwinds.
Divestment and leaseback
Tellurian recently entered into a binding letter of intent (LOI) with an unnamed New York-based institutional investor for the sale and leaseback of approximately 800 acres of land owned and/or leased by Driftwood. The acres were to be used for the proposed LNG terminal, Tellurian said on April 4 in a Form 8-K release.
The deal would include the divestiture of the acres by Driftwood for $1 billion upon closing of a 40-year lease. The lease would have a capitalization rate of 8.75%, an annual rent escalator of 3% and require Driftwood to post a letter of credit equal to one year of rent.
The LOI envisions both parties will finalize the purchase agreement and master lease on or before July 14, according to the release.
“We’ve created some real value [at the site]. [Tellurian co-founder] Martin [Houston] and I bought this site six years ago for about $30 million and today it is worth a lot more than that,” Souki said in a Tellurian video posted on the company’s website on April 10.
2023-08-28 - To attract capital back into the sector, the largest oil and gas companies are spending less on exploration and development and more on shareholder returns. How long can they keep the gravy train rolling in different commodity cycles?
2023-08-22 - Argentina’s state-owned energy giant YPF SA boosted its total production in the second quarter, driven mainly by robust shale operations, but the company reported lower net income while its debt continues to rise.
2023-08-08 - Lab tests show that 90% of oil is still left in rock that’s drilled.
2023-08-08 - Houston-based Tellurian Inc. reported a larger net loss in the second quarter 2023 compared to the prior quarter, as well as a 11% decline in its Haynesville Shale production.