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Tellurian is fighting for survival and keeping its Driftwood LNG export project alive, sources with knowledge of Tellurian’s current thinking have told Reuters, after the company failed to secure commercial offtake deals to underpin its final investment decision for the project.
Tellurian has been planning for years to build Driftwood LNG, a production and export terminal on the Calcasieu River south of Lake Charles, Louisiana. Once complete, the terminal would be capable of exporting up to 27.6 million tons of liquefied natural gas annually.
But failing to secure agreements and funding for the plant, Tellurian said in November that liquidity issues "raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued."
In early December came the departure of co-founder Charif Souki, who was terminated "without cause" from his position as executive chairman.
At Driftwood LNG, Souki had a different vision of how the project would monetize exports. Unlike other LNG export projects, which are underpinned by long-term offtake agreements with customers that lead to final investment decisions, Driftwood LNG would own gas wells in Louisiana, transport the gas, liquefy the gas, and sell it under agreements pegged to international indexes—making those sales vulnerable to downcycles or muted international natural gas prices.
This business model failed to attract enough customers. In fact, Shell, Vitol, and Gunvor have all withdrawn as potential customers of LNG from the Driftwood project over the past year and a half.
Earlier this week, Tellurian said it had asked its financial advisor, Lazard, to explore opportunities for the sale of Tellurian’s upstream business in the Haynesville shale.
“By unlocking the full value of these high-quality assets, we aim to substantially reduce our debt, further reduce our general and administrative expenses, and provide additional cash, enabling us to develop Driftwood LNG,” CEO Octávio Simões said on Tuesday.
“Currently, this approach is more attractive than issuing equity to fund our 2024 development activities and working capital needs.”
According to one of Reuters’ sources, Tellurian’s top priority now is to boost liquidity and reset commercial relationships and contracts to potentially get better deals for Driftwood LNG.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com