The proposed sale of LNG developer Tellurian's (TELL.A) natural gas production assets represents a move to stay afloat amid dwindling survival options, said two people familiar with the company's thinking.
Tellurian has spent years and hundreds of millions of dollars trying to finance and build the 27.6 million metric ton per annum (mtpa) Driftwood plant in Lake Charles, Louisiana. On Tuesday, it put on the market a natural gas production unit that it once dangled as an incentive for investors to invest in the plant.
The company's ability to raise new money from the stock market has shriveled with its shares trading for less than 48-cents apiece, and revenue from the gas production business drying up as prices tumbled.
It had warned investors last fall that continued losses and dwindling cash reserves might not be enough within a year to cover operating and debt costs. The going-concern warning preceded its ouster of chairman and co-founder Charif Souki.
Full-year 2023 results are due in coming weeks. They will likely show a drop in the $59.2 million in cash and equivalents it held at the end of September due to the latest drop in natural gas prices. That cash figure was a down from $474 million at the end of 2022.
The top priorities for Tellurian's management are increasing its liquidity, and reducing expenses by resetting of its commercial relationships and contracts to get better deals, said a person familiar with management's thinking.
"Driftwood is trying to reestablish commercial relationships, that is vital. They need to finalize sales contracts and sources of equity investments without which the project can't move forward," said Alex Munton, director of global gas and LNG research at consulting firm Rapidan Energy Group.
Tellurian declined to comment on any further actions it may take to change the course of its business.
The drop in natural gas prices in the last year has squeezed its revenue. U.S. gas futures on Tuesday fell to $2 per thousand cubic feet (mcf), a fresh nine-month low and less than a third of 2022's average price of $6.50 per mcf.
A sale of Tellurian's Haynesville shale assets will be only a stopgap measure. They produce a relative small, 200 million cubic feet per day, not enough to cover the billions of dollars required to complete the construction of Driftwood LNG, Munton said.
Still, Tellurian says the asset sale will give it room to maneuver.
"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 Octavio Simoes said.
