Tellurian puts Haynesville upstream assets on the block

Feb. 6, 2024
Leaders of the company behind the Driftwood LNG project are looking to lower its debt and not have to sell stock.

Tellurian Inc., Houston, will sell its upstream natural gas business in Haynesville basin as it pushes to develop the Driftwood LNG complex on the Calcasieu River in Louisiana.

Tellurian’s upstream portfolio spans a little more than 31,000 net acres in Louisiana and Texas and has interests in 159 producing wells that in third-quarter 2023 produced 19.5 bcf of natural gas. Through the first 9 months of 2023, the assets posted a segment operating loss of more than $44 million on total revenues of $126 million. Nearly 90% of those sales were to the company’s marketing and trading group, which markets the natural gas to third parties.

In the same period of 2022, the unit produced an operating profit of more than $83 million and total sales of nearly $170 million but the steep drop in gas prices hit the company's numbers.

"We aim to substantially reduce our debt, further reduce our general and administrative expenses, and provide additional cash, enabling us to develop Driftwood LNG," chief executive officer Octávio Simões said in a statement. “This approach is more attractive than issuing equity to fund our 2024 development activities and working capital needs."

The move to sell the upstream group doesn't come without warning. Executives told investors in late 2023 that accountants had raised substantial doubts about the company’s ability to stay in business and added that selling part or all of the company's upstream operations was among the options to cover costs.

Still, Tellurian had allocated money into the division in the hopes that cash flow would help fund Driftwood, which if built will have a capacity of 27.6 million tonnes/year (tpy) of LNG. Upstream capex rose in 2022 to $347 million—a figure that included the acquisition of Ensight assets—from just $32 million the year before and from $1.3 million in 2020 (OGJ Online, July 13, 2022).

The Tellurian board has hired Lazard to find potential buyers for the upstream group. The news comes about 2 months after co-founder Charif Souki, who previously ran Cheniere Energy, was separated from his executive role and soon after resigned his board seat (OGJ Online, Dec. 11, 2023).

Shares of Tellurian (Ticker: TELL) jumped more than 30% to about $0.47 on the Feb. 6 news of the divestiture plan. They are, however, still down 75% from a year ago, a slide that has sliced the company’s market capitalization to about $330 million.