Tellurian ready to fill out upstream portfolio to support Driftwood LNG in Louisiana

Tellurian is ready to fill out its upstream portfolio to support its business plan for its proposed Driftwood LNG export project in Louisiana, after recently completing a meeting of company officials to discuss gas market trends, Executive Chairman Charif Souki said Aug. 17.

In the past, the company has said its upstream plan could mean buying up more acreage in the Haynesville Shale, or entering a "business combination" that would allow it to expand its drilling territory.

With sufficient offtake agreements in place to support the first phase of the up to 27.6 million mt/year liquefaction project, Tellurian still must obtain financing for construction of the terminal. One component of those discussions is Tellurian securing enough drilling reserves to support its plan to produce the gas to feed the facility.

"One more thing to do, basically increase our footprint upstream," Souki said in a podcast posted on the company's website. "We're in an excellent position to do so. We have plenty of cash, a couple hundred million dollars on the balance sheet, to help do that."

Based on its current drilling program in the Haynesville, Tellurian expects to have close to 100 MMcf/d in production by year's end, three times the volume it was producing at the end of 2020. The company has previously said it would need to control about 1.5 Bcf/d to reach its goal, though that was before it proceeded with a smaller project first phase than it once considered.

Higher prices

During the podcast, Souki did not offer specifics on any upstream transactions that may be coming. He did say that elevated domestic gas prices offer an additional incentive to increase Tellurian's drilling program.

"Since we have no debt and no hedges, we benefit from the full pricing increase," Souki said.

US Henry Hub forward prices for the balance of summer and next winter remain at highs not seen in years, boosted by stagnant gas production, robust export demand and below-average storage levels.

Although the most recent EIA weekly storage report Aug. 12 interrupted the streak of above-$4/MMBtu prices recently observed for the front-month contracts, the balance of summer settled at $3.84/MMBtu Aug. 17, according to preliminary settlement data from CME Group. The prompt winter strip appeared similarly bullish compared to year-ago expectations of $3/MMBtu for the 2020-21 winter strip, settling at $3.86/MMBtu Aug. 17.

Full dispatch

Even with higher domestic gas prices, a wide spread between the Henry Hub and prices in end-user markets in Asia and Europe has kept existing US LNG export operators at near full dispatch for months.

Following 10-year agreements with Gunvor, Vitol and Shell, total offtake commitments to Driftwood LNG now stand at 9 million mt/year, just shy of the expected 9.2 million mt/year two-plant first phase of the project. Each plant is expected to have up to four liquefaction trains.

Tellurian has said it is targeting to give contractor Bechtel a notice to proceed with full construction of the LNG terminal by the end of next year's first quarter.