Tellurian secures additional financing to weather weak LNG market conditions

Houston — Tellurian expects to raise $47.3 million through a financing arrangement with an institutional investor to give it more time to secure the remaining commercial deals it needs to advance its Louisiana LNG export project, amid weak market conditions that have been exacerbated by the coronavirus pandemic.

The Driftwood LNG developer, in announcing its financing plans, did not provide an update Tuesday on the expected timing of a final investment decision. It also did not offer an update on the status of talks with India's Petronet to finalize an up to $2.5 billion partnership deal. A preliminary agreement was reached in September 2019.

Project and commercial guidance are "very difficult to predict in this environment," a spokeswoman said in an email responding to questions. Until earlier this year, Tellurian had said it expected to begin construction in 2020, with first exports in 2023.

A wave of cargo cancellations and deferrals driven by ultra-low prices in end-user markets in Asia and Europe have hit existing LNG exporters and made it difficult for developers of new supply outlets to sign long-term deals with buyers. The Platts JKM, the benchmark price for spot cargoes delivered into Northeast Asia, made history last week, with the second half of May assessment falling below the outright Henry Hub May contract in the US.

New contracting or partnerships tied to existing or proposed US LNG projects have been reduced to a virtual standstill since the global health crisis started to accelerate in February. Falling oil prices have also contributed to the malaise in the marketplace. Cheniere Energy, Sempra Energy, Freeport LNG and NextDecade are among the operators and developers under pressure to sign commercial deals to advance proposed projects.

In its latest financing effort, Tellurian offered an investor a $56 million senior unsecured note and a warrant to purchase up to 20 million shares of company stock at an exercise price of $1.542/share, in exchange for $50 million. Tellurian's net proceeds were expected to be $47.3 million, after fees and expenses. The note will pay an interest rate of 0%, mature on June 1, 2021 and be converted to shares of Tellurian stock in the event of a default, according to a regulatory filing.

In March, Tellurian negotiated an 18-month extension of the maturity of an $87.5 million term loan that was due in May, an important first step in giving it the breathing room it needs to get through the rest of this year. The company also has shed 38% of its staff.

In conjunction with the latest financing, Tellurian reached an agreement to reduce the principal of the term loan by $17.1 million. Tellurian will pay $2.1 million in cash and convert the other $15 million into equity through the issuance to the lender of around 9.3 million company shares. The lender also will get warrants to purchase up to about 4.7 million shares of Tellurian stock.

At full development of 27.6 million mt/year, about half of Driftwood's capacity is expected to be used by equity investment partners Tellurian has been soliciting. The remaining capacity is to be retained by Tellurian to market on its own. Tellurian's only firm equity deal on the books is a $500 million commitment from France's Total.