Tellurian's India talks take on heightened interest amid looming debt maturities

Houston — As Tellurian executives were in India on Monday trying to seal a deal with Petronet to take an equity investment in their Driftwood LNG project, their Houston-based company faced a looming cash crunch at home.

Tellurian does not have sufficient cash on hand or available liquidity to repay an $87.5 million loan and related interest due May 23 or fund future operations, and it has not yet satisfied certain conditions that would allow it to extend the loan for up to 12 months, it said in a filing with the Securities and Exchange Commission. The company is looking to raise additional capital through new financing transactions, and it expects to remain solvent for the rest of the year. Another $64.1 million in loans are scheduled to mature next year and in 2022.

Company shares fell 9.3% in New York trading, amid an overall selloff on Wall Street due to increasing fears about the economic impact from the coronavirus outbreak. Combined with global oversupply concerns and record low LNG prices and weaker-than-expected demand in Asia, there are significant challenges facing US producers and developers such as Tellurian that are looking to add terminals or trains.

A successful tie-up with Petronet would be a boost for Tellurian, as it is looking to make a final investment decision and begin building the first phase of its up to 27.6 million mt/year liquefaction facility in Louisiana later this year. Startup is targeted for 2023.

A memorandum of understanding reached between Tellurian and Petronet in September 2019 calls for the Indian company to negotiate taking an up to $2.5 billion stake in the holding company that includes Driftwood and four pipelines that Tellurian has proposed to build. If finalized at the top end, Petronet would get the rights to 5 million mt/year of supply from Driftwood.

Over the weekend, Tellurian CEO Meg Gentle and Chairman Charif Souki traveled to India to meet with officials in hopes of completing the transaction on what would effectively be an accelerated timeline, as the target previously announced was by the end of March. As of Monday afternoon in the US, a final deal had not yet been reached. The LNG talks coincided with President Donald Trump's visit to India to meet with Prime Minister Narendra Modi to discuss economic ties between the two countries. The US secretaries of energy and commerce were scheduled to be part of the delegation.

Based on 5 million mt/year, Petronet would be responsible for underwriting $5 billion of Driftwood's total project debt.

Petronet -- a joint venture formed by the Indian government that is sponsored by state-controlled energy companies Gail, Oil & Natural Gas Corp., Indian Oil and Bharat Petroleum Corp. -- has been exploring the possibility of making an equity investment in Driftwood for more than a year.

CONTRACTING CHALLENGES

Tellurian has been talking to other potential partners as well, in an effort to add to the $500 million investment France's Total agreed to last year. Those talks include a partner or partners that is discussing taking a $2 billion stake in Driftwood LNG, covering the right to lift a total of 4 million mt/year of supply from the terminal.

In the SEC filing, Tellurian reported a wider loss and a significant cash drain in 2019 compared with 2018.

Neither trend is unusual for greenfield LNG project developers in the US during the years before startup, though the recent industry challenges have increased the market's attention on how much cash companies have on hand to stay in the field. Australia's LNG Limited warned January 31 that it must immediately raise new sources of cash to continue operating normally amid challenges securing sufficient commercial agreements to advance its Magnolia LNG export project in Louisiana to construction.