Tellurian weighs 'business combination' to aid upstream plan tied to Driftwood LNG

Tellurian will consider a "business combination" to ensure it has sufficient natural gas reserves to support its proposed Driftwood LNG export facility in Louisiana, Executive Chairman Charif Souki said June 29 in a podcast message to employees and investors.

The plan follows the company's announcement in March, during an interview with S&P Global Platts, that it wants to produce all the gas it will need to feed Driftwood and would not sanction the project until it had secured sufficient upstream reserves for the first phase of the terminal project.

To realize that goal, Tellurian needs to get bigger in the upstream, and faster, even as it drills more wells in the Haynesville Shale on its own acreage and in partnership with other producers. Those efforts alone are expected to almost triple Tellurian's production by the end of 2021 -- to 80 MMcf/d -- compared with the end of 2020, Souki said.

"Clearly, this is not sufficient for integrating the full picture of what we will need five years from today," Souki said. "We are in a position now to start looking seriously at a business combination that will make sense for our integrated business model."

Souki did not say whether such a combination would be limited to the production side of the company, or also include the LNG side of the company. He also did not say whether any M&A talks were underway or, if they were, with whom. A spokeswoman did not immediately respond to a request for comment.

The up to 27.6 million mt/year export facility is to be built in phases, with the first phase covering about 16 million mt/year of capacity. Tellurian is targeting to give Bechtel a notice to proceed with full construction of the terminal by the end of the first quarter of next year.

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After a two-year lull in firm commercial activity, Tellurian signed sales and purchase agreements -- a week apart in late May and early June -- with commodity traders Gunvor and Vitol for a combined 6 million mt/year of Driftwood supplies. Each of the deals cover a 10-year period, with the supply indexed to a combination of the Platts JKM and Dutch TTF, netted back for transportation charges. The LNG would be delivered on a free-on-board basis from Driftwood.

Tellurian's only other firm commercial deal tied to Driftwood that has been announced to date is a 2019 agreement with France's TotalEnergies that covers 1 million mt/year of partner volumes and 1.5 million mt/year of marketing volumes. TotalEnergies can back out of its Driftwood commitments if Tellurian does not declare a final investment decision by the end of June, which seems unlikely that Tellurian would do.

On his latest podcast, Souki did not mention TotalEnergies or ongoing commercial efforts tied to Driftwood. The Gunvor and Vitol deals, alone and assuming the TotalEnergies deal is terminated or amended, are not enough to support Driftwood's first phase.

Souki did say that in terms of the upstream, now is the time to drill for gas, with the wide spread between the US Henry Hub and prices in end-user markets in Europe and Asia.

"This is a once-in-a-lifetime opportunity to realize much greater revenues by being exposed to international prices," Souki said.