A long-running legal dispute over proposed multibillion-dollar LNG projects between LNG exporter Cheniere Energy Inc. and rival startup Tellurian Inc. will continue into 2019 after a ruling from a Texas appellate court.
The dispute involves multiple claims and counterclaims stretching back to 2016, after former Cheniere CEO Charif Souki was forced out the previous year by billionaire activist investor Carl Icahn. Souki went on to co-found Tellurian, which is developing the proposed Driftwood LNG terminal in Louisiana and is considered to be among the front-runners in a second generation of LNG export hopefuls seeking to commercially sanction projects in 2019. The conflict is related to projects in Louisiana proposed by Cheniere and Parallax Enterprises, a predecessor entity to Tellurian that was a business partner of Cheniere.
The latest development came from Texas' 14th Court of Appeals, which ruled Dec. 27, 2018, that a trial court wrongly prevented Cheniere from initiating foreclosure proceedings a year earlier against Parallax Enterprises' interest in a subsidiary. The appellate court reversed the trial court's injunction order and sent the case back to the Houston trial court, where a trial is scheduled for June. The appellate court did not review the underlying merits of the case in reversing the injunction on technical grounds. (Texas 14th Court of Appeals docket 14-17-00982-CV)
Cheniere accused Parallax of failing to pay back a $46 million loan for developing LNG projects that Cheniere said Tellurian would ultimately benefit from. Tellurian has said those efforts, the proposed Live Oak LNG and Louisiana LNG facilities, were separate from its own Driftwood LNG venture.
Souki's ouster from Cheniere followed disagreements over his expansion plans, including the Parallax projects. Within months of leaving Cheniere, Souki announced Tellurian, founding it with former BG Group PLC COO Martin Houston. Parallax Enterprises was founded by Houston in late 2014 following discussions with then-Cheniere CEO Souki about the development of midscale LNG facilities, according to court documents. Houston is one of the Parallax principals named in Cheniere's lawsuit.
The collapse of the partnership between Parallax and Cheniere, followed by the lawsuit, spelled the end of Parallax.
Cheniere has alleged that Tellurian misappropriated liquefaction business opportunities Cheniere was developing with Parallax.
"Upon the formation of Tellurian — which took over Parallax Enterprises' office space and continued its business under a new name — the individual defendants began pursuing that same business opportunity through Tellurian," Cheniere said in court documents. "The individual defendants (and Tellurian) thus reaped the benefits of tens of millions of dollars of development work that [Cheniere LNG Terminal LLC] financed, while … shirking Parallax Enterprises' obligation to repay any portion of the substantial funds [Cheniere] had loaned to it to pay for the work and … placing out of [Cheniere's] reach Parallax's assets pledged to secure the financial obligation under the secured note."
Parallax argued that its relationship with Cheniere was a "joint venture and agreement" to develop the pair of LNG projects, according to court documents. After the agreement collapsed, Parallax sued Cheniere, alleging a breach of contract, among other claims. Parallax said the $46 million payment was "a capital investment in the two projects" instead of "enforceable debt."
Parallax also contended that additional funds were due from Cheniere and that once development stopped on the two projects, Parallax was left owing millions to third parties.
"In short, Cheniere contends the individual defendants formed Tellurian to 'take over' the Live Oak project after Cheniere abandoned it," Parallax parties said in court documents. "Cheniere is wrong on the facts, which show that Tellurian's 'Driftwood' project is not the same project Live Oak was pursuing."
Cheniere countersued, claiming Parallax was required to repay what it called a loan under a "secured note." Cheniere also sought to start foreclosing on the interest Parallax had in Live Oak LNG LLC, contending it was collateral on the secured note. Parallax succeeded in arguing that the trial court should issue a temporary injunction to stop the foreclosure sale, pending trial.
Cheniere declined to comment about the case. In past regulatory filings, the company said, "We do not expect that the resolution of this litigation will have a material adverse impact on our financial results."
Tellurian also declined to comment. In its regulatory filings, Tellurian said, "We believe that Cheniere's claims against Tellurian Investments, Driftwood LNG, Driftwood Pipeline and Tellurian Services are without merit and do not expect the resolution of the suit to have a material effect on our results of operation or financial condition."