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Infusion from giant Total to help fledgling Tellurian secure 1st LNG project

The massive balance sheet of Total SA should help Tellurian Investments Inc. when it comes time to nail down financing for the proposed 26-million-tonnes-per-annum Driftwood LNG liquefaction and export terminal, analysts said.

Total and Tellurian said Dec. 20 in a joint statement that Total will buy a 23% stake in Tellurian for $207 million in order to help secure U.S. natural gas supply and deliver LNG from the Driftwood LNG terminal proposed for Calcasieu Parish, La. Cheniere Energy Inc. founder and ex-CEO Charif Souki started Tellurian with Martin Houston, the former CEO of Parallax Enterprises LLC, after billionaire activist investor Carl Icahn ousted Souki from his role at Cheniere in December 2015.

Total will bring to the table the creditworthiness that comes with being a global energy company, which will provide a boost when Tellurian taps markets to secure funding for the liquefaction and export terminal, Raymond James & Associates Senior Vice President Pavel Molchanov said in a Dec. 20 interview. "The most important thing is Total's balance sheet and the ability to get financing ... This is the balance sheet of a $100-billion, A-rated oil giant."

That is particularly important as a long list of North American LNG projects battle to move forward in an oversupplied market, Molchanov said. "There are way too many LNG projects on the drawing board in North America," he said. "Most of them, it's safe to say, will never get built."

Driftwood LNG LLC received FERC authorization on June 6 to enter the commission's prefiling review process. A formal application is expected in March 2017. The project would include 20 modular gas liquefaction trains, each capable of producing 1.3 mtpa. (FERC docket PF16-6)

"If you're buying in the early stages of development, the idea is that you're providing funding and you're helping to move the project into a place where it's ready to take [a final investment decision]," Giles Farrer, research director for global LNG at Wood Mackenzie, said.

The proposed Total-Tellurian deal echoes BP plc's announcement on Dec. 19 that it had signed agreements with Kosmos Energy Ltd. to acquire exploration blocks in Mauritania and Senegal in order to help develop an LNG hub in Africa. "The idea is the same: a smaller industry player wants to build an LNG project, and the balance sheet is critical for this type of opportunity," said Molchanov. "BP is to Kosmos as Total is to Tellurian."

Total and BP were likely attracted to the design of the projects, said Farrer. "Smaller and more nimble projects look advantageous in the current market," he said. "The concept is you can build modular facilities at a cheaper cost."

GE Oil & Gas said in November that it had invested $25 million in Tellurian. Tellurian said it expects its merger with Magellan Petroleum Corp. to close in the first quarter of 2017.