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Highlights

Layoffs come amid executive changes

Coronavirus exacerbates commercial troubles

Houston — Tellurian shed 38% of its workforce as part of a cost-cutting move designed to give the developer a lifeline as it struggles to secure the remaining partnership agreements it needs to finance construction of its Driftwood LNG export project in Louisiana, a person familiar with the decision said Monday.

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The cuts amount to about 70 jobs, said the source, who spoke to S&P Global Platts on condition of anonymity. They were disclosed as Tellurian made changes to its executive leadership team, with a renewed emphasis on boosting marketing efforts.

The company is not providing updated guidance on when it will make a final investment decision, the source said. There has been no specific discussion inside the company about the length of any potential delay, said a second person familiar with internal deliberations.

The company declined to comment Monday.

Tellurian had previously expected to begin construction this year, with first exports in 2023. With another plunge in Tellurian shares Monday – the stock is down almost 90% in the last month and is now trading below $1 – investors seemed to be pricing in the possibility FID could be pushed to 2021 or beyond.

Trade flow restrictions due to the deepening crisis created by the coronavirus outbreak has put further pressure on an LNG sector that was already depressed due to weaker-than-expected demand in key end-user markets and low international prices. New contracting or partnerships tied to existing or proposed US LNG projects have been reduced to a virtual standstill. Shares of Cheniere Energy, the biggest US LNG exporter, and Rio Grande LNG developer NextDecade were also hit hard Monday.

"If coronavirus brought the near-term prospects of new LNG business to a particularly slow crawl, we believe the OPEC+ blow up will bring it to a full stop, at least until the dust settles," Michael Webber, managing partner of investment research firm Webber Research & Advisory, said in a note to clients. "For companies in the process of restructuring, like Tellurian, it certainly won't help the market's appetite for refinanced, commercially-challenged LNG paper. It's hard to imagine its lenders not feeling the collapse of commodity prices in several places throughout their loan books."

CHENIERE EXPOSURE

While companies like Cheniere have very limited technical exposure to that kind of shift, Webber said he believes contagion across energy books is a forgone conclusion at this point.

"While we could make the case commodity prices resetting even lower could eventually drive a demand response, the timing of any tangible benefit would be measured in several quarters if not years, and the limited profitability of meeting that demand response at these levels makes it even more difficult to entertain, at least for today," he said.

Last week, Tellurian said it would reduce corporate overheads and work with its lender to extend the maturity of an $87.5 million loan and related interest currently due May 23. Before the austerity measures were announced, the company said it did not have sufficient cash on hand to repay the loan and that as of late February it had yet to satisfy certain conditions that would allow it to extend the loan for up to 12 months.

Tellurian has said that although it continues to work with India's Petronet to finalize a preliminary partnership agreement reached in September 2019, the market turmoil has hampered discussions with other potential partners.

SECOND WAVE

At full development of 27.6 million mt/year facility, 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. The preliminary deal with Petronet covers an investment of up to $2.5 billion. Tellurian had hoped to have the Petronet talks completed by the end of March, but recently extended that to the end of May.

The combination of events increasingly suggests to analysts that few, if any, of the second wave of US liquefaction projects proposed to start up around the middle of this decade will go forward this cycle. S&P Global Platts Analytics forecasts that roughly 14.4 Bcf/d of LNG export capacity will be online in the US by the mid-2020s, representing only the full slate of projects that have been financed and are currently under construction.

"Right now, it's a moot point," Webber, the analyst, said in a telephone interview, referring to new projects advancing. "Anytime soon? The answer is, No."