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Tellurian to watch spending as commercial talks run later than expected

Houston — Tellurian is reviewing its spending as commercial talks to secure sufficient equity agreements to finance its Driftwood LNG export project stretch into 2020, slightly later than previous estimates, CEO Meg Gentle said in an internal podcast posted on the company's website Friday.

The developer burned through cash, on an adjusted basis, at a rate of approximately $12 million a month in the third quarter, and some analysts have raised questions about its liquidity as it heads into a critical period for wrapping up commercial deals tied to the Louisiana project. Bank financing depends in part on the success of those efforts.

Seeking to reassure investors, Gentle said she is "comfortable" with Tellurian's current liquidity position. She acknowledged the questions from the market.

"We are constantly evaluating our discretionary spending and our capital structure," Gentle said.

In the meantime, Tellurian plans to finalize remaining equity commitments it is seeking from potential partners by the end of March 2020. That is in line with when it expects to complete a preliminary agreement that it reached with India's Petronet in September that calls for it to make an up to $2.5 billion investment in Driftwood, in exchange for up to 5 million mt/year of supply from the terminal. Prior to the Petronet deal, Tellurian had said it expected to complete commercial deals to support the first phase of its project by the end of this year.

"Over the next few months, we will focus on the completion of the agreements with Petronet and our main Driftwood partners," Gentle said.

While Tellurian has recently stopped issuing public guidance about when it will make a final investment decision, it is maintaining plans to start construction in 2020 and begin exports in 2023.

The Petronet memorandum of understanding represented one of the single largest potential volume commitments for any US liquefaction project. Based on 5 million mt/year, Petronet would be responsible for underwriting $5 billion of Driftwood's total project debt. Together with an equity investment France's Total has agreed to make and capacity that Tellurian's marketing unit will take, the developer has accounted for up to 8 million mt/year of the 12 million mt/year of equity agreements it has been seeking to begin construction.

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. Total has agreed to buy 1.5 million mt/year of offtake from Tellurian's marketing volumes, indexed to Platts JKM, the benchmark price for spot-traded LNG in Northeast Asia. Commodity trader Vitol has a preliminary 15-year deal, also to be linked to JKM, to offtake 1.5 million mt/year of Tellurian marketing volumes.

Tellurian has previously said it is working with approximately 20 banks to secure sufficient financing for the debt portion of the project's funding.

Besides the terminal, Tellurian has invested in shale acreage and has proposed building four natural gas pipelines. Tellurian recently initiated the Federal Energy Regulatory Commission pre-filing process for one of those pipelines, Permian Global Access Pipeline, Gentle said during Friday's podcast.

-- Harry Weber, Harry.Weber@spglobal.com

-- Edited by Rocco Canonica, newsdesk@spglobal.com