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Highlights

Project seeking remaining equity needed to advance

Gentle: 'I don't think about the naysayers'

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Tellurian is negotiating with a large buyer to take a $2 billion partnership stake in its Driftwood LNG export project and give it the remaining equity it needs to begin full construction of the Louisiana terminal's first phase, CEO Meg Gentle said Wednesday.

While Gentle wouldn't name the company, in an interview with S&P Global Platts she said the potential customer is among the cadre of utilities, commodity traders, portfolio players and national and international oil companies that Tellurian has been courting.

The talks, she said, involve the right to lift 4 million mt/year of supply from Driftwood for the life of the facility, at an equity price of $500/mt. If a firm agreement is reached with the buyer, and Tellurian finalizes a preliminary agreement reached earlier this year with India's Petronet at the top end of 5 million mt/year of supply, the developer will have the 12 million mt/year in equity partnerships, or $6 billion, it needs to advance the project. France's Total has agreed to a stake covering 1 million mt/year of supply, while Tellurian's marketing unit will cover 2 million mt/year of supply.

"Tellurian has already made the decision to go forward with this project," Gentle said. "We're going forward with this project. The only thing remaining is the incremental notice that is given at the end of financing."

Tellurian's pitch -- unlike most of the other second wave US developers who are relying on traditional long-term offtake contracts to get to a final investment decision -- calls for buyers to make a minimum $500 million in equity investment in the holding company that includes Driftwood and four natural gas pipelines that Tellurian has proposed to build. That would give buyers the right to lift 1 million mt/year of LNG from Driftwood for the life of the facility. Investors would also be responsible for underwriting a portion of the total project debt that would be proportional to their volume commitment.

At full development of 27.6 million mt/year, about half of Driftwood's capacity is expected to be used by equity investment partners. 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.

Vitol and Saudi Aramco are among the dozens of buyers with whom Tellurian has previously acknowledged talking about taking an equity partnership stake in the project. Both are still in the mix, Gentle said.

Besides the proposed terminal and pipelines, Tellurian has invested in shale acreage. During the interview, Gentle said the company expects to buy more shale acreage in the future, but she indicated it is not in a rush as it monitors trends in the upstream market.

LNG OUTLOOK

Tellurian expects to finish its commercial efforts for Driftwood's first phase by the end of March and complete project financing by the end of May. Tellurian has previously said it was working with approximately 20 banks. It expects to issue a full notice to proceed to construction contractor Bechtel sometime after getting financing, Gentle said.

A recent outlook from Platts Analytics said LNG demand growth will not occur at a fast enough pace in 2020 to absorb all of the incremental supply that is expected to come into the market unless it is priced low enough to do so. This mismatch will force down spot prices, which could impact commercial efforts tied to new US liquefaction projects that have yet to be built. While Tellurian has faced questions about its business model, its level of liquidity and its commercial progress, the company feels momentum heading into the new year, with its Federal Energy Regulatory Commission certificate in hand and a marketing and development team behind it that includes some of the same officials who helped Cheniere Energy become the first major US exporter of LNG in 2016.

"I don't think about the naysayers," Gentle said. "2020 is the year of Tellurian."

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

-- Edited by Richard Rubin, newsdesk@spglobal.com