Is Tellurian The Next Cheniere Energy Or LNG Pioneer Ready To Take Off?


imageIs Tellurian The Next Cheniere Energy Or LNG Pioneer Ready To Take Off?

[Tellurian Inc.(TELL)](/symbol/TELL?source=content_type%3Areact%7Csection%3Amain_content%7Csection_asset%3Ameta%7Cfirst_level_url%3Aarticle%7Csymbol%3ATELL) (/symbol/LNG?source=content_type%3Areact%7Csection%3Amain_content%7Csection_asset%3Ameta%7Cfirst_level_url%3Aarticle%7Csymbol%3ALNG) [1 Comment](#comments)


– Tellurian has Cheniere like return potential.

– LNG is the largest green initiative on earth.

– There is an LNG gap exacerbated by Russia’s invasion of Ukraine.

– TELL stock could be $10 at year end and $42 in 2029.

Charif Souki, the Executive Chairman of Tellurian (

TELL) was the cofounder and co-CEO of Cheniere Energy ( LNG).Cheniere rose from $1 per share to $175/share between 2010 and 2022.Souki was pushed out of Cheniere, in a boardroom fight instigated by activist investor Carl Icahn.Despite Icahn seizing control of Cheniere, it was Souki who was the LNG pioneer that built Cheniere.In our opinion, TELL stock could be as lucrative as Cheniere for investors.

This is my seventh report on Tellurian.

Due to the $40 billion market capitalization potential of Tellurian’s Driftwood LNG project and attendant price volatility, I have written multiple reports to update the reader on what the probabilities are for the successful financing of the Driftwood LNG facility.There is a history for Tellurian since 2017 through 2020, when the energy market crashed.

Cheniere’s financing history, from 2000 to the present, provides valuable historic analogues to assess Tellurian’s share price prospects.The Russian invasion of Ukraine, redefined the strategic importance of LNG as a tool of war.The company has shifted its funding strategy and those changes have materially impacted potential for success and timing for Driftwood.Furthermore, the energy crisis, which began in Europe before the invasion, has elevated the environmental benefit of natural gas and LNG in helping to UN Strategic Development Goals #1 End Poverty and #2 End Hunger.

Tellurian’s Pulse Grows Stronger: The Good, The Bad, And The Ugly (NYSE: TELL) A Pulse At Tellurian Once Again (NYSE: TELL) Tellurian: Revised Driftwood Funding Plan (NYSE: TELL) Tellurian Stock: Financing Imminent (NYSE: TELL) Tellurian Shifts Financing Strategy (NYSE: TELL) Tellurian Inc.

Stock: A Disruptive Energy Transition Speculation (NASDAQ: TELL)

Like many disruptive technology stocks and Tesla, in 2013 in particular, bulls and bears, longs and shorts are both active promoting their contrary views regarding Tellurian.Today there are 85 million shares of TELL short.Souki’s recent share liquidation has proven red meat to stock bears in March.All of these factors explain why Tellurian is an extraordinarily volatile stock.TELL rose from $0.75/share in 2020 to $6.34/share in April 2022.When the financing strategy shifted to a strategic partner focused strategy and the price of natural gas prices collapsed 80% since April 2022, TELL’s shares declined from $6.34 to below $1/share and these developments also deserved comment.

Tellurian is a complex, dynamic, and disruptive energy investment.My reports have sought to define these factors for readers.Since I am an investment advisor and own the stock, I have written all of these reports to share my insight into this exciting stock and rationale for my positive asymmetric TELL forecast.

A close evaluation of Cheniere’s explosive moves (10/2002 $0.48/share to 4/2006 $43.72 and 9/10 $2.50/share to 9/14 $80.03/share) shows that these moves, 269% annualized and 138% annualized, occurred during the finance and construction stages of Cheniere’s two facilities.

The first facility was a gasification facility which took cheap international sourced LNG and gasified that LNG to produce cheap natural gas for the US market.When the fracking boom took off in the early 2000s enabled by hydraulic fracturing and horizontal drilling, massive low cost natural gas was discovered in the US.This business plan reversal forced Souki to scrap his first facility and build Cheniere’s LNG facility at Sabine Pass, transforming Cheniere Energy into the largest LNG exporter in the United States.

Today, Tellurian is poised to finance and construct its liquefaction facility, Driftwood LNG, in Louisiana.If our calculations and hopes prove to be correct, Tellurian should achieve Full Notice To Proceed “FNTP” with Bechtel, or final investment decision “FID” on the $14 billion Driftwood facility by year end.With FID or FNTP, Driftwood’s project financing would be assured and the construction of the facility would be the final step for Tellurian to complete before Driftwood generates cash flow.Based on the explosive returns that occurred during the financing and construction periods for Cheniere Energy, in the chart illustration above, we believe that Tellurian stock could trade at $10/share by year end when financing is fully secured.Additionally, Tellurian’s public shareholders should be able to generate $9 billion in cash flow in 2029.

Depending on international LNG prices in 2029 and afterwards, Tellurian could trade around $42.8/share based on a $7.5mmbtu spread and one billion shares outstanding.From $1.21/ share, that is about a 35 bagger as Peter Lynch would describe his greatest performing growth stocks.

LNG and Natural Gas are Transition Fuels:

UN Global Sustainable Development Goals, COP Conference of the Parties to the United Nations Framework Convention on Climate Change, and the popular fight against climate change are significant movements that have gained tremendous momentum in recent years.

Two of the popular goals is the elimination of all fossil fuels and net zero carbon by 2050.These goals are proving impossible and made undeniably clear by the Russian invasion of Ukraine and it’s exacerbating the energy crisis.The rapid and unilateral transition from fossil fuels to renewables is impossible.While efforts to reduce greenhouse gases will not abate, it is increasingly becoming clear that the world will need to utilize fossil fuels through 2050.This is especially true if UNSDG Goals 1 and 2, No Poverty and Zero Hunger, are seriously addressed.

To generate enough energy to power economic growth with the least amount of carbon emissions, natural gas is a far superior energy source to coal and oil.

Consequently, the idea of replacing coal fired electric plants with natural gas plants is a compelling argument for natural gas and LNG as transition fuels until there is clean power to end poverty.Furthermore, natural gas, a key component in fertilizer production, can also play a key role in ending hunger while organic strategies are perfected.With the cleaner emissions profile of natural gas, natural gas can help achieve climate goal through reduced carbon emissions.Because the United States has an abundant supply of low cost natural gas, the US, along with Qatar, is the lowest cost producer of natural gas in the world.This puts the US in a strong geopolitical and economic position to end poverty, end hunger, and improve the environment globally.

Furthermore, with the invasion of Ukraine, countries have a significantly enhanced understanding of the importance of having energy security and not relying on hostile regimes for their energy.

US LNG is both clean and cheap.Once natural gas is chilled and compressed 600 times into a liquid form, that LNG, on a boat, can sail anywhere in the world, providing countries with energy freedom, an attractive energy transition fuel, and geopolitical security.

The environmental benefit of swapping coal with natural gas to generate electricity has been estimated to be so beneficial to the environment that it would exceed the environmental benefit of converting traditional automobiles to electric vehicles.

EQT Inc., the largest natural gas producer in the country, provides a detailed analysis of the environmental benefits of coal to natural gas conversion.The company maintains that “replacing international coal consumption with LNG is the largest green initiative on earth.” Further,

by 2030, emissions reductions of US LNG of international coal can be the equivalent to all three of these combined:

– Electrifying 100% of US cars.

– Rooftop solar on every US home.

– Doubling US Wind Capacity.” Source: EQT PowerPoint

EQT is looking to invest in LNG facilities so it can convert its natural gas into LNG and sell its cheap US natural gas at high international gas prices.

It is particularly encouraging

to see that India, the fourth largest economy in the world, is focused on converting its coal fired electric power plants to natural gas.Tellurian has indicated that India is a logical LNG (Driftwood) partner as the country seeks to reduce its pollution and grow its economy.

LNG Market Forecast:

Wood Mackenzie estimates an additional 108 MTPA of LNG is needed through 2030.

The chart below shows the needed additional 108 MTPA gap between existing projects, projects under construction, and planned projects — where Driftwood fits.

Due to the invasion of Ukraine by Russia, natural gas became a weapon of war and the world witnessed European gas prices spiking 600% and costing the EU hundreds of billions for its Russia dependent energy strategy.The invasion of Ukraine created a new source of LNG demand — energy security.In the wake of the Russian invasion of Ukraine, Russian natural gas market dominance has been damaged by both reduced demand and reduced capacity for supply.It is estimated that about 38 MTPA of natural gas from Russia are now at “geopolitical risk” and will have to be replaced to bring the global market back into balance.

The US and Qatar secondarily, will need to increase their supplies of natural gas/LNG to the world market.

The Tellurian research chart below suggests that 25% of LNG plants under construction are at risk of not being brought to market as planned, leading to further uncertainty in global markets.

Since there are a limited number of viable pre-FID projects globally, the US will be called upon to provide a disproportionate amount of LNG to world markets.

Three large projects are logical FID prospects as funding these three projects would significantly narrow the supply gap, reduce energy security concerns, and help the energy transition.These projects are Tellurian’s Driftwood LNG, Next Decade’s Rio Grande, and Sempra’s Port Arthur which have a combined 80 MTPA of capacity.Last week Conoco finalized the financing for

Sempra’s Port Arthur facility.

The benefit of the Driftwood project is that it does not have sovereign risk and it is the most advanced pre-FID project in the market.

The more Driftwood builds its foundation, the more the project de-risks and the shorter the time to market.Strategic partners are the equity investors who derive a business advantage by owning part of the Driftwood facility.Those strategic investors are domestic natural gas producers who can take their abundant low cost natural gas and convert it into LNG where they can then sell their natural gas at premium prices in the international markets.Likely Driftwood partners are domestic natural gas producers (E&Ps) with Haynesville reserves like Chesapeake Energy Corporation (

CHK), Southwestern Energy Corporation ( SWN), Antero Resources Corporation ( AR), Comstock Resources, Inc.

( CRK), EQT Corporation ( EQT), Rockcliff Energy, and Devon Energy Corporation ( DVN), who, through partial ownership of Driftwood LNG, at the project level, will be able to convert their low cost natural gas and sell into the premium priced international market through Driftwood’s liquefaction capacity.

Other strategic funders are off takers like India, Europe, and Asia that wish to access low-cost US natural gas through ownership in Driftwood LNG project.One possible offtaker and strategic partner is GAIL, the largest natural gas company in India.GAIL recently issued an

Expression of Interest of “EOI” whereby they GAIL is soliciting interest to buy up to 26% of a US LNG project with production in 2027.Tellurian appears to be a logical investment target.The GAIL tender sought expressions of interest by March 10th, 2023.Conoco signed a heads of agreement with Sempra in July 2022, eight months ago.If the timeline is the same, then Tellurian could be finalizing its financing by year end with GAIL.

Strategic partners, who are Tellurian’s stated or targeted equity funders, will benefit from utilizing the Driftwood LNG facility as part of their business operations as opposed to a financial beneficiaries like Tellurian shareholders.The benefit of a US E&P investment in Driftwood – at the project level – allows for them to sell its gas at premium international prices.

Many of the aforementioned E&Ps have stated an interest in funding an LNG facility.Likewise, IOCs, international oil companies like Shell, BP, and Saudi Aramco can invest in Driftwood at the project level and increase their exposure to cheap US natural gas and LNG.Foreign companies and countries can address their energy security with strategic equity investments and concomitant LNG offtake agreements.Corporations and countries can enhance their decarbonization credentials by securing LNG offtake contracts and facilitate the replacement of coal fired electric power plants with gas fired plants.

India is a natural LNG end user and prospect for such an agreement.

This video shows Tellurian CEO

Octavio Simoes suggesting that Tellurian is working with India’s Energy Minister Hardeep Puri on developing such an off take agreement to help India with its enormous growth prospects and its challenging air pollution problem.Building on this, as reported in The Economic Times in October 2022, Indian Oil Corp was in discussions for potential Driftwood equity and offtake.These reports encourage our belief that GAIL could be a strategic investor in Driftwood.

A Short History of Tellurian’s Wild Price Swings:

Tellurian’s stock price swings hinge off financing prospects of Driftwood.Since Driftwood is Tellurian’s cash flow crown jewel, Tellurian shares’ price action is directly traceable to the market’s confidence in the funding probabilities for Driftwood.

The chart below shows how funding prospects were initially high for Tellurian in 2017, however, failure to successfully finance Driftwood, under the leadership of former President and CEO Meg Gentle, led to the stock’s shares trading from $20/share to $10/share, before Tellurian shares crashed to below $1/share in 2020 during the COVID-19 stock market and oil price collapses.Charif Souki, who has a reputation as a risk taker, suffered margin calls, resulting in Tellurian stock liquidations at that time.In June 2020, Souki was named the

Executive Chairman of Tellurian and took the reins of the company from then CEO and President Meg Gentle.

The chart below from July 2020, shows several sharp rallies during a major move of eight fold ending in April 2022 following the invasion of Ukraine by Russia on February 24, 2022.

From April 2022, Tellurian’s stock experienced a brutal decline from $6 to below $1 in March 2023.TELL shares now appear to be in a comparable position to where the stock was in July 2020.

Both in 2020 and today, Charif Souki has been in a forced liquidation situation.The optics of the Executive Chairman in a liquidation are terrible.However, this creates a great buying opportunity when the market’s normal clearing price is pressured by forced liquidations circumstances which are temporary.


We have read most of the major brokerage research reports including Morgan Stanley, Bank of America, Stifel, and B.Riley.

We believe there are two ways to value Tellurian.One way is to look at the company as two entities the upstream piece plus the Driftwood project.The second way is to focus closely on the probabilities of Driftwood getting financed.

Bank America “double downgraded” Tellurian on February 14th and put a $1.5/share price target on the company.B.Riley put out a report suggesting the company is worth $5 per share on February 24, 2023.B.Riley is their former investment banker, and may be biased as it wants to be their banker, though after the failed billion dollar debt plus warrants offering in September 2022, we believe that Morgan Stanley will likely be Tellurian’s banker when and if they get Driftwood financed.A $7 billion debt finance deal would be better suited to Morgan Stanley than with B.

Riley, in our opinion.

There are two endpoints that provide quantifiable stock price objectives for Tellurian.The first is the point where Tellurian’s financing is assured with an FID or a FNTP.The other is when the company is cash flowing on all five trains in 2029.

When Tellurian can announce FNTP with Bechtel, the engineering giant will have has agreed to complete the construction of the Driftwood project.No company in the world better understands the risks of building a 27 MTPA facility like Driftwood than Bechtel.When Bechtel will risk their own resources to complete Driftwood, it is extremely probable that financing is assured, and the plant will be completed by the construction giant.When FID or FNTP occurs, we estimate it will take three years to complete Driftwood’s Phase One.Based on Tellurian’s investor presentation below, Driftwood Phase One should generate $4.3 billion in cash flow.

Assuming a five-times multiple on $4.3 billion in cash flow and a 45% equity ownership by strategic partners, we derive a market cap for Driftwood in late 2026 of $11.825 billion.Discount the $11.825 billion back by 13%/year for 2026, 2025, and 2024 = 39% discount, the present value for Driftwood would be $7.21 billion in market capitalization at year end.

Assuming 720 million shares outstanding, Tellurian shares would have a share price of $10/share at year end with either FNTP or FID.

Our longer term valuation target is when all five trains are constructed.We expect that Driftwood Phase One will be complete by 2027 and each additional train will be built every nine months so that in 2029 all five trains should be producing LNG.We assume that half of the earnings from Phase One will go to the strategic investors and all of Phase Two’s earnings will go to Tellurian shareholders.In other words, four of the five trains will be producing the spread which we estimate at $7.50/mmbtu in 2029.

Using Tellurian’s presentation estimate of $10.7 billion in cash flow in 2029, 4 of 5 trains or 80% of 10.7 billion = $8.56 billion.

At five times cash flow, Tellurian’s market capitalization could equal $42.8 billion in 2029.Assuming a total share count of one billion shares, Tellurian could trade at $42.8/share.From $1.2/share to $42.8/share is 36 fold over 6 years or 81.4% annualized.

Tellurian’s Higher Margin Business Model:

There are multiple risks to the varied assumptions we have made in modelling Tellurian.The biggest issue is where will the spread be in the out years, from 2029 to 2040 or 2050? How much demand will there be for LNG in 2030, 2035, 2040, 2045…? Energy does arbitrage against competing fuels.

For example, if oil prices are much lower, than LNG prices will be lower.

Consequently, we discussed with Jordy Watson of Watson Project Solutions on what he thought, and he said he estimates LNG prices per MMBTU are 14% to 17% of the price of a barrel of oil.

Assuming oil is trading at $80/barrel then that would imply an LNG price of $12.4/mmbtu.If we back out $4 for shipping and liquefaction, then we have $8.4/mmbtu margin or spread.$8.4/mmbtu is 12% higher than the margin used in our assumptions and that would be very positive for Tellurian’s earnings and cash flow.

Another factor for the market to weigh is whether Tellurian’s integrated model generates a higher multiple than the toll road model used primarily by Cheniere and most LNG projects.

If Tellurian’s cash flow multiples are much higher than Cheniere’s and the LNG market is robust in the outyears, then the potential for Tellurian’s stock exceeding our estimates is very high.

With the momentum of ESG, capital expenditures in the fossil fuel space have been constrained for years and this should put some upward pressure on energy prices due to its constrained supply.Also positive for Tellurian’s stock price is the fact the world has under invested in all commodity development over the last decade.This under-investment will have a positive impact on commodity prices in the decades ahead.

We believe the environmental component of natural gas, delivered globally as LNG, will be the low carbon fossil fuel product of choice.Renewables will grow in usage along with nuclear power and provide carbon free energy sources, but natural gas should be a winner due to its low carbon emission profile in the decades ahead.If cold fusion is made commercially viable, a similar situation like the early days of Cheniere Energy could happen – Cheniere’s stock dropped from $40/share to $1/share in 2008 when abundant cheap US natural gas was discovered.Alternative sources of energy in the decades ahead will be a potential source of volatility for Tellurian in the long term.

If the risk of commercially viable cold fusion become a reality, interest in developing more LNG facilities will likely taper off halting the growth of new LNG availability as this new major source of clean energy develops.

The Financing Prospects:

Charif Souki gives weekly talks and recently suggested that we could see some news in the coming weeks.The company said it is in talks with private equity or infrastructure players to secure a $1.5 billion mezzanine piece of high yield/equity portion of the Driftwood project.Tellurian also said that it is in discussions with IOCs who could provide $3-3.5 billion in equity.Of the $4.5 billion in equity, Tellurian has already paid for over $1 billion in costs leaving the remaining equity sought in the $3-3.5 billion range.

The equity side is $6 billion and the debt side is $7 billion.

What Souki said on March 28th, 2023 is that they are trying to get commitments and have these entities hold until all of these pieces can be closed near simultaneously.We believe that a logical announcement would be the GAIL deal whereby GAIL takes 26% of the $14 Driftwood which would be $3.5 billion.Tellurian then could get $500 million pieces from the US E&Ps and or other IOCs.

The GAIL EOI was for up to 26% so other equity players could also be integrated.

Last week’s call detailed how a transfer fee would be charged by strategic partners of $2.5/mmbtu.This fee would then be collected by the strategic investor, but then used to pay the debt service on the $7 billion in project debt.This debt service is an obligation of the strategic partner.It appears that Tellurian has had time to assess where the market is, what players are positioned to partner with Tellurian, and now it is a matter of negotiating price.

Since the September’s debt with warrants cancellation, financing prospects have looked discouraging.Furthermore, two board members resigned at the end of January, as well as the CFO.

It could be concluded that the company was, in fact, having difficulty funding the Driftwood facility.

Additionally, Charif Souki had posted 25 million shares of Tellurian stock with Wilmington Trust to purchase a Colorado ranch in 2017.Share price weakness since September led to Wilmington Trust calling its collateral and liquidating nearly all of Souki’s 25 million shares, adding to continued selling pressure.These sales are near completion and prospects for funding are improving.Friday, after the market closed, Tellurian announced it was transferring $166 million to cover a convertible bond current liability due in May.

This liability was a concern cited by Bank America’s negative February report, but with $470 million in cash on its balance sheet at year end, the liability is an inconvenience and not an existential threat.

Psychology can change quickly.With 85 million shares short and material announcements possible in the coming weeks, Tellurian shares could move higher in coming weeks and months and, by year end, be at $10/share.The author is long both stock and options on Tellurian Inc.

This article was written by

Analyst’s Disclosure: I/we have a beneficial long position in the shares of TELL either through stock ownership, options, or other derivatives.I wrote this article myself, and it expresses my own opinions.I am not receiving compensation for it (other than from Seeking Alpha).I have no business relationship with any company whose stock is mentioned in this article.

The author and his clients own TELL shares.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results.

No recommendation or advice is being given as to whether any investment is suitable for a particular investor.Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole.Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank.Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body..

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