Tellurian

Tellurian is an natural gas upstream producer and is building its LNG export facilities in Driftwood Louisiana. The chairman Charif Souki is the pioneer and godfather of US LNG, he was the chairman of Cheniere Energy (USD35B company) and was removed by an activist investor and then setup Tellurian to rival Cheniere Energy. For history of Charif Souki, please DYODD.

As for the business of the company, its simply to produce and/or procure natural gas, liquify the gas and sell to Europe and Asia. The profit can be deriving by the following equation:

JKM price / TTF price - upstream cost/Henry Hub price - CFR - operating costs - financing cost

The presentation will give better explaination:

https://ir.tellurianinc.com/financials-f...sentations

Driftwood LNG project will have 5 plants with 20 liquefaction trains in total producing 27.6M tonnes LNG per year. The phase 1 will consist of 2 plants with production capacity of 11M tonnes, and they are fully sold to Shell, Vitol and Gunvor Singapore (3M tonnes each for 10 years) even before the construction of the project. That's right, and first delivery from phase 1 is scheduled to be in 2016. 

From Nov 2021 presentation slide 12, we can have an overview on how much annual cash flow to be anticipated from just the phase 1 of Driftwood project. The illustration is prepared on the basis of USD14/mmbtu JKM price, the JKM price today is above USD33/mmbtu. Tellurian's market cap is USD3B today after a good run from last month. 

Now, everything looks good but there must be a reason why the company's valuation is still "so cheap"? Financing is the biggest issue, Tellurian needs USD12B for Phase 1 of the project, and the Company has yet to announce the financing group after trying for years. This is due to several reasons:

1. LNG falls within the grey area in terms of its environmental impact, a lot of financial institutions and enviromentalists still regard LNG as type of dirty energy. The fact is that Biden administration has previously promised to ban "fracking" (the process used to extract shale gas) but apparently he has done the opposite instead. And on Europe side, European Commission declared nuclear and gas to be green just 2 months ago.

2. Traditionally LNG project financing normally carries 20-30 years tenors, Tellurian ability to secure 10 years contracts is not sufficient to convience the banks to draw the cheques

3. Tellurian business model are to produce enough upstream feed gas, convert to LNG and to sell overseas, but at this stage, Tellurian does not have enough upstream gas. So they would need to buy gas from Henry Hub which would cost USD6/mmbtu, despite still much lower than the JKM or TTF prices, but no one would guarantee whether the gaps between these prices stay the same or go wider by 2026. If Tellurian has enough upstream gas, then the risk of sourcing enough gas from Henry Hub at a reasonable cost price would be eliminated. Tellurian does have the plan to acquire more upsteam gas projects.

4. The credibility of the management, who keep delaying the announcement of financing and FID, investors have been repeatedly told of upcoming announcement of financing group and yet keep delaying the target date. The new target date to announce the financing group is Q2 2022, who knows the management will postpone again.

What we are seeing today is that Tellurian has finally commenced the construction of Driftwood phase 1, but without a financing. The Company said that they have enough capability to fund the initial construction cost for the first year. 

Despite many uncertainties in the business, especially the JKM/TTF prices, I do see that Tellurian, with an upcoming 27.6M tonnes of LNG export facilities, is way too cheap at USD3B market cap.

(06-04-2022, 05:19 PM)valuebuddies Wrote: Tellurian is an natural gas upstream producer and is building its LNG export facilities in Driftwood Louisiana. The chairman Charif Souki is the pioneer and godfather of US LNG, he was the chairman of Cheniere Energy (USD35B company) and was removed by an activist investor and then setup Tellurian to rival Cheniere Energy. For history of Charif Souki, please DYODD.

As for the business of the company, its simply to produce and/or procure natural gas, liquify the gas and sell to Europe and Asia. The profit can be deriving by the following equation:

JKM price / TTF price - upstream cost/Henry Hub price - CFR - operating costs - financing cost

The presentation will give better explaination:

https://ir.tellurianinc.com/financials-f...sentations

Driftwood LNG project will have 5 plants with 20 liquefaction trains in total producing 27.6M tonnes LNG per year. The phase 1 will consist of 2 plants with production capacity of 11M tonnes, and they are fully sold to Shell, Vitol and Gunvor Singapore (3M tonnes each for 10 years) even before the construction of the project. That's right, and first delivery from phase 1 is scheduled to be in 2016. 

From Nov 2021 presentation slide 12, we can have an overview on how much annual cash flow to be anticipated from just the phase 1 of Driftwood project. The illustration is prepared on the basis of USD14/mmbtu JKM price, the JKM price today is above USD33/mmbtu. Tellurian's market cap is USD3B today after a good run from last month. 

Now, everything looks good but there must be a reason why the company's valuation is still "so cheap"? Financing is the biggest issue, Tellurian needs USD12B for Phase 1 of the project, and the Company has yet to announce the financing group after trying for years. This is due to several reasons:

1. LNG falls within the grey area in terms of its environmental impact, a lot of financial institutions and enviromentalists still regard LNG as type of dirty energy. The fact is that Biden administration has previously promised to ban "fracking" (the process used to extract shale gas) but apparently he has done the opposite instead. And on Europe side, European Commission declared nuclear and gas to be green just 2 months ago.

2. Traditionally LNG project financing normally carries 20-30 years tenors, Tellurian ability to secure 10 years contracts is not sufficient to convience the banks to draw the cheques

3. Tellurian business model are to produce enough upstream feed gas, convert to LNG and to sell overseas, but at this stage, Tellurian does not have enough upstream gas. So they would need to buy gas from Henry Hub which would cost USD6/mmbtu, despite still much lower than the JKM or TTF prices, but no one would guarantee whether the gaps between these prices stay the same or go wider by 2026. If Tellurian has enough upstream gas, then the risk of sourcing enough gas from Henry Hub at a reasonable cost price would be eliminated. Tellurian does have the plan to acquire more upsteam gas projects.

4. The credibility of the management, who keep delaying the announcement of financing and FID, investors have been repeatedly told of upcoming announcement of financing group and yet keep delaying the target date. The new target date to announce the financing group is Q2 2022, who knows the management will postpone again.

What we are seeing today is that Tellurian has finally commenced the construction of Driftwood phase 1, but without a financing. The Company said that they have enough capability to fund the initial construction cost for the first year. 

Despite many uncertainties in the business, especially the JKM/TTF prices, I do see that Tellurian, with an upcoming 27.6M tonnes of LNG export facilities, is way too cheap at USD3B market cap.

Thanks for highlighting this stock. 

OnG is a cyclical industry. Occasionally prices impacted by things like nuclear plants in Japan shutdown and switch to gas power production. 

At the moment some countries are switching back to nuclear power for "cleaner" energy as per their climate change plans. For example, Japan has been gradually restarting many of their nucelar plants in order to reduce carbon emissions, i think about 30 more to be restarted till 2023, they restarted some in december last year as well. 

So the demand for Gas should go down quite a bit in the coming couple years. This may impact pricing quite a bit going forward, though in the short term it seem both inflation and the war are both pushing prices upwards after declines end of last year.

I would probably sit back and see if the projects start up and when they do what sort of dividend yield can be derived from long term holding. But i suspect in the end, this company stock price will largely be affected by the direction of gas prices.

You are right about the nuclear energy, well it doesn't take much uranium to power the nuclear reactors, but it does takes a long time to build a nuclear power plant. It takes 7 years to build a nuclear power plant compairing to 2-3 years for a LNG import terminal. That's why in face of present energy crisis, the first few measures taken by NATO countries are that German to build its first LNG import terminal and that US to sell 15bcm LNG to Europe for this year.

Well some says that US is good in marketing, when crisis (finally) arises, US is busy in selling its abundant natural gas and military supplies. I am not sure but take is as a joke if you may.