US LNG developer Tellurian is courting buyers for its upstream assets in the Haynesville Shale as the company seeks to improve finances and continue to advance its proposed Driftwood LNG export terminal in Louisiana.
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Register NowTellurian on Feb. 6 said it asked financial advisor Lazard to explore the sale of its Haynesville acreage -- which is spread out across Louisiana's share of the formation and covers more than 400 drilling locations -- with an eye toward reducing expenses and shoring up cash.
Tellurian, which has struggled to advance the Driftwood project to construction, ousted its co-founder and Executive Chairman Charif Souki in late 2023. Souki's replacement, co-founder Martin Houston, pledged to cut costs.
"As we commercialize Driftwood LNG, Tellurian has been reviewing its strategy, including the dynamics of the US natural gas market in the context of global LNG demand," Chief Executive Officer Octávio Simões said in a statement.
The company resolved that it has "alternative gas supply strategies available to us from various basins and our ownership of upstream assets is not necessary at this stage of Tellurian's development," Simões added.
Haynesville operations
Tellurian reported total gas production of 19.5 Bcf in Q3 2023, or roughly 216 MMcf/d, and its portfolio includes 31,149 net acres and interests in 159 producing wells.
The pursuit of a sale represents a reversal of the strategy put together by Souki, who in November 2023 announced plans to raise and spend $125 million in 2024 on the upstream business. Improved drilling and production yields, as well as $3/MMBtu gas, supported those activities, Souki said at the time.
Natural gas prices have softened. NYMEX Henry Hub March and April futures both settled at $2/MMBtu Feb. 6, according to data from CME Group.
Prices are projected to remain on a weak footing throughout 2024, which is expected to push many gas producers to hold production flat or reduce activity in order to maintain cash flow.
Over the coming years, however, prices are generally expected to increase as demand for LNG feedgas rises and tightens the market. As that unfolds, operators in Haynesville are expected to be among those who benefit the most, in large part due to their proximity to the suite of liquefaction terminals along the Gulf Coast, according to S&P Global gas market analysts.
Driftwood status
Tellurian's model for the Driftwood project marked a different approach from what Souki helped establish as the traditional model for US LNG at Cheniere Energy, before his removal as CEO in late 2015 in a push led by activist investor Carl Icahn.
At full development of about 27.6 million mt/year, about half of the Driftwood project's capacity was expected to be used by equity partners Tellurian was seeking, while Tellurian would retain the remaining capacity to market on its own.
By producing and delivering its own gas to Driftwood, Tellurian also sought to eliminate the Henry Hub gas price from the equation and capture a wider margin for US gas sold to international LNG markets.
Tellurian began early construction of the Driftwood project in March 2022 but gave its contractor only a limited notice to proceed as it worked to raise the commercial and financial support to complete the project. The Driftwood project does not have firm long-term LNG contracts tied to the project, after previous offtake deals were terminated.
The developer recently confirmed hiring Lazard to explore "commercial opportunities" and advise the company as it seeks equity partners.
The company in a Jan. 29 letter to shareholders pointed to the permitting status of Driftwood as an advantage for the project following the recent White House freeze on issuing key LNG permits for new projects pending a policy review expected to last at least through the November presidential election.
The permit for Driftwood expires in May 2026.
"As we get closer to completing construction, we plan to adjust the in-service date condition under that license to accommodate our construction timeline," Tellurian Chairman Martin Houston said in the letter, adding that it would monitor the DOE process for any impacts to its permit. "In the meantime, the global demand outlook for LNG has not changed, so any scarcity will drive opportunity for Tellurian."