Tellurian Ends Driftwood LNG Plant Agreement With TotalEnergies

The latest move by Tellurian signifies a business model change from a financial partnership with LNG users to sales to traders.

Planned location of the proposed Driftwood LNG facility near Lake Charles, Louisiana.

US liquefied natural gas (LNG) developer Tellurian terminated a stock-and-LNG-purchase agreement with France's TotalEnergies related to Tellurian's proposed Driftwood LNG export plant in Louisiana. Tellurian said in its 8-K filing with the US Securities and Exchange Commission that it had ended the agreements "because they are not consistent with the commercial agreements that Driftwood LNG ... has reached with other counterparties." The other counterparties include commodity traders Vitol and Gunvor Group, with whom Tellurian signed 10-year agreements in May and June to sell 3 mtpa of LNG.

Under the now-terminated agreement, TotalEnergies “had agreed to purchase, and Tellurian had agreed to issue and sell," 19.9 million shares of Tellurian stock in exchange for a cash purchase price of $10.064 per share, with an option to buy as many as 1.5 million mtpa of LNG, subject to the satisfaction of certain closing conditions. One of those closing conditions, according to Reuters, was Tellurian's making a final investment decision to build the liquefaction plant within 24 months of a 10 July 2019 agreement.

Tellurian has not yet made that decision, making Driftwood one of more than a dozen North American LNG projects that have repeatedly pushed back decisions to start construction. Reuters says the delays are primarily because of an insufficient number of customers signing the long-term deals needed to finance the multibillion-dollar facilities.

Tellurian recently said it plans to start preparing the Driftwood site for construction later this summer, with construction beginning in the first quarter of 2022. At the end of June, Driftwood exercised its long-term lease option with the Lake Charles Harbor and Terminal District on the 477-acre site in Sulphur, Louisiana. The ground lease agreement has an initial term of 20 years with extension options of up to 50 years.

Business Model Change

"This news is about trying to get this project built, because Tellurian is trying to get to final investment decision on this project," said Jacques Rousseau, managing director at electricity provider Clearview Energy. "They must feel the best way to get this project built is by selling the offtake to traders, rather than [gas-producing] companies."

Analysts have said Tellurian would likely have to choose between a business model that seeks partners or a model in which the company sells LNG to buyers like Vitol, Gunvor, and others. During the LNG industry’s formative years, many companies, including Tellurian, entered into partnership agreements with companies such as TotalEnergies in which they secured financing for liquefaction plants by selling either LNG or equity in exchange for LNG shipments for a certain number of years. Some analysts said the end of the TotalEnergies share purchase agreement could free Tellurian to sign other deals to sell LNG.