Tellurian chair notes ‘misconception’ on infrastructure costs as Driftwood financing efforts continue

Tellurian Inc. increased quarterly net natural gas production 25% in third-quarter 2022 and continues efforts to secure equity partners for its 27.6-million tonne/year (tpy) Driftwood LNG liquefaction plant in Calcasieu Parish, La.

The company recorded a net loss of about $14.2 million overall compared with a net loss of $15.9 million in third-quarter 2021. The company ended the quarter with about $1.4 billion in total assets, including about $607.5 million of cash and cash equivalents.

In the upstream segment, Tellurian recorded net production of 11.4 bcf and revenue of $81.1 million. Tellurian now holds 22,420 net acres, interests in 131 producing wells in Haynesville shale, and more than 300 drillable locations, said Octávio Simões, president and chief executive officer in the Nov. 2 earnings release.

Driftwood LNG

In the release, Tellurian pointed to continuing construction on the Driftwood LNG terminal and that the company is “fully engaged” in efforts to secure equity partners.

Bechtel began construction on the 11 million tpy Driftwood Phase I in April and has been performing clearing, backfilling, piling (since July), and foundation work (first concrete in October) under a limited notice to proceed, Tellurian said in a report accompanying the quarterly results. About 30% of the overall engineering is complete.

As for ongoing financing efforts, there’s been “a misconception in the industry about what it costs to build [Driftwood LNG] in today's environment,” said executive chairman Charif Souki. Souki made the remarks in a video posted to Tellurian’s website Nov. 2. The industry has not spelled out cost overruns and the reliance on questionable supply chains, he said, noting significant cost increases. “You can no longer build [an LNG project] for the same price as 10 years ago.”

Souki said Tellurian has already spent almost $1 billion on the project. Bechtel is on site, he said, but “the schedule has slowed” until the company can raise the equity.

He said he underestimated how difficult project financing would be given the supportive underlying market fundamentals.

In the Nov. 2 accompanying presentation, Tellurian noted nearly all LNG capacity under construction (135 million tpy) is required to backfill Russian piped gas to Europe in the long run. The 'burden,' Souki said in his video, is not on Tellurian, but on global customers. “It’s up to them to figure out a way to get it done.”

The current Driftwood proposition is a 35% project farmout either to an American producer “who wants exposure to global pricing," or to "global players who want to have American gas at cost,” Souki said, mentioning Germany and France, specifically.