Tellurian’s surprise $1B LNG deal comes as chairman Souki is forced to sell millions of shares

Charif Souki, Chairman of Tellurian LNG at the corporate offices Friday, Jun. 25, 2021 in Houston, TX.
Charif Souki, Chairman of Tellurian LNG at the corporate offices Friday, Jun. 25, 2021 in Houston, TX. Michael Wyke/Contributor

Tellurian, the Houston-based liquefied natural gas company, reached a $1 billion deal this week that may offer it the opportunity to make good on its plan to build the massive Driftwood LNG project in Lake Charles, La.

The company said in a Thursday regulatory filing that an unnamed investor has agreed to buy around 800 acres of land that make up the Driftwood site for $1 billion. As part of the transaction, a Tellurian subsidiary entered into a 40-year lease for the property. The deal requires Tellurian to add equity investors to the project before July 14 or the agreement would be terminated, according to a filing with the Securities and Exchange Commission.

THE BACKSTORY: Tellurian chief Charif Souki is selling new style LNG business, but so far no one's buying it

“It will allow us to continue to put the pieces of the puzzle together,” Tellurian Chairman Charif Souki said in an interview.

Pieces of the $13.6 billion Driftwood LNG project began unraveling last year after its partnerships with oil major Shell and commodities trader Vitol  collapsed, leaving the Houston LNG company with just one contracted buyer. It has since launched a failed attempt to raise $1 billion for the project through a public offering and struggled to attract institutional investors for Driftwood, built on a riskier business model that, if constructed, could also allow the company to reap greater profits.

The sale-leaseback comes as Souki reported to regulators that he had sold more than 25 million shares of Tellurian stock since Feb. 8, reducing his position to less than 1.7 million shares, to repay a real estate loan that he said was unrelated to the company. During an interview last month with Bloomberg TV , Souki said the real estate investment that precipitated the selloff "was not exactly the wisest deal that I've made."

The most recent sales were for about 187,000 shares at $1.26 each on April 4 and for just over 195,000 shares at $1.21 each the next day.

It has been a fraught time for the company, which nearly a year ago made the unusual decision to begin building the Driftwood project before reaching a final investment decision. Tellurian's shares had tanked heading into 2023 and were trading around $1 recently. Two board members resigned in January and its chief financial officer resigned last month.

Clark Williams-Derry, energy finance analyst with the Institute of Energy Economics and Financial Analysis, said he has watched these struggles with concern and believes the Driftwood deal could be seen as another risk for investment-grade equity partners.

"Equity partners could potentially be on the hook for a 40-year real estate lease with escalating annual payments," he said. “Taken together, these are all huge red flags for Tellurian.”

Ben Nolan, an energy analyst with Stifel, wrote in a research that the Driftwood deal was "a baby step in the right direction," but that it did not remove skepticism about the ailing project. He said Driftwood "has virtually no chance of moving forward."

In the interview,  Souki declined to name the Driftwood investor, saying the name would become public when the deal closed, and until then it was up to them to reveal themselves.

In a filing with the SEC, Tellurian described the unnamed investor as a New York-based institutional investor with around $120 billion in assets under management.

The market responded favorably to the announcement, sending Tellurian shares up 23 percent to close at $1.45 Thursday.