Big Deal or Nah? LNG exporter Tellurian buying Haynesville acreage for $85.1M

My gut tells me this is a big deal for the region and the Haynesville play-what we were hoping and expecting to happen eventually. What are your thoughts? Will other exporters follow and do the same?

HOUSTON, TX--(Marketwired - September 06, 2017) - A wholly-owned subsidiary of Tellurian Inc. (Tellurian) (NASDAQ: TELL) has entered into an agreement with a private seller to acquire natural gas producing assets and undeveloped acreage in northern Louisiana for $85.1 million. The transaction is scheduled to close by the end of November 2017 subject to customary closing conditions.

The assets are located in Red River, DeSoto and Natchitoches Parishes, and include:

  • 9,200 net acres with up to 138 operated Haynesville and Bossier drilling locations
  • Approximately 1.3 trillion cubic feet (Tcf) of total natural gas resource potential 
  • 19 producing operated wells with net current production of four million cubic feet per day (MMcfd)
  • Associated natural gas gathering and processing facilities with substantial additional capacity

The assets are 100% held by production and 92% operated, allowing Tellurian to control the pace of development for its multi-year drilling inventory. 

President and CEO Meg Gentle said, "Acquisition of natural gas producing assets is integral to our growing business. We expect our full cycle cost of production and transport to markets will be approximately $2.25 per MMBtu, which represents a significant savings to natural gas we will purchase at Henry Hub and other regional liquidity points. Platts LNG Daily reported the price of LNG in the Gulf of Mexico was $5.67 per MMBtu yesterday, providing the price signal to construct additional liquefaction capacity."

Covering more than five million acres, the Haynesville shale is one of the most prolific resource plays in the United States with over 13 Tcf of historical production, more than 44 active drilling rigs, access to multiple pipelines and close proximity to Gulf Coast consumers and exporters.

About Tellurian Inc.

Tellurian was founded by Charif Souki and Martin Houston and is led by President and CEO Meg Gentle. Tellurian plans to build a natural gas business that includes development of the Driftwood LNG terminal, an ~ 26 mtpa LNG export facility, and an associated pipeline. Tellurian intends to create value for shareholders by developing low-cost natural gas-related infrastructure, profitably delivering natural gas to customers worldwide and pursuing value-enhancing, complementary business lines in the energy industry. Tellurian is based in Houston, Texas, and its common stock is listed on the Nasdaq Capital Market under the symbol "TELL".

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Interesting!  Can't wait to hear more....  

Keith, it is.  Tellurian  is also building Driftwood LNG , production and export terminal on the west bank of the Calcasieu River, south of Lake Charles, Louisiana.  The plan once complete is to  export up  to six million tons of LNG per year to.   Construction of the 96 mile pipeline and plan is expected in 2018 ad completed in 2022.

No.  And, yes.  For the wider Haynesville Play, no.  For the mineral owners in those 9200 acre, yes - probably, eventually.  First, this is most likely rock of lesser quality, thus the meager acquisition price.  If it was attractive as a "bolt on" acquisition for current Haynesville operating companies, one of them would have likely paid more per acre.  Secondly, Tellurian has no obvious operating experience but that can be hired for a price.  And they will not be ready to source natural gas from these acres until their facility is online - 2022.

Long time GHS members may remember an agreement for the direct sale of natural gas from Encana to Nucor for their DRI Louisiana plant.  Although the agreement was nullified before the plant was operational, there still exists the possibility of direct sales from operating companies to end users in relatively close proximity.  The devil is in the details as to price structure and length of buyer commitment but there should be some reasonable benefits for seller and buyer long term.

Sounds like the landowners may get less and this company will make the money as the middle man.

Well, that's not what i want to hear.  :( 

As reported in the sale announcement, the majority of this acreage is HBP (Held By Production).  The royalty revenue for these landowners is thus controlled by their leases.  A lease is a binding contract no matter what company operates the wells and sells the gas.  If Tellurian wished to raise post production charges on lessors, they could.  We won't know that for some time to come but the crux of that question still goes back to lease language.

Tellurian and other LNG exporters are technically not middle men, they are end users.  An end user owning reserves is not uncommon.  Currently NextEra/Florida Power & Light is assembling a Haynesville operating footprint in the Greenwoo-Waskom Field with Comstock as operator.  FP&L has acquired interests in reserves as an ongoing business practice for years.  The pipeline system across much of our area provides connections to most of the southeast. Since natural gas is fungible, the gas produced in west Caddo doesn't have to travel to Florida.

Thanks, Skip.  Makes more sense now!

I could look for my 10 year old lease and see what it says about royalty payments, but they are generally based on sales price.  If the NG is used for feed stock by the operator of the well, or in this case, for conversion into LNG, on what price are the royalties calculated?  

This is the point I was making. Since they are not buying on the market what sets their price for the royalties?

Ya got me.

When are they coming to Morehouse parish.

Seems that the mineral owners in those acres will probably benefit by increased drilling when the trains eventually do come online, even though the price for the NG will be lower than the Henry Hub. The negative is that since Tellurian will be buying less NG from the open market, this means that there will be sightly less demand for the NG owned by the other mineral owners and operators in the Haynesville. If Tellurian had to buy on the open market, it would help support a higher NG price.  


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