Driftwood LNG developer Tellurian resumes gas drilling after 2 1/2-year pause

Highlights

Company has small acreage position in Haynesville

Price trajectory renews liquefaction project optimism

• Author  Harry Weber 27 Apr 2021 spglobal.com/platts

Houston — Tellurian has resumed gas drilling in Louisiana's Haynesville Shale after not spudding a well in 2 1/2 years, Executive Chairman Charif Souki said April 27.

The disclosure, in a podcast posted on Tellurian's website, comes as the company recently paid off all its debt and continues to focus on securing commercial deals to finance construction of its proposed Driftwood LNG export terminal in Louisiana.

In an interview with S&P Global Platts in March, CEO Octavio Simoes said Tellurian plans to produce all the natural gas it will need to feed Driftwood and will not sanction the up to 27 million mt/year liquefaction project until it has secured sufficient upstream reserves for the 16 million mt/year first phase. Though it currently has a small acreage position in the Haynesville -- 9,373 net acres and interests in 72 producing wells as of March -- Tellurian is looking to grow. It resumed its drilling program by spudding a new well April 25, Souki said in the company podcast.

"At current prices and where we think prices will continue to go, it makes a lot of sense to resume drilling again," Souki said.

Production forecast revised upward

Recent strength in US gas production has resulted in over a 1 Bcf/d upward revision to Platts' summer 2021 production forecast and likewise an increase to the October 2021 US storage forecast from 3.3 Tcf to 3.5 Tcf.

While domestic gas prices are incentivizing drilling, robust demand has been bullish for global prices, strengthening netbacks to the Gulf Coast from Asia and Europe and spurring record US LNG exports during what is traditionally shoulder season, when facilities undergo routine maintenance.

Those trends, together with the company clearing its balance sheet with a $17 million debt payment April 23, bode well for Tellurian's hopes for building Driftwood, Souki said.

"We are debt free, drilling with equity and focusing on incurring no additional risk," Souki said. "We're protecting the downside, and we're preparing for the wonderful upside that the global natural gas industry is providing us."

Firm commitment by Total

At full development, about half of Driftwood's capacity has been expected to be used by equity investment partners that Tellurian has been soliciting for the last few years. The remaining capacity is to be retained by Tellurian to market on its own.

To date, however, only France's Total has made a firm commitment to an equity partnership in Driftwood -- a $500 million deal signed in 2019. Total can walk away from the project investment if Tellurian does not declare a final investment decision by June.

While Tellurian continues to pursue investment partners, it is offering 10 million mt/year of Driftwood supply for a 10-year term for the price of the monthly Platts JKM assessment or Dutch TTF index, minus the cost of shipping. By eliminating the US Henry Hub gas price from the equation, Tellurian hopes to alleviate one measure of volatility that has so far prevented it and many of its North American competitors from building new liquefaction terminals.

"You can think of Tellurian as an option on the global gas markets," Souki said in the podcast.