Tellurian tightens belt amid dim short-term outlook for LNG industry

By Sergio Chapa    Updated 6:05 pm CST, Monday, March 2, 2020  chron.com

Houston liquefied natural gas company Tellurian is tightening its belt amid a global supply glut of LNG attributed to a warm winter and weaker demand from China where the coronavirus has forced industrial customers to shut in production.

Houston liquefied natural gas company Tellurian is cutting costs and reorganizing some debt as LNG prices remain low amid a global supply glut caused by a warm winter in Asia and the coronavirus outbreak.

The company said Monday that it would cut corporate expenses by about 18 percent to $6 million per month to help ride out the storm. It also is trying to extend the maturity of a term loan due in May.

“Given current global financial market conditions and increasing restrictions on travel caused by the onset of coronavirus, we are taking the steps necessary to focus on preserving the value we have created at Tellurian and Driftwood LNG," CEO Meg Gentle said in a statement.

Monday's announcements came less than a week after the company posted a $151.8 million loss in 2019, up 21 percent from a $125.7 million loss a year earlier. Annual revenue, however, grew by 180 percent to $28.8 million from $10.3 million in 2018.

Tellurian has no operating export facility and relies entirely on sales from its 67 natural gas wells for revenue. It has a federal permit to export 27.6 million metric tons of LNG per year from a planned Driftwood LNG facility in Lake Charles, La., but hasn't made a final investment decision on the project.

Among Tellurian's expenses, the largest in 2019 was corporate overhead — about $87.5 million, or $7.3 million a month. Development expenses for the company's wells, pipelines and Driftwood LNG export terminal totaled $59.6 million in 2019.

The Driftwood LNG project, which received a $500 million investment last year from Total, still lacks a large anchor investor after Tellurian and India's PetroNet failed to sign a $2.5 billion deal last week during President Donald Trump's visit to the country. The March 31 deadline for the deal has been pushed back to May 31.

India has emerged as a growing global buyer of LNG. over the past year. But with the global supply glut driving down LNG prices, PetroNet is seeking out other sellers, Bloomberg reported.

Amid a warm winter and weaker demand, natural gas prices in the United States have been stuck below $2 per million British thermal units since January while Asian LNG prices have plunged below $3 at a time when they usually rise to two or three times that price. Tellurian says it can load LNG on the water for $3 to $4 per million British thermal units.

At least one analyst is not optimistic about Tellurian's future.

"Continued commercial slippage, mounting liquidity concerns, and the broader market de-risking have combined to price-in the new economic reality for Tellurian," said Michael Webber of Webber Research & Advisory, which specializes in the LNG market. "It’s not going to make it."

Shares of Tellurian on Monday closed down nearly 9 percent at $1.64 as the broader market moved higher by about 5 percent. During the past week, the stock has lost 75 percent of its value, falling from a close of $6.51 on Feb. 21.