Total sheds 1 million Tellurian shares as US struggles to advance new LNG projects

spglobal.com/plats  3 Aug 2020

Highlights

French company VP steps down from the developer's board

Driftwood LNG project proposed to be built in Louisiana

• Author  Harry Weber   Editor  Valarie Jackson

Houston — France's Total has further cut its stake in Tellurian and one of its executives has stepped down from the Driftwood LNG developer's board of directors, according to an Aug. 3 US regulatory filing.

Total currently does not plan to designate a replacement.

The disclosures come as challenging global LNG market conditions continue amid the coronavirus outbreak, which has hit demand, disrupted trade flows, and pushed down the value of US operators' shares sharply.

As a major Tellurian shareholder and the only committed equity investor so far in the proposed Driftwood project in Louisiana, Total is an important partner. Total began selling blocks of Tellurian shares, now totaling more than 1 million, July 8, cutting its stake in Tellurian from 19% when Total first agreed to invest in Driftwood to 17.4% as of the filing with the Securities and Exchange Commission.

A Tellurian spokeswoman declined to comment. Total officials did not respond to several messages seeking comment. Total said in an earlier filing that it would continue to sell Tellurian shares "from time to time."

Widespread cancellations of US LNG cargoes scheduled to be loaded at existing terminals this summer have added to the market uncertainty that is currently keeping a lot of project investors on the sidelines. Feedgas flows to the six major US liquefaction terminals in operation hit a 17-month low in July and shut down entire trains at some facilities before rebounding slightly at the end of the month and into the beginning of August.

The US cancellations have been a "wake-up call" for the industry that new LNG projects will not automatically be profitable, a senior Total official said June 12. Earlier, in May, Total's CEO said during an investor call that Total did not expect to expand its North American LNG business in the near term and that he believed it would be "strange" for Driftwood to move forward.

Total has offtake contracts for some 3.2 million mt/year of LNG from Cheniere Energy's Sabine Pass and Sempra Energy's Cameron LNG export facilities, both in Louisiana. Total also controls over 2.2 million mt/year of LNG from the third train at the Freeport LNG export terminal in Texas. It inherited that commitment when it acquired Toshiba's US LNG business last year before the coronavirus began to spread globally in January.

Freeport LNG was among the US operators that shut down trains in July because of weak market conditions, according to a July 31 air emissions report to Texas regulators. The terminal recently began flaring because of the restart of Train 1, the report said. A separate air emissions report said that as part of initial commissioning of Train 3 at Cheniere's Corpus Christi Liquefaction terminal in Texas, the company would begin the startup of the fuel gas, feedgas, refrigeration, and flare systems Aug. 2.

Total can back out of its Driftwood commitments if Tellurian does not declare a positive final investment decision by June 2021, according to a person familiar with the terms. Tellurian has already delayed until next year a decision about whether to begin construction.

Remaining stake

Total currently holds 44.9 million Tellurian shares, versus about 46 million on April 5, 2019. A few days earlier, Total agreed to make a $500 million investment in Driftwood in exchange for the right to lift 1 million mt/year of LNG for the life of the up to 27 million mt/year terminal. Total also agreed to buy 1.5 million mt/year of offtake from Tellurian's marketing unit, indexed to the Platts JKM, the benchmark price for spot-traded LNG in Northeast Asia.

The transaction included Total's plan to buy $200 million in additional Tellurian shares, to boost its stake in the company to about 20%.

Per a 2017 agreement with Tellurian and its founders, Total was allowed to name a director to Tellurian's board. According to the latest SEC filing, Eric Festa, Total's vice president of midstream gas assets, resigned from the Tellurian board July 31.

The filing did not say why, noting only that the reason did not result from any disagreement between himself and Tellurian, Tellurian's management, or Tellurian's board.

Recently, India's Petronet resumed talks with Tellurian about potentially investing up to $2.5 billion in Driftwood. The two sides have given themselves until December to reach a final agreement, according to a person familiar with the situation.