Tellurian strikes $1 bil deal to sell and lease back land for Driftwood LNG project

April 6, 2023  spglobal.com

Highlights

Sale-leaseback deal advances developer's financing efforts

Tellurian seeking equity partners in Driftwood

First phase of export project to produce 11 million mt/year

US developer Tellurian said it has signed a $1 billion sale and leaseback deal for the 800-acre property where it is developing its proposed Driftwood LNG terminal in Lake Charles, Louisiana, as part of the company's efforts to secure the financing it needs for the export project.

The agreement disclosed in an April 6 US securities filing by Tellurian will see the company sell its interests in the property to a New York-based institutional investor for $1 billion and lease it back for a 40-year term at a capitalization rate of 8.75% and with annual rent escalators of 3%. The deal comes at a time when Tellurian has focused on seeking equity partners for Driftwood, emphasizing its pursuit of large international companies with exposure to oil and gas prices, in order to advance the project to full construction.

The binding letter of intent signed by Tellurian was subject to several conditions, including that Tellurian secure the rest of the financing it needs for the first phase of the Driftwood project, which could produce about 11 million mt/year before expanding up to 27.6 million mt/year. The deal calls for Tellurian to post a letter of credit equal to 12 months of rent. Additional requirements include that equity investors in Driftwood be joint contingent guarantors of the lease and maintain an investment-grade credit rating of BBB. The filing described the institutional investor as having about $120 billion in assets under management.

Tellurian started early construction of Driftwood in late March 2022, but the developer has given its contractor only a limited notice to proceed with work while Tellurian works to arrange financing to complete the terminal and an associated feedgas pipeline.

Tellurian had said in the weeks before striking the recent real estate deal that it was seeking about $4.5 billion in project equity to advance its proposed Driftwood LNG terminal and that it sought to raise about $3 billion in equity investment from third parties on top of Tellurian's equity investment in Driftwood of about $1 billion toward developing the project.

Tellurian has faced a series of setbacks in its efforts to advance Driftwood over the past year, including the 2022 termination of two sale and purchase agreements and the cancellation of a $1 billion high-yield bond sale that would have helped support construction with the terminal. Tellurian only has one remaining firm offtake agreement, a 3 million mt/year contract with commodity trader Gunvor. That offtake agreement could be terminated or extended, with the latest deadline for Tellurian to meet certain terms, including commercially sanctioning the initial phase of Driftwood having passed at the end of February.