Woodside to acquire Tellurian for $1.2 billion, aims to emerge 'global LNG powerhouse'

Deal intended to get Driftwood LNG project in the US get off the drawing board

• Nishant Ugal Amanda Battersby  New Delhi/Singapore Updated 22 July 2024

Australia’s Woodside Energy is set to acquire beleaguered US-based liquefied natural gas player Tellurian for US$1.2 billion, as it envisages emerging as a global LNG powerhouse.

Cash-strapped Tellurian urged its shareholders to approve the deal, which should see development of the stalled 27.6 million tonnes Driftwood LNG project in the US finally leave the drawing board.

"After careful consideration of Tellurian’s opportunities and challenges, the board and senior management weighed an immediate and significant cash return against the risks and costs associated with the timeline to FID [Driftwood's sanction) and determined that this offer is in our shareholders’ best interest," said Martin Houston, Tellurian's executive chairman.

"Woodside is a highly credible operator, with better access to financial resources and a greater ability to manage offtake risk, and I am confident it is the right developer to take Driftwood forward.”

Woodside is targeting FID readiness for Phase 1 of the Driftwood LNG development opportunity from the first quarter of 2025.

Driftwood is a fully permitted, pre-financial investment decision, proposed greenfield liquefaction project at Lake Charles in Louisiana, in the US.

The current development plan comprises five liquefaction trains via four development phases, with total permitted capacity of 27.6 million tpa.

The foundation development involves Phase 1 with an 11 million tpa and Phase 2 with a 5.5 million tpa capacity.

Woodside expects development costs of between $900 to 960 per tonne for phases 1 and 2, which are being executed under a lump-sum turnkey contract with Bechtel

Construction has commenced, with pilings for Trains 1 and 2 complete, foundation work in progress and pilings under way for the LNG tanks. The progress on ground work reduces the risk to the engineering, procurement and construction (EPC) timeline and cost, noted Woodside.

Deal details

The Australian company on Monday confirmed it had “entered into a definitive agreement to acquire all issued and outstanding common stock of Tellurian, including its owned and operated US Gulf Coast Driftwood LNG development opportunity".

The other key considerations include $50 million for Tellurian’s convertible preferred equity shares, $90 million of net debt, another $90 million net working capital adjustment and $65 million for management and debt change of control costs.

The implied total enterprise value of the transaction, including net debt, is approximately $1.2 billion.

Woodside chief executive Meg O’Neill said that the “acquisition of Tellurian and its Driftwood LNG development opportunity positions Woodside to be a global LNG powerhouse".

“It adds a scalable US LNG development opportunity to our existing approximately 10 million tonnes per annum of equity LNG in Australia. Having a complementary US position would allow us to better serve customers globally and capture further marketing optimisation opportunities across both the Atlantic and Pacific Basins,” she said.

The acquisition price represents a 75% premium to Tellurian’s closing price on 19 July 2024, and a 48% premium to its 30-day volume weighted average price, which the seller said reflects Driftwood LNG’s premier site, fully permitted status, advanced stage of pre-FID development and [the project's] strong relationships with [main contractors] Bechtel, Baker Hughes and Chart.

The transaction, which was unanimously approved by both boards of directors, is expected to close in the fourth quarter of 2024, subject to customary closing conditions, including approval from Tellurian shareholders and the receipt of regulatory approvals.

'Significant cash generation potential'

Woodside added that the transaction has a “significant cash generation potential to underpin long-term shareholder returns".

O'Neill added Woodside expects to “leverage its global LNG expertise" to unlock the fully permitted Driftwood LNG project and expand its relationship with Bechtel which is the EPC contractor for both Driftwood and its own Pluto Train 2 project in Australia.

Upstream asset sale

Beleaguered LNG player Tellurian in May signed a $260 million deal to sell its upstream assets in the Louisiana region of the Haynesville shale play to privately owned Aethon Energy, which has also signed an agreement to buy 2 million tpa of LNG from Driftwood.

This transaction was unveiled almost four months after Tellurian appointed Lazard to assess monetisation options for its upstream assets, with Tellurian opting to focus its efforts and resources into developing Driftwood LNG.

However, acknowledging the significant financial challenges that Tellurian had been facing, Houston on Sunday told shareholders the board had thoughtfully considered the risks and costs associated with continuing to develop Driftwood on its own "versus other alternatives".

"Ultimately, we decided the attractive offer in hand outweighed the risks and uncertainty associated with going it alone," he said.

"This is a transaction which can be executed now, whereas the financing required to bring Driftwood into FID is contingent on commercial agreements with LNG buyers who may seek greater certainty from brownfield expansions or from project developers with larger balance sheets.

"While the equity and debt required to launch Driftwood was available, fewer equity capital providers are seeking development projects in the US. Equity providers are now less inclined to take risk ahead of projects being fully contracted," he explained.