Low US natgas prices to dampen prospects for Tellurian asset sale
01/03/2024 13:00
By Curtis Williams
HOUSTON, March 1 (Reuters) - Low U.S. natural gas prices
will hurt Tellurian Inc's TELL.A ability to sell Louisiana gas
producing properties in order to pay off enough debt to salvage
its liquefied natural gas export (LNG) project, analysts said.
Tellurian has spent nearly seven years advancing its still
incomplete Driftwood LNG export plant. This month it proposed to
sell a gas producing business and use proceeds to pay down
outstanding 10% high-yield and convertible notes, according to
its latest annual report.
Last fall, its accountants warned it might not be able to
cover debt and operating costs this year. Low natural gas prices
drove the unit to a $55.5 million operating loss last year from
a $130.6 million operating profit in 2022, results released last
week showed.
Continued low prices "may result in write-downs of our
natural gas or oil properties," Tellurian separately warned in
its annual report.
Near-term cash flow from the production business is
declining and any gas acreage on offer likely will have reduced
value, said Benjamin Nolan, a managing director at financial
firm Stifel.
"There is no question it is less (valued) now than what it
was when gas prices were $4 and $5 (per mmBtu)," Nolan said.
U.S. gas futures on Thursday traded at $1.85 per million
British thermal units (mmBtu), on track for a fourth straight
monthly decline. The price hit a 30-year low on an inflation
adjusted basis this month.
Low prices have contributed to depressing the number of gas
mergers and acquisitions, said Andrew Dittmar, a senior vice
president at data analytics firm Enverus.
"Because sellers don’t want to exit at low prices that have
depressed asset values," said Dittmar.
But there remains a lot of interest in the Haynesville
assets and its LNG export project, a Tellurian executive said on
Wednesday.
The export project “is one of the few U.S. projects with any
permitted LNG capacity remaining to sell, so we expect to
leverage off of this positive momentum for Driftwood, and the
substantial interest in our upstream assets,” CEO Octavio Simoes
said.
The White House pause on new LNG export approvals helps
Tellurian but may hurt the sale of its gas assets because the
move could dampen demand growth from LNG, crucial to higher gas
prices and further M&A deals, said the analysts.
"There is still buyer appetite in the market to acquire
assets at the right price," said Dittmar, who puts the value of
Tellurian's upstream business at between $350 million and $500
million. Stifel's Nolan estimated its value at closer to $270
million.
Tellurian's former CEO Charif Souki in a November 2023
podcast suggested the properties could be worth over $500
million.
If the company cannot get at least $270 million or higher
for the properties, it would be in serious jeopardy, said Nolan.
"If they are able to get a good price for those
assets...then I don't think they will be a Chapter 11 candidate
this year because they could probably sell shares and have
enough money to keep going," said Nolan.
(Reporting by Curtis Williams in Houston; Editing by David
Gregorio)
((Curtis.Williams@thomsonreuters.com; +1 346 324 7560;))