Low U.S. Natural Gas Prices Pose Challenges for Tellurian Asset Sale Plans

(Reuters) — Low U.S. natural gas prices will hurt Tellurian Inc's ability to sell Louisiana gas producing properties in order to pay off enough debt to salvage its liquefied natural gas (LNG) export 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 the 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.

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