Tellurian evaluates changes to Driftwood LNG project, plans shares issue

(Reuters) - Tellurian Inc is considering changes to its Driftwood LNG export project in Louisiana that could significantly reduce the overall Phase 1 costs, the U.S. liquefied natural gas producer said on Wednesday.

FILE PHOTO: The logo of Tellurian Inc is seen in its booth at Gastech, the world's biggest expo for the gas industry, in Chiba, Japan April 4, 2017. REUTERS/Toru Hanai

The company also disclosed plans to issue 35 million shares at $1 each, a 37% discount to Tuesday’s close, sending its stock plunging 27%.

Shares surged more than 50% on Tuesday after sources said India’s Petronet LNG renewed a deal to give the parties more time to finalize an investment in the project.

LNG developers have delayed numerous projects as the COVID-19 pandemic sapped overall fuel demand and hammered gas prices. Natural gas was trading at $1.65 per million British thermal units, about 30% lower than a year earlier.

Tellurian has said the Driftwood project, designed to produce 27.6 million tonnes per annum of LNG, is expected to cost $27.5 billion, including pipelines. About $15.4 billion of the estimate is for a contract with Bechtel Oil, Gas and Chemicals Inc to build the export plant.

Tellurian did not provide details on the cost cuts, but Scotiabank analysts said the reduction could mean the potential removal of the Permian pipeline, which could lead to savings of $4.2 billion.

The equity offering will boost Tellurian’s liquidity to about $123 million on a pro forma basis, and Scotiabank analysts estimated could provide the company “sufficient runway until July 2021” based on a $6 million monthly cash burn.

The offering “provides some needed capital to extend discussions with potential customers”, the analysts said.

Tellurian also warned of substantial impairment charges in the second quarter related to its reserves and the carrying value of its assets, if gas prices do not increase.

The company did not provide an estimate for the impairment and did not immediately respond to a request for more details.

Reporting by Shradha Singh and Arathy S Nair in Bengaluru and Scott DiSavino in New York; Editing by Shailesh Kuber and Sriraj Kalluvila