Page 13 - NorthAmOil Week 33

NorthAmOil INVESTMENT NorthAmOil

Tellurian reduces cost of

Driftwood Phase 1 by 30%

LOUISIANA HOUSTON-BASED Tellurian has amended deferred pipelines are estimated to cost $4.2bn
the plan for the first phase of its proposed Drift- and $1.4bn respectively.
wood LNG project, according to an August 12 The company did not mention the fourth pro-
investor presentation. The changes will allow the posed pipeline, known as the Delhi Connector,
company to reduce the capital cost of Phase 1 by which would also have a capacity of 2 bcf per
around 30%, it said. day and is estimated to cost $1.4bn. However,
If Tellurian decides to sanction the 27.6mn the comments about the Driftwood pipeline
tonne per year (tpy) Driftwood facility, it will being the only one to go ahead under the first
now only build one pipeline to the plant during phase imply that Delhi Connector has also been
the first phase of development, having previously deferred.
proposed four. This, combined with a focus on The overall cost of Phase 1 of Driftwood is
lower-cost feedstock gas supplies, has allowed now estimated at $16.8bn, with the liquefaction
the company to bring its cost estimate for the first terminal accounting for $10.6bn of this. The total
phase down from $1,473 per tonne to $1,042 per cost of the project had previously been estimated
tonne, based on the Phase 1 contractor-guaran- at $27.5bn.
teed capacity of 14.4mn tpy. A final investment decision (FID) on Drift-
Under the company’s amended plan, only wood is currently delayed until 2021, as Tellurian
the Driftwood pipeline, which has a capacity continues to court potential investors. The com-
of 4bn cubic feet (113mn cubic metres) per day pany recently revived a memorandum of under-
and federal regulatory approval in place, would standing (MoU) with India’s Petronet, which had
be included in the first phase of construction. expired in May without the two firms finalising
Tellurian said in its presentation that it would a definitive agreement on the purchase of up to
defer the Permian Global Access and Haynesville 5mn tpy of LNG from Driftwood. The renewal
Global Access pipelines, which have a planned reportedly gives the companies until the end of
capacity of 2 bcf (57 mcm) per day each. The December to finalise the deal.™

Southwestern buys Montage

to expand in Appalachia

US NORTHEAST SOUTHWESTERN Energy has agreed to West Virginia and north-central Pennsylvania.
buy Montage Resources in the latest sign of an There is considerable overlap between the assets,
uptick in US oil and gas mergers and acquisitions and the deal will give Southwestern a presence in
(M&As). In a joint August 12 statement, the two Ohio, which it does not currently have, targeting
companies said Southwestern would acquire the dry gas portion of the Utica shale.
Montage in an all-stock transaction valued at Southwestern anticipates that Montage’s
more than $200mn. Montage shareholders will assets will be complementary to its own, allow-
receive 1.8656 shares of Southwestern stock for ing the combined company to increase scale.
each Montage share, with the valuation based on It expects to achieve synergies worth roughly
Southwestern’s August 11 closing price of $3.04 $30mn in annual general and administrative
per share. (G&A) savings following the transaction close,
Notably, Southwestern will also take on in addition to operational efficiencies.
Montage debt worth $670mn, putting the total The companies also described the combina-
value of the transaction including debt at over tion as a “step change” in free cash flow (FCF),
$870mn. It is likely – if M&A activity continues resulting in around $100mn per year of FCF
to pick up as expected – that an increasing num- beginning in 2021 based on current strip pricing.
ber of acquisitions will come with a high propor- The combined company will have 786,000
tion of debt as overleveraged producers look for acres (3,181 square km) across the three states,
options to survive the downturn. with output of 2.8bn cubic feet (79mn cubic
The merger will make Southwestern the metres) per day. Gas will account for around
third-largest producer in the gas-rich Appala- 80% of output.
chian Basin. Montage owns roughly 195,000 net The transaction is anticipated to close in the
acres (789 square km) across south-east Ohio, fourth quarter of this year.™

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