Page 6 - GLNG Week 40 2022

GLNG COMMENTARY GLNG

Setbacks for Tellurian’s

Driftwood LNG

US-BASED Tellurian has found its plans to build on the dollar.
COMMENTARY the Driftwood LNG export project on the Lou- The move was seen as a signal that investors
isiana Gulf Coast beset by new uncertainty. On were demanding increasingly favourable terms
September 19, the company announced it was in order to be willing to fund construction of
withdrawing a high-yield bond sale worth $1bn Driftwood LNG, whose first phase is estimated
after struggling to attract investors. Then on Sep- to cost around $12.8bn, according to a recent
tember 23, the company said sales and purchase Tellurian filing. The company had reportedly
agreements (SPAs) for a combined 6mn tonnes been hoping to raise at least $7.5bn in project
per year (tpy) of LNG supplies from the project financing from banks, and had been circulating
with two of Driftwood’s offtakers, Shell and term sheets with 20 banks, according to a Credit-
Vitol, was terminated. Sights report cited by Bloomberg. The news ser-
These developments throw Driftwood’s vice also noted that the all-in-yield being offered
future into new doubt. Tellurian has sought to in the bond sale had been rated BBB minus by
assuage investor concerns by saying the com- Egan-Jones Ratings Co. but was near trading
pany has updated its financing strategy for the levels for the average CCC rated credit, which is
project to prioritise finding equity partners and among the riskiest debt.
has sought to emphasise its status as an exist- The structure of Tellurian’s SPAs did not
ing natural gas producer with revenue from its appear to give investors much confidence either
output. Nonetheless, the market appeared to – with this even more of a challenge now that
take a negative view and the company’s share two of them have been cancelled. But prior to the
price crashed by 24% immediately following the cancellation, the fact that the SPAs were based
announcement of the cancelled bond sale. on global gas prices, whereas other LNG pro-
Given that Tellurian still needs to secure ducers typically rely on fixed-fee contracts, did
further financing for Driftwood and that it had not appear to instil much confidence in potential
previously expected Shell and Vitol’s SPAs to investors.
support construction of the first phase of the Tellurian had previously talked up the flex-
project, the latest developments make the path ibility it could offer to LNG buyers, but in this
forward considerably more difficult. instance, structuring its SPAs differently from
other Gulf Coast producers did not pay off. The
Financing woes SPAs signed last year allowed for cancellation in
The withdrawal of the bond sale came after Tel- the event that full financing for the first phase
lurian tried to sweeten the deal on offer in a bid of Driftwood had not been obtained by the end
to attract investors, raising the effective yield of July 2022. While Shell was reported to have
to 12.5%. It also added shale gas fields to the cancelled its 3mn tpy SPA, Tellurian sent a termi-
secured assets included in the transaction. The nation notice to Vitol itself for its separate 3mn
bond was offered at a discounted price of $0.955 tpy agreement. The status of one further SPA

P6 www. NEWSBASE .com Week 40 07•October•2022