Houston—With an end-December target approaching, it was uncertain whether Tellurian would be able to firm up an agreement with India's Petronet to invest up to $2.5 billion in the US developer's proposed Driftwood LNG export project in Louisiana.
The talks have been complicated by challenges executives have had meeting face to face due to the coronavirus pandemic, volatile commodity prices and a global market that is awash in supplies that are available without making new long-term commitments.Appearing to already be looking ahead to 2021 for building the needed commercial support to sanction the up to 27.6 million mt/year liquefaction terminal and affiliated feedgas pipeline, Tellurian's board awarded co-founder Charif Souki a compensation package that recognizes, what the company said, has been his work related to Driftwood since being named executive chairman in June, according to a Dec. 16 US securities filing.
"Mr. Souki's service in such capacity includes working closely with management on the company's financing activities and the development and financing of the Driftwood project," Tellurian said.
A Tellurian spokeswoman declined to comment Dec. 16 on the Petronet talks. Petronet officials did not immediately respond to a message seeking comment outside of business hours in India.
During an investor conference call on Nov. 12, Petronet executives said that at that point there had been little progress in the talks with Tellurian and suggested Petronet was in no hurry to make a firm deal. Petronet named a new interim CEO, Vinod Kumar Mishra, in September.
"If you look at the market, now LNG is readily available without any investment at a very reasonable size," Petronet CFO Rakesh Chawla said during the call.
Mishra said during the call that the preliminary agreement with Tellurian was "only for exploring the possibility" of a deal. The memorandum of understanding was first signed in September 2019. It expired in May, then was renewed in July, with the hopes of reaching a firm deal by the end of 2020.
"Looking at the kind of margins nowadays in LNG, it's not very lucrative to have investment done in liquefaction projects because the return is very low," Mishra said. "So that will not suit our requirement. And moreover, investment is usually made when we get some additional benefit out of it. But right now, when we are having LNG available at a very throwaway price, then there is no need to invest money for this liquefaction terminal because we are, in any case, getting a very cheaper LNG in the globe -- across the globe."
Mishra acknowledged that Petronet would still like to see what happens in the future, as it works to ensure the lowest price possible for LNG as well as ensure security of supply. In the weeks since those comments, the S&P Global Platts JKM, the benchmark for spot LNG delivered to Northeast Asia, has jumped, rising recently above $12/MMBtu, an almost sevenfold increase since JKM's historic low in April.
Tellurian, meanwhile, has been in flux.
Meg Gentle stepped down as CEO in late November. She was replaced by industry veteran Octavio Simoes, who was named Tellurian 's marketing chief in September, a year after joining the company as a special adviser to Gentle.
Souki's new pay package includes $900,000 in cash compensation for 2020. For 2021, he will receive cash compensation of $100,000 per month and the issuance of 10 million non-qualified stock options, according to the filing with the Securities and Exchange Commission.
Commercial effortsAt full development, about half Driftwood's capacity is expected to be used by equity investment partners Tellurian has been soliciting. The remaining capacity is to be retained by Tellurian to market on its own.
To date, however, only France's Total has made a firm commitment to support the project—a $500 million investment signed in 2019. Total -- which agreed earlier in December to invest in Sempra's Energia Costa Azul LNG export project in Mexico and also has stakes or offtake obligations at Sempra's Cameron LNG in Louisiana, Freeport LNG in Texas and Cheniere Energy's Sabine Pass in Louisiana -- can back out of its Driftwood commitments if Tellurian does not declare a positive final investment decision by June 2021.
The Tellurian spokeswoman declined to say Dec. 16 whether Tellurian and Total were in talks about extending their agreement, if necessary.
