Why Tellurian Cratered This Week

Shares of Tellurian (NYSEMKT: TELL) cratered roughly 42.7% this week, according to data from S&P Global Market Intelligence.

Tellurian is an upstart company attempting to build its massive Driftwood LNG export plant in Louisiana. However, as interest rates spiked through 2022, and now that natural gas prices have cratered in 2023 and this year, the company has seen offtake agreements canceled and financing difficult to come by.

This week added to the woes, as its current CEO resigned, and a potential buyer for the partially completed Driftwood plant said the asset wasn't that attractive, in explaining his company's choice to pass on buying Driftwood.

Turmoil at the top and hopes for a bailout fade

Earlier this month, Tellurian had let the public know it had elected not to renew the employment contract of CEO Octávio Simões beyond June of this year. But late Friday last week, the company disclosed that Simões decided to resign early. On Monday of this week, the company announced lower-level executives would be put in charge of parts of Tellurian's business, with Vice President Samik Mukherjee and President Daniel Belhumeur taking over operations and finance duties, respectively.

Turmoil in the C-suite is never great news for a company, especially one as troubled as Tellurian. Late last year, the company ousted founder and former CEO Charif Souki, and now his replacement is gone as well. It appears the board had lost confidence in these leaders' ability to bring offtake commitments or financing on reasonable terms to complete Driftwood. Of note, Driftwood is only in the early stages of construction and will cost some $14.5 billion to complete its first stage and then $25 billion if its total capacity is built out.

Given Tellurian's inability to raise capital, management has also been pursuing a sale of the partially completed project. But in another bit of negative news this week, the executive vice president of strategy for natural gas pipeline giant The Williams Companies (NYSE: WMB) Chad Zamarin disclosed Williams had looked at acquiring Tellurian but ultimately passed.

At an energy industry conference this week, Zamarin said, "There is the advantage of it being permitted, it does have a speed to market that is interesting to us, but it does not have the commercial contracts on the demand side."

The best Tellurian can hope for?

Those comments certainly cast a cloud over the Driftwood plant and may limit prospects for Tellurian to sell the project at a reasonable price.

While it's still possible interest rates will fall enough and natural gas prices appreciate enough to lure in new financiers for the project, a sale at a fraction of the likely asset value may be the best Tellurian shareholders can hope for at this point.

It's a pretty disappointing turn of events for shareholders, who likely hoped Tellurian would become a new Cheniere (NYSE: LNG), which is fully operational and currently fetches a $37 billion market cap.

Should you invest $1,000 in Tellurian right now?

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Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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