Description

We believe Tellurian is a still underfollowed way to gain exposure to both US reonshoring theme while also providing commodity exposure at a time when the world finally seems to be suffering from a decade of commodity underinvestment. Stock is credibly worth $20 by YE22 (stock traded over $10 in a worse LNG macro in 2019) vs $6.34 current share price, Stock is shorted (15% of float) because Charif (founder of Tellurian and Cheniere) is a big personality. I’ll keep this write up short but punchline is the world needs more LNG. Even before considering Russia, which is a major gas exporter, the world was set to require more than 200mmtpa of incremental LNG projects by 2030. US is one of the lowest cost LNG exporters in the world thanks to our glut of domestic gas. Tellurian is one of a few shovel ready projects (Bechtel is signed up to build their train, they have the SPAs); they just need financing that should be forthcoming. If they can get their LNG train online by 2026, their business assuming $14/mmbtu LNG (vs $34 today) will generate runrate FCF of ~$4bn. If you value that at 10x cash flow and discount back to today at a 15% WACC, it implies a $20 YE2022 share price for Tell (good for making 2x your money by end of year). This ignores any optional value from sanctioning their additional 16.5mmpta of capacity and also assumes no value for their Haynesville E&P.  Biggest assumption I’m making is they do need to raise another ~$3.4bn of equity to fund this project. I assume they raise the equity at a $9 px. They have talked about possibly doing preferred equity or something else that doesn’t dilute shareholders as much. 

Company was founded by Charif Souki who also founded Cheniere. They own a plot of land on the Calcasieu River (big US LNG export hub) that has been fully permitted to export LNG, have a fixed price contract to build the terminal with Bechtel (same firm that built all of Cheniere’s terminals) and have offtake agreements for 9mm annual tons of LNG out of their first plants 11mm tons of capacity. Essentially, everything about this project (called Driftwood) is ready to go except for financing. The reason the financing is taking so long is because Charif, who is already very rich and is looking to swing for the fences, struck his offtake agreements with uncapped LNG prices (essentially he just gets the benchmark price for all his LNG, this puts a lot more volatility in his business as compared to a Cheniere who have fixed price offtake agreements for most of their volumes). 

However, given the push to get LNG projects done in part because of Russia/Ukraine, progress has been made and he has said as of 3/25 that they are in the final stages of attaining debt that should be announced in coming months. Thus, every sellside analyst who covers the space now believes this is 1 of the next 3 LNG projects to get built in the US (Venture Global and another Cheniere train are the others). Charif is sort of crazy. He does have other things he wants to do (namely buy an E&P in Haynesville to produce gas for his project directly) and he has additional capacity for another 16.5mmtpa that he could build. They own a small E&P now that Wolfe Research estimates is worth $1/share but I don’t capitalize any value for that. 

We need a lot of LNA just given organic demand growth….

Catalyst

TELL Financing

Continued LNG pricing strength