Shares of natural gas company Tellurian (NASDAQ: TELL) are down 16% as of 11:30 a.m. EST. The declined is tied to the announcement that the company will issue new shares.
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Tellurian is in the early stages of developing a liquefied natural gas (LNG) export terminal and hoping to become a premier natural gas exporting company -- much like current gas exporter Cheniere Energy (NYSEMKT: LNG). After all, Tellurian is led by Charif Souki, the founder and former CEO of Cheniere who was ousted by Carl Icahn in late 2015. If the long development process of Cheniere is any guide, then it should not come as too much of a surprise that Tellurian is looking to raise money.
This current share issuance will be for about 10 million shares at $10 per share, and that is why the stock is now trading close to $10. Management says it will use the $100 million in proceeds from this issuance to fund the detailed engineering work for its prospective Driftwood LNG facility in Louisiana as well as a pipeline to supply the facility.
As it stands today, the company doesn't have any revenue generating assets, so it will have to rely on outside capital in the form of share issuances or debt to get this project off the ground. Even though Tellurian's construction contractor -- Bechtel, the company that built Cheniere's facility -- estimates it will be able to deliver a facility at a ridiculously low price of $550 per ton, that still puts the final price tag of Driftwood LNG in the $15 billion range.
The company doesn't have any commercial contracts in place or permission from the Federal Energy Regulatory Commission to export natural gas to non-free trade countries. Without achieving these milestones, any debt would likely carry a prohibitively expensive interest rate. Until it can get commercial agreements and permission to export -- management is in the process of obtaining both -- it will likely have to tap the equity market for any near-term funding.
That may be discouraging to some investors. However, if Tellurian can build this massive LNG facility for the price it says it can, then this could be a lucrative stock much further down the road.
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