US natural gas developer Tellurian Inc has announced the sale of 800 acres of land in Louisiana for $1bn to an undisclosed institutional investor. This operation should bring much needed capital to the company, which has been experiencing a series of setbacks in recent months.
Driftwood liquefied natural gas project delays force Tellurian to sell land
The land was originally earmarked for the Driftwood liquefied natural gas terminal project, which has suffered delays and cancellations due to concerns about the company’s ability to complete the project.
The land sale is just the tip of the iceberg in terms of Tellurian’s capital needs, according to Stifel analyst Benjamin Nolan. The company is leasing the land back for 40 years at a capitalization rate of 8.75% and a letter of credit equivalent to 12 months’ rent, among other requirements.
This lease creates a liability of $87.5 million per year for 40 years, which increases by 3% each year.
The Tellurian sale agreement is conditional on several factors being met
Despite these challenges, Tellurian’s Driftwood project is receiving regulatory approvals to begin construction and is expected to produce 27.6 million tons per year of LNG upon completion. However, the deal announced Thursday is contingent on several factors, including the company’s subsidiary, Driftwood LNG LLC, obtaining financing commitments for Phase 1 of the project on terms satisfactory to the buyer.
The announcement of the sale has already had a positive impact on Tellurian’s shares, which rose 28% to $1.52 in early trading. This is a welcome boost for the company, which has faced significant obstacles in recent months.
However, it remains to be seen whether this sale is sufficient to meet Tellurian’s capital needs and ensure the success of the Driftwood project.