Drama at Tellurian as two non-execs resign

Driftwood LNG – Artist Illustration – Tellurian

Two non-executive directors have resigned on the same day at Tellurian, the company co-founded by Charif Souki in 2016 after he was ousted from Cheniere Energy in 2015.

Officially, Claire Harvey resigned for personal reasons and James Bennett resigned due to an increase in other time commitments. Tellurian rather spoiled the official explanation by stating that ‘based on their short tenure on the Board and the feedback they provided at Board meetings, it is the company’s opinion that neither was ever comfortable with the risk profile and strategic direction of the company.”

Ms. Harvey joined the Board in December 2021 and is the President of ARM Resources LLC, the upstream oil and gas division of ARM Energy Holdings. She was formerly the CEO at Gryphon Oil and Gas, another PE-backed E&P company.

Mr. Bennett joined the Board in September 2021 and is the former CEO of Sandridge Energy.

Composition of the Board

Ms. Harvey and Mr. Bennett, make up two of the seven independent directors on the Board. Although the other five are considered independent under NYSE governance listing standards, all have close ties to Mr. Souki. Three are former executives at Cheniere, one is a partner at a law firm that has represented the company in the past and one co-founded an investment firm that put seed money into Cheniere.

Status of Driftwood

Tellurian has been trying to develop an LNG terminal facility (“Driftwood”), near Lake Charles.  In September 2022, Shell canceled an agreement to buy 3 million metric tons a year. At the same time, Tellurian canceled a similar-sized deal with Vitol. That leaves just one deal with Gunvor Singapore.

Without contracts in place, Tellurian is having difficulty in obtaining the funding for Driftwood. Mr. Souki had stated in March 2022 that agreements would be signed and the final investment decision would be made in April 2022.  The construction cost of Driftwood is now expected to cost $13.6 billion, with $8 billion or so coming from debt and $5 billion – $6 billion coming from equity. Given that the current market capitalization is $1 billion, that will mean a large dilution for existing shareholders.

Mr. Souki’s compensation

Mr. Souki is well paid. He has a base salary of $1.2 million. In 2021, he also received nearly $19 million in non-equity incentive plan compensation. Of this, $3.6 million was an annual bonus. The rest were long-term incentives. Unusually, one-third of this vested immediately.

In setting the bonuses, the Compensation committee referred to increase in stock price from $1.28 to $3.08 during 2021 as well as the the signing of the contracts with Shell, Vitol and Gunvor.  The stock price of Tellurian is now $1.93 and the Shell and Vitol contracts are canceled, so it will be interesting to see the bonuses for 2022 when the proxy statement is published in April.

Neither Ms. Harvey nor Mr. Bennett were members of the Compensation committee.

Ousted at Cheniere

Cheniere first started exporting LNG in 2016. Mr. Souki was ousted in 2015 following a battle with activist investor, Carl Icahn. Mr. Souki received a severance package worth $54 million.  He also received compensation of $58 million in 2012 and $142 million in 2013. Cheniere now has a current market capitalization of $37 billion, so Mr. Souki has definitely created value. It’s just that he likes to be paid upfront.

SEC filing – Tellurian non-execs resigning

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