Tag Archives: LNG

Drama at Tellurian as two non-execs resign

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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

Stock of Stabilis Solutions to be relisted on Nasdaq

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The stock of Stabilis Solutions will once again be traded on the Nasdaq, effective April 29. It was publicly-traded for a few months in 2019.



Stabilis is a small-scale producer and distributor of Liquified Natural Gas. The company builds and operates cryogenic natural gas processing facilities, called “liquefiers”, which convert natural gas into LNG through a multiple stage cooling process. It sells the LNG to energy and industrial companies.

Stabilis Energy, as it was known then, went public in July 2019 when it completed a reverse takeover of AETI, based in Bellaire. Stabilis is owned by Casey Crenshaw, who had also been a director and shareholder of AETI since 2012. It has its head office in west Houston.

Immediately after the transaction was completed, the company received a delisting notice from Nasdaq because it neither had a minimum of 1 million publicly-held shares nor a minimum market value of $15 million for the publicly-held shares. That was due to Crenshaw owning 77% of the combined company.

As a result, the shares were suspended in October 2019 and ultimately delisted later that year. The market cap for the company (traded over-the-counter) is now around $120 million. As a result, the public float exceeds $15 million. The 25 current stockholders will be happy with this.

You can see the full list of Houston-area public companies on my website here

SEC filing – Stabilis relisting

 

Cheniere sues former CEO and founder

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https://www.flickr.com/photos/royluck/3628833456

Sabine Pass – Roy Luck

Cheniere has sued its former CEO and co-founder, Charif Souki, for conspiring to work with a friend, Martin Houston, to set up a competitor, Tellurian, while still employed at Cheniere. The suit was filed in Harris County. It alleges breach of fiduciary duty, fraudulent transfer, and tortious interference with Cheniere’s collateral rights.

Cheniere and Tellurian are both based in downtown Houston.

History of Cheniere

Cheniere originally started in 1996 as a natural gas driller. In 2004, it switched strategies and began to build a Liquified Natural Gas (LNG) terminal to import natural gas. The facility opened in 2008 just prior to a fracking boom that caused a glut of natural gas in the US. In 2010, the company decided to convert the terminal to export natural gas instead. The company then spent $18 billion on the facility in Sabine Pass, Louisiana. The first train become operational in May 2016.

After 21 years, the company made a profit for the first time in 2017. It now has a market capitalization of nearly $17 billion.

Souki $142 million compensation 

Souki served as the CEO of Cheniere from 2002 to 2015. He became infamous in 2013 for earning $142 million in total compensation (due to $133 million in stock awards). In August 2015, activist investor Carl Icahn took an 8% stake and won two board seats as he felt the stock was undervalued because Souki wanted to expand Cheniere into other areas of the energy business rather than concentrate on completing the LNG trains at Sabine Pass.

The board voted to replace Souki as CEO on December 12, 2015. Souki eventually resigned as a director in February 2016.

Friendship with Martin Houston

Charif Souki first started working with Martin Houston when the latter was the COO of BG Group plc. Back in 2011, BG became the first customer of the export terminal when it signed a 20-year LNG sale and purchase agreement with Cheniere.

In January 2014 Houston left BG and formed Parallax Enterprises. He approached Souki in mid-2014 about jointly pursuing mid-scale liquefaction projects. In December 2014, Souki gave another Houston-controlled company a consulting contract worth $100,000 a month.

At Souki’s direction, Cheniere commenced negotiations with Parallax regarding a potential arrangement for joint development of two liquefaction plants in Louisiana. Cheniere loaned Parallax $46 million through short-term secured loan notes. The money was lent before Cheniere and Parallax had agreed and signed a letter of intent.

The loan note became due on December 11, 2015, the day before Mr Souki was fired. It’s not clear from the lawsuit if this was a major factor in his firing. Parallax has still not repaid any monies to Cheniere.

Allegations in the lawsuit

Two weeks after Mr Souki was fired and while he was still employed as a director, Houston formed a new entity that, Cheniere alleges Mr Souki agreed to invest in. Two weeks after he left as a director, Souki and Houston announced the formation of Tellurian in February 2016. The company is building one of the two liquefaction plants mentioned above.

Tellurian was initially in the same office space as Parallax. The lawsuit also alleges that Tellurian took over Parallax’s server, thereby gaining access to all the work performed on the liquefaction projects, developed using the $46 million that Cheniere had lent.

Another allegation in the lawsuit is Tellurian raised more than $250 million in private placements using work performed at Parallax and funded by Cheniere.

Tellurian went public in March 2017 through a reverse takeover. It has a market capitalization of $2.4 billion.

Cheniere Souki lawsuit

 

 

LNG outlook is good news for US gas prices

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Shell launches its first LNG outlook and that means good news for US gas prices.

Global demand for liquefied natural gas (LNG) increased by nearly 7% in 2016 to 265 million tonnes (MT). 35 countries now import LNG, up from 10 since the turn of the century. Forecast demand for LNG is set to grow between 4-5% a year between 2015 and 2030.

Demand for LNG is rising because gas plants

  • are cheaper to build and operate than other types of fuels such as coal
  • help address local air quality concerns
  • produce less carbon dioxide than coal plants

The report points out that the Chinese government has set a target for gas to make up 15% of the country’s energy mix by 2030, up from 5% in 2015.

In 2016, the 17 MT of increased demand was matched by increased supply from Australia (15 MT) and the USA (2.9 MT).

The US supply came from the LNG plant operated by Cheniere at Sabine Pass in Louisiana. The company is in the process of building 5 trains at that location and the first one became operational in the middle of the year. Each train can produce 4.5 MT of LNG a year and Cheniere has long-term contracts for 88% of the output. Train 2 was completed in late 2016, Train 3 is projected to be substantially complete by June 2017, Train 4 by August 2017 and Train 5 in 3Q 2019.

To put that into context of US gas production, each train can produce 4.5 MT of LNG a year which is equivalent to about 0.6 bcf (billion cubic feet) of gas a day. In November 2016, the US produced 89.5 bcf a day. By the end of 2017, the 4 trains at Cheniere should be requiring production of 2.5 bcf a day, a significant increase in demand.

In addition to the 5 trains at Sabine Pass, Cheniere is building 2 trains at Corpus Christi (to be completed in 2018). Other companies building LNG plants are Cameron LNG (3 trains, 2.1 bcf a day, completion during 2018) and Freeport LNG (3 trains, 2.0 bcf a day, completion late 2018 and 2019). There are also a couple of smaller projects on the East coast under construction.

By the end of 2019, assuming no construction delays (i.e hurricanes in Texas or Louisiana), that’s a demand of 9 bcf a day! Almost all of the LNG exports are contracted under long-term agreements.

Australia increased its LNG production from 31 MT in 2015 to 45 MT last year. However, due to construction delays, three large projects scheduled to export in 2017 won’t now begin exporting until 2018 or later. The producers still have to fulfill contract commitments so they may have to buy from the other producers around the world including the US.

Australia’s LNG projects face major delays, benefiting US producers

US becomes a natural gas exporter for the first time in 60 years

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According to S&P Global Platts, the US exported an average of 7.4 billion cubic feet (bcf) a day of gas in November, more than the 7 billion that was imported. It has been nearly 60 years since that last occurred.

us-gas-imports-exports2

There are two trends driving this

  1. Exports from the Cheniere LNG terminal at Sabine Pass are ramping up. The first train started exporting in February and now averages 0.5 Bcf a day. Currently Cheniere is building 5 trains at Sabine Pass. The company is also building 2 trains at Corpus Christi. Each train can produce about 0.6 Bcf a day when running at full capacity. Contracts already exist for 87% of the LNG to be produced in these 7 trains.  The second train at Sabine Pass has recently been completed. Though contractual shipments don’t kick in until mid-2017, exports for spot contracts have already begun as Cheniere gets that train fully operational.
  2. Exports to Mexico have increased by about 0.5 Bcf a day in 2016. This is due to Mexican economic growth coupled with limited in-country power infrastructure. Mexico has few pipelines and little storage capacity causing it to be increasingly dependent on the US.

In addition to Cheniere, there are other LNG export terminals under construction. These facilities have take-or pay contracts in place for another 4 BCf a day. Most of these facilities won’t start exporting until 2018 at the earliest. Therefore the US is likely to remain a net exporter on a consistent basis.

Given that US demand for gas has also been increasing, due to retirement of coal-fired power stations (a trend that is happening worldwide, including China) and increased petrochemical production, natural gas prices in the US will continue to rise.