Tellurian Stock: Great Fishing Bait (NYSE:TELL)

Gas storage tanks at sunset.

Iurii Garmash/iStock via Getty Images

Presentation

Tellurian Inc. (NYSE:TELL) reported its first-quarter 2022 results on May 4, 2022.

Note: This article is an update of my article published on January 4, 2022.

1 – Quarterly Results Snapshot – 1Q22

Revenues for the quarter were $146.94 million with a net loss of $66.61 million, or $0.14 per diluted share, compared with an $8.71 million loss during the same period a year earlier. Shares outstanding diluted jumped 37.75% to 491.34 million from 356.68 million in 1Q21. As a reminder, Tellurian had 96 million outstanding shares at the end of 2016.

President and CEO Octavio Simoes said in the release:

Tellurian’s own natural gas production and sales provide valuable operating cash and a unique advantage to us as a liquefied natural gas supplier. We are nearing net production of 100 million cubic feet equivalent per day (mmcfe/d) and plan to reach 200 mmcfe/d by year end. Tellurian production is now generating free cash flow after capex and we intend to maintain capex at approximately $150 million a year.

2 – Tellurian Inc. – A Necessary Snapshot

Tellurian Inc.’s primary goal is to finance its $12 billion Driftwood LNG processing and export complex project along the Gulf Coast after the Driftwood LNG project was scaled down in 2020.

So far, on the bright side, the company has found enough contracts to allow for a reduced project called project I.

Tellurian signed 10-year agreements to sell 3 million tonnes per annum of LNG with commodity traders Vitol and Gunvor Group and in July 2021 with Shell PLC (SHEL) for 3 million tonnes per annum of LNG.

Tellurian Contracts

TELL contracts (Tellurian presentation)

The remaining 2 million tonnes are still committed to Tellurian, even though that Tellurian’s Charif Souki could have negotiated a deal with Chevron Corp (CVX) but rejected the idea as being uneconomical.

Note: Those contracts present weakness with only 10-year agreements, whereas regular contracts used to finance previous US LNG terminals were 20-year agreements. It could complicate even more the financing. However, those contracts are linked to spot LNG prices, which have increased substantially recently.

The phase I capacity is estimated at 11 million tons of LNG annually. On March 28, 2022, Tellurian launched the construction of the Driftwood LNG plant, which is expected to be completed in 2026.

Tellurian gave the green light to Bechtel Energy to begin limited construction on this huge LNG plant, even though it still needs to complete $12 billion financing for the first phase, which is required for the official FID.

By the way, Tellurian Inc. said it would raise $12 billion to build the LNG facility with $8 billion of debt and $4 billion of equity without providing a firm assurance on how the $8 billion would be raised.

A reminder: If Tellurian moves with the entire project, it would cost $30 billion to produce 27.6 million tons of LNG annually.

It has issued a limited notice to proceed to Bechtel Energy Inc. (Bechtel) under its executed Engineering, Procurement and Construction contract to begin construction of phase one of the Driftwood LNG terminal, a liquefied natural gas export facility near Lake Charles, Louisiana.

… Bechtel’s first activities include demolition, civil site preparation and construction of critical foundations, and Baker Hughes will progress manufacturing two of the natural gas turbines required for phase one of the project.

The company is building a growing upstream segment to help fulfill its share.

Tellurian produced 6.1 billion cubic feet of natural gas for the quarter ending March 31, 2022 as compared to 4.9 Bcf for the previous quarter. Tellurian’s upstream assets include 13,521 net acres and interests in 82 producing wells as of March 31, 2022.

On June 13, 2022, Tellurian Inc announced that it agreed to purchase natural gas assets from privately held EnSight IV Energy Partners, LLC and EnSight Haynesville Partners, LLC (collectively EnSight), located in the Haynesville Shale.

The purchase price is $125 million, subject to customary closing adjustments, and a contingent payment of $7.5 million which is based on the price of natural gas and may be payable in March 2023 under certain conditions. Tellurian will fund the purchase with cash on hand and anticipates closing on the EnSight assets in the third quarter of 2022. The effective date of the transaction is August 1, 2022.

Tellurian President and CEO Octávio Simões said:

Tellurian continues to focus on two critical pathways – progressing Driftwood LNG and continuing to increase our upstream footprint. This transaction grows our 2023 estimated natural gas production by ~30%, increases upstream asset-level EBITDA by ~25%, and expands upon our existing platform.

On June 28, 2022, Tellurian said its drilling subsidiary expects to generate $400M of EBITDA from natural gas production activities in 2023.

However, this claim is subject to an estimated $300 million FY 2023 CapEx budget, which the board has not yet approved-continuing a long string of uncorroborated figures that I find controversial.

This estimate is based on an approximately $300 million capital expenditure budget for 2023 that has not been approved by the Company’s board of directors.

The Company is unable to present a reconciliation of forward-looking EBITDA because certain components of the calculation are subject to change. Moreover, estimating the most directly comparable GAAP measure with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort.

Then, why announce these numbers in the first place?

3 – Stock Performance

Tellurian Vs Cheniere Energy stock price
Data by YCharts

The stock is down significantly on a one-year basis.

Tellurian Inc. – 1Q22 Balance Sheet And Trend – The Raw Numbers

TELL 1Q21 2Q21 3Q21 4Q21 1Q22
Total Revenues $ million 8.71 25.35 15.64 21.58 146.94
Quarterly Earnings $ million -26.99 -30.60 -15.93 -41.22 -66.61
EBITDA $ million -18.44 -27.44 -11.23 -36.77 -60.31
EPS (diluted) $ per share -0.08 -0.08 -0.04 -0.09 -0.14
Operating Cash Flow $ million -10.48 -20.48 -8.22 -22.39 -82.58
CapEx in $ 1.40 5.35 17.67 18.24 68.87
Free Cash Flow -11.88 -25.83 -25.88 -40.63 -151.45
Total Cash in $ million 58.73 111.86 210.81 305.50 295.73
Total Borrowing in $ million 16.85 0 0 53.69 54.89
Shares Outstanding (diluted) 356.68 386.05 407.20 459.76 491.34
Revenue details 1Q21 2Q21 3Q21 4Q21 1Q22
Revenue Natural Gas 8.71 5.58 15.64 21.58 25.99
Revenue NGL 0.00 19.78 0.00 0 120.95
Total 8.71 25.35 15.64 21.58 146.94

Source: Company 10-Q

Analysis: Revenues, Free Cash Flow, Net Debt

1 – Quarterly Revenues Were $146.94 Million For 1Q22

Tellurian quarterly revenues

TEL Quarterly Revenues history (Fun Trading)

Revenues were a record of $146.94 million in the first quarter of 2022, up from $8.71 million in the same quarter a year ago. Tellurian generated $26 million in revenues from natural gas sales on a 24% increase in QoQ of production. However, costs of sale shot to $135.827 million in 1Q22. Per the 10-Q:

The increase in net loss of approximately $39.6 million is primarily a result of the following:

• Increase of approximately $138.2 million in Total revenue compared to the same period in 2021 attributable to a $17.3 million increase in Natural gas sales revenues as a result of increased realized natural gas prices and production volumes and a $121.0 million increase in LNG sales revenues from the sale of an LNG cargo in January 2022.

• Increase of approximately $133.4 million in Cost of sales primarily attributable to the purchase of an LNG cargo in January 2022.

Net loss was $66.61 million, or 0.14 per diluted share, compared to $26.99 million, or $0.08 per diluted share, in 1Q21.

2 – Free Cash Flow Was A Loss Of $151.45 Million In 1Q22

Tellurian free cash flow

TELL Quarterly Free cash flow History (Fun Trading)

Note: Free cash flow is the cash from operations minus CapEx.

Trailing 12-month free cash flow is a loss of $243.79 million, with a loss of $151.45 million in 1Q22.

3 – The Company Had Net Cash Of $240.84 million At The End Of March 2022.

Tellurian total cash vs borrowings

TELL Quarterly Cash versus Debt history (Fun Trading)

Tellurian had total cash of $295.73 million and an LT Debt of $54.89 million (senior note due 2028). The company indicated in its 10-Q that the gross proceeds from common stocks issuance were $176.974 million in 1Q22.

The company uses an At-the-Market Program and has $255.8 million remaining at the end of March 2022. It is an essential potential for dilution that any shareholder invested in the company should pay attention to.

In the recent 10-Q, the company said:

During the three months ended March 31, 2022, we issued 45.4 million shares of our common stock under our at-the-market equity offering programs for net proceeds of approximately $171.7 million. As of March 31, 2022, we had remaining availability under such at-the-market programs to raise aggregate gross sales proceeds of up to approximately $255.8 million.

Also, on June 7, 2022, Tellurian Inc signed definitive agreements for a $500 million offering of senior secured convertible notes.

The notes will bear interest at 6.0% per annum, expiring May 1, 2025, and will be convertible into shares of Tellurian common stock at an initial conversion price of $5.724, subject to customary adjustments.

This offering is directly related to the acquisition of EnSight.

Tellurian President and CEO Octávio Simões said:

Tellurian continues to focus on two critical pathways – progressing Driftwood LNG and continuing to increase our upstream footprint. This transaction grows our 2023 estimated natural gas production by ~30%, increases upstream asset-level EBITDA by ~25%, and expands upon our existing platform.

Technical Analysis And Commentary

TELL stock technical analysis

TELL TA Chart short-term (Fun Trading)

TELL forms a descending wedge pattern with resistance at $3.80 and support at $2.75. The trading strategy is to keep a small core long-term position and trade mostly short-term LIFO.

I recommend selling about 50% of your position between $3.80 and $4. If the stock turns bullish, the following upper target is $5.

Conversely, if TELL turns bearish later, it could drop below $2.75 with potential first lower support at $2.35. Projects without secured financing have no floor, no matter what.

TELL remains highly speculative, and it is almost impossible to put a fair price value on the company selling a “project.”

In my preceding article, I said that the main issue as an investor is to decide the amount of cash you will be willing to gamble on TELL without getting in trouble assuming the worst-case scenario.

Above all, trade LIFO a large part of your position and grow a long-term position using the short-term gain you could keep over five years or until the Driftwood facility is up and running.

Warning: This type of stock requires a leap of faith; The fundamentals are weak, and without colossal financing, it is another Brooklyn Bridge in the making.

Note: The LIFO method is prohibited under International Financial Reporting Standards (IFRS), though it is permitted in the United States by Generally Accepted Accounting Principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting two different accounts for the same stock, one for the long-term and one for short-term trading.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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