Tellurian In Talks for Fields in Louisiana -- WSJ
March 09 2018 - 3:02AM
Dow Jones News
By Christopher M. Matthews and Stephanie Yang
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 9, 2018).
Tellurian Inc. is in talks to buy Chesapeake Energy Corp.'s
Louisiana drilling fields as it seeks to become a producer as well
as exporter of natural gas, according to people familiar with the
matter.
Chesapeake, a pioneer of the shale boom, has been selling off
some of the vast holdings assembled by its late co-founder Aubrey
McClendon as it struggles with low energy prices and a mountain of
debt it took on to lock up drilling rights for swaths of land.
Tellurian is the latest venture by Charif Souki, who developed
the first terminals to liquefy natural gas and export it from the
U.S. Gulf Coast as founder of Cheniere Energy Inc. The company,
which has few assets, has said it is looking to acquire drilling
fields near a coastal site where it plans to build an export
facility, to sell fuel overseas.
Chesapeake's Louisiana fields, located in the Haynesville shale
formation, are valued at about $2 billion, according to Jefferies
analysts.
The talks to purchase Chesapeake's fields could fall apart and
there is no guarantee of an agreement. Tellurian has offered to
Chesapeake to take equity as a part of the asset sale, something
Chesapeake isn't interested in doing, people familiar with the
talks said.
Tellurian has also held talks with other producers with
Haynesville assets to acquire more acreage, people familiar with
the matter say. Tellurian's stock closed up 1.5%, at $8.55 per
share, Thursday and is down about 25% on the year.
The advent of shale drilling has flooded the U.S. with cheap
energy, including vast resources of natural gas that producers have
sought to export to generate electricity and heat homes around the
world.
Mr. Souki founded Tellurian in 2016 after being ousted as chief
executive of Cheniere in 2015. Cheniere sent the first shipment of
liquefied natural gas from the mainland U.S. in 2016, after
Congress lifted a ban on U.S. energy exports in late 2015.
At Tellurian, Mr. Souki is again trying to build out U.S.
capabilities to send natural gas abroad, but additionally offering
investors a stake in the full supply chain by owning producing
assets along with pipeline and liquefaction capacity.
The strategy could potentially make it easier to raise capital
to construct a multibillion-dollar export terminal, but it isn't
without risks. Tellurian will have to prove it can produce gas as
cheaply as other operators who have years of experience.
By some estimates, Tellurian would have to become one the 25
largest natural gas producers in the U.S. to supply all the fuel it
would need for its terminal.
"You have to find a business model that applies to the expensive
financing of a project," Mr. Souki said at the IHS Markit CERAWeek
conference in Houston on Wednesday.
Last year, Tellurian acquired acreage in northern Louisiana for
$85 million that currently produces about four million cubic feet
of natural gas a day. Driftwood LNG is expected to start
construction in 2019, pending regulatory approval.
In a February earnings call, Chesapeake executives pointed to
opportunities to sell gas assets from its portfolio and reiterated
plans to reduce debt by up to $3 billion this year through large
transactions.
"Gas is extremely out of favor in the equity markets, as you all
know, and extremely out of favor in many circles," said Chesapeake
Chief Financial Officer Domenic J. Dell'Osso Jr. on the call, but
added, "there is real financial return to be created in these
assets."
Write to Christopher M. Matthews at christopher.matthews@wsj.com
and Stephanie Yang at stephanie.yang@wsj.com
(END) Dow Jones Newswires
March 09, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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