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Why Shares of Tellurian Fell Almost 20% in May

By John Bromels – Updated Jun 10, 2019 at 5:49PM

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No news was bad news for the natural gas industry player.

What happened

Shares of fledgling liquefied natural gas (LNG) company Tellurian (TELL 3.61%) fell 19.1% in May, according to data provided by S&P Global Market Intelligence. On top of the company's 15.5% slide in April, the stock has now lost 31.3% of its value over the past two months. But thanks to a huge run-up in price in the first quarter, it's still up 12.1% for the year.

So what

Tellurian is a very speculative stock at this point. The company was founded in 2016 by a handful of natural gas insiders who dreamed of making it a major player in the up-and-coming LNG export market. The plan is to eventually be a fully integrated company that controls production assets, pipelines, and export terminals. 

A marine export terminal for oil and gas

Energy industry player Tellurian hopes to develop a major LNG export terminal on the Gulf Coast. Image source: Getty Images.

For now, however, the company generates revenue from a handful of wells in the Haynesville Shale Basin in northern Louisiana. So when Tellurian reported a Q1 2019 net loss of $34.1 million ($0.16 per share), it certainly didn't bolster the company's thesis, but it really didn't detract from it, either. 

Of more consequence was news of the company's proposed Driftwood project, consisting of a Gulf Coast liquefaction and export terminal, plus a 96-mile connecting pipeline. Such a project has to go through a host of regulatory agencies, and the project has now been cleared by the Federal Energy Regulatory Commission, the Department of Energy, and the Army Corps of Engineers. According to CEO Meg Gentle, the project is now fully permitted.

But it still needs to be fully financed. While Tellurian secured an initial $500 million investment from French energy behemoth Total in the project in early April, it still needs a lot more financing. Like, another $7.5 billion from project partners and $20 billion in financing, all for a project that -- even if everything goes according to plan -- won't start generating any revenue until 2023. 

With no movement -- at least, nothing concrete announced -- since the Total investment, investors may be wondering if it's worth making an investment now. That could be why the stock has been sinking. 

Now what

Securing financing for a massive undertaking like this is a heavy lift. But Tellurian's management has a lot of expertise in the industry, and thinks it's doable. A lot depends on the exact terms under which it's able to secure that financing. Right now, Gentle is projecting $8 of cash flow per share after ramp-up. Considering the shares are trading for less than that amount right now, it seems like a good deal...if everything goes according to plan. 

But if the company has trouble raising the money, partners or creditors might demand more-favorable terms, which could leave investors in a worse position. If you like high-risk investments and don't mind an investment that won't pay off for five years (if even then), Tellurian may be a worthwhile stock. Certainly, the current price seems like an opportune moment to jump in if you're going to.

John Bromels has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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