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Why Shares of Tellurian Climbed More Than 25% in September

By John Bromels - Oct 8, 2019 at 1:01PM

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The company benefited from rising gas prices and a big announcement.

What happened

Shares of fledgling energy company Tellurian (TELL -4.70%) rose 27.3% in September according to data provided by S&P Global Market Intelligence. That handily beat the S&P 500's return of just 1.7% over the same period.

Because it's a liquefied natural gas (LNG) company, Tellurian's share price tends to fluctuate along with the price of natural gas. When the Henry Hub spot price of natural gas rose at the beginning of the month, Tellurian's shares rose in response. However, the company's stock price managed to hang on after gas spot prices dropped midmonth. 

Pipelines head towards a refinery in the distance

Tellurian hopes to become a top transporter and exporter of liquefied natural gas (LNG). Image source: Getty Images.

So what

Tellurian is currently in the process of securing financing for its first major LNG project, a pipeline-and-terminal combo called Driftwood. Given the projected completion date of 2023, the company's still a risky bet -- four years is a lot of time for things to go wrong. But every announcement of a financing partner moves the company closer to a successful launch, and a payoff for early investors.

That's why it was significant that after having teased a potential collaboration for months -- including in a presentation on Sept. 4 -- Tellurian announced that it was officially signing a Memorandum of Understanding with India's Petronet to negotiate Petronet's purchase of up to 5 million metric tons of Driftwood LNG per year, "concurrent with Petronet's equity investment." The transaction is set to be finalized by March 2020. 

This makes Petronet the second major announced partner on the Driftwood project, along with French energy giant Total. However, Petronet intends to purchase five times as much Driftwood LNG per year as Total.

Now what

While the ink technically isn't dry on the Petronet deal (it's still "subject to further due diligence and approval" by Petronet's board), it's unlikely that the companies would have gone public with the announcement if they weren't reasonably certain of the success of the proposal. Petronet was already on board as an equity investor in the project, but its commitment to such a large volume of LNG should -- hopefully -- beget more investment by additional partners. 

Tellurian's stock isn't looking as cheap as it was in late August, when shares could be nabbed for less than $6 each. It's also still a speculative investment. But if you can tolerate the risk, this announcement certainly brings the company's plans one step closer to fruition.

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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Stocks Mentioned

Tellurian Inc. Stock Quote
Tellurian Inc.
TELL
$4.46 (-4.70%) $0.22
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TotalEnergies
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