Shares of LNG exporter start-up Tellurian (NASDAQ:TELL) were down 21.2% at 1:40 p.m. EDT on Thursday, in an ugly day on Wall Street that's hitting energy stocks particularly hard. At this writing, the SPDR S&P 500 ETF Trust (NYSEMKT:SPY) is down a brutal 4.6%, while the Energy Select SPDR ETF (NYSEMKT:XLE) is down 7.1%.
Tellurian, like most oil and gas companies, has had a brutal 2020. What's a little different for this company, though, is that it's still in start-up mode, raising capital and lining up partners to build its $20-billion-plus Driftwood LNG export facility and associated pipelines. The coronavirus pandemic that has ravaged the global economy and energy markets has forced essentially the entire energy sector to slash costs just to make ends meet.
As a result, Tellurian has seen one big investor back out of a potential deal to help fund Driftwood, and has struggled to find anyone else to step in as a replacement. The problem for Tellurian is that without any other meaningful sources of revenue besides funding from lenders or partners for Driftwood, the company won't survive.
And this reality has Tellurian caught up in today's broad market sell-off, precipitated by statements from Federal Reserve chairman Jerome Powell following two days of Fed meetings. In short, the Fed has a very muted outlook for the U.S. economy, and a full jobs recovery is likely to take years. A sharp increase in cases of COVID-19 in several states is highlighting why the Fed remains cautious on the economy.
Tellurian remains a very interesting (and potentially compelling) opportunity, albeit one with a very high level of risk that investors will lose money. Without more funding from lenders or investors, the company simply can't survive. Why is it potentially worth the risk of an investment?
First, the long-term demand for LNG is going to grow. The need for more low-cost energy is increasing, and North America's massive natural gas supplies are set to be a big source of meeting that need. The only thing that's changed is how soon the facilities, including Driftwood, will get built and brought on line. At recent prices, Tellurian represents a potential home-run investment that could be worth easily more than 10 times recent prices in five years if management can raise the capital to build Driftwood.
And you can count me among those who still think it has the right people in charge to do it. Between two co-founders with strong records of building massive LNG businesses in the past, and an executive team that was on the ground at Cheniere Energy during its start-up phase, Tellurian is still very much in the game. If there's a team to get it done, it's the people running Tellurian who can do it. But if they don't, the stock will turn out to be worthless. It's up to you to decide if those risks are appropriate for your portfolio.