What happened

Shares of LNG export start-up Tellurian (NASDAQ:TELL) are falling sharply today, down 26.6% at 12:10 p.m. EDT, after a huge day yesterday that saw shares close up almost 55%. While Tuesday saw investors rushing to buy following news that a major prospective investor in its Driftwood LNG export facility was coming back on board, Wednesday's sell-off is the result of the company saying it would issue 35 million new shares, and sell them in a private placement at a price far below Tuesday's closing price. 

So what

The massive collapse in energy markets due to the coronavirus pandemic this year has had a major impact on Tellurian. The company, which is still in the development and capital-raising phase of its plans, is counting on raising some $30 billion in joint-venture and debt capital to build Driftwood and associated pipelines. 

Cargo ship taking on LNG.

Image source: Getty Images.

One of the early prospective partners was Petronet LNG, the massive Indian energy company, which had signed a memorandum of understanding (MOU) last year to invest $2.5 billion in an equity stake. That MOU expired at the end of May without a formal deal, a serious blow for Tellurian's prospects to break ground on Driftwood. 

Yesterday, word got out that Telluran and Petronet have gone back to the table and reentered into the MOU, which gives them until the end of the year to finalize. Shares surged and closed up more than $1.50 per share on the news. 

Today, Tellurian is selling 35 million newly issued shares in a private placement (i.e. directly with a large investor or investors) for $1 per share. The good news is that will net the company $32.5 million in much-needed cash after expenses. The bad news is that the offering price (almost certainly negotiated weeks ago) is far below yesterday's closing price. 

Now what

Shares are still up 15% over the past two days, as investors look at the Petronet deal as being a much bigger positive than the negative of a below-market stock offering that dilutes investors by 13%. Tellurian needs cash to fund operations as it works toward getting enough equity investors lined up to fund the construction of the Driftwood LNG export facility, and getting Petronet back to the bargaining table is a huge step forward. 

Where does this leave investors? Essentially in the same place as since Tellurian's founding: facing the risk of losing their investment entirely if management can't get funding to build Driftwood, but with substantial upside if they can.