What happened

Shares of Tellurian (TELL -5.47%) rose on Tuesday, up just over 2.9%, even as the broader markets declined.

The company, whose principal asset is its under-construction liquified natural gas (LNG) terminal, rose on the back of increasing natural gas prices, as well as an upgrade from an otherwise skeptical Wall Street analyst.

So what

On Tuesday, Bank of America analyst Julien Dumoulin-Smith upgraded his rating on Tellurian shares from neutral to buy, even though he also cut his price target from $6.50 to $4.50 in the process. Shares currently trade around $3.50, down from a high of $6.54 in early April on the heels of Russia's invasion of Ukraine.

While the lowered target most likely reflects macroeconomic risks related to interest rates, Smith is incrementally more positive following Tellurian's acquisition of natural gas assets in the Haynesville shale in Texas, Louisiana, and Arkansas, announced back in July.

"We see improving prospects of a successful investment decision given development successes and experienced management team amid a robust commodity market, with [natural] gas sales helping to offset cash burn," Dumoulin-Smith wrote.

Basically, he has become more comfortable with the acquisition, following Tellurian's earnings release last week. It was perhaps a curious move for management to buy production assets with precious company cash, given that the construction of the Driftwood LNG plant will take years, as well as billions of dollars, not all of which has been raised yet. Tellurian ended the second quarter with cash of $834 million, but the Haynesville shale assets cost $125 million.

However, the production from Haynesville should produce healthy cash flows if natural gas prices stay relatively high, as they are today. Last quarter, Tellurian generated $38.5 million in operating profit from current production, and the Haynesville play is expected to increase natural gas production by 30%. Those cash flows should help offset some cash burn from the construction of Driftwood.

Still, Dumoulin-Smith reminded readers that Tellurian remains risky, as the Driftwood plant will require more cash to be raised in a rising-rate environment.

Now what

Tellurian remains a high-risk/high-upside leveraged bet on natural gas prices, which were also up about 3% today. Even though Tellurian's market cap is only around $2 billion today, once the Driftwood plant is up and running, management projects it could generate $4 billion in cash flow, based on $85 per barrel oil and $14 per mmBtu JPM (Japan/Korea Marker) for natural gas prices.

But Tellurian will have to raise a total of $12.8 billion to complete the export terminal, which won't be operational until 2026, if all goes to plan. The company hasn't raised all that money yet, and with interest rates rising, the cost of capital may become a concern.

U.S. LNG exports appear to have a bright future, especially after Russia's invasion of Ukraine. Tellurian remains perhaps one of the riskiest but highest-upside ways to play that theme.