Shares of Tellurian (TELL 7.71%) plunged another 24% on Friday as of 1 p.m. ET.
The company, whose main asset is the still-under-construction Driftwood liquified natural gas plant, reported earnings yesterday, missing expectations.
While Tellurian's earnings don't matter particularly much, as they mainly consist of the company's small upstream natural gas assets and not anything from Driftwood, it was still another setback for the beleaguered stock.
Natural gas prices plummeted in Q3
In the third quarter, Tellurian posted revenue of $43.2 million and a GAAP net loss of ($0.12) per share, with both figures missing expectations of $53.3 million and ($0.08), respectively. While Tellurian actually increased production of natural gas by some 71%, average natural gas prices realized plummeted from $7.07/Mcf in the year-ago quarter to $2.22/Mcf in the third quarter 2023.
Needless to say, generating losses when you are trying to raise capital for a large LNG export terminal isn't a great combination.
On the subject of the Driftwood construction, management didn't offer much detail. CEO Octávio Simões merely said in the press release that Tellurian was in continued discussions regarding either an equity raise or an offtake agreement to complete funding for Driftwood, and that those are ongoing. Simões also noted that the company has invested over $1 billion already on development and advanced construction, and that the project remains "on track" for production in 2027.
The 2027 timeline was somewhat reassuring, but it's also true that Tellurian had asked the Federal Energy Regulatory Agency (FERC) for an extension to 2029 earlier this month.That request could have been just to give the company a buffer zone, or it's also possible Driftwood could start partial production in 2027 before full production later.
Still, the clock seems to be ticking for Tellurian to line up financing. As interest rates have shot up over the past few years and its stock price has collapsed, raising the billions it needs to finish the project has gotten expensive in an unpalatable way. That obviously puts Tellurian in a tough bargaining position, as it's probably seeking out offtake agreements. But potential customers may need more guarantees of the project actually getting completed for that to happen. So, Tellurian is in a tough spot.
Will interest rates fall?
In a potential silver lining this week, it appears long-term interest rates may be coming down from their recent highs, as a softer-than-expected jobs report Friday and increased labor productivity report earlier this week caused the 10 year Treasury bond yield to fall to 4.55% as of this writing, down quickly from recent highs near 5%.
That could potentially open up the capital markets to Tellurian. Moreover, natural gas prices have risen to around $3.50/Mcf as of this writing, which should also help generate profits in the fourth quarter.
However, Tellurian only has around $60 million in cash left on its balance sheet. So, the company either needs natural gas prices to stay higher, or to raise money in short order. In fact, in its recent quarterly report, the company issued a statement reading that while it expects to be able to continue operations for the next 12 months, "conditions raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued."
Needless to say, bankruptcy is a real risk, and the stock is still a risky bet for your investment dollars.
