Shares of Tellurian (TELL 7.71%) climbed as much as 25% this week, then settled to trade up around 5% as of Thursday's close, according to data provided by S&P Global Market Intelligence. This occurred as the beleaguered natural gas company outlined significant efforts to stave off its potential bankruptcy.
Tellurian is working to stave off bankruptcy concerns
The company has struggled with multiple headwinds in the funding and construction of its massive $25 billion Driftwood Liquid Natural Gas (LNG) plant project. Shares plunged in October after the company formally asked the Federal Energy Regulatory Commission (FERC) to delay the plant's opening by another two years, to 2029.
Tellurian then raised eyebrows in early November by issuing a "going concern" warning in its third-quarter report. It pointed out that the $59.3 million in cash reserves on its balance sheet at the end of September wouldn't be sufficient to cover its obligations and fund working capital needs for next year.
In a letter to shareholders published Thursday morning, however, Tellurian Chairman Martin Houston noted the company has already made substantial progress since he took the helm three weeks ago. Its moves to improve liquidity and bolster its balance sheet so far include a nearly 50% reduction in general and administrative expenses, a new $37.9 million debt-for-equity swap with its principal lender, and an increased stake (to 7.3% from 5.2%) from institutional investor Chatterjee Fund Management.
What's next for Tellurian investors?
Mr. Houston pledged "to be as open and transparent as we can, with the expectation that this will allow you greater trust in assessing our progress."
That's all well and good, of course, and it's great to see the company moving aggressively to improve liquidity. Still, Tellurian's "going concern" warning still highlights that this is a very high-risk stock with a significant risk of bankruptcy.
There might be significant upside for risk-tolerant investors willing to bet Tellurian can climb out of this hole. But with plenty of other healthier natural gas stocks in this market, I'm personally content watching Tellurian's progress from the sidelines.
