Long-troubled liquefied natural gas (LNG) company Tellurian (TELL 7.71%) was the subject of deal chatter in February, helping the stock to jump 58.5% for the month, according to data provided by S&P Global Market Intelligence.
The company does appear to be looking for a buyer for some or all of its assets, but investors need to keep expectations low given the challenges Tellurian faces up ahead.
Can Tellurian find a way to stay above water?
Tellurian for years has been attempting to develop its Driftwood LNG export facility without much luck. Last fall, the company asked the Federal Energy Regulatory Commission (FERC) to delay the timetable for the plant's opening until 2029, and then the company issued a "going concern" warning in its third-quarter report warning its auditor had questions about its ability to cover its financial obligations.
So it was no surprise to hear that Tellurian had hired advisors to look for ways to monetize at least some of its assets. The stock spiked in February on word that the company is exploring a potential sale of its upstream business, with some investors speculating that the entire company could be sold.
Tellurian has been rethinking its operations in the months since Chairman and Co-Founder Charif Souki was ousted from his executive role, and new CEO Octávio Simões said the company believes there would be alternative gas supplies available to the company should it decide to sell its wholly owned drilling locations.
The company considers divestitures a more attractive option to raise cash than issuing new shares, which could dramatically dilute existing holders.
Is Tellurian a buy after its strong February?
The 58.5% gain in one month is impressive, but investors who didn't buy in on Jan. 31 are likely to be severely disappointed with this stock. Shares of Tellurian are still down 55% from last summer, and the stock has lost 75% of its value in the last three years.
Potential divestitures would be a lifeline and help quell near-term liquidity concerns, but Tellurian is still a long way away from its stated goals and without much to suggest to investors the company will eventually get there. Even if a buyer materializes for the entire company, the premium would likely be a lot smaller than where Tellurian traded just a short time ago.
And given the long history of delays and setbacks at Driftwood, there is no reason to be sure that even if Tellurian finds a way to survive its current cash crunch the project will eventually get done and become the positive cash generator that investors had hoped it would be.
Even with the deal talk, there is not much reason for investors to get excited about Tellurian shares right now.
