Tellurian (NYSE: TELL) is a simply enough binary option on one single issue. Will the Driftwood Project ever actually get built? If it doesn't then there's really nothing very much there. If it does then we would still need to go through the varied decision trees about how it does. How much dilution will there be and so on. But that primary and binary question is does the LNG terminal come into operation or doesn't it?
Or, as we can also put it, are we here dealing with a great piece of company promotion without much result behind it, or is this more of a high risk plan that might in fact come off? A reasonable estimation of the Tellurian stock price is that it's priced as if it's a promotion that's not going to work out. But that there are still those with hope and thus the 20% jump on what isn't, in fact, a solution to the basic problems here. TELL doesn't, at present, have the finance to build the LNG plant. A built LNG plant would likely be a lovely asset to have. But it's that gap between here and there which matters
Tellurian stock price from NASDAQ
The current surge in the Tellurian stock price is around a sale and leaseback deal on land at the Driftwood project. $1 billion for the land in return for a contract to lease the land back. Which is nice, but it still doesn't get anywhere near the requirements for building the plant. For there's still a requirement for some billion in equity, plus mezzanine, plus debt, to get to that likely $12 billion and up cost of the plant. This nibbles away at the problem perhaps but it doesn't solve it. Where is that capital going to come from - and think on it, with a market capitalisation around the $800 million level any cash raise would be hugely dilutive.
On the positive side there's still a large gap between the Henry Hub, or US domestic, natural gas price and the value of LNG landed in Europe or elsewhere. So a plant up and running would have value. We're still stuck with that question of whether there will be an actual plant.
Finally, we've the fact that the Executive Chairman - and essentially the scheme promoter - Charif Souki has been substantially selling down his stake. Yes, it's to meet a margin loan but still, this isn't what we'd like to see from an insider at this point.
We're still left with substantial doubt that the LNG train is ever going to get built at Driftwood - Tellurian therefore remains highly speculative.
