Woodside acquires Tellurian and the Driftwood LNG project

Woodside agreed to acquire Tellurian including its US Gulf Coast Driftwood LNG. The consideration is US$1 per share or a cash payment of US$900 million. This equates to an EV of around US$1.2 billion once working capital and debt are taken into account.

The core asset is Driftwood LNG. It is located near Lake Charles, Louisiana. The current development plan comprises five LNG plants through four phases, with a total permitted capacity of 27.6 Mtpa. The foundation development includes two phases. An 11 mmtpa Phase 1 and a 5.5 mmtpa Phase 2.

Why has Woodside acquired Tellurian?

Woodside’s decision to acquire Tellurian appears to be opportunistic. This is the first time a large portfolio player has taken full strategic control of a US project. We’ve seen companies take strategic non-operated positions. This suggests Woodside wants to control its own destiny by taking control of one of the best remaining LNG development sites on the Gulf Coast, one which has FERC approval and a non FTA approval (due to expire in 2026) which has a good chance of extension.  

Woodside has long signalled its intention to grow its US LNG footprint, and this deal improves portfolio diversity, reducing reliance on Woodside’s existing Australian LNG business. It also adds a new option to a growth portfolio currently consisting of Browse, Greater Sunrise and the Calypso resource in Trinidad & Tobago.

In the short video below, we utilise our comprehensive LNG contract data within our Lens Gas & LNG data analytics platform to assess the recent acquisition of Tellurian and the Driftwood LNG project.

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What does this mean for Tellurian shareholders?

What this means for Tellurian shareholders will depend on how long they have been holding the stock. The takeover price was around a 75% premium on the previous close. And before opening the company is trading up around 65%.

But it’s been a long journey for Tellurian shareholders. If you go back to the energy crisis in 2022, Tellurian was trading at more than US$6 and it was above US$8 before the pandemic. Long term shareholders will likely rue the decision not to follow traditional contracting methods.

What does it mean for Driftwood LNG?

Woodside’s LNG experience and capability gives Driftwood LNG credibility. The project gets a foundation offtaker which will allow other high-quality partners to enter the development. Woodside is targeting an equity sell-down of ~50%, with players who will bring both financial firepower and appetite to pick up LNG from the project ideal partners.

The project is not impacted by the Biden administration pause. Driftwood LNG is fully permitted and has a non-free trade agreement (FTA) DOE export authorisation. The DOE deadline is May 2026; therefore, an extension is required. This is likely, although not guaranteed, to be granted because construction has begun. This is one of the criteria for extension, along with the reason for delay resulting from circumstances outside of its control.

Marketing has been a key challenge for Tellurian. Tellurian has previously tried to market the project linked to JKM/TTF rather than the traditional HH-linked SPA for US Gulf Coast projects, but it was unable to secure finance for the project under these arrangements. TotalEnergies cancelled its JKM netback deal in 2021. Gunvor, Vitol and Shell signed market-linked contracts in 2021 but these were cancelled the following year.

Woodside will improve the marketing. The company will offtake a large share of the volumes into its portfolio as the company continues its journey to become a global portfolio player. The company also has long-term relationships with key customers and experienced marketing and trading teams. It can also use some of the US LNG volumes it will take from the project, to support existing deals signed into Europe, freeing up some of its volumes in Asia to support marketing there. 

Tellurian, as part of the sale of its Haynesville upstream assets in May 2024, negotiated a Heads of Agreement (HOA) with the buyer, Aethon Energy. The deal allows Aethon to negotiate purchase of 2 mmtpa of LNG indexed to Henry Hub plus a liquefaction fee for 20 years from Driftwood LNG. It will be interesting to see whether Woodside continues these negotiations and/or whether it targets marketing into other US exploration and production companies as they increasingly seek international pricing for their production, potentially as part of GSA negotiations. Whether Woodside will have to continue with its plans to also offtake LNG from the Commonwealth project in Louisiana, with which it has 2.5 mmtpa in SPAs, is another open question. 

Next steps

The next steps for the project are to address the conditions precedent, issue full notice to proceed under the EPC contract with Bechtel and bring in partners. Woodside has advised that it will not raise project finance for the development. The project also needs an extension of time request to its non-FTA export approval – with confidence that this will be granted, this may be filed for after FID is taken.

The outlook for new US LNG projects remains positive, but many of the projects competing for FID are impacted by the Biden Administration pause. Therefore, whilst a lot of work remains, it is possible that Driftwood could jump closer to the front of the pre-FID queue.

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