Woodside Energy to acquire US LNG developer Tellurian

Australia's Woodside Energy is set to acquire Tellurian, the developer of the proposed Driftwood LNG project in Louisiana, for an implied enterprise value of about $1.2 billion, the companies said July 22.

Woodside CEO Meg O'Neill said the deal "positions Woodside to be a global LNG powerhouse."

It also has the potential to provide greater financial support for the Driftwood project, which Houston-based Tellurian has struggled to advance to a final investment decision since the company was founded in 2016.

"It adds a scalable US LNG development opportunity to our existing approximately 10 million mt/year of equity LNG in Australia," O'Neill said in a statement. "Having a complementary US position would allow us to better serve customers globally and capture further marketing optimization opportunities across both the Atlantic and Pacific basins."

The Australian oil and natural gas producer said the deal advances its ambitions to expand its global presence in the LNG sector amid firm demand for the fuel and positions the company to pursue its energy transition strategy. The company has set a target of cutting scope 1 and scope 2 emissions by 2030 and is aspiring for net zero by 2050.

Woodside is targeting a final investment decision on the first phase of Driftwood LNG in the first quarter of 2025 with an eye toward starting LNG production in the late 2020s, the company said. Phase 1 comprises 11 million mt/year of capacity while phase 2 will be 5.5 million mt/year, it said.

Woodside expects development costs of around $900-$960/mt for phases 1 and 2, it said, with the contracting strategy being a lump-sum turnkey contract with LNG contractor Bechtel.

The buyer also said it expects to sell down about 50% of project equity.

"We have already received multiple inbounds from companies interested in working with us in the US LNG market," O'Neill said.

O'Neill touted the acquisition in a call with analysts as a "cost-competitive entry into a near FID-ready, fully permitted development that has had over $1 billion expenditure incurred to date in engineering and pre-FID civil and site works." The development plan for the project comprises five LNG trains through four phases, with a total permitted capacity of 27.6 million mt/year.

The deal calls for the Australian producer and LNG exporter to pay about $1 per outstanding share of Tellurian's common stock in an all-cash transaction. The $1.2 billion enterprise deal amounts to about $900 million in equity and about $300 million in debt.

"We decided the attractive offer in hand outweighed the risks and uncertainty associated with going it alone," Tellurian's executive chairman, Martin Houston, said in a July 21 letter to shareholders.

Driftwood

Stifel Financial analysts described the acquisition as a win for Tellurian in a July 22 note to clients.

"This is a significant premium to what we believe the company would be able to garner for the Driftwood project, given the limited commercial development, although it does have regulatory approval and some preliminary construction," Stifel analysts led by Benjamin Nolan said. "This does reflect an effective acknowledgment by management that there was no practical way forward as an independent company, and the potential upside was limited."

The sale "should meaningfully increase the likelihood of Driftwood moving forward," although there remains significant commercial work before an FID, Stifel said.

Tellurian does not have any firm long-term LNG contracts tied to Driftwood, after previous deals were terminated. But it has a preliminary deal signed in May with US producer Aethon Energy Management that calls for the companies to negotiate a 20-year offtake deal for 2 million mt/year from Driftwood. Aethon recently completed the purchase of Tellurian's upstream assets.

Driftwood is one of the few US projects awaiting FID that is not subject to the US Department of Energy's pause on issuing key LNG export permits announced in January, although Tellurian's existing approval is set expire in May 2026, meaning the project will need an extension from the agency.

Driftwood also recently received an extension of its Federal Energy Regulatory Commission authorization to construct the project.

Tellurian began early construction of the project in March 2022 but gave contractor Bechtel only a limited notice to proceed as it worked to raise the commercial and financial support to complete the project.

"Construction has commenced, with pilings for trains 1 and 2 complete, foundation work in progress and pilings underway for the LNG tanks," it said, noting that the progress on the groundwork trims the time to engineering, procurement, construction, or EPC, timeline and costs.

The deal is subject to regulatory and other approvals as well as Tellurian shareholder approval.

"Tellurian's board of directors has approved the transaction and has recommended that its shareholders approve the transaction," Woodside said, adding that it expects to complete the transaction by the fourth quarter of 2024.