Aethon Energy to Acquire Tellurian Integrated Upstream Assets

Rhea-AI Summary

Tellurian Inc. (NYSE American: TELL) and Aethon Energy Management have announced a $260 million agreement for Aethon to acquire Tellurian’s integrated upstream assets. This includes approximately 31,000 net acres in the Louisiana Haynesville and Bossier shale basins, with systems capable of handling up to 100 MMcf/d. Additionally, Aethon will purchase 2 mtpa of LNG from Tellurian's Driftwood LNG plant under a Heads of Agreement, potentially leading to a 20-year offtake agreement indexed to Henry Hub plus a liquefaction fee. The deal, expected to close in Q2 2024, aims to help Tellurian pay down debt and bolster its balance sheet, while expanding Aethon's asset base and LNG capacities.

Positive

• Aethon Energy to acquire Tellurian's upstream assets for $260 million.
• Aethon to purchase 2 mtpa LNG from Tellurian's Driftwood LNG plant.
• Transaction expands Aethon's footprint in Haynesville and Bossier shale basins.
• Aethon's gathering and treating capacity to exceed 3 Bcf/d post-transaction.
• 20-year offtake agreement indexed to Henry Hub plus liquefaction fee being negotiated.
• Proceeds to help Tellurian reduce borrowings and strengthen its balance sheet.
• Deal expected to close in Q2 2024, aiding Driftwood LNG project development.

Negative

• Potential risk if the 20-year offtake agreement is not finalized.
• Tellurian selling key integrated upstream assets may impact future operational control.
• Immediate reduction in Tellurian's asset base post-sale.
• No confirmed timeline for the Heads of Agreement to convert into a formal contract.

Insights

Financial Analyst

The acquisition of Tellurian’s integrated upstream assets by Aethon Energy for $260 million is significant. This deal will expand Aethon’s presence in the Louisiana Haynesville and Bossier shale basins, adding approximately 31,000 net acres. This move effectively increases Aethon’s gathering and treating capacity to over 3 Bcf/d across its assets, which can potentially boost their revenue and market position. Tellurian’s use of proceeds to reduce borrowings is a strategic move to strengthen their balance sheet, which is a positive step for long-term financial health.

Moreover, the Heads of Agreement for Aethon to purchase two million tons per annum (mtpa) of LNG from Tellurian's Driftwood LNG plant for 20 years, indexed to Henry Hub plus a liquefaction fee, provides a stable and predictable financial model for future revenues. This agreement also provides the basis for project financing of Driftwood LNG, which is important for its development.

For retail investors, this means potential stability and growth for Tellurian's stock in the long term as debt reduction and asset sales can lead to improved financial ratios. However, the benefits for Aethon also highlight their potential as a growing player in the LNG market, which could be an area of interest for energy sector investors.

Market Research Analyst

The sale of upstream assets by Tellurian to Aethon Energy shows a consolidation trend in the energy sector. Aethon is strategically increasing its assets in prolific shale basins, which can enhance their production capabilities and market share. This move aligns with the broader industry trend of focusing on core operations and vertical integration, which can lead to higher operational efficiencies and lower costs.

The long-term offtake agreement for LNG, tied to Henry Hub prices, also reflects a strategic alignment with market trends. It ensures a steady and predictable supply for Aethon’s downstream LNG customers, which is important in a volatile commodity market. This can be seen as a move towards securing market positions in the growing LNG sector, which is increasingly important in the global energy transition towards cleaner fuels.

For investors, this indicates a well-thought strategy by both companies to leverage their strengths and ensure long-term growth. It also suggests potential competitive advantages for Aethon in terms of cost leadership and market reach.

Energy Sector Analyst

This acquisition and the associated offtake agreement are pivotal in the context of the ongoing energy transition. Aethon’s acquisition in the Haynesville and Bossier shale basins, known for their prolific natural gas reserves, positions them to benefit from increasing natural gas demand, both domestically and internationally. The integration of these assets will likely result in improved supply chain efficiency and lower methane emissions, aligning with industry efforts to reduce carbon footprints.

The 20-year offtake agreement with indexing to Henry Hub prices provides a stable revenue stream and reduces price risk, a important factor given the volatility in natural gas markets. It also supports the financing and construction of the Driftwood LNG project, which is essential for Tellurian’s strategic plan.

Retail investors should note that the alignment with global LNG demand trends and the focus on reducing carbon emissions can make both companies attractive investment options in the long term, considering the ongoing global shift towards cleaner energy sources.

Enters into Heads of Agreement for Two mtpa of LNG from Driftwood LNG

HOUSTON & DALLAS--(BUSINESS WIRE)-- Tellurian Inc. (NYSE American: TELL) and Aethon Energy Management LLC (Aethon) announced an agreement for Aethon to acquire Tellurian’s integrated upstream assets for $260 million, alongside a Heads of Agreement for Aethon to purchase two million tons per annum (mtpa) of liquified natural gas (LNG) from Tellurian’s Driftwood LNG plant.

The assets will expand Aethon’s footprint in the Louisiana Haynesville and Bossier shale basins with approximately 31,000 net acres, including gathering and treating systems that have capacity for up to 100 million cubic feet per day (MMcf/d) that will bring Aethon’s pro forma gathering and treating capacity to over 3 Bcf/d across its assets.

The Heads of Agreement contemplates the parties negotiating a 20-year offtake agreement which would be indexed to Henry Hub plus a liquefaction fee, with appropriate credit support, to provide the basis for project financing of Driftwood LNG. Aethon will continue to explore additional opportunities to bring value to Driftwood LNG following the transaction.

The transaction is expected to close during the second quarter of 2024, and Tellurian will use the proceeds to reduce borrowings and for general corporate purposes.

Tellurian Executive Chairman Martin Houston said, “Today’s agreements with Aethon take us several steps closer to developing the Driftwood LNG project, for which Aethon is a vital partner. The offtake agreement for two mtpa provides the foundation to accelerate Driftwood and demonstrates that we have successfully aligned our commercial offerings to meet the needs of potential customers. For Tellurian, the proceeds from the sale of our upstream assets allow us to retire senior secured notes and strengthen our balance sheet for the long term. This is an important moment for our company, as Tellurian continues to make progress against our strategic plan.”

“The expanding scale of our vertically integrated business continues to deliver capital efficiency and industry-leading margins as we work to accelerate the role of natural gas in the broader energy transition,” said Aethon Energy Chief Executive Officer Albert Huddleston. “This Fund II and Fund III acquisition provides complementary growth opportunities alongside our extensive upstream and midstream footprint in the Haynesville with more than 20 years of existing inventory life. Our partnership with Tellurian will provide our downstream LNG customers with the lowest methane emission intensity in North America.”

Lazard served as financial advisor to Tellurian in this transaction, and Akin Gump served as legal counsel. Gibson Dunn provided legal counsel for Aethon.

About Tellurian Inc.

Tellurian intends to create value for shareholders by building a low-cost, global natural gas business, profitably delivering natural gas to customers worldwide. Tellurian is developing a portfolio of natural gas production, LNG marketing and trading, and infrastructure that includes an ~ 27.6 mtpa LNG export facility and an associated pipeline. Tellurian is based in Houston, Texas, and its common stock is listed on the NYSE American under the symbol “TELL”. For more information, please visit www.tellurianinc.com.

Follow us on Twitter at twitter.com/TellurianLNG

About Aethon Energy Management

Aethon Energy Management is a private investment firm and registered investment adviser that manages closed-end funds focused on acquiring, operating, and developing onshore energy resources across North America. Headquartered in Dallas, TX, Aethon has deployed more than $9 billion over a 34-year track record while generating attractive returns for its fund investors across multiple commodity price cycles. Aethon’s vertically integrated strategy provides capital efficient growth, combined with disciplined risk management to support cash flow assurance. Today, Aethon is a leading, low-emission operator and one of the largest private natural gas producers and suppliers to LNG facilities in the U.S., including more than 1,700 miles of midstream infrastructure. Please visit www.AethonEnergy.com for more information.

CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of U.S. federal securities laws. The words “anticipate,” “assume,” “believe,” “budget,” “estimate,” “expect,” “forecast,” “initial,” “intend,” “may,” “plan,” “potential,” “project,” “proposed,” “should,” “will,” “would,” and similar expressions are intended to identify forward- looking statements. Forward-looking statements herein relate to, among other things, the capacity, timing, and other aspects of the Driftwood LNG project, the closing and final purchase price of, and the use of net proceeds from, the upstream sale, the entry into and final terms of a definitive offtake agreement, and other strategic, development, and financing activities. These statements involve a number of known and unknown risks, which may cause actual results to differ materially from expectations expressed or implied in the forward-looking statements. These risks include the matters discussed in Item 1A of Part I of the Annual Report on Form 10-K of Tellurian for the fiscal year ended December 31, 2023, filed by Tellurian with the Securities and Exchange Commission (the SEC) on February 23, 2024, and other Tellurian filings with the SEC, all of which are incorporated by reference herein. There can be no assurance that the transactions referenced in this press release will be completed. The forward-looking statements in this press release speak as of the date of this release. Although Tellurian may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240529924670/en/

Tellurian

Matt Phillips

Phone: +1 (832) 320-9331

Email: Matthew.phillips@tellurianinc.com



Aethon Energy

Clayton McGratty

Phone +1 (214) 356-7959

Email: cmcgratty@aethonenergy.com

Source: Tellurian Inc.

FAQ

What is the value of Aethon's acquisition of Tellurian's assets?

Aethon Energy will acquire Tellurian's integrated upstream assets for $260 million.

What does the Heads of Agreement between Tellurian and Aethon entail?

The Heads of Agreement includes Aethon purchasing 2 mtpa of LNG from Tellurian's Driftwood LNG plant and potentially negotiating a 20-year offtake agreement.

When is the Aethon-Tellurian transaction expected to close?

The transaction is expected to close during the second quarter of 2024.

How will the proceeds from the sale of Tellurian's assets be used?

The proceeds will be used to reduce borrowings and for general corporate purposes.

How will the acquisition affect Aethon's asset base?

The acquisition will expand Aethon's footprint in the Haynesville and Bossier shale basins and increase its gathering and treating capacity to over 3 Bcf/d.