Tellurian (NASDAQ:TELL) is a natural gas company founded after the last decade’s energy boom turned to bust. While TELL stock traded for less than $1 a year ago, today you can buy Tellurian for more than $3.
It’s riding high natural gas prices, now at over $5 per million BTU, and headed higher.
Tellurian is a second act for CEO Charif Souki, who co-founded Cheniere Energy (NYSE:LNG). Cheniere is a gas exporter that rose, then fell, during the oil boom in the 2010s.
As with Cheniere, Souki’s promoting the idea of exporting gas, this time through a new terminal in Louisiana called Driftwood.
Will this story have a happier ending?
The Bull Case
TV analyst Jim Cramer likes what Souki did at Cheniere and thinks he can do it again. Since bottoming in January 2016, soon after Souki left, Cheniere stock is up more than 250%. The company has made the U.S. a big natural gas exporter. Most of Cheniere’s gains have come in the last year, as the world economy has reopened.
Fossil fuels are a boom-bust industry. It’s boom time again. That’s thanks partly to the bust, which has kept supplies down. It’s also due to the great reopening, an energy shortage in Asia that doubled the price of natural gas.
Tellurian is a bet that the shortage will continue. Revenue for the first half of 2021 came to just $34 million. The current market cap is $1.7 billion. Souki’s story has connected with the meme stock crowd, thanks to a string of YouTube podcasts. There he pushes the need for more natural gas drilling and exports.
What Souki wants is his own export terminal, the $16 billion Driftwood project near Lake Charles. He has customers which Tellurian claims cover all the gas Driftwood can supply over 10 years. Our David Moadel calls it a “winning play.”
Construction at Driftwood, however, has not yet begun. The contractor, Bechtel, needs a Final Investment Decision (FID), a guarantee that it will be paid in full.
The Bear Case
Souki’s story has skeptics. One such critic, dubbed the Houston Bureau of Investigations, has compared Tellurian to Enron. (That’s unfair. Enron was an energy trading company, not an export terminal.)
The problem is one of time scales. Souki is seeking capital for Driftwood based on the next year’s gas prices. But his is a 10-year project. Faced with credit market skepticism, Tellurian pulled a bond offering in August.
The company’s press release said it raised equity instead, but this was a red flag to the critics. They say the company can’t finance its terminal, that its losses would be twice as much as the company is worth. The company’s press release archive does not yet include an FID on the terminal.
The Bottom Line on TELL Stock
The rise of Cheniere, and the last decade’s energy boom, was based on the idea of natural gas as a cheap fuel, a “bridge” between coal and renewable energy.
Since the oil bust began in 2014, however, costs for renewables have plummeted. It’s now cheaper to harvest the wind and the sun than to drill for and burn natural gas. Once a wind farm or solar project goes into production, with battery backup, demand is taken out of the market permanently.
But such projects take time to build. People are cold right now. This has given Tellurian an opening. The question is how much time it has. Its contracts say it has plenty of time. Its critics say its time is running out.
Credit markets agree with the critics. They have been burned before by the energy industry. The latest energy bust lasted nearly six years before prices turned back up. It’s now a race against time, on both sides.
Once renewable capacity is in place, Tellurian’s time will run out.
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On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
