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Tellurian : Chesapeake Energy Held Talks on Louisiana Fields, Sources Say -- Update

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03/08/2018 | 11:40pm CEST

By Christopher M. Matthews and Stephanie Yang

Tellurian Inc. is in talks to buy Chesapeake Energy Corp.'s Louisiana drilling fields as it seeks to become a producer as well as exporter of natural gas, according to people familiar with the matter.

Chesapeake, a pioneer of the shale boom, has been selling off some of the vast holdings assembled by its late co-founder Aubrey McClendon as it struggles with low energy prices and a mountain of debt it took on to lock up drilling rights for swaths of land.

Tellurian is the latest venture by Charif Souki, who developed the first terminals to liquefy natural gas and export it from the U.S. Gulf Coast as founder of Cheniere Energy Inc. The company, which has few assets, has said it is looking to acquire drilling fields near a coastal site where it plans to build an export facility, to sell fuel overseas.

Chesapeake's Louisiana fields, located in the Haynesville shale formation, are valued at about $2 billion, according to Jefferies analysts.

The talks to purchase Chesapeake's fields could fall apart and there is no guarantee of an agreement. Tellurian has offered to Chesapeake to take equity as a part of the asset sale, something Chesapeake isn't interested in doing, people familiar with the talks said.

Tellurian has also held talks with other producers with Haynesville assets to acquire more acreage, people familiar with the matter say. Tellurian's stock closed up 1.5%, at $8.55 per share, Thursday and is down about 25% on the year.

The advent of shale drilling has flooded the U.S. with cheap energy, including vast resources of natural gas that producers have sought to export to generate electricity and heat homes around the world.

Mr. Souki founded Tellurian in 2016 after being ousted as chief executive of Cheniere in 2015. Cheniere sent the first shipment of liquefied natural gas from the mainland U.S. in 2016, after Congress lifted a ban on U.S. energy exports in late 2015.

At Tellurian, Mr. Souki is again trying to build out U.S. capabilities to send natural gas abroad, but additionally offering investors a stake in the full supply chain by owning producing assets along with pipeline and liquefaction capacity.

The strategy could potentially make it easier to raise capital to construct a multibillion-dollar export terminal, but it isn't without risks. Tellurian will have to prove it can produce gas as cheaply as other operators who have years of experience.

By some estimates, Tellurian would have to become one the 25 largest natural gas producers in the U.S. to supply all the fuel it would need for its terminal.

"You have to find a business model that applies to the expensive financing of a project," Mr. Souki said at the IHS Markit CERAWeek conference in Houston on Wednesday.

Last year, Tellurian acquired acreage in northern Louisiana for $85 million that currently produces about four million cubic feet of natural gas a day. Driftwood LNG is expected to start construction in 2019, pending regulatory approval.

In a February earnings call, Chesapeake executives pointed to opportunities to sell gas assets from its portfolio and reiterated plans to reduce debt by up to $3 billion this year through large transactions.

"Gas is extremely out of favor in the equity markets, as you all know, and extremely out of favor in many circles," said Chesapeake Chief Financial Officer Domenic J. Dell'Osso Jr. on the call, but added, "there is real financial return to be created in these assets."

Write to Christopher M. Matthews at [email protected] and Stephanie Yang at [email protected]

Stocks mentioned in the article
ChangeLast1st jan.
CHESAPEAKE ENERGY CORPORATION 3.70% 5.05 Delayed Quote.23.23%
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Financials ($)
Sales 2018 24,1 M
EBIT 2018 -99,1 M
Net income 2018 -98,2 M
Debt 2018 -
Yield 2018 -
P/E ratio 2018 -
P/E ratio 2019
Capi. / Sales 2018 87,7x
Capi. / Sales 2019 50,8x
Capitalization 2 117 M
Duration : Period :
Tellurian Inc Technical Analysis Chart | TELL | US87968A1043 | 4-Traders
Technical analysis trends TELLURIAN INC
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 4
Average target price 12,8 $
Spread / Average Target 43%
EPS Revisions
Meg A. Gentle President, Chief Executive Officer & Director
Charif Souki Chairman
R. Keith Teague Chief Operating Officer & Executive Vice President
Antoine J. Lafargue Chief Financial Officer & Senior Vice President
Martin Joseph Houston Vice Chairman
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