US natural gas firm sells its upstream assets for $260M, enters LNG offtake deal

U.S. natural gas company Tellurian has entered into an agreement with a compatriot private investment firm and adviser for the sale of its integrated upstream assets, as well as heads of agreement for the offtake of LNG from its Driftwood plant.

As part of the agreements, Texas-headquartered Aethon Energy Management will acquire Tellurian’s integrated upstream assets for $260 million, alongside the purchase of two million tons per annum (mtpa) of LNG from the Driftwood plant near Lake Charles, Louisiana.

The Driftwood LNG plant is an approximately 27.6 mtpa liquefaction export facility, with its phase 1 expected to include two LNG plants with an export capacity of up to 11 mtpa.

“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,” said Tellurian Executive Chairman Martin Houston.

“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.”

With the acquisition, Aethon will expand its 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 the company’s pro forma gathering and treating capacity to over 3 Bcf/d.

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.

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.

Aethon is set to continue exploring additional opportunities to bring value to Driftwood LNG following the transaction.

“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 CEO 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.”