Woodside splashes out $900 million to bring ‘global LNG powerhouse’ into play

Australia’s energy giant Woodside has struck a deal to bolster its liquefied natural gas (LNG) arsenal by acquiring Tellurian, a U.S.-based natural gas player. This will enable the Australian heavyweight to take over the ownership and operatorship of a proposed 27.6 million tonnes per annum (mtpa) LNG terminal in Louisiana, United States, which has secured all necessary permits for development.

Woodside is getting its hands on all issued and outstanding common stock of Tellurian, including its owned and operated U.S. Gulf Coast Driftwood LNG development opportunity, for an all-cash payment of approximately $900 million, while the implied enterprise value is around $1.2 billion. The transaction, which was unanimously approved by both boards of directors, is slated to close in Q4 2024, subject to customary closing conditions, including approval from Tellurian shareholders and the receipt of regulatory approvals.

The Australian giant, which sees this acquisition as “an attractive entry” into an opportunity with more than $1 billion of expenditure to date, anticipates multiple benefits, such as the expansion of its position in the LNG arena, addition of a high-quality, fully permitted U.S. LNG development option to its portfolio, ability to leverage its LNG development, operations, and marketing expertise to unlock the project’s potential and create value, and further value creation flows from marketing optimization with geographic diversification.

In addition, Woodside is convinced that this move will boost long-term cashflow generation potential with a phased development to manage investment decisions aligned with its capital allocation framework and support its carbon competitiveness through increased exposure to LNG and the potential to reduce the average Scope 1 and 2 emissions intensity of the firm’s LNG portfolio. The Australian player has confirmed that its target of curbing net equity Scope 1 and 2 emissions by 2030, and aspiration for net zero by 2050, remain unchanged.

Meg O’Neill, Woodside’s CEO, commented: “The acquisition of Tellurian and its Driftwood LNG development opportunity positions Woodside to be a global LNG powerhouse. It adds a scalable US LNG development opportunity to our existing approximately 10 mtpa of equity LNG in Australia. Having a complementary US position would allow us to better serve customers globally and capture further marketing optimisation opportunities across both the Atlantic and Pacific Basins. The Driftwood LNG development opportunity is competitively advantaged.

“Woodside expects to leverage its global LNG expertise to unlock this fully permitted development and expand our relationship with Bechtel which is the EPC contractor for both Driftwood LNG and our Pluto Train 2 project in Australia. Through this acquisition, we are delivering on our strategy to thrive through the energy transition. Woodside believes that LNG will play a key role in the energy transition and is well positioned to deliver the energy the world needs while delivering significant value to our shareholders.”

The deal with Woodside comes shortly after Tellurian sold its integrated upstream assets for $260 million to Texas-headquartered Aethon Energy Management, alongside the purchase of two million tons per annum of LNG from the Driftwood plant near Lake Charles, Louisiana.

Furthermore, Woodside will provide a loan to Tellurian of up to $230 million to ensure Driftwood LNG site activity and de-risking activities maintain momentum before the completion of the transaction. The loan, secured by a first priority lien over the borrower’s assets subject to customary exclusions, comes with a maturity date of December 15, 2024, or the date of transaction completion.

The current development plan for the Driftwood LNG fully permitted, pre-final investment decision (FID) development opportunity near Lake Charles, comprises five LNG trains through four phases, with a total permitted capacity of 27.6 mtpa. With the development entailing 11 mtpa Phase 1 and 5.5 mtpa Phase 2, Woodside targets FID readiness for Phase 1 after the first quarter of 2025.

Martin Houston, Executive Chairman at Tellurian’s board of directors, remarked: “This transaction provides substantial and certain value for our shareholders. Following our strategic repositioning in December, our new leadership has strengthened Tellurian’s position and advanced Driftwood LNG. Woodside’s offer reflects this progress, providing a significant premium to our share price.

“After careful consideration of Tellurian’s opportunities and challenges, the board and senior management weighed an immediate and significant cash return against the risks and costs associated with the timeline to FID and determined that this offer is in our shareholders’ best interest. Woodside is a highly credible operator, with better access to financial resources and a greater ability to manage offtake risk, and I am confident it is the right developer to take Driftwood forward.”

The Driftwood LNG development, which has a valid non-free trade agreement (FTA) export authorization, recently got hold of an extension of its Federal Energy Regulatory Commission (FERC) authorization. Thanks to a design, that Woodside deems to be cost and carbon-competitive, development costs are expected to be around $900-960/tonne for both phases.

Following a lump-sum turnkey contract, Bechtel started construction with pilings for Trains 1 and 2 complete. Woodside confirms that foundation work is ongoing and pilings are underway for the LNG tanks, thus, it believes that the progress on groundwork reduces the risk to EPC timeline and cost.

The Australian energy heavyweight has been busy with multiple projects, including the one that enabled the start of production from Senegal’s first offshore oil deepwater development a few months after a floating production storage and offloading (FPSO) unit destined to work at the project reached the country’s waters.