Charif Souki, 2013 (Photo by Michael Thad Carter, for Forbes).
There's a new way for investors to bet on the miracle of American natural gas and the genius of Charif Souki. As of last week Souki's Tellurian Investments completed a reverse takeover of publicly traded Magellan Petroleum. The company has been renamed Tellurian, has a new ticker symbol (TELL), and big plans to build a new liquefied natural gas export facility in Calcasieu Parish, La.
The project, called Driftwood LNG, will cost around $12 billion, and have the capacity to export 26 million tons of LNG per year, the equivalent of about 3.6 billion cubic feet of gas per day. Construction hasn't started yet, but Souki expects Driftwood to be operational in late 2022. To get through engineering and permitting, Souki has already raised about $200 million from French oil giant Total, and another $25 million from General Electric. He doesn't expect any problems in raising the the rest, thanks to his track record at LNG trailblazer Cheniere Energy. "The cost of equity is significantly cheaper," says Souki. "We've proved the concept."
Souki, 64, is the closest thing to a rock star in the world of American liquefied natural gas. The founder of Cheniere Energy was the first, a decade ago, to figure out how to secure the approvals and billions in financing to build new LNG import terminal. Back then the conventional wisdom was that the U.S. was running short on domestic natural gas — to meet demand we'd have to import the stuff, chilled to -260 degrees, from gas giants like Qatar. (That landed him a Forbes Magazine story " First Mover " in 2005.)
And yet by the time Cheniere had completed the first of its giant thermos–bottle-like tanks at Sabine Pass, Texas, the need for them had evaporated. The American shale gas boom unlocked more domestic gas than anyone had ever dreamed of, and Cheniere's tanks (big enough to fit a Boeing 747) were white elephants memorializing an expensive wrong way bet. But Souki, a Lebanese immigrant, former restauranteur and investment banker, managed to pull victory from the jaws of defeat. Cheniere borrowed another $10 billion to rework Sabine Pass to take that newly plentiful shale gas and export it. (We did a second Forbes Magazine story in 2013 .)
The plan was so unlikely that when Cheniere's stock was languishing around $1.50 in 2010, its board agreed to incentivize the heck out of Souki. "They gave me a compensation package subject to a lot of milestones they thought would never materialize," he says. Even though he pulled off the turnaround that sent Cheniere shares surging to $80, Souki's nearly $150 million pay package shocked the industry. (I maintained in 2014 that he deserved every penny .)
By then Carl Icahn had gotten on board the Cheniere train. He wanted Cheniere to complete its projects and transition into a cash cow. Souki wanted to keep building, and borrowing. Icahn won, and in late 2015 he pushed Souki out of the company . "I think they were not so much second guessing me as they were tired of me," Souki smiles. "What I love is creating new projects. They wanted to slow down and absorb what Cheniere was doing; they didn't want to accelerate at the pace that I wanted."
It was an ignominious dismissal — a few months later Sabine Pass christened its equipment with an inaugural export. Souki didn't seem to mind that much; he decamped to Aspen while plotting his comeback. He and former BG Group macher Martin Houston launched Tellurian nearly a year ago . Souki says investors have lined up to back them; a nice change from those early days at Cheniere.
Cheniere’s Sabine Pass LNG terminal. (Lindsey Janies/Bloomberg)
And yet they have a lot more competition, first from the big wave of new American LNG export capacity coming on line in the next few years. Adding up Cheniere's projects under construction in Sabine Pass and Corpus Christi , plus rivals Freeport LNG , Sempra's Cameron LNG , and Dominion Energy's Cove Point, and by the end of the decade the U.S. will be exporting about 10% of domestic gas supply, or roughly 9 billion cubic feet per day. On top of that will come the next wave of projects, like Magnolia LNG , Texas LNG and another plant at Port Arthur. Exxon Mobil could even get around to adding liquefaction capacity at its Golden Pass site.
And then there's the international projects, like Chevron's $60 billion Gorgon in Australia, and Exxon's planned expansion in Papua New Guinea . All told, more than 100 billion cubic feet per day of new LNG supply is set to hit the market in the next 5 years — a roughly 50% increase and enough to fill about 15 giant tankers, each day. Souki sees enough LNG sloshing around the world market for gas will become as fungible as it is for oil — with every cargo potentially a spot cargo, able to be redirected wherever prices are highest. And he has no doubt at all that U.S. exports will compete head-to-head with supply from the likes of Qatar and Australia.
"The U.S. is the low-cost gas provider in the world," he says. The Haynesville shale can produce for about $1.50 per million BTU, while costs are less than $1 out of the Marcellus and Utica. Same with the Eagle Ford and Permian. Natural gas on the Gulf Coast now sells at $3 per mmBTU. Chilling the gas down to a liquid costs about $2.50 per mmBTU, and then there's another $1.50 or so in shipping costs. Considering that LNG into Japan and Korea is fetching about $8, that leaves a decent profit margin. For now anyway.
Souki figures that America's shale fields have 100 years worth of cheap gas to enjoy. Plus, construction costs on the Gulf Coast, already the world's biggest petrochemical center, have proven to be cheap — about $600 per ton of liquefaction capacity — less than half that of frontier regions like Australia's Barrow Island. He should be able to compete with anyone. "My first focus at Tellurian is to make sure we're the low-cost provider of natural gas on a global basis. Everything else comes from there. It's not just liquefaction. I want to source it as cheap as possible, pipe it as cheap as possible and liquefy it as cheap as possible. So if I'm leaving the Gulf Coast at the lowest cost, it gives me tremendous optionality."
Souki and Martin Houston will be the power behind the scenes of the new public company; day-to-day management will be handled by CEO Meg Gentile, Souki's long-time lieutenant at Cheniere. He relishes the freedom to "sit and think and come up with ideas and imagine where the world of natural gas is going."
He expects the Trump Administration "is going to be a little bit better, but not significantly" for the American oil and gas industry. "Even under 8 years of Democratic administration we increased our production dramatically; we became a net exporter of natural gas. We decreased our demand on global oil to a large extent. We allowed uncounted new wells to be drilled and created thousands of new jobs."
The American oil and gas industry has never looked stronger. "I'm of a view that America is already great. I'm an immigrant from Lebanon, what do you want me to compare it to? Thanks for coming in the last inning."
Shares of the new Tellurian closed Monday at $11.61, down 17% on the day, but up 130% in 3 months. Market cap is about $2.3 billion. Souki and his family own about 65 million shares , or a third of the company, while Martin Houston has 24.1 million, 12.3%. Oil company Total has 23.5%.
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