Tellurian Shares Plunge on Stock and Debt Offering News
The energy company's plan to issue new shares and convertible notes to fund its Driftwood LNG project sparks concerns of shareholder dilution.
Shares of Tellurian Inc. (TELL) tumbled more than 14% in early trading on Wednesday after the company announced proposed concurrent public offerings of common stock and convertible senior notes, a move aimed at funding its capital-intensive Driftwood LNG project.
The Houston-based energy company, which is developing a major liquefied natural gas export terminal in Louisiana, did not specify the size of the offerings. However, the plan to issue new equity and equity-linked debt immediately raised investor concerns about significant shareholder dilution, applying downward pressure on the stock price.
Tellurian's stock fell to $0.84 per share, a sharp decline from its previous close, as trading volume surged to more than double its daily average. The offerings, detailed in a company press release, consist of a public offering of common stock and a separate offering of convertible senior notes due in 2030. The company stated its intention to use the net proceeds for "general corporate purposes, including the continued development of the Driftwood project."
This capital raise underscores the immense financial hurdles facing Tellurian as it works to secure the estimated $20 billion needed for the Driftwood LNG facility. The project is designed to have a production capacity of 27.6 million tonnes per annum and is a cornerstone of the company's strategy to capitalize on growing global demand for U.S. natural gas. While securing funding is a critical step, it often comes at a cost to current investors.
"It's a classic catch-22 for a development-stage company like Tellurian," noted one energy sector analyst. "They absolutely need the capital to move Driftwood toward a final investment decision, but the market is punishing them for the dilution required to get there. The overhang from the convertible notes adds another layer of uncertainty."
Convertible notes are a form of debt that can be converted into a predetermined number of common shares at a later date. This structure can be attractive for companies as it typically carries a lower interest rate than traditional debt, but it creates a potential for future dilution that can weigh on the stock long before any conversion occurs.
The success of the Driftwood project has been a long-held ambition for Tellurian, but the path has been fraught with delays and financing challenges. The company has been seeking equity partners and long-term customer contracts to underwrite the massive construction costs. This latest move to tap the public markets suggests the company is pursuing a multi-pronged approach to piece together the necessary funding.
Investors will now be closely watching for the pricing of the offerings, which will determine the immediate dilutive impact. The focus will then shift to whether this capital injection is sufficient to propel the Driftwood project to its next major milestone and attract larger-scale investment partners. For Tellurian, the challenge remains balancing the long-term promise of its LNG ambitions with the near-term pressures of the capital markets.