UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20192020
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-5507
Tellurian Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 06-0842255 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.) |
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1201 Louisiana Street, | Suite 3100, | Houston, | TX | | 77002 |
(Address of principal executive offices) | | (Zip Code) |
(832) (832) 962-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading symbol | | Name of each exchange on which registered |
Common stock, par value $0.01 per share | | TELL | | NASDAQ | Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
As of October 25, 2019,30, 2020, there were 242,207,522330,464,366 shares of common stock, $0.01 par value, issued and outstanding.
Tellurian Inc.
TABLE OF CONTENTS
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Item 1. | Condensed Consolidated Financial Statements | |
| | Condensed Consolidated Balance Sheets | |
| | Condensed Consolidated Statements of Operations | |
| | Condensed Consolidated Statement of Changes in Stockholders’ Equity | |
| | Condensed Consolidated Statements of Cash Flows | |
| | Notes to Condensed Consolidated Financial Statements | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
Item 4. | Controls and Procedures | |
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Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
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Cautionary Information About Forward-Looking Statements
The information in this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts, that address activity, events, or developments with respect to our financial condition, results of operations, or economic performance that we expect, believe or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “budget,” “continue,” “estimate,” “expect,” “forecast,” “initial,” “intend,” “likely,” “may,” “plan,” “potential,” “project,” “proposed,” “should,” “will,” “would” and similar expressions are intended to identify forward-looking statements. These forward-looking statements relate to, among other things:
•our businesses and prospects and our overall strategy;
•planned or estimated capital expenditures;
•availability of liquidity and capital resources;
•our ability to obtain additional financing as needed and the terms of financing transactions, including at Driftwood Holdings LP;
•revenues and expenses;
•progress in developing our projects and the timing of that progress;
•future values of the Company’s projects or other interests, operations or rights; and
•government regulations, including our ability to obtain, and the timing of, necessary governmental permits and approvals.
Our forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. These statements are subject to a number of known and unknown risks and uncertainties, which may cause our actual results and performance to be materially different from any future results or performance expressed or implied by the forward-looking statements. Factors that could cause actual results and performance to differ materially from any future results or performance expressed or implied by the forward-looking statements include, but are not limited to, the following:
•the uncertain nature of demand for and price of natural gas and LNG;
•risks related to shortages of LNG vessels worldwide;
•technological innovation which may render our anticipated competitive advantage obsolete;
•risks related to a terrorist or military incident involving an LNG carrier;
•changes in legislation and regulations relating to the LNG industry, including environmental laws and regulations that impose significant compliance costs and liabilities;
•governmental interventions in the LNG industry, including increases in barriers to international trade;
•uncertainties regarding our ability to maintain sufficient liquidity and attract sufficient capital resources to implement our projects;
•our limited operating history;
•our ability to attract and retain key personnel;
•risks related to doing business in, and having counterparties in, foreign countries;
•our reliance on the skill and expertise of third-party service providers;
•the ability of our vendors to meet their contractual obligations;
•risks and uncertainties inherent in management estimates of future operating results and cash flows;
•our ability to maintain compliance with our senior secured term loansdebt arrangements and other agreements;
•the potential discontinuation of the London Inter-Bank Offered Rate;
•changes in competitive factors, including the development or expansion of LNG, pipeline and other projects that are competitive with ours;
•development risks, operational hazards and regulatory approvals;
•our ability to enter into and consummate planned financing and other transactions;
•risks related to pandemics or disease outbreaks;
•risks of potential impairment charges and reductions in our reserves; and
•risks and uncertainties associated with litigation matters.
The forward-looking statements in this report speak as of the date hereof. Although we may from time to time voluntarily update our prior forward-looking statements, we disclaim any commitment to do so except as required by securities laws.
DEFINITIONS
To the extent applicable, and as used in this quarterly report, the terms listed below have the following meanings:
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ASCASU | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
Bcf | | Billion cubic feet of natural gas |
Bcf/d | | Bcf per day |
BcfeDD&A | | Billion cubic feet of natural gas equivalent |
DD&A | | Depreciation, depletion and amortization |
DES | | Delivered ex-ship |
DOE/FEDFC | | U.S. Department of Energy, Office of Fossil EnergyDeferred financing costs |
EPC | | Engineering, procurement and construction |
FEEDFASB | | Front-End Engineering and DesignFinancial Accounting Standards Board |
FERCFID | | U.S. Federal Energy Regulatory Commission |
FID | | Final investment decision as it pertains to the Driftwood Project |
FTA countriesGAAP | | Countries with which the U.S. has a free trade agreement providing for national treatment for trade in natural gas |
GAAP | | Generally accepted accounting principles in the U.S. |
JKM | | Platts Japan Korea Marker index price for LNG |
LNG | | Liquefied natural gas |
LSTK | | Lump sum turnkey |
McfMMBtu | | Thousand cubic feet of natural gas |
MMBtu | | Million British thermal units |
MMcfMtpa | | Million cubic feet of natural gas |
MMcf/d | | MMcf per day |
MMcfe | | Million cubic feet of natural gas equivalent volumes using a ratio of 6 Mcf to 1 barrel of liquid |
Mtpa | | Million tonnes per annum |
Nasdaq | | Nasdaq Capital Market |
Non-FTA countriesOTC | | Countries with which the U.S. does not have a free trade agreement providing for national treatment for trade in natural gas and with which trade is permittedOver-the-counter |
SEC | | U.S. Securities and Exchange Commission |
Train | | An industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG |
U.S. | | United States |
USACE | | U.S. Army Corps of Engineers |
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(in thousands, except share and per share amounts, unaudited) |
| | | |
| September 30, 2020 | | December 31, 2019 |
ASSETS | |
Current assets: | | | |
Cash and cash equivalents | $ | 77,947 | | | $ | 64,615 | |
Accounts receivable | 3,015 | | | 5,006 | |
Accounts receivable due from related parties | 1,316 | | | 1,316 | |
Prepaid expenses and other current assets | 1,182 | | | 11,298 | |
Total current assets | 83,460 | | | 82,235 | |
Property, plant and equipment, net | 62,932 | | | 153,040 | |
Deferred engineering costs | 110,499 | | | 106,425 | |
Non-current restricted cash | 3,441 | | | 3,867 | |
Other non-current assets | 32,980 | | | 36,755 | |
Total assets | $ | 293,312 | | | $ | 382,322 | |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 24,617 | | | $ | 21,048 | |
Accounts payable due to related parties (Note 7) | 1,360 | | | 0 | |
Accrued and other liabilities | 35,450 | | | 33,003 | |
Borrowings | 80,774 | | | 78,528 | |
Total current liabilities | 142,201 | | | 132,579 | |
Long-term liabilities: | | | |
Borrowings | 37,659 | | | 58,121 | |
Other non-current liabilities | 26,811 | | | 25,337 | |
Total long-term liabilities | 64,470 | | | 83,458 | |
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Stockholders’ equity: | | | |
Preferred stock, $0.01 par value, 100,000,000 authorized: 6,123,782 and 6,123,782 shares outstanding, respectively | 61 | | | 61 | |
Common stock, $0.01 par value, 800,000,000 and 400,000,000 authorized, respectively: 326,131,890 and 242,207,522 shares outstanding, respectively | 3,036 | | | 2,211 | |
Additional paid-in capital | 888,216 | | | 769,639 | |
Accumulated deficit | (804,672) | | | (605,626) | |
Total stockholders’ equity | 86,641 | | | 166,285 | |
Total liabilities and stockholders’ equity | $ | 293,312 | | | $ | 382,322 | |
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TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(in thousands, except share and per share amounts) |
(unaudited) |
| | | |
| September 30, 2019 |
| December 31, 2018 |
ASSETS | |
Current assets: | | | |
Cash and cash equivalents | $ | 91,057 |
| | $ | 133,714 |
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Accounts receivable | 4,872 |
| | 1,498 |
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Accounts receivable due from related parties | 1,316 |
| | 1,316 |
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Prepaid expenses and other current assets | 13,698 |
| | 3,906 |
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Total current assets | 110,943 |
| | 140,434 |
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Property, plant and equipment, net | 145,714 |
| | 130,580 |
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Deferred engineering costs | 96,497 |
| | 69,000 |
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Non-current restricted cash | 4,300 |
| | 49,875 |
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Other non-current assets | 36,653 |
| | 18,659 |
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Total assets | $ | 394,107 |
| | $ | 408,548 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 7,334 |
| | $ | 11,597 |
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Accrued and other liabilities | 33,334 |
| | 41,173 |
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Senior secured term loan | 75,322 |
| | — |
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Total current liabilities | 115,990 |
| | 52,770 |
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Long-term liabilities: | | | |
Senior secured term loan | 57,853 |
| | 57,048 |
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Other non-current liabilities | 17,312 |
| | 796 |
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Total long-term liabilities | 75,165 |
| | 57,844 |
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Commitments and contingencies (Note 9) |
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Stockholders’ equity: | | | |
Preferred stock, $0.01 par value, 100,000,000 authorized: 6,123,782 and 6,123,782 shares outstanding, respectively | 61 |
| | 61 |
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Common stock, $0.01 par value, 400,000,000 authorized: 242,214,647 and 240,655,607 shares outstanding, respectively | 2,210 |
| | 2,195 |
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Additional paid-in capital | 768,766 |
| | 749,537 |
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Accumulated deficit | (568,085 | ) | | (453,859 | ) |
Total stockholders’ equity | 202,952 |
| | 297,934 |
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Total liabilities and stockholders’ equity | $ | 394,107 |
| | $ | 408,548 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share amounts) |
(unaudited) |
| | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 |
| 2018 |
Revenues | | | | | | | |
Natural gas revenue | $ | 9,344 |
| | $ | 799 |
| | $ | 19,637 |
| | $ | 2,551 |
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LNG sales | — |
| | — |
| | — |
| | 2,689 |
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Other LNG revenue | — |
| | — |
| | — |
| | 3,174 |
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Total revenue | 9,344 |
| | 799 |
| | 19,637 |
| | 8,414 |
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Operating costs and expenses | | | | | | | |
Cost of sales | 2,241 |
| | 723 |
| | 4,594 |
| | 5,383 |
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Development expenses | 15,685 |
| | 11,004 |
| | 46,238 |
| | 32,871 |
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Depreciation, depletion and amortization | 7,409 |
| | 315 |
| | 13,988 |
| | 1,034 |
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General and administrative expenses | 22,369 |
| | 20,437 |
| | 67,825 |
| | 61,046 |
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Impairment charge and loss on transfer of assets | — |
| | 2,704 |
| | — |
| | 4,513 |
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Total operating costs and expenses | 47,704 |
| | 35,183 |
| | 132,645 |
| | 104,847 |
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Loss from operations | (38,360 | ) | | (34,384 | ) | | (113,008 | ) | | (96,433 | ) |
Interest income (expense), net | (6,079 | ) | | 924 |
| | (10,065 | ) | | 1,863 |
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Other income, net | 4,832 |
| | 79 |
| | 8,847 |
| | 151 |
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Loss before income taxes | (39,607 | ) | | (33,381 | ) | | (114,226 | ) | | (94,419 | ) |
Income tax benefit | — |
| | 190 |
| | — |
| | 190 |
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Net loss | $ | (39,607 | ) | | $ | (33,191 | ) | | $ | (114,226 | ) | | $ | (94,229 | ) |
Net loss per common share:(1) | | | | | | | |
Basic and diluted | $ | (0.18 | ) | | $ | (0.15 | ) | | $ | (0.52 | ) | | $ | (0.45 | ) |
Weighted-average shares outstanding: | | | | | | | |
Basic and diluted | 218,780 |
| | 217,380 |
| | 218,457 |
| | 209,607 |
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(1) The numerator for both basic and diluted loss per share is net loss. The denominator for both basic and diluted loss per share is the weighted-average shares outstanding during the period. |
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TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except per share amounts, unaudited) |
| | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Natural gas sales | $ | 7,272 | | | $ | 9,344 | | | $ | 21,818 | | | $ | 19,637 | |
LNG sales | 6,993 | | | 0 | | | 6,993 | | | 0 | |
Total revenue | 14,265 | | | 9,344 | | | 28,811 | | | 19,637 | |
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Operating costs and expenses: | | | | | | | |
Cost of sales | 9,241 | | | 2,241 | | | 14,529 | | | 4,594 | |
Development expenses | 5,799 | | | 15,685 | | | 26,105 | | | 46,238 | |
Depreciation, depletion and amortization | 3,474 | | | 7,409 | | | 14,301 | | | 13,988 | |
General and administrative expenses | 10,734 | | | 22,369 | | | 43,342 | | | 67,825 | |
Impairment charges | 0 | | | 0 | | | 81,065 | | | 0 | |
Severance and reorganization charges | 0 | | | 0 | | | 6,359 | | | 0 | |
Related party charges (Note 7) | 0 | | | 0 | | | 7,357 | | | 0 | |
Total operating costs and expenses | 29,248 | | | 47,704 | | | 193,058 | | | 132,645 | |
Loss from operations | (14,983) | | | (38,360) | | | (164,247) | | | (113,008) | |
Interest expense, net | (15,973) | | | (6,079) | | | (33,564) | | | (10,065) | |
Other income (expense), net | 1,490 | | | 4,832 | | | (1,235) | | | 8,847 | |
Loss before income taxes | (29,466) | | | (39,607) | | | (199,046) | | | (114,226) | |
Income tax | 0 | | | 0 | | | 0 | | | 0 | |
Net loss | $ | (29,466) | | | $ | (39,607) | | | $ | (199,046) | | | $ | (114,226) | |
Net loss per common share(1): | | | | | | | |
Basic and diluted | $ | (0.10) | | | $ | (0.18) | | | $ | (0.79) | | | $ | (0.52) | |
Weighted-average shares outstanding: | | | | | | | |
Basic and diluted | 291,409 | | | 218,780 | | | 252,825 | | | 218,457 | |
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(1) The numerator for both basic and diluted loss per share is net loss. The denominator for both basic and diluted loss per share is the weighted-average shares outstanding during the period. |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY |
(in thousands) |
(unaudited) |
| | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
BALANCE AT JANUARY 1, 2019 | $ | 61 |
| | $ | 2,195 |
| | $ | 749,537 |
| | $ | (453,859 | ) | | $ | 297,934 |
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Share-based compensation (1) | — |
| | 15 |
| | 15,222 |
| | — |
| | 15,237 |
|
Share-based payments | — |
| | — |
| | 707 |
| | — |
| | 707 |
|
Issuance of common stock purchase warrant | — |
| | — |
| | 3,300 |
| | — |
| | 3,300 |
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Net loss | — |
| | — |
| | — |
| | (114,226 | ) | | (114,226 | ) |
BALANCE AT SEPTEMBER 30, 2019 | $ | 61 |
| | $ | 2,210 |
| | $ | 768,766 |
| | $ | (568,085 | ) | | $ | 202,952 |
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| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
BALANCE AT JULY 1, 2019 | $ | 61 |
| | $ | 2,210 |
| | $ | 767,863 |
| | $ | (528,478 | ) | | $ | 241,656 |
|
Share-based compensation | — |
| | — |
| | 741 |
| | — |
| | 741 |
|
Share-based payments | — |
| | — |
| | 162 |
| | — |
| | 162 |
|
Net loss | — |
| | — |
| | — |
| | (39,607 | ) | | (39,607 | ) |
BALANCE AT SEPTEMBER 30, 2019 | $ | 61 |
| | $ | 2,210 |
| | $ | 768,766 |
| | $ | (568,085 | ) | | $ | 202,952 |
|
| | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
BALANCE AT JANUARY 1, 2018 | $ | — |
| | $ | 2,043 |
| | $ | 549,958 |
| | $ | (328,114 | ) | | $ | 223,887 |
|
Issuance of common stock | — |
| | 135 |
| | 129,575 |
| | — |
| | 129,710 |
|
Issuance of Series C preferred stock | 58 |
| | — |
| | 47,458 |
| | — |
| | 47,516 |
|
Share-based compensation (2) | — |
| | 15 |
| | 18,254 |
| | — |
| | 18,269 |
|
Net loss | — |
| | — |
| | — |
| | (94,229 | ) | | (94,229 | ) |
BALANCE AT SEPTEMBER 30, 2018 | $ | 58 |
| | $ | 2,193 |
| | $ | 745,245 |
| | $ | (422,343 | ) | | $ | 325,153 |
|
| | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
BALANCE AT JULY 1, 2018 | $ | 43 |
| | $ | 2,193 |
| | $ | 731,970 |
| | $ | (389,152 | ) | | $ | 345,054 |
|
Issuance of Series C preferred stock | 15 |
| | — |
| | 12,435 |
| | — |
| | 12,450 |
|
Share-based compensation | — |
| | — |
| | 840 |
| | — |
| | 840 |
|
Net loss | — |
| | — |
| | — |
| | (33,191 | ) | | (33,191 | ) |
BALANCE AT SEPTEMBER 30, 2018 | $ | 58 |
| | $ | 2,193 |
| | $ | 745,245 |
| | $ | (422,343 | ) | | $ | 325,153 |
|
| | | | | | | | | | |
| | | | | | | | | | |
(1) Includes settlement of 2018 bonus that was accrued for in 2018. |
(2) Includes settlement of 2017 bonus that was accrued for in 2017. |
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TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY |
(in thousands, unaudited) |
| | | | | | | | | | | | |
| | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | | | 2020 | | 2019 | | 2020 | | 2019 |
Total shareholders’ equity, beginning balance | | | | | $ | 75,913 | | | $ | 241,656 | | | $ | 166,285 | | | $ | 297,934 | |
| | | | | | | | | | | | |
Preferred stock | | | | | 61 | | | 61 | | | 61 | | | 61 | |
| | | | | | | | | | | | |
Common stock: | | | | | | | | | | | |
Beginning balance | | | | | 2,627 | | | 2,210 | | | 2,211 | | | 2,195 | |
Common stock issuance | | | | | 371 | | | — | | | 567 | | | — | |
Share-based compensation, net(1) | | | | | 23�� | | | — | | | 33 | | | 15 | |
Severance and reorganization charges | | | | | 15 | | | — | | | 22 | | | — | |
Settlement of Final Payment Fee (Note 9) | | | | | — | | | | | 110 | | | — | |
Borrowings principal repayment (Note 9) | | | | | — | | | | | 93 | | | — | |
Ending balance | | | | | 3,036 | | | 2,210 | | | 3,036 | | | 2,210 | |
| | | | | | | | | | | | |
Additional paid-in capital: | | | | | | | | | | | |
Beginning balance | | | | | 848,431 | | | 767,863 | | | 769,639 | | | 749,537 | |
Common stock issuance | | | | | 34,483 | | | — | | | 70,327 | | | — | |
Share-based compensation, net(1) | | | | | 3,299 | | | 741 | | | 5,619 | | | 15,222 | |
Severance and reorganization charges | | | | | 1,890 | | | — | | | 2,667 | | | — | |
Share-based payments | | | | | 113 | | | 162 | | | 337 | | | 707 | |
Settlement of Final Payment Fee (Note 9) | | | | | — | | | — | | | 9,036 | | | — | |
Warrants issued in connection with Borrowings (Note 11) | | | | | — | | | — | | | 16,896 | | | 3,300 | |
Borrowings principal repayment (Note 9) | | | | | — | | | — | | | 13,695 | | | — | |
Ending balance | | | | | 888,216 | | | 768,766 | | | 888,216 | | | 768,766 | |
| | | | | | | | | | | | |
Accumulated deficit: | | | | | | | | | | | |
Beginning balance | | | | | (775,206) | | | (528,478) | | | (605,626) | | | (453,859) | |
Net loss | | | | | (29,466) | | | (39,607) | | | (199,046) | | | (114,226) | |
Ending balance | | | | | (804,672) | | | (568,085) | | | (804,672) | | | (568,085) | |
| | | | | | | | | | | | |
Total shareholders’ equity, ending balance | | | | | $ | 86,641 | | | $ | 202,952 | | | $ | 86,641 | | | $ | 202,952 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1) Includes settlement of 2019 and 2018 bonuses that were accrued for in 2019 and 2018, respectively. |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
|
| | | | | | | |
TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(in thousands) |
(unaudited) |
| |
| Nine Months Ended September 30, |
| 2019 |
| 2018 |
Cash flows from operating activities: | | | |
Net loss | $ | (114,226 | ) | | $ | (94,229 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation, depletion and amortization | 13,988 |
| | 1,034 |
|
Amortization of debt issuance costs, discounts and fees | 6,674 |
| | — |
|
Share-based compensation | 3,526 |
| | 3,279 |
|
Share-based payments | 707 |
| | — |
|
Impairment charge and loss on transfer of assets | — |
| | 4,513 |
|
Gain on sale of assets | (2,831 | ) | | — |
|
Gain on financial instruments not designated as hedges | (3,497 | ) | | — |
|
Other | (1,538 | ) | | — |
|
Net changes in working capital (Note 15) | 10,516 |
| | 10,591 |
|
Net cash used in operating activities | (86,681 | ) | | (74,812 | ) |
| | | |
Cash flows from investing activities: | | | |
Acquisition and development of natural gas properties | (45,046 | ) | | (255 | ) |
Proceeds from sale of assets | 6,156 |
| | 167 |
|
Deferred engineering costs | (25,997 | ) | | — |
|
Purchase of property - land (Note 15) | (180 | ) | | — |
|
Purchase of property, plant and equipment | (2,552 | ) | | (4,814 | ) |
Net cash used in investing activities | (67,619 | ) | | (4,902 | ) |
| | | |
Cash flows from financing activities: | | | |
Proceeds from borrowing under term loan | 75,000 |
| | 59,400 |
|
Payments of term loan financing costs | (2,246 | ) | | (2,179 | ) |
Proceeds from issuance of common stock | — |
| | 133,800 |
|
Tax payments for net share settlement of equity awards (Note 15) | (6,686 | ) | | (5,733 | ) |
Equity offering costs | — |
| | (4,090 | ) |
Net cash provided by financing activities | 66,068 |
| | 181,198 |
|
| | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | (88,232 | ) | | 101,484 |
|
Cash, cash equivalents and restricted cash, beginning of period | 183,589 |
| | 128,273 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 95,357 |
| | $ | 229,757 |
|
Supplementary disclosure of cash flow information: | | | |
Interest paid | $ | 5,479 |
| | $ | — |
|
| | | | | | | | | | | |
TELLURIAN INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(in thousands, unaudited) |
| |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net loss | $ | (199,046) | | | $ | (114,226) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation, depletion and amortization | 14,301 | | | 13,988 | |
Amortization of debt issuance costs, discounts and fees | 22,467 | | | 6,674 | |
Share-based compensation | 2,184 | | | 3,526 | |
Severance and reorganization charges | 2,689 | | | 0 | |
Share-based payments | 338 | | | 707 | |
Interest elected to be paid-in-kind | 2,431 | | | 0 | |
Gain on sale of assets | 0 | | | (2,831) | |
Gain on financial instruments not designated as hedges | 4,624 | | | (3,497) | |
Impairment charges | 81,065 | | | 0 | |
Other | 485 | | | (1,538) | |
Net changes in working capital (Note 16) | 11,728 | | | 10,516 | |
Net cash used in operating activities | (56,734) | | | (86,681) | |
| | | |
Cash flows from investing activities: | | | |
Development of natural gas properties | (389) | | | (45,046) | |
Proceeds from sale of assets | 0 | | | 6,156 | |
Deferred engineering costs | 0 | | | (25,997) | |
Purchase of property, plant and equipment | 0 | | | (2,732) | |
Net cash used in investing activities | (389) | | | (67,619) | |
| | | |
Cash flows from financing activities: | | | |
Proceeds from common stock issuances | 73,986 | | | 0 | |
Equity issuances cost | (3,091) | | | 0 | |
Borrowing proceeds | 50,000 | | | 75,000 | |
Borrowing issuance costs | (2,612) | | | (2,246) | |
Borrowing principal repayments | (45,600) | | | 0 | |
Tax payments for net share settlement of equity awards (Note 16) | (878) | | | (6,686) | |
Payments of finance lease principal | (1,776) | | | 0 | |
Net cash provided by financing activities | 70,029 | | | 66,068 | |
| | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | 12,906 | | | (88,232) | |
Cash, cash equivalents and restricted cash, beginning of period | 68,482 | | | 183,589 | |
Cash, cash equivalents and restricted cash, end of period | $ | 81,388 | | | $ | 95,357 | |
Supplementary disclosure of cash flow information: | | | |
Interest paid | $ | 7,956 | | | $ | 5,479 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 1 — GENERAL
The terms “we,” “our,” “us,” “Tellurian” and the “Company” as used in this report refer collectively to Tellurian Inc. and its subsidiaries unless the context suggests otherwise. These terms are used for convenience only and are not intended as a precise description of any separate legal entity associated with Tellurian Inc.
Nature of Operations
We plan to develop, own and operate a global natural gas business and to deliver natural gas to customers worldwide. Tellurian is developing a portfolio of natural gas production, LNG marketing, and infrastructure assets, including ana LNG terminal facility (the “Driftwood terminal”) and an associated pipeline (the “Driftwood pipeline”) in southwest Louisiana. Tellurian intendsplans to develop the Driftwood pipeline as part of what we refer to as the “Pipeline Network.” In addition to the Driftwood pipeline, the Pipeline Network is expected to include two pipelines, the Haynesville Global Access Pipeline and the Permian Global Access Pipeline, both of which are currently in the early stages of development. The Driftwood terminal, the Pipeline Network and certain natural gas production assets are collectively referred to as the “Driftwood Project”.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain notes and other information have been condensed or omitted. The accompanying interim financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of our Condensed Consolidated Financial Statements. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Liquidity
Our Condensed Consolidated Financial Statements were prepared in accordance with GAAP, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business as well as the Company’s ability to continue as a going concern. As of the date of the Condensed Consolidated Financial Statements, we have generated losses and negative cash flows from operations, and have an accumulated deficit. We have not yet established an ongoing source of revenues or other sources of liquidity that are sufficient to cover our future operating costs and obligations as they become due during the twelve months following the issuance of the financial statements.
We are planning to generate proceeds from various potential financing transactions, such as utilizing our at-the-market program, equity issuances, equity-linked and debt securities or similar transactions, and have determined that it is probable that such proceeds will satisfy our obligations and fund our working capital needs for at least twelve months following the issuance of the financial statements.
Use of Estimates
To conform with GAAP, we make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and the accompanying notes. Although these estimates and assumptions are based on our best available knowledge at the time, actual results may differ.
NewRecently Adopted Accounting Standards Issued and Adopted
Credit Losses
We On January 1, 2020, we adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019, utilizing the optional transition approach to apply the standard at the beginning of the first quarter of 2019 with no retrospective adjustment to prior periods. In addition, we elected the transition package of practical expedients upon adoption which, among other things, allowed us not to reassess the historical lease classification. For additional details, refer to Note 14, Leases.
New Accounting Standards Issued But Not Yet Adopted
ASUNo. 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), establishesas issued by the FASB. This standard established the current expected credit loss model, a new impairment model for certain financial instruments, based on expected rather than incurred losses. This ASU will be effective for annual reporting periods beginning after December 15, 2019, as well as interim periods included therein. We continue to evaluate the provisionsAdoption of this ASU. However, based on our preliminary analysis, we do not believe it will have a materialstandard had no impact on our financial statements.
NOTE 2 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
The components of prepaid expenses and other current assets consist of the following (in thousands):
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Prepaid expenses | $ | 1,093 |
| | $ | 2,279 |
|
Deposits | 498 |
| | 1,336 |
|
Future proceeds from sale of Magellan Petroleum UK (Note 3) | 4,969 |
| | — |
|
Tradable equity securities (Note 3) | 3,731 |
| | — |
|
Derivative asset, current (Note 6) | 3,209 |
| | — |
|
Other current assets | 198 |
| | 291 |
|
Total prepaid expenses and other current assets | $ | 13,698 |
| | $ | 3,906 |
|
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Prepaid expenses | $ | 1,013 | | | $ | 1,234 | |
Deposits | 111 | | | 364 | |
Tradable equity securities | 0 | | | 5,069 | |
Derivative asset (Note 6) | 0 | | | 3,121 | |
Other current assets | 58 | | | 1,510 | |
Total prepaid expenses and other current assets | $ | 1,182 | | | $ | 11,298 | |
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 3 — PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of fixed assets, andproved oil and natural gas properties and finance leases, as shown below (in thousands):
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Land | $ | 13,808 |
| | $ | 13,276 |
|
Proved properties | 141,898 |
| | 101,459 |
|
Unproved properties | — |
| | 10,204 |
|
Wells in progress | 324 |
| | 4,660 |
|
Corporate and other | 5,285 |
| | 2,905 |
|
Total property, plant and equipment at cost | 161,315 |
| | 132,504 |
|
Accumulated DD&A | (15,601 | ) | | (1,924 | ) |
Total property, plant and equipment, net | $ | 145,714 |
| | $ | 130,580 |
|
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Land | $ | 13,808 | | | $ | 13,808 | |
Proved properties | 61,384 | | | 142,494 | |
Wells in progress | 0 | | | 57 | |
Corporate and other | 3,477 | | | 5,285 | |
Total property, plant and equipment at cost | 78,669 | | | 161,644 | |
Accumulated DD&A | (35,856) | | | (22,041) | |
Right of use asset — finance leases (Note 15) | 20,119 | | | 13,437 | |
Total property, plant and equipment, net | $ | 62,932 | | | $ | 153,040 | |
Land
We own land in Louisiana for the purpose of constructing the Driftwood Project.
Proved Properties Impairment
The carrying values of our proved natural gas properties are reviewed for impairment when events or circumstances indicate that the remaining carrying value may not be recoverable. During the second quarter of 2020, there were indicators that the carrying values of certain of our properties may be impaired as a result of depressed natural gas prices. We own producingdetermined that these adverse market conditions represented a triggering event to perform an impairment assessment of our proved natural gas properties.
To determine whether impairment had occurred, we compared the estimated expected undiscounted future cash flows from our natural gas properties to the carrying values of those properties. The estimated future cash flows used in the recoverability test are based on proved and, non-producing acreageif determined reasonable by management, risk-adjusted probable and possible reserves and assumptions generally consistent with those used by us for internal planning and budgeting purposes. These include, among other things, the intended use of the asset, anticipated production from reserves, future market prices of natural gas adjusted for basis differentials, and future operating costs. Proved properties that have carrying amounts in excess of estimated future undiscounted cash flows are written down to fair value.
During the second quarter of 2020, we recognized an impairment charge of approximately $81.1 million primarily associated with our assets located in northern Louisiana.
Unproved Properties
On September 10, 2019 (the “Sale Closing Date”), we sold our wholly owned subsidiary, Magellan Petroleum (UK) Investments Holdings Limited (“Magellan Petroleum UK”), The impairment was recorded as a reduction to a third party forthe assets’ carrying values to their estimated fair values of approximately $14.8$28.7 million. The estimated fair value of the impaired assets, and liabilitiesas determined as of Magellan Petroleum UK consisted predominantly of our non-operated interestsJune 30, 2020, was based on significant inputs that are not observable in the Weald Basin, United Kingdom. On the Sale Closing Date, we received $6.2 million in cashmarket and, the equivalent of $3.7 millionas such, are considered a Level 3 fair value measurement. Key assumptions included in the purchaser’s publicly traded equity securities (“Tradable Equity Securities”), which have been measured at fair value and represent a Level 1 instrument incalculation of the fair value hierarchy. The remaining consideration of approximately $4.9 million (the “Future Proceeds”) will be received as follows: |
| | | | | |
| Amount | | Due Date |
December future proceeds | $ | 3,705 |
| | On or before December 31, 2019 |
March future proceeds | 1,235 |
| | On or before March 31, 2020 |
Total remaining consideration | $ | 4,940 |
| | |
included values for the following: (i) reserves; (ii) future commodity prices and (iii) future operating and development costs.The sale of Magellan Petroleum UK generated an overall gain of approximately $4.2 million, of which approximately $2.8 million has been recognized in the current period as Other income, net in our Condensed Consolidated Statements of Operations.
NOTE 4 — DEFERRED ENGINEERING COSTS
As of September 30, 2019,2020, the deferred engineering balance of approximately $96.5$110.5 million represents detailed engineering services related to the planned construction of the Driftwood terminal. This balance will be transferred to construction in progress upon reaching FID.
NOTE 5 — OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following (in thousands):
| | | September 30, 2019 | | December 31, 2018 | | September 30, 2020 | | December 31, 2019 |
Land lease and purchase options | $ | 4,822 |
| | $ | 4,115 |
| Land lease and purchase options | $ | 3,656 | | | $ | 4,320 | |
Permitting costs | 12,838 |
| | 12,585 |
| Permitting costs | 13,092 | | | 12,838 | |
Right of use asset - leases (Note 14) | 16,381 |
| | — |
| |
Right of use asset — operating leases (Note 15) | | Right of use asset — operating leases (Note 15) | 12,290 | | | 15,832 | |
Other | 2,612 |
| | 1,959 |
| Other | 3,942 | | | 3,765 | |
Total other non-current assets | $ | 36,653 |
| | $ | 18,659 |
| Total other non-current assets | $ | 32,980 | | | $ | 36,755 | |
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Land Lease and Purchase Options
We hold lease and purchase option agreements (the “Options”) for certain tracts of land and associated river frontage that provide for four or five-year terms.frontage. Upon exercise of the Options, the respective leases arewill be subject to maximum terms of 6050 years, inclusive of various renewals which are at our sole discretion. Costs of the Options will be amortized over the life of the lease once obtained, or capitalized into the land if purchased.
Permitting Costs
Permitting costs primarily represent the purchase of wetland credits in connection with our permit application to the USACE in 2017 and 2018. These wetland credits will be applied to our permit in accordance with the Clean Water Act and the Rivers and Harbors Act, which require us to mitigate the potential impact to Louisiana wetlands that might be caused by the construction of the Driftwood Project. In May 2019, we received the USACE permit. The permitting costs will be transferred to construction in progress upon reaching FID.
NOTE 6 — FINANCIAL INSTRUMENTS
As discussed in Note 8,9, Borrowings, as part of entering into the senior secured term loan credit agreement in 2018, we are required to enter into and maintain certain hedging transactions. As a result, we use derivative financial instruments, namely over the counter (“OTC”)OTC commodity swap instruments (“commodity swaps”), to maintain compliance with this covenant. We do not hold or issue derivative financial instruments for trading purposes.
Commodity swap agreements involve payments to or receipts from counterparties based on the differential between two prices for the commodity, and include basis swaps to protect earnings from undue exposure to the risk of geographic disparities in commodity prices, as required by the negative covenant of the senior secured term loan credit agreement. The fair value of our commodity swaps is classified as Level 2 in the fair value hierarchy and is based on standard industry income approach models that use significant observable inputs, including but not limited to New York Mercantile Exchange (NYMEX) natural gas forward curves and basis forward curves, all of which are validated against external sources at least monthly.
The Company recognizes all derivative instruments as either assets or liabilities at fair value on a net basis as they are with a single counterparty and subject to a master netting arrangement. These derivative instruments are reported as either current or non-current assets or current or non-current liabilities, based on their maturity dates. The Company can net settle its derivative instruments at any time. As of September 30, 2019,2020, we had a current assetliability of $3.2$1.1 million, net, with respect to the fair value of the current portion of our commodity swaps. In addition, as of September 30, 2019, we had a non-current asset of $0.4 million, net, with respect to the fair value of the non-current portion of our commodity swaps. The current and the non-current asset areliability is classified within Prepaid expensesAccrued and other current assets and Other non-current assets, respectively,liabilities on the Condensed Consolidated Balance Sheets. Gross current asset and current liability amounts are $3.2 million and $0.0 million, respectively. Gross non-current asset and non-current liability amounts are $0.7 million and $0.3 million, respectively.
We do not apply hedge accounting for our commodity swaps; therefore, all changes in fair value of the Company’s derivative instruments are recognized within Other income, net, in the Condensed Consolidated Statements of Operations. For the three and nine months ended September 30, 2019,2020, we recognized a realized gain of $2.0$1.0 million and $2.5$4.8 million, respectively, andas well as an unrealized gainloss of $0.0$2.9 million and $3.5$4.6 million, respectively, related to the changes in fair value of the commodity swaps in our Condensed Consolidated Statements of Operations. Derivative contracts which result in physical delivery of a commodity expected to be used or sold by the Company in the normal course of business are designated as normal purchases and sales and are exempt from derivative accounting. OTC arrangements require settlement in cash. Settlements of commodity derivative instruments are reported as a component of cash flows from operations in the Condensed Consolidated Statements of Cash Flows.
With respect to the commodity swaps, the Company hedged portions4.8 Bcf of its fixed price and basis exposure, which represents a portion of its expected sales of equity production and portions of its basis exposure to cover approximately 12.2 Bcf and 12.2 Bcf of natural gas, respectively, as of September 30, 2019.2020. The open positions at September 30, 20192020 had maturities extending through September 2021. For additional details, refer to Note 8,9, Borrowings.
NOTE 7 — RELATED PARTY TRANSACTIONS
In conjunction with the dismissal of the litigation disclosed in Part I, Item 3, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, we agreed to reimburse the Vice-Chairman of our Board of Directors, Martin Houston, for reasonable attorneys’ fees and expenses he incurred during the litigation. As of September 30, 2020, we have paid approximately $5.1 million to third parties to settle outstanding amounts incurred by Mr. Houston for reasonable attorneys’ fees and expenses. We have also agreed to pay Mr. Houston approximately $2.3 million for other expenses he incurred in connection with the litigation. As of September 30, 2020, a balance of approximately $1.4 million remained owed to Mr. Houston and has been classified within Accounts payable due to related parties on the Condensed Consolidated Balance Sheets.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 78 — ACCRUED AND OTHER LIABILITIES
The components of accrued and other liabilities consist of the following (in thousands): |
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Project development activities | $ | 3,745 |
| | $ | 8,879 |
|
Payroll and compensation | 19,492 |
| | 23,286 |
|
Accrued taxes | 1,026 |
| | 2,507 |
|
Professional services (e.g., legal, audit) | 3,300 |
| | 2,423 |
|
Lease liability - current (Note 14) | 2,217 |
| | — |
|
Other | 3,554 |
| | 4,078 |
|
Total accrued and other liabilities | $ | 33,334 |
| | $ | 41,173 |
|
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Project development activities | $ | 2,411 | | | $ | 3,851 | |
Payroll and compensation | 22,822 | | | 18,773 | |
Accrued taxes | 1,169 | | | 1,018 | |
Professional services (e.g., legal, audit) | 1,019 | | | 2,906 | |
Warrant liabilities (Note 11) | 3,333 | | | 0 | |
Lease liabilities (Note 15) | 1,902 | | | 3,729 | |
Other | 2,794 | | | 2,726 | |
Total accrued and other liabilities | $ | 35,450 | | | $ | 33,003 | |
NOTE 89 — BORROWINGS
The following tables summarize the Company’s borrowings as of September 30, 2020, and December 31, 2019 (in thousands): |
| | | | | | | | | | | | | | | |
| | | | September 30, 2019 | | December 31, 2018 |
| | Maturity | | Interest Rate | | Amount | | Interest Rate | | Amount |
2019 Term Loan | | May 2020 (1) | | 12% (2) | | $ | 86,508 |
| | — |
| | $ | — |
|
2018 Term Loan | | September 2021 | | 5%-8% + LIBOR (3) | | 60,000 |
| | 5%-8% + LIBOR (3) | | 60,000 |
|
Unamortized deferred financing costs, discounts and fees | | | | | | (13,333 | ) | | | | (2,952 | ) |
Total borrowings | | | | | | $ | 133,175 |
| | | | $ | 57,048 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2020 |
| | | Principal repayment obligation (1) | | Unamortized DFC and discounts | | Carrying value |
2020 Unsecured Note | | $ | 29,500 | | | $ | (7,652) | | | $ | 21,848 | |
2019 Term Loan, due March 2022 (2) | | 43,331 | | | (5,672) | | | 37,659 | |
2018 Term Loan, due September 2021 | | 60,000 | | | (1,074) | | | 58,926 | |
Total borrowings | | $ | 132,831 | | | $ | (14,398) | | | $ | 118,433 | |
| | | | | | | |
| | | December 31, 2019 |
| | | Principal repayment obligation and other fees (3) | | Unamortized DFC and discounts | | Carrying value |
2019 Term Loan, due March 2022 (2) | | $ | 84,955 | | | $ | (6,427) | | | $ | 78,528 | |
2018 Term Loan, due September 2021 | | 60,000 | | | (1,879) | | | 58,121 | |
Total borrowings | | $ | 144,955 | | | $ | (8,306) | | | $ | 136,649 | |
| | | | | | | |
| | | | | | | |
(1) Includes paid-in-kind interest on the 2019 Term Loan of $2.4 million. |
(2) Maturity date amended as part of the Fourth Amendment to the 2019 Term Loan. |
(3) Includes paid-in-kind interest on the 2019 Term Loan of $1.8 million as well as a final payment fee equal to 20% of the principal amount less financing costs and cash interest amounts paid. |
2020 Unsecured Note
(1) SubjectOn April 29, 2020, we issued a zero coupon $56.0 million face amount senior unsecured note (the “2020 Unsecured Note”) to two six-month extensions if specific criteria are met.
(2) Of this amount, we may defer upan unrelated third party. Net proceeds raised from the 2020 Unsecured Note were approximately $47.4 million, after deducting approximately $2.6 million in fees and $6.0 million in original issue discount. The 2020 Unsecured Note requires it to 4% each quarter as paid-in-kind interest.
(3) The applicable margin is 5% through the end ofbe repaid in installments on the first year from September 28, 2018 (the “Closing Date”), 7% through the endday of the second year following the Closing Dateevery month and 8% thereafter.
these repayments began on June 1, 2020. As of September 30, 2019,2020, we had repaid $26.5 million of the Company2020 Unsecured Note and the remaining repayments are scheduled as follows (in thousands):
| | | | | | | | | | | | | | |
Period | | Periodic Amount | | Total Amount |
October 1, 2020 | | $ | 5,000 | | | $ | 5,000 | |
November 1, 2020 | | 4,500 | | | 4,500 | |
December 1, 2020 – April 1, 2021 | | 4,000 | | | 20,000 | |
Total remaining amortization payments | | | | $ | 29,500 | |
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The 2020 Unsecured Note contains certain cash sweep provisions requiring that a portion of the proceeds from certain of our equity offerings and convertible securities offerings be used to repay the outstanding principal balance through additional amortization payments. Due to the amount of proceeds generated from the sale of our common stock under our at-the-market program in June 2020, as well as the equity offering completed on July 24, 2020, these cash sweep provisions were triggered on July 1, 2020 and August 3, 2020, requiring us to make the maximum amount of additional amortization payments for a total of $8.0 million in additional repayments of the outstanding principal balance. As a result of these additional repayments, the final payment associated with the 2020 Unsecured Note is in compliance with all covenants under its 2 credit agreements. Referscheduled to occur on April 1, 2021 instead of June 1, 2021 as originally scheduled. For more information about the transactions that triggered the cash sweep provisions, see Note 6,11, Financial Instruments, for details of hedging transactions, as of and for the period ended September 30, 2019, entered into as required by the 2018 Term Loan described below.Stockholders’ Equity.
Short-term Borrowings — In conjunction with the 2020 Unsecured Note, we issued to the lender a warrant to purchase 20.0 million shares of our common stock (the “Unsecured Warrant”). The fair value of the Unsecured Warrant of approximately $16.1 million has been recognized as an original issue discount to the 2020 Unsecured Note. For more information about the Unsecured Warrant, see Note 11, Stockholders’ Equity.
The lender may require us to repurchase the 2020 Unsecured Note upon a Fundamental Change (as defined in the 2020 Unsecured Note) or an event of default at 105% and 115%, respectively, of the remaining outstanding principal balance. If an event of default occurs which cannot be cured within certain time periods, we have the right to pay in cash. However, to the extent that we do not pay in cash, the lender will have the right to convert the outstanding face amount into shares of our common stock based on a formula defined in the 2020 Unsecured Note. We may prepay the 2020 Unsecured Note in whole or in part from time to time without premium or penalty.
2019 Term Loan
On May 23, 2019, Driftwood Holdings LP, , a wholly owned subsidiary of the Company (“Driftwood Holdings”), entered into a senior secured term loan agreement (the “2019 Term Loan)Loan”) to borrow an aggregate principal amount of $60.0 million. Fees associated with entering into the 2019 Term Loan of approximately $2.2 million have been capitalized as deferred financing costs.
The 2019 Term Loan agreement provided Driftwood Holdings the right to borrow an additional $15.0 million, by August 31, 2019, subject to certain criteria. On July 11, 2019, all of the criteria were met andwhich it did on July 16, 2019, Driftwood Holdings received these funds.
Borrowings under the2019. The 2019 Term Loan bearbore a fixed annual interest rate of 12%, of which 4% Driftwood Holdings maycould add to the outstanding principal as paid-in-kind interest at the end of each reporting period. This election was made in both June and September of 2019, which resulted in adding approximately $1.0 millionIn addition to the outstanding principal of the 2019 Term Loan. The 2019 Term Loan can be terminated prior to maturity, only in full, without an early termination penalty.
Uponfixed annual interest rate, upon maturity or early repayment of the 2019 Term Loan, Driftwood Holdings willwas also obligated to pay a final fee that is equal to 20% of the principal amount borrowed less financing costs and cash interest paid (the “Final Payment Fee”) to the lender. AsOn February 28, 2020, Driftwood Holdings entered into an amendment (the “First Amendment”) to the 2019 Term Loan which allowed us to enter into a land lease for the Driftwood Project. The First Amendment had no financial statement impact in regard to accounting for our borrowings.
On March 23, 2020, Driftwood Holdings entered into a second amendment (the “Second Amendment”) to the 2019 Term Loan. The outstanding principal balance as of September 30,the Second Amendment date was $75.0 million. The Second Amendment, among other things, made the following changes to the 2019 approximately $7.9Term Loan:
•Extended the maturity date from May 23, 2020 to November 23, 2021;
•Modified the frequency of interest payments from quarterly to monthly;
•Modified the interest rate from 12% per annum, with the ability to defer 4% per annum as paid-in-kind, to 16% per annum, with the ability to defer 8% per annum as paid-in-kind;
•Required a principal payment of $3.0 million relatedby April 22, 2020; and
•Reduced the required month-end collateral amount from $30.0 million to $12.0 million.
Upon entering into the Second Amendment, we repaid $2.0 million of the outstanding principal balance and issued 11,019,298 shares of our common stock in exchange for cancellation of the Final Payment Fee haveand all accrued paid-in-kind interest through March 22, 2020.
The Second Amendment was accounted for as a debt modification with no gain or loss recognized, and differences in fair value for amounts settled or paid were capitalized as part of the 2019 Term Loan debt issuance discount. The Second Amendment resulted in an increase of approximately $0.9 million in the debt issuance discount associated with the 2019 Term Loan.
Also, in conjunction with the Second Amendment, the Common Stock Purchase Warrant (the “Original Warrant”) previously issued as part of the 2019 Term Loan was replaced with a new warrant (the “Replacement Warrant”). The difference in fair value between the Original Warrant and the Replacement Warrant was an increase of approximately $0.3 million and has been recognized as a debt issuance discount to the 2019 Term Loan within ourLoan. Refer to Note 11, Stockholders’ Equity, for further details.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Balance Sheets.Financial Statements (unaudited)
On April 28, 2020, Driftwood Holdings entered into a third amendment (the “Third Amendment”) to the 2019 Term Loan, which became effective on April 29, 2020. In conjunction with the Third Amendment, we repaid $17.1 million of the outstanding principal balance. This principal repayment was made with the issuance of 9,348,706 shares of our common stock as well as a cash payment of $2.1 million.
In conjunction with the Third Amendment, we issued to the lender a common stock purchase warrant (the “Third Amendment Warrant”). The fair value of the Third Amendment Warrant of approximately $5.7 million was recognized as an original issue discount to the 2019 Term Loan.
On September 21, 2020, Driftwood Holdings entered into a fourth amendment (the “Fourth Amendment”) to the 2019 Term Loan. The Fourth Amendment extended the maturity date of the 2019 Term Loan from November 23, 2021 to March 23, 2022. In conjunction with the Fourth Amendment, we repaid $12.0 million of the outstanding principal balance.
We may prepay the 2019 Term Loan in whole or in part from time to time without premium or penalty. Borrowings under the 2019 Term Loan are guaranteed by Tellurian Inc. and certain of its subsidiaries and are secured by substantially all of the assets of Tellurian Inc. and certain of its subsidiaries, other than Tellurian Production Holdings LLC (“Production Holdings”) and its subsidiaries, under one or more security agreements and pledge agreements.
In conjunction with the 2019 Term Loan, the Company issued a Common Stock Purchase Warrant (the “Warrant”) to the lender. The fair value of the Warrant of approximately $3.3 million has been recognized as an original issue discount to the 2019 Term Loan. Refer to Note 10, Stockholders’ Equity, for further details.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Long-term Borrowings — 2018 Term Loan
On September 28, 2018 (the “Closing Date”), Tellurian Production Holdings LLC (“Production Holdings”), our wholly owned subsidiary, entered into a three-year senior secured term loan credit agreement (the “2018 Term Loan”) in an aggregate principal amount of $60.0 million.
Our use of proceeds from the 2018 Term Loan is predominantly restricted to capital expenditures associated with certain development and drilling activities and fees related to the transaction itselfitself. At September 30, 2020, unused proceeds from the 2018 Term Loan totaled $3.4 million and is presented withinwere classified as Non-current restricted cash on our Condensed Consolidated Balance Sheets. At September 30, 2019, unused proceeds from the 2018 Term Loan totaled $4.3 million and were classified as Non-current restricted cash.
We have the right, but not the obligation, to make voluntary principal paymentsrepayments starting six months following the Closing Date in a minimum amount of $5$5.0 million or any integral multiples of $1$1.0 million in excess thereof. If no voluntary principal paymentsrepayments are made, the principal amount, together with any accrued interest, is payable at the maturity date of September 28, 2021.
The 2018 Term Loan can be terminated without penalty, with an early termination payment equal to the outstanding principal plus accrued interest.
Amounts borrowed under the 2018 Term Loan are guaranteed by Tellurian Inc. and each of Production Holdings’ subsidiaries. The 2018 Term Loan is collateralized by a first priority lien on all assets of Production Holdings and its subsidiaries, including domestic propertiesour proved natural gas properties.
Covenant Compliance
As of September 30, 2020, the Company was in compliance with all covenants under its credit agreements. Refer to Note 6, Financial Instruments, for details of hedging transactions, as of and for the period ended September 30, 2020, entered into as required by the 2018 Term Loan described in Note 3, Property, Plant and Equipment.above.
Fair Value
As of September 30, 2019,2020, the outstanding principalfair value of the 2018 Term Loan approximated fair value2020 Unsecured Note, on a discounted cash flow basis, was approximately $28.7 million as the 2020 Unsecured Note effective interest rate for the 2018 Term Loan was reflective ofhigher than current market rates.levels. As of September 30, 2019,2020, the fair value of the 2019 Term Loan, on a discounted cash flow basis, was approximately $81.5$45.9 million as the 2019 Term Loan effective interest rate was higher than current market levels after giving effect tolevels. As of September 30, 2020, the Final Payment Fee. Bothfair value of the 2018 Term Loan, on a discounted cash flow basis, was approximately $58.4 million as the 2018 Term Loan effective interest rate was higher than current market levels. The 2020 Unsecured Note, 2019 Term Loan and the 20192018 Term Loan represent Level 3 instruments in the fair value hierarchy.
NOTE 910 — COMMITTMENTSCOMMITMENTS AND CONTINGENCIES
On April 23, 2019, we entered into a master LNG sale and purchase agreement and related confirmation notices (collectively, the “SPA”) with an unrelated third-party LNG merchant. Pursuant to the SPA, we committed to purchase one cargo of LNG per quarter beginning in June 2020 through October 2022. The volume of each cargo is expected to range from 3.3 to 3.6 million MMBtu, and each cargo will be purchased under DES terms. The price of each cargo will be based on the JKM price in effect at the time of each purchase.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 1011 — STOCKHOLDERS'STOCKHOLDERS’ EQUITY
Common Stock Issuances
On February 11, 2020, we sold 2,114,591 shares of our common stock in a registered direct offering at a price of $6.36 per share. Net proceeds from this offering, after deducting fees and expenses, were approximately $13.1 million. Additionally, on July 24, 2020, we completed a registered direct offering pursuant to which we sold 35,000,000 shares of our common stock at an offering price of $1.00 per share. Net proceeds from this transaction were approximately $32.8 million.
At-the-Market Program
We maintain an at-the-market equity offering program pursuant to which we may sell shares of our common stock from time to time on Nasdaq through Credit Suisse Securities (USA) LLC acting as sales agent. We haveNasdaq. For the nine months ended September 30, 2020, we issued 19,558,548 shares of our common stock under our at-the-market program for net proceeds of approximately $25.0 million. As of September 30, 2020, we had remaining availability under the at-the-market program to raise aggregate gross sales proceeds of up to $189.7approximately $363.5 million. See Note 17, Subsequent Events, for further information.
Common Stock Purchase WarrantWarrants
2020 Unsecured Note
As discussed in Note 8,9, Borrowings, on May 23, 2019April 29, 2020 (the “Issuance Date”), in conjunction with the issuance of the 2020 Unsecured Note, we issued a warrant providing the lender with the right to purchase up to 20.0 million shares of our common stock at $1.542 per share. The Unsecured Warrant, which vested on the Issuance Date, may not be exercised until October 29, 2020 and will expire five years after it becomes exercisable. The Unsecured Warrant was valued using a Black-Scholes option pricing model that resulted in a relative fair value of approximately $16.1 million on the Issuance Date and is not subject to subsequent remeasurement. The Unsecured Warrant has been classified as equity and is recognized within Additional paid-in capital on our Condensed Consolidated Balance Sheets.
2019 Term Loan
As discussed in Note 9, Borrowings, we have entered into 4 amendments to the Company2019 Term Loan. Pursuant to the Second Amendment, we replaced the previously issued theOriginal Warrant, providingwhich provided the lender with the right to purchase up to 1.5 million shares of our common stock at $10.00 per share with the Replacement Warrant, which provides the lender with the right to purchase 9.0 million shares of our common stock at $1.00 per share. Pursuant to the Third Amendment, we issued the Third Amendment Warrant which provides the lender with the right to purchase approximately 4.7 million shares of our common stock at $1.542 per share. The Third Amendment Warrant is immediately exercisable and will expireexpires five years after the Issuance Date. date of the Third Amendment. Half of the Third Amendment Warrant vested immediately, but may not be exercised until October 29, 2020, and the remaining half will vest, and become exercisable, on October 29, 2020.
The aggregate number of unvested shares of our common stock provided to the lender under the Replacement Warrant and the Third Amendment Warrant will be reduced proportionately as a result of any partial repayment of the 2019 Term Loan principal and, in the event the outstanding balance of the 2019 Term Loan is repaid in full, any unvested tranches will be canceled as of the date of such repayment. As of September 30, 2020, the aggregate number of unvested shares of our common stock provided to the lender under the Replacement Warrant and the Third Amendment Warrant has been reduced by approximately 2.0 million shares due to partial repayments of the outstanding principal balance.
The Replacement Warrant expires five years after the date of the Second Amendment and vests as follows (in thousands):
| | | | | | | | |
Vesting | | Number of Shares |
Immediately | | 3,000 | |
March 23, 2021 | | 1,924 | |
June 23, 2021 | | 1,924 | |
Total | | 6,848 | |
The Replacement Warrant was valued using a Black-Scholes option pricing model that resulted in a relative fair value of approximately $3.3$3.6 million on the Issuance Datedate of the Second Amendment. The difference between the fair values of the Original Warrant and is not subject to subsequent remeasurement. Thethe Replacement Warrant was an increase of approximately $0.3 million and has been classified as equity and is recognized within Additional paid-in capital withinon our Condensed Consolidated Balance Sheets. However, as the total number of warrants was no longer fixed, approximately $2.4 million was recognized as a liability on the date of the Second Amendment. This liability is remeasured every period end while it remains unvested, and if the vesting event occurs, the applicable portion of the liability will be remeasured on said vesting date and reclassified to equity. As of September 30, 2020, we have
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
recognized approximately $2.3 million within Accrued and other liabilities on our Condensed Consolidated Balance Sheets associated with the Replacement Warrant.
The Third Amendment Warrant was valued using a Black-Scholes option pricing model that resulted in a fair value of approximately $5.7 million on the date of the Third Amendment. As only half of the Third Amendment Warrant has vested, and is therefore fixed, approximately $2.9 million has been classified as equity and recognized within Additional paid-in capital on our Condensed Consolidated Balance Sheets. The remaining approximately $2.8 million did not meet the fixed for fixed criteria for equity classification, and was recognized as a liability on the date of the Third Amendment. This liability is remeasured every period end while it remains unvested and if the vesting event occurs, the applicable portion of the liability will be remeasured on said vesting date and reclassified to equity. As of September 30, 2020, we have recognized approximately $1.1 million within Accrued and other liabilities on our Condensed Consolidated Balance Sheets associated with the Third Amendment Warrant.
For the three and nine months ended September 30, 2020, we recognized an unrealized gain of approximately $3.7 million and $1.7 million, respectively, within Other income, net, on our Condensed Consolidated Income Statement due to the remeasurement of the unvested portion of the Replacement Warrant and the Third Amendment Warrant.
Preferred Stock
In March 2018, we entered into a preferred stock purchase agreement with BDC Oil and Gas Holdings, LLC (“Bechtel Holdings”), a Delaware limited liability company and an affiliate of Bechtel Oil, Gas and Chemicals, Inc., a Delaware corporation, (“Bechtel”), pursuant to which we sold to Bechtel Holdings approximately 6.1 million shares of our Series C convertible preferred stock (the “Preferred Stock”). In exchange for the Preferred Stock, Bechtel provided $50.0 million in detailed engineering services for the Driftwood Project. See Note 4, Deferred Engineering Costs,for further information regarding the costs associated with the detailed engineering services.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The holders of the Preferred Stock do not have dividend rights but do have a liquidation preference over holders of our common stock. The holders of the Preferred Stock may convert all or any portion of their shares into shares of our common stock on a 1-for-one basis. At any time after “Substantial Completion” of “Project 1,” each as defined in and pursuant to the LSTK EPC Agreement for the Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, or at any time after March 21, 2028, we have the right to cause all of the Preferred Stock to be converted into shares of our common stock on a 1-for-one basis. The Preferred Stock has been excluded from the computation of diluted loss per share because including it in the computation would have been antidilutive for the periods presented.
Public Equity Offering and Exercise of Overallotment
In June 2018, we sold 12.0 million shares of common stock for proceeds of approximately $115.2 million, net of approximately $3.6 million in fees and commissions. The underwriters were granted an option to purchase up to an additional 1.8 million shares of common stock within 30 days, which was not exercised.
In January 2018, in connection with the Company’s December 2017 equity offering, the underwriters exercised their option to purchase an additional 1.5 million shares of our common stock for proceeds of approximately $14.5 million, net of approximately $0.5 million in fees and commissions.
NOTE 1112 — REVENUESEVERANCE AND REORGANIZATION
For We implemented a cost reduction and reorganization plan during the salefirst quarter of commodities, we view2020 due to the delivery of each unit (MMBtu) to be a separate performance obligation that is satisfied upon delivery. These contracts are either fixed price contracts or contracts with a fixed differential to an index price, both of which are deemed fixed consideration that is allocated to each performance obligationsharp decline in oil and represents the relative standalone selling price basis.
Purchases and sales of LNG inventory with the same counterparty that are entered into in contemplation of one another (including buy/sell arrangements) are combined and recorded on a net basis and reported in LNG sales on the Condensed Consolidated Statements of Operations. For such LNG sales, we require payment within 10 days from delivery. Other LNG revenue represents revenue earned from sub-charter agreements and is accounted for outside of ASU 2014-09, Revenue from Contracts with Customers (Topic 606).
In our judgment, the performance obligations for the sale of natural gas and LNG are satisfied at a point in time becauseprices as well as the customer obtains control and legal titlenegative economic effects of the asset when the natural gas or LNG is deliveredCOVID-19 pandemic. We have satisfied all amounts owed to the designated sales point. We exclude all taxes from the measurement of transaction price.
Because our performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, we have recognized amounts due from contracts with customers of $4.2 million and $0.5 million as Accounts receivable within the Condensed Consolidated Balance Sheetformer employees as of September 30, 20192020 and December 31, 2018, respectively.incurred approximately $6.4 million of severance and reorganization charges during the nine months ended September 30, 2020 due to reductions in workforce. The charges are presented within the caption Severance and reorganization charges on our Condensed Consolidated Statement of Operations.
NOTE 1213 — SHARE-BASED COMPENSATION
We have granted restricted stock and restricted stock units and phantom units (collectively, “Restricted Stock”), as well as unrestricted stock and stock options, to employees, directors and outside consultants (collectively, the “grantees”) under the Tellurian Inc. 2016 Omnibus Incentive Compensation Plan, as amended (the “2016 Plan”), and the Amended and Restated Tellurian Investments Inc. 2016 Omnibus Incentive Plan (the “Legacy Plan”). The maximum number of shares of Tellurian common stock authorized for issuance under the 2016 Plan is 40 million shares of common stock, and no further awards can be granted under the Legacy Plan.
Upon the vesting of restricted stock, shares of common stock will be released to the grantee. Upon the vesting of restricted stock units, the units will be converted into shares of common stock and released to the grantee. In March 2018, we began issuing phantom units that may be settled in either cash, stock, or a combination thereof. As of September 30, 2019,2020, there was no Restricted Stock that would be required to be settled in cash.
As of September 30, 2019,2020, we had granted approximately 24.728.3 million shares of performance-based Restricted Stock outstanding, of which approximately 19.719.4 million shares will vest entirely based uponat FID, as defined in the award agreements, and approximately 4.38.2 million shares will vest in one-third increments at FID and the first and second anniversaries of FID. The remaining shares of performance-based Restricted Stock, totaling approximately 0.7 million shares, will vest based on other criteria. As of September 30, 2019, 02020, no expense had been recognized in connection with performance-based Restricted Stock.
As of September 30, 2020, we had approximately 8.4 million shares of time-based Restricted Stock outstanding. They primarily represent the settlement of the 2019 employee bonuses, which were included in our accrued liabilities balance as of December 31, 2019, and will vest in their entirety during 2021.
For the three and nine months ended September 30, 2020, the recognized share-based compensation expenses related to all share-based awards totaled approximately $0.9 million and $2.2 million, respectively. As of September 30, 2020,
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
For the three and nine months ended September 30, 2019, the recognized share-based compensation expense related to all share-based awards totaled approximately $0.7 million and $3.5 million, respectively. As of September 30, 2019, unrecognized compensation expense,expenses, based on the grant date fair value, for all share-based awards totaled approximately $196.8$196.0 million. Further, the approximately 24.736.7 million shares of performance-based and time-based Restricted Stock, andas well as approximately 2.01.4 million stock options outstanding, have been excluded from the computation of diluted loss per share because including them in the computation would have been antidilutive for the periods presented.
NOTE 1314 — INCOME TAXES
Due to our cumulative loss position, historical net operating losses (“NOLs”), and other available evidence related to our ability to generate taxable income, we have recorded a full valuation allowance against our net deferred tax assets as of September 30, 20192020 and December 31, 2018.2019. Accordingly, we have not recorded a provision for federal, state or foreign income taxes during the three and nine months ended September 30, 2019.2020.
We experienced ownership changes as defined by Internal Revenue Code (“IRC”) Section 382 in 2017, and an analysis of the annual limitation on the utilization of our NOLs was performed at that time. It was determined that IRC Section 382 will not limit the use of our NOLs over the carryover period. We will continue to monitor trading activity in our shares that may cause an additional ownership change, which may ultimately affect our ability to fully utilize our existing NOL carryforwards.
NOTE 1415 — LEASES
Finance Leases
As outlined in Note 1, General, on January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842), utilizing the optional transition approach to apply the standard at the beginning of the first quarter of 2019 with no retrospective adjustment to prior periods. In addition, we elected the transition package of practical expedients to:
i.carry-forward prior conclusions related to lease identificationOur land leases are classified as financing leases and classification for existing leases;
ii.combine lease and non-lease components of an arrangement for all classes of our leased assets; and
iii.omit short-term leases with a term of 12 months or less from recognition on the balance sheet.
Adoption of the new lease standard resulted in the recording of an additional right of use asset and a lease liability of approximately $17.9 million and $19.8 million, respectively, as of January 1, 2019. The difference between the right of use asset and lease liability, net of the deferred tax impact, represents the relief of the previously recorded rent accrual. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.
We are a lessee of office space. Certain of our leases include one or more options to renew, with renewal terms that can extend the lease term fromfor up to 40 years, as well as to terminate the lease within five to 10 years. The exercise of lease renewal options isyears, at our sole discretion, and, as wediscretion. We are not reasonably certain that those options will be exercised, none are recognized as part ofand that our termination rights will not be exercised, and we have, therefore, included those assumptions within our right toof use assetassets and corresponding lease liability. All of our leases are classified as operating.liabilities. As of September 30, 2019, our2020, the weighted-average remaining lease term isfor our financing leases was approximately sixfifty years.
As at September 30, 2019, our right of use asset and lease liability is as follows (in thousands):
|
| | | | | | |
Lease | | Presentation | | September 30, 2019 |
Right of use asset | | Other non-current assets | | 16,381 |
|
Total lease asset | | | | $ | 16,381 |
|
Lease liability - current | | Accrued and other liabilities | | 2,217 |
|
Lease liability - non-current | | Other non-current liabilities | | 16,266 |
|
Total lease liability | | | | $ | 18,483 |
|
For the three and nine months ended September 30, 2019 and 2018, our operating lease costs related to our office space were $0.9 million and $0.8 million, respectively, and $2.7 million and $2.1 million, respectively. As none of our finance leases provide an implicit rate, we have determined our own discount rate, which, on a weighted-average basis at September 30, 2019,2020, was approximately 8%13%.
As of September 30, 2020, our financing leases had a corresponding right of use asset of approximately $20.1 million, which is recognized within Property, plant and equipment, net, and a total lease liability of approximately $13.5 million, which is recognized in Other non-current liabilities. For the three and nine months ended September 30, 2020, our finance lease costs, which are associated with the interest on our lease liabilities, were approximately $0.5 million and $1.2 million, respectively, of which approximately $0.2 million has been paid as of September 30, 2020. For the three and nine months ended September 30, 2020, we paid approximately $0.2 million and $1.8 million, respectively, in cash for amounts included in the measurement of finance lease liabilities, all of which are presented within the finance section of our cash flows.
Operating Leases
Our office space leases are classified as operating leases and include one or more options to extend the lease term up to 10 years, at our sole discretion. As we are not reasonably certain that those options will be exercised, none are recognized as part of our right of use assets and lease liabilities. As of September 30, 2020, our weighted-average remaining lease term for our operating leases was approximately six years. As none of our operating leases provide an implicit rate, we have determined our own discount rate, which, on a weighted-average basis at September 30, 2020, was approximately 8%.
As of September 30, 2020, our operating leases had a corresponding right of use asset of approximately $12.3 million which is recognized within Other non-current assets and a total lease liability of approximately $14.1 million which is recognized within Accrued and other liabilities (approximately $1.9 million) and Other non-current liabilities (approximately $12.2 million). For the three and nine months ended September 30, 2020 and 2019, our operating lease costs were $0.7 million and $0.9 million, respectively, and $2.1 million and $2.7 million, respectively. For the three and nine months ended September 30, 2020 and 2019, we paid approximately $0.7 million and $0.9 million, respectively, and $2.1 million, and $2.3 million, respectively, in cash for amounts included in the measurement of operating lease liabilities, all of which are presented within operating cash flows. In addition, a lease liability arising from obtaining a right of use asset is treated as a non-cash item in our Condensed Consolidated Statements of Cash Flows.
The table below presents a maturity analysis of our lease liability on an undiscounted basis and reconciles those amounts to the present value of the lease liability as atof September 30, 20192020 (in thousands):
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
| | | | | | | | | | | |
Maturity of lease liability | Operating | | Finance |
2020 | $ | 737 | | | $ | 456 | |
2021 | 2,969 | | | 1,826 | |
2022 | 3,006 | | | 1,826 | |
2023 | 3,044 | | | 1,826 | |
2024 | 3,081 | | | 1,826 | |
After 2024 | 4,980 | | | 84,193 | |
Total lease payments | $ | 17,817 | | | $ | 91,953 | |
Less: discount | 3,703 | | | 78,443 | |
Present value of lease liability | $ | 14,114 | | | $ | 13,510 | |
|
| | | |
Maturity of lease liability | |
2019 | $ | 900 |
|
2020 | 3,626 |
|
2021 | 3,491 |
|
2022 | 3,793 |
|
2023 | 4,059 |
|
After 2023 | 8,061 |
|
Total lease payments | $ | 23,930 |
|
Less: discount | 5,447 |
|
Present value of lease liability | $ | 18,483 |
|
At December 31, 2018, future undiscounted minimum rental payments due under noncancelable operating lease agreements pursuant to ASC Topic 840 were:
|
| | | |
2019 | $ | 3,126 |
|
2020 | 3,510 |
|
2021 | 3,440 |
|
2022 | 3,718 |
|
2023 | 3,993 |
|
Thereafter | 8,061 |
|
Total | $ | 25,848 |
|
NOTE 1516 — ADDITIONAL CASH FLOW INFORMATION
The following table provides information regarding the net changes in working capital (in thousands):
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2019 |
| 2018 |
Accounts receivable | $ | (3,374 | ) | | $ | 99 |
|
Accounts receivable due from related parties | — |
| | 62 |
|
Prepaid expenses and other current assets | 1,653 |
| | 1,036 |
|
Accounts payable and accrued liabilities | 14,187 |
| | 13,548 |
|
Other, net | (1,950 | ) | | (4,154 | ) |
Net changes in working capital | $ | 10,516 |
| | $ | 10,591 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
Accounts receivable | $ | 1,991 | | | $ | (3,374) | |
Prepaid expenses and other current assets | 6,995 | | | 1,653 | |
Accounts payable | (25) | | | (4,192) | |
Accounts payable due to related parties (Note 7) | 1,360 | | | 0 | |
Accrued liabilities | 3,155 | | | 18,379 | |
Other, net | (1,748) | | | (1,950) | |
Net changes in working capital | $ | 11,728 | | | $ | 10,516 | |
The following table provides supplemental disclosure of cash flow information (in thousands):
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
Non-cash accruals of property, plant and equipment and other non-current assets | $ | 7,875 |
| | $ | 3,529 |
|
Accrued term loan issuance costs | — |
| | 441 |
|
2019 Term Loan paid-in-kind election | 996 |
| | — |
|
Future proceeds from sale of Magellan Petroleum UK | 4,940 |
| | — |
|
Tradable equity securities | 3,705 |
| | — |
|
Non-cash settlement of withholding taxes associated with the 2018 and 2017 bonus paid and vesting of certain awards, respectively | 6,686 |
| | 5,733 |
|
Non-cash settlement of the 2018 and 2017 bonus paid, respectively | 18,396 |
| | 15,202 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
Non-cash accruals of property, plant and equipment and other non-current assets | $ | 7,955 | | | $ | 7,875 | |
Non-cash settlement of Final Payment Fee (Note 9) | 8,539 | | | 0 | |
Future proceeds from sale of Magellan Petroleum UK | 0 | | | 4,940 | |
Tradable equity securities | 0 | | | 3,705 | |
Non-cash settlement of withholding taxes associated with the 2019 and 2018 bonus and vesting of certain awards, respectively | 878 | | | 6,686 | |
Non-cash settlement of the 2019 and 2018 bonus, respectively | 4,344 | | | 18,396 | |
The statement of cash flows for the nine months ended September 30, 2020, reflects approximately $78.5 million and $2.1 million in non-cash movements related to the 2019 reflects a $0.4 million non-cash movement for funds deposited in escrow in December 2018 that were cleared in March 2019 forTerm Loan and the purchase of land.Replacement Warrant, respectively.
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
Cash and cash equivalents | $ | 91,057 |
| | $ | 172,317 |
|
Non-current restricted cash | 4,300 |
| | 57,440 |
|
Total cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | 95,357 |
| | $ | 229,757 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
Cash and cash equivalents | $ | 77,947 | | | $ | 91,057 | |
Non-current restricted cash | 3,441 | | | 4,300 | |
Total cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | 81,388 | | | $ | 95,357 | |
NOTE 17 — SUBSEQUENT EVENTS
At-the-Market Program
Tellurian Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Subsequent to September 30, 2020, and through the date of this filing, we issued 3,649,704 shares of common stock under our at-the-market equity offering program for total proceeds of approximately $3.2 million, net of approximately $0.1 million in fees and commissions. As of October 30, 2020, we have remaining capacity under our at-the-market program to raise aggregate gross sales proceeds of approximately $360.2 million.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion and analysis presents management’s view of our business, financial condition and overall performance and should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes. This information is intended to provide investors with an understanding of our past development activities, current financial condition and outlook for the future organized as follows:
•Our Business
•Overview of Significant Events
•Liquidity and Capital Resources
•Capital Development Activities
•Results of Operations
•Off-Balance Sheet Arrangements
•Recent Accounting Standards
Our Business
Tellurian Inc. (“Tellurian,” “we,” “us,” “our,” or the “Company”) intends to create value for shareholders by building a low-cost, global natural gas business, profitably delivering natural gas to customers worldwide (the “Business”). We are developing a portfolio of natural gas production, LNG marketing, and infrastructure assets that includes an LNG terminal facility (the “Driftwood terminal”) and three related pipelines (the “Pipeline Network”). We refer to the Driftwood terminal, the Pipeline Network and certain natural gas production assets collectively as the “Driftwood Project”. We currently estimate the total cost of the Driftwood Project to be approximately $28.7 billion, including owners’ costs, transaction costs and contingencies but excluding interest costs incurred during construction of the Driftwood terminal and other financing costs. Our Business may be developed in phases.
The proposed Driftwood terminal will have a liquefaction capacity of approximately 27.6 Mtpa and will be situated on approximately 1,000 acres in Calcasieu Parish, Louisiana. The proposed Driftwood terminal will include up to 20 liquefaction Trains, three full containment LNG storage tanks and three marine berths. We have entered into four LSTK EPC agreements totaling $15.5 billion with Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) for construction of the Driftwood terminal.
The proposed Pipeline Network is currently expected to consist of three pipelines, the Driftwood pipeline, the Haynesville Global Access Pipeline and the Permian Global Access Pipeline. The Driftwood pipeline will be a 96-mile large diameter pipeline that will interconnect with 14 existing interstate pipelines throughout southwest Louisiana to secure adequate natural gas feedstock for the Driftwood terminal. The Driftwood pipeline will be comprised of 48-inch, 42-inch, 36-inch and 30-inch diameter pipeline segments and three compressor stations totaling approximately 274,000 horsepower, all as necessary to provide approximately 4 Bcf/d of average daily natural gas transportation service. We estimate construction costs for the Driftwood pipeline of approximately $2.2 billion before owners’ costs, financing costs and contingencies.
The Haynesville Global Access Pipeline is expected to run approximately 200 miles from northern to southwest Louisiana. The Permian Global Access Pipeline is expected to run approximately 625 miles from west Texas to southwest Louisiana. Each of these pipelines is expected to have a diameter of 42 inches and be capable of delivering approximately 2 Bcf/d of natural gas. We currently estimate that construction costs will be approximately $1.4 billion for the Haynesville Global Access Pipeline and approximately $4.2 billion for the Permian Global Access Pipeline, in each case before owners’ costs, financing costs and contingencies. We are also considering the potential development of a fourth pipeline, the Delhi Connector Pipeline, which would run approximately 180 miles from Perryville/Delhi in northeast Louisiana to Lake Charles, Louisiana.
Our upstream properties acquired in a series of transactions during 2017 and 2018, consist of 10,26010,067 net acres and 6671 producing wells (21 operated) located in the Haynesville Shale trend of northern Louisiana. These wells have net current production of approximately 34.2 MMcf/d. As of December 31, 2018, our estimate of net reservesOur Business may be developed in these properties was approximately 265 Bcfe. We began drilling certain locations on our properties in the fourth quarter of 2018, which were completed during the first half of 2019 using the proceeds from the senior secured term loan obtained in 2018 (the “2018 Term Loan” as described in Note 8, Borrowings, of our Notes to Condensed Consolidated Financial Statements).phases.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
In connection with the implementation of our Business, we are offering limited partnership interests in a subsidiary, Driftwood Holdings LP (“Driftwood Holdings”), which will own the Driftwood Project. Partners will contribute cash in exchange for equity in Driftwood Holdings and will receive LNG volumes at the cost of production, including the cost of debt, for the life of the Driftwood terminal. In July 2019, as described below in “Overview of Significant Events”, Total Delaware, Inc. (“Total”) and Total Gas & Power North America, Inc. (“Total Gas & Power”), subsidiaries of TOTAL S.A., entered into a series of definitive agreements with the Company pursuant to which, among other things, Total agreed to become the first partner in Driftwood Holdings. We plan to retain a portion of the ownership in Driftwood Holdings and have engaged Goldman Sachs & Co. and Société Générale to serve as financial advisors for Driftwood Holdings.
We also continue to develop our LNG marketing activities as described below in “Overview of Significant Events.”
Overview of Significant Events
Significant Transactions
Common Stock Purchase Agreement. On April 3, 2019, we entered into a Common Stock Purchase Agreement (the “CSPA”)evaluate, and discuss with Total, pursuant to which Total agreed to purchase,potential partners, the scope and the Company agreed to issue and sell in a private placement to Total, approximately 19.9 million shares of our common stock in exchange for a cash purchase price of approximately $10.06 per share, which will generate aggregate gross proceeds of approximately $200.0 million (the “Private Placement”). The closing of the Private Placement is subject to the satisfaction of certain closing conditions, including Tellurian reaching an affirmative FID with respect to “Phase I”other aspects of the Driftwood Project.
Regulatory Developments. On April 18, 2019, FERC issued the order granting authorization for the Company to construct and operate the Driftwood terminal and the Driftwood pipeline. On May 2, 2019, the DOE/FE issued an order authorizing the Company to export to Non-FTA countries. On May 3, 2019, USACE issued the Section 10/Section 404 permit authorizing activities within “WatersProject in light of the U.S.” These three permits, along withevolving economic environment, investor needs and other factors. As a result of these discussions, we are evaluating certain potential changes to the DOE/FE authorization for FTA countries issued in February 2017, air permits issued byproject that, among other things, could significantly reduce the Louisiana Departmentoverall cost of Environmental Quality in March 2017 and May 2018, and the coastal use permit issued by the Louisiana Department of Natural Resources in July 2018, comprise all the major permits required for construction and operationPhase 1 of the Driftwood terminal and Driftwood pipeline.
LNG Marketing. On April 23, 2019, in furtherance of our strategy of developing our LNG marketing activities,project. Whether we entered into a master LNG sale and purchase agreement and related confirmation notices (collectively, the “SPA”) with an unrelated third-party LNG merchant. Pursuantimplement changes to the SPA, we have committed to purchase one cargo of LNG per quarter beginning in June 2020 through October 2022. The quantity of each cargo is expected to range from 3.3 to 3.6 million MMBtu, and each cargo will be purchased under DES terms. The price for each cargoproject will be based on a variety of factors, including the JKM price in effect at the time of each purchase. Refer to “—Driftwood Project” below for additional SPAs executed in conjunction with the developmentresults of our business.continuing analysis, changing business conditions and investor feedback.
Term Loan. On May 23, 2019, Driftwood Holdings entered into a one-year senior secured term loan credit agreement (the “2019 Term Loan”) in the principal amount of $60.0 million. Fees of approximately $2.2 million were capitalized as deferred financing costs. The 2019 Term Loan agreement provided Driftwood Holdings the right to borrow an additional $15.0 million by August 31, 2019, subject to certain criteria being met. On July 11, 2019, all of the criteria were met and on July 16 2019, Driftwood Holdings received these funds. Amounts borrowed under the 2019 Term Loan bear a fixed annual interest rate of 12%, of which 4% Driftwood Holdings may add to the principal as paid-in-kind interest. Furthermore, upon the maturity of the 2019 Term Loan, Driftwood Holdings will incur a final payment fee equal to 20% of the principal amount funded less certain deferred financing costs and cash interest paid. In conjunction with the 2019 Term Loan, the Company issued a Common Stock Purchase Warrant (the “Warrant”) to the lender. As discussed in Note 10, Stockholders’ Equity, of our Notes to Condensed Consolidated Financial Statements, the estimated fair value of the Warrant of approximately $3.3 million has been recognized as an original issue discount related to the 2019 Term Loan.
Driftwood Project. On July 10, 2019, Driftwood Holdings entered into an equity capital contribution agreement (the “Contribution Agreement”) with Total, whereby Total agreed to make a $500.0 million capital commitment to Driftwood Holdings in exchange for Class A limited partnership interests in Driftwood Holdings. The closing of the transactions contemplated by the Contribution Agreement is subject to the satisfaction of certain closing conditions, including Tellurian reaching an affirmative FID with respect to “Phase 1” of the Driftwood Project. Subject to the terms and conditions of the Contribution Agreement, upon the occurrence of FID with respect to Phase 1 of the Driftwood Project, Total Gas & Power and Driftwood LNG LLC, a subsidiary of the Company (“Driftwood LNG”), will enter into a sale and purchase agreement (the “LNG SPA”) pursuant to which Total Gas & Power will have the right to purchase from Driftwood LNG approximately 1.0 Mtpa of LNG from the Driftwood terminal.
Also on July 10, 2019, Tellurian Trading UK Ltd, a wholly owned subsidiary of the Company (“Tellurian Trading”), and Total Gas & Power entered into a sale and purchase agreement pursuant to which Total Gas & Power has the right to purchase from Tellurian Trading approximately 1.5 Mtpa of LNG on a free on board basis at prices based on the JKM index price, subject to the terms and conditions of the agreement.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview of Significant Events
Second, Third and Fourth Amendments to the 2019 Term Loan
On March 23, 2020, Driftwood Holdings LP (formerly known as Driftwood Holdings LLC), a Delaware limited partnership and an indirect wholly owned subsidiary of Tellurian Inc., entered into the second amendment (the “Second Amendment”) to the 2019 Term Loan. The outstanding principal amount as of the Second Amendment date was $75.0 million. The Second Amendment, among other things, made the following changes to the 2019 Term Loan:
•Extended the maturity date from May 23, 2020 to November 23, 2021;
•Modified the frequency of interest payments from quarterly to monthly;
•Modified the interest rate from 12%, with the ability to defer 4% per quarter as paid-in-kind, to 16%, with the ability to defer 8% per annum as paid-in-kind;
•Required a principal payment of $3.0 million by April 22, 2020; and
•Reduced the required month-end collateral amount from $30.0 million to $12.0 million.
Upon entering into the Second Amendment, we repaid $2.0 million of the outstanding principal balance and issued 11,019,298 shares of our common stock for relief of the Final Payment Fee (as defined in the 2019 Term Loan) and all accrued paid-in-kind interest through March 22, 2020.
On April 28, 2020, Driftwood Holdings entered into the third amendment (the “Third Amendment”) to the 2019 Term Loan which became effective on April 29, 2020. In conjunction with the Third Amendment, we repaid $17.1 million of the outstanding principal balance using approximately 9.3 million shares of our common stock and $2.1 million in cash and a warrant to purchase approximately 4.7 million shares of our common stock at a strike price of $1.542. The number of shares issuable under the warrant may be reduced if we make any partial cash repayment of the 2019 Term Loan principal prior to its vesting in full on October 29, 2020.
On September 21, 2020, Driftwood Holdings entered into a fourth amendment (the “Fourth Amendment”) to the 2019 Term Loan. The Fourth Amendment extended the maturity date of the 2019 Term Loan from November 23, 2021 to March 23, 2022. In conjunction with the Fourth Amendment, we repaid $12.0 million of the outstanding principal.
As a result of the principal repayments associated the Third and Fourth Amendments, the aggregate number of shares of our common stock issuable under the warrants held by the lender were reduced by approximately 2.0 million. For further information regarding the remaining warrants, see Note 11, Stockholders’ Equity, of our Notes to the Condensed Consolidated Financial Statements.
2020 Unsecured Note
On April 29, 2020, we issued a zero coupon $56.0 million senior unsecured note (the “2020 Unsecured Note”) to a third party, raising proceeds of approximately $47.4 million, net of approximately $2.6 million in fees. We also issued the lender a warrant to purchase 20.0 million shares of our common stock at a strike price of $1.542 per share. The 2020 Unsecured Note is subject to certain cash sweep provisions and a portion of the 2020 Unsecured Note must be paid on the first day of every month, beginning on June 1, 2020. Due to the amount of proceeds generated from the sale of our common stock under our at-the-market program in June 2020, as well as the equity offering completed on July 24, 2020, these cash sweep provisions were triggered on July 1, 2020 and August 3, 2020, requiring us to make a total of $8.0 million in additional repayments of the outstanding principal balance. As a result of these additional repayments, the final payment associated with the 2020 Unsecured Note is scheduled to occur on April 1, 2021 instead of June 1, 2021 as originally scheduled.
Equity Offering
On July 24, 2020, we completed a registered direct offering pursuant to which we sold an aggregate of 35,000,000 million shares of our common stock at an offering price of $1.00 per share. Net proceeds from the transaction were approximately $32.8 million.
LNG Marketing
In July 2020, we purchased the first cargo of LNG pursuant to the master LNG sale and purchase agreement entered into on April 23, 2019. This cargo was subsequently sold to an unrelated third party resulting in revenue of approximately $7.0 million.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
Restructuring
In March 2020, we implemented a cost reduction and reorganization plan (the “Reorganization Plan”) and incurred approximately $6.4 million of severance and reorganization charges due to a reduction in workforce. The Reorganization Plan has been implemented due to the sharp decline in oil and natural gas prices as well as the growing negative economic effects of the COVID-19 pandemic. We have satisfied all amounts owed to former employees.
Liquidity and Capital Resources
Capital Resources
We are currently funding our operations, development activities and general working capital needs through our cash on hand. Pursuant to the 2018 Term Loan, we are funding our specific upstream development and drilling activities with the proceeds from the 2018 Term Loan and approximately $15.4 million of cash and cash equivalents as of September 30, 2019, maintained at a wholly-owned subsidiary of Tellurian Production Holdings LLC. Our current capital resources consist of approximately $91.1 million of cash and cash equivalents as of September 30, 2019 on a consolidated basis, which are primarily the result of issuances of common stock in 2017 and in the first half of 2018, proceeds received under the 2019 Term Loan and from the sale of Magellan Petroleum UK, approximately $3.7 million in Tradable equity securities also received from the sale of Magellan Petroleum UK and approximately $4.3 million of non-current restricted cash from the 2018 Term Loan. We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Pursuant to the terms of the 2019 Term Loan, we We are required to maintain an aggregate $30.0 million balance in accounts constituting collateral. Furthermore,currently funding our operations, development activities and general working capital needs through our cash on hand as discussed above in “Overview of Significant Events”, the Company agreed to issuewell as proceeds from various potential financing transactions, such as utilizing our at-the-market program, equity issuances, equity-linked and sell in a private placement to Total approximately 19.9 million shares of our common stock for approximately $10.06 per share, resulting in aggregate gross proceedsdebt securities or similar transactions. Our current capital resources consist of approximately $200.0$77.9 million of cash and cash equivalents as of September 30, 2020, on a consolidated basis, of which approximately $44.6 million is subject to the satisfactionmaintained at a wholly owned subsidiary of certain closing conditions, including Tellurian reaching an affirmative FID with respect to “Phase I” of the Driftwood Project.
Production Holdings LLC. We also have the ability to raise funds through common or preferred stock issuances, debt financings, an at-the-market equity offering program or the sale of assets. We currently maintain anour at-the-market equity offering program through Credit Suisse Securities (USA) LLC under which, as of the date of this filing, we have remaining availability to raise aggregate gross sales proceeds of up to $189.7approximately $360.2 million. Since January 1, 2020, and through the date of this filing, we have sold approximately 23.2 million shares of common stock under our at-the-market program for total proceeds of approximately $28.2 million, net of approximately $0.9 million in fees and commissions.
Sources and Uses of Cash
The following table summarizes the sources and uses of our cash and cash equivalents and costs and expenses for the periods presented (in thousands):
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| |
| | 2020 | | 2019 |
Cash used in operating activities | | $ | (56,734) | | | $ | (86,681) | |
Cash used in investing activities | | (389) | | | (67,619) | |
Cash provided by financing activities | | 70,029 | | | 66,068 | |
| | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | 12,906 | | | (88,232) | |
Cash, cash equivalents and restricted cash, beginning of the period | | 68,482 | | | 183,589 | |
Cash, cash equivalents and restricted cash, end of the period | | $ | 81,388 | | | $ | 95,357 | |
| | | | |
Net working (deficit) capital | | $ | (58,741) | | | $ | (5,047) | |
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| |
| | 2019 | | 2018 |
Cash used in operating activities | | $ | (86,681 | ) | | $ | (74,812 | ) |
Cash used in investing activities | | (67,619 | ) | | (4,902 | ) |
Cash provided by financing activities | | 66,068 |
| | 181,198 |
|
| | | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | (88,232 | ) | | 101,484 |
|
Cash, cash equivalents and restricted cash, beginning of the period | | 183,589 |
| | 128,273 |
|
Cash, cash equivalents and restricted cash, end of the period | | $ | 95,357 |
| | $ | 229,757 |
|
| | | | |
Net working capital | | $ | (5,047 | ) | | $ | 138,205 |
|
Cash used in operating activities for the nine months ended September 30, 2019 increased2020 decreased by approximately $11.9$29.9 million compared to the same period in 20182019 due to an overall increasedecrease in disbursements in the normal course of business.
Cash used in investing activities for the nine months ended September 30, 2019 increased2020 decreased by approximately $62.7$67.2 million compared to the same period in 2018.2019. This increasedecrease is predominantly driven by increaseddecreased natural gas development activities of $44.8 million and payments of $26.0 million related to deferred engineering costs that were settled as a non-cash transaction through the issuance of preferred stock in the prior period. The deferred engineering costs included a partial payment of approximately $10.0 million for the preservation of the manufacturing and supply schedule under the EPC. This increase was partially offset by approximately $6.2 million of cash consideration received in connection with the sale of Magellan Petroleum UK, as discussed in Note 3, Property, Plant and Equipment, of our Notes to Condensed Consolidated Financial Statements.activities.
Cash provided by financing activities for the nine months ended September 30, 2019 decreased2020 increased by approximately $115.1$4.0 million compared to the same period in 2018.2019. This decreaseincrease primarily relates to common stock issuances that raised net proceeds of approximately $70.9 million and the absence of a publicapproximately $5.8 million in net settlement transactions on employee equity offering, including the exerciseawards. These increases were primarily offset by approximately $45.6 million in principal repayments of our borrowings as well as an overallotment option, totaling approximately $129.7 million, as discussedoverall decrease in borrowings of $25.0 million. See Note 10,9, Stockholders’ EquityBorrowings,of our Notes to the Condensed Consolidated Financial Statements for further information.
Borrowings
As of September 30, 2020, we had total indebtedness of approximately $132.8 million, of which approximately $103.3 million was secured indebtedness, and we were in compliance with the covenants under all of our credit agreements. For additional details regarding our borrowing activity, refer to Note 9, Borrowings,of our Notes to the Condensed Consolidated Financial Statements. This decrease was partially offset by approximately $15.5 million of net proceeds from the 2019 Term Loan relative to the net proceeds from the 2018 Term Loan in the same period in 2018.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
Borrowings
As of September 30, 2019, we had total indebtedness of approximately $133.2 million, all of which was secured indebtedness. At September 30, 2019, we were in compliance with the covenants under both our 2018 and 2019 senior secured term loan credit agreements. For additional details regarding our borrowing activity, refer to Note 8, Borrowings, of our Notes to Condensed Consolidated Financial Statements.
Capital Development Activities
The activities we have proposed will require significant amounts of capital and are subject to risks and delays in completion. We have received all regulatory approvals and, plan to commence construction of the Driftwood terminal and Driftwood pipeline in 2020, produce the first LNG in 2023 and achieve full operations in 2026. Asas a result, our business success will depend to a significant extent upon our ability to obtain the funding necessary to construct assets on a commercially viable basis and to finance the costs of staffing, operating and expanding our company during that process.
We currently estimate the total cost of the Driftwood Project to be approximately $28.9 billion, including owners’ costs, transaction costs and contingencies but excluding interest costs incurred during construction costs of approximatelythe Driftwood terminal and other financing costs. We have entered into four LSTK EPC agreements totaling $15.5 billion, or $561 per tonne, with Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) for construction of the Driftwood terminal. The proposed Driftwood terminal will have a liquefaction capacity of approximately 27.6 Mtpa and will be situated on approximately $2.2 billion for the1,000 acres in Calcasieu Parish, Louisiana. The proposed Driftwood pipeline, in each case before owners’ costs, financing coststerminal will include up to 20 liquefaction Trains, three full containment LNG storage tanks and contingencies. We also are in the preliminary routing stage of developing the Haynesville Global Access Pipeline and the Permian Global Access Pipeline, which combined are estimated to cost approximately $5.6 billion before owners’ costs, financing costs and contingencies.three marine berths. In addition, the natural gas production activities we are pursuing will require considerable capital resources.
We anticipate funding our more immediate liquidity requirements relative to the detailed engineering work and other developmental and general and administrative costs through the use of cash on hand and proceeds from the completed equity issuances and the 2019 Term Loan discussed above and future issuances of equity or debt securities by us. Consistent with our overall financing strategy, the Company has considered, and in some cases discussed with investors, various potential financing transactions, including issuances of debt, equity and equity-linked securities or similar transactions, to support its short- and medium-term capital requirements. The Company will continue to evaluate its cash needs and business outlook, and it may execute one or more transactions of this type in the future.
We currently expect that our long-term capital requirements will be financed by proceeds from future debt, and equity and/or equity-linked transactions. In addition, part of our financing strategy is expected to involve seeking equity investments by LNG customers at a subsidiary level. If the types of financing we expect to pursue are not available, we will be required to seek alternative sources of financing, which may not be available on acceptable terms, if at all.
Results of Operations
The following table summarizes revenue, costs and expenses for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Total revenue | | $ | 14,265 | | | $ | 9,344 | | | $ | 28,811 | | | $ | 19,637 | |
Cost of sales | | 9,241 | | | 2,241 | | | 14,529 | | | 4,594 | |
Development expenses | | 5,799 | | | 15,685 | | | 26,105 | | | 46,238 | |
Depreciation, depletion and amortization | | 3,474 | | | 7,409 | | | 14,301 | | | 13,988 | |
General and administrative expenses | | 10,734 | | | 22,369 | | | 43,342 | | | 67,825 | |
Impairment charge | | — | | | — | | | 81,065 | | | — | |
Severance and reorganization charges | | — | | | — | | | 6,359 | | | — | |
Related party charges | | — | | | — | | | 7,357 | | | — | |
Loss from operations | | (14,983) | | | (38,360) | | | (164,247) | | | (113,008) | |
Interest expense, net | | (15,973) | | | (6,079) | | | (33,564) | | | (10,065) | |
Other income (expense), net | | 1,490 | | | 4,832 | | | (1,235) | | | 8,847 | |
Income tax benefit | | — | | | — | | | — | | | — | |
Net loss | | $ | (29,466) | | | $ | (39,607) | | | $ | (199,046) | | | $ | (114,226) | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Total revenue | | $ | 9,344 |
| | $ | 799 |
| | $ | 19,637 |
| | $ | 8,414 |
|
Cost of sales | | 2,241 |
| | 723 |
| | 4,594 |
| | 5,383 |
|
Development expenses | | 15,685 |
| | 11,004 |
| | 46,238 |
| | 32,871 |
|
Depreciation, depletion and amortization | | 7,409 |
| | 315 |
| | 13,988 |
| | 1,034 |
|
General and administrative expenses | | 22,369 |
| | 20,437 |
| | 67,825 |
| | 61,046 |
|
Impairment charge and loss on transfer of assets | | — |
| | 2,704 |
| | — |
| | 4,513 |
|
Loss from operations | | (38,360 | ) | | (34,384 | ) | | (113,008 | ) | | (96,433 | ) |
Interest income (expense), net | | (6,079 | ) | | 924 |
| | (10,065 | ) | | 1,863 |
|
Other income, net | | 4,832 |
| | 79 |
| | 8,847 |
| | 151 |
|
Income tax benefit | | — |
| | 190 |
| | — |
| | 190 |
|
Net loss | | $ | (39,607 | ) | | $ | (33,191 | ) | | $ | (114,226 | ) | | $ | (94,229 | ) |
Our consolidated net loss was approximately $39.6$29.5 million for the three months ended September 30, 2019,2020, compared to a net loss of approximately $33.2$39.6 million during the same period in 2018. This $6.4 million increase2019. The decrease in net loss of approximately $10.1 million is primarily a result of the following:
Cost•Increase of approximately $4.9 million in total revenue, which is primarily attributable to the sale of an LNG cargo in the current period compared to no sales in the prior period.
•Increase of approximately $7.0 million in cost of sales, during the period increased by approximately $1.5 million comparedwhich is attributable to the same periodcosts associated with the sale of an LNG cargo.
•Decreases of approximately $11.6 million and approximately $9.9 million in 2018general and administrative expenses and development expenses, respectively, due to an increaseoverall decrease in natural gas sales as a result of an increase in production volumes.
Development expensesbusiness activities during the period increased by approximately $4.7 million compared to the same period in 2018 as a result of an overall increase in development activities associated with the Driftwood Project.quarter.
DD&A during the period increased by approximately $7.1 million compared to the same period in 2018 due to the increase in natural gas production as discussed earlier.
Tellurian Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
General and administrative expenses increased by•Decrease of approximately $1.9$3.9 million duringin DD&Adue to the period due primarily to an increaselower net book value utilized in employee headcountthe calculation when compared to the same period in 2018.prior period.
The $7.0•Increase of approximately $9.9 million increase in interest expense, net, which is primarily attributable to (i) the recognitionamortization of interest expenses on the 2018 Term Loan,discount associated with the 2020 Unsecured Note which was only partially presentabsent in the prior period.
Our consolidated net loss was approximately $199.0 million for the nine months ended September 30, 2020, compared to a net loss of approximately $114.2 million during the same period and (ii) the 2019 Term Loan, which was not in place in the prior period.
2019. The above factors were partially offset by (i) an increase in revenuesnet loss of approximately $8.5$84.8 million dueis primarily a result of the following:
•A one-time impairment charge of $81.1 million related to higherour proved natural gas production volumes that have led to the increase inproperties. This impairment charge was a result of depressed natural gas sales; (ii)prices caused by the absencecombined impact of anincreased production and falling demand brought about by current economic conditions. For further information regarding this impairment charge, and loss on transfer of assets of approximately $2.7 million in the prior period; and (iii) an increase in other income of approximately $4.8 million predominantly due to (a) the recognition of approximately $2.8 million of gain on the sale of Magellan Petroleum UK, and (b) the approximately $2.0 million of gains on financial instruments not designated as hedges, each as outlined insee Note 3, Property, Plant and Equipment, and Note 6, Financial Instruments, respectively, of our Notes to the Condensed Consolidated Financial Statements.
Our consolidated net loss was approximately $114.2 million for the nine months ended September 30, 2019, compared to a net loss•Increase of approximately $94.2$9.9 million during the same period in 2018. This $20.0 million increase in net loss is primarily a result of the following:
Development expenses during the period increased by approximately $13.4 million compared to the same period in 2018 as a result of an overall increase in development activities associated with the Driftwood Project.
DD&A during the period increased by approximately $13.0 million compared to the same period in 2018 due to the increase in natural gas production as discussed earlier.
General and administrative expenses increased by approximately $6.8 million during the period, due primarily to an increase in employee headcount when compared to the same period in 2018.
Interest expense, net, increased by approximately $11.9 million during the period primarily due to (i) the recognition of interest expenses on the 2018 Term Loan, which was only partially present in the prior period, and (ii) the 2019 Term Loan, which was not in place in the prior period.
The above factors were partially offset by (i) an approximately $11.2 million increase in revenues due to higher natural gas sales and an approximately $0.8 million decrease in cost of sales dueprimarily attributable to the absence of costs related to LNG marketing transactions; (ii)associated with the absencesale of an impairment charge and loss on transfer of assetsLNG cargo.
•Charges of approximately $4.5$7.4 million in connection with related party transactions compared to zero in the prior period; and (iii) an increase in other income of approximately $8.7 million predominantly due to (a) the recognition of approximately $2.8 million of gain on the sale of Magellan Petroleum UK and (b) the approximately $6.0 million of gains on financial instruments not designated as hedges, each as outlined inperiod. For further information regarding these related party charges, see Note 3,7, Property, Plant and EquipmentRelated Party Transactions, and Note 6, Financial Instruments, respectively, of our Notes to the Condensed Consolidated Financial Statements.
•Severance and reorganization charges of approximately $6.4 million were incurred during the period in connection with the Reorganization Plan. For further information regarding the Reorganization Plan, see Note 12, Severance and Reorganization, of our Notes to the Condensed Consolidated Financial Statements. •Increase of approximately $23.5 million in interest expense, net, which is primarily attributable to both the 2019 Term Loan and 2020 Unsecured Note incurring interest charges during the current period compared to only a portion of the 2019 Term Loan incurring charges during the prior period.
The increase in expenses above was partially offset by an increase in total revenue of approximately $9.2 million due primarily to the sale of an LNG cargo and a decrease in general and administrative expenses of approximately $24.5 million as well as an approximate $20.1 million decrease in development expenses due to an overall decrease in business activities during the period.
Off-Balance Sheet Arrangements
As of September 30, 2019, we had no transactions that met the definition of off-balance sheet arrangements that may have a current or future material effect on our consolidated financial position or operating results. None.
Recent Accounting Standards
For descriptions of recently issued accounting standards, see Note 1, General, of our Notes to the Condensed Consolidated Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that we hold, or are party to, instruments that are subject to market risks that are material to our Business.
ITEM 4. CONTROLS AND PROCEDURES
As indicated in the certifications in Exhibits 31.1 and 31.2 to this report, our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of September 30, 2019.2020. Based on that evaluation, these officers have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There were no changes during our last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes to the legal proceedings disclosed in Part I, Item 3, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, except that the trial date, previously set for June 2019, has been changed to February 2020. None.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019, as amended, except for the risk factors discussed below.
Pandemics or disease outbreaks, such as the currently ongoing COVID-19 outbreak, may adversely affect our efforts to reach a final investment decision with respect to the Driftwood Project. Pandemics or disease outbreaks such as the currently ongoing COVID-19 outbreak may have a variety of adverse effects on our business, including by depressing commodity prices and the market value of our securities and limiting the ability of our management to travel to meet with partners and potential partners. Prospects for the development and financing of the Driftwood Project are based in part on factors including global economic conditions that have been, and are likely to continue to be, adversely affected by the COVID-19 pandemic. Additional effects of the pandemic on our business may include limits on the ability of our employees, or those of partners or vendors, to provide necessary services due to illness or quarantines and governmental restrictions on travel, imports or exports or financial transactions.
The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on future developments, including the severity and duration of the pandemic, actions that have been and may be taken by governmental authorities, the impact on the businesses of our customers, and the duration of the resulting macroeconomic conditions, all of which are uncertain and are difficult to predict at this time.
Declines in the prices we receive for our natural gas production may result in reductions in our reserves.
The quantity and value of our natural gas reserves depend in significant part on the prices we receive for our natural gas production. Absent a significant increase in those prices, the proved undeveloped reserves reflected in the December 31, 2020 annual reserve report may be substantially reduced relative to the proved undeveloped reserves included in our December 31, 2019 reserve report, and the PV-10 and standardized measure value of our reserves may decline accordingly.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None that occurred during the three months ended September 30, 2019.2020 that have not already been reported in a Current Report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None that occurred during the three months ended September 30, 2019.2020.
ITEM 5. OTHER INFORMATION
Compliance Disclosure
Pursuant to Section 13(r) of the Exchange Act, if during the quarter ended September 30, 2019,2020, we or any of our affiliates had engaged in certain transactions with Iran or with persons or entities designated under certain executive orders, we would be required to disclose information regarding such transactions in our quarterly report on Form 10-Q as required under Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (the “ITRSHRA”). Disclosure is generally required even if the activities were conducted outside the United States by non-U.S. entities in compliance with applicable law. During the quarter ended September 30, 2019,2020, we did not engage in any transactions with Iran or with persons or entities related to Iran.
Total Delaware, Inc. and TOTAL S.A. have beneficial ownership of approximately 19%14% of the outstanding Tellurian common stock. Total Delaware, Inc. has the right to designate for election one member of Tellurian’s boardBoard of directors, and Eric Festa is the current Total Delaware, Inc. designee.Directors. Total Delaware, Inc. will retain this right for so long as its percentage ownership of Tellurian voting stock is at least 10%. On March 20, 2019,2020, TOTAL S.A. included information in its Annual Report on Form 20-F for the year ended December 31, 20182019 (the “Total 20182019 Annual Report”) regarding activities during 20182019 that require disclosure under the ITRSHRA. The relevant disclosures were reproduced in Exhibit 99.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019,2020, filed with the SEC on May 8, 20194, 2020 and are incorporated by reference herein. We have no involvement in or control over such activities, and we have not independently verified or participated in the preparation of the disclosures made in the Total 20182019 Annual Report.
ITEM 6. EXHIBITS
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Exhibit No. | | Description |
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Exhibit No. | | Description |
10.1†† | | |
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1.1 | | |
10.2††4.1 | | |
LNG Sale4.2 | | |
10.1 | | |
10.3††*10.2 | | Change Order CO-002,Fourth Amendment to Credit and Guaranty Agreement, dated as of July 24, 2019,September 21, 2020, by and among Driftwood Holdings LP, as borrower, each of the guarantors party thereto, the lenders party thereto, and Wilmington Trust, National Association, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Driftwood LNG Phase 1 Liquefaction Facility, dated as of November 10, 2017, by and between Driftwood LNG LLC and Bechtel Oil, Gas and Chemicals, Inc.Company’s Current Report on Form 8-K filed on September 21, 2020) |
10.4††*31.1* | | |
10.5††* | | |
10.6* | | |
10.7* | | |
10.8†* | | |
10.9†* | | |
31.1* | | |
31.2* | | |
32.1** | | |
32.2** | | |
99.1 | | |
101.INS* | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019,2020, formatted in Inline XBRL |
| Filed herewith. | | | | |
** | FurnishedFiled herewith. |
†** | Furnished herewith. |
† | Management contract or compensatory plan or arrangement. |
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‡ | Portions ofCertain schedules or similar attachments to this exhibit have been omitted in accordance with Item 601(b)(10)601(a)(5) of Regulation S-K. The omitted information is not material and would likely cause competitive harmregistrant hereby agrees to furnish supplementally to the registrant if publicly disclosed.Securities and Exchange Commission upon request a copy of any omitted schedule or attachment to this exhibit. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | TELLURIAN INC. |
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Date: | November 6, 2020 | TELLURIAN INC.By: | /s/ Kian Granmayeh |
| | | Kian Granmayeh |
Date: | November 6, 2019 | By: | /s/ Antoine J. Lafargue |
| | | Antoine J. Lafargue |
| | | SeniorExecutive Vice President and& Chief Financial Officer |
| | | (as Principal Financial Officer) |
| | | Tellurian Inc. |
| | | |
Date: | November 6, 20192020 | By: | /s/ Khaled A. Sharafeldin |
| | | Khaled A. Sharafeldin |
| | | Chief Accounting Officer |
| | | (as Principal Accounting Officer) |
| | | Tellurian Inc. |